Monday, 7 April 2014

SHARE IT →



In their book The Witch Doctors John Micklethwait and Adrian Wooldridge say, “In the witch doctor’s world one thing is prized above all others: the ability to predict and control the future”.


Management theorists’ efforts at conjuring the future may not be as old as the alchemists labour for conjuring gold, but its fervor is unmatched. The idea of predicting the future and planning for it in management is as old as Frederick Taylor and Alfred Sloan. In fact it is even deeper than that – to military and intelligence, where they speak of reconnaissance and good intelligence. Robert McNamara, President Kennedy’s Secretary of Defense was one of the architects of America’s war in Vietnam and its policy of strategic bombing. In his earlier avatar he was the brain behind strategic planning in Ford. 

Management theorists may not be conjurers. But their anxiety to enable managers to predict and control the future, “they have developed plenty of exotic-sounding techniques, such as SBUs, PIMs, PPBSs and 3x3 matrices (to name only the most comprehensible); and they have kept those techniques as mysterious as possible ..” It is a mute question if they have been able to predict and control the future. The ‘management theory’ industry is growing unabated, and the more complex they succeed in making it the more anxious are managers and the more managers are keen on listening to them. They conjured planning into a rigorous discipline decomposing “strategy-making into its constituent parts: mission, objectives, external analysis, internal analysis and so on. Confronted with objections to the rigmarole, they simply made the strategy-making process even more complicated.” Micklethwait and Wooldridge quote a business school student saying, “I learned a great deal about military history and Confucian metaphors. But the only practical advice that we were given was that every company should send teams of people from different disciplines to country hotels every year to think about the future”.


Churchill famously said about economists that when there were two economists there would be three opinions, except when Maynard (John Maynard Keynes) is one of them, when there would be four opinions. Strategic management theorists are not very different. All the complexity they conjured would have been less frightening had they only as many ideas of strategic planning as theorists. In this diversity the main strains can be distilled into two:
(a)    The Harvard Business School strain, an ardent believer in case studies, argued that each challenge needed a unique response.
(b)   The Boston Consulting Group with its faith in universal explanation of the way companies functioned believed that successful identification of your business is as useful ‘to a coffin maker as it is to an advertising agency’.

To bridge this chasm Michael Porter entered the arena with Competitive Strategy in 1980. He studied “individual companies but set them in the context of their relevant industries and outlined ‘generic strategies’ but emphasized that different firms must choose different paths to success”. Porter pursued the idea with his next book, Competitive Advantage where he emphasized the need to analyze the ‘five competitive forces which determine the company’s attractiveness: potential entrants, buyers, suppliers, substitutes and competitors. A company is not a single unit, but a ‘value chain’ of discrete activities (product development, manufacturing, marketing etc.). Notwithstanding Porter’s defiance of brevity, his theory can be succinctly mentioned as two-pronged:
(a)    To make differentiation, compete on the basis of value added to customers, so that customers will pay premium to cover higher costs OR
(b)   Cost based: Offering products at the lowest cost. While not losing sight of quality and service, the focus is on cost.    
Organizations which followed either of the strategies did better than those which did not.

So, what has gone wrong with strategic planning? Essentially there are two complaints: practical difficulties and theoretical impossibilities. These can be summarized as: (1) strategic planning soon becomes numbers game. (2) Statistics are not as dependable as the planners believe. (3) Strategic planning separates thinking from doing.

As strategy’s prospects dimmed, growth came back on centre-stage. In Grow to be Great: Breaking the Downsizing Cycle, Dwight Gertz and Joao Baptista concluded from a study of 1000 American companies that (a) Only 7 per cent of the best performing ones had cut costs in previous year in 1988-93. (b) On the other hand companies investing in growth were rewarded with a compound 15 per cent annual growth in their share price. (c) Those investing in cost savings saw a growth of 11 per cent.
  
As growth was making its way to centre-stage, management theorists tried to reinstate Strategy to its old glory. Scenario planning by organizations like Royal Dutch Shell had its successes, including Shell’s famous prediction of the 1973 oil crisis. Secondly, planning or no planning, thinking about the future remained important to successful companies always. The new prescription was variants of Shell’s scenario planning of asking ‘what if..?’

Miclethwait and Wooldridge wonder, “can all this futuristic thought be translated into strategy without falling back on the (generally bad) idea of planning?” In answer the theorists came up with ‘strategic vision’. “Visions…define a few outstanding goals around which companies can organize their resources; and they help to inspire the workforce to pursue common aims...”
Can vision statements climb down from the lofty framed walls to mundane planning? Competing for the Future by Gary Hamel and C.K.Prahalad was the most ambitious book trying to answer the question. For them, “competition is the battle to create and dominate emerging opportunities…traditional strategies looked upon companies as a collection of products and business units; Hamel and Prahalad look upon them as a collection of skills…a company should try to reinvent its whole industry by following a vision.”

This new idea also is not without flaws. While visionary companies may ‘earn the applause of management theorists’ the final winners making real money may be the plodders. Secondly, vision bereft of resource is a mere word. Hamel and Prahalad supplemented vision with stretch and core competencies. Stretch is the extra mile the workforce needs to be motivated to walk to innovate; and core competencies is that set of competencies together which provides the competitive edge to the company. Again stretch may degenerate to flogging employees and core competence may become ‘as unbending as five year plans’.

After painstaking analysis and debate Mickelthwait and Wooldridge come to the conclusion that, “In the end, all strategy is gambling on the future. Visions – no less than plans – are only as good as those who make them. Even the dumbest lottery player can work out that companies that predict the future correctly do better than those that do not”.


The last word on strategy will have to wait for quite some time. Larry Ellison of Oracle believed that the personal computer would give way to cheap, easy to use network terminals, providing access to a central database. On the contrary, Bill Gates remained centered on the PC.  “Doubtless, in ten years’ time some son-of-Hamel and son-of-Prahalad will write a book saying that vision was correct, and make it seem as easy choice; today any normal mortal confronted by Gates and Ellison is reminded of the old jibe: ‘Two men say they ‘re Jesus; one of them must be wrong’”. Not yet; the winner is….long time coming.


(This article is based on the chapter on STRATEGY in The Witch Doctors by John Mickelthwait and Adrian Wooldridge)  

By V.K.Talithaya (vktalithaya@managementmasala.com)
Management Masala V K Talithaya.jpg
On 4/07/2014

1 comment:

'I Want to Start with Solving a Real Customer’s Real Problem' – Ted Selker MANAGEMENTMASALA’S Seven Rules of Leadership How Millennials Gen Y Loyalty is a Challenge for Brands Innovation and Invention – Another View Strategy: Conjuring The Future