How useful are the classroom frameworks taught in strategy classes for dealing with the real-world business scenarios? General Managers who mainly manage P/L accounts are more worried about hard numbers than the right frameworks. Are frameworks just for strategy consultants?
If all you are doing is manage the profit and loss account, then you probably don’t need strategy frameworks—or strategy at all for that matter. However, the P/L account relates to last quarter, next quarter and the quarter after next and maybe the next year. Once you begin to look at longer term, you cannot make quantitative forecasts with any accuracy. This is where qualitative analysis becomes important. You need to understand the business environment and try to understand what’s going on there. And the problem is, business environments are infinitely complex. The primary role of strategy frameworks is to simplify. They give you a starting point for your analysis. They don't give you the answers; what they do is allow you to make a start - What are the important things we need to look at? What are their implications for our business? Some strategy frameworks are no more than a means of organizing and classifying different influences on your business. The simplest strategy framework, SWOT analysis, is a way of organizing the various factors influencing strategy into 4 buckets. Yet, simplifying complexity is very valuable to companies. All people I have spoken to who are involved in strategic planning use some form of analytical frameworks. The real opportunity is to upgrade these frameworks and make them more relevant and, in some cases, more sophisticated.
The pace of change in industries has increased dramatically over the last few years - do you think the strategy frameworks followed in the eighties and nineties are still relevant?
Some can still be used in much the same way. Some need to be adapted. E.g. Porter’s 5 forces framework works much better in relatively stable industries, but for industries in flux, you need to go underneath and understand what is driving the structure of these industries. Other frameworks have outlived their usefulness. Some of the frameworks for business portfolio analysis—like the BCG growth-share matrix, or the Mckinsey matrix which plot your businesses according to market attractiveness and competitive position—are probably not particularly useful as they rely on the assumption that each business is independent, ignoring the critical role of the synergies between different businesses. All frameworks need to be evaluated as to which context they are most relevant in.
In India, two of the most sought after professions post-MBA are Strategic Consulting and Investment Banking. What are the skills a good strategy consultant must have?
First of all I'd like to go back a little bit. One of the problems I face with students is that they really enjoy the strategy course and would like to work on in strategic planning. Yet strategic planning is not a career track in most companies. MBAs and other business graduates are typically hired into a specific function such as Finance, Marketing or Sales, into a line-management position. Strategic planning positions are typically filled by managers moving from functional or line management positions. Nevertheless, understanding strategic management is important for anyone doing general management or functional management position—it helps a manager understand how their specific role fits with the overall direction of their organization. Even with large management consulting firms, the strategy practice is generally small compared with other areas of consulting parts of the firm: business process design, supply chain management, operations, etc. In terms of skills, strategy consultants certainly need to have strong analytical skills, but these need to be combined with intellectual flexibility, the ability to understand different business contexts quickly, good written and oral communication skills, and the insight needs to cut through complexity and detail to appreciate the sources of business problems.
The twentieth century saw a shift towards knowledge-based work and over the last 50 years, knowledge workers (MBAs working as strategy consultants, analysts at investment banks) have gained ascendancy. However, people have realized that knowledge work itself is not immune to automation (See Mckinsey's article, focussing on, among other things, the Automation of Knowledge Work). How can knowledge workers equip themselves to handle this disruption?
It is indeed incredible how technology has started helping automate knowledge based work. However, I do not think it is a threat to knowledge workers. Ultimately, all that machines can do is be our decision support tools. It is a human who needs to interpret the results of analysis and set in in the real world context. Machines cannot do that. Business decisions need context, creativity and innovation. Machines are enablers in helping us to do things more quickly and efficiently; they are devoid of judgment and wisdom. Future progress depends upon combining machine based analysis and human intelligence.
Build or buy? What is the best option for a company whose market is being disrupted by an innovator?
A major factor here is 'time'. It takes time to build things. On a lot of occasions companies need to acquire a new technology, or a start-up firm, or a capability because they do not have the time to develop it internally. Companies such as Google, Apple and Cisco Systems have made extensive use of acquisitions in developing new businesses and new technologies. The big challenge is how to achieve integration after the acquisition.
Could you do a comparative analysis of the strategy of Apple, Google, Facebook, Amazon?
It is amazing how despite the huge differences among these companies; they are increasingly coming into competition with one another. Apple was once a supplier of personal computers. Amazon was once online bookseller, but it is no longer just an e-tailer but also a cloud computing company. Google is everywhere. The role of digital technology in causing the convergence of all these companies is interesting and exciting. However, technology companies are at a risk of becoming conglomerates! They need to set a clear strategy as to who they want to be, what they want to do, and where their boundaries lie. Otherwise as we have seen with other conglomerates, they risk becoming targets both for regulators and for more focused firms that pioneer the next waves of innovation.
But if I had to put my money on any of the 4, I would say Amazon, and possibly Facebook—even if I do not fully understand Facebook or its strategy! As long as Amazon keeps the focus on retailing and ensures that it is the most comprehensive and efficient retailer in the world, they will sustain a massive competitive advantage. The main risk to Amazon is that its forays into cloud computing and hardware devices cause it to lose strategic focus.
I think Google is most at risk among the 4. It is attracting government action because of anti-trust and privacy concerns and it is also threatened by its diversification from its core mission of organizing the world's information, into a dazzling array of new businesses that include wearable devices and driverless cars! With so many strategic initiatives running in parallel, Google risks becoming unmanageable.
What are your views on the 'sharing economy'? How will it evolve and what do you think about the future of companies like AirBnB, Uber etc.?
I think it is wonderful especially from an ecological perspective. I think the sharing economy helps us break our obsession with ownership. I wouldn't have allowed a stranger to live in my apartment or allowed someone to drive my car normally. But this ecosystem, and there is good economics involved here, is great for our society which has become individualistic and obsessive about possession of material things.
What are the qualities you would like your students at MISB Bocconi to imbibe when they learn your course in strategy?
Unlike other courses, a strategy course does not have algorithms or set formulae. Strategic management is as much an art as a science. Students need to understand certain concepts, ideas and frameworks, but these are of little value without being able to apply these tools in real world contexts. So, I'd want my students to develop a keen interest in applying the principles of strategy in every business situation they encounter. When they go visit an ice-cream parlour, buy a samosa from a street vendor, or use a new smartphone app, I want them to assess the prospects for that business: how well does the business meet customer preferences, how well does it differentiate itself from competitors, do the various components of the business align with one another?
How has been your experience teaching Indian students here at MISB and at other forums? How are they different in a classroom atmosphere?
Indian students are interesting. I enjoy working with them not only here at MISB Bocconi but in all the schools that I have taught across the world. Westerners are individualistic and outgoing where as Asians are generally more collectivist in their approach. Indians somehow combine the two. They work well when it comes to blending in teams and they also participate individually in class with a lot of enthusiasm and motivation. I find teaching Indian student is a rewarding experience.
Message for graduating students :
About Prof. Grant
Full Professor of Strategic Management and holder of the ENI Chair of Strategic Management in the Energy Sector. Previous faculty positions: Georgetown University, London Business School, City University, California Polytechnic, UCLA, University of British Columbia, and University of St. Andrews (Scotland). Associate editor of Long Range Planning, member of editorial boards of Strategic Management Journal, Journal of Management Studies and Strategy & Leadership.
He has challenged Michael Porter's views on the basis for competitive advantage. He suggested that competitive advantage was more frequently to be discovered in access to distinctive or unique internal resources, rather than a choice between the different forms of generic strategies externally. Grant is best known for his suggestion that insights into competitive positioning were more likely to come from understanding a company's resource base rather than from its generic strategies. He particularly focused on the extent to which organizations had non-imitable resources.
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