The Paradox Of Strategy Today

Thoughts On Business Strategy, After Years Of

Observing The Good, The Bad And The Ugly!

Presentation to University Of Johannesburg, 20 February 2007

Observing The Last Five Years

• The massive growth of the developing world, led by China and India

• The Euro-zone coming off-age• The internet re-surgence as a major business driver of

the future• America declining in moral and business stature• The major drive to globalisation coming from the Middle

East• A start of a focus on the “bottom 90%” of the pyramid,

not just on developed markets and consumers with money

Observing (cont.)

• The decline of major global icons like Sony; General Motors; the American airline industry

• The escalation of industry convergence: Apple making mobile phone handsets; VOIP; mobile television; mobile phone banking; home automation

• A higher concentration in most industries, or the large getting larger

• An increasing importance of “passive capital” (rather than participative) like equity funds – is there a future in “the business of business?”

Observing (cont.)

• Product design innovation becoming a major driving force for (new) business

• The brand becoming a central force in business, again –transcending traditional industry boundaries

• The failure of most customer-focused strategies• The commoditisation and lowering margins of many

industries like retail, airlines, telecommunications, banking, resources, petrochemicals, information technology, white and brown goods

• The “orchestrated” entrance of new brands from countries like South Korea in areas like consumer electronics and automotive

Observing (cont.)

• An awareness that cutting costs alone will not buy business longevity, and that low costs may now be as low as it will ever get – can Africa really be the next cheap labour frontier?

• With increased globalisation, an awareness that even in countries like India, “local is still best”

• Business is still more opportunistic than strategic!• A realisation that in most industries, parity is real and the

strategic options for most companies have declined considerably – realising that at best, evolutionary changes will not sustain long-term business success

In South Africa

• A weak global standing, with at best a parity position amongst developing markets – these markets being driven by India/ China/ Middle East

• SA has a low manufacturing base• The ongoing externalisation and subtle disinvestment of

its main companies• Over-time, most likely globalisation of most of SA’s most

important companies• An obsession with BEE at the expense of a focus on real

global competitiveness, and a low use of BEE as a potential source for greater business creativity

SA (cont.)

• A focus on short-term and anecdotal strategies for the future, like tourism, or the 2010 World Cup

• An opportunist, rather than strategic, use of resources

• A major strategic review of SA and its competitive options is needed, with finding ways to leapfrog competing nations, rather than a focus on trying to catch-up

To Me, The Above Means

• A realisation that a new strategic mind-set is needed, one that looks at:– The strategic framework we use– The role of creative thinking as a key strategic

advantage– The way strategy translates into operations – The way the whole business participates in strategic

outcomes– Being nimble enough to change fast when needed

• I cover aspects of these in-turn

1. The Tools Of Strategy

• Return to business essentials and inherent company integrity (forget “buzz-words”)

• Companies mostly lack leadership, so clarity of strategy is important

• Unless a company has a very strong leader, it needs strong systems

• Most companies simply follow the leaders, almost blindly, without realising they have no sustainable competitive advantage

• Company departments and resources are mostly not fully aligned towards the same strategic objectives and priorities

The Tools (cont.)

• Most strategies deliver less than 65% of the profit value envisaged according to research from the Marakon Association

• Implementing strategy is therefore more vital than the strategy itself• Ways to make strategy work:

– Keep-it-simple– Map-it for ease of understanding everywhere– Make it tangible– Use cross-functional teams to make it work– Prioritise– Reward people who deliver on the strategy– Develop people, help them to understand the business and where it is

going– Measure and manage

2. Who Participates In Strategy

• In the businesses that has made huge strides towards changing the competitive landscapes, the entire business has been aligned to the strategy:– Systems– People– Training– Marketing

• Compare companies like Dell/ OUTsurance/ Southwest

3. Understand Competitive Advantage And Be Creative!

• Creativity is the most under-utilised business tool today!

• It is the ability to use the same capital and skills to create better value for investors – that needs a different mind-set than simply being cheaper or more efficient (not that that is not also important!)

• Revolution, or setting a new agenda, or re-creating an industry, is the challenge today, all other options are at best short-term or niche

4. Leadership Remains Important

• People want to follow people they believe in – why has Bidvest made simple, low margin businesses so highly rated in terms of P/E? The dynamic of a good leader like Brian Joffe? Why do analysts call it the “Joffe” factor?

• Why can a man like Richard Branson make money in a commodity industry like airlines?

• Apple before and after Jobs

5. Strategic Options Today

• Reviewing what has been happening in the world over the last ten years, some thoughts about a strategic paradigm

5.1 Be Big • The same quality, for less (Honda)• The same or a slightly lesser quality, for less (Mr Price)• The same, but with high reach (most global banks like

HSBC)• Good quality, delivering on the credentials, even if not

exciting (Toyota)• The same, in more places (Starbucks)• A lesser quality, within reason, for much less (Tata)• Available everywhere (Vodafone)• A great image, for less (Kulula/ Southwest)• Appealing uniquely, everywhere (SABMiller)

5.2 Innovate!

• Apple• Sony Ericsson (Nokia has waxed and waned); Motorola• B&O• Toyota (in some areas)• Emirates• Airbus• Orange when it started• BP (beyond petroleum)• British Gas (renewable energy)• Sasol (technology)

Whatever The Strategy: A Fundamental Truth About Business Survival!

Swarofski: Business is about re-generation!

Business Survival Is About New Ideas!

Set A New Agenda, Do Not Follow The Old!

• In what is termed the “blue-ocean” approach, create a new paradigm, enter an uncontested space and be less concerned about where the trends seem to go or where industries are evolving to

• In these markets, branding and clarity of offer is important, like Amazon.com and eBay did – they both created a new market space and now dominate that space

• Offer a benefit not offered by rivals, or what was always called “differentiated marketing”!

5.3 Focus On The Basics

• Tesco in the UK• BA today• FNB in SA over the last years• Edgars over the last five years• Dell – Michael Dell going back• Barloworld – going back to that• The Gap – failing to do that?• Chrysler – stuck in-the-middle?

Basics – Getting Strategy To Work

• A focus on what the profit pool of the industry and your business is and how profit is created throughout the value chain

• A focus on what matters to customers and keeping it simple

• A focus on doing what matters• A focus on the shortest line between customer

need and need-fulfilment

5. 4 Focus On Customers

• Who? Is anyone trying? • Only (some) airlines over the last years?• Some private banks are doing it fairly well• What happened to Amex?• Is it simply too difficult to get right after years of talk

about and doing marketing research/ consulting and CRM technology?/ failed data-bases?/ failed management information systems, even in areas of costs, let alone in customer understanding

• Re-focus on selected market segments only

Strategic Directions: Cut One

Critical mass

Innovation

Getting the basics right

Customer-focus

•Apple (as against Sony)

•Starbucks

Emirates/ Itihad/ Singapore/ Qatar

The large global banks; the large global retailers; our own SAB; airlines like Air France; telecommunications

The UK retail sector; BA

Strategic Directions: Cut Two

Critical mass

Innovation

Getting the basics right

Customer-focus

•Apple (as against Sony)

•Starbucks

Emirates/ Itihad/ Singapore/ Qatar

The large global banks; the large global retailers; our own SAB; airlines like Air France; telecommunications

The UK retail sector; BASegment focus

Specific benefit focusChange the strategic agenda (low cost airlines)

What Is Sustainable? (cont.)

Critical mass

Innovation

Getting the basics right

Customer-focus

•Apple (as against Sony)

•Starbucks

362 US companies: 8% of customers great customer experience, 80% of them believe that!

Emirates/ Itihad/ Singapore/ Qatar

The large global banks; the large global retailers; our own SAB; airlines like Air France; telecommunications

The UK retail sector; BA

Most do not get it right

The “easy” strategies

Longevity?

The “new” frontier?

Niche?

Niche, unless significant enough to change the competitive context

Create Or Destroy Value

Critical mass

Innovation

Getting the basics right

Customer-focus

•Apple (as against Sony)

•Starbucks

Emirates/ Itihad/ Singapore/ Qatar

The large global banks; the large global retailers; our own SAB; airlines like Air France; telecommunications

The UK retail sector; BASegment focus

Specific benefit focusChange the strategic agenda (low cost airlines)

Often destroys value to the lowest common denominator

Creates value

The Business Cycle

Critical mass

Innovation

Getting the basics right

Customer-focus

•Apple (as against Sony)

•Starbucks

Emirates/ Itihad/ Singapore/ Qatar

The large global banks; the large global retailers; our own SAB; airlines like Air France; telecommunications

The UK retail sector; BASegment focus

Specific benefit focusChange the strategic agenda (low cost airlines)

Most often businesses gravitate towards this over time, as innovative businesses are acquired and assimulated

Often where businesses start

The Relevant Marketing Strategy

Critical mass

Innovation

Getting the basics right

Customer-focus

•Apple (as against Sony)

•Starbucks

Emirates/ Itihad/ Singapore/ Qatar

The large global banks; the large global retailers; our own SAB; airlines like Air France; telecommunications

The UK retail sector; BASegment focus

Specific benefit focusChange the strategic agenda (low cost airlines)

Dominate and lead on industry generics

Innovate often enough in important areas not to fall too far behind

Talk to customers, 1:1, induce trial

Challenge the status quo, grow new markets, upset existing markets and user-bases

Endorse the industry basics – have a no-nonsense approach

The Patterns Of Industry Convergence

The Areas Of Industry Convergence

• Speed• Convenience• On-the-move/ mobility• Better and cheaper• Smaller• Easier/ simpler• Personal• Accessibility • Attractive/ well designed• Choice

• Healthy/ natural• Environmentally

conscious• Multi-functional• Transparent• The commoditisation of

function• Cheaper• Better• Personal control

6. Be Nimble

• Be able to change direction fast and often if needed, make change a fundamental value of the company

Is The Fundamental Truth About Long-Term Business Survival Not:

• Regular customer-focused updates and innovation (not always being first per se)

• The right balance between business input and out-take for the customer

• Realistic information about the market and the consumer• Not copying, but setting your own agenda• Being prepared to risk before it is too late to change the

competitive context without being a “me-too” player• An understanding that ongoing consolidation, will lead to

commoditisation, within any industry, as a natural outcome

Thank You!