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Sunday, Jan 23, 2011
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Columns - Book Value
Only the really, really paranoid may survive
Even in the aftermath of the global financial crisis, there seems little prospect that ‘the fiercening of capitalism' will abate anytime soon, writes Walter Kiechel III in The Lords of Strategy: The secret intellectual history of the new corporate world (Harvard).
Too many people across the planet have opened their lives to the power of free markets, clambering to make those lives richer, but at the same time speeding up the gears of competition, he adds. “Voices calling for a root-and-branch rethinking of our economic arrangements have quieted, their place taken by others calling our attention to the ‘green shoots' of recovery.”
From compete to co-create
However, a note of caution that the author sounds is about trends evident in economic data. Such as that the length of time a company might expect its competitive advantage to last showing a steady decline since the 1960s, thus highlighting ‘the positional volatility of leaders.' Even while a few corporations were growing to a size larger than many governments, in most businesses, being the biggest could be less and less likely to make you the most profitable, he observes.
“The tightly bounded company so long at the core of strategy's deliberations increasingly seems a limiting assumption. The twenty-first-century version of the discipline will have to offer more help if, or when, the dominant verb for corporate behaviour becomes not compete, but something like co-create.”
Of interest is the estimate made by experts on strategic alliances — that about 20 per cent of the current revenues of large corporations are derived from joint ventures. A pertinent question that the author, therefore, raises is if, like Procter & Gamble, you aim to increasingly ‘outsource' your product development, letting a small company invent the new wonder and then buying the innovation from its creator, how that would affect your line-up of core competencies.
The preface recounts how, before the strategy revolution, companies did not have a way of systematically putting together all the elements that determined their corporate fate, in particular, the three Cs central to any good strategy. The first two Cs are costs (relative to other companies), and customers (markets served by the company, and the position vis-à-vis the rivals).
Most dangerous of all was the third C, competition; the pre-strategy worldview lacked a rigorous sense of the dynamics of competition, ‘If we do this, the other guy is likely to do that,' narrates Kiechel. “It was like trying to do large-scale engineering without knowing the laws of physics. As a set of ideas, strategy sought to remedy all these deficiencies.”
To consultants, the author's advice is to heighten and broaden their sensitivity to potential dangers, shedding any remnants of the profit-fuelled complacency that allowed them to remain oblivious to systemic risk.
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