Factors that used to bring advantage and automatic success to companies, such as scale or product differentiation are becoming challenged under the pressure of an increasing pace of change, driven by technology disruption, globalisation, regulatory shifts and the evolving nature of the work itself.
One of the key challenges that companies face is the need to adapt to those changing circumstances. For most, change is easier said than done. The capabilities that make companies truly great are slow to develop and cannot be built overnight. In addition, valued attributes such as reliability and accountability are often strengthened by predictable routines and structures that create inertia as a by-product.
As a remedy, business gurus point to the need for companies to become more "agile" and move quickly to deal with threats, or to pursue attractive opportunities. Their theory arises from case studies of companies with a reputation for being consistently successful, such as Amazon or Starbucks – the kind found in popular management books which highlight their power to move quickly and easily, as well as their uncanny ability to devise a different product mix or position to make the right move and keep a transient advantage.
These ‘winning companies’ may have undergone successful transformations, and one might hypothesize that a dynamic and agile strategy might be the lynchpin of this transformation. One might further infer from this that, had other organisations attempted the same changes, they too would have experienced success. Unfortunately, such an inference comes from considering data heavily biased toward those specific firms.
Booz & Company undertook a wider-ranging study, covering ~1053 companies with US$1 billion in enterprise value between 2002 and 2012. It showed that ‘winning companies’ were not more agile than the losers i.e. they were not responding faster. They were proactive in their strategic moves, but the strategic choices they made were very measured and consistent.
It showed that, at the other side of the spectrum, decline was in 80% of the cases brought by underestimating strategic risks. These are the risks embedded in the top-level decisions made by the executive team, such as what products and services to offer, whether to outsource manufacturing, what acquisitions to make or how to anticipate major industry shifts. Fast chasing after opportunities seemed to only bring strategic incoherence and volatile performance. The winning companies won because they made wise strategic choices, not because they moved fast. In other words, they had the opportunism to move in the right strategic directions – not to make an opportunistic move.
Here is my take on the five key practices common to the winning companies; many of which run counter to conventional business wisdom:
1. They stay true to whom they are. Although companies change to adapt to an evolving environment, they remain true to theiridentity, cognizant of their unique strengths and of where their capabilities add the most value over time. In other words, they make long-term strategic moves that will bring them closer to their goals.
2. They steer their customers. Every business will tell you that the customer is #1, but only a small percentage acts that way. Instead of researching what customers want, those companies look at trends and anticipate and shape what their customers want, ultimately creating demand.
3. They translate their strategic intent into the everyday. They build their own bespoke capabilities, adapting best practices that suit their strategic intent, inventing some of their own and, in the process, learning to do things that no other companies have done before. They make strategic bets on the capabilities that matter most for them now and in the future, to continuously invest in them and execute flawlessly day after day.
4. They put their culture to work. A company’s strategy is often its biggest asset - the main differentiator between competitors. Culture produces the behaviors that reinforce the capabilities that will make a company. Those companies also understand how difficult it is to copy, so they celebrate what is already great about their culture, leveraging their existing behaviors to make themselves more powerful and effective.
5. Finally, they cut costs to grow stronger. Those companies do not manage expenses across the board, assigning targets or use benchmarks to take out cost. They treat expenses as investments, focusing on the two or three major capabilities that they have identified to set themselves part; divesting from those activities that do not truly reflect the business’ strengths or long-term goals. As such it makes them more resilient in tough times and they continue to be more robust as recovery begins as they can focus on key priorities and future performance potential.
‘Winning companies’ have the discipline to say no to anything that does not help them to win and deliver their strategy. This includes the power to resist the pressure to change fast and respond quickly to external events to chase after opportunities. Instead they out things into perspective and ensure they keep strategic coherence though their every moves.
by Christelle Espinasse– inSTRATEGIA
