Beliefs and principles: the compass in guiding strategy

Strat. Change 12: 1–5 (2003)Published online in Wiley InterScience(www.interscience.wiley.com). DOI: 10.1002/jsc.621

Editorial

Beliefs and principles: the compass inguiding strategy

The rise and development of the modern enterprise hasprompted owners, managers and their advisors to devise andapply better ways to run organizations. The methods, recipesand management gurus continue to change but no one has yetfound the one best way. It is safe to say that it will be a whilebefore anyone does, if indeed they ever do. The one-size-fits-all approach is an outmoded and retrograde way of trying tomanage the modern business. One constant, however, is thatany management method, like any recipe, works only whenapplied in the proper context, with the proper timing and in theproper way.

An example will serve to put this in perspective. At thebeginning of the twentieth century, Frederick Taylor, arguablyone of the first management gurus, devoted a large portion ofhis life’s work, timing how long it took people to perform certainoperations at work. His goal was to create a set of standardsto improve productivity and many companies succeeded byimplementing his ideas. Today, he is recognized as one of thefounding fathers of modern management. However, most of thecurrent management theories and tools advocate the oppositeof what was central to Taylor’s method and ideology. Taylor’smethod conceived of shaping competitive advantage by takingindividual thinking and initiative out of the production process.Today, most effective corporate leaders agree that competitiveadvantage is built through harnessing the thinking and thecollective initiative of their employees, what Hamel and Prahalad(1994) referred to as the democratization of strategy.

At the end of the day, the value of a management tool liesin its results in the real world. Does it create profit, generaterevenue and focus management thinking? Alternatively, does itcreate meaningless and wasteful activities or, worse, precipitateorganizational disruption?

Regular surveys of management tools and techniques, such asthat run by Bain & Co. (see, for example, Rigby and Gillies, 2000)attempt to discover which management tools senior executivesuse and how satisfied they are. What emerges from the evidenceis not wholly surprising but it is nonetheless quite intriguing.

Copyright 2003 John Wiley & Sons, Ltd. Strategic Change, Jan–Feb 2003

2 Editorial

• Management tools are not unlike children’s toys. One seasoneveryone has to have them and in the next they are redundant.Many of the great management discoveries of the past few yearsare really nothing more than management fads.

• A substantial proportion of company executives appearto agree that management tools promise more than theyactually deliver.

• The most popular and highest rated tools and techniques varywidely in their impact on a company’s financial performanceand in fashioning competitive advantage. There appearsto be little correlation between financial success and thenumber or type of management tools used but there is acorrelation between financial success and the way companiesuse these tools.

While many of the new management tools can be very effectivewhen applied to the right problem and in the right context,when they are used poorly or in the wrong situation they can bedangerous. A tool by definition is nothing more than an enablingmechanism to undertake a specific task. There are numerousexamples showing that management tools and fads can damagean organization when attempts are made to try to mould theorganization to the tool instead of adapting the tool to theorganization and its specific requirements.

However, when the proper integration does occur, manymanagement tools and techniques can be extremely usefulenablers for improving decision making and accelerating strategicand operational implementation. Indeed, the modern pace ofchange invariably means that decisions must be implementedmore quickly than ever before. Unfortunately, this applies to bothgood and bad decisions, which makes the danger of misapplyinga new idea much greater, and recovering from implementing abad idea even harder. To avoid this pitfall, an organization needsa clear understanding of where it is going. In short, it needs astrategy and a compass to steer by, guided by its core beliefsand principles.

It is precisely because many markets and industries are sovolatile that a strategy is essential. The alternative is to reactincrementally to every change that presents itself. Strategy shouldnever be labelled a fad. Instead, it must remain the bedrockof good management, for its importance is fundamental tocorporate health and prosperity. However, for strategy to evolveand adapt, what becomes critical to good corporate navigationis a compass. In the modern business environment, the compassis guided by the core beliefs and principles of the businessorganization.

Companies that have thrived under conditions of uncertaintyand during times of great change appear to share a commoncharacteristic. They have developed core management beliefs andprinciples that are grounded in the economic backcloth of their


Editorial 3

business and operating context. Such fundamental principlesguide strategic choice, not only as a context for major decisionsbut also for incremental and short-term assessment.

There is substantial evidence to suggest that successfulcompanies and their leaders adhere to a given strategic principleand embed it at every level of the organization. Jack Welch, theformer chief executive of General Electric, is one of the mostobvious examples. He is mentioned and referred to so oftenand it is precisely because his track record is so long that hisexample is most valid. Early in his term of office Welch declaredthat General Electric would only retain and develop businessesif they are rated one or two in their industry: the alternativewas divestment.

This was not an aspiration, neither was it a mission statement.Welch did not say that the businesses in the General Electricportfolio would become number one or number two. He saidexactly what is stated above. This was not a strategy either. It was,however, the foundation for most strategic decisions undertakenby the company and understood and accepted by the seniormanagement team. While it may sound rather simplistic today,over the years Jack Welch and his organization have exercised aremarkable self-discipline in sticking with this strategic principle.

At General Electric and throughout its business portfolio,managers relied on this principle when they were facing complexdecisions. However, unlike many corporations, the decisionsdid not always have to be endorsed by the governing board.Managers at all levels were trusted to make decisions becausethe corporate strategic principle was well understood, sharedand respected. It promoted direction. It created consistencyamong different, incremental and often conflicting decisions. Itguided the hundreds of trade-offs that were made every yearin the company and it also allowed for experimentation andrisk taking. A clearly understood strategic principle can facilitateconsiderable freedom, creativity and initiative. Because the goalwas clearly communicated and understood, leadership can trustand give management the freedom to manage, adapt and evolve.Considerable power and benefits can derive from it.

During the previous fifty years General Electric has alwaysbeen in the Fortune Top 100. However, its business focus hasshifted from heavy industry to services, to becoming the financialservices powerhouse it is today. As a result of sticking to thisclearly communicated strategic principle and without being toorigid about dictating strategy or tactics, the company has beenable to evolve as successfully as any in the world. Furthermore,the company has a corporate history of being extremely effectiveat adopting and successfully integrating and implementing newmanagement tools and techniques.

Strategic principles, however, are not eternal. If the right oneis selected, it could serve the organization well but there willbe occasions when top management is forced to adapt it or


4 Editorial

even reject it. With the development of E-commerce and therise of the new digital economy, Welch added an appropriateE-Business codicil to this principle by declaring that the onething that General Electric must not do in any of its businessesis lose the point of connection with its customers. To do sowould be to dilute customer ownership and loyalty. In effect,what was being stated was that each business would own thecustomers. Failure to do so would result in divestment. Toremain in General Electric and be successful businesses must notviolate this strategic principle.

This codicil has been added because it is grounded inthe economic reality of the modern business environmentas interpreted by General Electric. With the uncertainty andchallenges that the new economy presents to old companies andindependent of whatever else General Electric achieves with theInternet, as long as its businesses are in touch with its customersdirectly, and understand their needs and cater for them, thenthe company has the opportunity to continue to adapt andreinvent itself.

Dell Corporation is one of the major winners in the neweconomy and again a similar principle is present in its strategy.It is stated in their advertising mantra: Be Direct. Well beforethe development of the Internet, Dell crafted its success byselling directly to individual customers and catering for theirprecise needs and requirements. There is a popular beliefthat Dell’s success was based on eliminating the retailer fromthe distribution chain and dramatically reducing costs andprices to gain market share. The reality is that Dell neverdiscounted its prices. For the company, being close to thecustomer has always been a core strategic principle. Indeed,the company’s manufacturing, marketing and research anddevelopment functions, together with the management toolsand techniques used to develop them, are completely alignedwith this principle. Dell succeeded because of their superiorcustomer relationships, not through price discounting.

This core belief has always been more important than beingfirst to market with the appropriate technology and superiorto innovation in distribution. Indeed, when Dell stumbled ithad steered away from this principle and experimented withother business models. The company quickly and consciouslyrefocused on the strategic principle that still guides it today andits stock price has dramatically increased in the past decade.

Part of the key in understanding the success of America Online(AOL) is the management belief articulated by Steve Case, theChief Executive, in the power and addiction of connecting peopleand making it easier for them to do so. Case is on record as statingthat ‘the soul of the Internet medium is people interacting witheach other’.

Unlike any of the then existing competition, having the bestor the latest technology was not as important as building a


Editorial 5

community of brands that relied on people contributing thenecessary content. The strategic principle that became thecompany’s anchor was in organizing the content in a way thatwas easy to navigate and understand and which encouragedinteraction.

The complexity of modern business and the speed of requiredimplementation continues to intensify. The number and varietyof management tools and techniques shows no sign of abating,indeed understanding the usefulness and purpose of each islikely to become even more of a challenge. Managers throughthe medium of new technology and the prevalence of marketvolatility can now make bad decisions faster and with greatereffect than ever before.

One of the principal functions of good strategic managementis the articulation of core beliefs and principles groundedin the operating environment of the business, and theirclear communication. Business organizations need leaders andmanagers that can make choices and decisions with purposeand clarity and exercise consistency and rigour in theirimplementation.

ReferencesHamel G, Prahalad CK. 1994. Competing for the Future. Harvard

Business School Press: Boston, MA.Rigby D, Gillies C. 2000. Making the most of management tools and

techniques. The Journal of Strategic Change 9(5): 269–274.

Graham BeaverEditor


Documents

Beliefs and principles: the compass in guiding strategy