Wednesday, December 4, 2013

Trade-Offs



To employ strategy, organizations need not only to have one, but must also be run by individuals who know what that strategy is. Thus, to communicate strategy well requires a succinct strategy statement. Mike Rukstad identified that sound strategy statements are comprised of three elements: objective, scope, and advantage, and according to his partner David Collis, believed that those three elements must be abundantly clear in order to be successful. Rukstad and Collis, like Michael Porter before them, identify that to craft a sound strategy—and moreover, to execute it—requires foregoing certain opportunities to achieve others. In other words, to succeed at something, a business must not aim to succeed at everything; it must embrace trade-offs.

The Back Bay Battery simulation prepared for this week’s class provides a prime example of the need for a clear strategy statement. Should all research areas be attempted in equal measure as the company pursues both NiMH and Ultracapacitor technology (attempting to appease all stakeholders), profits quickly dwindle. Far more successful is to identify a particular objective (Maximize cumulative profits? Increase sales in the power pack market? Grow total revenue?), define where and for whom the objective will be met (All users of rechargeable batteries? NASA? Emergency situations?), and clarify the company’s value proposition—and how Back Bay will is poised to achieve it (Deliver the fastest recharging batteries at the lowest price? Stable, high energy batteries at a higher price point?). When a specific strategy is articulated, a clear, (more) successful path is forged.

Touching base with the nonprofit sector, many arts organizations are well aware of the need for tradeoffs due to highly constrained resources. But if the tradeoffs made are led by strategic goals rather than generated by reaction is a concern, as is the approach of trying some of everything and seeing what sticks. A current example is the recent decision of the Cleveland Orchestra to pursue substantial international programming, entailing a significant increase in the amount of time spent performing abroad, as well as the amount of time spent performing outside of Ohio generally. In its seventh season of “Cleveland Orchestra Miami,” the ensemble now travels four weeks each winter to perform in its second home, where it seeks to be “a positive force in Miami’s culture life.” With a proposed increase in time spent in Europe, including a potential residency (of a yet undetermined length) in Paris, the strategic question at hand is who the orchestra seeks to serve. What is the scope of its strategy? Who is the customer and who is not? Does this signal a change away from a geographically defined customer base? Is the offering (orchestral music) the chief determinant of the strategic scope, making the aim to generate the highest quality product in whatever market demands it, location not withstanding? Or is the decision driven by survival, and not strategy, per se, at all? Sull and Eisenhardt’s “simple rules” seem also to have an important place here, providing a tool to create the crystal clear strategic statement needed for organizations of all kinds to make effective critical decisions.

Sources:

Cleveland Orchestra. “Cleveland Orchestra Miami Expands 2012-2013 Season to Four Weeks.” Press release, March 23, 2012. http://www.clevelandorchestra.com/news-and-media/news-releases/2012/Mar-23-Miami.aspx

Collis, David and Mike Rukstad. “Can You Say What Your Strategy Is?” Harvard Business Review, April 2008.

Lewis, Zachary. “Cleveland Orchestra Poised to Create and Appease a Stronger Base in Europe.” The Plain Dealer, November 27, 2013. http://www.cleveland.com/musicdance/index.ssf/2013/11/cleveland_orchestra_poised_to.html

Porter, Michael. “What is Strategy?” Harvard Business Review, November 1996.

Shih, Willy and Clayton Christensen. “Back Bay Battery, Inc.” Harvard Business Publishing, 2012.

Sull, Donald and Kathleen Eisenhardt. “Simple Rules for a Complex World,” Harvard Business Review, September 2012.

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