07 Oct 2015 20:57 IST

Strategy is not just about crystal ball gazing

Investing in organisation, people and culture enables businesses to overcome basic blunders in strategy

There are many schools of strategy management. One of the most important and popular notions is that strategy is ‘planning forward’ and ahead of time. While the basic notion — that strategy is a ‘plan’ about the future — is acceptable, reducing it to something that is prepared by crystal-gazing, is risky and dangerous.

Any plan is only as good as the assumptions on which it is based. A plan implicitly makes assumptions about the environment, competition, customers and other aspects. But not every assumption comes true.

Scenario planning

Shell, the oil-energy major, looked at this issue for a long time and came up with an approach that entered the strategy management lexicon as ‘Scenario Planning’. Oil/energy industry is cyclical — you mint money by buying assets in a trough and selling them off at peak. The real challenge is predicting the ‘peaks’ and ‘troughs’. Shell came up with the idea of predicting all possible scenarios in which the future may unfold, and for each possible scenario, it made a strategy. Shell put together hundreds of smart MBAs, sitting in their corporate office, doing scenario planning for them.

After almost 20 years, a PhD scholar in strategy decided to study the effectiveness of this planning as the thesis topic for his PhD. He laboriously collected and compared the performance of Shell and its major competitors in that period — and he found no discernible difference in performances! . None of the competitors had used the scenario planning approach.

Story of Honda

Honda’s success in the US in 1960s is part of folklore. How they made the BSAs and Harley Davidsons bite the dust is legendary. The advertisement campaign, ‘You meet nicest people on Honda’ — that targeted the untapped but potentially huge market segment of women and professionals living in the suburbs and could do with a lighter bike — would still count among the top 10 advertisement campaigns in the world. In a span of five to seven years, coming from nowhere, Japanese companies, lead by Honda, wrested almost two-thirds of the US market.

This rout led to BCG being commissioned by the British motorcycle industry to study the success of Japanese companies and advise them on how to recapture their pre-Japanese position. Prof Pascal, a famous strategy professor, wrote a popular case on Honda, based on this report. Years later, he happened to be in Japan and visited Honda as part of the industrial tour.

While he was at the company, he discovered that most of the senior management team, which played crucial role in Honda’s success in USA, were in the Honda HQ at that time. He sought a meeting with them and presented his version of the success reasons of Honda in the USA. The executives politely sat through the session, and even shared their own version of how this success happened towards the end.

It was a story of ill-preparation, poor-timing, chance events, blunders and other aspects, they said. They narrated how they were practically hiding the ‘Lighter Bikes’ (which led to their glory and paved the way to leadership), as their strategy was to compete in the heavier ones.

They explained they had underestimated the hostility of Americans towards Japanese (remember Pearl Harbour?), how they landed up at the end of the biking season in the US and other factors. Yet, they didn’t give up. They had the tenacity, dexterity and flexibility as an organisation to persist in their pursuit. They quickly learned from their failures and mistakes and exploited the opportunity when it presented itself in the form of lighter bikes for ‘nice people’ (motorbikes were traditionally associated with gangs and thugs). Ultimately, they succeeded.

Prof Pascal was so consumed by what he heard that he immediately wrote a sequel to the Honda case — Honda (B) — highlighting how investing in organisation, people and culture enables businesses to overcome even basic blunders in their strategy and plan. This remains a classic case even today.

Flexibility is key

What this essentially highlights is that while organisations need to try and predict the future, make assumptions about it, and prepare a course of action/strategy/plan, they should also invest in developing agility/flexibility/scope for mid-course corrections, when things turn out to be different from what was initially assumed.

It underscores the reality that no matter how smart you are, no matter how hard you try, you can never predict the future accurately. The wisdom lies in investing and making your organisation agile, while continuing to crystal-ballgaze.

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