Creating Business Strategy in Internet Time
In 1992, what company's five-year strategic plan foresaw the impact of the Internet? Who could have forecasted what the Web would do to seemingly mundane tasks such as ordering products or its ramifications for traditional bricks-and-mortar businesses? Today, competition, customer expectations, electronic commerce and government regulations can alter the playing field so quickly that five-year plans become obsolete before they're complete.
The time factor isn't the only measure thrown out of whack. Strategy formulation, as traditionally carried out, is ineffective in the current marketplace. Competitors don't schedule their initiatives to coincide with adversaries' annual planning meeting. Strategic decisions must be made with increased frequency--often by front-line management--and few companies have figured out how to do this well.
"Internet strategy is about balancing the value of strategic certainty versus time-to-market," says Dave Mager, lead consultant in strategy for Proxicom, an e-business professional services firm in Reston, Va. "Internet time brings a whole new urgency to strategy. Consulting firms, for instance, need to help companies operate in the 60 to 70 percent range of certainty instead of the 80-90 percent range. They have to consider how that changes the strategy cycle."
A few companies are beginning to use knowledge management to accomplish these goals and make strategy relevant again. An end-to-end strategic management process will include sensing activity in the market; analyzing and deciding what to do; tracking implementation efforts; and learning from feedback. Ron Bohlin, an independent Boston-based consultant, suggests companies should manage strategy as a system of related behaviors corresponding top the areas noted above, creating better radar to identify changing conditions, better practices for decisions and responses, fewer delays and less inertia, and better analysis of feedback from their efforts.
Developing Radar
Although the future can't be known, companies get hints about the evolution of their markets. Salespeople regularly learn about their competition's activities. People throughout the company hear whispers about new plants or new products. The problem, as Bohlin describes it, is that companies lack a strong radar system. If a sales group gleans a scrap of competitive information, what should they do with it? And how should managers use it?
Cookson Electronics of Foxborough, Mass., a supplier of materials used in the fabrication and assembly of printed circuit boards and semiconductor packaging, has 14 divisions around the world, and each participates at a different point in the electronics life cycle. These divisions provide the parts that eventually form the brains of computers, cell phones and other consumer electronics.
From these vantage points, the company should be in an ideal position to assess the end-user industry needs it serves. Some Cookson units, for example, work throughout the semiconductor field, an industry notorious for its cyclicality. These divisions' collective knowledge could help Cookson to anticipate demand by interpreting the industry's cycles. That's why in 1999 the company decided to make competitive intelligence a pillar of its strategy development process.
"The industry's niche focus means not much [information] is out there in the secondary markets," says Yann Morvan, Cookson's business intelligence officer. This deficit made Cookson appreciate how internally gathered competitive intelligence could enhance its understanding of both competitors' and customers' activities.
When the Lotus Notes-based Cookson Electronics Business Intelligence System (CEBIS) is built, Cookson's 6000 worldwide employees will be able to access and contribute intelligence to it. Morvan has defined examples of what employees should look for: significant R&D investments, strategic alliances or geographic extensions on the part of competitors. Cookson is considering options such as an intelligence award for sales to encourage more frequent contributions.
Senior managers subscribe to the latest information on a specific KIT through CEBIS, and news and analysis move by e-mail or fax. Used strategically, CEBIS helps managers formulate ideas based on evidence and market information to counter threats and anticipate changes.
Analyzing Success
Kathleen Eisenhardt, professor of strategy and organization at stanford University Engineering School in Palo Alto, Calif., compared the activities of managers at successful and not-so-successful companies, and found that successful companies excel at making informed strategic decisions in a timely manner. According to Eisenhardt's research, successful managers:
1. Hold frequent meetings to develop a quick response capability.
2. Share common assumptions about markets and potential threats to their business.
3. Rely on an assortment of operational figures, not accounting data.
4. Develop multiple options to address a problem and choose between these in a defined time period, typically two months.
5. Dispute alternatives rather than turf. In short, they make informed decisions based on the most complete knowledge of their environment.
"strategy isn't a fat document that gathers dust on the shelf," says Ron Weissman, vice president of strategy and marketing at Verity, a developer of Web-based software in San Jose, Calif. "It's the ability to make and fund new decisions, modify and taper around the edges and reassess.
"The real outcome of a good strategic plan should be strategic action," Weissman adds. Verity itself learned about an emerging opportunity and changed its game plan accordingly. A year and a half ago, the company recognized an opportunity to use its technologies to help e-commerce customers search and find products more easily. At the time, it had only one e-commerce project; today, e-commerce accounts for a third of Verity's total revenues.
Learning to Question
"strategy, as the creation and exploitation of change, is unavoidably dependent and predicated on learning," says Liam Fahey, a consultant and author of Competitors (John Wiley & Sons, 1998). Fahey thinks that historically managers have been weak at fostering conversations that engender strategic learning, because they cast a shallow net when looking for information to guide their actions. "A major part of the problem is the prevailing misconception of what passes for knowledge," Fahey says. Most companies look toward what is already known: operational data, historical facts or computer reports. They rarely question 1) the perceptions they hold, 2) the beliefs they adhere to, 3) the assumptions they accept and 4) the projections that inform their view of the future.
Conversations that get at the heart of these four factors can foster thoughtful decision-making about the future. Consumer products conglomerate Proctor & Gamble, headquartered in Cincinnati, has been working to raise the level of strategic thinking within its business units over the past three years, according to Jacob Mathew, associate director of financial analysis. "The most fundamental change I've seen [since then] is the move from planning and playing the game toward shaping and changing the game," Mathew says.
Learning from Results
The questioning environment works best when informed analysis, rather than politics, fuels the debate. "strategies evolve from the quality of feedback," says Doug Barton, senior director of product marketing at Hyperion in Sunnyvale, Calif., which makes software tools that help managers analyze the performance of their business initiatives. Barton emphasizes a point that theorists have made: Unexpected opportunities can develop into emergent strategies. Therefore, managers must learn from performance results.
Lawson Software, based in st. Paul, Minn., is developing this capability in a suite of analytic applications called PI 2000, which combines performance metrics and collaboration. For example, a manager at the Rainforest Café, one of their clients, can get daily operational data on restaurant performance, such as customer head count. But since many factors can influence performance, the application links the user to external factors, such as weather conditions, which might explain variances.
The tools provide consistent data that managers can use in making strategic decisions. The information doesn't become the source of debate, just of whys and what-ifs. Then PI 2000 lets people collaborate in discussions about why things are happening.
Whatever their point of view about strategy development, companies can put into place practices and tools that facilitate strategic decision-making. Cookson, Verity and P&G could be thought of as representing three schools of thought on strategy, respectively: competitive positioning, emergent opportunities and the search for innovation. Irrespective of theory, all three companies employ common practices.
In turbulent times, annual meetings and off-site retreats don't come often enough for timely strategic decisions. Strategy setting is a competency, marked by an ability to make smart decisions based on informed logic, not on hunches. And it's about learning from change. Smart companies leverage technologies that bring the insights of more people into the process. They seek what they don't know, instead of resting on what is known.