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Renew your strategy - or die

You don't change for its own sake - you change to realise the strategic vision.

What must the firm excel at? What does that mean for processes, people and customers? Who does what in management, answering to which goals, actions and measures? Who does the planning and controls the implementation? Most important of all, perhaps, when do you decide that change must be radical rather than incremental, revolutionary rather than evolutionary?

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The old answer to all these questions was easy. Leave it to the senior management, usually the topmost manager or managers of all. The truly modern answer is to refer the questions to teams which contribute to the answers and supply the implementation to fit. In itself, this represents a tremendous reform which demands and generates genuine, rapid change throughout the organisation - including its information technology.

Few of today's management truisms are more widely promulgated or believed than the dictum that IT strategy must be aligned to corporate strategy for either to be successful. Yet the repetitions of this seemingly obvious truth betray the equally obvious fact - that only a minority of managements have made this preaching the basis of their practice.

That's despite the force of another truism: that the first company in an industry or sector which makes effective strategic use of IT steals a long march over its competitors which may well be permanent. What is the problem? The usual answer is to blame the unfamiliarity of most managers with the technology: the inbred, uncommercial nature of some technologists: and a pace of change so hectic that today's state-of-the-art is tomorrow's dinosaur.

Moreover, yesterday's dinosaurs, in the shape of expensive legacy systems and their associated software, are a major deterrent to innovative investment. Throwing out the past to substitute the future is not only expensive, maybe hideously so, but possibly impractical: the company, after all, has to go on running. This and the other excuses listed above are real enough obstacles. But they are not the ultimate reason why managements resist the truism.

To align IT strategy with corporate strategy, you need to possess a corporate strategy in the first place. The existence of powerful IT tools, like customer databases, may influence the choice of strategy. But management still has to formulate overall objectives, to define the ends for which IT will provide the means. And the number of companies with clearly envisaged, robust strategies is astonishingly small, even at the top end of the corporate spectrum.

Take the extraordinary case of Unilever, which came to the conclusion that its 57 varieties of business were far too many - so that half of these operations were 'low priority' (i.e., disposable). In a group packed with brainpower, all those businesses, and the brands that proliferated within them, must surely have been added only after careful thought and for what seemed like sound strategic reasons. Often, however, the reasons weren't truly strategic, and the additions didn't fit into any master strategy - because there wasn't one.

According to an eyebrow-raising survey by Renaissance Solutions, that's by no means unusual. It found that 90% of its respondents 'believe that clear, action-oriented understanding of their strategies could significantly influence their success.' And so say all of us. But less than 60% of these directors and senior managers 'believe they have a clear understanding of what their company's strategy is'. In those circumstances, it's no surprise that under 30% 'believe that their organisations' strategies are effectively implemented.'

Renaissance did find that 'a large majority of companies now have some form of clearly stated strategic intent.' A strategic intent, however, is not the same as a strategy, and a 'clear statement' is not the same as a plan - or, for that matter, the same as a clear understanding, let alone an effective implementation. The survey notes that these companies, despite their good intents, were 'failing to direct their activities to achieve these strategic goals effectively.' In large measure, that's because the goals are vague and not translated into specific tasks for managers or workforce.

DEEPER IN THE DARK

The workforce, anyway, is deeper in the dark; 'fewer than one in ten of the entire workforce' have any clear notion of whatever strategic thinking goes on up above. If that includes the labourers in the IT vineyard, talking about alignment of strategies is peculiarly pointless. In general, integration simply isn't on the menu: 'Only a third of companies integrate their budgeting and strategic planning activities - for most companies, these activities are driven by distinct organisational units and different management processes.'

The picture is depressingly familiar. The operational takes precedence over the strategic, even though strategy is supposed to establish the framework for operations. But IT offers an escape from this everyday trap. Renaissance notes that 'companies do not collect the right information to monitor progress toward their strategic goals.' They are limited to standard operating and financial results - they don't 'focus on co-ordinated and appropriate measures of performance that go beyond' these traditional measures.

Getting such a focus emerges as one of four simple steps that will cure the depressing paralysis confirmed by the survey. The prize that IT directors can dangle before their boards is far better and better coordinated information about performance, within the company and in the marketplace. These facts are the ammunition for strategy, which must begin by establishing where you are now - and end by showing that the goals involved in moving to a better position have been achieved.

That's another of the four steps: 'transform strategy formulation into a continuous process that adapts to performance feedback on the achievement of strategic goals.' The remaining two steps are turning visions into robust programmes and developing strong ownership. The more effectively the IT function supplies strategic information, the more likely its ultimate masters are to satisfy the four criteria - and to deal with three severe strategic issues.

One is timing. How do you know when the moment for strategic renewal is ripe? The second is start-up. Who initiates change, and how? The third is extent. Do you turn the organisation upside down, go in for gradual change, or settle for something in-between? You dare not settle for remaking one aspect of an organisation, even such crucial aspects as its IT or its product line. It is a question of all or, very possibly, nothing.

The truth applies to all sizes of company. The analogy is with a share portfolio. You hold ten stocks in equal proportions. One of them doubles, while five rise by 10% and the other four fall by 5%. You feel great until you value the entire portfolio. It has only risen by 13%. The very hard lesson is that it's no use tackling one or two aspects of a company, however brilliantly: you have to do everything - and, so far as possible, at once - from shopfloor relationships to high-level strategy.

Strategy is one of the elements without which renewal cannot occur. That makes the rarity of renewal far from remarkable,if you believe consultant Michael de Kare Silver of the CSC Kalchas group. His book, Strategy in Crisis, endorses the Renaissance findings. Kalchas people interviewed 100 chief executives of the top 100 groups based in the UK and US to find their priority agenda. The average response put 'future strategy' below technology, information management, new products and the regulatory environment. The latter came above everything else in the list of priorities.

That result is very peculiar. First, regulators are outside the CEO's control. Second, what about that cliché of information strategy, that it can't be successfully formed save in tandem with overall corporate strategy: so how can the former possibly outrank the latter in priority? Next, innovation can only take place intelligently within a strategic framework. Fourth, technology also makes no sense save as a servant to strategy. These CEOs seem to be putting the cart before the horse. Small wonder that the top 100 UK companies averaged only 2.6% real growth in the five years to 1996.

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Silver suggests that a vicious circle explains 'the lost art of strategy-making'. Because it's low on the agenda, corporate planning is relegated in importance, so that the necessary skills and understanding dwindle. This means that still less value is attached to paybacks on planned strategy. The outward-facing, uncontrollable future thus loses out to inward-facing, controllable present activities like reengineering. As the short term dominates at the expense of the long, the voices for strategic change become still less audible, and the lost art loses out still more.

THE STRATEGIC RENEWAL

Renewal of strategy-making can set a benevolent circle going. But Silver argues that none of the well-known strategic frameworks will do the trick, whether you fancy the Boston matrix, PIMS (Profit Impact of Market Strategy), Michael Porter's 'five forces' and 'three generic strategies', core competencies, 'parenting' or the 'three value disciplines'. In his view, none of these provides a satisfactory answer to seven critical tests of strategic robustness. How does your own strategy (if any) match the criteria?

  • Does it reflect the business realities of the new century?
  • Does it begin with the customer?
  • Is it rooted and imbued with market understanding?
  • Is it practical (not theoretical)?
  • Is it specific (not superficial)?
  • Does it encourage a longer-term view?
  • Is it measurable?

To those seven we would add a most important eighth criterion. Does it embrace the present and future potential of information, and especially Internet technology? That is indispensable in implementing the seven: portraying reality, connecting with customers, interpreting markets, achieving specific and practical results, envisioning the future and applying measurements in real time. The new IT adds a dimension all its own: creating a new business system, uniting the business, the suppliers and the customers in a new and vibrant marketplace.

New is the key word. For some of the strategic schools examined by Silver, sheer old age explains the fading of the message. The Boston matrix is especially hoary. It divided operations into stars (for backing), cows (for milking), question marks (for possible stardom) and dogs (for killing) according to their market share and market growth. As Silver points out, that says nothing whatsoever about strategy. It's a guide to investment, not to creating a better business. Even as an investment guide, it's fallible, because of self-fulfilling prophecy. Dogs and cows get treated like dogs or cows, and that's the end of that - and them.

The book gives its highest rating to the 'three value disciplines' promoted by Michael Treacy and Fred Wiersema. Their theory attributes market leadership to a choice between operational excellence, product leadership or customer intimacy. This thesis, though, offends against the principle that you have to do everything. You get nowhere with operational excellence which results in products that don't lead the market or rejoice the customer. Since none of the three can stand on its own, the model falls down.

All seven strategic models, anyway, share the same weakness. IT is ancillary at best in the thought of their proponents. Yet embracing the new technology and using it to revolutionise the business model is as important as what Silver isolates as the key factors in 'committment':

1. Developing an understanding of and immersion in the market with customers.
2. Establishing a long-term horizon and determination to win out, overcoming the inevitable undertainties of any late 1990s market.

Silver adds that one of these two elements without the other won't work: they 'go hand-in-hand; identifying future goals and opportunities must be born out of totally rigorous, deep-rooted market immersion'. His example is Microsoft, which was heading into possible oblivion with a strategy that ignored the Internet. Bill Gates turned the company on a dime, switching R&D spending dramatically, forming key alliances, buying Net start-ups and striving to drive Netscape out of the browser market (with tactics to which US anti-trust regulators and the courts took great exception).

Microsoft has always been fond of that form of commitment which, in the words of Brian Arthur, a Stanford professor, 'discourages competitors from taking on a potentially dominant rival'. One traditional weapon to this end is price. British Airways, for example, was accused of 'predatory pricing' when its tactics helped to drive Laker Airways out of business. In Silver's lexicon, though, pricing strategy is not just about 'low price'. In some cases, price-competitiveness may well be fundamental. In other cases, there are other key ingredients: value for money, quality and service.

That observation leads straight back to the all-or-nothing principle: 'all three forms of potential advantage need to work harmoniously together to provide and sustain...lasting and successful market position'. That position is also dependent on what the book calls 'emotion'. A power brand harnesses people's powerful feelings - whether they are buying shirts or Intel microprocessors.

THE TEST OF PERFORMANCE

Intel's devices have usually passed Silver's test of performance, whose 'core is about the basic functionality and reliability of a product - does it do the job it's supposed to do well and better than its rivals?'. This is far easier said than done in most industries these days. All products climb towards the same standards, and those that don't reach the top tend to drop off the tree. By approaching the market in innovative ways - the 'changing the rules' approach - companies can keep ahead of the game. But performance won't win unaided.

The crucial aid is service, which 'is no longer enough' without 'Hustle', defined by Silver as 'going beyond customers' expectations and creating levels of service that had not been imagined'. In case that sounds too vague, it's spelt out. The Hustle service is...

  • Comprehensive ('Whatever I want')
  • Available ('Wherever, whenever I want it')
  • Personalised ('Tailored just for me')
  • Symbiotic (provided in a context of an enduring, mutually beneficial relationship)

As Book Six shows, all five of these aims are far more easily achieved by the use of IT - indeed, their realisation is often only possible because of IT. People who see IP technology as the platform for growth are indispensable members of what Warren Bennis, writing with Patricia Ward Biederman, calls a 'Great Group'. Their book, Organising Genius, argues that Great Groups have replaced great men as the driving forces for organisational breakthroughs. The authors' recipe is...

1. Gather the ablest people you can find to lead the revolution
2. Place them under a highly effective leader
3. Continue to recruit talent as a key activity
4. Form and share a powerful vision and mission
5. Set up a separate revolutionary HQ
6. Focus revolution on a chosen opponent: 'The Enemy'
7. Pick the right person for every job
8. Leave creative people free to create
9. Insist on delivery against objectives

Intel's domination of micro-circuitry exemplifies all nine steps. It tackles recruitment so seriously that half-a-dozen people may interview a single candidate intensively. One interviewer even refused to take a call from Robert Noyce, the chairman of the board, because 'I have a candidate.' As Silver's Market Commitment Model recognises, strategy revolves around people and their enlistment in the cause.

People-based strategy uses IT as platform and cement for the nine-step regime . The steps create exactly what Riding the Revolution requires: a group of dedicated, optimistic people who believe that they can accomplish anything; who won't rest on their achievements; and who see strategy, animated by its powers of information and communication, as a living, breathing force.

Robert Heller