What’s In YOUR
Strategy? Shaping Up The Competitive Advantages
The new calendar year is underway and the numbers for
2003 are in. Despite recent trepidations, Wall Street is making its bets on corporate plans for 2004 and beyond with optimism so far, believing that the worst of the latest
recession is now behind us. Investors believe that there is a new wind
powering up the sails of the economy and are shifting their portfolios
accordingly. Yet, Wall Street is NOT the economy, but merely a reflection of the expectations investors have of it. And while we should applaud the improvement in
corporate results, we shouldn’t let our enthusiasm get carried away
without grasping how the trend will be sustained.
You may wonder what this has to do with corporate
strategy. Strategy is about understanding the bigger picture surrounding the
corporation and, within that broader landscape, guiding the corporation
through the proper steps in order to achieve an expected outcome. Thus, it
is my intention in this article to first take a look at what may be behind
the positive uptrend. Companies should take heart in the numbers, but must
realize that in the end, they are fueling the engine of the economy. An
understanding of what is occurring in the economic environment hopefully
will reveal the current opportunity they have at hand. Next, I will
provide some guidelines that every company should follow in assessing
their strategy: To contribute to the prosperity of our economy and to win
within their respective competitive environment; and to develop the proper
foundation for successful execution of their strategies.
WHAT YOU SEE
ON THE (360º) HORIZON…
Though corporate results are up and GDP has risen on average by more
than four percent for the year in 2003, the jury will be out for quite
some time to determine whether we are truly recovering from the economic
slump. To sustain growth, two fundamental things need to occur: (1)
Disposable consumer income needs to rise and (2) New products and services
need to compel consumers to open up their wallets and increase spending.
With lack-luster employment figures and the current focus of corporate
restructuring initiatives, we may fall short of the necessary ingredients
to an expedited recovery.
So far, much of the economic stabilization and the
consumer spending increase have been carried by the government’s actions
to vote into law temporary tax relief packages and the Federal Reserve’s
cut of the prime interest rate. These actions have freed up disposable
income through tax savings, lowered mortgage payments, cash-out on the
refinancing and reduced interest payments on credit cards and other big
ticket items. Though quantifiably significant purchasing power has thus
been unleashed, its marginal contribution to future growth stimuli is
limited as we run out of opportunities to further cut taxes and the
Federal Reserve Chairman, Alan Greenspan, is more likely to lean toward
hiking up the rates rather than further lowering them. According to the
National Federation of Independent Business’ survey for February,
average selling prices picked up, signaling some inflation pressures.
Furthermore, if in fact we deal with a protracted recovery, future growth
may be hampered by the need for consumers to increase marginal savings to
compensate for pension plan losses and other personal wealth squashed by
the 2000-2002 market downturn.
Another source for the positive GDP and earnings
trends is the tepid resurgence of corporate spending that may have more to
do with forestalling extreme obsolescence and decrepitude of current
corporate infrastructures than with investing in future business models
and growth opportunities. Much of the spending so far is merely catching
up with some expenditure in productivity improvement and IT upgrades that
were halted after the first signs of market weakness appeared. And
although there is definitely opportunity for stronger demand levels in
corporate spending, the outlook for 2004 is cautious at best. We must also
note that government and military spending significantly increased since
2000 and added to the positive numbers, but these sources of spending are
typically unsustainable long-term growth contributors.
Our greater concern to get us through the recovery
phase and into a new growth trend seems to reside in the ability for
corporations to play their part in stimulating the economy. So far, and
understandably so I must admit, corporations have taken a very defensive
approach by focusing much of their energies on cost cutting and
restructuring. Due to the uncertainty of future demand and the turmoil in
the corporate and financial spheres, companies are sometimes given little
choice but to drastically slash their cash outflows. With it, invariably a
certain degree of downscaling of the capabilities occurs, and may cloud
the future goals and vision. Priorities, organization, objectives and
budgets need to be revisited to help corporations cope with the times. Yet
as drastic as the downfall began this time around, I believe that
companies must now be as diligent in reversing that course with a renewed
energy for growth strategies in a post-depressive environment.
What defines a post-depressive era is a general lack
of direction and conviction as to when the opportune time to start hiring
and invest in new growth and innovation strategies is. In times of growth,
hiring decisions are easy to make; demand is on the rise, new people come
on board and new innovative approaches and new product developments pay
off. In times of depression, the relief valve is layoffs; demand sinks,
capacity and inventories build up, the hemorrhaging must be stopped and
innovation is usually stalled. At the peak of an expansion period,
companies are at risk to overextend themselves. By failing to recognize
the signs of a downturn, they could endure harsh consequences when the
results of their innovation efforts fail to materialize. At the bottom,
the mood is generally grim, the organization is chaotic and the resources
and motivation tend to lack in order to effectively jolt the organization
to recommence a new ascent.
Inaction and lack of preparedness when the economy
starts picking up can be detrimental to businesses as well, locking
companies into a downward spiral when by contrast their competitors emerge
with improved value propositions. History has shown that it is at such
moments of economic upturn that companies encounter their greatest
opportunity for shaping their future direction and determining their
capacity for success. Small start-ups have grown into giants, while former
giants’ empires just wilted away.
In the current economic environment, long-term
survival is not going to be granted to companies that are satisfied to
just scale back operations and wait until the economy has recovered to
make their move and deploy new growth strategies. The responsibility for
the economy to resume its growth sits with the corporations that must
actually start hiring people, build up their creative and organizational
capabilities and go out to the market to execute new growth plans with new
product and service offerings. Today’s competition intensity is too
fierce, both amongst corporations as amongst nations, for bystanders to
have a chance at recovering from a late start. The competitive advantages
will lay with first movers and those that have the proper foundation to
seize the future growth opportunities. They gear up their organizations,
create exciting and innovative new products, stimulate demand, spur GDP
growth and job creation and lead Wall Street higher.
…DEPENDS ON
YOUR VANTAGE POINT
While strategy deals with “how to lead a corporation into the
future,” it constantly gets influenced by events in the present. A
common misconception about strategy is to think about it as a mere
collection of long-term plans. Another misconception is to think that
strategy formulation should only concern itself with current and future
environmental factors. Many well thought out strategies have failed
because they were based solely on those principles. What these strategies
lacked was a plan to take the current
organization and progressively transform it to meet the requirements
for the future.
The foundation of the corporate strategy is the
current state of the corporation itself. What goes into that foundation is
the basis for your competitive advantages and is not merely as constant as
you may believe it to be. The foundation of the strategy is supposedly
embedded in the corporate philosophy, mission and vision statements. Yet,
this is only as effective as management succeeds at having the
organization embrace these concepts and apply them toward meeting the
corporate objectives.
To maximize the effectiveness of strategies, four
elements characterizing the state of the corporation must be dealt with in
the current timeline to ensure successful accomplishment of the long-term
corporate goals: customer value,
future vision, organization,
and technology. For each,
corporate strategists must establish guidelines, goals and objectives
along three dimensions: Baseline, process and congruence. As we’ll
describe these concepts below, it should become clear that in today’s
competitive environment corporations can’t just buy their way to
success, they must actively create (and invest in) their own future.
Customer Value
Do you remember when you described your company as a manufacturer of a
product (or as a service provider) and that your competitive objectives
were to implement JIT and zero defect? Well, today this is still
necessary, but no longer sufficient. In the current competitive
environment, companies are asked to create positive customer experiences.
The relationship with the customer must stretch beyond delivering quality
products and services at a fair price and increasingly contribute to
making customers’ lives better. The service and value components of
corporate offerings move increasingly away from the core product and
warranty components. Customers expect their suppliers and providers to
become accountable for the outcome
of the solutions they provide
and lower their total cost of ownership. Hence, companies must learn from
the customer value chain what the nature of the relationships of their
products and services with the customer environment is and manage those
relationships to unleash maximal value.
Part 2
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