MANAGEMENT POLICY AND STRATEGY
SESSION - II
Changing Paradigms of
Strategy
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
Email: sushil@dms.iitd.ernet.in
Prof. Sushil\IITD\Session-II
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STRATEGIC QUESTIONS
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What new core competencies?
What new product concepts?
What new alliances?
What nascent development programs?
What long-term regulatory initiatives?
 The Qs get unanswered - because senior managers must
first admit that they are less than fully in control of the
company’s future.
 Any company that succeeds in restructuring and
reengineering, but fails to create the markets of the future,
will find itself on a treadmill.
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BEYOND RESTRUCTURING
 For decades the changes that confronted Sears, General Motors,
IBM, Westinghouse, Volks Wagon and other incumbents were more
or less linear extrapolations of past.
 The watch word is “ steady as she goes”, companies run by
managers not leaders; by maintenance engineers not architects.
 The companies such as IBM, Philips, TWA, Texas Instruments,
Xerox, Boeing, Citicorp, Bank of America, DEC, DuPont, Pan Am saw
their success eroded.
 The industrial terrain changed shape faster than top management
refashion
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which markets to serve?
which technologies to master?
which customers to serve?
how to get best out of employees?
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BEYOND RESTRUCTURING
Contd….
 Organisation transformation agenda
– downsizing
– overhead reduction
– employee improvement
– process redesign
– portfolio rationalization
 Restructuring goals
– carve away layers of corporate fat
– jettison under-performing businesses
– raise asset productivity
 In 1993 US firms announced nearly 600,000 layoffs- 25% more
than in 1992
 The problem of low growth were compounded by
– inattentiveness to ballooning overheads (IBM’s problem)
– diversification into unrelated businesses (Xerox-financial services)
– unfailingly conservative corporate staff.
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BEYOND RESTRUCTURING
Contd…..
 It’s no doubt shareholders demand-make
– “lean and mean”
– “make the assets sweat”
– “get back to basics”
 ROI (or RONA or ROCE) has two components
– Numerator - net income
– Denominator - investment, net assets - or capital employed
 To
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grow numerator
where the new opportunities lie
anticipate changing customer needs
building new core competencies
 The quickest and surest improvement in ROI - the denominator -
doesn’t need much more than a red pencil.
 Denominator management is an accountant’s shortcut to asset
productivity.
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BEYOND RESTRUCTURING
Contd…..
Britain’s Manufacturing Output
 Between 1969 and 1991 went up by scant 10% Number of people
employed declined by 37% UK’s manufacturing productivity increased
faster than any other major industrialized country except Japan
“Bittersweet”
 The social costs of restructuring are high
 Unproductive layers of management had to be excised, dumb
acquisitions unwound, inflexible work practices abandoned.
 Where is the dividing line between cutting fat and cutting muscle?
 Lose-lose proposition
– “if you don’t become more efficient, you’ll lose your job. By the way, if you
become more efficient, you’ll lose your job.”
 Restructuring
seldom results in fundamental improvements in
business. Downsizing can make a company thinner; doesn’t necessarily
make it healthier
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BEYOND RESTRUCTURING
Contd…..
16 large US companies
 At least three years of restructuring experience-although it did
improve a firm’s share price, the improvement was almost always
temporary
Wall street says to such companies
 “Go ahead, squeeze the lemon, get the inefficiencies out, but give
us the juice (dividend) we will take juice and give it to companies
that are better at marking lemonade.”
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BEYOND REENGINEERING
 Reengineering aims to
– root out needless work
– get every process pointed in the direction of customer
– reduced cycle time
– total quality.
 It is almost always the promise of reduced costs, rather than
heightened customer satisfaction, convinces a top team to sign up
for a major reengineering project.
 Although restructuring never more than a necessary thing,
reengineering can be a good thing.
Lean Manufacturing - 1990 Toyota Manufacturing system - 40
years ago
Why did it take US auto makers 40 years to decode the principles
of lean manufacturing?
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BEYOND REENGINEERING
Contd….
Competing on Time - Consultants advice
 1970
– global scale and experience effects
– many auto makers, chemical companies, semi conductor producers, investments in large scale capacity.
 1980s - Quality
 1990s - Speed
The answers came too late, helping the clients catch up rather than
take the lead
Quality as competitive Advantage by 2000
US Managers - 80%
Japanese Managers - 50% (82% said in 90s)
– They realized that tomorrow's competitive advantages must necessarily
be different from today’s.
 Adaptiveness - adapting too often to the preemptive strategies of
more imaginative competitors.
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REGENERATING STRATEGY
 Division of IBM, GM and DEC - won the Baldrige for quality - an
award for better, not different.
 Becoming smaller and better are not enough
Would it helped
Sears - even more efficient customer focused catalog retailer?
IBM - creating a lightning - fast mainframe development process
American perfected the art of running a hub and
United Air Lines
spokes air line systems
 A company must also be capable of
– fundamentally re-conceiving itself
– regenerating its core strategies
– reinventing its industry
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REGENERATING STRATEGY
Contd….
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Xerox
1970, and 80s - surrendered a substantial market share to
Japanese - Canon and Sharp
Benchmarked and reengineered its processes
By 1990s - good example of how to reduce costs, improve quality
and satisfy customers.
Though succeeded in halting the erosion of market share, failed
to recapture.
Despite a pioneering role in laser printing, networking, icon-based
computing, and laptops, failed to create any substantial new
business outside its copier core.
Probably left more money on the table, in the form of underexploited innovation, than any company in history.
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REGENERATING STRATEGY
Contd….
 A company surrenders today’s business when it gets smaller faster
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that it gets better.
A company surrender tomorrow's business it gets better without
different.
Defending today’s leadership is no substitute for creating
tomorrow’s leadership.
Whatever market a company may dominate today is likely to change
substantially over the next ten years. There is no such thing as
“sustaining leadership”. It must be reinvented again and again.
The real competitive problem is
– laggards v/s challengers
– incumbents v/s innovators
– inertial and imitative v/s imaginative
 CNN, Microsoft, The Body Shop - rebellious tendencies of
adolescents
 Merck, British Airways, HP - Elders challenged the incumbents
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FROM ORGANIZATIONAL TRANSFORMATION
TO INDUSTRY TRANSFORMATION
IBM
 Had wrong kind of organization, skills, systems and behaviours for a
radically transformed IT industry.
 Driving toward the future while looking out the rear-view mirror.
 Spending nearly $ 6 b a year on R&D, hiring the best and brightest
worldwide mixed almost every important clue as to how industry
was changing.
HP and AT&T
 Moved more quickly to adapt to the changing environment
 HP- opportunities like engineering work stations reduced
instruction set (RISC) architecture small printers and
peripherals- transition from an instrument company to IT
company.
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FROM ORGANIZATIONAL TRANSFORMATION TO
INDUSTRY TRANSFORMATION
Contd….
 To extend leadership a company must eventually
reinvent leadership,
– to reinvent leadership - reinvent industry
– to reinvent industry - regenerate strategy
 To create the future a company must
– change in some fundamental way the rules of engagement
in a long-standing industry
– redraw the boundaries between industries
(Edutainment - Time Warner, Electronic Arts)
– create entirely new industries
(PCs - Apple)
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FROM ORGANIZATIONAL TRANSFORMATION TO
INDUSTRY TRANSFORMATION
Contd….
Apple - 1992
 Established a division responsible for personal - interactive
electronics
Merk-Pharma
 Surprising decision to purchase Medco, a large mail-order
pharmaceutical distribution company
British Airways
 Series of equity investments and JVs with airlines in US, Europe,
and Asia to become world’s first truly global airline.
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TOWARD A NEW VIEW OF STRATEGY
 Competition for the future is competition to create and dominate
emerging opportunities - to stake out new competitive space.
 Path-breaking is a lot more rewarding than benchmarking.
 At a broad level, it requires
– an understanding of how competition for the future is different.
– a process for finding and gaining insight into tomorrow’s opportunities.
– an ability to energize the company top-to-bottom for a long and
arduous journey toward the future.
– the capacity to outrun competitors and get to future first, without
taking undue risk.
 It
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involves
Industry foresight
Strategic architecture
Stretch goals
Resource leverage
Core competence
Coalition of companies
Global preemption Prof. Sushil\IITD\Session-II
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CHANGING THE SHAPE OF STRATEGIC
THINKING
•Microsoft is considered a competitive threat to banks
•In telecommunications, its based to keep track of who is competing
with whom
•With declining trade barriers, blurring industrial boundaries, and
closely connected financial markets, change on one side of the world
causes almost ramifications on the other.
•Problems in Maxican economy affected many countries in Asia and
North and South America within days.
•Business objectives, usually started in financial terms, are often
utterly uninspiring
•Management need to spelt out goals that people believe in and are
inspired to reach.
•Cutting-edge strategies not just ambition driven but also emotional
strategies that involve people.
•Relativistic strategy - in which goals are always tied to aspirations
and refined as aspirations change.
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EMERGENT STRATEGIZING
•The process of going in one strategic direction rather than
another.
•Based on patterns or `recipes’ of perceiving and acting.
•Mintzberg - Emergent strategy means literally unintended order.
Strategy (is) pattern in action.
•A coherent set of individual discrete actions.
•In support of a system of goals,
•supported as a portfolio by a self-sustaining critical mass, or
momentum, of opinion in the organization.
It involves
•A sense of strategic direction
•Satisfy its key stakeholders
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EMERGENT STRATEGIZING
Contd….
•Co-exist with its environment
•Analysis of values and beliefs
•Analysis of distinctive capabilities
•Business model
•Negotiation
•Deliberate emergent strategizing
–deliberate agreement to let the organization continue
`muddling through’.
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Emergent strategizing
Organizational policies
and power as the basis
of decision making and
problem solving
opportunism
and flexibility
patterns of `muddling
through’ and
strategies emerge
react and adapt to
the environment
sustain relationships
with stakeholders
(including competitors)
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CONTINGENCIES
•Unpredictability - may not be helpful to have elaborately
developed goals and processes.
• Work with a plan that is loose and easily adapted
• Vision not often articulated - but detected through the style
and pattern of entrepreneurial steps
• The nature of strategy and strategic management will vary
for each organization.
• Continuum from emergent strategy to strategic planning.
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SIGNPOSTS TO MANAGING FOR STRATEGIC
FLEXIBILITY
•Strategic thinking based on a Newtonian, mechanistic view
is increasingly irrelevant. It is based on premises that will
apply less and less in the future as the pace of change
accelerates.
•Relativistic Strategy is based on three fundamental
Uncertainty Principles:
–You can’t predict the future, but you can see trends
and anticipate possible scenarios.
–You can’t create scenarios for everything, so you need
to focus on issues that are most important to you.
–You need to explore those scenarios from the viewpoint
of everyone likely to have a vested interest in your
organization.
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SIGNPOSTS TO MANAGING FOR STRATEGIC
FLEXIBILITY
 The Relativistic Strategy process must engage those
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charged with implementing it; the process must grab
both their hearts and minds.
Develop scenarios with a view to accelerating
organizational learning- and to understanding the
implications of significant trends.
Become skillful as a team. Learn to reach decisions
that everyone is committed to.
In an increasingly turbulent world, remember that Core
Values are the stabilizers of the organization.
A corporation’s core values are the common
denominator of the values of individual employees
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SIGNPOSTS TO MANAGING FOR STRATEGIC
FLEXIBILITY
Contd…..
•Values are reinforced-or even created-when they are visibly
followed. That’s all the more true when adherence to values
hurts the bottom line in the short term.
•Select the approach to creating a vision that best fits the
circumstances of your organization. Among the choices:
–CEO creates a vision and advises organization to follow it
–CEO believes in vision and encourages organization to
follow it
–CEO has ideas about vision and gets organization’s
reaction
–CEO seeks creative input from organizations to create a
vision
–CEO and rest of organization create a shared vision
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SIGNPOSTS TO MANAGING FOR STRATEGIC
FLEXIBILITY
Contd…..
 The role of the strategy group in an organization must
be to catalyze and coach the strategy development
process - not to develop strategic plans.
 A useful expression of a vision must have three
components:
– Aspiration: Specifies unique long-term
– Inspiration: Acts on the organization as a
supermagnet
– Perspiration: suggests how every day the
achievement can be brought closer
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THE FOUR PHASES OF SCENARIO PLANNING
Phase 1: DECIDE SCOPE
What important decisions are facing you?
What has a vested interest in the outcome?
What time scale is of most relevance?
Phase 2: UNCOVER TRENDS
What trends are you confident about?
What trends are you uncertain about?
What trends matter?
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THE FOUR PHASES OF SCENARIO PLANNING
Contd….
Phase 3: CREATE SKELETON SCENARIOS
What themes emerge from combining trends?
How consistent are the assumptions?
How relevant are the outcomes?
How can the scenarios be refined?
Phase 4: FLESH OUT SCENARIOS?
What extra research can we do?
Can computer models help?
What would signal these scenarios?
Are the scenarios understandable to others?
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THE PROTOCOL OF PRODUCTIVE
CONVERSATIONS
Not every meeting need reach closure
Meetings should be longer but richer
We should allow for related diversions
Contrary viewpoints should be explored
We shouldn’t interrupt but listen more
None of us alone knows what is best
We shouldn’t ridicule others, but inquire
further
We should challenge what others say
We should test our own and others’
assumptions
Some issues are embarrassing
We should agree to explore difficult issues
Different seniorities/turfs will be Seniority/turf should be left at the door
present
We may fundamentally disagree
Disagreement should be seen as the source of
We must eventually reach closure
We have an overall time limit
Overall we should remain focused
We bring an important perspective
We must each talk
We each bring a lot of experience
Some people will say silly things
We may get frustrated or angry
new thinking
We should share why we feel as we do
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