Kim Warren on Strategy
Strategy insights and living business models
What's the use of strategy tools?
On behalf of executives and consultants who really would like some useful approaches to strategy, I last week issued the following challenge to the Business School profs’ discussion lists – so far, just a handful of the thousands of recipients have responded, and no explanation offered as yet for the irrelevance of strategy research and teaching.
TO…
- Business Policy and Strategy List [mailto:BPS-NET@AOMLISTS.PACE.EDU]
- Management Education and Development Discussion [MG-ED-DV@AOMLISTS.PACE.EDU]
- Most of the tools, whether external or internal oriented, originate from efforts to explain profitability [rents], when that is of little interest to either investors or managers. It has been axiomatic to those in Finance for decades that investors value growth in free cash flows .. which does not correlate with maximising rents. Profitability needs to sufficient to either fund growth or enable funds for growth to be raised, and growing companies are likely to be less profitable than they could be if not growing. How long have we known this? – since Penrose in the 1950s! [ In some cases e.g. Amazon ‘sufficient’ profitability can even be negative for many years so if sustained superior profitability is the goal, where are the case studies exploring how UNsuccessful Amazon has been?!].
- Most of the tools offer ways to find a good strategic ‘position’ for a firm vs. rivals .. but this question only arises at start-up or at major cross-roads in a company’s history [most of the great case study companies we use in class have sustained essentially the same ‘position’ for decades [IKEA, Southwest Airlines, eBay …] , or else made just one or two major changes [IBM, Nokia …].. so what does ‘strategic management’ actually do in between these once-in-a-lifetime events? If we were honest we would rename our classes, if not our whole field ‘Strategic Positioning’ instead of Strategic Management.
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