A blog of anonymous Baylor MBA students writing about their experiences while in graduate school.

Sunday, December 04, 2005

Strategy + Business = ?

Many of use know what business is. Many of have an idea what strategy is. But what happens when you put business and strategy together, and what exactly is strategy? It seems only natural to combine strategy into the core competency for your business. But does combining strategy and business equal success? Well, maybe. Let's see why.

After having read enough HBR cases to make any grown person ill, I start to think to myself ... does the success of a company rely at all upon the strategy of the firm? I have read time-and-time again about successful company's and unsuccessful company's. Both with similar if not identical "strategies" and the company's who succeeded had good strategies, and the company's who failed did not.

A successful strategy, be all that it is, could be measured solely on whether or not the company is providing returns in excess of that of the market risk for the firm. But what that is really measuring is not, or at least I would argue is not, measuring strategy at all because one has no idea if the strategy of the firm contributed to the success of the business.

Strategy can, and should, involve much work. One must align business units towards a common global goal. Prevent "active inertia", provide continuous improvement etc.

But ultimately, don't all we care about is if the company makes higher than expected returns, and we really don't care about the company's strategy at all? Jim Collins and others go on to say that we have such things as level 5 leaders and other such "mumbo jumbo". But really, if I'm an investor, do I care if the CEO is a level 5 leader? I say no. What I care about is the fact that the company is successful. And success is measured by returns. Returns that are higher than expected for that risk class.

What I'm looking for is a CEO that comes in and says he/she is going to increase market capitalization by $X billion. And how they do so, as long as it is legal (and ethical), is irregardless to me. Of course, how they accomplish this goal, is the strategy of the firm.

The CEO comes in and thinks of their stint of employment as a project, not a tenure at the firm. Let me say that again, they come in knowing their stay at the organization is only as long as it takes to complete the project, and it is not a tenure. They come in knowing that they will be in for a given amount of time and that time table is determined in advance. They do their work. Then leave (and leave early if they are NOT successful).

Thinking of executives length of employment as a project is a completely different mind set than that typically found in corporate American today. What this now means is that the strategy of the CEO to complete his/her project will, and probably should, be different than that found in any academic book or NY Times best seller. This is because each project is different. It might be the CEO is brought in to increase market share, or lower costs, or improve overall profitability, or what I personally prefer to hear ... increase market capitalization hence returns. Because I'm money driven. America is money driven. Capitalism is driven by the desire of individuals to have more. And what the CEO gets is a percentage of the increase they provide to the company. For instance, market cap. increased by $X billion and the CEO and his team of executives gets Y % of that. We don't complain about how much we give them. We measure them on their success and are willing to pay for that investment. Even if it is hundreds of millions of dollars. In return, the CEO is measured on a very simplified metric system. Did the CEO deliver:
  1. On time;
  2. Did the CEO meet or exceed expectations;
  3. If it makes sense to talk about budgets, were they within budget.
Now, thinking about executives on a purely project level status. It brings me back to the original question of what is strategy and why is it important. To me, now, strategy is whatever it needs to be to complete the project. We can only rate the success of the company's strategy on whether or not the firm was able to successfully complete the project. Because, as how we just defined businesses today - it cannot be said that a company had a successful strategy but poorly implemented it. Because strategy involves the implementation and completion of the desired goal.

So what does all this mean. Maybe nothing. Maybe something. What's important to me is that CEO's should be less complacent in what they do. Ultimately, in my mind,

Strategy + Business = CEO

or, what might seem more intuitive

CEO = Strategy + Business

in order to complete the project. Whatever strategy, if any at all, it takes for the CEO to complete the project is the strategy of the firm and that's why it is important.


5 Comments:

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Anonymous Anonymous said...

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May 04, 2007 1:37 PM

 
Anonymous Online Business said...

In my point of view "strategy + Business = not CEO". I mean it is a way of business which reach you on the top if it is in right way.

Thanks

January 20, 2009 8:17 AM

 

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