By now most businesses are pondering how best to respond to a more benign economic climate than might have been anticipated just one year ago. Despite some concerns about sovereign debt and ‘unwashed’ bad loans, it seems to us that the global economy is ‘post’ the GFC.
Post the global financial crisis, some senior executive teams may feel tempted to both think and act with a shorter term focus. TMG argues that the reverse should be true as opportunities abound and good strategy development reduces the business risk.
What follows is a summary of the general advice we provide when preparing to facilitate strategy with our clients. We are encouraging businesses to develop strategy with confidence in the medium to long term. For advice targeted to your business and current situation, call the author of this article, Peter Boyce, Director of Consulting @ TMG.
Changes are rarely a surprise
Good strategy is about finding a productive way of operating that produces value at the intersection of current and anticipated market demand and your organizations capabilities (resources and competencies), in a way that allows you to ‘out-compete’. That is, generate a return on investment at or above the rate considered appropriate to the risk.
Arguably, both demand and capabilities are relatively stable in the medium term. That is:
1. Market demand may fluctuate slightly in the short term in response to factors such as fashions, competitor activities, legislative adjustments and so on. Provided, however, you are participating in the innovation effort in your market place and watching the environment for change signals, you will not be surprised by short term events and should be well placed to make the incremental adjustments (usually operational) required to remain competitive.
(Caution: Quick fix demand opportunities such as the ‘pink batts program’ or ‘debt recovery demand in a GFC’ are not likely to be opportunities around which to build a business model - they are opportunistic and should be as short term and tactical)
2. Over the medium term most short term effects are smoothed out as you, your competitors and customers adjust and change incrementally in response to each others’ respective changes.
3. Over the medium to long term, of course, there can be significant change, most of which can be foreseen – at least conceptually, enabling you to prepare effectively. Technological innovation in an industry, for example, is rarely a surprise as most development and research work is either publicly visible or widely anticipated by an industry (enabling you to prepare).
Over the medium term (and not over night) your core competence can be transformed and the resources available to your firm can be significantly altered. This applies to your competitors too which is why real innovation is so important to competitive advantage. For the most part, medium term change is identifiable in advance provided you are actively watching for change signals (such as mergers or acquisitions, competitor key recruits, won or lost customers, markets entered or left, new technologies, social trends, industry development, political pre-dispositions, regulatory reviews and the like).
Oversimplifying, for example, if you are in the domestic plumbing business, it is not hard to foresee midterm continuing demand for water conservation, efficiency, recycling, purification and the like. It is reasonably possible to anticipate innovations, legislative changes, structural change in the industry, supply chain changes and so on. Whilst precise timing and quantum can be difficult to anticipate, the broad sweep of events is relatively clear and action can be taken to prepare such as:
- Strategic alliances, investments or collaborations
- R&D priority shifts
- Advisory panels, strategic hiring, cultivating new relationships
- Divestments or resource reallocations
- Market segmentation to tap new demand and advanced learning
The key take out here is that not too much is that surprising. What is often more difficult is having the courage to act and to change your organisation to the extent necessary to respond to change.
(This is TMG's forte. Our strategy development methodology, the subject of improvement, innovation and refinement for over 20 years, helps your management team;
- organise their knowledge and insight for greater strategic understanding
- discover new options and innovative market opportunities competitors usually fail to explore
- apply intellect, collaboration and creativity as a management team at a more energised level
- organise the strategy, business model and decision making process efficiently
- make decisions with clarity on key assumptions and sensitivities to watch)
In our experience, there are two types of strategy:
1. Reactions to changes and opportunities as they arise in the absence of a guiding framework
2. Reactions to changes and opportunities as they arise or are anticipated, guided by a strategic framework.
The former is often incorrectly seen as strategy, falling into one of three categories:
- A learning organisation - a strategy which too often masks a very reactive and inefficient approach to developing value.
- Logical instrumentalism which often simply describes little more than taking the next best option given the status right now and
- Entrepreneurialism which also too often masks relatively reckless or at least poorly thought through risk with resultant decreasing value.
- this market place is too dynamic to forsee more than a few months
- so many opportunities arise there is little point in having one clear strategy
- we need to be more adaptable and a formal strategy process would limit our creativity
- and so on ......
In almost every case we can think of, this lack of strategy is most prevalent in weaker and more volatile management teams, firms that operate at very high levels of risk and in environments where there are high levels of stakeholder disengagement.
The strategy approach marked 2. above has the benefit of strategic discipline which demands foresight, insight, industry understanding, market knowledge and resource preparedness . The guiding framework demands an organization improve;- its value to the market and therefore market power,
- its capabilities and therefore ability to influence and
- its management and their sense of purpose.
Facilitating strategy development
When TMG facilitates strategy development, we help your team use a clear framework. We help your team meet the demands of the framework. We help your team realise the value (insight, innovation and competitiveness) the framework offers. We help your team achieve far more than was previously conceived as possible. (TMG uses differeing frameworks depending on your preferences, industry and current situation)
Summary
It takes time for organizations to build capability. It takes time for markets to evolve and to change. There is enough time for good strategy. Strategy remains essential to building enduring returns. Improved responsiveness to short term events should not be mistaken for strategy. Responsiveness is more effective within the guidance of a very clear strategy.
Post the GFC
There is not a level of global uncertainty that makes strategy formation any more difficult than in the 70’s, 80’s, 90’s or any other time. Whilst some macro events like natural disasters are unpredictable – but most other events can be anticipated. Whilst the precise timing can’t be anticipated, for most events, managers can be somewhat or substantially prepared. Even major economic downturns (such as requiring appropriate balance sheet preparedness), wars (such as production flexibility) terrorism (such as disaster recovery), sovereign debt default (by strengthening balance sheets and reducing dependency on ‘at risk’ markets) as well as the risk of death or illness (such as through insurances and succession planning).
The challenge is having the willingness to act and the courage to act with sufficient power, purpose and principle (TMG also offers a workshop on Power, Purpose and Principal based on the work of Ketan Patel) to impact the future of the firm.
Uncertainty is an enduring fact. So is the need for good strategy if you plan to ‘out-compete’.
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Contact us
Tel 03 9010 9010 (Aust.) Fax 03 9857 3733 (Aust.)
Web: www.tmg-strategy-facilitation.com.au
Email:
Contact us
Tel 03 9010 9010 (Aust.) Fax 03 9857 3733 (Aust.)
Web: www.tmg-strategy-facilitation.com.au
Email:
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