Strategy is back in fashion!

“Since January (2011), the Financial Times has reported that more than 30 organizations – from Albertis, the Spanish airport operator, to Zenergy Power, the developer of superconductors – are carrying out, will carry out or have carried out some type of “review strategy”

Andrew Hill, Financial Times, June 14, 2011

It’s official! Strategy is back in fashion! For the past ten years or more, “strategy” was a four-letter word. Everyone was focused on execution (Bossidy and Charan), business models (every VC), or more recently “scalability” (as in “…we need a Sheryl Sandberg here,” Sheryl being the current priestess of Silicon Valley). Strategy was an afterthought, a box to be checked before moving on to more important things.

In part, this was understandable: the dotcom bust of 2000/2001 gave the strategy a bad name, and during the Great Recession of 2008/2009 the watchword was “SURVIVAL”. In between, consumer booms in the US and Europe and rapid growth in the BRICs meant “What’s bothering me?” Sales and profits were up, life was good, there was no need to obsess over strategy.

Because right now?

So why worry about strategy now? A cynic would say, “Managers need new buzzwords and consultants (not to mention business professors) need to recycle their ideas!” Or, to quote Andrew Hill, “…put ‘strategic’ ahead of simple decisions…and the people who carry them out…feel more important, while those who advise can charge a higher fee.”

While there may be some truth to that, I believe that several fundamental changes in the economic environment are making strategy, and strategic thinking, essential:

• OECD economies are stagnant Managers can’t just navigate the market: US growth is anemic, Japan and the UK are stagnant, and Spain, Europe’s growth area, is dead.

• Competition in the BRICs has increased, UP The easy options are gone. Local players and new entrants mean the competition is tough and getting tougher. • Nothing left to cut Cutting costs, those old standbys, won’t work; there is nothing (and no one) left to cut.

Bottom line? Managers and companies need better strategies if they want revenue and profits to grow again. They can’t rely on old backup resources; they have to think long and hard about the general direction of their business.

The problem

Unfortunately, managers generally don’t think about strategy. Worse yet, they often end up pursuing bad strategies, ones that are sure to end in disaster: RIM and Nokia in smartphones, Dell in PCs, Detroit’s Big Three, Barnes & Noble/Borders, the music industry after Napster, Wal-Mart in Germany (and Tesco in California?), US airlines (except Southwest and JetBlue)… the list goes on and on.

Why do they do it? Why do managers keep throwing good money after bad? Why do they stick with “business as usual” long after the writing is on the wall?

In part, it’s due to behavior: Managers fear being called “picky” or inconsistent. Better to stick with a bad strategy, they reason, than to change and risk my job. Stockholders and Wall Street combine to reinforce this behavior; In this environment, a new management equals a new CEO (and often not even then; the new person often chooses something just as bad, if not worse).

three questions

More fundamentally, managers fail to ask themselves three key questions: First, “Why was this company (or business) successful in the first place?” Second, “Why is the business successful today or why is it struggling?” Last, but most importantly, “What is necessary for business to be successful tomorrow?” Too often, managers, investors, and analysts assume that what made the business successful in the past is what will keep it successful in the future. The reality, unfortunately, is different.