Strategy

What shapes strategy today and how has it changed? While many executives were focused on the implications of the Internet, a more powerful force was at work, contends Stanford University professor Kathleen M. Eisenhardt: globalization. Globalization has quietly transformed the economic playing field. The traditional strategic paradigms (positioning, core competence and the like) are not dead, but they are less germane than they were. Schumpeter’s “creative destruction” and similar economic views are coming into their own. The new economics is more entrepreneurial. It centers on disequilibrium, fleeting opportunities to capture competitive advantage, and the creation and destruction of wealth. Successful strategy in today’s world is simple; it uses a few clear guidelines and allows for flexibility. It is supported by organizational design; it is not handed down from on high. And timing is everything. Eisenhardt cites Colgate’s use of simplicity in a key strategic process, global product management. Colgate has found success through allowing product managers considerable freedom within a couple of simple guidelines (Maintain the Brand; Keep Relative Product Positioning Stable). That thinking also has been a boon to Ispat International, which uses uncomplicated rules for choosing and integrating acquisitions and has thus become one of the world’s fastest-growing steel companies. In contrast, Intel and SAP stumbled with their joint venture for e-commerce services, Pandesic. Although the companies had ample resources and a clear vision of their desired strategic position, their plan’s complexity kept them from adjusting as the market unfolded. Eisenhardt explains how managers can refocus their strategy on key processes and simple rules, mapping their individual businesses to market opportunities and employing an evolutionary form of timing to move from one competitive advantage to the next.

Diversifying can be the best way for companies to match their capabilities to the marketplace.

In following the traditional model of strategy development, a company seeks to craft the best possible plan so that it can be handed off for a predetermined course of execution involving a predictable set of events and a specific final goal. This scripted approach resembles traditional theater: The actors speak the same lines and the action comes to the same satisfying conclusion, night after night. The model works well when business is going through a relatively stable period. The current situation, however, is not stable: Companies are still trying to navigate the technological tsunami created by the Internet. Under the circumstances, it makes much more sense for companies to follow an improvisational model & #8212; that is, to throw out the script, bring in the audience and trust the actors to innovate on the spot. The metaphor of improvisational theater helps executives think about the way in which an entire organization can become an arena for staging experiments that can transform a company’s overarching strategy. Harvard Business School professor Rosabeth Moss Kanter lays out the six elements of strategic improvisation and illustrates how companies have made use of each one to get the most out of new technologies. Senior managers who understand these elements can create an atmosphere in which improvisational theater thrives; change then becomes an organic process rather than a painful reaction to circumstances beyond the company’s control. Although this approach does not advocate a big plunge into something totally new, it is anything but conservative. Companies that engage in continual improvisation through innovative projects of all sizes and shapes are much better equipped to explore highly threatening disruptive technologies and embrace quite radical changes.

Although identifying and hiring the most appropriate CEO is critical to an organization’s success, the succession practices of many large corporations often result in poor outcomes, as recent brief CEO tenures at Coca-Cola, Gillette and Xerox testify. To better understand the dynamics affecting such a complex selection process, from 1995 to 2000 Harvard Business School professor Rakesh Khurana interviewed scores of directors, executive-search consultants and job candidates about the methods that large corporations use when hiring a CEO. In the process, he discovered several common pitfalls that derail efforts to find the right CEO. He observes that a variety of practices are nearly institutionalized in many companies, and he explains ways to avoid them. Khurana also contends that boards can actively manage the following aspects of a CEO search and greatly improve the likelihood that the survivor who emerges is best suited for the challenges of the job. Search-committee composition. Khurana recommends that the search committee consist of a diverse group, not only in terms of age and functional background but also concerning knowledge of the company and its culture. The “CEO as panacea” syndrome. Boards must be sure to consider the contributions of other executives in company success; failure to do so will raise expectations about the performance of the incoming CEO to an unsustainable level. Adoption of outcome-oriented practices. According to Khurana, the practices most relevant to a successful outcome are discussing the company’s strategic direction explicitly and early in the process; recognizing and defining search participants’ roles and responsibilities (in particular, limiting the roles of the outgoing CEO and the executive-search firm); and evaluating candidates in light of the position’s requirements, rather than in relation to one another.

Whether you’re a startup taking on industry giants or a giant moving into markets dominated by powerful incumbents, how do you compete with opponents that have size, strength and history on their side? To prevent opponents from bringing their full strength into play, successful challengers use what authors David B. Yoffie and Mary Kwak of Harvard Business School call judo strategy. Judo strategists avoid head-to-head struggles and other trials of strength, which they are likely to lose. Instead, by relying on speed, agility and creative thinking, they develop strategies that make it difficult for stronger rivals to compete. Judo strategy is most effective when three core principles & #8212; movement, balance and leverage & #8212; are used in combination. But at different stages of competition, a single principle may play a particularly important role. In the early days of a business, for example, before the contours of the competitive landscape have been fully defined, movement typically takes center stage. The authors use Palm Computing (now Palm Inc.) to illustrate judo strategy’s core principle of movement at work. The company dominated the handheld computing market less than a year after shipping its first electronic organizer in early 1996, despite competition from the most powerful software company in the world. Microsoft marshaled masses of money, manpower and marketing muscle behind its own handheld operating system. But year after year, Palm remained far ahead. By mastering the principles of judo strategy and learning to implement them through specific techniques, other companies can emulate the way Palm competed with a stronger opponent. The authors came to that conclusion after studying companies as varied as Juniper Networks, Intuit, Frontier Airlines and Charles Schwab. They caution, however, that judo strategy is not a rigid formula to be followed step by step. Depending on the nature of their competition, companies will combine and implement the principles in different ways. But the basic tenets hold: Stay out of competitors’ sights by deliberately acting harmless (like a puppy dog), define the competitive space to establish the game, and follow through fast to build a big lead before competitors learn how to respond.

New research shows that among today’s numerous strategic alliances, the most successful are in companies with a department specifically assigned to overseeing alliances. Management professors Jeffrey H. Dyer, Prashant Kale and Harbir Singh came to that conclusion after conducting an in-depth study of 200 corporations and their 1,572 alliances. The number of strategic alliances has increased dramatically over the past decade, with more than 20,000 reported during the last two years alone. On average, the top 500 global companies each participate in 60 major strategic alliances. Fraught with risk, almost half fail. The authors set out to discover why some companies manage alliances effectively when others fail. They found that organizations such as Hewlett-Packard, Oracle, Eli Lilly & ; Co. and Parke Davis, which excel at generating value from alliances, have a dedicated strategic-alliance function. Companies with a dedicated function were better at solving problems related to the four key alliance-management elements & #8212; knowledge management, external visibility, internal coordination and accountability. A dedicated function, the authors show, acts as a focal point for learning and for leveraging feedback from prior and ongoing alliances. It systematically establishes processes to articulate, document, codify and share alliance know-how. The authors found that one benefit of creating an alliance function was that it compelled companies to create metrics for evaluating the performance of all their alliances. And regular evaluations alerted senior managers to intervene when a particular alliance was struggling. Many companies with dedicated alliance functions report codifying alliance-management knowledge. They create guidelines to help with specific aspects of the alliance life cycle, such as partner selection or alliance negotiation. Some companies establish training programs, both formal ones and informal ones & #8212; such as roundtables that let managers of various alliances share their experience. When done properly, dedicated alliance functions offer internal legitimacy to alliances, assist in setting strategic priorities and draw on resources across the company. That is why, the authors advise, the function cannot be buried within a particular division or be relegated to low-level support within business development.