C.K. Prahalad’s death last month has inspired a plethora of literature on the strategic thinking of the man who coined the concepts of “strategic intent” and “core competence.” In fact, the strategic management guru’s thinking has increasingly been called upon since the economic crisis. Strategic management – the process of getting from the current state to the future state that ensures competitive advantage – has never been more relevant. “Business as usual” can no longer be the context in which to make decisions.
In a hypercompetitive global market, more companies are feeling the effects of Prahalad’s “strategic decay” – the idea that strategy starts to decay the moment it is created. Strategic management can help managers think smarter and act faster. Organizations that used strategic planning during the economic crisis were more successful in their pursuit of growth opportunities and more confident about short-term growth prospects, according to a 2009 study of 190 US firms sponsored by the Association of Strategic Planning. As a brief review of the current research shows, strategic management is rising to the challenge in a time of economic uncertainty.
By driving strategic management further into the organization, companies are finding new growth opportunities. At the University of St. Gallen, Switzerland, strategic management experts Drs. Christoph Lechner and Markus Kreutzer identified four modes of coordination across multi-unit firms that lead to corporate growth, based on the analysis of 51 corporations in Asia, Europe and North America. In the context-setting mode, for example, international food producer Hügli equipped middle managers across Europe with strategic management training and tools – business and financial planning, risk analysis, project flow charts – to identify and execute growth initiatives. Emphasis is placed on pragmatic risk analysis: pulling the ‘rip cord’ when growth initiatives are going off track rather than throwing good money after bad.
Another way in which to eke out growth is by optimizing friction, according to research by Wharton management professor Olivier Chatain and INSEAD strategy professor Peter Zemsky in a review of How a Little Friction Can Change a Competitive Landscape. Friction is defined as anything that creates interference between the supplier and its customer – a bad location, poor product design and so forth. Their approach integrates industry analysis with firm-level analysis to find the optimal level of friction – moderate levels – at which a company’s profits can increase.
Sustainability and growth
Sustainability is a hotbed of research and the focus of leading global management thinker CK Prahalad before his death last month. From product development to processes and business models, companies now have to think strategically about sustainability.
“Our research shows that sustainability is a mother lode of organizational and technological innovations that yield both bottom-line and top-line returns..” CK Prahalad et al
Sustainability is the key driver of innovation, says Prahalad. Early movers in sustainability, he argues, will build competencies that others will find hard to challenge.
It’s a brave new world for strategic management but one populated with fresh ideas and tools that are raising the discipline to a new level. To make the best use of these fresh ideas and tools, an overall organizing framework is needed to pull them together in a practicable way. Such a framework is the Systems Thinking Approach to Strategic Management, a proven framework that has been continually evolving over the last 20 years and used with great success by many organizations.