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Intelligent New Strategies Wbs Journal Jul Sep2008


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Intelligent New Strategies Wbs Journal Jul Sep2008

  1. 1. Intelligent New Strategies for New Battles Managers everywhere are under siege. Yesterday’s paradigms – economic, political, social, technological, and more – are no longer valid. And what is worse, it seems virtually impossible to fully grasp or make sense of the evolving patterns of forces they are likely to face tomorrow. By Douglas Bernhardt 88 wbs journal • july-september 2008
  2. 2. B UT PERHAPS the most frightening • A world-wide banking crisis precipitated by phenomenon of all, even for the the collapse of ‘subprime’ lending schemes; most seasoned of executives, is • Chinese and Indian pharmaceutical [Apple] appears to understand that the very business models companies swamping the world with generic which seemed so robust, and substitutes for expensive ‘blockbuster’ drugs its competition and its appeared to work so well, in an industrial age and; customers in equal measure, a have today crumbled into irrelevance. Indeed, • The ubiquitous internet spawning not just as businesses from Africa to America to Asia new enterprises and services, but entirely powerful recipe for continuing ratchet up their efforts to gain yet another point new business models. success. or two of market share and profitability, one is Indeed, as managers prepare to engage reminded of what the crew and passengers of growing armies of new enemies, they are the Titanic would have achieved by re-arranging seldom certain of just who it is they’re fighting. the deck chairs on that ill-fated vessel some 96 Is it any wonder then that business leaders, years ago. including those whose MBAs prepared them Today, it often seems that we are floundering so well to manage in the 20th century, find in a period where the dynamics of asymmetric themselves overwhelmed? And as they catch warfare apply as much to the world of business their breaths to take stock of the uncertainties as they do to the ‘global war on terror’. around them, at which altar do they pray The consequence is that many, if not most, for salvation? In many cases, if current executives seem all too ready to wring their management literature is any guideline, it is at hands in frustration as they retreat into the the altar of ‘management innovation’. familiar comfort of their cubicles and office “Please help us,” they intone to the high suites in search of ostrich-like respite from the priests – or gurus – of leading business schools new realities – or as some would say predictable and consultancies. “Help us ‘innovate’ our surprises – of the early 21st century: way out of sub-standard performance, below- • $100 and more for a barrel of crude oil average returns, and the dis-equilibrium and the tsunami-like effect this has had on caused by environmental forces outside of our commerce everywhere; control (and which we failed to anticipate or see • About $1 000 for one troy ounce of gold; in time). Help us, we beseech thee, to meet our • A cascading US dollar worth about 65 Euro legitimate aspirations for success.” And why cents; not? After all, as the consultancy McKinsey & wbs journal • july-september 2008 89
  3. 3. Company observes: “Innovation has become a executive team is far more likely to defeat its core driver of [corporate] growth, performance, opposition if it possesses real-time knowledge Many firms, now resting and valuation.”1 and foreknowledge of its rivals’ capabilities, But what do we mean by ‘management intentions, and plans. Ask yourself, is this what in corporate graveyards innovation’?* Gary Hamel, visiting professor your company and other companies with which everywhere, were not equipped of Strategic and International Management you are familiar doing? Or do they continue at London Business School puts it this way: to wage tomorrow’s competitive wars using to give serious consideration “Management innovation is anything that strategies and tactics developed and refined for to how and where innovation substantially alters the way in which the work last year’s battles. Do they, in effect, focus on of management is carried out, or significantly trying to improve business performance through might help them achieve modifies customary organisational forms, operational effectiveness rather than by means competitive advantage or and, by so doing, advances organisational of strategic reinvention and positioning based goals.”2 Moreover, adds Hamel, “Management on future-oriented intelligence? how their rivals intended to innovation tends to yield a competitive Consider the example of the South African compete in the future. advantage when one or more of three conditions textile industry. This is what the country’s are met: the innovation is based on a novel Textile Federation had to say in their report on management principle that challenges some the trading environment for 2007: long-standing orthodoxy; the innovation is The South African textile industry is currently systemic, encompassing a range of processes facing extremely difficult trading conditions. and methods; and/or the innovation is part of Employment in the industry has declined from an ongoing programme of rapid-fire invention 70 500 in 2003 to just below 50 500 in 2006. In where progress compounds over time.”3 addition a number of textile mills have recently Innovation should not, of course, be mistaken closed and have been forced to retrench staff. for invention. “Invention is the creation of Imports are at an all time high. Imports of something new. Innovation is the creation of yarns have increased from 77 000 tons in 2001 something new that makes money; it finds a to 99 000 tons in 2006, an increase of 29% while pathway to the consumer.”4 imports of fabrics have remained relatively In our experience, however, the real issue constant with 94 900 tons in 2001 and 95 300 is not whether management innovation tons in 2006. Much larger increases were significantly increases a firm’s odds of winning recorded by imports of made up textiles which its competitive battles; it clearly does. Rather, have increased from 4 900 tons in 2001 to 28 we suggest, the key issue is one which we elect 700 tons in 2006 an increase of nearly 500% to frame in terms of the question: what role for and imports of clothing which increased from intelligence in management innovation? 139 million items in 2001 to 567 million items in By intelligence (or competitive intelligence) 2006 an increase of over 300%. we refer to the co-coordinated, systematic Historically textile and clothing imports into collection, analysis, and timely dissemination South Africa originated from a wide range of of ‘all source’ information about external countries chief amongst which were Taiwan, forces that have, or are likely to have, a South Korea and Europe. However since 2001 material impact on the strategic ambitions, imports have increasingly been sourced in interests, objectives, and plans of the firm. The the main from China. In the case of clothing dimensions of intelligence can be thought of imports, 89% currently originates from China, in terms of activity (process), knowledge (the 3% from India and the remaining 8% from end product, or deliverables), and organisation the rest of the world while 60% of all made (function and structure). Intelligence products up textiles (blankets, bed sheets, towels and (the analytically derived assessments and curtains) originate from China.7 estimates that give objective, in-context This state of affairs begs two questions: First, meaning to raw data and information) in why didn’t the industry see the Chinese coming? particular exist to ‘support senior decision Neither the capabilities nor the intentions of makers in their capacity as strategists,5 the China should have come as a surprise. Did very leaders whose main job it is to understand the South African textile industry assume that and cope with competition.6 1.4 billion people were sleeping all day? And Thus, if the essence of truly innovative second, why, instead of innovating its way out strategy springs from thinking and actions of competitive submission, has the industry which differ radically from what we’ve done, and reacted by pleading with the government on how we’ve done it before, or what our rivals are bended knees for protection in the form of * We prefer the term ‘strategic innovation’. likely to expect us to do in the future, a firm’s more and tighter quotas and other measures? 90 wbs journal • july-september 2008
  4. 4. Wits Business School INTELLIGENT NEW STRATEGIES FOR NEW BATTLES Developing timely, innovative strategies for professionals, informing them of…customers’ hard truths, overshadowed their thinking and commercial success are, ultimately, the only [present and future] needs and concerns”. Zara behaviour. As a result the management teams chance the textile – as well as other industries has not asked the Spanish government or the of these and many other firms now resting in – have at regaining their diminished standings. European Union to protect it from the Chinese; corporate graveyards everywhere were not A prime example is Zara, the flagship fashion it succeeds by out-innovating and out-smarting equipped to give serious consideration to how brand of Spain’s 9bn Inditex Group, which competition from the Far East. and where innovation might help them achieve boasts a growing network of some 1 150 The South African textile industry’s competitive advantage, or how their rivals stores in 68 countries. Zara does not attempt experience is not, of course, unique. It is not intended to compete for the future. Consider to compete on the basis of low-cost against the only once-thriving companies in South Africa some of the specifics: including ‘special items’, Chinese, India or other Asian states. (More than that have fallen prey to management’s failure the once mighty GM Corporation reported 70% of its production takes place in Europe). to systematically monitor, understand and a loss of $38.7bn for 2007. For many years Zara’s success is attributable, in large, to a assess future threats. The executive leadership Kodak’s overpaid executives continued to business concept based on the premise ‘that of global giants such as General Motors, Kodak, regard Fuji and other makers of camera film national borders are no impediment to sharing and Swissair have also suffered from the as their main competition even while the digital a single fashion culture’. What Zara has done blindspots associated with de facto arrogance revolution was taking place outside their factory is translate this notion into a highly innovative and thus, an unwillingness to routinely gates. And the once premium European air business model where “information from [the integrate intelligence into their strategic carrier Swissair, despite 70 years in business, company’s] stores is constantly transmitted thinking and planning processes. Their apparently refused to believe the forecasts for to a design team made up of over 200 cognitive biases, rather than insistence upon the competitive storms approaching their rich wbs journal • july-september 2008 91
  5. 5. Wits Business School INTELLIGENT NEW STRATEGIES FOR NEW BATTLES mountain enclave as their company entered a recipe for continuing success. Although we are 1 Barsh, J., Capozzi, M.M., and Davidson, J. spiral dive into Switzerland’s most infamous not aware of the extent to which Apple relies (2008) ‘Leadership and innovation’, The bankruptcy in 2001. Unfortunately for these and upon a formal competitive intelligence function McKinsey Quarterly, 1, pp. 37-47. many other leading firms, the innovation taking for strategic foresight and insight; what is 2 Hamel, G. (2007) The Future of place in their industries is clearly not being apparent are the company’s rare competencies Management. Boston: Harvard Business launched from their boardrooms or marketing in looking outwards and in placing winning bets School Press departments. But how could it? on opportunities (think iPod and iPhone) its 3 Ibid. How in the absence of steady streams of rivals haven’t yet dreamed of. 4 Fisher, A. (2008) ‘The Worlds’s Most intelligence can managers even begin to act as So what remedies to strategic failure do we Admired Companies’, Fortune (Europe innovators? Innovation, or creativity generally, propose? Or expressed differently, what must Edition), 157(5), pp. 37-44. seldom takes place in a vacuum. Even artists companies do to join the ranks of the world’s 5 Bernhardt, D. (2003) Competitive feed on inspiration from somewhere, whether most admired companies? While there are no Intelligence: Acquiring and tangible or virtual – sometimes a photograph, ready-made templates, and a full discussion on using corporate intelligence and sometimes a landscape, but always with a strategic innovation is outside the scope of this counterintelligence. London: FT Prentice unique interpretation of an event or scene, paper, there are two important steps which we Hall. real or imagined. Raw, especially open-source regard as prerequisites for success. 6 Porter, ME. (2008) ‘The Five Competitive (public domain) data and information alone First, management must embrace and Forces That Shape Strategy’. Harvard are not enough. Information does not in and nurture a culture of intelligence in the firms Business Review, 86(1) pp. 79-93. of itself leap onto a silver platter and hand they lead, and ensure that it is integrated 7 (2008) itself to the user proclaiming: “This is what into the organisational architecture as a (Accessed 12 March 2008). it all means for you”. Information priorities discrete discipline and function. Innovation 8 Morris, B. (2008) ‘What Makes Apple need to be established, then collected from and strategy without intelligence are little Golden, Fortune (Europe Edition), 157(5), all – including human – sources and, finally, more than educated guessing games played pp. 40-44. evaluated and interpreted before it begins to at shareholders’ expense. Knowing the current resemble an intelligence product. Again, is this state of play in one’s industry and markets what the firms you know are doing as part of is not enough. Managers need to be able to their routines? assess and forecast the likely future impact of In the corporate arena, Apple Computer, competitors and other key players, as well as ranked number one in Fortune magazine’s 2007 a host of other environmental forces on their list of the World’s Most Admired Companies, businesses. Similar to its role in government, offers an excellent example of what it means a core purpose of the intelligence function is to create and implement winning strategies to advance and protect organisational interests based on a deep understanding of the world and security. In part it accomplishes this by around it. Since the return of Steve Jobs as warning about existing and potential threats the company’s CEO in 1997, it has consistently and explaining what these threats mean for ‘innovated its way out of the doldrums’8 by high-level policy formulation and actions. means of strategic innovation. If Apple’s results Second, management innovation must be serve as any indication – 94% total return to regarded as much as an art as a science. Let shareholders over the past five years – the us return to the example of artists: although company appears to understand its competition they are generally measured in terms of the and its customers in equal measure, a powerful unique interpretative qualities of their work – the way they perceive reality or fantasy – underlying their craft is a wide-ranging array of professional skills and techniques. Creating the next iPhone is a worthy corporate goal but only if Management must embrace conceived of within a context of timely, objective and nurture a culture of facts and analysis about the marketplace and intelligence in the firms overall competitive environment. Zara and Douglas Bernhardt is a guest lecturer at Apple do not rely upon simple good luck, or they lead and ensure that even rapid responses to environmental change, WBS where he teaches an MBA elective on Competitive Intelligence. He also teaches it is integrated into the they anticipate opportunities and threats, they at the Rotterdam School of Management set the standards of management, product, and organisational architecture service against which other firms are forced to and other leading business schools. His professional time is divided between as a discreet discipline and benchmark themselves and they continuously consulting on competitive intelligence and modify their business models to conform to function. analytically-derived estimates of unfolding lecturing. He can be reached at stratcon1@ futures. And they do so intelligently. 92 wbs journal • july-september 2008