Is Your Business Ready for the Upswing?

Time to review your company’s strategy

Published: Apr 22, 2010 07:00:00 AM IST
Updated: Apr 21, 2010 04:00:07 PM IST

With economic confidence returning, are you ready for the upswing? Will the strategy that was working well for you before the financial crisis still stand you in good stead as confidence returns? Peter Killing suggests that this is a very good moment for a thorough review of your company’s strategic health.

Many companies have experienced pain in the last two years as financial results, share prices and in some cases market positions have suffered. As confidence returns, now is the time to question whether the strategy you had two years ago still makes sense. Are the customers you had then going to come back? Do you still offer the right products and services? And are you still in the right market segments? Do your customers still value your “offer” to them, in preference to those of competitors?

It is often said that success is 10 percent strategy and 90 percent execution. I would argue that while having the right strategy may be “only” 10 percent of success – it’s the first ten percent! So you need to make sure you are doing the right thing, before you work to improve execution. Great implementation of the wrong strategy is not a recipe for success.

Three questions

For me a strategy review starts with an analysis of where you are today. Let’s assume that you are already closely monitoring financial issues, such as cash flow, the state of your balance sheet, the fixed cost reduction and so on. Then your attention needs to turn to three questions:

1.    Strategically, is your business in the right place?

2.    Are you focusing your organization’s attention and energy on the right battles, to reach the future that you want?   

3.    Is your organization healthy? Are your people ready to win the battles ahead of them?

Let’s take a snapshot of your company right now.

1.    Are you strategically well positioned?

This question means: are you in attractive business areas, which offer the promise of profitable growth now and into the future? And are these areas in which you can compete effectively?

A useful way to approach these questions is to use the GE- McKinsey matrix , which asks you to position the attractiveness of the business areas in which you are competing against your strength relative to key competitors in each area. This is an old model, but very relevant today, as your position on the grid may well have changed during the crisis.

Let’s assume that two years ago you were a strong player in an attractive business area. Where you are today? If your results have fallen during the crisis it could be that the business areas in which you compete has become less attractive. Maybe customers have (temporarily?) gone down market to shop at Walmart, or buy from other no frills “good enough” suppliers. Consider the automotive market which has been deeply unattractive for the past few years. Will it now return to a more attractive state? There is still too much capacity in Europe, for example, but now that GM is retaining control of Opel, perhaps some excess capacity will be removed, leading to a more profitable industry. The question for your business, as confidence returns, is will the business areas in which you compete return to their former attractiveness, or do you need to move elsewhere?

The other possibility is that your results have declined not because of a change in the attractiveness of your business area, but because your relative competitive strength has fallen. Competitors may have used the crisis to better advantage than you did. Think of the market for traditional newspapers and magazines. You might be a strong newspaper, but that does not help you fight the gains being made by your online competitors, who provide the news free of charge to your increasingly cost conscious customers. Or maybe you are a traditional book publisher or retailer trying to assess the impact of the new services offered to purchasers of the Kindle electronic reader, which offer books at far lower prices that your paper versions. There is still a lot of money to be made from the reading public, but your relative competitive position has decreased significantly.  

It is important to know which factor has been causing your pain. Is it a decline in the attractiveness of your business area, or your competitive position? You need to be clear, before you start to take corrective action.

2.    Are you fighting the right battles?

The strategic position snapshot is static picture of where your business is today. The next step needs to be a dynamic analysis. Where are your company’s scarce resources – be those money or the time and energy of key managers - being focused? Is the energy where you want it to be?

The first question is how much time is being spent fixing the problems of today, versus preparing for the future? For the last 18 months you may have been focusing almost exclusively on the former. If so, it may now be the time to raise your head and look at a slightly more distant horizon. If you are wondering if you can afford to do that, I would suggest using the Net Promoter Score, a tool which allows you to segment your customers into “promoters”, “passives” and “detractors” . This will give you a very good reading on whether your current relationships with your customers are healthy, or need more investment. If they are not happy – and they are customers that you want to keep - that needs to be your first priority.

If, however, it is time to consider your business’ longer term future, I suggest you use an exercise we call “Future Perfect” . To do this we ask the top team “if everything went just as you want it to, where would the company be in five (or some other agreed time frame) years?” The team paints a rich description of both the numerical side of their ideal future – size, growth rate, profitability, major markets and so on, - and the softer side - culture, reputation, and leadership style. This exercise prompts frank discussions, passionate arguments, and at the end there is an agreed goal worth fighting for. Then we identify the few key battles that have to be won to get there, and the behaviors that the top team is going to have to exhibit if the battles are to be won. The key point is not to fight too many battles at once, and to get the top team to commit to the required new behaviors, which generally means a willingness to work across organizational silos .

Organizational health

There are a number of tools you can use to assess the health of your organization. At IMD we frequently use the Denison model , which gives a snapshot of a company based on the responses of company employees to 60 questions. Your employees’ responses are compared with those of employees of thousands of other companies that have carried out the survey, and research has shown that a company’s survey results are correlated with its growth and profitability. The results are presented in four categories:

1.    Vision: Do people believe the organization knows where it is going? Are there clear goals?
2.    Adaptability: Is the organization open to change? Does it respond to customers and learn from mistakes?
3.    Consistency: Are there common values? Is it easy or difficult to get agreement between different parts of the organization?
4.    Involvement: Are people who work for the company fully engaged? Do people feel empowered? Do they work as a team?

The results of the survey will give you a good insight into the question of whether or not the organization is ready and capable of taking on your chosen must-win battles. You should not plunge into your must-win battles without first carrying out this reality check.

What you should be doing now

So, as confidence returns to your customers, suppliers, bankers, and to the stock markets, ask yourself these three questions about the validity of your strategy, whether your organization has the right priorities for the future you need to build, and whether it is ready to fight and win the battles that must be fought.  Best of luck, it is a time of opportunity!

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[This article has been reproduced with permission from IMD, a leading business school based in Switzerland.]

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