Strategy and Structural Break

Thanks to Ann Oliveri for pointing me to an article that McKinsey put out on "Strategy in a Structural Break." The author is from UCLA and provided a fresh perspective to some of the other stuff I see on strategy (one of which pointed out that spring is "strategic planning season." Great. As if allergies didn't make spring depressing enough!). He hooked me right away with this quote about what strategy really is:

For many managers, the word has become a verbal tic. Business lingo has
transformed marketing into marketing strategy, data processing into IT
strategy, acquisitions into growth strategy. Cut prices and you have a
low-price strategy. Equating strategy with success, audacity, or
ambition creates still more confusion. A lot of people label anything
that bears the CEO’s signature as strategic—a definition based on the
decider’s pay grade, not the decision.

By strategy, I mean a cohesive response to a challenge. A real strategy
is neither a document nor a forecast but rather an overall approach
based on a diagnosis of a challenge. The most important element of a
strategy is a coherent viewpoint about the forces at work, not a plan.

That's a phrase to remember: forces at work. That's one of the things I'm talking about when I say "understand."

He goes on to talk about the "structural break" that he thinks we're in right now. It's not just a regular down turn. It is rooted in a more transformational change, where what drove success in entire industries or even the whole economy is NOT what's going to drive success moving forward (I think this is what Jeff is saying in his traditions post). During structural breaks, a lot of companies go under, but others do grow. He talks about how to do that.

In short, he suggests simplification and even fragmentation. Keep central controls lean and let individual business units figure out what needs to change, because the business must be reformed. I like this quote:

In general terms, the first task is to understand
how a business has survived, competed, and made money in the past.
Don’t settle for PowerPoint bar charts and graphs. If the business is
too complex to comprehend, break it into comprehensible parts. Once you
gain this critical understanding, you can start the work of reshaping.
There is no magic formula. Reforming a business always takes insight
and imagination.

In ordinary hard times, the traditional moves are reducing fixed costs,
scope, and variety. But in hard times accompanied by structural breaks,
you must rethink the way you manage. Companies that survive and go on
to prosper look beyond costs to the detailed structure of managerial

Awesome. I do wonder, though, how many companies will recognize they are in a structural break? It seems like the kind of thing that happens to the other companies, or the other industries. Sure our revenues are down, but we've seen hard times before. I guess those are the ones that go out of business. I think it is a good practice to make yourself believe that it IS a structural break–at least during your analysis. Hold open the possibility that it is. Try to prove that it is, even. If you can't, then fine. You're in good shape. But if you don't believe it's possible, you'll never see it, until it's too late.