Strategic Management Simplified
What Every Manager Needs to Know About Strategy and How to Manage itBy Sidney L. BartoniUniverse, Inc.
Copyright © 2010 Dr. Sidney L. Barton
All right reserved.ISBN: 978-1-4401-9419-1Contents
Introduction................................................................................................ixChapter 1: Strategy Basics..................................................................................1Chapter 2: Supportive Policies and Managerial Environment...................................................11Chapter 3: Important Outcomes...............................................................................31Chapter 4: Specific Elements of a Strategic Statement (A Framework for Decision Making).....................53Chapter 5: A Simplified Strategic Management System.........................................................73Chapter 6: Real Examples....................................................................................78Epilogue....................................................................................................165Bibliography................................................................................................167About the Author............................................................................................171
Chapter One
Strategy Basics
The purpose of this chapter is to establish for the reader just how I view the concept of strategy. It will become apparent as you read through the manuscript that these basic elements provide a system of beliefs that are the foundation of the proposed approach to strategy found in the remainder of the book.
Definition
What exactly is "strategy"? There are lots of definitions, but my favorite was penned by Kenneth Andrews in 1980. He declared that "corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals (and) produces the principal policies and plans for achieving those goals ..."
The reason I like this definition so much is that it best represents what really happens as opposed to what theoretically should happen in organizations. In effect, it states that what are most important are one's actions (decisions) and not what one says their goals and strategy are. While strategy is normally thought of as being developed prospectively, the reality is that as our situation changes and moves, we intuitively react to attempt to best achieve our desires. Often (almost always) these reactions are not necessarily consistent with our initial point of departure. The result is that when articulating strategy, we retrospectively assess what we did in order to adequately and rationally explain it. In essence this definition recognizes the dynamic, ever-changing nature of strategy. In a parallel way, a person's career is very similar. Often we end up at the end of our working lives having experienced a very different career than we might have envisioned when starting. This is caused by the fact that individuals change, as does the environment they find themselves in. But in any event, at the end of our working lives, everyone has had a "career," whether planned or not. (This reality is often cited by skeptics of formal strategic planning as a good reason not to do it at all. The argument is that if a plan is going to change soon after it is developed, then why bother doing it in the first place. Chapter 2 addresses the reasons and value of such planning.)
As an example of this, the engineering company where I started my career began simply as a structural testing firm. The initial "strategy" was to utilize sophisticated testing equipment to identify complex mechanical problems and suggest solutions. Over time, computer capabilities allowed us to model mechanical structures and predict performance before prototypes were built to avoid field problems. Initially, the software we developed was primarily used to evaluate the structural modifications suggested by our testing. Instinctively, resources were committed to take advantage of these new capabilities and address an even bigger client need, design analysis. We then began offering these software capabilities to our clients for their own use. Very quickly, we became a computer software firm as well as a troubleshooting testing firm.
Further improvements in computer power and software capabilities eventually allowed the firm to commit resources to allow more efficient modeling of structures and more efficient analysis by ourselves and our clients. Eventually, the firm also developed project management software that allowed clients to collaborate on mechanical system design among multiple locations. None of these steps was envisioned a priori by management, but the current firm is a multi-billion- dollar enterprise that looks nothing like what was initially envisioned.
In retrospect, the "strategy" can easily be described. We started by understanding mechanical system behavior via testing. Through this testing capability we were able to develop and verify computer simulation software that allowed us to more efficiently develop fixes for the problems we identified. Once software was effective at simulating existing systems, the next logical step was to use it to evaluate designs of systems before they were built. To make the analysis software easier to use and faster, modeling software was developed. Finally, with the capability to simulate system performance at the drawing- board stage, software to allow multiple designers to collaborate in product development provided even more convenience and usability.
The point of this example is that our technology and client needs changed significantly through time. Decisions were made along the way that took advantage of these changes, and thus the "strategy" changed. This example will be referred to often in the rest of the book, as it will allow me to make important points along the way.
Utilizing this definition and its implications, coupled with my own experiences in developing strategy over the years, the remainder of this chapter lists what I call "words of wisdom" related to strategic management. These are a few things about strategic management that need to be understood to provide a solid foundation for the process later developed. They represent a set of beliefs and a philosophy that permeate the remainder of the book.
Actions Equal Strategy
I recall a meeting many years ago where I was instructing a large group of managers on strategy concepts. After discussing the above definition of strategy, I asked the managers to state the single most important goal of the firm. Without hesitation, the assembled group shouted out "quality," as if orchestrated by some unseen conductor. The unanimity of the response was impressive (as I will discuss later); however, I followed up the question with a scenario designed to validate the group's initial response.
The company in this example manufactured very large mechanical systems that individually were worth millions of dollars. The scenario posited was as follows. It is near midnight on December 31 of a particular year. The firm's fiscal year is the calendar year, so this is the last day of the year. On the plant floor sits a huge system ready to ship to a valued client. If the system can be shipped out before midnight, the firm will make their yearly sales and profit goals. If it cannot be shipped and invoiced, the firm will fall short of these goals. Unfortunately, a significant problem has been identified with the machine. It is clearly not up to the quality standards of the firm and cannot be fixed by midnight. What will happen? Will the firm ship the system or wait until it meets the firm's quality standards, thus validating the stated preeminent goal?
For the longest time, there was total silence from the group. Finally, one brave soul in the rear of the room yelled, "We would ship it, but we would fix it in the field!" Laughter ensued, but the point was made. Quality was obviously important to the firm, but not as important as sales and profit.
The point of this example is not to say that sales and profit are not reasonable or appropriate goals. But what it does suggest is that what is most revealing about strategy are the choices we make when confronted with alternative courses of action. These choices, taken together, clearly reveal what we want and how we want to obtain it.
In another example, while assisting a software firm in deciding which operating system they should use for future development, the following took place: I inquired of the software manager what the best operating system would be for their product line. He responded that he felt that operating system "X" represented the future. I then asked him how many software engineers he had and how many were assigned to system "X" and how many to the current system, "Y." After some review of assignments, the answer was that of the 125 engineers assigned to software development, 25 were assigned to "X" and 100 were assigned to "Y." Obviously, while he may have felt intellectually that he was moving his product to the new system, he actually was favoring continued development on the current system. This realization caused the manager to totally reassess his "strategy" but this time based on what he was doing versus what he thought he was doing.
Every Organization Has a Strategy
Another important aspect of this definition is that even if a specific strategy is never formally written or articulated by the top management, the firm has a strategy. Obviously, decisions get made every day as to what to do and how to do it; thus the pattern of these decisions clearly "reveals the goals and means to achieve them." The question then becomes, "Does a formalized strategic management process really make a difference in firm results?" Research overwhelmingly says that it does make a significant, positive difference.
While this result should encourage you to actively pursue formalized strategic management, the research does not discriminate among various types or degrees of sophistication of the processes employed. Obviously, the more effective and efficient the process, the better the results one should expect. Unfortunately, formal strategic management by itself does not guarantee success but merely that you are better off with it than without it.
When It each strategic management to students or executives, I often use the analogy of a boat. Some firms are like large ocean-going vessels that have difficulty turning around in a short time or distance. Other, smaller firms may be much more mobile than the big boats but can be capsized if they get in the big boat's wake. In any event, if your boat has lots of holes, is old, or sails in rough waters, the best strategic management may do is to keep you afloat a bit longer than if you did no planning. The problem for most of us is that once we are on a singular type of boat for a while, it is very difficult to change to another type of boat. Thus we had better do the best we can in the boat we find ourselves.
Therefore, a formalized process of strategic management does indeed improve a firm's chance of success, but it cannot guarantee it.
Strategy Is Based on Critical Assumptions of the Strategist
Because strategy plays out in the form of resource allocation decisions, the clear implication is that individuals make these decisions. Further, since individuals are limited by "bounded rationality" (i.e., they cannot realistically have all the facts they need to make a decision), they must often make these decisions with less than complete information.
A very personal example of this occurred for me while I was vice president of sales and marketing for the previously mentioned engineering consulting and software firm. At one point in the firm's history, the chairman and founder of the firm believed strongly that our firm should set up service centers across the country so that our customers could better utilize our software and consulting services. He made the decision based on an assumption of client need. No formal market research information was sought out to validate the basic premise of the decision. The only information came from the intuition of the CEO based on his own experiences and observations. Unfortunately, the assumption proved false. The company came close to bankruptcy, and the CEO eventually was forced out of the company he had created.
One possible lesson learned from this experience is that appropriate market research would have kept this error from occurring. However, market research is not necessarily the "magic bullet" that would solve this problem. It does not guarantee that the basic underlying assumption relevant for a strategic decision will be discovered or even maintained over time.
An example of just such a situation is the decision of Levi Strauss to enter the men's suit portion of the clothing market. This story was told as part of a management teaching video that I used several years ago in one of my strategy classes. The video featured actual Levi Strauss management personnel in action.
The rationale to explore this potential market was that Levi Strauss had a very recognizable and positive brand image with young males based on their casual jeans. The idea was to utilize that brand equity to move into the formal-attire portion of the market. The brand manager for the product theorized that Levi could utilize their existing distribution system (generally retail department stores) to effectively go after this market.
As a member of a large and sophisticated firm, the brand manager had some prototypes of the suits developed and proceeded to have professionally run focus groups evaluate the idea. A video record of what transpired was made, not only of the focus groups but also of the brand manager's reaction to the focus groups as he stood behind a one-way mirror. The result was highly revealing of the power and importance of the mind of the strategist.
The focus group participants, as one would suppose, were selected based on the demographics representative of the target market identified by the brand manager. They were presented with the idea of Levi Strauss selling men's suits through department stores. The fundamental question posed to these young men was "Would you buy these products in a department store?" The reaction was universally negative. Various individuals stated that they did not purchase suits in department stores but rather at boutiques and specialty stores. They also could not relate to buying a formal suit from a company known for making jeans.
Based on this reaction, a logical presumption would be that the brand manager would conclude that his assumptions were not valid and shut down the project. However, that was not the reaction at all. The video records that the brand manager, talking to his assistant during these focus groups, stated that these people were not telling the truth. He rationalized they were young men trying to impress the other young men in the groups and were embarrassed to admit that they actually would buy a Levi suit in a department store.
As amazing as this seems, despite this universal bad feedback, Levi went ahead with the project. As you might guess, it was an abject failure.
These two very different examples illustrate two important points about strategy. First, decisions get made based on assumptions of causal relationships. In other words, resources are committed based on what we think the result of those decisions will be. In the case of my CEO, he clearly believed that clients of our firm would want and need to access our products and services at a service center near their firm's location. The Levi's product manager clearly believed that young men would buy Levi suits in department stores because of the convenience and price. Unfortunately for both men and their firms, these assumptions were proven false in the harsh reality of the marketplace.
Second, because humans make decisions, these decisions are subject to human psychology and limitations. The two examples illustrate this point, but there are countless other examples that are well chronicled throughout history. Recall Hitler's fatal mistake to not commit enough Panzer divisions to counter the Allied invasion on D-day. This decision has been validated as being based on his belief (assumption) that this was merely an Allied diversion and not the real Allied invasion force. Couple this with his maniacal egotism, and we see how critical and key human cognitive attributes are to strategic decision making.
Thus, strategy is based on critical assumptions of individuals and the limitations of human beings to understand and interpret them.
Summary
The points outlined in this chapter are intended to establish the strategy concept and some important attributes from my own perspective. The next chapter describes management policies, practices, and style that have been shown to be important for successful strategy formulation and implementation.
Chapter Two
Supportive Policies and Managerial Environment
Academic research, combined with my own experience, has revealed a few organizational characteristics and managerial approaches that have been shown to be important to maximizing the success of any strategy or strategic management system. The following sections explain these points and provide real- life examples of their implementation.
No "Sacred Cows"
Because objective reality is a critical aspect of effective strategy, no issue or topic can be off-limits to analysis or discussion. This is akin to the classic "emperor without clothes" story we are all familiar with. Unfortunately, many times in businesses or organizations the leader has one or more sensitive topics that are just "off-limits" to discussion. In family businesses, the topic may be the lack of capability of a family member in the firm. Or it could be that a product or service is not performing well but top management insists that the poor results are caused by the lack of effort or skill of the sales force and not the lack of customer interest in the fundamental product or service.
Recall the story of my boss from chapter 1, the CEO of the engineering firm who committed significant resources of the firm to deploy physical service centers across the country based on an incorrect assumption. As the chief sales and marketing executive for the firm, I had the assignment of promoting this concept through our client base and the sales force. After a time, the feedback from our clients and sales force was unanimous. The clients were not ready for this service and could not see value in it. Consequently, we were not generating any sales. When I reported this to the chairman, his reaction was that we were not properly convincing the client of the inherent value of the service. In other words, we were not working smart or hard enough.
(Continues...)
Excerpted from Strategic Management Simplifiedby Sidney L. Barton Copyright © 2010 by Dr. Sidney L. Barton. Excerpted by permission.
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