Strategy & Execution

Which is more important- "Startegy or Execution"?

Strategy is a series of choices you make on where to play and how to win to maximize your long term value. Execution is producing results in context to those choices. Therefore, you cannot have good execution without having good strategy. Thus, stating strategy is less important than execution and vice versa is hard to refute. Both are equally important. Most everyone would agree that you cannot achieve good results without having a good execution. Similarly, most would agree that having a good strategy alone is no surefire formula for success.

 

Consider Toyota Motor Corporation and General Motor Corporation. Yes, Toyota produced better results than GM for many years because it executed better than GM. It was able to out execute GM because it made much clearer and more coherent choices  about where it would play and how it would compete. This includes sharper choices about its target customers, its value propositions in terms of products, features and price points and the superior capabilities it needed to deliver that proposition to those customers. In other words, Toyota out executed GM because it had a clearer and better strategy than GM.

 

The airlines industry provides another example. Soutwest Airlines has outperformed American Airlines Inc. for decades. Is this beacuse Southwest has executed better than American Airlines? Absolutly. But its no coincidence that Southwest airlines also has a better strategy. It has more sharply defined the target market ( the point to point economy traveler), a more compelling value proposition (Lowest price, more convenient, and most passanger friendly) and a more cohrant set of capabilites to deliver that proposition (maintaining a simpler fleet, running a point to point operations). Having a better strategy has made it possible for Southwest to consistently out execute American.

 

Infact, no matter how much American Airlines improves it execution, it will never be enough to overcome the lousy economics of airline industry and make it a big value creator. The company would have to find a more distinctive strategy. Likewise, no matter how much GM improves its decision making culture, Product development processes or dealer operations, that effort wont be enough to produce better results without a coherant strategy.

 

U.S. CPG Industry

A type to good that is consumed every day by the average consumer. The goods that comprise of this category are ones that needs to be replaced frequently, compared to those that are usable for extended period of times. While CPGs represent a market that will always have consumers, it is highly competitive due to high market saturation and low consumer switching costs for example the global financial crisis has driven consumers to value offerings, and it is a trend which is likely to stick. Recent Mckinsey research suggested 70 percent of US consumers are looking for ways to save money. Fifteen percent are trading down to cheaper brands during recession and almost half of the consumers say their experience with cheaper brands including private labels has exceeded their expectations. According to the report from Grocery Manufacturers association and PwC, CPG industry generates estimated $2.1 trillion of revenue and contributes over $1 trillion worth of value added to overall U.S economy.

The industry’s growth over the past decade has been phenomenal. CPG companies have launched innovative products to meet an ever-growing array of human needs and desires; as a result they have expanded rapidly into the consumer markets of developing world. To make this expansion possible and profitable, CPG companies have invested heavily in building global scale of along every part of value chain, including R&D, marketing and sales, operations like procurement, manufacturing and distribution. According to the study, many CPG companies are looking to innovate by reaching consumers in more places or tailoring products for local customer tastes in emerging markets. Additionally, understanding customer priorities is central to innovation as consumers in the United States are buying more carefully, buying different pack sizes, taking advantage of volume discounts, and trading down to non-premium brands.

As consumers make more product and brand purchase decisions in-store, shelf performance becomes an area where CPG companies can gain market share. Although, performance depends upon how CPG companies are striking balance between different customers with different sets of needs. As per Customer and Management Channel Survey released in August 2012, CPG companies winning in their categories are three times more likely to invest in growth channels, 50 percent more likely to use price optimization tools and invest twice as much time in talent development. Overall, the report also found that winning CPG companies have outperformed their peers in four key areas: investment in key areas, use of analytics to fine tune pricing and promotion, prioritizing the retailer relationships and commitment to talent development and strategic planning efforts. In today’s world, social media is also playing a vital role in CPG industry. This provides CPG companies with a unique opportunity to engage with its customers. Successful CPG brands are meeting today’s consumer by establishing a social presence, directly engaging their customers, sharing helpful content and learning their customers’ needs and interests.

Demographic and economic shifts are the two major factors which over the next ten years will dramatically reshape the growth of consumer packaged goods. These factors will create both challenges and opportunities for CPG marketers, and companies that anticipate the shifts could have a competitive advantage. It will be absolutely critical for CPG companies to adapt in order to gain the attention and brand loyalty of the ageing baby boomers, multi-cultural families and lower income consumers of future.

Risk, Opportunity & Momentum in Recession

The momentum carries you down hill but you need skill and stamina to climb uphill. For students of management and aspiring leaders, there has never been a better opportunity to learn the forgotten art of not only navigating the teams in a momentum business but also in a business that needs climbing to the top again. The skills required are quite different and the attitude to love challenges is an essential because each day is a challenge.

Never before have you been pitted against so many odds and never before your decisions had such far reaching impact. Thus if there was ever a period to be in the industry and be excited—this is the time. These few years will produce a very different class of leaders—smarter, sharper and leaders who do believe that hope is not a strategy and know how to take rifle shots at opportunities by focusing few resources for bigger impact rather than spreading the risks evenly. If you love a challenge, next few years are going to unfold ample excitement for you.

The past 12 months however have been quite literally a bloodbath for world economies. As businesses across the globe witnessed degrowth in every direction, most companies put on hold any investment in expansion plans preferring to wait and watch the global recessionary trends play themselves out.

A safe approach, you might say. Yet, not necessarily the best. As pointed out in a study titled Learning to Love Recessions in a special edition of the McKinsey Quarterly on Risk and Resilience, which studied business behaviour in previous recessions: “When other companies simply battened down the hatches, seeing only risk during the recession, the more successful competitors found opportunity and pressed their advantages.” The companies emerged leaders when the winds turned.

The leaders at HCL Technologies for example decided to swim against the tide. We believed, as McKinsey had inferred, that “managing risk does not mean avoiding it altogether.” We refused to see the recession as an excuse for declining performance. On the contrary, we saw it as an opportunity. We pressed on the accelerator while others applied the brakes. We increased our sales and marketing spend and focused on targeting uncontested market spaces in line with our Blue Ocean strategy, remember, we inked the largest acquisition ever made by an Indian IT company by taking over AXON, a UK based, high-end SAP blueprinting and consultancy firm at the height of recession. We acquired new strengths, while demonstrating value-centricity and flexibility to our customers.

The result was evident: We have outperformed global as well as Indian IT services providers during the recessionary year (last 12 months). While revenues of most global and India IT majors dropped or at best remained flat, we were able to grow nearly 20%year-on- year during this period.

The theme was simple—we saw opportunity in adversity and realized it to our advantage.

Now let’s look at the present scenario. Once again, while people are rejoicing the end of the recession and expected recovery, we can see there are tough and thus exciting times ahead. Looking at data from SMP 500, we know that broad economy recovery is expected by Mid-2010. An analysis of S&P 500 companies shows that number of companies with negative sales growth peaked during AMJ’09 quarter with 75% of companies registering a negative growth and 25% companies registering positive growth. The situation is estimated to reverse by AMJ’10.

However, business growth in the recovered economy won’t be same as before. An analysis of S&P 500 companies’ growth distribution shows that there were over 50% of the companies registering growth greater than 10% year-on-year in AMJ’08. During AMJ’10, only 24% companies are expected to register growth greater than 10% year-on-year. So, the number of companies registering high growth will almost be halved.

So what does the crystal ball foretell about the year ahead? The 2009 tidal wave has brought us to shore in what is increasingly being referred to as the ‘New Normal’ economy. The storm has passed. But there is work to do, craters to fill, pitfalls to avoid and a new phase of ‘frugality’ to be understood.

To quote William A Galston, senior fellow, Governance Studies, at The Brookings Institution: “Once the dust settles from the economic crisis of 2007-2009, we are likely to enter a period of new normality, with lower household debt, higher personal savings, and less consumption as a share of gross domestic product. The effects of this transition will ripple through both the domestic and the international economy.” The conclusion seems inescapable. We are entering an era of private thrift and public restraint. In the US, a recent Gallup poll showed 59% of Americans now say they enjoy saving money, compared with 48% in 2001.

The impact on industry will be far reaching. Clearly, we are looking at a market of a different shape and size ahead. Lower ‘normal’ levels of expenditure, lower volumes, hard costs, lower margins, lower annual increases—a demand environment that appears permanently damaged. What is more, there are no ‘undisputables’, no ground rules anymore. Gone is the undisputed leadership of the US and Europe, aka ‘the West’. New countries are emerging as growth leaders within the global landscape. And within these new geographies, new industries are emerging as boom sectors. Finally, the regulators—until now a passive partner—are ready to play an active role in the post bailout arena.

Yet, as will be the case in any era, there are new opportunities for those who are able to follow the pulse of the new trends and leverage the change.

Look back at developments within our industry, Y2K was the last mega trend that transformed our world. In the early formative years, the industry could monetize outsourcing opportunities due to surplus demand despite a lack of maturity on several fronts. This will no longer be the case.

Beyond evident local pressures against outsourcing, CIOs today are not looking for technology solutions. They are looking for business solutions. They are in search of partners who have the expertise to help them get from point A to Point B on their business plans.

So winning on the basis of quality, experience or relationships is passé. The future lies in providing clarity—the ‘what’ and the ‘how’—to help client on mature terms of partnership. And we, as an industry, will have to grow up to be counted as true business consultants.

As the roller coaster comes to a halt, only those who can pick their markets in uncontested spaces within this dynamic Blue Ocean, and stay sharply focused on delivering deep value within them will succeed. As future managers and leaders you have a great opportunity ahead of you. Watch carefully, listen often, think more and make every action count. You will love the times ahead as what you do or do not do will make a big difference.

                                                                        -Strategy+business jun'12 , Mckinsey Quarterly