Failure is never easy to admit, especially for a business and its leader. Although many would try to sugar coat it, the immense amount of business failures throughout the past two years, have not only been due to the financial crisis, but also to the lack of the cohesive organisational strategies and missteps in their implementation by leaders.
During the course of the recession long-term strategies were thrown out with many companies working quarter to quarter, just trying to survive.
The failure, according to Thras Moraitis, Executive General Manager Group Strategy and Corporate Affairs, Xstrata plc, was not in strategies it was in the ability to predict the speed and extent of the downturn, and subsequently the recovery. “Companies without a clear strategy and a conviction about what it takes to win simply took tactical action – such as indiscriminate costs cutting – and are now in no better position to compete as the recovery begins to take hold. Those companies which followed a dual track – one to re-establish their conviction about their strategies and the immutable elements which could not be compromised during the downturn and, a second path aimed at taking the necessary measures to ensure survival but, more importantly, to find ways to improve their relative competitive positions are emerging stronger than when they entered – securing the potential to deliver superior returns for their shareholder long into the future. These distinct outcomes are a reinforcement of the importance of strategy and strategic conviction through a downturn, the failure of strategy.”
According to George Yip, Dean, Rotterdam School of Management, there is a fundamental flaw in the way organisations are run. This has led to numerous failures and will continue to. He says: “Many strategies ‘failed’ during the current recession because the demands of maximising shareholder value no longer allow the luxury of not going for the maximum possible returns. Northern Rock had great shareholder returns before the recession by maximising its leverage in both assets and liabilities. Now managers are starting to recognise the dangers of shareholder value. Most notably, Jack Welch has now recanted to say: ‘On the face of it, shareholder value is the dumbest idea in the world.’”
As many organisations are starting a new fiscal year, it is a time for reflection to see what can be done to make this year better. For many that is devising a three or five year plan, but also becoming more nimble to react to changing market conditions.
The financial turmoil has reiterated the need for a strong long-term focus, yet too long can steer organisations aground, and too short-term can be equally detrimental. The trick is to find the right balance between short- and long-term strategies. “Having a three-year plan is, in my view, critical. Without such a plan, you cannot align shareholder, staff and customer expectations,” says Ian Bowles, Chief Executive Officer, Allocate Software.
John Deane, Chief Executive – Intermediary Division, Royal London Group says, “A good strategy is the ability to adapt, to play what you see in front of you, to manage operational impacts and cash flows while continuing in a direction that the entire company understands and which will give you a sustainable market position. A good strategy has to be capable of being executed in the varied operational and financial environment you find yourself in. Now might be a good time to review the strategy, develop it and communicate the changes in strategy or implementation while the impact of the last two years is still fresh in our minds.”
Failure is a fact of life, both personally and professionally. Learning from these failures in strategy and its implementation can make organisations stronger and nimble and better able to meet the changing marketplace.
If you would like further information on today’s topic please take a look at the Insight pages on the website. In Post-recession consumer trends, Paul Flatters of Trajectory Partnership identifies and explains eight post-recession trends that consumer-facing businesses must be on the lookout for.
Please get in touch if you have any comments about the issues in today's update.
I hope to see you soon,