Interview: Professor Cliff Bowman
Strategy in Practice
DM
Hello, welcome to this Cranfield University podcast. I am David
Medcalf and today I am talking to Professor Cliff Bowman about his
book Strategy in Practice. Now Cliff, Lou Gerstner famously once
said that the last thing IBM needed at the moment was another
strategy. So what is the point of strategy?
CB
It is a good question, and in fact the guy that has just taken over
Woolworths said pretty much the same thing recently as well – ‘the
last thing we need now is another strategy’. Now my view is really
quite clear. If you are running any organisation, it’s a very stressful
job and unless you have a view – and let’s just call it a view – about
where you think you should be taking this organisation, then the job
becomes even more stressful.
Now the reason for that is that you will still be making decisions on a
daily basis, if you don’t have a clear view then those decisions will
be taken on fairly ad hoc criteria and my view is that if you care
about what you are doing, and of course most people in those roles
really do care about what they are doing, then that ad hocery will
cause you stress because you will not be clear or confident that you
are making the right choices.
If you have a clear view, and if the decisions that you take are in line
with that view, then that provides clarity to the rest of the
organisation. They can see where we are headed, they might not
agree with it, but at least there is a direction. So that is why it is
important.
DM
Now, the book is called Strategy in Practice. Can you give us your
view on what are the myths of strategy, and particularly what isn’t a
good strategy?
CB
I suppose, if we take the last question first, what is not a good
strategy is something that doesn’t provide the clarity of direction to
enable yourself and other people that report to you to make
decisions today.
The utility of a strategy is that it helps you decide things now. The
real value of a strategy can only be assessed in retrospect: did it
lead to what we hoped it would lead to, in a firm’s case, did we
grow? Did we make more profits?
As far as myths about strategy are concerned, I can pick up at least
three. One is where we attribute to individuals amazing foresight,
whereas in fact there was an awful lot of luck involved and in very
highly populated business environments somebody is going to come
Professor Cliff Bowman
through, but to suggest that they necessarily could foresee the
future and that their success is purely a result of their ability to
strategise better than anybody else, I think we need to take some of
that with a pinch of salt. So that is one kind of myth.
The second is to do with the fact that the future is unknowable.
There are no facts associated with the future, so all we have are
opinions. So whatever strategy you come up with is based on some
assumptions and some judgements that you make today because
we can’t know even what is going to happen next week, let alone in
five years’ time.
And the third one, I suppose, is there are limits to what you can
quantify. And if you look at an organisation, which is a very
complex process which has many interactions internally and
externally, only a small subset of what is going on in an organisation
is amenable to quantification. An awful lot of what is most
important, as we will perhaps discuss later on, is very subtle and not
obvious and not amenable to measurement. So therefore to build
strategies on the basis of numbers, and solely on the basis of
numbers, is a mistake.
DM
In your book you pick out five key questions that you need to
answer in relation to strategy – would you mind just giving us an
overview of what these are and why you believe they are important.
CB
Yes – the five key questions. Firstly, where should we compete?
What markets should we be in? Specifically, what segments of
those markets should we be targeting? Now the important point
here is that what I see happening in practice is when we are under
pressure to hit, say, budgets there is a strong tendency to take any
business we can get which enables us to hit the short term target,
but can lead to all sorts of problems further down the road. Some
of the business we take on is unprofitable, we can end up spreading
our resources thinly over a ragbag of stuff and thereby lose
competitive advantage in specific market areas. So that is the first
question – let’s be clear about the markets, the places where we are
trying to compete.
Second question then is in those chosen markets, how do we think
we can gain sustainable competitive advantage? Now this, of the
five questions, I would say is probably the key – the most difficult to
address.
Now the third question flows from the first two. If we are clear
about where we are trying to compete and how we are going to gain
and sustain advantage in those chosen markets, we should then be
able to form a clear view about what do we need to be good at to do
that. So what assets do we need? What capabilities? What
know-how do we need to have or develop or acquire to enable us to
pursue that strategy? Now that is the third question.
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Professor Cliff Bowman
Now the fourth question is then compared to what we need to
deliver this strategy. What have we actually got today? So what
capabilities and assets do we have today? Now when you
compare what we have with what is required this normally reveals a
bit of a gap. Now you may well judge that that gap is too big to
close, so you might have to iterate through those questions again –
the four questions. And I think it is better to look at this as an
iterative process. Now hopefully at some point you say, yes this
does make sense, this is doable. It will enable us to hit our targets.
And then you are addressing the fifth question, which is how to
change. How do we move from where we are towards where we
need to be? And what we must have there are clearly identified
actions and each action must be owned by one person, not a
committee because otherwise nothing happens. People have to
feel personally accountable for moving this part of the thing on.
So those are the five key questions. Now why they are important is
because they cover off a large area of what needs to be decided
strategically if you are responsible for running a business. And if
you have clarity about those answers, then it enables you to make
day to day operational decisions with a lot more confidence.
DM
As you say, the book brings out the third question really about
competitive strategy. Though in relation to competitive strategy you
have got some useful tools and frameworks that you have devised.
Can you say a bit more about these – I am particularly interested in
the customer matrix and your competitive compass.
CB
Yes, the customer matrix and the competitive compass are actually
the same thing. People call them – I don’t know where the
compass came from, but I call it the customer matrix. Now this is
the core part of the argument. It suggests that competitive
strategies have to be considered from the customer’s perspective.
We need to understand what the customers perceive as value in the
products or the services that we are trying to offer to the customers
and what prices they perceive. The customer matrix is a way of
assessing our competitive position at a point in time in relation to
what our target customers perceive are our competing firms.
Now on the basis of that and the analysis associated with that
technique, you can start to unpack what perceived value means to
customers. You can also ask questions about how they judge
whether this product is superior to another product. We use the
term signifies. For example, if you think that build quality is
important in a car, how do you judge that? Well a lot of people, me
included, when they are walking round a car in the showroom open
the door, slam the door and listen to the noise it makes and if it’s got
that solid kind of German clunk, we are thinking this is a well built
car. Now it may well be, from an engineering perspective, that that
car is no better built than any other car, but what matters is what the
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Professor Cliff Bowman
customer perceives – not some kind of objective engineering reality
out there. So the customer matrix is the heart of the argument and
it forces us to think not about the products or services, per se, but
how they are perceived by customers and how they meet their
needs. So I suppose in a sense it is a market orientated approach
to competitive strategy.
DM
You have done a lot of work on tacit knowledge and unique
competencies in organisations. Why are these important?
CB
Well, this line of enquiry stems from a more academic pursuit, which
is the resource based view of the firm – I won’t go into the ins and
outs of that, but what the resource based view tells us about are the
inimitable sources of advantage that firms can have. Now these
are things that give a firm an edge. They either enable them to
provide superior perceived value to customers, or to provide value
at lower cost, but the important point about these resources is that it
is very difficult for competitors to copy the capabilities or assets that
we have.
One of the things that are very difficult for a competitor to copy is
what we call tacit knowledge. This is knowledge that an individual
or maybe a collective group has in the form of a tacit routine where
they themselves can’t explain how they do what they do. Now if
they can’t explain it, it’s almost impossible for anybody else to copy
them. And one of the key issues that the RBV (the resource based
view) highlights is the importance not only of tacit knowledge, but of
other intangible assets like reputation, relationships, networks, trust.
These are often seen to be the things which differentiate one firm
from another, rather than the more obvious assets like equipment
and so on.
So that is why these things are absolutely critical. Now if we
understand what the subtle sources of advantage are, then the least
thing we can do is to protect them. So if we are changing the
organisation or cutting costs, particularly in the current climate, then
if we are alert to these subtle tact sources of advantage – and
whatever we do we don’t mess around with those things – we look
to trim costs somewhere else.
Another thing is that if we are aware of what these sources of
advantage are there might be opportunities to leverage them and to
get more value out of them. We might even be able to figure out
how we got them in the first place, and again, maybe we can grow
some more. So this line of enquiry is crucial in understanding what
gives sustained advantage to organisations.
DM
It’s ten years since the book came out – what has stood the test of
time and what would you leave out or add in today’s environment?
CB
Well, funnily enough, I knew I was going to do this David, so I flicked
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Professor Cliff Bowman
through the book. Clearly you don’t read your own books because
you wrote them, you know what is in them. And I was pleasantly
surprised – there is nothing in there that I would demur from. I
would stand behind everything that is in there. However, clearly in
ten years we have not stood still and we have developed new
thinking and new ideas. So I would be inclined to augment what is
in the book, it would make it a fatter book – which isn’t necessarily a
good thing – but there are developments which have happened
since the late 90s, which I think I would like to incorporate into the
thinking, particularly in the areas of corporate strategy. We have
some clearer ideas now about how corporations can earn value
which are more elaborate arguments around synergies actually.
The second thing that I would want to build into there is this notion
of dynamic capabilities which was an emerging idea in the 90s, but
it is basically about how organisations can sustain advantage in
dynamic environments. What they have to have is the ability to
continually create sources of advantage, which themselves might be
short lived. So we need to continually innovate. And there are
ideas around how organisations can do that – how can they manage
the day to day business whilst simultaneously changing the
business and creating new innovations. So there are some ideas
around that that I want to build in.
The other thing, which is a more profound reflection I suppose,
since I wrote the book is an awareness of how complex the world is
and how, in a way, the fact that the future is unknowable and the
fact that even the smallest organisation is actually a very complex
set of interacting processes and people, and so is almost
suggesting that perhaps we need to think about how you deal with
that complexity? How do we find it ok maybe to tolerate ambiguity,
but we won’t have all the answers and that is ok to think like that.
And also, maybe, to suggest that we need to perhaps try a few more
things, to have a few more experiments and to learn from those
experiences rather than a more linear thinking that yes, if we do the
analysis and we do the thinking we can come up with the right
answer which clearly never was the case, but I think it is
increasingly like that today.
DM
Cliff, thank you very much for that, for the insights into strategy and
practice and perhaps we look forward to a new edition in the
foreseeable future. Thank you very much.
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