Strategy Excellence – making businesses financially successful and admired
The factors inherent in creating a business which is financially successful and highly admired are not secret and we look at them here.
It is well known that successful businesses have clarity of strategy, alignment of all business activities to that strategy, and a culture which seeks enablement, innovation and improvement. What is also important is the focus on the long term as this not only gives direction, but it also gives time.
Look to the future
Strategy excellence starts with a focus on the long term. The process takes the firm on a futuristic journey to a variety of tomorrows, imagining where it and its industry will be, the problems its customers will be encountering, the state of the economy in its broadest and narrowest sense, and the challenges and opportunities it sees to its values and goals.
The focus on the future provides access to a vital non-renewable resource that is not available when focus is on the present – that non-renewal resource being Time. Time gives options. Lack of time removes them. The existence of options comes from trialling of possible solutions, evaluation of information, adaptation of implementations and finding opportunities which have arisen simply because attention was directed in the general direction within which the opportunity was seen.
Leaders which focus the firm on what’s happening now increase the likelihood of emotional responses to opportunities and challenges and with it reduction in objective evaluation of options. It creates a rocky ride. Granted an appreciation of external forces is important so that current tactics can be considered in line with external movements, but for successful firms such reviews are in context of strategy and not a stand alone activity.
Stay on strategy
Recently Andrew Harding the CEO of Rio Tinto Iron Ore Ltd commented that one of his biggest challenges is keeping to strategy. And you can see why. Its major buyer of its product, China is reducing its need for the product, and the iron ore price has dropped from a high of nearly $200 per tonne in 2012 to around $70 at present. Yet Rio increased production by 11% in 2014 and plans another11% increase in 2015. And its major competitor, Vale is increasing output by8.4% (which is about the same volume as Rio) (Source: Sydney Morning Herald, Iron Ore Sinks but Rio, BHP still making money, September 5, 2014). These increases will swamp the market if the smaller firms continue to produce. But that’s the rub. Over the years Rio has heavily invested in reducing costs. It can ride out the stormy weather.
By considering a plethora of scenarios Rio has given itself the luxury to think before it acts. The good times would have seen it strengthen its Balance Sheet, giving it breathing space should bad times come: They haven’t yet, but they may. Firms that have a short term focus don’t have the luxury of time. Some of Rio’s competitors are closing as they are unprofitable at current rates and do not have a Balance Sheet strong enough to get them through. The future is never known until it is passed but firms that have considered the long term have created scenarios which allow for this. Rio is a low cost producer, and it does everything it can to continue to be so. Had it drifted from this whilst things were good, it may not now be able to sail the stormy seas.
Looking to the future gives time. Time gives options. Options allow firms to stay on strategy.