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net 012 347 0409 _________________________________________________________________ NEW STRATEGIES FOR GROWTH IN THE VOLATILE MARKETPLACE Michael Porters inimitable tomes on strategy are well known and were extremely valuable in focussing our thoughts towards creating viable strategies and lasting competitive advantages. But they are inadequate in guiding us through the creation of winning strategies today. We have long passed the predicable era, where the background of the market-place, competitors actions, and our relationship with suppliers and customers could be predicted with good levels of probability. In todays highly volatile, still uncertain market, this no longer applies, forcing us to adopt new strategic thinking if we are not only to prosper but to survive, in a largely unpredictable economic environment. 1. Moving beyond To Sell The longest surviving business in the world is the Japanese company Kongo Gumi, founded in 578, some fourteen centuries ago. Since that time the primary objective of the sales and marketing department has been simply to sell. This began to change before the recent financial downturn, but with volatility as a major characteristic of todays and tomorrows marketplace, the need for every company to adopt strategies that reflect this change is paramount. The old concept is no longer an adequate objective, everyone wants to sell, but customer demands, affordability, and value received have increased as never before, leaving sensible companies with no option but to drop the simplistic concept of to sell and replace it with the very different objective of to be bought. This goes beyond mere semantics by forcing a 180 degree change in the strategies necessary to drive the company forwards. We can no longer sit inside the company, exhorting people to get out there and sell. Today we have to begin outside the company, in the marketplace, to establish exactly what it is that the market wants to buy, and be capable of bringing that information back into the company, analyze what it means and action the results successfully. Where does this leave the older concepts of strategy? The answer is very much in the middle, we need to create a strategy in similar ways as before (having taken cognisance of to be bought), but we cannot survive in a competitive environment having only the old concept of a single objective or set of objectives, that we strive to achieve. We have to acknowledge short term possibilities whilst avoiding short term thinking. We have already

actioned a part of what we need to do in our modern strategy by going outside the company to establish what the market wants to buy. This is an excellent beginning, but we have to go way beyond that. We have to create a radar system that can detect changes in the entire economic environment (not simply in our existing market place). We have to be capable of looking at what is happening, and build the capability to detect what may be an opportunity or a threat. We then have to act very quickly upon what has been detected and use it to our advantage. We are likely to find that in doing so, we detect that which is more valuable to us NOW than the achievement of our overall strategy later, and we have to seize the moment and use it to our benefit. This does not necessarily mean having to abandon our previous strategic objective,--we may have to delay it, or perhaps in grasping the nettle of opportunity we may achieve a large part of our strategy in a different way, far more quickly than we thought possible. In many cases those aspects of our long term strategy intended to further develop the company will be even more valuable. The outcomes are as numerous as the volatilities. But the message is very clear, we have to create strategies that allow our companies to build not only the radar capacity and the ability to analyse what it shows us very quickly, but primarily to be able to action our decisions quickly and effectively. 2. Making Management Strategic Management systems traditionally contain procedures for planning strategy and operations, for measuring and rewarding performance, for measuring and amending progress, and conducting operational overviews. These activities relied upon financial measurements and were controlled, almost entirely, by the budget. This caused short-term financial thinking to take precedence over the more important and valuable, longer-term strategic goals. The net result was to lock the management systems into tactical and operational activities that excluded strategic activities. We can longer operate without making all aspects of management strategic and so operate as an integrated whole. This fact has been recognised by many companies that have appointed a CSO, a Chief Strategic Officer. The CSO leads the company in making its management systems strategic, and is also responsible for keeping up to date with new concepts and practices, and is invaluable in spearheading the implementation of those new concepts that are of obvious benefit. This moves the concepts of strategic planning and implementation into everyday aspects of management by dealing with appropriate interventions in a similar way to creating overall strategy. It is usual to begin with a strategic overview, or strategic map, focussing upon a particular endeavour. An example is Improving demand through better customer relationships that details the four or five major steps that need to be taken, and breaks them down into their sequential activities and objectives to be achieved. Each would be linked to a value proportion, and a collective map detailing the strategic core concepts that progressively link the activities of those business units involved. The complete document maps the learning and growth objectives by, for example, developing new skills for employees, and creating new information systems that will take cognisance of employees goals and incentives. This will achieve a high level of people commitment, and companies will not obtain the optimum contribution from their skilled people with out this. This will achieve much improved relationships with, particularly, high-profile customers. It will improve operational levels, service levels, customer satisfaction, growth prospects, both in depth and breadth , and in customer retention-usually a much underappreciated benefit. It can dramatically improve

talent retention by showing their people how improved levels of performance can directly affect both revenues and profits, so increasing the levels of job satisfaction and sense of belonging. 3. The strategy of value Innovation After a long period of economic downturn, many companies find it difficult to achieve sustained high growth in both revenues and profits. In a downturn not many companies actively engage in new innovations, seeking to cut costs and ride out the storm. Those that do innovate, tend, because costs are lower and results obtained more quickly, to focus upon incremental developments, rather than seeking entirely new innovations. Companies are also inclined to use the conventional strategic approach by seeking to outdo their competitors in ways that risk linking (and so limiting), their strategic thinking to that of their competitors. It is better to ignore what your competitor is doing by creating a dramatically different strategic plan that leapfrogs the innovative company way above the more mundane thinking and activities of their competitors. This divides companies into two distinctly different camps. One believes that following conventional strategic logic is the way ahead, whilst the other follows a strategy of value innovation logic. The former companies lock themselves into the mindset that the conditions for their industry, or sector are given by e.g seeing themselves as being in a low-growth sector, or being unable to see beyond the currently perceived boundary restrictions that hold them back. Those using the strategies of value innovation logic, believe that their existing industry or sector boundaries and conditions can indeed be changed, and surpassed. We see similar reactions to aspects such as building competitive advantage as opposed to seeking a quantum leap in value domination. This is becomes a self-fulfilling prophecy by limited potential growth. Also, conventional logic proposes the leverage of existing assets and capabilities, but innovation logic refuses to accept the constraints of what is already there, by seeking to re-invent itself by ignoring both the past and the present, and asking what we would do if we started from a clean state today. 4. The common denominator The ability to follow all, or any, of the strategic plans described aboverequires a very special kind of strategic thinking as a precursor to building the inherent capabilities in a developing company. The essence is to move away from conventional thinking, to develop a wider, less inhibited pattern that does not limit itself to the here and now, by ignoring much of perceived wisdom that can hold the company back. But that alone is not enough. To be able to action the new, more demanding strategies, requires the creation and the successful implementation of, new strategies that can build within the company the capacity necessary to follow through, and to follow through quickly. Foremost is the need to create an organisation that is flexible, fast on its feet, and operates in an integrated way. Functional divisions must have fully integrated communication with each other, not simply upwards via the CEO (that is probably the least important), but horizontally across functional divisions. The only acceptable divisions will be those on

paper, in the companys organogram. Necessarily the company will be people inclusive, capable of creating and maintaining high levels of people commitment, without which the dynamism necessary to drive forwards cannot exist. Every manager will be a change manager because change is the only constant. No manager will survive who passes problems upwards, each being required to bring solutions seeking only consensus on the most appropriate solution proposed. The company will necessarily become a learning organisation and above all it will be a highly demanding, dynamic organisation that is an invigorating and rewarding place in which to work. Its people will continually be stretched to deliver a more than their current capabilities, and only above average performance will be acceptable. In an increasingly competitive global market only those companies that have successfully implemented these strategies and have high levels of innovation, will survive. The financial downturn leaves no room for outdated companies to survive, because market share will go to those best prepared to seek new and better ways of achieving growth, linked to improved revenues and profitability, through new strategies and unencumbered thinking. Malcolm A Birkin Dr Malcolm A Birkin has many years of business experience in South Africa, where he started two successful manufacturing operations, both from grass roots levels and both were the first to make their products in South Africa. He has worked with two large groups, and has ten years experience at director level. Should you wish to learn more about him, please visit www.malcolmbirkin.com