Tuesday, April 19, 2016

Can one global strategy to be summarized in 35 words serve as a guideline for all employees of a conglomerate?

In the article “Can You Say What Your Strategy Is?” by D. Collis and M. Rukstad, the authors emphasize the importance of a clear, concise strategy statement and describe the required elements for this – a clearly defined objective and scope considering the corporate advantage. Both in the introduction and the conclusion they recommend a strategy that can be summarized within less than 35 words to serve as a guideline for the company’s employees. Even though, I think this recommendation to be appropriate for clearly focused, easily scale-up businesses, I do not see it to work for large corporations operating in various distinctive markets or even conglomerates. More specification for which corporate level this recommendation applies – the whole corporation, each strategic area or each country division - is required here in my opinion.  

One example would be Deutsche Telekom: A common vision statement for all its global subsidiaries might be feasible (e.g. become a leading telecommunication provider) but if one considers the totally different competitive positions, a common strategy that serves as a helpful guidance for all employees on a global level in only 35 words does not seem to be realistic. This is particularly applying if one compares Telekom Deutschland (the German business) with T-Mobile US: Whereas the latter has followed the strategy of being the Un-Carrier of the wireless industry with low prices, more flexible contracts considering its below average network quality and coverage, Deutsche Telekom follows an entirely opposite strategy: It provides the by far best network in Germany, has superior customer service and strives to integrate its wireline business with its wireless business to cover the whole service spectrum. Because of its comparatively superior network quality, it even increased the minimum price for its wireless plans this Tuesday – something, which would be absolutely unsuitable for T-Mobile US’ current strategy. These different strategies result from very different market conditions of both subsidiaries – one being the former state-owned provider owning good frequencies because of historic reasons, the other having to succeed against previous state-owned competitors. Formulating one strategy that would be suitable for both seems to be impossible in this case, which does, however, not mean that the combination of these two businesses is per se a bad idea. Synergies in terms of economies of scale (e.g. how to implement the upcoming 5G technology or regarding the IT-systems) or competitive advantages (e.g. by better roaming agreements) might still make a combination reasonable. The same situation also applies to other industries with considerable barriers – e.g. for banks, such as the Dutch Rabobank, that have in some countries a wide branch network and might focus on superior direct customer service there and in other countries only work as a direct bank with a focus on good terms.

If there are apparently already major difficulties for formulating a common brief strategy for international companies operating in many markets with different competitive situations, the trouble for conglomerates to do so is quite obvious. This is why I believe that the article should have been much more specific on the corporate level for which a strategy has to be formulated because otherwise it erroneously creates the impression that for every company a strategy in 1-2 sentences can be formulated that serves as a guideline for every employee.

Can You Say What Your Strategy Is?, Collis and Rukstad, Harvard Business Review, April 2008

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