Strategy Through the Downturn Interviewer: David Medcalf Interviewee: Professor Cliff Bowman November, 2008 DM Hello, I am David Medcalf and in the studio today I have got Professor Cliff Bowman who is Professor of Strategic Management here at Cranfield University. So Cliff, what is the point of the strategy when the world has been turned upside down? CB Well, it has been turned upside down for some organisations, but for many organisations they have not experienced dramatic changes as yet. Now the point about any strategy is that it provides a basis for making decisions today, regardless of what is happening in the outside world, you have to decide things and if you are responsible for an organisation on a daily basis people come to you and say should we do this, should we do this, can I have this, can I have that? Now unless you have a clear view about where we should be headed, then it is almost impossible to make those decisions with any consistency. So that is why you need a strategy. You need a strategy to manage today. Now the fact is that you are right, that in certain parts of the economy people will be experiencing quite an amount of turbulence and things that they maybe had intended to do they are going to have to postpone and so on. I accept that, but as long as we understand that a strategy is a process, an ongoing process – it’s probably better to think about it as a continual conversation, as opposed to fixed plan that is set in stone. As long as we view strategy in that light, then people can negotiate their way through these turbulent times and still have clear views about strategy. DM We seem to be at the mercy of global forces that few people understand and few people can influence. Is this true and what can we do about it to react and produce a strategy when things are changing on a daily basis? CB Well if anybody was under the impression that we had abolished the business cycle and that the notions of boom and bust had disappeared, then they were sadly misled. What we have had is sustained boom, and a boom that has been extended in a sense artificially through the massive expansion of credit. But eventually somebody spots the problem, that the real value economy in a sense has been misrepresented by the money economy and that has been inflated through massive expansion of credit which we never had the like of this anywhere in the past. So that maybe misled some people. But we always go through these cycles of boom and recession and we just hope that this recession is not as deep as some people fear. But that is not a new thing, so if anybody was taken by surprise then they are pretty naïve would be my view. Are we at the mercy? Well, ok, yes. To a certain extent things that happen out there are not under our control, but there is an awful lot of things that we can shape and decide. And let’s not assume that the tough times and the credit crunch impact all firms equally, because some firms are probably doing quite well. We know recently that the discount supermarkets are actually booming because people have shifted down from shopping in Tescos and Sainsburys – they are now shopping at Netto, Aldi and Lidl. Or maybe their servants have shifted down to shopping there – who knows! And there are other parts of the economy, business lawyers, that are booming. Certain parts of accounting practices will be benefiting from the fact that they have to get involved in turnarounds and insolvency businesses and stuff like that, which is a bit of cynical view. But even if you think of cobblers, their businesses are booming because people, rather than buy a new pair of shoes, will say we will get these heeled, there is nothing wrong with them, I will get them resoled. And there are also parts of the world that have loads of money to spend. I suspect that a lot of people will be beating a path to the Middle East, because they are awash with money. So it’s not an across the board problem – let’s put it like that. So there are opportunities for people there, it’s not just a problem. But what I would say is this, realistically most firms in a recession engage in some forms of cost cutting. I understand that, but my plea would be let’s do this intelligently. Let’s not do any across the board cost cutting for a start, because the chances of that being the right thing to do, I think, are almost zero. There are some people absolutely critical to the organisation and others that frankly we wouldn’t miss them if they weren’t here. It’s being intelligent to figure out one from the other. If we cut costs by, for example, not replacing those that leave or by voluntary redundancy, again we will hit the cost reduction targets. But at what expense? Because often the very people that will take voluntary redundancy are the very people that we should be keeping because they have already lined up another job. And just because somebody moves on doesn’t mean to say that that activity that they did is no longer valuable. It’s more difficult to do intelligent cost reduction, but I suggest that if you are going to come out of the recession in good shape, then this is what you should be doing. The other point I would make is this. It’s very easy to cut the soft budgets: the ones that have, if you like, a fairly indirect connection to the bottom line. I am talking R&D, training, business development activity, market research and stuff like that. So the temptation is to freeze those budgets. It’s a very short‐sighted thing to do, but I can understand where the pressures come from to do that. So I think that, again, firms that come through the recession in good shape will be ones that have intelligently cut costs and maybe have decided that it is strategically critical to sustain investment in some of those softer budget headings that I have just mentioned. DM Certainly, Cliff, they are some very good points about not taking a knee jerk reaction and actually look at your strategy to help you move forward. But for the practitioners who will listen to this, how would you go about reformulating a business plan during these difficult times? CB I think what you have got to do is to go back to what are the underlying assumptions and the logic that informed the plan that we have. Now if you then test out those assumptions against the new reality and you realise that some of those are now fundamentally flawed or wrong or maybe misguided in some way, then sure you have got to revisit the whole damn thing and then you need some high quality conversations involving the right kind of people – and soon. But you may well find that the plan is still sound, the strategy still makes sense. That the value logic underpinning it is still relevant. Now therefore you might end up not necessarily changing the fundamental strategy, but you might change, for example, the timing of certain investments. You might say well, yes, I know we thought about moving into this new market area, well maybe we will wait and see a bit and see how things evolve and how they pan out. So if you are happy that the fundamental logic still stands up, then yes, there are tactical adjustments that I think would be appropriate to make. But the point is that even when you make a plan in more seemingly predictable and certain times, what has manifested itself in the last six months is that your forecasts were fundamentally flawed anyway, because nobody spotted this thing round the corner, which makes this more general point about the unknowable future. And what I would say, as more of a prescription, is if you are going to think about the strategy as a process, or strategy as a process, then I would be looking at building a lot more flexibility into our process. I would be looking to involve more people in quality discussions and dialogue; get more diverse opinions being heard and get them into that conversation. And I would also be looking for a more experimental, an exploratory approach, rather than assuming a stable future. So build in the ability of the organisation to try things – to experiment more, to learn, to get good quality feedback processes in place. And finally, to sense better, in other words to sense the environment to try to pick up more week signals that might actually presage major changes six months down the line. To listen better, if you like; to sense the environment better and to get that knowledge and information circulating around where it needs to be. So that is more about, if you like, building and developing the organisation to cope more effectively with turbulence, rather than saying well this is our specific strategy and this is what we are going to stick our heads down and blunder on and implement. It’s more about building that adaptive capability, if you like, into the organisation and I would say that was a good prescription. DM You have talked quite widely about involvement, data gathering, information gathering, involving people – but how do you know that data is solid? That is the question that I would like to ask finally. CB OK, that’s a good question and it depends what we mean by data. Given that the future is unknowable –we all have our opinions about the future, that’s fact. That is all we know, that the future is unknowable. Now, so what data do we have that is associated with the future? Actually, nothing. So that is why I am saying you need to have these conversations and involve people that have experience, maybe insight, maybe intuition. I will give you an example, David, where somebody maybe goes to a strategy consultancy and says look, we are hopeless at strategy, can you come up with one for us? So the consultants analyse the environment, they analyse the firm and on the basis of their analysis they come up with a strategy. Now when you present that strategy to the executives in the organisation, they probably feel quite uncomfortable; (a) they feel well why didn’t we come up with this, but they might also feel uncomfortable in a good way. They might feel well actually this doesn’t feel right to me. Now what they are really reflecting there is they have an intuitive understanding of the organisation and its customers and its competitors – the environment that it is in. It has been built up over many, many years of experience. Now they need to tap into that intuitive understanding and not just focus on the easily measurable, the easily analysable stuff. So, on the basis of your question which is OK, so how do you know it is good data? Well, I am saying listen to those intuitive and experience driven judgments and feeling that you have, because they are probably reflecting a lot about the organisation which is not going to be captured by a more formalised, analytical process. And I am saying those are key insights and don’t lose them. DM There is a lot of insight there actually about how to manage your strategy in different times. Thank you very much for that, it has been a pleasure to talk to you.