Thank You

A short note to say thanks to all you who have spared a moment in your busy lives (if it's anything like mine you should consider joining me in the upcoming petition for a 48 hour day) to read my musings on all things strategy. I intend to post a blog atleast once a month and sometimes bi-weekly from now on. Thank you The CEO

Moving Target

Now let us continue with the sporting analogy. In soccer, the aim of the game is pretty straightforward or so it seems. The team that scores the most goals wins the game. Consequently it wouldn't be a long stretch to assume that in a league, the team that scores the most goals throughout the course of the league wins, right? Wrong because there is the other side of the coin which is that a team not only has to score goals it equally has to prevent the opposing team from scoring the most goals. So now we are getting somewhere. A team has to a) score goals b) limits goals. Is that all it takes to win? If so then the correct strategy for winning a league is to a) assemble the most prolific goals scorers combined with the most stingy of defenders. Common sense dictates that such a team would inevitably win. But is that the case in real life? Some of the most expensively assembled teams go through seasons without winning any silverware. And if you assume that expense equals talent then our conclusion above should have been sacrosanct. Why then the disconnect. Well because the game is actually not static. Each team brings it own particular flavor which changes the game. So a one size fits all does not work for a league in which you are playing 20 different teams with 20 different characteristics. The teams then that win are the ones that read each game correctly and align their strategy accordingly. This may involve changing players depending on the opposing teams strengths, and may even include sacrificing some of those prolific scorers or defenders! For a team to win the league then is no small feat. It becomes even harder for a team to win multiple seasons. The analogy to successful corporations is unmistakable. Strategy can not be static but must be fluid, changing with the ever evolving landscape and relative moves of its competitors.

The right game

I am an amateur boxer. Nothing very serious. Just a couple of guys in the gym fighting against one of nature's inevitability-a bludgeoning waistline. But rated amongst my peers in the gym, I am pretty good. I have won a few fights lost a few. Mostly won more than lost. But that wasn't always the case. When I first started boxing, I would always start strong. I would throw rapid fire punches as soon as the bell rang, landing few but secure in the strategy that if I landed one good one it would be lights out for my opponent. Inevitable, I would get tired right around the two minute mark of the scheduled four minutes and would end up losing the fight. So what has changed?

While I have certainly built a little stamina over time and my skills have definitely gotten better, none of those improvements are so marked as to justify my increased winning percentage. Rather it is my change in perception of the game of boxing that has contributed to my winning. You see like most boxing enthusiasts, I was taken in by the knock out hype. A Mike Tyson or a Manny Pacqiao happens by once in a generation but then that is what most of us amateur enthusiasts get drawn to. So in my case, I envisioned myself a Tyson like fighter-with a hard right that would floor my opponent in 60 seconds. In reality boxing is nothing like the one off greats make it out to be. It is a sport of timing, of pacing, of carefully managing your reserves and waiting out your opponent. An endurance race. So while I was thinking of the sport as a sprint, it is in actuality a marathon. You don't have to take my word for it. Think about what a prime boxing event between elite fighters entails. Two top-notch athletes that are extremely well conditioned. It would be very hard for one to knock out the other. That is why according to boxrec only about 28% of fights end in knock outs.

As soon as I realized that, my whole outlook to boxing changed, I no longer worked to muster that killer punch but instead worked on increasing my endurance and stamina, my main strategy being to outlast my opponent as opposed to knocking him out. And I saw immediate results. So what was I doing wrong? It is my misconception of the sport that was the problem. And because I had the game wrong, the set of skills that I was mustering were not giving me the advantage I sought. Until I figured out the correct game, I could have worked on that killer punch for eons and not seen any improvements.

Almost every company nowadays has a sizable corporate strategy division filled with top-notch MBA's from the best business schools and with gigabytes of impressive power point slides about where the company is heading strategically. So why are they all not succeeding? Part of the problem lies with the identification of the game. There are whole host of strategy road maps created to enable a corporation understand where it stands. Five Forces, Value Maps, Net Maps all help plot an organizations place in the industry. But an important corollary to this is the assumption that the industry or game is actually the right one. Should a company make an error in identifying the nature of its game as I initially did in the game of boxing, then no amount of power point presentations can improve its competitiveness.

Marketing

I was on vacation last week and had the absolute time of my life. Now I know this blog is not about my vacation. The reason I mention it is that while there, I ran into one of the most targeted marketing operations I've ever seen (and I've seen many). This got me thinking about marketing and how it's the fulcrum upon which strategy turns. So, this month, I will talk about marketing.The marketing operation I encountered was genius in its simplicity. The product these folks were hawking was time shares. And while the prevailing school of thought would have you believe that the way to market is to sell something (a dream) as attainable to people (that don't have it yet), these folks were selling vacations to?-yes!-people on vacation! Their logic? The people on vacation are the ones most likely to want to vacation again ergo purchase time shares. Now I'll admit from the outset that I don't really know much about time shares and can not say one way or the other whether they are a good investment. However despite my scepticism these folks got me to sit through a two hour marketing presentation. How do they do that? By offering a free show which would typically go for about $200. So, for a $200 value, they get to book two hours of your time. Which, like that Visa commercial says, is "priceless! A company can have the best strategy in place and execute it to a t. All that is for nought however, if the customers are not getting "marketed" to about the great product on offer. And since advertising of the mass kind is prohibitively expensive for all but the biggest companies out there, it behoves firms to ensure that whatever marketing dollars they are spending hits not the widest audience possible (cost) but the widest "targeted" audience possible (cost effective). Which is where strategy comes into play. When a company works on a strategic plan, it should be cognisant always of the cost it takes to sell the end product and which in turn should influence the strategy. If I have a product that is easily recognisable in the market and decide to change that product in some way, I should recognise that the "new" product, albeit better, will still require more marketing resources to attain comparable sales. Thus, depending on a company's financial health, it may be better to stick with a tried and tested product unless the resources exist for the additional marketing necessary for the new product.

The illusion of growth

I was recently stuck in traffic (not an uncommon occurrence in today's metropolitan areas) and it got me thinking about the fallacies associated with movement. The traffic i was stuck in was stop and go traffic meaning that we would move a few yards and then come to a complete stop. Because of this, some cars were taking an alternative route, which also had traffic. However the traffic in the alternative route- albeit just as heavy- kept on moving constantly. Even though the time spent may have been the same on both routes, the constantly moving one gave the illusion of movement and thus seemed more attractive to the time conscious commuter. In a company's life, just as in traffic, it is inevitable that there will be periods of stop and go movement. Notwithstanding that truism, companies are constantly punished at the stock market whenever they exhibit signs of a plateau in growth. This trend has become so widespread that companies no longer issues dividends for fear of being labelled "mature" with all the negative connotations that entails.

Industries too have cycles. From nascent to teething to high growth to maturity. Notwithstanding, companies are constantly looking for ways to spur growth as indeed they should. And one of the ways to growth is through acquisitions. However it becomes a problem when companies pursue the appearance of growth to the detriment of long term strategy. In hindsight, many of the mergers that occurred in the boom years were ill conceived and would in the long run not realize the benefits they touted. Hewlett Packard and Compaq's ill advised marriage is just one example of this. However the short-term benefits to the bottom line that occurred as a result of those mergers became so attractive that companies lost sight of the truism. The illusion of growth can never, in the long term, replace actual growth.

Venturing abroad

This weeks' "Economist" has a lead story on the impact of mobile telephony in emerging markets. According to the aptly tiled "Mobile Marvels" story which appears in the special reports section " and discusses the growth of services around mobile devices,..."in rich countries most such services have revolved around trivial things like music downloads and mobile gaming. In poor countries data services such as mobile-phone based agricultural advice, health care and money transfer could provide enormous economic and developmental benefits." While my intention is not to turn this forum into a critic of the august publication, I would venture to demur that an industry such as the US Mobile gaming, which generated $566 million in revenue in 2006 can hardly be called trivial.

Nonetheless the lesson that I took from this article is the wide array of possibilities that stem from simplified communication. Different societies at different stages in their life cycles have taken the marvel of telephony and used them to generate enormous business opportunities worldwide. However it is obvious that should a successful gaming company in the US attempt to expand geographically, it may be well advised to understand the different societal dynamics at play that may make gaming an attractive business venture in the US and maybe not so attractive in an emerging market setting.

As the recession starts to slow down and companies get out of their survival mindset and start looking for opportunities to grow, they may be tempted to diversify geographically. DuPont's foray into the sub-Saharan region is probably a harbinger of things to come especially because companies like IBM that were highly diversified pre-bubble, seemed to withstand the latest down turn better. Thus corporate strategy teams in companies looking to expand geographically should be alive to the different societal dynamics at play. Companies, like individuals have a winning mindset. And whilst it is easy to be tempted to transfer a business model that already works, it is equally important to conduct sufficient due diligence to ensure that that model will also work in the foreign market. In short, ensuring that there is flexibility to take into account local dynamics can often spell the difference between a successful foreign expansion or total failure.

Taking the long approach

Not enough has been made about the SEC's requirement for publicly traded companies to make mandatory quarterly filings. While the investor protection aspect of shorter-time periodic financial disclosures and transparency are laudable, the rule has, over time, led to a dearth of long term growth strategies in favor of short-term positive numbers. This has been exacerbated by Wall's Street's fixation with quarterly results and their resulting impact on share prices. In business school, you are taught that share prices are a reflection of a company's future earnings potential. This sensible approach to share pricing however, is at best distorted, or at worst ignored by the hullabaloo surrounding a company's short-term performance as packaged in the quarterly filings. Every quarter, CEO's trot out in front of analysts to present numbers that are increasingly gaining significance to the detriment of long term company viability. It is therefore tempting for corporations and strategy analysts to fall into the quarterly mind-set of measuring performance through a narrow prism of winning individual league games as opposed to clinching the championship game. Taking the analogy of the NFL, a team can go 16-0 during the regular season but if it does not win the Super Bowl then all that was for nought. Corporations therefore and strategy teams in particular ought to be able to have a wide view lens of the long term goal even while ensuring that short term Street expectations are met. Maximizing share holder value mandates hitting long term strategy goals even, dare I say, at the expense of periodic dips in value.