Hit the road Positive leadership for troubled times - ICAEW

15-20years
years
the average strategic
horizon of Chinese
and other Asian
companies
simpler product. But the
company is not afraid to fail.
Its vision and commitment to
innovation remain undimmed.
PEOPLE POWER
Note the central role customers
play when these successful
companies are formulating
both their mission and their
vision. The customer must be
at the heart of strategic thinking
– or as late business guru Peter
Drucker said, “business has
only one valid purpose: to
create a customer”. When
businesses lose sight of this,
problems begin. One of the
most famous business articles
of all time, Theodore Levitt’s
Marketing Myopia, describes
how easily it can happen:
Another big danger to a firm’s
continued growth arises when
top management is wholly
transfixed by the profit
possibilities of technical research
and development... What gets
shortchanged are the realities of
the market. Consumers are
unpredictable, varied, fickle,
stupid, shortsighted, stubborn
and generally bothersome. This
isn’t what the engineer-managers
say, but deep down in their
consciousness, it is what they
believe. And this accounts for
their concentrating on what
they know and what they can
control, namely product research,
engineering and production.
The emphasis on production
becomes particularly attractive
when the product can be made
at declining unit costs. There is
no more inviting way of making
money than by running the
plant full blast.
So an obsession with
technical efficiency, or with
profit and growth, can lead to
a similarly myopic view. When
both happen at once, things get
ugly. In the 1990s, Delta was
one of the most popular airlines
in America, regularly coming
in the top three for customer
satisfaction. Its ground staff
and aircrew were famous for
their smiles. It prided itself on
the quality of its service, and
was happy to spend money on
staff training and support staff.
A new CEO arrived and
profitability was declared the
new goal. Staff wages, benefits
and training were frozen or cut.
Delta’s staff stopped smiling.
Their unhappiness and low
morale quickly communicated
itself to customers, who
switched to other airlines.
Within three years, Delta had
declared bankruptcy. Today
the airline is slowly recovering,
but has not regained its former
position. The process has been
slow, painful – and expensive.
FIVE YEARS TOO SHORT
To paraphrase Benjamin
Franklin, it takes years to build
a reputation, but only a few
minutes to lose it. Companies
need to remember decisions
have consequences, often
unintended. If customers think
a company is turning its back
on them in pursuit of its own
selfish ends, they will leave.
So any short-term approach
to strategy is a company-killer,
as Delta and many others have
found. Companies need to do
more than just survive for a few
years; they need to build
platforms for growth that will
sustain them into the future.
And yet in the west we are in
danger of losing sight of the
long term. Research has shown
that Chinese and other east
Asian companies typically have
a strategic horizon of 15 to 20
years. They try to anticipate the
future and set targets for where
they want to be in that time
frame. British and American
companies typically have a
strategic horizon of two or
three years – if that. Speaking at
a conference some years ago, I
lamented the fact that many
companies plan their strategy
only a year in advance. “At our
firm,” said one delegate, “the
planning horizon is one week.”
That’s not strategy, it’s
managing by focusing only on
staying alive and snatching
opportunities as they arise. But
what happens on the day when
there are no opportunities?
Successful strategy demands
long-term thinking. Those
successful companies – Tata,
Nestlé, Sony – are like the
Roman god Janus, presenting
two faces to the world. They
look back to where they have
come from, remembering their
purpose, their mission, the
reasons why they exist. And
they look forward to the future,
fashioning their own vision of
the future and establishing
where they want to be in a
manner consistent with that
mission and purpose.
They align where they have
come from with where they are
going. In this way, they build
on existing relationships with
customers and continue to
fashion new ones. They, and
their shareholders, prosper
over the long term because
they are also helping their
customers to prosper.
STRATEGIC INTENT
Strategy and short-termism are
fundamentally incompatible,
strategic thinking that is not
focused on the long term is not
strategic thinking. Strategy is
not about merely reacting to
circumstances, it is about
setting goals and charting a
way forward.
Short-term plans that show
how the company will deal
with the challenges it faces in
the here and now are always
necessary. But there must also
be a degree of strategic intent.
Even if we do not have
detailed plans for 15 and 20
years hence – and few if any of
the east Asian firms mentioned
above do so – there must still
be a general agreement on
where the company wants to
be and how it will fulfil its
mission. Companies like this
can ignore, or at least ride out,
short-term shocks like the
current downturn, and keep
their eyes focused on the end
game. Taking this kind of
approach requires vision and
courage. But the results speak
for themselves. Winners think
long-term.
Further reading
Bala Chakravarthy and Peter
Lorange, Profit or Growth? Why
You Don’t Have to Choose,
Engelwood Cliffs: Wharton
School Publishing, 2007.
John P. Davis, Corporations,
New York: Putnam, 1905.
Yves Doz and Mikko Kosonen,
Fast Strategy, Harlow: Pearson
Education, 2008.
Peter Drucker, The Effective
Executive, New York: Harper &
Row, 1967.
Stewart Hamilton and Alicia
Micklethwait, Greed and
Corporate Failure: Lessons From
Recent Disasters, Basingstoke:
Palgrave Macmillan, 2006.
Theodore Levitt, Marketing
Myopia, Harvard Business
Review, 1960.
Mark Prendergrast, For God,
Country and Coca-Cola, London:
Phoenix, 1993.
Morgen Witzel, Tata: The
Evolution of a Corporate Brand,
New Delhi: Penguin, 2010.
ALAMY
34 MAY 2012 FINANCE & MANAGEMENT