Task:
The first of 10 steps in the preparation of a Strategic Plan is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. To help you get started on this, I need your opinion answering the following question: "if someone from Mars visited the business in the year 2011, what would they see (or sense)?"
Consider its future products, markets, customers, processes, location, staffing etc. How dramatically different is this from where the organization is today? Compare the Mission to the Vision. How does it plan to achieve this Vision? What are the values of the organization? What role do these values play in achieving the Vision you have identified? What implications does all of this have for strategic planning within your organization?
Case Scenario:
Why do some very successful leaders, companies and industries go astray? Some have said it is due to the changing nature of the economies worldwide (Demos et. al, 2001). New and disruptive technologies create uncertainty and make competitive advantage short-lived. Deregulation and globalization are making the economy more efficient and at the same time far more volatile. Executives are under pressure to figure out how to continuously grow shareholder value each and every year, or even every quarter. Additionally, speed and constant change are making it difficult to forecast the future and create long term plans (Roxburgh, 2003). Others have identified the convergence of the demand myth, faulty forecast, and financing traps as the reason for the demise of some companies and industries (Katz, 2002).
Leaders in the telecommunications have seen it go from a values-driven economic giant of the Bell System with over one million employees to a set of warring competitors with declining profits, plummeting stock prices, increasing customer churn, increasing employee turnover and in some cases questionable business practices. You might argue that this is only one industry. Let me share a bit of this history and how I currently see some leaders make these same mistakes. According to some experts (Katz, 2002) the decline of the telecommunications industry is simply a case of overcapacity and irrational exuberance of hundreds of executives. A combination of the regulatory framework, overestimation of marketing demand and market share, and mistakes in entry strategies led to irrational strategic plans. But strategic plans are not created by themselves. Leaders create and drive them based on their view of the world, their approach to strategy and a number of psychological factors identified in the field of behavioral economics.
Managers in the Bell System had been trained in a learned set of core values and a view of the world which was in many ways very insular. Values such as life-long employment as well as the focus on universal service, or providing telephone service to every home in America, were part of the culture. Ma Bell, as we all called the Bell System, was akin to motherhood and apple pie. And strategic planning was a core business process that leaders engaged in across the business, creating comprehensive plans looking forward for 10 to 15 years. The economy and the environment appeared to be relatively stable, at least before the divestiture of the local telephone companies.
With divestiture and the regulatory changes that occurred, the nature of the entire industry was being re-defined. Competitors were created. Each analyzed the industry and created new strategic plans. Most continued to grow and prosper for awhile. Over time the need to become more competitive and meet Wall Street's expectations led to the need to reduce costs. When they created the first strategic plan for Information Technology the goal was simply to take out one billion dollars in cost, a 25% reduction in that budget line in 2 years. Like the corporate strategy group, they assumed they understood the economics and nature of the industry and so strategic planning was often a financial exercise.
But, in reality, they had little or no idea of what this industry was all about or about to become. Nor did they take the time to understand the forces and trends or project future scenarios for the economy, the industry or the competitive landscape. As a result, forces hit them that resulted in annual downsizing for the following decade or so. They continuously restructured to remove costs, hoping to become more competitive. They benchmarked on each other in an attempt to identify the best practices in the industry with the hope that this would make us the industry leader. Unfortunately, not once did they really look outside of the industry.
During the next ten years or so, they saw the entry of cable companies and many other new competitors that had never been considered during strategic planning since they were outside of their traditional industry. And early on they looked at them more as a nuisance, since they knew they would not be able to compete. This attitude soon led to decreasing revenues, eroding margins and a declining industry. Some companies and leaders continued to craft a strategy and began to do more rigorous environmental scanning and analysis. Others turned it into a financial budgeting exercise aimed at meeting Wall Street's expectations. Downsizing continued each year; one regional telecommunications company downsized about 50% from 2002 to 2005.
As one looks to the possible future for the industry, mergers and acquisitions and the nature of markets may create a healthier industry. But the success of any industry requires that leaders in the industry learn from their past as well as forecast their futures. Scanning and focusing only on the traditional telecommunications industry, assuming one knows the industry because one has grown up in it, failing to forecast alternative futures based on an understanding of the total global economy, and not believing it is important to identify and assess all possible forces would most likely lead to a continued deterioration of the industry and most of the players in it.
The telecommunications industry is not the only one that has gone through such dramatic changes and faced such significant decline and deterioration. The airline industry has faced many of the same challenges and the health care industry is facing some significant challenges which have the potential to impact its future quite dramatically. According to Michael Porter and Elizabeth Olmstead Teisberg, the very nature of competition in this industry must change if it is to get out of its current unsatisfactory performance in both costs and quality (2004). However, the right type of competition and the right set of objectives are needed for it to succeed as an industry.
For companies and industries to be successful and continue to grow and prosper, leaders must go beyond their view of the world based on a history of success and consider the possible alternative futures in the economy, in their industry, in the nature of competition, and in the new and emerging business models including those for scanning and analyzing the environment and crafting strategy. It is equally important for leaders to avoid the beliefs and behaviors identified from behavioral economics (Roxburg, 2003). Overconfidence needs to be replaced with healthy skepticism, flexibility and consideration of options. Preference for remaining with the status quo needs to be replaced by rigorous assessment of a set of options, of which, the status quo is but one option. Benchmarking within only one's own industry can lead to "me-too" strategies and the herding instinct that contributed to the decline of telecommunications and hurt other industries: banks lending money to less-developed countries in the 1980s and capital investment firms and individual investors focus on dot.com start-ups in the 1990s. "Me too" strategies are often not effective (Nattermann, 2000). In growing industries such as software or restaurants, the nature of competition will be one of changing winners where industry leaders are toppled by small, innovative, and nimble competitors creating a form of judo competition.
Today, as I work with organizations in various industries, I am still often surprised at the approach and focus of some leaders and companies. Few spend much time doing comprehensive scans of their total environment. Even fewer continuously scan their environments to identify future challenges and opportunities. When I inquire "Why?" they state that they understand their industry; they have grown up in it. But when we go through the process of scanning the environment and identifying the forces and trends, they are amazed at the new opportunities and challenges that come to light. Some realize that the plans they assumed would work just won't when they consider the global economic situation, the nature of competition in their industry and their capabilities. They realize they need to take a different approach than they had planned.
To craft a strategy, one first has to understand the game and the game board and how these might change in the near future. Given today's constant change and increasing speed, the scanning and assessment must become more of a leadership mindset than an annual process for the planning department or the financial department who focuses on creating a financial plan to meet Wall Street's expectations if a company is to thrive and grow for the long term.
During this course you will learn both a typical approach used by many companies to craft their strategy as well as some emerging new approaches to strategy that have been developed over the past few years. One key focus of the first three weeks is using environmental scanning and economic analysis to understand today's global economy and how it is changing and to describe the forces and trends in the industry in which you compete. Additionally, you will identify who your current and potential competitors are as well as identify the capabilities that your organization can bring to the game. Based on the environmental scan, economic analysis and your assessment of your industry, you will understand the game board on which you are playing or might play on in the future. The competitive assessment as well as your assessment of your capabilities will provide you with an idea of the game you are playing, at least for the moment.
As you complete your scan and analyses, take a broad perspective and consider how things might change in the future. It is a quickly changing future. Although we cannot predict any future with certainty, predicting a future which will resemble today or the past is pure insanity. Identifying possible future alternatives states will most likely lead to the flexible strategies needed for future success. Being a leader who avoids the "bad" economic behaviors that can lead to poor strategic moves and even the decline of companies and entire industries is a necessity in today's highly competitive marketplace and changing economies. Rather, be creative, flexible, and open; do not just accept the status quo or reject it out of hand. Use the analytical rigor and problem solving approach you have learned throughout the program and has been used to provide a flexible and open, yet rigorous, approach to crafting a strategy. It is up to you to describe the game, develop your game plan and determine how your company will succeed.
References
Bryan, L. (2002). Just in time strategy for a turbulent world. McKinsey Quarterly, Special Edition: Risk and Resilience, pp. 17-27.
Demos, N., Chung, S., & Beck, M. (2001). The new strategy and why it is new. Strategy and Business, 4th quarter.
Katz, R. (2002). How the telecomm industry went astray. Strategy and Business, 31.
Nattermann, P. (2000). Best practices, best strategy. McKinsey Quarterly, 4, pp. 22-31.
Porter, M. & Olmstead Teisberg, E. (2004). Redefining competition in health care. McKinsey Quarterly.
Roxburgh, C. (2003). Hidden flaws in strategy. McKinsey Quarterly, 2.