Strategy has been having a wonderful run for management's money.
Once, strategy was the somewhat arcane province of long-range corporate planners. Now senior managers themselves read the strategic gurus, arrange and attend seminars on strategy and generally add to the torrent of words on the subject. Many of them also take strategic action – though consultant Ben Tregoe is undoubtedly right in comparing strategy to sex: 'when all is said and done, more is said than done.'
In comparison, tactics are the opposite: plenty is done, but little is said. The implication is that strategy is the superior mental and managerial activity: tactics can safely be left to the lower orders. In fact, that notion is doubly wrong. First, the more people below board level are involved in framing strategy, the better its content and execution are likely to be. Second, no strategy can be better than its tactical execution. Yet one highly intelligent consultant, working on a book on top management's strategic role, has been rebuked by friendly advisers for confusing strategy with tactics.
The definitions make his critics' error clear. Strategy is 'any long-term plan', which will be the product of 'the art of conducting a campaign and manoeuvring an army.' Tactics are 'purposeful procedure' achieved by exercising 'the science or art of manoeuvring in presence of the enemy'. The two are as close as Siamese twins. Companies need the twin skills – those of the strategist, who can select the right long-term objectives and envisage the means that will reach those goals: and those of the tactician, who will deploy those means in a series of manoeuvres – short, medium and long-term – to achieve the desired ends.
The difficulty in separating the twain, though, emerges clearly from 'a compilation from latest writings and statements by Peter Drucker, Tom Peters, Gary Hamel, C. K. Prahalad, Michael Hammer, Rosabeth Moss Kanter, Richard Pascale and a few less known gurus.' The compiler is Michael J. Kami, no mean guru himself, and once chief strategic planner for both IBM and Xerox in their glory years. He believes that 'despite different styles, semantics and personalities, there's an unmistakable consensus about the new road to success for a business enterprise.' The 'key strategic policies for future success', with my commentary attached, are…
1. Forget the past. In the immortal words of Sheridan's Mrs Malaprop, which I've often quoted, 'We must not anticipate the past' – but most managements persist in the belief that the past will be the future. It won't. The past offers valuable guidance – but strategy derives far more benefit from full and proper understanding of the present – which is the explanation of Peter Drucker's remarkably accurate record as a seer.
2. Think global. With the exception of the US, no domestic market is big enough to support large strategic ambitions – and even Americans, now that boundaries are becoming meaningless, are well advised to look beyond their own shores to world markets.
3. Internal change must be drastic. Why do companies like Philips and the old IBM go through shake-up after shake-up without making enough forward progress? In Kami's words, 'One needs transformation, not reformation.' That's what you would seek in crisis: act radically now, and there won't be a crisis.
4. Base your business on knowledge and information, not things. Increasingly every business faces across the board the same challenge that confronts purchasers of IT equipment. You know that your state-of-the-art purchase will be out-of-date before the system is bedded in. Extracting value from fixed assets depends on the mobile assets of people and intellectual capital.
5. Create an information-based organisation. Very few firms have taken the Great Leap Forward into the wired world. Found your strategy on a substructure of information and communication systems that meet both present and future needs – for all employees, suppliers and customers.
6. Concentrate on core competencies in your businesses. This is the Hamel-Prahalad thesis. My question is simple: 'What are we really good at?' Having establishedthat, make sure you're not just good, but the very best at the activities that really drive your business.
7. Reduce organisational levels. Remember James Champy's ideal – an organisation with three layers: top management, executive management, and all the self-managers below, aided by expertise managers. Can you justify any further layers? If not, axe them.
8. Empower your employees. Thinking Managers has many times pointed to the superior value created by devolving authority to individuals and teams which have the resources to take decisions and responsibility. It's plainly the only sensible way to manage managers: it's also by far the best way for them to manage others.
9. Provide continuous, lifelong self-improvement programmes. Sun Life, the British insurer, has an open learning facility at its Bristol headquarters. The better educated you and your people are – not just in necessary expertise, but in thinking, reading and learning skills – the better your business will be managed.
10. Manage talent. Attracting, motivating and retaining the best people you can find is fundamental. Remember, however, they are only as good as their environment, their development and their powers (see 8 above).
11. Practise global benchmarking. On all significant activities, is the company as good as or better than the best examples inside or outside the industry, anywhere in the world? If the answer isn't known, opportunities for great improvement are going begging.
12. Consider re-engineering. The word is only a newish phrase for the old essential of studying processes from start to finish with the aim of saving time and money and raising effectiveness. Drop superfluous processes and parts of processes, and redesign from scratch if that's the best solution.
13. Redefine quality standards. This applies to processes, products and services alike. However admirable performance may be, it can always be improved.
14. Create partnerships. Kami applies this principle to external relationships with 'marketeers, suppliers, distributors, subcontractors throughout the globe.' I would extend partnership internally – ensuring that people form teams and alliances within the business.
15. Compress time. The faster, the cheaper – other things being equal. Rapid decisions are generally better than delayed ones – and always better than procrastination. Shorter cycle times are money in the bank.
16. Act outside-in. Don't look at the business with the eyes of an insider. How do outsiders – above all customers and suppliers – regard the company? What would a man from Mars conclude and recommend after surveying the business with his fresh, unprejudiced eyes?
The last principle is one foundation of my consultancy work with Strategic Retail Identity: the major addition being that SRI also interviews insiders at all levels to establish the total perception of the company. But this work, while intensely revealing, isn't strategic in itself. The research sets the framework for strategy by establishing where the company is now and comparing this actuality with management's ambitions for the future.
Powerful policy recommendations spring from the results. But all Kami's 'key strategic policies' have the same stamp. The gurus are advising on what stance to adopt; but none of the sixteen points, all of which are of great value, will actually win you advantage in the marketplace. True, if you adopt the reverse policies, that advantage is virtually ruled out. Try living in the past, relying on domestic markets and avoiding revolutionary change in a production-oriented business that lacks up-to-date IT – it's a wonderful recipe for failure.
The main lesson from Kami's gurus, though, is that the right philosophical stance is inseparable from the right strategy. Ben Tregoe's firm, Kepner-Tregoe, has found from its practice that management must agree on values and vision as a prelude to effective strategic formation. That's rather obvious, on reflection. How can managers agree on a plan for the future if they haven't first established what kind of future they want?
But are the gurus only talking about strategy? Empowering employees and forming them into effective teams is surely tactical. So is re-engineering: or 'doing it right first time': or creating partnerships: or altering the customer offer on discovering that the customers want changes in the goods, services and service they have been receiving. Just as the strategy flows from the philosophy, so the tactical stance and the tactics must be consistent with both – the 'what' of objectives goes hand-in-hand with the 'how' of execution.
To revert to military language, there's no point in generals plotting to outmanoeuvre the enemy unless they're sure that they have the necessary resources and that the field commanders have the capacity to deploy those forces to the required purposes. The military analogy is apposite in this instance – but is it really appropriate to think of the competition as the 'enemy'? The results can be highly counter-productive.
Writing in the Financial Times, John Kay cites the two Oxford bus companies which waged a price war over the route to Heathrow: both lost money heavily, and neither won any market advantage over the other. They would have done well to heed the sage words of Ray Noorda, founder of Novell – the company best known for its networking software: 'You have to compete and cooperate at the same time.'
To describe this process, he coined the word 'co-opetition', which Barry J. Nalebuff and Adam M. Brandenburger have used as the title of a book on game theory. As they say, the business game can have several winners: 'The goal is to do well for yourself.' The all too human tendency is to try to 'blow them out of the water' when challenging other businesses. When challenged in turn, the tendency is to denigrate the opposition and to engage in wishful thinking about its certain total failure: when that fails to materialise, the next step (see the bus battle) is to go to extremes in the attempt to assert the threatened superiority.
THE 'ENEMY' SYNDROME
Nobody has calculated how many billions IBM lost in the effort to drive Microsoft from its dominant position in operating systems for PCs (which IBM had itself dropped into Bill Gates's lap) by developing and promoting its own, doomed alternative. The 'enemy' syndrome encourages such reactions, which are basically more emotional than rational. As Nalebuff and Brandenburger note, sometimes 'win-lose' is the best strategy (so long as you get the win). At other times 'win-win' is the most effective approach: 'You can compete without having to kill the opposition.' The choice has to be made by 'hard-headed thinking.'
Their advice argues further that the strategic/tactical stance is decisive. For example, in many markets, it's a positive gain when new competition arrives. If you're running the only antique shop for miles around, far fewer people will call than if half-a-dozen others cluster round you. The more companies supply connection to the Internet, and the more sites that are established on the World Wide Web, the more users will pile in – to the advantage of everybody. You have to be both Dr.Jekyll and Mr.Hyde, because…
- There's a bias towards seeing every new player as a threat
- But many players complement you as well as compete with you
- Look for complementary opportunities as well as competitive threats
Hard-headed businessmen will certainly react to this seemingly gentlemanly theory by pointing to the innumerable cases where thuggish competitors have attacked by slashing prices or by undermining successful products with me-toos. If you don't retaliate in kind, they are likely to win. The clever planner, though, copes with this before it happens – by building defences against price aggression and/or imitation into that hard-headed thinking. The antidotes are simple to describe:
1. Build the strongest possible customer franchise, with the highest possible customer satisfaction.
2. Support the franchise by investing heavily in the brand.
3. Raise volume to take advantage of the learning curve – which reduces costs as output increases.
4. Aggressively protect your market share/volume to prevent others from winning the above economies of scale.
That four-pointer is clearly strategic. But, like most strategies, it's easier said then done. Aim for higher volume by cutting prices, and you end up embroiled in the non-co-opetitive price wars that destroy profitability. Seek faster growth outside current markets – either geographical or product-based – and you run into the hazards of unfamiliar terrain where the competition may be stronger and fiercer. Try to extend the brand on which you have lavished expenditure, and proliferation and cannibalisation may do more harm than good.
The experiences above were real-life. The companies concerned are Air Borne Freight (price-cutting), Unisys (chasing faster growth), Nabisco (extending core products) and Abar Ipsen Industries (globalisation). Their cases were quoted by the Wall Street Journal Europe to illustrate the difficulty of moving from downsizing to growing revenues. It cites a Mercer Management study of 800 major US companies, of which 145 had cut costs so successfully that profits had surpassed their industry averages in the late 1980s. But by 1995 less than a quarter of the 145 had generated above-average profits from above-average growth.
CUTTING TO GROWING
Why couldn't these businesses change mode from cutting to growing? One suggestion is that the two approaches require different skills and mind-sets. That's probably true. But the question is actually misleading. Reducing costs and growing revenues should be two sides of the same coin. The four-point programme above takes that for granted. The excellent strategist seeks to gain market share, not through having the lowest costs in the business, but through using that position as a means to an end – the object being industry leadership.
That's where co-opetition comes. Air Borne Freight made the otiose error of cutting freight rates to the point where Federal Express felt obliged to retaliate. After years of intermittent, pointless struggle, peace broke out – but with prevailing prices a fifth below Air Borne's starting point. As one of its executives ruefully explains, 'As they went after our customers, we went after theirs, first with aggressive pricing and then with more services and extended contracts.' And this is the very same company that, as reported in Thinking Managers, aims strategically to cement relationships with customers by offering them unique tactical solutions!
That's why divorcing strategy from tactics is impossible. At Unisys, the strategy was to resume fast growth by expanding strongly into computer services. The tactical drive was to quote low prices that IBM and EDS wouldn't seek to match. The result was profitless growth. At Johnson Controls, however, the strategy was to expand in complementary businesses – from car seats to all other interior fitments, for example. That successful policy was both strategic and tactical: because existing customer relations governed the rich development of the new ventures.
The truly powerful distinction isn't between strategy and tactics, but between philosophy and planning. If cost-cutting is approached as a growth policy, for instance, you avoid the Air Borne trap. Get the strategic stance right, following the recommendations above, and you have the base for powerful combinations of strategy and tactics – or stratics and tactegy.