Saturday, June 4, 2016

Strategy Lessons in Practice

Reading about Southwest and GE and the ways that a large company can fail to pick the right strategy underscored to me two aspects of strategy development:

The question of who gets input into strategy is key. These days, more transparency and input is desired by customers and lower-level employees. This is being driven even more than usual by current trends: social media makes companies more accessible, and people feel like they should have a greater say. Strategy development can no longer only exist in the rarified air of the boardroom. This is good, because it's clear that decision-makers can sometimes get in a bubble. One of the "Seven Ways to Fail Big" points out that ignoring the advice or feelings of employees can cause strategic failure (e.g., engineers at Motorolla and disgruntled employees at G. C. Murphy).

Another aspect is "do your homework." This is another way to get out of your own head and put down on paper why a particular strategy is a good idea and how it will bring the results you expect. "Seven Ways" points out many firms that did not look deeply enough to really understand the businesses that they were acquiring. The GE case study shows that risks and losses are okay as long as you do your homework and understand what you are building/investing in. Then when thing trend downward before they trend upward you won't loose your nerve.

This made me think about my previous job. It was a small company competing in IT services for a niche open source industry. We had a major competitor who was the dominant player and no one had ever heard of us. When you thought about these types of services, it was that other company that most people thought of. We had a smaller number of customers (who were pretty small themselves) and didn't do any marketing. As we built up our staff a bit, we were able to go toe-to-toe with this company and steal some of their customers. We felt that our differentiation was our dedication to customer service. We felt we could do the same things that they were doing, but better. We probably stole about 10 customers away from them in one year, which was a big year for us. However, there were two big strategic decisions that really created a turning point in our niche industry. 

First, we partnered with a third company who also provided some services in this area but wasn't a direct competitor (they had more of a complementary skill set) and thus secured a contract with a big name customer, rasing our profile considerably. This bit of synergy helped other potential customers see that we weren't just a boutique provider for smaller customers, but could satisfy the needs of a bigger player too. 

Secondly, and most crucially, was the approach that we took towards an up-and-coming technology in our industry. Everyone agreed that this new open source product still had some rough edges, but there was a lot of excitement about the new platform and what it could do to re-imagine our industry and the new things we could do with it. At our annual conference, there was a lot of buzz and excitment about it and it seems like this was the future of our industry. Our competitor had invested heavily in the new technology, and to ourside observers it seemed that we were falling behind by not adopting it and loosing the gains we had made. Our competitor was happy to loose their old-technology customers to us - they were going to own the new technology space.

However, we had seen the nitty-gritty details of how the new technology was built. It had some very serious project and technology problems that didn't look easy to resolve. No one talked openly about this, but deeply involved technical participants knew how serious the problems were. Needless to say, we made the right call by not investing in the new technology. It flopped and eventually was completely re-written by a different team. Our competitor made the wrong call. They got broken up, sold off, went through 2 new ownership changes and finally just went out of business recently. 

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