Business Strategy, Decisive Management, and Success, reposted

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Business Strategy, Decisive Management, and Success

An Article Written for the Euro-Horizon Magazine

By Dr. John Psarouthakis

Founder and President, JPManagementCenter, llc

Adj. Professor of Business Administration (ret.), School of Business, University of Michigan, and   Sr. Lecturer (ret.), Mechanical Engineering, MIT. Founder and former CEO, JPIndustries,Inc., a Fortune 500 industrial Group.

Plato, many centuries ago, said, “Nothing endures but change itself”. What is different in our era is not the presence of change but its pace–the rapidity with which ideas arise, are developed and applied, and the immediacy and degree of their impact in our lives. Let me illustrate.

When I were a student at MIT in the ‘50’s, it used to take five to ten years for an idea, or research result from a University, to become reality in the market and in our lives. Today it is almost simultaneous! This drastic change   has fundamentally altered how we manage business and how the universities relate to the society at large and to the economic development demands more specifically. In the long past corporate strategists could rely on the likelihood that things would not change for a relatively long time. Long term periods were identified as ten year long, while a short tem was a three year time. Today these expectations are tossed out of the window. There is no “static” period to plan within. Things are ever changing. We live in a time phase when strategies must be dynamic, flexible and responsive to the ever changing conditions around us.

The success of a business depends, even more so today than ever before, on a well-defined flexible, proactive strategy implemented by decisive management. Decisive management comes from well-trained persons that understand the process of management and the basic elements of competition within a free market economy.

The central objective of a strategy, and the planning that follows, is to achieve a competitive advantage(s) vis-à-vis the competition through actions that the competitors will not be able to effectively respond, and ,thusly, to consolidate these advantages to a position of strength that will extend this advantage into the future.

The well known and respected business strategist, Dr. Kenichi Ohmae*, in his equally well known book “The Mind of the Strategist” identifies four ways of strengthening a company’s position against its competitors:

  • Create an unconventional strategy directed in upsetting the key factors the competition has based its strategy on, by challenging the accepted assumptions, within ethical and legal bounds, that govern the way competitors conduct their business, for example, upset the status quo and therefore achieve a novel and powerful competitive advantage:
  • Find and achieve a relative advantage against the company’s competitors, by either advantage in technology and profitability and / or identify relative advantages in the position of its assets and the competition;
  • Readjustment of the company’s available resources in such a way that will enable the company to increase its market share and profitability;
  • Find and achieve a relative advantage against the company’s competitors, by either advantage in technology and profitability and / or identify relative advantages in the position of its assets and the competition;
  • Introduce innovations, such as opening new markets or the development of new products.

Strategies such as cost cutting, price reductions, do not create advantages since the competition can easily follow suit and therefore this strategy can only result in lowering profitability and weaken the position of the company. In any event cost reduction should not be considered a unique strategic element since a business should seek ways to reduce its costs and its prices   should reflect the market conditions.

During the years of my entrepreneurial activities we examined a couple thousand businesses in the USA and Europe that were failing to perform well and were in the verge of financial collapse. We looked for and identified the basic reasons that caused the underperformance of these enterprises and found the following basic but avoidable factors:

  • The absence of bold thinking;
  • The absence of strategic thinking;
  • Proliferation of products not relevant or non competitive to the market;
  • Plethora of employment non relevant to the competitive line of products that, correspondingly, created unnecessary high costs;
  • And as Dr. Ohmae would say “managers have become salary takers, devoid of any sense of entrepreneurship or competitive urgency”.

It is simple to conclude that such companies “abandoned’ any sense of strategy formulation and floated gradually and certainly into oblivion and failure

The development of a winning strategy requires that the company considers the interrelated dynamics between the enterprise itself, its customers, and its competitors. This strategy in turn must be implemented through “effective corporate actions resulting from superior decisions, which in turn rest heavily on solid management practices rather than luck or general business acumen” according to Professor J. Frank Yates** of the School of Business at the University of Michigan. A good decision manager understands the process of making good decisions and in the turn helps others within the organization to learn the good decision process. This is of extreme importance to understand before a Strategy and a plan to implement this strategy is developed. The implementation and the results there of depend entirely on the ability to make and implement good decisions. Myself as a practitioner and academic on strategy formulation and implementation, can attest to the fact that absent of the above abilities no strategy developed can be successful.

Professor Yates gives an enjoyable analogy example of the process by comparing to a tennis player: “A tennis player’s forehand looks like a single fluid movement, but it’s a series of actions. She grips the racket, gets in position, watches her opponent approaching shot, pivots her shoulders and hips, turns her foot, transfers her weight, keeps her forearm parallel to the ground, holds the racket head at a precise angle, draws back the racket, steps forward, shifts her weight again, swings the racket forward, keeps her arm straight and her wrist firm, contacts the ball and follows through with a long sweeping motion” The player does this as a second nature because she has developed the skill through practice and expert coaching.

However, I would like to add that the player must have formulated a dynamic strategy prior to entering the game. This strategy must include alternative components that can be instantly activated in response to the opponent’s approach to the game. For example, the player comes in the game with the strategy of playing from the base line. If the opponent turns out to be very good that day on drop shots very near the net, the base line strategy will not work well and must shift to approaching the net, and so on. Here, in analogy, the CEO, as the player, must develop a winning strategy based on the knowledge of the competition but a strategy that contains the flexibility for actions in anticipation of unknown changes in the competitor’s actions. However, the strategy will not be a winning one if the implementer is not on top of his craft and does not understand the process of management, which has become a second nature to him as it is to the good tennis player.

In conclusion, a business must have a “dynamic” strategy to be developed and implemented by able and skillful decisive managers that understand the importance of having flexible strategies containing alternative components of action and further more understand the process of decision making for the effective application of the strategy. In this way only a business can assure its continuing success.

* “The Mind of the Strategist”, Konich Ohmae, McGraw-Hill, Inc.

** Dividend, School of Business, University of Michigan (Fall 2003)

 

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