К содержанию номера журнала: Вестник КАСУ №4 - 2005
Авторы: Азимова У.Р., Бокенова Г.К.
basic goal of any strategy is to win the customer's preference and create a
sustainable competitive advantage, while maximizing shareholders wealth.
It defines a business's
direction and positions it to move in that direction. Why, then, do so many
understand that a good strategic planning process also requires the utmost
attention to the how of executing the strategy. A robust strategy is not
a compilation of numbers or what amounts to an astrological forecast when
companies extrapolate numbers year by year for the next ten years. Its
substance and detail must come from the minds of the people who are closest to
the action and who understand their markets, their resources, and their
strengths and weaknesses.
contemporary strategic plan must be an action plan that business leaders can
rely on to reach their business objectives.
such a plan starts with identifying and defining the critical issues behind the
strategy. How is the business positioned in the context of its business
environment, including its market opportunities and threats, and
its competitive advantages and disadvantages?
Once the plan has been developed, the question needs to be asked: How good are
the assumptions upon which the plan hinges? What are the pluses and minuses of
the alternatives? Is there organizational capability to execute the plan? What
needs to be done in the near and medium terms to make the plan work in the long
run? Can the plan be adapted to rapid changes in the business environment?
realism in the strategy it needs to be linked to the people process: Do the
company have the right people in place to execute the
strategy? If not, how is the company going to get them? It is important link
the strategic plan's specifics to the operating plan, so that the moving
multiple parts of the organization are aligned to get the company where it
wants to go.
substance of any strategy is summed up by its building blocks: the half-dozen
or fewer key concepts and actions that define it. Pinpointing the building
blocks forces leaders to be clear as they debate and discuss the strategy. It
helps them judge whether the strategy is good or bad and why. It provides a
basis for exploring alternatives if needed.
the building blocks are clearly defined, the essence of even the most complex
strategy can be expressed on one page. For example, in 1991 a $500 million
business unit of an industrial company, a supplier to major auto manufacturers,
was barely breaking even. Its product was considered a commodity and was under
continued pricing pressure from its customers. The unit developed a new
strategy based on three building blocks. The first was to lower costs by moving
production out of the United States to a network of plants well positioned to
serve both global customers and local markets. The second was to continually
redesign the product to achieve technological differentiation, which would add
value and command higher prices. The third was to create a new organizational
structure staffed with carefully selected management teams. Marketing remained
localized, but product development, technology, manufacturing, and finance were
made into global organizations. The unit executed all three of these building
blocks simultaneously, and it achieved excellent margins and returns. Today it
is the supplier of choice for the world's top ten automotive customers.
Throughout the process, the unit's leaders kept in touch with reality. For
example, the original plan called for moving the technology program
from the United States to a lower-cost country. But
when American engineers balked at making the move, it abandoned this idea. The
leaders also kept the strategy up to date, reviewing the plan three times a
year and refining it as conditions changed.
focus of this part is on business unit strategy, but it's important to
understand the distinction between strategy at the business unit level and
strategy at the corporate level. Corporate-level strategy is the vehicle for
allocating resources among all of the business units. But it should not be
simply the sum of those parts. If it is, then the business units could do just
as well standing on their own (or better, since they wouldn't bear the burden
of corporate overhead). Corporate leaders must add value to strategies created
at the business unit level. At GE, for example, the boundarylessness that Jack
Welch introduced assures a constant exchange of ideas and best practices among
diverse business managers, significantly multiplying the company's intellectual
strategy analyzes the mix of businesses and makes decisions about whether the
mix should change in order to earn the best sustainable return on the company's
capital. For example, GE exited the aerospace business when the Reagan
presidency ended, anticipating the relative decline in defense expenditures and
a fast consolidation of the industry. Jack Welch thought that financial and
managerial resources would earn greater returns elsewhere. Strategic value is
also added by initiatives to improve performance throughout the company, such
as Six Sigma, digitization, and implementation of a good people process. GE's
celebrated people process started as a Jack Welch initiative for human
resources to produce a systematic way of assessing talent that would help
develop future leaders. More recently, GE has formalized the search for GE
"diamonds in the rough," people of substance who may not have the
polish of some of their peers and who might get overlooked at other companies.
They may be struggling in their current jobs because of circumstances they
cannot control, such as working for a bad boss. The initiative will help move
these people to better environments where they can grow and be ready to take on
more responsibility in the future.
a business unit creates its strategy, it clearly lays out in specific terms the
direction of the unit: where it is now, where it will be going it in the
future, and how it will get there. It looks at the cost of the strategic
results it wants to achieve in terms of the capital resources it needs,
analyzes the risks that are involved, and instills flexibility in case new
opportunities arise or the plan fails. The strategy statement elucidates the
positioning of the business in the context of its market segment map and
analyzes the strengths and weaknesses of competitors. A business unit strategy
should be less than fifty pages long and should be easy to understand. Its
essence should be describable in one page in terms of its building blocks. If
the strategy can not be described in twenty minutes, simply and in plain
language, you haven't got a plan. "But," people may say, "I've
got a complex strategy. It can't be reduced to a page." That's nonsense.
That's not a complex strategy. It's a complex thought about the strategy. The
strategy itself isn't complex. Every strategy ultimately boils down to a few
simple building blocks.
good strategic plan is a set of directions you want to take. It's a roadmap,
lightly filled in, so that it gives plenty of room to maneuver. It gets
specific when deciding the action part of the plan, where it gets linked with
people and operations.
be effective, a strategy has to be constructed and owned by those who will
execute it, namely the line people. Staff people can help by collecting data
and using analytical tools, but the business leaders must be in charge of
developing the substance of the strategic plan.
know the business environment and the organization's capabilities because they
live with them. They are in the best position to introduce ideas; to know which
ideas will work in their marketplace and which ones will not; to understand
what new organizational capabilities may be needed; to weigh risks; to evaluate
alternatives; and to resolve critical issues that planning should address but
too often does not. Not everyone can learn to be a good strategic thinker, of
course. But by working in a group, guided by a leader who has a comprehensive
understanding of the business and its environment, and by using the robust
dialogue that's central to the execution culture, they all can contribute
something—and all will benefit from being part of the dialogue.
good strategy process is one of the best devices to teach people about
execution. It makes the mind better at detecting change; pieces of paper do not
do that. People learn about the business and the external environment— not just
data and facts, but how to analyze it and use judgment. How is the plan put
together? How is it synchronized? They discover insights, and develop their
judgments and intuition. They learn from mistakes: "Why, when we made our
assumptions, did we not see the changes that overtook us?" Discussing
these things creates excitement and alignment. In turn, the energy that these
discussions build strengthens the process. The leader of a business has to own
the strategy development. He does not have a strategic planner do all the work,
then come in and introduce himself to the subject the day it is being
presented. He takes responsibility for the construction of the plan and gets
some help, and then—once everyone agrees with the strategy—he takes
responsibility for developing action plans.
start the planning process at Honeywell, the CEO calls the head of each unit,
along with the strategic planner in his place and maybe one of the corporate
staffers, and then they get agreement on the critical issues confronting the
plan. After the plan has been constructed, but before the CEO reviews it at the
corporate level, each leader will have reviewed that plan with his subordinates
and gotten their input on it. After all, these are the people who will have to
implement the plan.
astonishing number of strategies fail because leaders do not make a realistic
assessment of whether the organization can execute the plan. This was one of
the problems at Xerox, Lucent, and AT&T.
do you make such an assessment in your business? In a sense, this should not
even be a question. If the CEO is doing his as a leader—if the leader is
intimately involved in the three core processes, running the robust dialogues
that permit candid assessments—the leader cannot help but have an idea of
capabilities. But it is wrong to stop there. Listen to the customers and
suppliers. Get all the leaders to do the same, and ask them to report what they
have heard, and it should not be forgotten the security analysts, who look at
the leader sharply from the outside. Some are good, some are not, but after a
while the leader will know which ones he/she can learn from.
leader measures organizational capability by asking the right questions. If the
strategy requires a worldwide manufacturing capacity, for example, the leader
needs to ask: "Do we have people with global experience? Do we have people
who know how to source? Do we have people who can run a supply chain that
extends worldwide?" On a scale of one to ten, if the answers come up a
six, the company does not have enough capability.
goals bring reality to a strategic plan. If the business does not meet goals as
it executes the plan, leaders have to reconsider whether they have got the
right strategy after all. In the Honeywell automotive business mentioned
earlier, the short-term and medium-term milestones were to develop programs to
move to low-cost manufacturing locations, as well as to create and execute a
technology map to differentiate the product and increase margins. The long-term
(five-year-plus) mission was to position the business so that it could break
out of the auto industry and adapt the technology to serve customers in other
good strategic plan is adaptable. Once-a-year planning can be dangerous,
especially in short-cycle businesses where markets will not wait on the
planning schedule. Periodic interim reviews can help to understand what is
happening and what turns in the road are going to be necessary. This is another
reason the business leaders have been in on the plan from the beginning.
Because they helped build it and they own it, they carry it around in their
heads all the time—unlike a staff-driven planning book, which will spend a year
on shelves before being discarded. So they can regularly test it against
reality. And because the leader has crystallized the essence, it does not take
too long to implement changes.
planning needs to be conducted in real time, connected to shifts in the
competitive environment and the business's own changing strengths and
weaknesses. This means defining the mission in the short to medium term as well
as in the long term. Breaking the mission down into these chunks will help
bring reality to the plan—thinking about what will deliver results in the short
and medium term will give an anchor to build for the future.
customer preferences to cash flows, can change in mere moments. Businesses have
to prepare themselves to adapt to an economy of constant change. In developing
the plan, the company needs to look ahead to landscapes that are more likely
than not to change before the plan can come to completion.
say the CEO decides to move some of the plants to low-cost countries, it is not
necessary to decide on which plants too far in advance. Opening a plant in,
say, Russia may be attractive now, but a year from today it may not be the best
alternative. The point is first to get the principle across—in this case, the
need to reduce costs by moving some part of the operation to a new locale. Then
make a concrete decision as the company move closer to the date.
the short run with the long run is thus a critical part of a strategic plan.
Most plans do not address what a company has to do between the time the plan is
drawn up and the time it is supposed to yield peak results. A plan that does
not deal with the near-term issues of costs, productivity, and people makes
getting from here to there unacceptably risky—and often impossible.
mastered the art of balancing the short term and the long term from the time it
was a $200 million company. They understood that to win in their game, they
must invest in improving manufacturing processes and equipment ahead of the
new-generation technology, so that it can be tested. That way they are ready
for the next generation, thus meeting short-term goals and also building for
the longer run.
this balance requires creativity and idea generation, finding resources outside
the corporation if necessary for the long term. That is common now in the
pharmaceutical industry. Warner-Lambert, in developing the cholesterol-lowering
drug Lipitor, needed resources as well as more extensive sales coverage
globally. It negotiated with Pfizer to co fund development and launch the
molecule underlying Lipitor. Warner-Lambert got a $250 million check from
Pfizer, thus gaining resources from outside and, at the same time, improving
its market position with more sales coverage.
companies such as Colgate-Palmolive and Emerson Electric generate resources
that build for the future through productivity-improvement programs. Colgate is
one of the very best examples of a company that delivers short-term results
quarter after quarter. It has an enviable record of increasing margins every
year and out competing its major competitors in earnings growth, sales, and
cash generation. Not only does its total toothpaste product line make it number
one in sales and market share, but its consistent practices every year to
develop and execute productivity programs funds the growth projects of the
future. Unique among consumer goods companies, Colgate now has a global group
working on ideas for growth and productivity.
important to write about the critical issues facing the business.
business has half a dozen or so critical issues—the ones that can badly hurt it
or prevent it from capitalizing on new opportunities or reaching its
objectives. Addressing these usually requires research and thought. Outlining
the critical issues in the strategic plan helps focus the preparation and
dialogue when it comes time to review the strategy.
highly indebted company's huge consumption of cash and its loss of market share
brought it to a financial crisis in the year 2000 because management failed in
the execution of its plans to reorganize the sales force by industry and to
consolidate its administrative centers. Critical issues such as this need to be
the subject of robust dialogue during the building of the plan. If problems
arise, they should be placed on the table for discussion by including them in
the plan. "Why did the company lose market share last year in this
business for a key product? Why the company cannot achieve higher productivity?
Why the company cannot grow more rapidly in China? Why does the company continue to have
quality problems? How can the company continue to grow the market?" The
five or six issues need to be reviewed to provide data and make recommendations
and debate, and ultimately you achieve a resolution. That is part of a
productive strategic planning exercise.
strategies fall apart because the right critical issues are not raised. AT&T's
critical issues included the decline in long-distance revenues and the
organizational capability to execute a major shift in strategy. The Iridium
consortium—the joint effort of Motorola and TRW to develop a satellite
telecommunications system able to link phones worldwide—confronted two critical
issues. One was how to create enough demand to bring prices down enough to
build a sizable market; the other (related to the first) was to develop
handheld units’ small enough that consumers would be able to conveniently carry
them around. The strategy failed on both counts.
2001 Dell Computer was beginning to face its critical issue—the dim long-term
outlook for PCs. No matter how much market share Dell stood to gain, the market
had no foreseeable heady growth. An initial step in the right direction was to
form an alliance with EMC to market EMC's storage equipment. A stronger option
was to expand into the adjacent segment, servers, where the growth potential is
far higher than for PCs. But can Dell's low-margin, high-velocity model, which
works so well for PCs, be effective with more technologically sophisticated
strategy must lay out clearly the specifics of the anatomy of the business, how
it will make money now and in the future. That means understanding the
following foundations, the mix of which is unique for every business: the
drivers of cash, margin, velocity, revenue growth, market share, and
competitive advantage. For example, the division manager we discussed earlier
who was proposing a $300 million investment for a new product would need to
present the following information to answer the question about how his strategy
for the product would make money and provide adequate return on investment:
- Pricing at different levels of
demand. Will the customer pay a premium for what you claim is a
- Cost and cost structure now and
in the future.
- Cash required for working capital.
- Actions required to ramp up revenue
- The investment required to market the
- Continued investments in technologies to
prepare for the next generation of product.
- Competitors' pricing reactions.
now it is hoped the reader can see that a strategic plan contains ideas that
are specific and clear. It is not a numbers exercise. Numbers are obviously
needed, but those that are detailed line by line and are mechanically
extrapolated over five years offer little in the way of insight. The numbers
the company needs are those that add to the robustness of the ideas in the
questions are not mechanical, either. The ones that are important will vary
from situation to situation and from year to year. So will the answers—what is
right for one business today may not be right for another business, or for the
same business. A plan prepared according to the guidelines and questions
outlined in this publication provide the foundation for the success of the
of getting thing done”. 2002 by Larry Bossidy and Ram Charan.
“Management”, 1992 by
Michael H. Mescon, Michael Albert and Franklin Khedouri.
К содержанию номера журнала: Вестник КАСУ №4 - 2005