Hit the road Positive leadership for troubled times - ICAEW

STRATEGIC THINKING
W
hat is the purpose of
strategy? Textbooks
tell us that strategy is
the means by which an
organisation attempts to
achieve its goals. We decide
where we want to be – more
market share, higher profits,
expansion into new markets,
new products, and so on. Then
we map out a strategy that will
help us to achieve these goals.
That seems simple enough.
But problems start at the outset,
with the setting of those goals.
Do we always set the right ones?
Do we remember, when talking
about profits or market share,
what the company is actually
there to do? Are goals congruent
with the company’s mission?
All too often they are not. The
mission and purpose that sustain
the company are set aside in
favour of a short-term pursuit
of quick profits or growth.
In the 1990s the supermarket
chain Royal Ahold was a
household name in the
Netherlands. The company had
been trading for more than 100
years and had a reputation for
quality food and service. It had
built a close relationship with
its customers. By some accounts,
one in ten Dutch people owned
shares in the company.
Then in the late 1990s, CEO
Cees van der Hoeven embarked
on a new strategy. The new goal
was rapid growth – through
acquisitions and geographical
expansion. Royal Ahold
embarked on a buying spree,
acquiring supermarket chains
around the world. It entered
tough markets in areas such as
the USA and Latin America,
where it had no experience.
Debts mounted as some of
the new acquisitions ran into
trouble and did not perform as
expected. In 2003 the bubble
burst. Royal Ahold teetered on
the brink of collapse, van der
Hoeven lost his job and the
value of their shares dropped
to almost nothing.
Royal Ahold forgot what it
was for. It chased short-term
growth and neglected the
things that made the company
great in the first place. The same
thing has happened, before
and since, to Marconi, Ratner,
Woolworths, Royal Bank of
Scotland... The list goes on.
MISSION AND VISION
Any large and successful
company was founded with a
particular purpose or guiding
idea in mind. Nearly always,
that purpose is not just “to
make money”.
“Profit is a by-product of
what we do,” says R
Gopalakrishnan, executive
director of Tata Sons, the
holding company for India’s
largest business group. Tata
was founded in the 1860s to
provide goods and services for
the Indian people, to create
jobs and spread prosperity
among a largely impoverished
population. “What comes from
the people, goes back to the
people” has been one of Tata’s
guiding principles.
Sony and Matsushita were
established in post-war Japan
with the explicit purpose of
providing goods that people
needed to make their lives
better. Henry Heinz, founder of
the Heinz food group, believed
that his products were safer
than other processed foods and
thus contributed to public
health. Nestlé marketed the
first milk chocolate as a way of
providing a clean and safe milk
product for children. Our big
national banks were founded
not to make money for their
shareholders, but to provide
secure credit and lending
facilities, which would enable
entrepreneurs to grow their
businesses and drive national
prosperity. How easily these
principles are forgotten.
Most companies of any size
articulate these principles
as a mission statement – often,
sadly, a collection of mere
platitudes. A good mission
statement should pull together
the underlying reasons why a
company exists. More than a
hundred years ago, business
historian John Davis pointed out
that every business exists to fill
a need, and in doing so it makes
sales and earns profits. This is
axiomatic – yet, says Davis,
many companies forget this.
And when they forget the
need they were meant to fulfil,
companies start to lose their
way. The same theme can be
found in writings on strategy
today. Stewart Hamilton and
Alicia Micklethwait, in their
study of corporate collapses,
have shown how easy it is for
companies like Royal Ahold to
be seduced into chasing
short-term profits or growth
and forgetting the reasons why
they exist in the first place.
Closely related to mission is
vision. If mission explains why
the company exists, vision
describes how it will fulfil that
purpose. Vision tells us who the
company thinks its customers
are, how it will serve them, and
where and when. Vision does
not just react to customer needs,
it also tries to anticipate them.
Sony is regarded as one of
the world’s most visionary
companies, creating a string
of new products such as the
Walkman and the video
recorder. Sometimes Sony fails;
for example, it lost out in the
video recorder market to its
rival Matsushita, which
produced a cheaper and
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