Fad-Free Strategy

Rigorous Methods to Help Executives Make Strategic Choices Confidently

Daniel Deneffe, Herman Vantrappen

• Editorial: Routledge
• Año: 2019
• ISBN:
  9781000300826
• Edición: 1
• Categoría: Business
• Categoría: Business Strategy

Fad-Free Strategy provides a ground-breaking approach to making better business strategy decisions: more efficient, open to out-of-the-box opportunities and evidence-based. Most strategy books focus on Grand Strategy, the process that leads to high-level recommendations or, more accurately, hypotheses about where and how to compete. While this book briefly covers critical Grand Strategy practices, it deep dives into Operational Strategy, the process of validation, adaptation and possible rejection of those hypotheses.

Operational Strategy is based on an in-depth understanding of customer preferences and anticipating the choices they make. Those choices rather than managers' ambitions determine whether a strategy will generate the aspired financial results. The book explains, by means of detailed real-world cases across industries, how to generate validated solutions to any strategic problem such as: how to enter successfully into new markets, either as an innovator or as a latecomer? How to defend one's position against aggressive new entrants? Or how to sustain margins when price is the only thing customers seem to care about?

This remarkable book contains expert advice from accomplished strategic advisors and thought leaders Daniel Deneffe and Herman Vantrappen. Fad Free Strategy will be a useful tool for smart business executives at mainstream companies who are disappointed with strategy fads and simplistic solutions based on cherry-picked, anecdotal evidence from today's hero companies. It will also appeal to economics faculty members teaching graduate courses in business strategy who are looking for an economics-based strategy textbook that is both rigorous and comprehensive. The book's core ideas have been taught successfully in continuing and executive education programs at Harvard University and Hult International Business School.

Part 1

From Grand Strategy to Operational Strategy

1

The promises of a categorically different book on real-world business strategy

One may wonder why people would write a book on business strategy when, at the time of this writing, a search for “business strategy” on Amazon generates over 40,000 book results.

One could argue that there is a perpetual need to update business publications, hence yet another book could just do that. That updating gap in the market is, however, already filled by the authors of the better-known strategy (text)books, of which 12th, 13th and 14th editions are not uncommon. The authors of established textbooks do go out of their way to revise their latest editions, using more recent business examples from the popular business press such as The Wall Street Journal, Businessweek, the Financial Times and the like. While some of these updates are likely to be driven by textbook economics and, specifically, by the desire to minimize head-on competition with one’s own textbooks on the secondary market, the net effect of all this is that business strategy books and textbooks are continuously updated.

As a consequence, there was no point for us, as latecomers in this market, to come up with yet another business strategy book that would only marginally differ from the huge range of existing and well-established offerings by using just slightly different examples from the popular business press. Doing so would be too much of a head-on and insufficiently differentiated strategy to attract new readers. As a matter of fact, this book contains very few examples from that popular business press.

Trying to create a new strategic management theory is not our goal either, and definitely not a fad that disproportionately emphasizes one aspect of strategy at the expense of others. Such fads try to painfully identify anecdotal examples to “prove” the validity of the new approach and ignore the fact that an equal number of examples may exist that disprove their validity.

As an example, in the mid-1970s, the Boston Consulting Group (BCG) launched the idea that the experience curve was the key driver of profits: the more experience, as measured by cumulative volume over a certain period of time, the lower the marginal cost relative to competitors. Hence, a volume-based strategy was necessary to acquire experience and stay ahead of the game.¹

In 1982, Tom Peters’ In Search of Excellence popularized the concept of best practices. To be successful, companies had to imitate the practices and strategies of those companies that are currently successful. This assumes that there is such a thing as a magic formula (the one applied by the successful company) that always works. The reality points out, however, that these formulas apparently are not the sole reason for the success of the companies quoted in the book, as many of these same companies performed poorly after its publication.²

During most of the 1980s and 1990s, a number of advances in management theory were made. Michael Porter-style strategists emphasized the critical importance of analyzing the broader external environment (of which the existence of an industry experience curve was only one dimension) through industry analysis.³ The core of strategy was to identify attractive industries and to properly position oneself in these favorable environments. Industry attractiveness became the overly emphasized dimension while, for instance, internal company capabilities were of secondary importance. Later on, particularly since the publication of Prahalad and Hamel’s “The Core Competence of the Corporation” article (1990) and Collis and Montgomery’s “Competing on Resources: Strategy in the 1990s” article (1995), the pendulum swung the other way.⁴,⁵ Strategy was more about analyzing the internal capabilities of an organization than about positioning in attractive markets.

Coming next were strategies driven by vision, strategic intent or ambition, which relegated the other two dimensions (industry realities and internal capabilities) to the faraway background. An emblematic example is the BHAG – Big Hairy Audacious Goal – idea (1994), stating that companies should formulate a 10–30 year transformative and emotionally compelling goal to progress toward an envisioned future.⁶

Other views include Blue Ocean Strategy (2004), where pretty much every strategy that was not based on discovering new market spaces and on a number of other very stringent conditions (e.g., increasing value and decreasing cost at the same time) was considered a solid no-go.⁷ With such stringent conditions (the “five imperatives” of a Blue Ocean Strategy^®, as the articles call them), it is not surprising that relatively few examples that satisfy all these conditions can be found.

More recently, Alan Lewis and Dan McKone have argued pretty much the opposite in Edge Strategy (2016), saying that it makes a lot more sense to investigate options at the edge of one’s core business and grab incremental profits from overlooked opportunities that are right in front of us rather than to explore new terrains that mostly come at huge risks.⁸

Our goal is not to create a new grand theory or another management fad that takes yet another dimension of strategy out of proportion, and then tries to support that theory by finding anecdotal examples from the business press that apparently fit the mold. Consequently, our approach does not consist of selecting and studying companies that appear to be top performers, and then to generate an ex post explanation as to why the companies thus observed from a distance are actually doing better than others.

That approach constitutes the foundation of quite a few strategy books, including those written by some full-time academic experts. That they take such an approach is not surprising, since it is not their primary focus or interest to engage either in in-depth consulting projects or in actual business decision-making. That approach has a number of disadvantages.

First, recommendations stemming from observations about the most successful companies are not generalizable. That is, it is not because, say, top performers tend to have strong brands, that the recommendation follows that companies should invest heavily to build strong brands.

Second, studying what makes companies successful can lead, at best, to some high-level principles but not to specific advice that explains how to translate the high-level principles into an actionable data-driven decision-making framework. Many executives we worked with feel that experts who coach them often leave the more difficult yet most important work to them (or to another consulting company, for that matter). Without substantial industry or consulting experience, even the brightest minds may just have too little information about what happens in the real world to make theories operational and generalizable. That is quite apparent from the frustration that more experienced MBA students have when a professor sometimes hand-waves their challenging questions away through a “let us not get bogged down in operational details.”

The preceding statements are based on the comparison that one of this book’s authors can make between his experience today versus his experience as a quintessential business school professor some 25 years ago. Daniel started his career in academics as a young business school professor teaching in the MBA and EMBA programs at a respectable business school. The most distressing questions he could get from students were those that tried to apply the theories in the real world, that is, the “how do you apply this in day-to-day business?” questions. In fact, he decided to leave the business s...