MANAGEMENT POLICY AND STRATEGY SESSION - II

1. MANAGEMENT POLICY AND STRATEGYSESSION - II Changing Paradigms of Strategy Prof. Sushil Department of Management Studies Indian Institute of Technology, Delhi INDIA Email: sushil@dms.iitd.ernet.in Prof. Sushil\IITD\Session-II

2. STRATEGIC QUESTIONS • What new core competencies? • What new product concepts? • What new alliances? • What nascent development programs? • What long-term regulatory initiatives? • The Qs get unanswered - because senior managers must first admit that they are less than fully in control of the company’s future. • Any company that succeeds in restructuring and reengineering, but fails to create the markets of the future, will find itself on a treadmill. Prof. Sushil\IITD\Session-II

3. BEYOND RESTRUCTURING • For decades the changes that confronted Sears, General Motors, IBM, Westinghouse, Volks Wagon and other incumbents were more or less linear extrapolations of past. • The watch word is “ steady as she goes”, companies run by managers not leaders; by maintenance engineers not architects. • The companies such as IBM, Philips, TWA, Texas Instruments, Xerox, Boeing, Citicorp, Bank of America, DEC, DuPont, Pan Am saw their success eroded. • The industrial terrain changed shape faster than top management refashion • which markets to serve? • which technologies to master? • which customers to serve? • how to get best out of employees? Prof. Sushil\IITD\Session-II

4. BEYOND RESTRUCTURING Contd…. • Organisation transformation agenda • downsizing • overhead reduction • employee improvement • process redesign • portfolio rationalization • Restructuring goals • carve away layers of corporate fat • jettison under-performing businesses • raise asset productivity • In 1993 US firms announced nearly 600,000 layoffs- 25% more than in 1992 • The problem of low growth were compounded by • inattentiveness to ballooning overheads (IBM’s problem) • diversification into unrelated businesses (Xerox-financial services) • unfailingly conservative corporate staff. Prof. Sushil\IITD\Session-II

5. BEYOND RESTRUCTURING Contd….. • It’s no doubt shareholders demand-make • “lean and mean” • “make the assets sweat” • “get back to basics” • ROI (or RONA or ROCE) has two components • Numerator - net income • Denominator - investment, net assets - or capital employed • To grow numerator • where the new opportunities lie • anticipate changing customer needs • building new core competencies • The quickest and surest improvement in ROI - the denominator - doesn’t need much more than a red pencil. • Denominator management is an accountant’s shortcut to asset productivity. Prof. Sushil\IITD\Session-II

6. BEYOND RESTRUCTURING Contd….. Britain’s Manufacturing Output • Between 1969 and 1991 went up by scant 10% Number of people employed declined by 37% UK’s manufacturing productivity increased faster than any other major industrialized country except Japan “Bittersweet” • The social costs of restructuring are high • Unproductive layers of management had to be excised, dumb acquisitions unwound, inflexible work practices abandoned. • Where is the dividing line between cutting fat and cutting muscle? • Lose-lose proposition • “if you don’t become more efficient, you’ll lose your job. By the way, if you become more efficient, you’ll lose your job.” • Restructuring seldom results in fundamental improvements in business. Downsizing can make a company thinner; doesn’t necessarily make it healthier Prof. Sushil\IITD\Session-II

7. BEYOND RESTRUCTURING Contd….. 16 large US companies • At least three years of restructuring experience-although it did improve a firm’s share price, the improvement was almost always temporary Wall street says to such companies • “Go ahead, squeeze the lemon, get the inefficiencies out, but give us the juice (dividend) we will take juice and give it to companies that are better at marking lemonade.” Prof. Sushil\IITD\Session-II

8. BEYOND REENGINEERING • Reengineering aims to • root out needless work • get every process pointed in the direction of customer • reduced cycle time • total quality. • It is almost always the promise of reduced costs, rather than heightened customer satisfaction, convinces a top team to sign up for a major reengineering project. • Although restructuring never more than a necessary thing, reengineering can be a good thing. Lean Manufacturing - 1990 Toyota Manufacturing system - 40 years ago Why did it take US auto makers 40 years to decode the principles of lean manufacturing? Prof. Sushil\IITD\Session-II

9. BEYOND REENGINEERINGContd…. Competing on Time - Consultants advice • 1970 • global scale and experience effects • many auto makers, chemical companies, semi conductor producers, - investments in large scale capacity. • 1980s - Quality • 1990s - Speed The answers came too late, helping the clients catch up rather than take the lead Quality as competitive Advantage by 2000 US Managers - 80% Japanese Managers - 50% (82% said in 90s) • They realized that tomorrow's competitive advantages must necessarily be different from today’s. • Adaptiveness - adapting too often to the preemptive strategies of more imaginative competitors. Prof. Sushil\IITD\Session-II

10. REGENERATING STRATEGY • Division of IBM, GM and DEC - won the Baldrige for quality - an award for better, not different. • Becoming smaller and better are not enough Would it helped Sears - even more efficient customer focused catalog retailer? IBM - creating a lightning - fast mainframe development process American - perfected the art of running a hub and United Air Lines spokes air line systems • A company must also be capable of • fundamentally re-conceiving itself • regenerating its core strategies • reinventing its industry Prof. Sushil\IITD\Session-II

11. REGENERATING STRATEGY Contd…. Xerox • 1970, and 80s - surrendered a substantial market share to Japanese - Canon and Sharp • Benchmarked and reengineered its processes • By 1990s - good example of how to reduce costs, improve quality and satisfy customers. • Though succeeded in halting the erosion of market share, failed to recapture. • Despite a pioneering role in laser printing, networking, icon-based computing, and laptops, failed to create any substantial new business outside its copier core. • Probably left more money on the table, in the form of under-exploited innovation, than any company in history. Prof. Sushil\IITD\Session-II

12. REGENERATING STRATEGY Contd…. • A company surrenders today’s business when it gets smaller faster that it gets better. • A company surrender tomorrow's business it gets better without different. • Defending today’s leadership is no substitute for creating tomorrow’s leadership. • Whatever market a company may dominate today is likely to change substantially over the next ten years. There is no such thing as “sustaining leadership”. It must be reinvented again and again. • The real competitive problem is • laggards v/s challengers • incumbents v/s innovators • inertial and imitative v/s imaginative • CNN, Microsoft, The Body Shop - rebellious tendencies of adolescents • Merck, British Airways, HP - Elders challenged the incumbents Prof. Sushil\IITD\Session-II

13. FROM ORGANIZATIONAL TRANSFORMATION TO INDUSTRY TRANSFORMATION IBM • Had wrong kind of organization, skills, systems and behaviours for a radically transformed IT industry. • Driving toward the future while looking out the rear-view mirror. • Spending nearly $ 6 b a year on R&D, hiring the best and brightest worldwide mixed almost every important clue as to how industry was changing. HP and AT&T • Moved more quickly to adapt to the changing environment • HP- opportunities like engineering work stations reduced instruction set (RISC) architecture small printers and peripherals- transition from an instrument company to IT company. Prof. Sushil\IITD\Session-II

14. FROM ORGANIZATIONAL TRANSFORMATION TO INDUSTRY TRANSFORMATION Contd…. • To extend leadership a company must eventually reinvent leadership, • to reinvent leadership - reinvent industry • to reinvent industry - regenerate strategy • To create the future a company must • change in some fundamental way the rules of engagement in a long-standing industry • redraw the boundaries between industries (Edutainment - Time Warner, Electronic Arts) • create entirely new industries (PCs - Apple) Prof. Sushil\IITD\Session-II

15. FROM ORGANIZATIONAL TRANSFORMATION TO INDUSTRY TRANSFORMATION Contd…. Apple - 1992 • Established a division responsible for personal - interactive electronics Merk-Pharma • Surprising decision to purchase Medco, a large mail-order pharmaceutical distribution company British Airways • Series of equity investments and JVs with airlines in US, Europe, and Asia to become world’s first truly global airline. Prof. Sushil\IITD\Session-II

16. TOWARD A NEW VIEW OF STRATEGY • Competition for the future is competition to create and dominate emerging opportunities - to stake out new competitive space. • Path-breaking is a lot more rewarding than benchmarking. • At a broad level, it requires • an understanding of how competition for the future is different. • a process for finding and gaining insight into tomorrow’s opportunities. • an ability to energize the company top-to-bottom for a long and arduous journey toward the future. • the capacity to outrun competitors and get to future first, without taking undue risk. • It involves • Industry foresight • Strategic architecture • Stretch goals • Resource leverage • Core competence • Coalition of companies • Global preemption Prof. Sushil\IITD\Session-II

17. CHANGING THE SHAPE OF STRATEGIC THINKING • Microsoft is considered a competitive threat to banks • In telecommunications, its based to keep track of who is competing with whom • With declining trade barriers, blurring industrial boundaries, and closely connected financial markets, change on one side of the world causes almost ramifications on the other. • Problems in Maxican economy affected many countries in Asia and North and South America within days. • Business objectives, usually started in financial terms, are often utterly uninspiring • Management need to spelt out goals that people believe in and are inspired to reach. • Cutting-edge strategies not just ambition driven but also emotional strategies that involve people. • Relativistic strategy - in which goals are always tied to aspirations and refined as aspirations change. Prof. Sushil\IITD\Session-II

18. EMERGENT STRATEGIZING • The process of going in one strategic direction rather than another. • Based on patterns or `recipes’ of perceiving and acting. • Mintzberg - Emergent strategy means literally unintended order. Strategy (is) pattern in action. • A coherent set of individual discrete actions. • In support of a system of goals, • supported as a portfolio by a self-sustaining critical mass, or momentum, of opinion in the organization. • It involves • A sense of strategic direction • Satisfy its key stakeholders Prof. Sushil\IITD\Session-II

19. EMERGENT STRATEGIZING Contd…. • Co-exist with its environment • Analysis of values and beliefs • Analysis of distinctive capabilities • Business model • Negotiation • Deliberate emergent strategizing • deliberate agreement to let the organization continue `muddling through’. Prof. Sushil\IITD\Session-II

20. Emergent strategizing Prof. Sushil\IITD\Session-II

21. CONTINGENCIES • Unpredictability - may not be helpful to have elaborately developed goals and processes. • Work with a plan that is loose and easily adapted • Vision not often articulated - but detected through the style and pattern of entrepreneurial steps • The nature of strategy and strategic management will vary for each organization. • Continuum from emergent strategy to strategic planning. Prof. Sushil\IITD\Session-II

22. SIGNPOSTS TO MANAGING FOR STRATEGIC FLEXIBILITY • Strategic thinking based on a Newtonian, mechanistic view is increasingly irrelevant. It is based on premises that will apply less and less in the future as the pace of change accelerates. • Relativistic Strategy is based on three fundamental Uncertainty Principles: • You can’t predict the future, but you can see trends and anticipate possible scenarios. • You can’t create scenarios for everything, so you need to focus on issues that are most important to you. • You need to explore those scenarios from the viewpoint of everyone likely to have a vested interest in your organization. Prof. Sushil\IITD\Session-II

23. SIGNPOSTS TO MANAGING FOR STRATEGIC FLEXIBILITY • The Relativistic Strategy process must engage those charged with implementing it; the process must grab both their hearts and minds. • Develop scenarios with a view to accelerating organizational learning- and to understanding the implications of significant trends. • Become skillful as a team. Learn to reach decisions that everyone is committed to. • In an increasingly turbulent world, remember that Core Values are the stabilizers of the organization. • A corporation’s core values are the common denominator of the values of individual employees Prof. Sushil\IITD\Session-II

24. SIGNPOSTS TO MANAGING FOR STRATEGIC FLEXIBILITY Contd….. • Values are reinforced-or even created-when they are visibly followed. That’s all the more true when adherence to values hurts the bottom line in the short term. • Select the approach to creating a vision that best fits the circumstances of your organization. Among the choices: • CEO creates a vision and advises organization to follow it • CEO believes in vision and encourages organization to follow it • CEO has ideas about vision and gets organization’s reaction • CEO seeks creative input from organizations to create a vision • CEO and rest of organization create a shared vision Prof. Sushil\IITD\Session-II

25. SIGNPOSTS TO MANAGING FOR STRATEGIC FLEXIBILITY Contd….. • The role of the strategy group in an organization must be to catalyze and coach the strategy development process - not to develop strategic plans. • A useful expression of a vision must have three components: • Aspiration: Specifies unique long-term • Inspiration: Acts on the organization as a supermagnet • Perspiration: suggests how every day the achievement can be brought closer Prof. Sushil\IITD\Session-II

26. THE FOUR PHASES OF SCENARIO PLANNING Phase 1: DECIDE SCOPE What important decisions are facing you? What has a vested interest in the outcome? What time scale is of most relevance? Phase 2: UNCOVER TRENDS What trends are you confident about? What trends are you uncertain about? What trends matter? Prof. Sushil\IITD\Session-II

27. THE FOUR PHASES OF SCENARIO PLANNING Contd…. Phase 3: CREATE SKELETON SCENARIOS What themes emerge from combining trends? How consistent are the assumptions? How relevant are the outcomes? How can the scenarios be refined? Phase 4: FLESH OUT SCENARIOS? What extra research can we do? Can computer models help? What would signal these scenarios? Are the scenarios understandable to others? Prof. Sushil\IITD\Session-II

28. THE PROTOCOL OF PRODUCTIVE CONVERSATIONS Not every meeting need reach closure Meetings should be longer but richer We should allow for related diversions Contrary viewpoints should be explored We shouldn’t interrupt but listen more None of us alone knows what is best We shouldn’t ridicule others, but inquire further We should test our own and others’ assumptions We should agree to explore difficult issues Seniority/turf should be left at the door Disagreement should be seen as the source of new thinking We should share why we feel as we do We must eventually reach closure We have an overall time limit Overall we should remain focused We bring an important perspective We must each talk We each bring a lot of experience Some people will say silly things We should challenge what others say Some issues are embarrassing Different seniorities/turfs will be present We may fundamentally disagree We may get frustrated or angry Prof. Sushil\IITD\Session-II