Strategy is necessary to make a firm competitive. This ignorance is dangerous in the fiercely competitive
world of business today. There is no other way to create wealth for shareholders and society. It is an absolute imperative for survival. It is, therefore, even harder to understand why managers responsible for the health of the corporation carry erroneous notions about it.
Most managers learn on the job. Their lack of understanding of strategy often reflects the leadership's discomfort with abstract concepts. It is a manifestation of their preference for the tangible and the specific. Quite often it is conditioned by their preoccupation with results and action. They lead to errors in what managers come to believe is strategy. There are five common misconceptions. They arise from mixing strategies with results, action, scale, operational efficiencies and risk mitigation. Let us see how each one clouds a manager's vision.
1. Confusing Strategy with Outcome.
A common error is confusing ends with means. It leads to strategies that read so: ‘our strategy will be to become the most admired company in our industry'; or, ‘to become a leader' in it. It may be stated as grow at a compounded annual growth rate of 15%; achieve revenue of 100 billion, increase market share or profitability to X%, and so on. These are not strategies. They are consequences. They are outcomes of competitiveness resulting from effective strategies.
A firm's turnover, market share or reputation grows when customers prefer to do business with them. Customers become predisposed to buy the company's products when they perceive greater or more unique value for the price they pay. To deliver greater value to customers the company must develop a game plan and execute is successfully.
The manner in which the firm gains the favour of customers is business strategy , also called competitive strategy . One company may do so by designing stylish products that are affordable, as Swatch does. Another might sell a functional detergent at a low price, like Nirma. Yet another may succeed hugely by combining superb quality at very attractive low prices. India is the best example of this strategy in providing offshore IT services to the world.
Each of them has used strategy to achieve desired ends - revenue, growth, profitability and reputation. In each case strategy has helped them give customers a compelling reason to buy their products or services. Means were crafted to reach where they wanted to go. The goal is not strategy.
2. The Fallacy of Action.
Action is confused with strategy. This is perhaps the most common error. Managers tend to answer the question ‘How shall we achieve growth?' by offering a number of alternative actions. Let's enter new markets. Or, train sales engineers to sell better. Increase the number of calls sales people make. Introduce new products. Do something......anything!
Most industrial societies profess action orientation. The West drew it's inspiration from the Protestant work ethic. In other cultures, India for instance, business is greatly influenced if not shaped by western practices. Managers who are pragmatic, quick off the starting block & get things done are praised. Those who think are considered lazy. Action orientation is good for one's career. Recruiters actively look for such people. Hardly anyone hires ‘people who think'. Is it any wonder that strategy meetings lead to divergent ideas with nothing in common among them? The process is given the respectable name ‘brain storming'.
Strategists ask three questions: Where, How and What. ‘Where' leads to the destination, the end they seek. Answers to ‘How' are the domain of strategy. They provide clues to the means by which the desired result may be achieved. ‘How' does not tell them what to do. It merely suggests the direction and the manner in which the goal may be accomplished.
‘What' prescribes activities that must be performed to achieve the stated goal by the means identified in strategy. Actions must flow from strategy if they are to remain consistent over time. Managers should be able to inventively use resources - cash, people, assets, etc. - to execute strategy. The activities that use these resources are the realm of tactics. They are not strategy.
It is true that our experience tells us which actions might succeed and which might not. They help us craft viable strategies. In that sense, strategy is the outcome of knowledge gained from past action. But it is the insight gained from activity, and not the activity itself, that helps us formulate strategy.
Tactics and strategy go hand in hand. Action is necessary to bring strategy to fruition. But without a game plan action, no matter how diligent, will not lead to the desired goal except by chance. Sun Tzu, the Chinese philosopher, put it perfectly, "Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat."
To be continued in the next issue.....
Mr. V.N. Bhattacharya is a management consultant on business and corporate strategy. Feedback can be mailed to firstname.lastname@example.org
Issue BG59 Feb06