Friday, October 12, 2012

The role that experience and exposure plays in strategic instinct and risk perception

Recently I read an article titled ‘Execution as Strategy’. The title fooled me into thinking that authors are talking about a new approach to strategy. Fortunately, to my understanding, there wasn’t any such attempt in the article because execution is not strategy. In fact another good article that I read this week, ‘Strategy or Execution', which is more important’ clearly explains why execution is not strategy. I am still puzzled over the choice of title to the first article I mentioned above. It nevertheless is an intriguing and insightful article.

From a research, covering 18 companies (in emerging economies), across Asia, Latin America and Middle East, the authors present cases of three companies and their approach to business growth. They all focused on execution as strategy, authors claim. I do not agree with them that execution is the strategy or that these companies do not have a strategy. But those cases presented an interesting picture. They highlighted the difference in strategic make-up and the relevance of it in strategy formulation.

What is the role that experience with respect to stability / environment / economic conditions play in the minds of people who strategize?  The way they perceive risk? The way they operate? A business that has roots in a country known for instability and environment hardships and handled all of them would in all probability be better positioned to take on risks that a western company would hardly be prepared for. The article, 'Execution as strategy' presents the case of Orascom Telecom's, which is from Egypt, entry into turbulent hotspots like Jordan, Lebanon, Yemen, Tunisia, and Algeria and to places like North Korea to capitalize on business opportunities to grow the business. How many western telecom players would consider these countries as potential market for entry? These countries do present business opportunities and some of them with huge markets, yet not all who are capable would enter these markets that too straight away  It requires experience of handling things in similar markets or terrible guts. Not just that, but readiness to compromise on some of the proclaimed corporate values. That begs a question whether companies from the developed world are at a disadvantage, irrespective of their strategy and operational capabilities and sophistication, compared to companies from emerging economies in capturing business opportunities in emerging countries?

It’s not just entering turbulent / unstable economies that emerging economy companies have advantage in but also they can decide and act quickly as exampled by Grupo Bimbo’s case, as given in the article ‘Execution as strategy’. Businesses for which stability is not a given and grew up in fluctuating environments would move faster to seize opportunities. They would probably not go through tedious strategic planning exercises to vet numbers and then decide on entry. Planning an entry in five years’ time or even in two years’ time, as would many western companies plan, would be foreign to them.

Strategy is about choices but how aggressive are those choices and how quickly a business can strategize and move are determined by the background of a business or the people who lead the business if we go by the cases presented by the authors of ‘Execution as strategy’.  In the article they claim that businesses from emerging economies have a higher appetite for risk and higher tolerance for failure. So the strategic make-up  if I could it term it that way, plays a vital role in the strategy of a business. How aggressive is the strategy and how quickly a business decides and acts is hugely determined by the strategic make-up of the company. 

Saturday, September 29, 2012

What is strategy?

I have been studying a lot on strategy of late and recently compiled my thoughts on strategy. My readings, rereadings include, Competitive strategy by Porter, Porter's famous HBR article What is strategy?, Strategy Safari by Mintzberg besides other titles. These readings have shaped up my understanding of the topic and sharing them all below for those who may benefit from it and for those who will enlighten me further with their comments and thoughts.

Strategy is a combination of choices that a business makes and implements to achieve its guiding purpose. This may include
  • choosing customers / segments
  • choosing products and/or services and varieties within them
  • choosing geographies
  • choosing the value proposition
  • choosing how the value is configured
  • choosing how the value is delivered

Strategy need not be an explicit exercise. A professional who goes about his job in a chosen way and manner and consistently winning customers with the value he delivers and expanding his business does have a strategy even if he hadn’t thought about it or spent hours analyzing his competitors / industry.
Strategy exercise need not be an annual event or for that matter occupy one’s calendar periodically. As the situation demands or as foreseen, strategy exercise should kick start. In a happening industry / environment companies may be forced to re look at their strategy every six months. In a sedate or mature industry, strategy can even be a once in two or three year’s affair. The determinant for the timing of strategy exercise is the ground situation (either real or forecasted) and not the calendar. However nothing stops periodic review of business strategy to confirm assumptions / choices made and that the performance is on desired lines.
Strategy should be flexible to accommodate changes as may be necessitated by changing (either real or forecasted) situations. This requires feedback systems that track how well, strategy originally formed is implemented and serves its purpose.
·      Every business must keep learning about its business / customers / performance / competitors / suppliers / substitutes / any factor that impacts its revenue and the very purpose for which it exists
Strategy may be formally formed at the top but the inputs for the same should come from all interested sources from within and from all corners of a business / company. Feedback systems play a huge role in strategy formation.
Strategy = Thinking + action. Strategy is “an elaborate and systematic plan of action” is how the dictionary defines it. Strategy sans action is not strategy but just a theorization of how an organization should move forward.
Critical factors in strategy formation are capabilities, environment and strategic insight.  Capabilities involve both internal and partner capabilities while environment refers to industrial, regulatory and social environments. Strategic insight (customer insight + market insight + feedback) refers to the knowledge that a company develops by observing and learning about
  • how well it’s products / services are received by the market
  • customer experiences and what is missing in that experience
  • changing tastes / preferences of customers
  • how substitutes and complementary products / services are shaping up
  • how various players and their capabilities threaten / complement the businesses’ position
  • how the business has performed in meeting the demands of the customers / market, where it has failed, where it succeeded and what it needs to achieve
  • gaps in capabilities, resources and infrastructure

A business needs to formulate / reformulate strategy under following situations.



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