Strategy

Most companies invest a significant amount of time and effort in a formal, annual strategic-planning process & #8212; but many executives see little benefit from the investment. In the course of the authors’ research, one manager compared his company’s process with a “primitive tribal ritual,” and another likened it to the Soviet system: “We pretend to make strategy and they pretend to follow it.” The authors found that, although few truly strategic decisions are made in the context of a formal process, formal planning can be a real source of competitive advantage when it is approached with the right goal in mind: as a learning tool to help companies create within their management teams “prepared minds” (to borrow from Louis Pasteur). The key is getting right a host of seemingly mundane but actually critical details concerning the annual meetings that are at the heart of all formal processes & #8212; including who should attend the meetings, where they should be held and what kind of preparation is necessary to make them effective. Following an analysis of those details, the authors offer several examples showing prepared minds in action, in which formal planning helped managers make solidly grounded, real-time strategic decisions in a world of turbulence and uncertainty.

All organizations sense competitive pressure intuitively, but most, says the author, do not do a good job of managing it. That is, in part, because it is often difficult to see the overall pressure system & #8212; a complex, shifting pattern of overlapping contacts among rivals that continually alters the climate of an industry by changing the incentives for players to compete, mutually forbear or even formally cooperate. This article illustrates how pressure systems can be mapped and controlled to a significant extent. A map based on measured pressures has important implications for an organization’s market’ and competitor selection, growth plans, product-portfolio and diversification strategy, resource-allocation priorities, competitive-intelligence system, merger-and-acquisition strategy, and scenario-planning process. In any industry, companies can develop competitive strategy by using a pressure map to answer two critical questions: If the current pressure pattern continues, what position will my company ultimately hold? How can my company stabilize or shift the direction of pressure to reduce (or enhance) the predicted impact of the current pressure system? Through detailed discussion of the airline, automobile and European wireless-telecom industries, among others, the author demonstrates how pressure maps can reveal the underlying competitive dynamics of an industry. He then offers a variety of mechanisms by which organizations can and do affect their competitive landscapes & #8212; stabilizing or destabilizing them to greatest advantage.

The use of risk-assessment tools is far from pervasive.

As multinationals unrelentingly seek new growth to satisfy shareholders, they increasingly hear concerns from many quarters about environmental degradation, labor exploitation, cultural hegemony and local autonomy. What is to be done? Must corporations’ thirst for growth and profits serve only to exacerbate the antiglobalization movement? On the contrary, the authors say, a solution to this dilemma does exist. Companies can generate growth and satisfy social and environmental stakeholders through a “great leap” to the base of the economic pyramid, where 4 billion people aspire to join the market economy for the first time. This is not a question simply of doing the right thing in order to lift people out of poverty & #8212; although that will surely be a result of the leap the authors have in mind. From a senior executive’s point of view, it’s a matter of finding the most exciting growth markets of the future. It is also where the technologies that are needed to address the social and environmental challenges associated with economic growth can best be developed. The authors illustrate their point with examples of companies that are already profitably disrupting such industries as telecommunications, consumer electronics and energy production.

The product-development process is often seen as an undependable black box” that rarely produces results that exceed business expectations. Traditional financial models have limited success exposing the numerous product-development risks that underlie the assumptions in a typical business case. Applying the same rules to development as they do to research, managers often accept unpredictable performance as normal. Most companies’ evaluation and approval processes are driven by accounting-based metrics such as discounted cash flow or net present value (NPV) that make understanding the underlying risks of development difficult for decision makers. When risk is discussed in the business case, technology uncertainty is often confused with product-development risk, and the narrative discussion of risk is designed more to persuade than inform. In this environment, decision makers are often hard-pressed to evaluate the potential commercial success of the new-product-development investment. With an approach called “net present value, risk-adjusted” (NPVR), author Craig R. Davis, CFO of product-development consulting firm Product Genesis, offers an operational framework that gives decision makers quantitative tools to evaluate relative project risks. He shows how these tools can be integrated into existing stage-gate methodologies to create a risk-adjusted NPV that considers the impacts of product portfolio, user needs, and technical and marketing risks. The framework also provides insights into the value of additional research in advance of full commitment to development. The framework provides a vocabulary appropriate for complex technology products in medical, commercial and industrial products but is easily adapted to the unique terms, methods and measures for each risk-assessment area.

Identifying and addressing the environmental factors that can affect success

Today’s world calls for less hypothesis testing and more systematic observation.

The answer to the question, "Who are we?" is complex, elusive and can confound strategic change.