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Friday, May 28, 2004

Four Steps to Corporate Resilience via SB

Strategic planning in four areas helps established companies stay competitive.It’s fashionable to argue that corporate failure, decay, even death, are natural and essential to keeping an economy adaptable and healthy. Those who endorse this view believe hostile takeovers help cleanse industries, because weak and uncreative companies are subsumed. Similarly, advocates of “creative destruction” say the demise of struggling companies liberates financial and human capital for more productive uses. In the end, say the corporate undertakers, there is always a stronger and better company to supplant the one that dies.It is never easy for big, mature companies to execute dramatic strategic or operational change, but no matter its age or size, any company can build the capability to continuously renew itself. We at the Woodside Institute suggest four steps that help pave the way.The first is rethinking the underlying principles on which management is founded. Consider the argument of Max Weber, the German sociologist, that those with the most relevant expertise in a given situation or strategy should take the lead in decision making. That principle is why most companies have marketing departments to make marketing decisions, sales teams to control sales campaigns, and so on. Yet recent research suggests that cross-functional decision making gets better results. Managing a resilient corporation requires a greater willingness to access information from multiple sources for richer content, and to avoid guidance by those with a vested interest in the status quo.The second step is generating a portfolio of strategic options. Resilient companies don’t just develop a portfolio of product innovations; they build a portfolio of experimental strategies, often mining ideas from all parts of the company. To be resilient, a company should earmark some portion of its capital expenditures — 30 percent or so — to test new strategies and radically innovate aspects of its business model, such as pricing or industry alliances. The transformation can be profound, involving, say, a shift from selling high-margin products to selling services, or involving customers in strategic planning.The third step is careful examination of resource allocation. Most companies create budgets based on the legacy principle: If you have been successful, you deserve funds in the future. The resilient solution is to use market-based mechanisms to manage resources so that funding of known opportunities is balanced by an appetite for new ventures.Finally, resilience is likely to get a boost from more effective corporate governance that not only provides better safeguards against wrongdoing, but also improves leadership. Directors, feeling the heat from shareholder activists, litigators, and regulators, will have to make sure that management has a plan for the future that doesn’t just relive the past, and provides the right resources to promote resilience.
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