1
Good vs Bad Strategies
Strategies
are developed to achieve Goals. It is
not known at the outset whether the goal is an achievable goal or just a pie in
the sky wishful thinking. Knowledge
about the hallmarks of good and bad strategies would allow us to steer clear of
bad strategies from the outset. Strategy
development is very context dependent but the general principles of good
strategies still apply. The corporate
world in general is littered with companies that have pursued both good and bad
strategies to further their businesses, and have led either to their success or
demise. The discussion on good
strategies vs bad strategies will give some grounding for the formulation of
workable good strategies. The document
is organized into three broad sections – Hallmarks of Bad Strategies, Underpinnings
of Good Strategies, Strategic tools in use to analyse businesses. The discussion on the Good vs Bad strategies
and the Strategic tools have generously borrowed content from two books: “Good
Strategy, Bad Strategy, The Difference and Why it matters” by Richard Rumelt
and “Lords of Strategy” by Walter Kiechel.
I am not delivering any new content but just summarizing content from
these books and summaries are sometimes useful as a quick guide. I would recommend readers to go through these
two books if they find the summaries interesting.
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Hallmarks of Bad Strategies
Bad strategy is not the same thing as no strategy or strategy
that fails rather than succeeds. Rather,
it is an identifiable way of thinking and writing about strategy that has,
unfortunately, been gaining ground. Bad
strategy is long on goals and short on policy or action. It assumes that goals are all you need. It puts forward strategic objectives that are
incoherent and, sometimes, totally impracticable. It uses high-sounding words and phrases to
hide these failings. The key hallmarks
of bad strategy are:
a) Fluff – it uses inflated, abstruse
words and apparently esoteric concepts to create the illusion of high-level
thinking.
b) Failure to face the challenge – Bad
strategy fails to recognize or define the challenge. When you cannot define the challenge, you
cannot evaluate a strategy or improve it.
If you fail to identify and analyze the obstacles, you don’t have a
strategy. Instead, you have either a
stretch goal, a budget, or a list of things you wish would happen.
c) Mistaking goals for strategy – Many
bad strategies are just statements of desire rather than plans for overcoming
obstacles. Business competition is not
just a battle of strengths and wills; it is also a competition over insights
and competencies. There is nothing wrong
with planning. It is an essential part
of management. One can call these annual
exercises “strategic planning” if you like but they are not strategy. They cannot deliver what senior managers
want: a pathway to substantially higher performance.
d) Bad strategic objectives – Strategic
objectives are “bad” when they fail to address critical issues or when they are
impracticable. Good strategy works by
focusing energy and resources on one, or a very few, pivotal objectives whose
accomplishment will lead to a cascade of favorable outcomes. The objectives of a good strategy set should
stand a chance of being accomplished, given existing resources and
competence.
A long list of “things to do”, often
mislabeled as “strategies” or “objectives”, is not a strategy. It is just a list of things to do. Such lists usually grow out of planning
meetings in which a wide variety of stakeholders make suggestions as to things
they would like to see done. Since it is
a dog’s dinner, the label “long-term” is added so that none of them need be
done today. When a company characterizes
the challenge as underperformance, it sets the stage for bad strategy. Underperformance is a result. The true challenges are the reasons for the
underperformance. There is also this
general idea that leadership teams must share common beliefs and values. This is now a frequent demand in business and
education circles. One would hope that
the experience of North Korea would have cured people of the idea that forcing
everyone to believe in and value the same things is the road to high
performance. Yet, this impossible state
of affairs is continually sought as the path to “transformational change”.
3
Why so much Bad Strategy
Many people assume that a strategy is a big picture overall
direction, divorced from any specific action.
But defining strategy as broad concepts, thereby leaving out action,
creates a wide chasm between “strategy” and “implementation”. If you accept this chasm, most strategy work
becomes wheel spinning. A good strategy
includes a set of coherent actions. They
are not “implementation” details; they are the punch in the strategy. A strategy that fails to define a variety of
plausible and feasible immediate actions is missing a critical component. When the “strategy” process is basically a
game of setting performance goals – so much market share and so much profit, so
many tons mined or sold – then there remains a yawning gap between these
ambitions and action. Strategy is about
how an organization will move forward.
Doing strategy is figuring out how to advance the organization’s
interests. Of course, a leader can set
goals and delegate to others the job of figuring out what to do. But that is not strategy. It is just goal setting.
4
Hallmarks of Good Strategy
The Jack Welch quote about “reaching for what appears to be
the impossible” is fairly standard motivational fare, available from literally
hundreds of motivational speakers, books, calendars, memo pads and
websites. Believing that rays come out
of your head and can change the physical world, and that by thinking only of
success you can become a success, are forms of psychosis and cannot be
recommended as approaches to management or strategy. Its acceptance displaces critical thinking
and good strategy.
4.1
Kernel of a Strategy
Good strategy is coherent action backed up by an argument, an
effective mixture of thought and action with a basic underlying structure that
could be called the kernel. The kernel of a strategy contains three elements:
- A diagnosis that defines or explains the nature of the
challenge. A good diagnosis
simplified the often overwhelming complexity of reality by identifying
certain aspects of the situation as critical.
- A guiding policy for dealing with the challenge. This is an overall approach chosen to
cope with or overcome the obstacles identified in the diagnosis. Like the guardrails on a highway, the
guiding policy directs and constrains action without fully defining its
content. They are not goals or
visions or images of desirable end states.
Rather, they define a method of grappling with the situation and
ruling out a vast array of possible actions.
- A set of coherent actions that are designed to carry out the guiding
policy. These are steps that are
coordinated with one another to work together in accomplishing the guiding
policy.
The kernel is the bare-bones center of a strategy – the hard
nut at the core of the concept. It
leaves out visions, hierarchies of goals and objectives, references to time
span or scope, and ideas about adaptation and change. All of these are supporting players. A great deal of strategy work is trying to
figure out what is going on. In
business, most deep strategic changes are brought about by a change in
diagnosis – a change in the definition of the company’s situation. Good strategy is not just “what” you are
trying to do. It is also “why” and “how”
you are doing it. It is easy to say that
you should take actions that maximize profit.
It is a technically correct but useless piece of advice. Even in a corner grocery store, there are
hundreds or thousands of possible adjustments one can make, and millions in a
business of any size- the complexity of the situation can be overwhelming.
The core of strategy work is always the same: discovering the
critical factors in a situation and designing a way of coordinating and
focusing actions to deal with those factors.
It is to identify the biggest challenges to forward progress and
devising a coherent approach to overcoming them. A good strategy does more than urge us forward
toward a goal or vision. A good strategy
honestly acknowledges the challenges being faced and provides an approach to
overcoming them. And greater the
challenge, the more a good strategy focuses and coordinates efforts to achieve
a powerful competitive punch or problem-solving effect. Unlike a stand-alone decision or a goal, a
strategy is a coherent set of analyses, concepts, policies, arguments, and
actions that respond to a high-stakes challenge. Just as you do not need to be a director to
detect a bad movie, you do not need economics, finance, or any other abstruse
special knowledge to distinguish between good and bad strategy.
4.2
Scarcity’s child
Strategy is scarcity’s child and to have a strategy, rather
than vague assumptions, is to choose one path and eschew others. There is difficult psychological, political,
and organizational work in saying “no” to whole worlds of hopes, dreams, and
aspirations. Any coherent strategy
pushes resources towards some ends and away from others. These are the inevitable consequences of
scarcity and change. Yet this channeling
of resources away from traditional uses is fraught with pain and
difficulty. Serious strategy work may
not take place until the wolf is at the door – because good strategy is hard
work. A change in strategy will make
some people worse off. When
organizations evade the work of choosing among different paths into the future,
you get vague mom-and-apple-pie goals that everyone can agree on.
4.3
Focus
At the core, strategy is about focus, and most complex
organizations don’t focus their resources.
Instead, they pursue multiple goals at once, not concentrating enough
resources to achieve a breakthrough in any of them. The particular pattern – attacking a segment
of the market with a business system supplying more value to that segment than
the other players can – is called focus.
Here the word “focus” has two meanings.
First, it denotes the coordination of policies that produces extra power
through their interacting and overlapping effects. Second, it denotes the application of that
power to the right target. A
concentration and coordination of action and resources that creates an
advantage.
Strategy is primarily about deciding what is truly important
and focusing resources and actions on that objective. It is a hard discipline because focusing on
one thing slights another. A strategy
coordinates action to address a specific challenge. It is not defined by the pay grade of the
person authorizing the action. Good
strategy and good organization lies in specializing on the right activities and
imposing only the essential amount of coordination.
To concentrate on an objective – to make it a priority –
necessarily assumes that many other important things will be taken care
of. The company must have mastered the
basics of “flying’ the business.
4.4
Not just a choice
It is often said that a strategy is a choice or a
decision. The words “choice” and
“decision” evoke an image of someone considering a list of alternatives and
then selecting one of them. The problem
with this view, and the reason it barely lightens a leader’s burden, is that
you are rarely handed a clear set of alternatives. Many effective strategies are more designs
than decisions – are more constructed than chosen. In these cases, doing strategy is more like
designing a high-performance aircraft than deciding which forklift truck to buy
or how large to build a new factory.
When someone says “Managers are decision makers”, they are not talking
about master strategists, for a master strategist is a designer. In design problems, where various elements
must be arranged, adjusted, and coordinated, there can be sharply peaked gains
to getting combinations right and sharp costs to getting them wrong. A good strategy coordinates policies across
activities to focus the competitive punch.
The greater the challenge, the greater the need for a good, coherent,
design-type strategy.
4.5
Current results vs Current actions
A very powerful resource position produces profit without
great effort, and it is human nature that the easy life breeds laxity. It is also human nature to associate current
profit with recent actions, even though it should be plenty evident that
current plenty is the harvest of planting seasons long past. When the profits roll in, leaders will point
to their every action with pride. Books
will be written recommending that others immediately adopt the successful
firm’s dress code, its vacation policy, its suggestion-box policies, and its
method of allocating parking spaces. Of
course, these connections are specious.
Were there such simple, direct connections between current actions and
current results, strategy would be a lot easier. It would also be a lot less interesting, for
it is the disconnect between current results and current action that makes the
analysis of the sources of success so hard and, ultimately, so rewarding. Success leads to laxity and bloat, and these
lead to decline. Few organizations avoid
this tragic arc. Good strategy is
design, and design is about fitting various pieces together so they work as a
coherent whole.
4.6
Value not same as Growth
The proposition that growth itself creates value is so deeply
entrenched in the rhetoric of business that it has become an article of almost
unquestioned faith that growth is a good thing.
In a decentralized company, making acquisitions is a lot more fun than
reading reports on divisional performance.
You don’t need to own a cattle ranch to get fertilizer for your rose
garden and you don’t need a multibillion dollar merger to get something. A contract will suffice. Healthy growth is not engineered. It is the outcome of growing demand for special
capabilities or of expanded or extended capabilities. It is the outcome of a firm having superior
products and skills. It is the reward
for successful innovation, cleverness, efficiency, and creativity. This kind of growth is not just an industry
phenomenon. It normally shows up as a
gain in market share that is simultaneous with a superior rate of profit.
You must press where you have advantages and side-step
situations in which you do not. You must
exploit your rivals’ weaknesses and avoid leading with your own. Increasing value requires a strategy for
progress on at least one of four different fronts:
- Deepening advantages
- Broadening the extent of advantages
- Creating higher demand for advantaged products or services, or
- Strengthening the isolating mechanisms that block easy replication
and imitation by competitors.
Let’s start defining advantage in terms of surplus – the gap
between buyer value and cost. Deepening
an advantage means widening the gap by either increasing value to buyers,
reducing costs, or both. First management
may mistakenly believe that improvement is a “natural” process or that it can
be accomplished by pressure or incentives alone. As Frank Gilberth pointed out in 1909,
bricklayers had been laying bricks for thousands of years with essentially no
improvement in tools and technique. By
carefully studying the process, Gilberth was able to more than double
productivity without increasing anyone’s workload. By moving the supply pallets of brick and
mortar to chest height, hundreds or thousands of separate lifting movements per
day by each bricklayer was avoided. By
using a movable scaffold, skilled masons did not have to waste time carrying
bricks up ladders. By making sure that
mortar was the right consistency, masons could set and level a brick with a
simple press of the hand instead of the time-honored multiple taps with a trowel. Gilberth’s lesson, still fresh today, is that
incentives alone are not enough. One
must reexamine each aspect of produce and process, casting aside the
comfortable assumption that everyone knows what they are doing. Whatever it is called (reengineering or
business-process transformation), the underlying principle is that improvements
come from reexamining the details of how work is done, not just from cost
controls or incentives.
4.7
The future has already happened
The challenge is not forecasting but understanding the past
and the present. Out of the myriad
shifts and adjustments that occur each year, some are clues to the presence of
substantial wave of change and, once assembled into a pattern, point to the fundamental
forces at work. The evidence lies in
plain sight, waiting for you to read its deeper meaning. When change occurs, most people focus on the
main effects – the spurts in growth of new products and falling demand for
others. You must dig beneath the surface
reality to understand the forces underlying the main effect and develop a point
of view about the second-order and derivative changes that have been set into
motion. The second-order effect of the
advent of television was the rise of independent film production.
4.8
Choices have Costs
The concept of cost is tricky. People talk as if products have costs, but
that is shorthand easily leading to confusion.
Choices, not products, have costs.
The cost of choosing to make one more unit of a product is called a
marginal, or variable cost. The cost
(per unit) of choosing to produce at a fixed for a year is called average
cost. The cost per unit of choosing to
build a plant and produce at a fixed rate is called long-run average cost. The cost of filling a rush or a special order
has no particular name, but it clearly exists.
There really is no such thing as the single correct “cost” of a
product. It all depends on the decision
– on what is being compared to what.
5
Strategy is a Hypothesis
At an engineering meeting, an experienced engineering
manager, who speaks for several others, says “this strategy stuff is
nonsense. Give me a break! There is no clear theory. Look, what we need is a way of knowing what
will happen if we do A, versus what will happen if we do B. Then we can work out what will be the best
strategy. We are actually very good at
planning here. You can’t build a major
engineering project without meticulous planning. But this strategy stuff seems vacuous.”
A good business strategy deals with the edge between the known
and the unknown. Again, it is the
competition with others that pushes us to edges of knowledge. Only there are found the opportunities to
keep ahead of rivals. There is no
avoiding it. Given that we are working
on the edge, asking for a strategy that is guaranteed to work is like asking as
scientist for a hypothesis that is guaranteed to be true – it is a dumb
request. A good strategy is, in the end,
a hypothesis about what will work. Not a
wild theory, but an educated judgement.
Strategy is not an exercise in crank winding. There is no “logical machine” that could be
used to deduce business plans – a system for generating forecasts and
actions. In a changing world, a good
strategy must have an entrepreneurial component. That is, it must embody some ideas or
insights into new combinations of resources for dealing with new risks and
opportunities. To generate a strategy,
one must put aside the comfort and security of pure deduction and launch into
the murkier waters of induction, analogy, judgment, and insight.
A strategy is, like a scientific hypothesis, an educated
prediction of how the world works. The
ultimate worth of a strategy is determined by the success, not its
acceptability to a council of philosophers or a board of editors. Good strategy work is necessarily empirical
and pragmatic. Especially in business,
whatever grand notions a person may have about the products and services the
world might need, or about human behavior, or about how organizations should be
managed, what does not actually “work” cannot long survive.
5.1
Our own Myopia
To expect to make money from a new business, the entrepreneur
should know something that others do not, or have control of a scarce and
valuable resource. Integration is not
always a good idea. Today we are offered
a bewildering variety of tools and concepts to aid in analysis and the
construction of strategies. Each of
these tools envisions the challenge slightly differently. For some, it is recognizing advantage; for
others it is understanding industry structure.
For some it is identifying important trends; for others it is erecting
barriers to imitation. Yet, there is a
more fundamental challenge common to all contexts. That is the challenge of working around one’s
own cognitive limitations and biases – one’s own myopia. Our own myopia is the obstacle common to all
strategic situations.
Being strategic is being less myopic – less shortsighted –
than others. You must perceive and take
into account what others do not, be they colleagues or rivals. Being less myopic is not the same as
pretending you can see the future. You
must work with the facts on the ground, not the vague outlines of the distant
future. Whether it is insight into
industry structures and trends, anticipating the actions and reactions of
competitors, insight into your own competencies and resources, or stretching
your own thinking to cover more of the bases and resist your own biases, being
“strategic” largely means being less myopic than your undeliberative self. You will need to have the ability to think
about your own thinking, to make judgements about your own judgements.
5.2
Knowledge is necessary but not sufficient
In strategy work, knowledge is necessary but not
sufficient. There are many people with
deep knowledge or experience who are poor at strategy. Good strategies are usually “corner
solutions”. That is, they emphasize
focus over compromise. They focus on one
aspect of the situation, not trying to be all things to all people.
6
Strategy Tools from the Past and Present
A lot of Strategy tools have been developed in the last 60
years to aid in the analyses of businesses and help frame better
strategies. These strategy tools have
brought new ideas onto the table to understand businesses and help businesses
to react to the ever-looming competitive threats and technology shifts. Some of the important strategy tools will be
listed here for use as reference in the later parts of the document. Understanding and framing strategy requires
getting beyond some common beliefs. The
first is that at bottom, ideas don’t really matter that much in business. To be sure, skeptics admit, an idea for a
great new product can make a huge difference, for a mass-produced automobile,
say, or a personal computer. But ideas
for how to think about a business, or analyze its dynamics?
Those of little faith in this regard don’t usually state
their view flat out. What they say
instead is, “Business is mostly a matter of common sense”. Or, “You can have the best idea in the world,
but if you can’t execute…”(Action trumps cerebration every time,
supposedly).
6.1
Experience Curve
The Experience (or Learning) Curve – the more you produced,
the lower your costs tend to be. With
each doubling of experience, costs and prices should decline by a predictable
amount, typically between 15 and 20 percent.
Greater experience enabled a company to get the most from all the
elements that made the curve work: scale effects, rationalization of costs,
redesign, and technology improvements from research and development. The experience curve has been applied to a
lot of industries: in chemicals, transistors, appliances, crude oil, facial
tissue, and Japanese beer. It doesn’t
necessarily apply to every industry but is powerful tool when it can be
applied. The essential insight from this
curve was heartening or terrifying, depending on the how your company was
situated in the industry. This would
indicate that the market-share leader should be the low-cost producer in that
industry. It could charge less for its
products, continue to outsell the opposition, and maintain a cost and price
advantage over them interminably.
Companies in the past have used the insights from this experience curve
effect to their advantage.
This growth share matrix was helpful for companies to
understand their portfolio of businesses.
Star businesses should be defended, funded sufficiently that their growth
kept up with overall market growth, so that when market growth slowed, they
maintained their high share. Cash cows,
with their high share of low-growth markets, needed to be disciplined, their
milk mostly channeled off to fund better opportunities – stars or question
marks- and the calls of their managers for extra investment resisted (a bit of
prudent reinvestment in the businesses might be okay, though, particularly if
it led to continued cost reductions).
Question marks might represent bright prospects for the company, but to
gain share, they would probably have to be funded aggressively. The mistake too many companies make is to put
money into all their question-mark businesses, meaning that none got sufficient
investment. Pick the best of the lot,
give their managers the cash to grow, but do not expect profits in the short
haul. As to dogs, alas! With their low shares of low-growth markets,
they represented perfect examples of cash traps. You might squeeze them for whatever meager
cash they threw off, or used them to try to block the moves of a
competitor. But they also constitute
promising candidates for divestiture.
Sell them off (possibly in a leveraged buyout to its management), and
invest the proceeds in your better businesses.
6.3
The
Stages of Planning Graph – McKinsey
The first, primitive phase
consisted of mere financial planning.
Here planning was “viewed as a financial problem” and consisted of
little more than the annual budgeting exercise.
The second, Neanderthal phase was forecast based planning. The planners on the corporate staff recognize
they need to look further ahead and begin to employ “more sophisticated
forecasting tools – trend analysis, regression models, and finally simulation
models.” It is here that, for the first
time, “a creative spark stirs the imagination of the planners, and the first
true strategic planning is born”. The
clouds part, and the planners “suddenly realize that their responsibility is
not so much to chart the future,” which is tough to do, “as it is to lay out
for management decision the key issues that face the company.” Mckinsey labels this spark “issue
orientation”.
The third phase, externally
oriented planning, represented “a great leap forward” in a company’s planning
capability (with no apologies to Chairman Mao).
What most distinguished planning at this Cro-Magnon stage was that it
began with a “thorough situation analysis of the business environment, the
competitive situation, and competitive strategies.” There was a downside, however. If you truly got the phase three magic
working, the planners were likely to “present not one recommended course of
action of management, but several”. This
made it “a very uncomfortable phase for top management”. People lower down in the organization, not
just planners but managers as well, would be making decisions, even strategic
ones, without the participation of those at the top of the hierarchy.
Happily, there was an answer
to the dreadful tension that could arise from such topsy-turviness: the company
need only ascend into phase four: full Homo Sapiens status, where it would
practice strategic management. Strategic
management welds strategic planning and management into a single process. The ability to think strategically is widely
distributed throughout the company. The
planning process entails “ a negotiation of objectives based on reasonable
alternatives.”
6.4
Porters
Five forces Framework
The framework posited five
factors essential to determining how profitable an industry could be for its
players and where and how within it a company might have room to compete. At the center of a diagram of the forces was
the competitive rivalry between “firms”.
Arrayed around this rivalry and helping determine its intensity were the
other forces: the bargaining power of suppliers, the bargaining power of
buyers, the threat of new entrants, and the threat of substitute
offerings.
6.5
Mckinsey’s
7-S framework
The 7-S framework was developed by Peters and Watermann and
illustrated in their best-selling book ‘In search of Excellence’. It was used to illustrate the defining
qualities of excellent companies in the USA.
The complete list comprises a bias for action; closeness to the
customer; autonomy and entrepreneurship; productivity through people; a
hands-on, value-driven emphasis; stick-to-the-knitting persistence; simple
form, lean staff; and simultaneous loose-tight properties.
6.6
BCG’s
competitive environments matrix
The vertical dimension
measures the number of approaches a participant could use to achieve advantage
in an industry, from few to many. The
horizontal records the size of the advantage that can be achieved, from small
to large. The lower right-hand quadrant,
where the advantage can be large but the ways to gain it few, represents volume
industries, those in which gaining “experience” and driving down the curve is
still likely to work as a strategy.
Automobiles should be an example.
In the upper right-hand quadrant, the province of specialization,
companies can succeed by tailoring their products more precisely to a particular
customer segment’s needs, and thrive even in they aren’t the largest in the
business. Think cosmetics.
Either quadrant on the right
of the matrix is preferable to the two on the left. Much of the paper business would fall in the
dismal lower-left quadrant, where stalemate presided. In this sector, many competitors reached the
requisite economies of scale and nobody made much money. Fragmented environments were slightly better;
you could seek competitive cover in a variety of ways, but none afforded much
success. Restaurants were traditionally
a fragmented industry, at least before McDonald’s turned the low-end stratum
into a volume affair.
6.7
McKinsey’s
Business system
The Business system framework identified all the elements
that made up the “product delivery system”, that is, each component and step
that went into making a product and finally getting it to the customer. As the McKinsey consultants outlined it, the
business-system framework offered a step-by-step procedure for conducting the analysis
required for making a strategy. First,
you isolate the costs for each element in the system; this step lets you
determine which factors contributed most to the overall cost of the
product. You could then contemplate
alternative ways to get the work done at each step and how their adoption might
change the cost picture.
6.8
Porter’s
Value chain
It is similar to the McKinsey’s Business system framework but more
popular due to its lavish, detailed, exhaustive exposition of it by Porter in
his Competitive advantage book. The
Value chain represents the concept of a company as consisting of all the
“discrete activities” it performs – “processing orders, calling on customers,
assembling products, and training employees” – activities more sharply
defined than traditional “functions”
like marketing or R&D “are what generate cost and create value for buyers;
they are basic units of competitive advantage.
The concept arrays all the activities by which a company creates value
in roughly the order in which it is done.
What gives the value-chain concept power is the invitation it provides
to think about the links, the different activities that make it up, in
isolation or in wider combinations. How
did your company’s performance of activity X measure up to your competitors’ in
terms of cost or value delivered? It is
a framing device by which one could isolate every single component activity
that went into the making of a product, breaking up the overall process into
“best-practice-able” units, if one will, ones that could be benchmarked against
other divisions, other companies, even other industries, that were performing
the same activity. The activity-based
analysis is the first step towards begetting change, which in turn is the key
to implementing strategy.
6.9
S-curve
It plots the trajectory by
which a technology improves. On the
vertical axis is charted a measure of performance – for example, the thinness
of men’s pocket watches. On the
horizontal axis is charted the effort – perhaps measured by funds invested in
developing the new wonder. In the first
stage, the technology crawls along the horizontal axis (watches get only
slightly thinner over the eighteenth century).
Then, in the “explosion” phase, performance improves markedly and
quickly (the 1850 model was about a sixth as thick as the 1812 model),
culminating in the “gradual maturation” phase (watches can’t get much thinner;
let’s compete instead on reliability or price).
What does this have to do
with strategy, attack or advantage? The
S curves almost always come in atleast pairs, with the successor technology
experiencing its own slow start but beginning from higher on the performance
axis. The evidence also suggests that a
company that was the master of one technology and S curve almost never
succeeded in jumping successfully to the next one. A list of the top three makers of vacuum
tubes in 1955 bore no relation to the list of three leading transistor
manufacturers that same year, which in turn bore no relation to the list of the
top producers of semiconductors ten years later. The technological discontinuities would
arrive with increasing frequency in the years to come and that the competitive
battles they fostered would usually go to whoever was riding the fresh beast,
the attacker, in other words. The
capacity to innovate would be the key to competitive and strategic
success.
6.10 Core Competencies and
Strategic Capabilities
The Core Competency concept maintains that smart companies
view themselves not as portfolio of businesses but rather as portfolios of
competencies. Just what constitutes a
core competence remains a little slithery though. The backers argue “The real source of
competitive advantage are to be found in management’s ability to consolidate
corporate-wide technologies and production skills into competencies that
empower individual businesses to adapt quickly to changing opportunities.” Such competencies are the “collective
learning in the organization”; they are “about harmonizing streams of
technology” and “the organization of work and the delivery of value.” A core competence is “communication,
involvement, and a deep commitment to working across organizational
boundaries.” A core competence “provides
potential access to a wide variety of markets, and should make a significant
contribution to the perceived customers’ benefits of the end product.”
The Capabilities concept revolves around the idea that
capabilities were central to strategy.
What a company needed were enduring “strategic capabilities” that
allowed them to innovate and revolutionize markets. Managing such capabilities entailed working
across business units, sometimes banging their little heads together, and hence
necessarily was the responsibility of the CEO.
This concept argues that the “building blocks of corporate strategy are
not products and markets but business processes,” and that competitive success
depended on a company’s transforming its key processes into “strategic
capabilities.” To qualify as a special
capability, a capability had to result in either significantly lower costs or better products. Two types of capabilities usually fall into
the special category – “tradable privileged assets” - everything from brands
like Coke’s, to patents, to physical assets such as low-cost mines – and
“distinctive competences” – mushier but including such skills as the ability to
“attract and retain talent”, “continuously innovate”, and the capacity to
“build and sustain corporate reputation.”
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