Written By: Stephanie Williams – Corporate Finance
As Jim Rohn, the American entrepreneur and motivational speaker, once said, the key to success in every venture is 20 percent skills and 80 percent strategy. With the explosion of technology-driven competition, there is no time in history like now, when businesses are yearning to find a sustainable strategy to help them stay afloat in today’s stormy waters. It is through desperation for a winning strategy that major corporations such as Deutsche Bank and Wells Fargo have found themselves drifting into the deepest pits of trouble. The song on the importance of strategy has been sung a trillion times, but the definition of what makes a winning strategy remains vague.
Management scientists across the globe have been racking their brains to find the principles that define the best approach to corporate planning. Some such as the Boston Consulting Group have gotten close to discovering promising models, but with the changing corporate environment, the frameworks have later proven to be highly complex in execution. For instance, in the 1960s, the BCG group introduced the growth-share matrix, a framework that helps organizations to plan for resources allocation. The model gained popularity almost immediately and has since then remained a valuable tool for strategic planning.
However, in application, the model has been found to be marred by a litany of structural problems that have further deepened the confusion in strategic management. For example, the BCG matrix is considered to be too simplistic and fails to define a market clearly. The model also assumes that high market share leads to high profit, which is not necessarily true given that in some circumstances, high market share can mean high business costs. Another failure is in the classification of business into either low or high, which is not correct given that business can also be medium. These and other challenges have made this model hard to implement, especially in today’s competitive environment.
In an effort to bring clarity to the main principles that govern a sound strategic plan, the BCG group has recently unveiled another approach that takes into account all the major factors ignored in the earlier models. In a new book, Your Strategy Needs a Strategy by Martin Reeves, Janmejaya Sinha, and Knut Haanaes of the BCG group, the success of any venture today is no longer defined by a single, overarching strategy but by multiple strategies. The BCG trio argue that with the constantly changing competitive landscape in many industries, businesses speed through the life cycle, and it is therefore important that organizations choose from a strategic palette in the same way as artists choose from a palette of colors.
The book puts forward five distinct approaches to planning, with the aim of helping business leaders to match their strategies with business environments. The classical approach is the first one and entails business planners analyzing the essential elements of their environments and positioning themselves within them. The classical strategy involves finding a good niche, developing a plan to dominate it and then implementing the plan vigorously. This strategy is only successful in stable markets, and given the high volatility in many industries today, companies are making use of the other four approaches to strategy.
For instance, most tech companies today are choosing the adaptive approach. This, according to the BCG trio, is a strategy that requires planners to explore, enable, evangelize and exploit their markets. In simpler terms, the approach means trying many small things and then fully focusing on the ones that work. With the high unpredictability in the tech industry, constant experimentation has become the key to identifying opportunities to help the organization remain competitive. Companies such as Apple and Samsung have been leveraging on this approach to remain on top of the smartphone industry. It is good to note that in the recent past, the two companies have been facing experimentation problems, with Apple being blamed by consumers for “bad innovations” and Samsung’s latest Galaxy Note 7 experiencing a battery crisis.
The third is the visionary approach, which is viable when a business leader can create or recreate an environment independently. Apple Inc was founded on this approach, with Steve Jobs setting the path through the iPod and the iPhone. For this approach to work, the market should be predictable, and a clear plan to change it should be discernible. Whether for big corporations or small businesses, the algorithm for the success of this strategy requires envisioning, realizing the possibilities and persisting in scaling up the opportunities.
The next approach is known as shaping and is recommended when a company can write or re-write the rules of an industry at a nascent stage of its evolution. In this approach, businesses can look for partners that enable them to create new markets. For instance, a financial-services company can work with a software supplier to tap into the mobile money market.
The final strategy, known as “renewal”, is vital when business resources are severely constrained. In this strategy, the business should be refocused decisively to preserve capital and free resources to be directed to the areas of growth. In a classic example, AIG, after receiving a government bailout during the 2008 financial crisis, decided to get out of its many businesses and focus its resources on its key growth areas.
Proper implementation of the above strategies is determined by the ability of an organization to skip nimbly from one approach to another or to pursue several of them simultaneously. However, this plan is not the pinnacle of strategic management. Within a highly dynamic business environment, there is still more to be done to determine what makes the perfect business strategy.