MGT451_VideoTranscript_Mod01_P4 What is Good Corporate Strategy_

UCLA Anderson: a conversation with Richard Rumelt and Duke Whang Professor Remelt what are some characteristics of good business strategies? Good business strategy is essentially simple. Business strategy is about the focus of resources and a good strategy focuses multiple resources on a single objective. Where companies go wrong is when they try to make it too complicated; a big thick plan, complicated charts and structures. If you can't explain your business strategy in a few minutes and in a few pages, there's something wrong. If good business strategies are essentially simple what are some of the hindrances toward implementing them or even generating a good strategy? There's a number of difficult options to overcome. One of the primary ones is that it's difficult to determine whether or not you're accomplishing your strategy by looking at current results. Current results of a company are largely a function of its endowment, the things it inherits from the past like it's brand name, it's reputation, it's market position. And these change slowly over time. So you can have a company that's producing excellent results, but has a poor strategy. And vice versa, you can have a company with poor results that has an excellent strategy. And this creates the interest in the subject, but it also creates the intellectual complexity of what we're looking at. The second thing I would point out, is that there's an essence of compromise that's really part of the human character, I think, and it's certainly part of organizational life and organizational politics, that while competitive success comes a focus of resources our natural tendency, in organizations, is to satisfy multiple constituencies. For example, at the Ford Motor Company there are some executives who believe that to be successful in the automobile business, you have to make at least a million units a year on a single platform. There are other executives who believe that brand is the essence of success in the automobile business, and the point to the recent acquisitions of Volvo and Jaguar as the direction into the future. Now both of these arguments have a lot of merit. The problem arises when you try to satisfy both. If you produce Volvos and Jaguars, or Volvos and Lincolns, on the same platform, trying to get those economies of scale you begin to dilute the brand names. And the loyal customers, and the loyal dealers become less passionate about these brands. And at the same time you don't really get the kind of economies that you're looking for because you still have to maintain a certain amount of differentiation between these products and produce the - they have to look different and feel different. And so, instead of getting the best of both worlds through this kind of a compromise, you're getting some of the problems of both worlds and that, that lack of focus is very typical in any large organization and is a major, major hindrance to the accomplishment of a strategy. The third thing I would point out is that the choice set isn't really known in a strategy. If you take a multiple choice test examination the instructor says choose a, b, or c. That can be a struggle but at least you know what the choice set is. In real strategic situations you don't. Intellectually we call this the problem of induction. I worked, for example, with a major airline a few years after deregulation. And they were used to looking at a number of basic strategic decisions on a periodic basis; things like What kind of new aircraft should they buy, should be Boeing or should it be Douglas. But deregulation had made their menu of choices obsolete. They now had to think about things that - like the structure of their network, should it be hub and spokes, should it be long lines, should they price in different ways to different segments. But at that point in time they didn't even really understand what these choices were. And while they were quite willing to make strategic decisions, it took a number of years for them to come to understand what the issues were in this new world, that they had to decide about. And so that makes strategy quite difficult.