Wednesday, September 24, 2014

The Downside of Strategy Agility

Words and concepts such as "strategic agility" or "adaptive strategy" have become all the rage in recent years.  People argue that strategies must be dynamic given the turbulent world in which firms must compete.  A recent article on Kellogg Insights offers a word of caution for those focused on adaptation and dynamism in their competitive strategy.  The article focuses on the research of Kellogg Professor Tom Hubbard, Paul Leinwand - a senior partner with Strategy&, and Cesare Mainardi - CEO of Strategy&. 

Mainardi explains, "“Everybody’s talking about dynamic strategy, agility, and chasing opportunity.  That’s all well and good. But if you aren’t operating from a base of who you are, you will likely not realize what the real risks you’re facing are because you aren’t focused on your core strengths, and therefore you will be less clear-minded about how best to respond.”

Hubbard argues that many company growth strategies follow the "let a thousand flowers bloom" philosophy.  In other words, plant a bunch of seeds, and hope that few of them flourish.  Hubbard explains that this type of growth initiative can lead to a highly incoherent strategy.  Firms need to understand who they are, as well as what their distinctive, scalable capabilities are.

Finally, Hubbard emphasizes that profits alone do not justify the existence of a business within a corporate portfolio.  You have to ask the question:  Does it fit given the capabilities that you have?  Can you sell the business at a higher value than the present value of future profits that you can generate from that unit?  

I could not agree more with this article's main message.   Too many firms, starved for growth, simply plant a wide variety of seeds without focusing on coherence.  They focus on the size of the market opportunity rather than thinking about fit.  They see profits, and they use those to justify having a new venture in the portfolio, rather than thinking about whether that unit could generate higher returns as part of some other firm's portfolio.   

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