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The strategy fad is dead, long live thinking

The strategy fad is dead, long live thinking

A very different environment may have finally knocked Michael Porter and Gary Hamel off their perches, along with the market for expensive strategic consulting advice.

A few years ago, an audience worthy of a rock concert turned up at Sydney's Convention and Exhibition Centre to listen with rapt

attention to the famous Harvard Business School academic Michael

Porter talk about competitive strategy. And talk he did - for an

entire day and virtually without interruption.

It was an impressive performance from a man of undoubted intellectual cred.

For many, Porter's name was long synonymous with the kind of tactics

and planning that spelt commercial success. His books (Competitive

Strategy: Techniques for Analyzing Industries and Competitors is in

its 63rd printing and has been translated into 19 languages; 1985's

Competitive Advantage: Creating and Sustaining Superior Performance is

in its 38th printing) are best-sellers. His seminars sell out around

the world.

Over time, the need for a competitive strategy a la Porter or his

peers Gary Hamel and Jim Collins became such a deeply embedded concept

that its connection to success was considered axiomatic.

Strategic analysis and planning were central components in any

management course, and although strict adherence to Porter's model

waxed and waned, the principles and approach outlasted those of many

management gurus. Porter has even been described as a "fireproof guru"

(in Business: the Ultimate Resource), largely dodging criticism and

lauded for his rigorous intellectual approach.

But the paint is peeling on the corporate strategy bandwagon, which

came to prominence in an era when many businesses were vertically

integrated, top-down organisations and change was not a daily

challenge.

The latest critics claim strategists have hijacked the way companies

are run, forcing them down the wrong track, particularly as the

financial crisis worsens. The era of devising intricate five-year or

even one-year plans is clearly over, they say. And there's

exasperation with the use of case studies of winning businesses,

exploiting the idea that experience can be distilled into a formula

for future success. The competitive landscape, too, has been radically

altered by technology and old rivals could now be collaborators in a

globalised world.

Nonetheless, businesses clearly need goals and tactics. But too many

overemphasise strategy, which takes time, resources and focus away

from the less glamorous and gritty details of implementation,

undermining adaptation to shifting conditions, says Stanford professor

of organisational behaviour, Jeffrey Pfeffer.

It's not that companies can get by without a strategy, he says, but

too much time, effort and attention is spent on analysis and planning.

Blame the consulting firms, business schools and the business media,

he adds.

"Strategy you need but strategy can be ineffectual without

implementation," said Pfeffer on a visit to Sydney last month. "It's

all about execution, day-to-day attention to detail and learning from

mistakes."

Case studies of successful businesses have bred a me-too approach with

senior teams ending up imitating each other's strategy, aided by

consulting firms. That's not a way to earn good returns, says Pfeffer.

And Harvard academic John Kotter wonders if the appetite for more

packaged strategic advice delivered from the pulpit has simply run its

course.

"I think the looking for a strategy guru phenomenon has peaked and

gone down," he said in September, a few weeks before the financial

markets went into freefall. "Don't ask me to explain. Maybe people

just passed the edge on that and found other things or got

discouraged. There are lots and lots of strategy consulting firms [in

the US] who charged [companies] millions and millions and seven years

later they are not better."

Like Kotter, Pfeffer sees a preoccupation with strategy potentially

inhibiting rather than enhancing an organisation's response to change

- and that's a major risk in turbulence.

Many Australian businesses, however, remain influenced by a strategic

management approach which owes a lot to Porter's framework. But it's

time for a rethink, says Marc Stigter, consultant and program director

for the advanced management program at Mt Eliza Executive Education,

part of Melbourne Business School.

"I've always been sceptical about the concept of 'strategy' because I

have been part of so many strategies that have failed," he says.

"About eight out of 10 strategies fail and 80 per cent of companies

are dissatisfied with their strategies. It's a frustrating concept, so

why are all these companies still engaged in strategy? If 80 per cent

fail, why not concentrate on day-to-day issues? That's an interesting

question."

The answer may have a lot to do with concentrating on the how rather

than the why of strategic management, Stigter says.

"Strategy is a Greek word and military term which means coming up with

a plan, mobilising troops and defeating the enemy. It has to do with

longevity and it's about survival. The problem I have is I do a lot of

work consulting to companies and a lot of my clients struggle with and

attack Porter. And a lot spend a lot of time analysing the company's

income and it's just about SWOT [strengths, weaknesses, opportunities,

threats] analysis.

"If you go into Porter, it's about customers, markets and rivals and

looking at your strength and risks: it's called strategic alignment.

This is the analysis phase. We cannot argue that strategy analysis is

not important - that's too simplistic.

"But companies are spending so much time analysing, that when it comes

to application, the goal posts have moved on. Strategy is not about

methodology and frameworks, it's a mindset or philosophy."

Meanwhile, the consulting firms that benefited from packaging up

strategy advice are also adjusting as demand for their expensive

advice falls off or changes. In his new book The Lords of Strategy,

business journalist Walter Kiechel outlines how four men essentially

invented corporate strategy, then set up the strategic consulting

business - Bruce Henderson, founder of Boston Consulting Group, Bill

Bain, founder of Bain & Co, Fred Gluck, long-time managing director of

McKinsey & Co, and Michael Porter.

While these top-end firms have great skills in understanding economic

analysis, employ bright people, and put together clever ideas, Kotter

says, their methodology and approach are not going to deliver the

means for their clients to suddenly jump and change to meet future

demands.

Even though demand for some forms of advice has fallen away, there's

still demand for strategic help, say Australian consultants.

Kotter is probably right in his critique of packaged strategy advice,

says James Goth, Sydney partner and managing director of Boston

Consulting Group, in that these things swing between popularity and

the latest fad.

"Clients are over getting a nice strategy document which was the case

in the '80s and '90s. Now most of the strategy is intimately linked to

implementation. And there will always be rogue elephants in

consulting," he says.

"But our client base hasn't changed markedly. We did a study a year or

so ago of 20 large global firms and we asked whether strategy was more

or less important, and 90 per cent said it was important."

Michael Rennie, managing partner of McKinsey in Australia and New

Zealand, says the demand for strategy advice and how it is delivered

has certainly changed in the last few years.

"When I joined 20 years ago, that's all we did - we went and gave them

a blue book of strategy. Now it's the other way around."

McKinsey now provides more implementation assistance and advice, says

Rennie, and about a quarter of its consultants are process specialists

who work in-house, training and leading groups of clients. They may

spend six months in a client business. "It's a big shift - we have a

behavioural practice and adult learning - it's what people want."

The firm is still busy in Australasia, Rennie says, although it's

different in the US where "the work has changed - there's lots of risk

work happening".

The crisis is actually a time to clarify the mind on strategy, says

Richard Rumelt, professor of business and society at the Anderson

School of Management, University of California.

"In suddenly volatile and different times, you must have a strategy. I

don't mean most of the things people call strategy: mission

statements, audacious goals, three- to five-year budget plans. I mean

a real strategy," he recently told the online McKinsey Quarterly.

For many managers, the word has become a verbal tic, he adds.

"Business lingo has transformed marketing into marketing strategy,

data processing into IT strategy, acquisitions into growth strategy.

Equating strategy with success, audacity, or ambition creates still

more confusion. A lot of people label anything that bears the CEO's

signature as strategic - a definition based on the decider's pay

grade, not the decision."

A real strategy is neither a document nor a forecast but rather an

overall approach based on a diagnosis of a challenge. Rumelt says its

most important element is a coherent viewpoint about the forces at

work, not a plan.

The growing criticism of the traditional strategy management approach

goes well beyond confusion about definitions. In-house strategy

functions can take up many resources and lock in a certain way of

thinking and responding that may well have unintended consequences.

In particular, many critics baulk at the implicit assumption in much

strategy theory that once a plan is worked out, it will simply be

implemented and deliver results, regardless of market conditions.

There's little latitude for the complexity of implementation, the pace

of change or good old human behaviour.

In tough times, that becomes more important. Many of the firms Kotter

has worked with in the US have been through periods of

"re-engineering" and trying to squeeze costs down. The smart ones, he

says, realise they will not survive or grow by pursuing their current

strategies and they need to come up with something different - not a

new strategy but a different business model which incorporates changed

management principles and behavioural factors.

Although Kotter hates the term "human capital", he reckons that's what

the future of most businesses hinges on.

"It's not machinery that matters, it's people," he says. "It becomes

more important."

Stigter agrees, and says Michael Porter's is a rational concept, much

about planning and tool kits and strategic alignment, but strategy is

about people. You have to know where the organisation will be from a

financial and a people perspective.

Many businesses have been fluffing around with strategy for too long

and Stigter says many now realise that the way they have been going

about it is not working.

"They are ending up with a 170-page document that nobody can

understand. It's about mindset and thinking about the future and the

need to prioritise and link to measurable targets, and leaders are

struggling to get that right. I feel strategy has moved on as well.

You will never hear companies say that 'we have been successful

because we implemented Porter's model'. But his work was written three

decades ago and life was more stable then."

Although the strategy gurus offered a popular framework for managers

over many years, the ensuing preoccupation with increasingly elaborate

strategic activities delivered by a handful of American pundits

appears to have run its course.

Meanwhile, the current economic downturn is not conducive to anything

that smacks of a management fad, as Financial Times columnist Lucy

Kellaway points out in a recent podcast. Fads are disappearing as the

economy slows because they cost money and there's too much fear

around, she says.

"If you are fighting for survival, you focus on essential things, you

want clarity, whereas management fads thrived on obfuscation."

A short history of corporate strategy

Before Michael Porter, strategy was largely focused on internal

organisation of a company's resources to meet market demands or to

boost market share by lowering prices. Porter reoriented the debate by

developing a broader perspective on how to plan and allocate resources

to compete successfully in a sector or industry.

A business must choose between three main strategies: cost leadership;

differentiation; or focus by dominating a niche market. The internal

capacity for competing effectively Porter called the "value chain",

and was either primary (logistics, marketing, service) or secondary

(procurement, IT development, HR).

The trick lies in choosing the right strategy at the right time to

achieve a sustainable competitive advantage and long-term success. The

three strategies are driven by five key forces: the threat of entry of

new competitors; the threat of substitutes; the bargaining power of

buyers; the bargaining power of suppliers; and the degree of rivalry

between competitors.

Porter's analysis brought a new clarity and intellectual rigour to

thinking about strategy, according to the management reference book

Business: the Ultimate Resource. Case studies of winning businesses

were an important part of the strategy gurus' work.

As some of these winning companies failed to flourish or even

collapsed, critics said the approach was too prescriptive and

US-centric, with little allowance for differing conditions.

During the 1980s, strategic thinking was reinterpreted by such writers

as Gary Hamel and Henry Mintzberg. They attacked the emphasis on

operational improvements to the detriment of differentiation and the

failure of strategy planning when it is divorced from business

activity - the ivory tower approach - or attempts to predict

conditions.

Undeterred, Porter emerged with an updated approach and would apply

his thinking to international competition with 1998's The Competitive

Advantage of Nations.

But as the internet age gathered pace, dissatisfaction with the model

re-emerged. In 2001, Canadian Don Tapscott argued the starting point

for strategic thinking had been the stand-alone, vertically integrated

corporation, which prospered by doing just about everything in-house.

In his article "Rethinking Strategy in a Networked World (or Why

Michael Porter is Wrong about the Internet)", Tapscott argued the

information revolution changed the fundamentals of business, making

vertical integration old-fashioned.

Porter has often been accused of failing to incorporate the role of

employees and their management into the strategy formula. Melbourne

Business School's Marc Stigter says: "There's an extra problem now:

employee alignment. You have to have employees' confidence and skills

- do they know what to do? Do they want to do it? Strategy has become

a people game as well."

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