Tuesday, February 24, 2009

A Leader’s Weaponry- Strategy

The shoe that fits one person, pinches another; there is no recipe for living that suits all cases,” observed Carl Jung in Modern Man in Search of a Soul. Jung wasn’t thinking about strategic management when he wrote that passage. But he could have been.

Managing a multi-business organization means managing the relationship between executives in the central office and those who run the business units or divisions. And strategy gurus notwithstanding, there is no one best way to do that. Rather, the best way always depends on the nature and needs of the businesses in an organizations portfolio, on the styles of the people working in the organization, on the company’s strategy and goals. Leaders need to know this and to act and plan accordingly. At many corporates, leaders are involved in all important strategy decisions; they only leave the operating decisions to branch mangers. And these organizations flourish. At other corporates, strategic issues are determined by managers in close touch with their markets. Leaders concentrate only on the operating ratios and financial controls. These corporations thrive.

Some leaders seek to shape the future with high-stake bets. The press loves to hype such life-shaping strategy because of their potential to create enormous wealth, but the sober reality is that most leaders lack the industry position, assets or appetite for taking risks which is necessary to make such strategies work.

In the area of business, risk-averse leaders hedge their bets by making a number of smaller investments. In pursuit of growth opportunities in emerging markets, for example, many companies are forging limited operational or distribution alliances. But it is often difficult to determine if such limited investments truly reserve the right to play in these countries or just reserve the right to lose. Alternatively, some executives favour investments in flexibility that allow their companies to adapt quickly as markets evolve. But the costs of establishing such flexibility can be high. Moreover, taking a wait-and –watch strategy or postponing large investments until the future becomes clear can create a window of opportunity for others.

Making systematically sound strategic decisions under uncertainty requires a different approach, one that avoids this dangerous binary view. It is rare that leaders know absolutely nothing of strategic importance, even in the most uncertain environments. Infact, leaders usually can identify a range of potential outcomes or even a discrete set of scenarios. This simple insight is extremely powerful because determining which strategy is best and what process should be used to develop it, depends vitally on the level of uncertainty a company faces.