Some strategic principles - Strategic Management

The complexity of strategic decision making becomes more apparent, the deeper the exploration of the subject. Even this chapter, which appeared to be self contained,and indeed was when I wrote the original in the first edition of this book, has thrown up a need to look more deeply into the strategy of technology (and I will link this later to some thoughts about manufacturing strategy), and the human issues in acquisition. To neglect the people issues would mean that we are looking at strategy and not strategic management. We have yet to explore any of the thinking about global strategy.

The top principles of strategic thinking which emerged from the analysis were:

  1. The most important single factor impacting on the performance of a business unit is quality relative to competitors. They found that superior quality often brought premium prices, and in addition could lead to market growth and an expansion of market share. The word ‘relative’ is important, because competitors are unlikely to stay still. This strategy therefore requires constant action if the company is to stay in the lead.
  2. A second finding was that there was a link between market share and profitability. Companies with highest market shares tended to have better profitability. The authors caution against interpreting this statement as a belief that high market share at any cost is a good strategy. It is not.

New-success factors in japanese companies

Successful strategy is not about doing what everyone else does, nor is it always a question of doing only one thing. Akira Sawayama is the managing director of Tokyo-based consultancy Yahagi Consultants. In a presentation he made at a forum of the Japan Strategic Management Society in December 1996 (which he later wrote into an article for me) he revealed his research into the top-performing Japanese companies. He studied companies other than pharmaceuticals, with pre-tax earnings of more than 10 billion yen.

One criterion was that the definition of success meant that they had to have exceeded the peak performance they had reached up to the bursting of the Japanese economic bubble. There were twenty-one such companies, whose performance was analysed over the period 1990 to 1995. The successful companies:

  • Combine operational measures with structural changes, trimming,inventories, manpower, and restructuring the business portfolio;
  • Know their strengths and weaknesses, and build the business on core competencies which have relevance to their customers;
  • Many traditional human resource policies have been changed, moving to a meritocracy, performance-related bonus systems, and empowered managers who are held personally accountable for results in their areas. Sawayama argues that the result has ‘nothing to do with the myth of Japanese consensus, but is driven by intensified competition within the organisation: accomplish or perish’;
  • They have powerful leadership, with clear strategic intentions, which has resulted in much more product being made outside of Japan (Aiwa, for example, now produces 86 per cent of its products outside of the country, compared with 46 per cent in 1988 – the philosophy is to make products where the currency is weakest and sell them where it is strongest). The leaders take personal responsibility for longer-term thinking, and have abandoned bottom-up strategic planning;
  • Their pursuit of a competitive edge is relentless.

Successful companies have created a new strategic focus, and changed their cultures and the processes which drive the cultures.

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