Keep your Strategy Relevant and Win
In our newsletter of the summer of 2009 we spoke about the “New Normal” business environment having less financial leverage and more government, resulting in a slow and long economic recovery. This is playing out with 1st quarter GDP growing at only 1.8% versus historical growth rates of 4-5% for this stage of a recovery. To date, a laser like focus on the short-term has allowed companies to weather the effects of an uncertain business environment. But the long-term viability of an organization is dependent on its ability to anticipate when to change its strategy in order to assure its relevance in the marketplace is maintained. Uncertainty will be a constant as the slow economic recovery continues and heightens the need for organizations to be able to successfully adapt their strategies to a volatile external environment.
Failing to understand the changes of your external environment can have disastrous effects. In the case of Blockbuster Video whose revenues were flat in the early part of the 2000’s, senior management thought their business was healthy and did not change their strategy fast enough. Blockbuster did not adjust its strategy to deal with the likes of NetFlix and Movies on Demand. The result: Blockbuster management had to sell the company in a bankruptcy auction earlier this year. On the flip side, understanding your external environment can accelerate the growth of your business. In the case of Clamato branded U.S. juice drink, Clamato had attractive high unit profitability, but management was frustrated with its inability to generate significant volume growth as a mainstream juice drink. By understanding the primary consumer and intersecting demographic trends, management repositioned Clamato as a Hispanic brand. The new positioning strategy resulted in more concentrated marketing investment and multi-year double digit revenue growth for Clamato in the fastest growing U.S. ethnic market.
In order to be in a position to anticipate the need to change an organization’s strategy, we believe you need to look beyond measures like revenue, basic market share, and customer satisfaction, which monitor the direct impact of the organization’s efforts. When the organization formulates its long-term strategy, it will usually conduct a form of SWOT analysis to understand the organization’s internal strengths and weaknesses, as well as the opportunities and threats of its external environment. In most cases this is a onetime analysis during the strategy development cycle, and the findings of the SWOT analysis form the foundation of strategic choices of the plan. To be able to anticipate a change in strategy, it is necessary to monitor and test external assumptions (political, economic, social, technological, environmental, and legal) regularly, not just during the strategy development cycle. By scrutinizing these interrelated external environmental assumptions on a regular basis, it provides the opportunity to uncover new winning strategies ensuring ongoing marketplace relevance.
We find that in many cases senior managers don’t monitor their external environment regularly, primarily because they have not made strategy a continuous process. In other cases. the organization has a continuous process of strategy management, but has not developed a capacity to effectively monitor the external environment.
Is your strategy process capable of anticipating and adapting to emerging external environment changes? If not, are external forces challenging your marketplace relevance? We would be interested in your comments.