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Does your strategy pass the no test?
DOES YOUR STRATEGY PASS THE NO TEST? Jorge Vasco~ce~los e Sli,
Assistant Professor, New University and Catholic University, Lisbon
Widely circulating magazines and journals have recently reported a growing disenchantment with strategic planning. (I) According to them, some corporations feel that strategy has failed to live up to its promises either in terms of adapting the organization to the environment or in integrating managers’ actions towards common goals. Based on my experience as a consultant to both multmationai and large national European firms, 1 believe that this disenchantment with strategy, rather than to any lack of utility of the concept of strategyl should be attributed to the way strategy is frequently first formulated and then implemented. Indeed, most pIanning systems I have seen are a ritual, where forms are fined in with pious platitudes and vague intentions to which any person with good sense would give accordance. Managers fill in the forms, send them to the head office and then go back to business as usual. Consequently, whatever is written on the planning forms has very little, if any, impact on the day to day behaviour of managers. I~ss~ A&off has said that these planning systems are like “ritual rain dance which has no effect on the weather that follows but those who engage in it think it does” (2). The new fact, however, is that even those who participate in the rain dance are starting to disbelieve it.
At the heart of the problem is the violation of the first test that any strategy must pass. We shall call this the NO TEST. This no test addresses strategy formulation, strategy implementation and budgeting.
Strategy planning is getting a bad press with managers. Jorge VascanceBos e 56 argues that it is not so much the concept that is wrong, it is the way it is formulated and carried out. Try seeing if your proposed strategy can jump some negative hurdles
before taking any action.
The
NO
areffs
TEST
Is it clear ~~~~~h you are not going tk-~ compete in?
fsfrutegifforwrufation):
ofthe ~u~r~~~~t
ft should be recalled that strategy comes from the Greek “strategos” (general) and “‘strategia” (generalship) and that strategy in the military field concerns the decision about where to engage the enemy, prior to engagement.
Consequently, in the field of organizations, strategy concerns “how to position and relate the firm to its environment in a way which will assure its continued success and make it secure from surprises” (3). That is to decide where the organization is and is not going to be. Therefore any strategic statement in order to be useful, must first of all be selective. This selectiveness means three different things. First, a useful strategic statement should be clear regarding which industries the organization is not going to be in. Vague statements such as “‘our objective is to be sufficiently profitable so that our business may grow and be healthy” or, “we aim at leadership in the business world through new product development and aggressive marketing”, or even, “we want to maximize our growth potential through products of the highest quality?‘, may be good public relations, but they are not strategic statements. ft remains unclear in which industries the firm will and will not compete, and therefore we know nothing about how the organization positions itself in the environment. Second, since no industry is homogeneous, but fragmented into various segments, there follows the implicatian that a useful strategy s&atementmusf atso specify, among all i~dust~ segments, the ones #harry is going to f3cUfon. For instance, the strategy of a
178 JORGE YASCONCELLUS E SA
marketer of mineral water will have to opt among the status, refreshment, low price and health segments (among others). Similarly, the strategic statement of a shoe manufacturer should indicate among the various industry segments, (boys, girls, fashion, low price etc) which segments the firm is going to avoid and in which it is going to invest. Third, all industries have different clients (eg kitchen appliances can be sald to couples or home builders) different products (micros, super micros, minis and mainframes within the computer industry) serve different needs (a Rolex satisfies primarily the status need and just secondarily the need to know the time); and different geographical areas (Europe, USA, within the USA: New England, Midwest etc). The existence of these different clients, products, needs and geographical areas can be used to segment the industry, For instance, in the air travel industry one can find airlines focusing on a regional market (Texas Airlines}, in a specific type of client such as executives (Scandinavian Airline Systems), offering low price packages of traveI and tourism (Nouvelle FrontiPre), and satisfying the need of transporting heavy cargo such as computers, components and industrial equipment (Emery Air Freight CO; CF Air Freight). Therefore, to indicate which industry segments a firm is not going to be in, means to list in very detailed terms the type of clients, producfs, needs, and geographical areas that the firm
will not serve.
In some circumstances, a firm may opt for a global
strategy, that is, for being present in all segments of an industry. En such a case it should nevertheless list all types of client needs, products and geographical areas which will be handled in order to make sure that it realizes fully the implications and requirements of such a strategy.
The second NO TEST Csfrafegic implementation): clear which departments will not be enhanced?
Is if
Segments belonging to different industries, and segments belonging to the same industry but very different in terms of clients, geographical areas, needs and products, should be addressed by distinct strategic business units or profit centres. Within each of those segments, success will depend more on some tasks than upon others. The former tasks we call critical success factors. For instance, in the small batch machine tools industry the critical success factors are service, image, product development and technical knowledge of the plant workers.
This means that within each segment, some tasks (the success factors) must be performed excellently. All others require only satisfactory performance. By concentrating on achieving excellence in a few tasks, the organization cart avoid global mediocrity. Excellence in success factors requires that the departments which handle them be enhanced both in terms of structure, personnel and management systems. That is, the departments which handle the critical tasks for success (eg service, distribution, purchasing, and engineering) should report directly to the general manager of the SBU or profit centre in the organization chart, have the most able managers and best trained people, possess the better information and control systems, and receive the bulk of the CEO’s time and attention. In other words, a useful strategic statement should make it clear within the various SBU/profit centres, which departments will be stressed in terms of structure, people and systems. In all other departments the target should be satisfactory performance.
Since some departments (those which handle the critical success factors) are more important than others, a well elaborated budget should be profoundly inegalitarian.
The vast majority af the firm’s financial resources should be allocated to the critical departments, al1 other departments receiving only the financial resources necessary to achieve a satisfactory level of service. Thefourfh test: The wonsistency fesf: Are the three answers to the above mentioned questions consistent?
The three tests mentioned above imply that a well defined strategy should be able to answer very precisely: 1. Which industries and segments the organization is not going to be in - which types of clients,
needs, products and geographical areas will not be served. 2. Which departments will not be stressed and will aim only for satisfactory performance. 3. Which areas of the organization will not receive the bulk of the financial resources of the budget? A useful strategic statement should give consistent answers to the three above framed questions. That is, the majority of the budget shouId go to the same departments that will be enhanced in terms of
DOES YOUR STRATEGY
structure, staffing and management systems. These departments must be the ones which handle the critical success factors of the segments the firm is in. These success factors should match the organizational strengths.
The Scheme illustrated departments enhanced
segments success factors
organizational strengths
A heuristic rule: define and implement your strategy by the negative If your strategy is badly formulated and implemented it does more harm than good to your organization. Its practical benefits will be nil, but it will have considerable costs in terms of managerial time, money allocated to the planning process, and lost credibility of the managers who introduced strategic planning into the organization. In order to avoid this, and ensure that the four above mentioned tests will be passed, it is useful to define your strategy by the negative: start by writing down in your strategic plan the industry segments your organization will not serve: which departments will not be
PASS THE NO TEST?
considered critical: which services the budget will unfavourable to And then focus on what remains.
179
be
This practical rule will force your organization to be concrete, specific and selective when formulating its strategy. Since that is the first step for a strategic planning process to be useful, chances are that the participants will start believing in the rain dance, and changes in the weather may even follow.
References 1
Eg. The New Breed of the Strategic Planners; Business Week, September 1984. Why we need a Revolution in Strategic Planning, C. Stebbart, Long Range Planning, 18, pp. 68-76, 1985; The failure of Strategic Planning; M.C. Lowenstein, Journal of Business Strategy, 6: pp. 75-80, Spring 1986; Strategic Planning: What it can and can’t do, R.H. Cross, 3d, Advanced Management lournal, 52, pp. 13-16, Winter, 1987. 2. R. Ackoff, Creating the Corporate Future, John Wiley & Sons, New York, 1981. 3. H.J. Ansoff, Implanting Strategic Management, Prentice-Hall, 1984. 4. See: Vasconcellos, J: Doctoral Dissertation, Graduate School of Business, Columbia University, 1984.
Assistant Professor, New University and Catholic University, Lisbon
Widely circulating magazines and journals have recently reported a growing disenchantment with strategic planning. (I) According to them, some corporations feel that strategy has failed to live up to its promises either in terms of adapting the organization to the environment or in integrating managers’ actions towards common goals. Based on my experience as a consultant to both multmationai and large national European firms, 1 believe that this disenchantment with strategy, rather than to any lack of utility of the concept of strategyl should be attributed to the way strategy is frequently first formulated and then implemented. Indeed, most pIanning systems I have seen are a ritual, where forms are fined in with pious platitudes and vague intentions to which any person with good sense would give accordance. Managers fill in the forms, send them to the head office and then go back to business as usual. Consequently, whatever is written on the planning forms has very little, if any, impact on the day to day behaviour of managers. I~ss~ A&off has said that these planning systems are like “ritual rain dance which has no effect on the weather that follows but those who engage in it think it does” (2). The new fact, however, is that even those who participate in the rain dance are starting to disbelieve it.
At the heart of the problem is the violation of the first test that any strategy must pass. We shall call this the NO TEST. This no test addresses strategy formulation, strategy implementation and budgeting.
Strategy planning is getting a bad press with managers. Jorge VascanceBos e 56 argues that it is not so much the concept that is wrong, it is the way it is formulated and carried out. Try seeing if your proposed strategy can jump some negative hurdles
before taking any action.
The
NO
areffs
TEST
Is it clear ~~~~~h you are not going tk-~ compete in?
fsfrutegifforwrufation):
ofthe ~u~r~~~~t
ft should be recalled that strategy comes from the Greek “strategos” (general) and “‘strategia” (generalship) and that strategy in the military field concerns the decision about where to engage the enemy, prior to engagement.
Consequently, in the field of organizations, strategy concerns “how to position and relate the firm to its environment in a way which will assure its continued success and make it secure from surprises” (3). That is to decide where the organization is and is not going to be. Therefore any strategic statement in order to be useful, must first of all be selective. This selectiveness means three different things. First, a useful strategic statement should be clear regarding which industries the organization is not going to be in. Vague statements such as “‘our objective is to be sufficiently profitable so that our business may grow and be healthy” or, “we aim at leadership in the business world through new product development and aggressive marketing”, or even, “we want to maximize our growth potential through products of the highest quality?‘, may be good public relations, but they are not strategic statements. ft remains unclear in which industries the firm will and will not compete, and therefore we know nothing about how the organization positions itself in the environment. Second, since no industry is homogeneous, but fragmented into various segments, there follows the implicatian that a useful strategy s&atementmusf atso specify, among all i~dust~ segments, the ones #harry is going to f3cUfon. For instance, the strategy of a
178 JORGE YASCONCELLUS E SA
marketer of mineral water will have to opt among the status, refreshment, low price and health segments (among others). Similarly, the strategic statement of a shoe manufacturer should indicate among the various industry segments, (boys, girls, fashion, low price etc) which segments the firm is going to avoid and in which it is going to invest. Third, all industries have different clients (eg kitchen appliances can be sald to couples or home builders) different products (micros, super micros, minis and mainframes within the computer industry) serve different needs (a Rolex satisfies primarily the status need and just secondarily the need to know the time); and different geographical areas (Europe, USA, within the USA: New England, Midwest etc). The existence of these different clients, products, needs and geographical areas can be used to segment the industry, For instance, in the air travel industry one can find airlines focusing on a regional market (Texas Airlines}, in a specific type of client such as executives (Scandinavian Airline Systems), offering low price packages of traveI and tourism (Nouvelle FrontiPre), and satisfying the need of transporting heavy cargo such as computers, components and industrial equipment (Emery Air Freight CO; CF Air Freight). Therefore, to indicate which industry segments a firm is not going to be in, means to list in very detailed terms the type of clients, producfs, needs, and geographical areas that the firm
will not serve.
In some circumstances, a firm may opt for a global
strategy, that is, for being present in all segments of an industry. En such a case it should nevertheless list all types of client needs, products and geographical areas which will be handled in order to make sure that it realizes fully the implications and requirements of such a strategy.
The second NO TEST Csfrafegic implementation): clear which departments will not be enhanced?
Is if
Segments belonging to different industries, and segments belonging to the same industry but very different in terms of clients, geographical areas, needs and products, should be addressed by distinct strategic business units or profit centres. Within each of those segments, success will depend more on some tasks than upon others. The former tasks we call critical success factors. For instance, in the small batch machine tools industry the critical success factors are service, image, product development and technical knowledge of the plant workers.
This means that within each segment, some tasks (the success factors) must be performed excellently. All others require only satisfactory performance. By concentrating on achieving excellence in a few tasks, the organization cart avoid global mediocrity. Excellence in success factors requires that the departments which handle them be enhanced both in terms of structure, personnel and management systems. That is, the departments which handle the critical tasks for success (eg service, distribution, purchasing, and engineering) should report directly to the general manager of the SBU or profit centre in the organization chart, have the most able managers and best trained people, possess the better information and control systems, and receive the bulk of the CEO’s time and attention. In other words, a useful strategic statement should make it clear within the various SBU/profit centres, which departments will be stressed in terms of structure, people and systems. In all other departments the target should be satisfactory performance.
Since some departments (those which handle the critical success factors) are more important than others, a well elaborated budget should be profoundly inegalitarian.
The vast majority af the firm’s financial resources should be allocated to the critical departments, al1 other departments receiving only the financial resources necessary to achieve a satisfactory level of service. Thefourfh test: The wonsistency fesf: Are the three answers to the above mentioned questions consistent?
The three tests mentioned above imply that a well defined strategy should be able to answer very precisely: 1. Which industries and segments the organization is not going to be in - which types of clients,
needs, products and geographical areas will not be served. 2. Which departments will not be stressed and will aim only for satisfactory performance. 3. Which areas of the organization will not receive the bulk of the financial resources of the budget? A useful strategic statement should give consistent answers to the three above framed questions. That is, the majority of the budget shouId go to the same departments that will be enhanced in terms of
DOES YOUR STRATEGY
structure, staffing and management systems. These departments must be the ones which handle the critical success factors of the segments the firm is in. These success factors should match the organizational strengths.
The Scheme illustrated departments enhanced
segments success factors
organizational strengths
A heuristic rule: define and implement your strategy by the negative If your strategy is badly formulated and implemented it does more harm than good to your organization. Its practical benefits will be nil, but it will have considerable costs in terms of managerial time, money allocated to the planning process, and lost credibility of the managers who introduced strategic planning into the organization. In order to avoid this, and ensure that the four above mentioned tests will be passed, it is useful to define your strategy by the negative: start by writing down in your strategic plan the industry segments your organization will not serve: which departments will not be
PASS THE NO TEST?
considered critical: which services the budget will unfavourable to And then focus on what remains.
179
be
This practical rule will force your organization to be concrete, specific and selective when formulating its strategy. Since that is the first step for a strategic planning process to be useful, chances are that the participants will start believing in the rain dance, and changes in the weather may even follow.
References 1
Eg. The New Breed of the Strategic Planners; Business Week, September 1984. Why we need a Revolution in Strategic Planning, C. Stebbart, Long Range Planning, 18, pp. 68-76, 1985; The failure of Strategic Planning; M.C. Lowenstein, Journal of Business Strategy, 6: pp. 75-80, Spring 1986; Strategic Planning: What it can and can’t do, R.H. Cross, 3d, Advanced Management lournal, 52, pp. 13-16, Winter, 1987. 2. R. Ackoff, Creating the Corporate Future, John Wiley & Sons, New York, 1981. 3. H.J. Ansoff, Implanting Strategic Management, Prentice-Hall, 1984. 4. See: Vasconcellos, J: Doctoral Dissertation, Graduate School of Business, Columbia University, 1984.