‘Unbridled entrepreneurship does not make you successful’
Corporate strategy is worth nothing without proper implementation
Source: Trends; 26 June 2014. Author: Benny Debruyne
‘Most companies are not doing a great job strategically, despite spending a lot of money on strategy,’ says Kurt Verweire, Associate Professor of Strategy at Vlerick Business School. He has distilled five years of research into a practical book.
Kurt Verweire will introduce his book Strategy Implementation tonight. It combines theoretical insights with practical advice, tools and business case studies where possible. ‘The reason why few companies are achieving systematic growth is because they fail to implement their strategy. It is very hard to make choices and stick to them. What’s more, you also have to take a whole lot of actions to translate your strategy into results. This means putting continuous effort into measuring, HR policy, management, without losing sight of the customer.’
You are very critical of how companies implement their strategy. What exactly is going wrong?
KURT VERWEIRE. ‘Take a reasonably sized company with one hundred employees. It divides itself into different functions such as HR, marketing etc. Every department develops its own strategy, but there is no longer an all-encompassing corporate strategy. Many corporate strategies are glorified objectives or actions. I do, however, have to add that management professors and consultants do not make life easy for managers. Every other month, a book is published with yet another new management approach. Often, business consultants also cause you to make even fewer choices. Many of their tools are not strategic. In the end, the manager is left totally confused. This is exactly why it is important to go back to the basis of strategy.’
What is the difference between objectives and strategy?
VERWEIRE. ‘Strategy is about the choices you make. This can be done on two levels: the business strategy for one specific market, which is what this book covers. In addition, a company which is active in several markets also has a group strategy. Two important terms are competitive arena and competitive theme. Every company has to make choices within its competitive arena, because you can’t do everything for everyone. A bank has to choose whether it wants to serve retail customers, be a private banker or if it wants to be active in corporate banking. Bank Van Breda has formulated this very sharply: it focuses its activities on professionals and the self-employed. There are other examples: Ducati targets people who want a sports motorcycle, Harley those who like to cruise. In aviation, Ryanair only serves people who pay for short-haul flights themselves.
The competitive theme is about looking at how you can differentiate yourself from the competition in your sector. Bank Van Breda does this by being extremely service-oriented, Ryanair by being the cheapest and Ducati by marketing a fantastic product.’
Isn’t it obvious you have to make this kind of clear choice?
VERWEIRE. ’80 percent of the companies I see don’t make a clear choice at either of these levels. Most see opportunities everywhere and add all sorts of things to their original strategy. So, they end up offering everything to everyone, but when push comes to shove, there is nothing left to differentiate themselves with. Unbridled entrepreneurship does not make you successful. Entrepreneurship in itself is good but not every opportunity is the right one. You have to combine entrepreneurship with strategy. Growth is the ideology of a cancer cell: growth for the sake of growth is not good. Sometimes it is better to discard customer groups. Most of the time, managers know full well which customers don’t generate money for the company, but they always have an excuse ready to retain them, such as “they are bound to become profitable at a later stage” or “they help us to be a big player”.’
Companies who want to successfully implement their strategy have to work on alignment and commitment. What do you mean by alignment?
VERWEIRE. ‘Alignment relates to the actions companies have to take to translate their choices into results. A manager has to ensure that his people know what is expected of them, improve operational processes, make sure that he has the right information system to get to know the customer, translate the strategy into key performance indicators and control systems, and attract the right people to implement the strategy. Successful companies are active in all these areas. They organise roadshows to clarify their strategy, train their employees, measure a lot and clearly describe the entire process of what the customer expects. Alignment is so important because the management structure of the company depends on which model the company chooses. There are three models: make the best product, operational excellence and customer intimacy. A company adopting the best product model, such as Studio 100, has to be managed differently than a company pursuing customer intimacy. Not only do most companies operate without a corporate strategy, they also take actions which fit into the three models, instead of choosing one model.’
CHOOSE THE RIGHT MODEL FOR YOUR COMPANY
How a company implements its strategy depends on its business model. Quite a few companies combine different models, but to be successful it is better to choose one of the three options, says Kurt Verweire.
What? Offer the best product or service.
Example? Studio 100, Cirque du Soleil, Apple, Brabantia
How? ‘In this model, you need a structure to innovate. You have to look at what the new innovation processes are and how you can involve sales, marketing and other departments in this. When measuring, you are looking at how much revenue new products will generate. This business needs creative people.’
What? Either be the cheapest or the fastest.
Examples? Carglass, McDonald’s, Amazon (fast) en IKEA, Ryanair, Colruyt, Zara (cheap)
How? ‘The keyword is “efficiency”. You have to take a lot of actions to ensure the level of efficiency required is achieved in every department. Operational means working with principles like lean management or Six Sigma to improve business processes. You choose control tools which measure how fast or cheap you are. This business needs process-driven employees.’
What? This is more than just customer-friendliness, you have to get to know your customers inside out.
Examples? Bank Van Breda & C°, Zappos.com, Singapore Airlines, Ritz-Carlton, Châteauforum
How? ‘You have to clearly define who your best customers are. They are the crown jewels of your business. The key performance indicators allow you to look at how you can provide value for them and the HR department has to ensure that you have enough employees with high emotional intelligence working for you.’
Don’t companies have to be able to turn their hand to everything and combine these three models?
VERWEIRE. ‘Everyone needs a bit of efficiency or service orientation but when it comes to how you manage your company, you have to choose one of the three: to be the most innovative company in your sector, the most process-oriented or the most service-oriented. Academic research shows that companies with good alignment also achieve better financial results.’
Besides alignment, you claim companies also underestimate the importance of commitment. Why do you value this so highly?
VERWEIRE. ‘The way you manage an organisation generates a certain commitment. The question is how to inspire commitment in people when it comes to the strategy you have developed. This actually gauges the management maturity of a business, which often leaves much to be desired. A business that does have this management maturity will implement formal objectives for employees, introduce control systems and ensure that department managers meet regularly. For many managers, this maturity will be the most innovative element of the book.’
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