Hit the road Positive leadership for troubled times - ICAEW

More documents

Recommendations

Info

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
DAILY INSIGHT AND FRESH ANALYSIS ONLINE BUSINESS AND FINANCE UPDATES MULTIMEDIA REPORTS AND WIDE-RANGING OPINIONS JOIN THE DEBATE AT ICAEW.COM/ECONOMIA facebook.com/economiamag twitter.com/economiamag linkedIn group: economiamagazine
Page 1 and 2: ISSUE 199 MAY 2012 icaew.com/fmfac
Page 3 and 4: ty with five of your guests. Get a
Page 5 and 6: “STARTING OUT IN A DIFFICULT ENVI
Page 7 and 8: NEWS News on the financial front CO
Page 9: Faculty events EVENTS Strategic dec
Page 12 and 13: FINANCE & MANAGEMENT 10 MAY 2012 FI
Page 14 and 15: FINANCE & MANAGEMENT poor as ever,
Page 16 and 17: FINANCE & MANAGEMENT 14 MAY 2012 FI
Page 18 and 19: FINANCE & MANAGEMENT for certain go
Page 20 and 21: FINANCE & MANAGEMENT When the going
Page 22 and 23: FINANCE & MANAGEMENT both ways’.
Page 24 and 25: FINANCE & MANAGEMENT The way ahead
Page 26 and 27: FINANCE & MANAGEMENT Finance profes
Page 28 and 29: FINANCE & MANAGEMENT How volunteeri
Page 30 and 31: MAY 2012 CORPORATE FINANCIER FINANC
Page 32 and 33: FINANCE & MANAGEMENT FINANCIAL REPO
Page 34 and 35: FINANCE & MANAGEMENT Mission contro
Page 38: members only FREE METALLIC PAINT AN

Hit the road Positive leadership for troubled times - ICAEW

Create successful ePaper yourself

Delete template?

Save as template?