Corporate Strategy: Making the Bets Pay Off
At the beginning of this year, many commentators thought that 2011 would finally see a return to some kind of certainty about the global economy’s future. Unfortunately, and as America’s and Europe’s economies showed in particular, this didn’t turn out to be the case.
Much like 2008, 2009, and 2010, uncertainty still abounds in global stock and bond markets and at all strata of the world’s businesses. Even though firms are still sitting on record levels of cash and confounding analysts by announcing sizable profits during the Q2 earnings season, they are still reluctant to spend the cash that they have. This is akin to a householder earning a hefty pay rise in 2011, and having a satisfyingly large amount of cash in their bank account, but still not upgrading their car for a more reliable model or doing some much-needed home improvement, all because of their worries about the future.
In a large business it is precisely the role of the corporate strategist to help managers make worthwhile resource allocation decisions amid high levels of uncertainty. Strategists that we work with in our Corporate Strategy Board (CSB) network tell us that they are currently struggling with two things in particular when helping senior management make promising growth bets: generating ideas that lead to realistic but truly differentiating business opportunities, and then ensuring that senior managers continue to champion and support these investments throughout the required number of years it takes to make them pay off.
Generating Worthwhile Adjacency Ideas
Strategists report that they find it a challenge to balance the differing responses of senior managers and board members when discussing adjacency moves. Some senior executives, buoyed by recent results, want to capitalize on what they see as a down market and often need some of their more creative ideas reining in; whereas others are worried about striking out too far from the core and want to continue with business as usual until the signs look more promising.
Striking the right balance is important because successful growth ideas must be sufficiently different from the core business to enable the firm to expand into a market adjacency, without being reckless. One of the problems with adjacency moves is that they can be too timid, and a short-term lack of success can often lead people to ask if an idea that is essentially a tweak to the firm’s normal operating model is really contributing to the business, and then ask “why don’t we just concentrate on the core.” A true far-adjacency move is conceptually distinct from core strategies, providing new customers and new markets, and as such, it is also treated as more of a long-term bet.
But that doesn’t mean that we advise irresponsible adjacency moves; managers must understand exactly how the move will benefit the business and that they have the capabilities required to execute effectively. And it is imperative that senior executives spend time upfront understanding just what bets they are making, what their proposed benefits are, and what constitutes success or failure.
We often attend board meetings and senior executive retreats to help managers think through their growth ideas and the level of investment and time these ideas will need to be successful. A large part of this is helping managers understand whether their ideas will result in rethinking or improving a part of their core business or moving into an adjacency. CSB clients can use this Excel-based tool to help them do the same exercise.
We also take clients through this excellent practice from a global consumer products manufacturer that shows how the firm’s managers make explicit adjacency moves based on whether the firm has the capabilities to execute effectively.
Shepherding Adjacencies to Success
Once worthwhile adjacency moves have been decided upon, strategists also need to play a role in making sure they are implemented effectively. This means that a sudden short-term need for extra resources should not result in the adjacency project failing to receive the resources it requires; managers should decide ahead of time what constitutes success at each stage in the project and allocate funds accordingly.
To help companies makes the most of creative strategy ideas in this uncertain environment, strategists cannot rely on strategic plans and templates any longer. We’ve been helping strategists introduce constant discussion of progress on strategic objectives (even if it’s only for a few minutes) during every business review, and creating a “community of strategy champions” in the line. These are people in the line who understand corporate strategy and want to champion it to their colleagues. CSB clients can use this deck for more detail on these ideas and how companies implement them.
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