“Successful corporate strategies need to be based on simple, measurable rules”

10 Sep

Corporate strategy can be described as a formula that can be used to prepare a medicine. From my point of view this is how corporate strategies should be viewed and understood. Medicine, the outcome, should not be the one from past but the one from future. Attention should be paid on things that actually make strategy – decisions, abilities and goals, as these will be the key elements. Not all of the elements that initially are drown from surveys and other intelligent sources to build up strategy will be useful as corporate strategy must be executable by the company and should be in line with core competence of the company. It means that much attention should be paid to resources and knowledge that is already inside the company not forgetting that business environment is continuously changing. I would agree with opinion of Ram Charan (one of the authors of Forbes magazine) that there are two successful ways how to build your corporate strategy – outside in and future back thinking approaches. Outside In thinking means looking at the business through the lens of a leader sitting elsewhere and identifying global trends without the existing assumptions, biases and rules of thumb. Future-Back requires you to extend your time horizon as you assess the world and imagine what the competitive landscape will be some twenty years out. This longer time frame will help you see what trends are enduring, or unstoppable.[1]

Corporate strategy must be measurable. I would not agree that corporate strategy should be based on simple and measurable rules, as base for the corporate strategy could be some idea that is not simple to measure. So the statement should be that we should be able to measure corporate strategy by simple and measurable rules – KPIs. As discussed previously, Lattelecom has KPIs that will indicate from quarter to quarter success of corporate strategy – basically these are measurements.

Simplicity and measurability are two key words that should be underlined that could mean completely different things for CEO or simple ‘lower-end’ employee of the company. Simplicity means that these KPIs are understandable for everyone and most likely this is a number that company uses all the time, like, number of clients, EBITDA or some sales number etc. Measurability means that we should be able to measure this KPI, in my opinion, good example is NPS which is not measurable by anyone else than specifically trained people (what could be disadvantage) but the number is measurable and also understandable – if it is below 8 it is bad, if it is above 8 – good. Many people including myself would say that this is probably not the best KPI from simplicity point of view however it is the one that actually shows company actual client satisfaction with services provided.

One of the most interesting cases in terms of corporate strategy and sticking to core competences is Eastman Kodak Company widely known as Kodak. Kodak has pretty well established business in 1990s that covered most of the world and at the end of the century they even managed to enter China – the biggest challenge of 1990s and also the one that offered great growth opportunities.[2] There is no doubt that business itself was well monitored by KPIs etc. however reality shows that corporate strategy was heading into wrong direction. It means that having corporate strategy that is measurable and simple is not enough – the most important part could be the vision of the future and ability to move your strategy into direction of changes without hitting the same spot as others.  Differentiation of products and diversification across several industries could be crucial as business changes but avoiding having ‘me-too’ strategy that would kill the uniqueness of the product. There are few other examples of failing companies like Ericsson mobile phone business failing to deliver products ‘of the future’ and sticking to old phone like products from 2005 – Ericsson P1. Sony is still looking for their successful corporate strategy[3] and innovation in TV market[4] while Samsung seems to have one in place with strong vertical integration for TV[5] and mobile phone business[6]. An interesting example comes from Procter & Gamble Co. what suffered decreased sales across Europe in 2011 and 2012 and made a decision to sell its less profitable business thus decreasing its diversification across several industries.[7] It could seem that company is moving into opposite direction – decreasing, but it could turn out to be the right strategy to increase returns to shareholders as well as keeping to their core competences in product categories, like, beauty products, razors, and detergents and surface cleaners, and selling electronics brands

Conclusions

Corporate strategy is a formula that creates medicine of the future. Each corporate strategy should look into future without fear of changes – even if it means building new capabilities to pursue strategic opportunities or decision for spinoff. Corporate strategy should not be based on rules that are simple and measurable, but the KPIs that indicate the success of corporate strategy should be simple and measurable. Sticking to business and core competences you have could be misleading if business environment itself changes so it underlines necessary to have corporate strategy that is future oriented even if it means developing new skills and changing core competence.


[1] Is Your Core Competence Still Relevant? Ram Charan, Forbes, March 19, 2013, available on the Internet http://www.forbes.com/sites/ramcharan/2013/03/19/is-your-core-competence-still-relevant/ (last visited June 23, 2013)

[2] Is Your Core Competence Still Relevant? Ram Charan, Forbes, March 19, 2013, available on the Internet http://www.forbes.com/sites/ramcharan/2013/03/19/is-your-core-competence-still-relevant/ (last visited June 23, 2013)

[3] Sayonara Sony: How Industrial, MBA-Style Leadership Killed a Once Great Company, Adam Hartung, Forbes, April 20, 2012, available on the Internet http://www.forbes.com/sites/adamhartung/2012/04/20/sayonara-sony-how-industrial-mba-style-leadership-killed-once-great-company/ (last visited June 29, 2013)

[4] Sony’s TV Business: Like Chrysler? Or Oldsmobile? Mariko Yasu & Shunichi Ozasa, Bloomberg, October 31, 2012, available on the Internet http://www.bloomberg.com/news/2012-10-30/sony-s-tv-business-like-chrysler-or-oldsmobile-.html (last visited June 23, 2013)

[5] Samsung rolls out OLED TV as production glitches linger, Miyoung Kim, Reuters,

June 27, 2013, available on the Internet http://www.reuters.com/article/2013/06/27/us-samsung-tv-idUSBRE95Q05K20130627, (last visited June 29, 2013)

[6] How Samsung Became the World’s No. 1 Smartphone Maker, Sam Grobart, BloombergBusinessweek, available on the Internet http://www.businessweek.com/articles/2013-03-28/how-samsung-became-the-worlds-no-dot-1-smartphone-maker (last visited June 29, 2013)

[7] P&G Seen Mulling Brand Sales for Better Return: Real M&A, Tara Lachapelle & Alex Barinka, Bloomberg, July 17, 2012, available on the Internet http://www.bloomberg.com/news/2012-07-17/p-g-seen-mulling-brand-sales-for-better-return-real-m-a.html, (last visited June 29, 2013)

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