CHAPTER | TWENTY-FOUR
You Can't Get the Right Strategy from a Formula
About the time that I became a new professor, the university hired a large consulting firm to assess its course offerings and programs and to develop an overall strategy for fulfilling its mission and meeting the needs of the community. All professors, staff, and administrators were invited to a multihour presentation on the consultants’ approach. That is, it was explained what they intended to do and the process they would use to recommend the programs and courses that should be maintained, name the ones that should be dropped, and suggest the new programs that should be initiated to achieve the most efficient results, given the level of resources we had to work with.
The consultant team was articulate, well dressed, and polished. They walked us through a well-constructed presentation, showing us how they had developed their strategy formula. It was a variation of portfolio management with the familiar four-celled matrix (shooting stars, cash cows, question marks, and dogs) developed by the Boston Consulting Company, as modified by the more complex nine-celled matrix developed by the McKinsey Company for General Electric some years later. They took pains to explain their quantitative analysis, which would result in explicit directions as to when, where, and how much money we should invest. It was an impressive presentation that resulted in a strategy well supported by complex equations and research. If nothing else, the study was notable for the huge amount of money it had cost. It was implemented exactly as directed and it failed miserably.
The Drucker Approach Was Different
Drucker's views on strategy were quite different from those taught by many others. He did not believe in “portfolio management” or quantitative equations for strategy development, although he accepted that a thorough analysis was required and that figures were an important input, useful in helping to arrive at strategy decisions. However, he felt that every situation had to be approached individually, with common sense based on history.
This approach is probably one reason that Drucker, although a self-proclaimed “nonhistorian,” used historical examples—not always business examples—to illustrate his concepts. And though the word strategy comes from the Greek word strategos, which means “the art of the general,” he did not believe that “business is war”—although he had an impressive knowledge of military strategy, which he thoroughly enjoyed discussing.
Even though he did not view marketing or business as warfare, Drucker recognized that there were certain principles of strategy for any organization—or any other purpose—that parallel military strategy. Both the military and your typical organization operate on a “theory of business.” But Drucker used that strategy to convert the theory of business into performance—that the purpose of strategy was to enable an organization to achieve its desired results in an unpredictable environment.
The Drucker Way
In practice, Peter Drucker first looked at a company's overall objectives, and whether they matched what the business of the company was, what the business should be, who the customer was, what the customer wanted, and, most importantly, what the customer valued in fulfilling his or her wants and needs. He then developed strategy, looking at the relevant events that had occurred and determining what they would mean for the future. He called the results of this analysis “certainties.” Pleasant or unpleasant, the “certainties” had to be faced squarely. In other words, he started with an analysis of the marketplace, then sought to identify the relevant events that would result in future certainties.
Drucker knew that risk could not be avoided. In fact, he believed that some risk was a requirement for success. The future was always unknown, and unknowns always mean risk. If there were little or no risk, this would instead mean that the corporation was not aiming high enough. According to Drucker, the risks from unknowns could best be dealt with by taking the initiative to create one's own future. Therefore, in developing strategy, a manager has to plan the actions that will achieve the goals he or she has established. Of course, major threats have to be identified, along with alternative courses of action should these threats become realities.
Four Questions That Must Be Answered
Any company's strategy has to incorporate the answers to four Drucker questions:
- What opportunities does the company want to pursue and what risks is it willing and able to accept in this pursuit?
- What is the scope and structure of the organization's strategy, including the right balance among such aspects as specialization, diversification, and integration?
- What are the acceptable trade-offs between time and money, and between in-house execution and using a merger, acquisition, joint venture, or some other external means of achieving the company's objectives and attaining its goals?
- What organizational structure is appropriate to the company's economic realities, its opportunities, and its performance expectations?
A recognition that strategy has to be based on these four questions led to a methodology that Drucker adopted, which was more inferred than spelled out as a “by the numbers” process. It follows various approaches to strategy that probably began with the Boston Consulting Group's four-celled matrix (also discussed in Chapter 30) and recognition of a relationship between market share and market growth.
Ten Principles of Strategy Development
Drucker integrated goals and objectives (what the business should be) with the variables of the situation and the resources needed, and added his judgment based on his own observations. The latter, of course, was the most difficult to grasp. I knew his judgment involved certain principles, so based on my knowledge and research into strategy, I came up with the following principles that a strategist should consider:1
1. Make a full commitment to a defined objective. Drucker made it clear that the defined objective was what the business should be. This is why he granted so much importance to analyzing this issue. The objective must be precisely defined, and then the corporation must be fully committed to achieving it.
2. Seize the initiative and keep it until you succeed. There are many examples of individuals or organizations that have had a great idea, but then delayed in developing that idea or bringing it to market. Or, in some instances, someone ceased work at the very point of achieving success. The Wright brothers were the first to achieve actual success in powered flight. But did you know that in 1891, twelve years before the Wrights flew, an astronomer named Samuel Langley built a model of a plane that he called an Aerodrome, which included a steam-powered engine?
Langley's model flew for almost a mile before it ran out of fuel. As a result of his success, he received a $50,000 grant to build a full-size Aerodrome (that equates to about $1,250,000 today). However, his full-size airplane crashed and Langley was so disappointed that he gave up trying. But here's the interesting part. Flyer Glenn Curtis modified Langley's Aerodrome in 1914 and made several successful flights with it. Had Langley persisted, it would have been he, and not the Wrights, who first demonstrated manned flight.2
This principle says you must get the initiative and keep it until you achieve your goal. Drucker emphasized not theory, or even planning, but action.
3. Economize to mass your resources. You can't be strong everywhere, because your resources will always be limited. The idea is to economize where your efforts and resources are not critical and to concentrate them where they are needed most. Essentially, you must concentrate your superior resources at the decisive point in any situation.
This is exactly what Drucker was saying when he asked Jack Welch of General Electric his two famous questions: “If you weren't already in a business, would you enter it today?” and “If the answer is no, what are you going to do about it?”
4. Use strategic positioning. To achieve any strategic objective, you need to make changes and adapt, owing to environmental or other unexpected factors. Hence, you may need to modify your approach and your positioning in the marketplace, even as you continue to work toward your objective. That translates to this: If what you are doing isn't working, you need to adjust your strategy. It's true that persistence is an immensely valuable trait for reaching any goal; however, maintaining a faulty strategy in pursuit of a worthwhile goal is foolish—or worse.
5. Do the unexpected. When you have competition, surprise your competition by doing the unexpected. This principle can also be profitably applied to customers, so long as the surprise is a pleasant one. For example, giving your customers, or those you service in an organization, more than they expect is almost always a valuable surprise.
6. Keep things simple. Someone at NASA once calculated that if every one of the parts in just one of its rockets was 99.9 percent reliable, the rocket would fail 50 percent of the time. We would have had to curtail our space program in short order. That is, the more things that can go wrong, the more will go wrong. If you want less to go wrong, keep your strategy simple.
7. Prepare multiple simultaneous alternatives. Since some actions inspired by your thinking are going to fail, always have an alternative action that can secure an alternative objective. This alternative action should already be thought out and ready to be implemented.
8. Take the indirect route to your objective. Moving directly against any human thought or endeavor always arouses opposition—people hold on all the more strongly to their present thinking. In truth, no one likes to be sold anything, whether it's a product or an idea. However, most people are eager to take advantage of a bargain or adopt an idea that will benefit them. The difference is subtle, but the results can be decisive.
Remember, the direct route will always lead to the strongest opposition. The same principle holds true in facing the competition. Avoid the position where your competition is strongest, and make your approach where it is the weakest. (This concept was first developed and analyzed by B. H. Liddell Hart—probably the greatest military strategist and, some would say, simply the greatest strategist of the last century.)
9. Practice timing and sequencing. The Bible says that there is a time for every purpose under heaven. The reverse is true, too. Implementing the “right” strategy at the wrong time or in the wrong sequence can be just as ineffective as if it were all wrong. You've heard the saying, “He was ahead of his time.” Yet, someone with the same idea at the right time may be extraordinarily successful. Bottled water is very successful today, and some branded names command very high prices. Yet some years ago, the idea of anyone's paying for bottled water, unless it was from Lourdes, would have been considered a joke.
10. Exploit your success. Don't stop or slow down when you achieve your objectives. If you don't stay continually ahead of your competition, you are simply giving the competition another chance to stop you.
In summary, to develop strategy, decide on your objectives; find the “certainties” in the situation; bring together the certainties, the resources required, and the variables; decide on the action steps to implement the strategy; and take action.