Why do some companies succeed while others fail?
Why do some companies succeed while others fail? And what role, if any, do managers play in positioning their companies to be successful?
These questions lie at the heart of strategic management. Recent times have brought about a shift away from the prior, dominant emphasis on macro-environmental and industry factors on profitability towards an additional focus on how internal factors such as companies’ brand, innovativeness, ability to delight customers, and execution determine whether they will out-compete their rivals and win the big prize.
Crafting and executing a strategy, however, is not easy since it requires managers to make sense of, and respond to, trends such as disruptive change, hyper-competition and dependence on a number of external stakeholders. A company’s strategy must also evolve and adapt to factors beyond one’s control, such as moves by competitors, changes in social preferences and changes in regulation.
In this short essay, we will identify some key learnings from modules on strategy taught at UCD Smurfit School of Business and discuss a few pitfalls made by executives in developing strategies for their companies. We will also identify a few best practices that can enhance the content of strategic decisions and the process through which these decisions are made.
Unwillingness to make trade-offs or clear choices
Although managers need to be explicit about how they intend to create value and win over customers, strategies of companies often lack focus and don’t make trade-offs.
At the most elementary level, managers need to answer the following questions: will we seek to win customers by competing on price? Or will we instead charge a premium price for quality, innovation, or customer experience? Or will we, perhaps, create a hybrid position of sorts that offers an optimal customer experience at a competitive enough price, albeit not necessarily the lowest price?
A company also needs to decide which products or services it wants to offer and consequently, which it doesn’t want to offer. Should its activities be conducted internally through vertical integration, whereby the company controls all stages of the process, or through contracts or partnerships?
Making trade-offs is the most difficult of all strategic tasks since it forces managers to make clear-cut decisions that allow focus, attention and discipline within a company. It also requires the prioritisation of a few opportunities or issues over others, and taking calculated risks.
Instead, most companies’ strategies tend to be cluttered with too many aspirations. They also tend to be a rehash of the prior year’s strategy, albeit with small and incremental shifts in budgetary allocations. This suggests a preference for the status quo and an unwillingness to make a few big bets that might prove beneficial in the future.
In a nutshell, making trade-offs is essential, as they allow a company to clearly identify what it will not do and enable it to focus on core areas where it can develop an enduring competitive advantage over its rivals.
Lacking agility and an entrepreneurial mindset
A common view of strategy is that of a static plan of action that details the competitive position which a company aims to occupy in the future. This view has been proven inadequate as industries have become more fast-changing and turbulent than ever, and the landscape is increasingly reshaped by disruptive technologies.
Once the sole domain of high-technology industries, disruptive trends are nowadays occurring also in industries that were otherwise considered relatively stable. Examples include AirBnB disrupting the hotel industry, Uber disrupting the taxi industry, and the rise in non-conventional forms of energy.
Consider also the impact of technology on the accountancy profession in terms of social media and harnessing the power of the cloud. The scale and pace of change implies that strategy needs to be permanently on the agenda since disruptive moves by competitors or disruptive changes in technology can make a company’s position untenable in the long-term.
They also require companies to manage the paradox of ensuring stability and sticking to the knitting on their areas of excellence while also being flexible and open to change. Managing this tension is, however, easier said than done and managers are increasingly called not only to be attentive planners and “resource allocators” but also bold advocates of corporate entrepreneurs who can spot and respond to emerging trends. In doing so, they may find it beneficial to adopt a more active view of strategy, which emphasises the benefits of rigorous and careful planning but also values the role of creativity and instinct in setting a future direction for the company.
Lack of differentiators from the competition
Identifying and focusing on what makes a company unique and different from the competition lies at the heart of value creation and success. Most companies instead spread themselves too thin and are unable to coherently describe and deliver on what sets them apart from their competitors.
In addition to identifying the core value proposition and core strengths a company can leverage, crafting a successful competitive strategy also requires companies to ensure that the elements of their value proposition are recognised by customers and lead to their patronage.
Simply doing what others are doing or adding services or features that aren’t valued are two practices that generally do not give organisations an edge over competitors.
To avoid this pitfall, take a market-back approach and identify the unmet needs and interests of customers, focusing only on areas that leverage one’s strengths. This will provide an opportunity to create and establish new niches of unmet demand, and sustain competitive advantage by developing capabilities that are difficult to replicate.
Misalignment between aspirations and behaviors
Managers often identify the lack of internal coherence within their companies as their primary challenge.
This misalignment largely occurs due to a mismatch between the stated aspirations of a company and its actual behaviours, a mismatch between strategic planning and execution, or more generally the presence of multiple initiatives that are not integrated towards a common corporate objective. Such misalignment tends to happen due to miscommunication, an inability to identify the implications of changing one activity on the remaining pieces of the puzzle, and – more often than not – organisational politics and rivalry between various personnel and departments.
Creating alignment requires companies to declutter the number of tasks and activities and emphasise cohesiveness. It also requires companies to set up clear processes and protocols that sustain attention once a decision has been made.
In Steven Kerr’s seminal article, ‘On the Folly of Rewarding A While Hoping for B’, he highlights how companies often set up reward systems that are misaligned with the expected behaviours. He argues that these disconnects lie at the heart of a lack of coordination, team-work and collaboration within a company.
Creating alignment therefore requires strong leadership and commitment from the top to ensure that norms and procedures are clear and unambiguously pursued.
Underemphasising the importance of execution
The former CEO of General Electric, Jack Welch, summarises the centrality of execution with the following words: “In real life, strategy is quite straightforward. You choose a general direction and implement like hell!” Far too often, companies tend to show a lack of commitment to an intended course of action and are in a permanent mode of planning and change when they might be better served by sharpening their tools and implementing their plan with vigour and unwavering belief.
Similarly, Stanford professors Bob Sutton and Jeffrey Pfeffer describe how the real difference between excellent companies and the rest of the bunch lies in differences in execution since most companies have access to similar information. Excellent companies are able to do lots of little things very well, consistently. They are obsessed with doing it right, every time. They pay inordinate attention to focusing on the “how things will get done” question and don’t second guess themselves once they make a decision to move ahead in a given direction. Success under approach is not only about doing the right things, but also about doing them right.
In summary, strategy is often described as a “wicked problem” with no clear answers due to the interconnected nature of various issues and unanticipated consequences of choices that make it hard to predict what will eventually lead to success. However, successful companies are able to avoid some of the pitfalls identified above given their ability to identify a clear competitive position by focusing on products and services that are valued by their customers. They also wholeheartedly invest their time, attention and resources in executing their ground-game, thereby being better positioned to be successful than their rivals.
Original Article from www.accountancyireland.ie