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What is Right and Good Management?

m.o.m.®-LetterNo. 10 – 11/06, Volume 14 / October – November 2006 Prof. Dr. Fredmund Malik

Direttissima®
The quickest way to the
best strategy

▪ Speed
▪ Correctness
▪ A daptability
▪ To a better result in the minimum time

Keyword: Strategic management


Contents

Foreword 143

Direttissima®
The quickest way to the best strategy  144

1. The limits of what is plannable and the 


importance of speed 144

2. Focusing rather than trying to do everything 146

3. Developing a strategy using the right factors for orientation 147


3.1 Market position 147
3.2 Innovation performance 148
3.3 Productivities 149
3.4 Attractiveness to good people 150
3.5 Liquidity 150
3.6 Profitability 150

4. The sequence of actions 152

5. Anticipating rather than reacting 154

6. Prioritizing and balancing 160

7. From the strategy to quantifiable results 163


8. Strategic management as a continuous process 165

Index 168
The Services Page

Publication details
Volume 14. Appears once a month in the middle of the month. Publisher: M.o.M. Malik on Management AG,
Bahnhofstrasse 7, CH-9000 St. Gallen.
Author: Prof. Dr. Fredmund Malik, Malik Management Zentrum St. Gallen.
Obtaining the m.o.m.®-Letter: Information available from and subscriptions to be sent to the publisher’s address
­(annual subscription CHF 485, plus 2.4% VAT and postage).
© All rights reserved. The m.o.m.®-Letter is protected by copyright. Reproduction, even only of extracts, and other
types of further use, only with the publisher’s explicit consent. Quotations are permitted provided full details are
­given of the source.
Disclaimer: The m.o.m.®-Letter expresses the author’s personal opinions. Data and facts have been conscientiously
researched or originate from sources which are generally considered to be reliable. No liability will be accepted
on this account. The publisher and author disclaim all liability.

m.o.m.®-Letter No. 10 –11/06 Page 142


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Foreword

S trategy is more important than ever. There can be no doubt


about that, even though many people see things differently.
That business and society are going through a process of fast and
fundamental change is no reason for dispensing with strategy. On
the contrary, it is precisely because of this change and the rate at
which it is ­happening that strategies are needed.

However, under circumstances like these, strategies have to be


­different from those in the past. Fast and right, direct and flexible,
those are what the criteria have to be. Today, strategies have to
be differently oriented in respect of what they cover and have to be
developed differently. Concentration on the strategic subjects that
are really vital, flexibility in what is covered, rapid development and
above all the ability to be changed quickly are the things that are
crucial.

It is precisely for this that we have developed a concept, a method


and the right tools. The name we have given the whole thing is
­«Direttissima®», taking our cue from a revolution in mountain ­
climbing that re-invented Alpine mountaineering. It is the quickest
possible way to the best possible strategy. The method has shown
how well fitted it is to practical application. We have tested it
­thoroughly and applied it in practice, both in our clients’ businesses
and in our own. It works.

The «Direttissima®» method is being published in this double ­number


of the Letter for October and November. One of the reasons for this
is that it can be applied so swiftly that it can be put into operation
even in this current year. We are convinced that by doing this
we are putting into our readers’ hands one of the best tools for
­enabling them to take advantage, under today’s more arduous
­conditions, of the major opportunities that exist for them at the
moment.

St. Gallen, October 2006


Yours sincerely,
Prof. Dr. F. Malik

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Direttissima®
The quickest way to the best strategy
Prof. Dr. Fredmund Malik and
Dipl. Ing. Stefan Baldenweg

1. T
 he limits of what is plannable and the
­importance of speed

F or a long time, Mount Everest was the supreme symbol for the
human spirit of adventure. Everest, known as the highest peak
in the world since it was surveyed in the 1850’s, has been the
­crowning ambition of all mountaineers all over the world since the
first attempt to climb it was made in 1921.

The first attempts were unwieldy expeditions involving long ­


columns of porters. Via a large number of base camps, the route to
the ­summit was prepared with fixed ropes and rigid ladders. The
expeditions were regular battles of materiel against nature. Their
centers and starting points were complex logistic concepts. Not a
single one of these attempts was crowned with success.

The difference from the high mountain climbing of today could


not be greater. The only thing the two still have in common is
the goal that still applies, namely that of reaching the summit.
­Everything else is no longer comparable. The best and most

Prof. Dr. oec. habil. Fredmund Malik is the head and owner of the manage-
ment consultancy and training company Malik Management Zentrum St. Gallen,
which has some 200 employees in St. Gallen, Zurich, London and Vienna. For
the past 30 years, Prof. Malik has, as a management consultant and teacher, left
his mark on managers at all levels in all sectors.
«Fredmund Malik has become the leading analyst of and expert on Management in
Europe ... and a powerful force in shaping it as a consultant. He is a commanding
figure – in theory as well as in the practice of Management.» Peter F. Drucker

Stefan Baldenweg, Dipl. Ing. ETH, MBA Insead, is a member of the Management
Board of Corporate Consulting & Development and works as a consultant and
lecturer at Malik Management Zentrum St. Gallen.
His work as a consultant is mainly in the areas of strategy, organizational
­development, corporate development and mergers & acquisitions. As a ­consultant,
he numbers among his clients companies of all sizes in the industrial, services
and retailing fields.

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s­ uccessful high mountain climbers of our day look for success
in small and very small teams that can no longer even be called
­roped parties in the true sense of the term. When he climbed
Mount Everest for the second time, Reinhold Messner even made
his way up alone and without an artificial oxygen supply. It is
true that the equipment used is of the very highest quality but
­unbelievably drastic steps are also taken to optimize its weight and
reduce its amount.

Apart from the slimming-down mentioned, the critical success


factor in this concept of an expedition is the uncompromising
­orientation to speed. The reason for this is, firstly, to minimize the
dwell time in the «death zone» above 8,000 m. but, secondly, it is
also to enable the best possible use to be made of the windows of
good weather in the Himalayas, which are often short and generally
difficult to forecast.

But what, if anything, has high mountain climbing to do with the


development of a strategy? A lot, surprisingly enough, at least at far
as the analogies in the development process are concerned. In the
development of strategies, too, there are procedural concepts that
have been handed down, cumbersome and broadly based ones.
Doggedly – or perhaps even unconsciously – an attempt is made to
find the right answers to the challenges of the future by using an
approach from the past. That is something that cannot work in an
environment that changes in the same dynamic way and with the
same swiftness as the weather conditions do on Mount Everest. If
one looks at the recent history of many well-known companies,
such as Karstadt, AEG or Kodak, then what was a problem becomes
a tragedy.

Too much has changed to allow past recipes for success to be


­adopted without close scrutiny. This does not deprive strategic
­thinking and action of any of its importance, but the requirements
that orientation, procedure and methodology must meet have to
be adapted to suit the changed conditions.

So, what does the right orientation consist of?

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2. Focusing rather than trying to do everything

I n the majority of companies, the work on strategy begins with


wide-ranging analytical phases. In these, a vast quantity of
­basic data is collected and processed, generally without any clear ­
relevance to the business that is actually being done. This wastes
a great deal of time and resources are tied up unnecessarily.

The Direttissima® approach ensures, right at the very outset, that


the focus is correct and the factors used for orientation are
­correct. This is done by inviting the key people in the organization
to ­describe the questions and key ideas that in their view are the
most important. Because it is necessary to understand what is
­important in the eyes of these key people, it is advisable to ­dispense
with any pre-structured questionnaire.

At a closed one-day meeting, points to be used for orientation,


­together with some initial hypotheses for the subsequent development
of the strategy, are defined on the basis of the following individual
estimates.

1. Which of our strengths and potentials do we need to exploit to


better effect?

2. What questions need to be answered?

3. What ideas are asking to be looked at, and what hypotheses


should we be examining?

All that is needed for discussing these questions is a table and


chairs, the infrastructure of a simple mountain hut. Again and again,
it proves to be amazing how far, at this first stage, a shared
­understanding can be reached on the basic entrepreneurial line
to be followed. The clarity that is achieved in this way about the
mission and intentions of the company sharpens the focus for
the subsequent strategy development. These are the starting blocks
and from them a strategy can be worked out quickly and in a way
directed to the right goals.

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3. D
 eveloping a strategy using the right factors
for orientation

I n developing a strategy, one orients oneself by the assessment


factors for judging whether a business is healthy .

1. Market position
2. Innovation performance
3. Productivities
4. Attractiveness to good people
5. Liquidity
6. Profitability

These six factors determine:

a) what strategic questions have to be asked and answered;


b) what therefore has to be analyzed;
c) what has to be checked after the above has been done.

The initial situation is analyzed from the point of view of these


six factors. The key question is this: «To answer the questions that
are relevant to strategy, what do we need to know about precisely
these assessment factors?». Or, to put it another way, the only things
that are analyzed are those that are genuinely important to these
six key factors.

3.1 Market position

T here is no getting round the fact that a company’s market


­position is what «decides the war» as far as its success in
­business is concerned. The starting point for assessing market
­position and for defining the market is the initial customer’s
­problem that is not solved by products that already exist. To
­estimate the market potential, it is necessary to start with the
largest possible market that it is reasonable to assume. The ­
assessment of market shares has to be related to this market ­
potential and not to the size of today’s market. Goals for growth
result from the requirements set by sustainable market shares in

1
See Malik, Fredmund, Management: Das A und O des Handwerks [Management, the
A to Z of the Craft], Vol. 1 in the series Malik Management-Handwerk, FAZ-Verlag,
Frankfurt 2005

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s­ aturated markets; they are not an end in themselves. The range of
products or services should be in line with the company’s strengths
and should have the customer impact needed to allow the brand
name and market position to be built up and extended in the long
term.

The key questions are these:


1. What do our customers pay us for and what not?

2. What customer value do we actually provide?

3. Where have we been particularly successful and why?

4. What were the strengths we exploited to do this?

5. Where do we stand in comparison with our competitors?

6. How have our market shares developed and what sustainable


market share is it necessary to achieve?

3.2 Innovation performance

T he most important early warning signal for assessing long


term success is the innovation performance of a company.
A company whose power to innovate is declining appreciably is on
the downward slope and is on this slope long before this can be
seen in the figures from accounts. It may take years before this
trend can be detected with the conventional tools.

It is important to remember that an inflationary product range is


not the same as an innovative one. Innovation always means ­
success in the market that is accompanied by sustainability. An
innovation has to be viable by itself. An inflationary product range,
on the other hand, is always an indication of superficial treatment
of the symptoms alone and an early indicator of a long-term
­weakening in the brand name and market position.

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The key questions are these:

1. What have been our genuine innovations over the past five
years?

2. What was new about them and what additional customer


­value is this providing?

3. What contributions have these innovations made to turnover


and to the success of the business?

4. What has been the ratio of successful start-ups to flops?

5. How much time elapsed between the idea and the market
launch?

3.3 Productivities

A n assessment of productivity allows healthy growth to be


distinguished from the unhealthy sort. Growth alone says
­absolutely nothing about the state of health of a company. The
company only becomes stronger if the growth is not achieved at
the expense of productivity. Growth that impacts on productivity
is, on the other hand, a warning signal that should give cause for
concern. It points to an ulcer – which at best may be benign –
that is consuming the flesh and bone of the company from inside.

The key questions are these:

1. How has the productivity of the directly productive employees


developed?

2. How has the ratio of directly productive employees to ­indirectly


productive ones changed?

3. What developments have we seen in the productivity of ­capital,


knowledge and time?

These questions have to be differently worded to suit the nature of


the business.

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3.4 Attractiveness to good people

A very significant factor for measuring the health and success of


a company is its ability to attract and keep good people.
Though it now seems trite to say that people are the most important
resource that an organization has, that does not make it any the less
true and correct; and even though it is something that ought now to
go without saying, there are still a lot of managers who do not pay
sufficient heed to it when they act.

The key questions are these:

1. What in fact are good people for us?

2. What is important to our good employees?

3. What can we do to increase our attractiveness to good


people?

4. Why have we lost good employees over the past few years?

5. In what area, for what job, do we find it difficult to get good


people?

3.5 Liquidity

O f all the figures received from the finance and accounts


­department, cash-flow and liquidity are especially important.
A company can get by for a long time even without making a profit
provided its liquidity can be maintained, whereas the opposite is
not true at all. Cash-flow and liquidity are just as important as oil
pressure in a motorcar. Warning signals in this area call for action to
be taken at once.

3.6 Profitability

A widespread dogma in business administration says that the


­supreme goal in corporate management is to maximize ­
profits. Of course, large profits are nice and are worth striving
for. What is crucial, however, is something entirely different,

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namely the question of what minimum profit do we need still to
be in business tomorrow?

The key questions are these:

1. Are we succeeding in financing investments in the future and


growth from our own resources  ?

2. Are we making more than the minimum profit required for


­sustained viability?

To sum up, for each of the six key factors the following three
­questions have to be answered:

a) What are our relevant strengths?


b) What goals is it important to achieve?
c) How, and by proceeding in what directions of advance, can
we achieve them?

Factors for Key assets and capabilities Goals and standards of Key initiatives
orientation performance

# Familiarity and brand reputation # Improvement in market position in # Communication campaign and exploitation
above all in the boxed segment in defined growth markets by … % of brand awareness in our core segments
Market countries XY p.a.
to support brands XY
# Establish key account/boost and build up
position # Wide range of experience and wide # Achievement of a "critical mass" in the private label business with X
competencies with private labels countries XY

# Leadership in quality in areas XY # Market leadership in existing XY # Develop and launch line extensions in the
business in XY core brands
Innovation # Ability to develop and market segments with a market share of …
# Enter the growing segment of sugar-free
successful line extensions quickly in % in each case
performance the core business # Improvement of innovation
products by developing and building up
new brands - with the support of the image
performance in XY by … % p.a. in the core-brand business

# ... # ... # ...

Productivities

# ... # ... # ...


Attrac-
tiveness to
good people

# ... # ... # ...

Liquidity

# ... # ... # ...

Profitability

Fig. 1: Assessing the initial situation

2
Or if outside finance is used, is it in line with the strategy, i.e. is not short-term private
equity funds or the like?

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In assessing the initial situation, it is not a matter of numerical
­precision to places of decimals or of academic completeness, but
of «Direttissima» or, in other words, speed and focus. Many
­strategy-related processes get lost in detail at this point. The crucial
thing is to look at the important strategic orienting factors. Often
these are not measurable but only assessable. That is nothing
to worry about; it is the basic direction that has to be right. Even
relatively rough data may have a very high information content.
Above all things, a robust strategy has to be robust in withstanding
inaccuracies and unknowns in the data. Something that is valuable
is making comparisons as time passes. The comparisons help us to
recognize patterns.

Another mistake that can often be observed is that a long list of


weaknesses is drawn up as a result of the assessment of the initial
position. This is the easier part of the strategic analysis, but at
the same time it is also the less important one. What is far more
­important is to identify the company’s own special capabilities
and foundations for success. What are the things that we can do
better than other people, even if it is only a little bit better? The
­essence of good strategies is that they are always built on the
company’s own strengths. This is the only way in which lasting
competitive advantages can be achieved. The company’s own
strengths are its strategic trump cards. At least in the short term,
the competition can neither copy nor imitate them. By remedying
the weaknesses we become, at best, average.

4. The sequence of actions

T he six key factors define the health of a company. If the six


key factors can successfully be brought under control and
­influenced by looking ahead, then in most cases that in itself is
­something like a life insurance. Even analyzing the six key factors
and assessing how they are developing will produce 60 or 70 or as
much as 80% of the strategy. Wherever we find deficiencies
in the six factors – or even more important – opportunities for
­improvement, then something has to be done immediately. In
our experience, the initial directions of advance for the strategy
can be recognized even at the first workshop. Directions can also
be given for some initial steps to be taken even at this early point

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in time. The fact is that in all strategies there are steps that have to
be taken regardless of any further analyses.

The six factors are six windows that look out in different directions
from a house. Through each of the windows a different picture of
the landscape is to be seen. The opportunities and risks that can be
seen from them can be processed immediately. Generally, already
lurking there too are the symptoms that require a more in-depth
analysis, which can be made at a later date but only if there is a
need for it.

4-6 weeks 4-6 weeks

Home work1) Strategic controlling


development

WS 1 WS 2 WS 3
Strategy

Focus Planning of

  
Robust
resources
 assessment of
key factors Issue
Management
In the view of Outside-in
key people
Implementation
Strategy

Immediate steps

Initiatives

Typically approx.
1) Unanswered questions 60 to 70% of the
to be answered by specialists strategy

Fig. 2: An overview of the sequence of actions in Direttissima®

These workshops form the structural framework of the ­Direttissima®


approach. It is they that are the dominant element and not the
­intermediate phases. They are the dominant element because it is
at them that the real core group of decision-makers is all together
– and that is the crucial reason, because it is the way in which
speed can be gained. At these points, the managers in responsible
positions have to contribute their authoritative power of judgment
and decision-making.

The set of people attending the workshops consists of the four or


five most important top-level managers and the most important
specialists from departments. The complete group should consist

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of not more than twelve people. One or two secretaries take the
­minutes and a controller keeps a record of the most important
­figures and estimates.

Between the workshops there are in-house tasks to be done by


­specialists and members of staff. Information that was not known
has to be found out and special points have to be looked into in
more depth. In parallel with this, the quantitative prerequisites and
consequences are clarified in a rough plan for resources.

With the Direttissima® approach, the main features of the strategy


can be approved, at the latest, after three workshops, i.e. within
a period of 8 to 12 weeks. Everything that remains to be done
after that has to be transferred to a separate process, which is
known as issue management. This process may take rather
longer. There is nothing wrong with this, because actual work
can already be done on all the other important parts of the
strategy.

The six assessment factors form the crucial core of a correct and
good strategy; they determine the logic of its content. Because
of its clear and uncompromising focus on these factors for ­
orientation, the Direttissima® approach makes it possible for speed
and a fast tempo to be achieved in the development of the
strategy and provides a guarantee that its contents will be of high
quality.

In the following sections entitled «Anticipating rather than reacting»


and «Prioritizing and balancing», the most important methodological
principles of strategic thinking and action will be explained. These
form the framework of the conceptual logic of the Direttissima®
approach.

5. Anticipating rather than reacting

M aking a correct assessment of the initial situation is


­indispensable and of great importance. However, wanting
to derive future strategy from the past and current success of
the business is not sufficient and, in view of the way in which the
business environment is becoming more and more turbulent, it is
also dangerous.

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We find ourselves in a fundamental process of transformation,
which is characterized by

ÿ a large number of drivers that affect the rules of the game in


business;
ÿ an interlinking, which is becoming increasingly close, among
these influencing factors;
ÿ and, as a result of that, a dynamic tempo that is increasing at
great speed.

Detailed forecasts of future developments are no longer possible.


Extrapolations of the past and present into the future of the
kind on which strategic planning as it was originally conceived
were ­ based are condemned to failure. An automobile cannot be
steered along a twisting mountain pass by looking in the rear-view
mirror.

For effective early detection, our gaze has to be directed outwards


and forwards.

The crucial questions are these:


1. What is happening around us?

2. What developments can be foreseen? How will these change


the rules of the game in our business?

3. What challenges will we be faced with as a result of this?

The aim is for possible opportunities and risks to be detected as


early as possible. The place of «extrapolation from inside» is
­taken by «retropolation from outside».

It sounds simple and logical but it generally proves to be rather


more difficult in practice. Why that should be so can be illustrated
by a little experiment.

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Fig. 3: The perception of changes

In the case of the four «handwritten» words in the illustration above,


there is no difficulty in recognizing «Chaos» at the top left and
­«Order» at the bottom right. The two words in the center, however,
are not quite so clear. If we look at the individual words step by
step beginning at the top left, most people will recognize the third
word as a new one, which in this case is «Order». If we repeat the
exercise beginning at the bottom right, then exactly the same thing
happens but as a mirror image: the third word is again detected as
a new one. But if we carefully compare the two words in the center
with one another, we find that they are identical.

What does this mean?

It means that our perception is very much affected by what we have


seen, experienced and done previously. We only perceive changes
with a delay. Even though things have already changed, it takes
some time before we see what it is that is new. In the psychology of
perception, this phenomenon is called perceptual hysteresis. It
applies to people just as much as it does to companies.

Experience shows that the more successful things were in the


past, the greater is the danger of there being «blind spots» in
­perception. Changes that do not fit into the existing picture are

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s­ uppressed or are not even perceived in the first place. Eloquent
testimony to the truth of this is provided by the Swiss watch ­industry
of the 1970’s and by Swissair.

These limitations of human perception can be overcome by ­changing


the perspective of viewing from «from in­side out» to «from outside
in».

As a first step, the seven to nine most important external


­influencing factors that determine the «rules of the game» in
the given business are identified.

For each of these influencing factors, the developments that are


possible in coming years are outlined and the effects of these
­developments on the rules of the game in the given business
are assessed. Initially, this assessment is made entirely without
­reference to one’s own company.

Possible / expected Effect on the rules of Company perspective


Key strategic
Drivers

Relevance
developments over the game in the

Urgency
Opportunities Risks challenges
the next 5-10 years business

# Growing higher-income older # Shift in customer structures # Exploitation, for XY, # Current product # Achieve critical mass in
segment of the population and at the # Partial replacement of of the existing brand concepts not suitable the functional food
Lifestyle and same time fewer kids profile to meet more
sector

High

High
sweets by functional food stringent demands
# Exploitation of the
demographics # Growing health-consciousness products
trend towards sugar-
# Trend towards snack foods, free products
convenience and miniaturization # Healthy lines

# Trend by retailers to consolidate - # Growing negotiating power # Category captain for # Pressure on prices # Become supplier of
nationally and internationally of retailers' purchasing retailers operating and margins in choice

Medium
Consolidation
High
internationally certain segments
# Continuing development of modern groups # Become cost leader in
in the retail convenience shops # Greater transparency with
# Higher costs of the private label
distribution in the
business # Increasing market shares held by regard to prices and impulse-buy market business
hard discounters conditions

# ... # ... # ... # ... # ...

Raw materials
markets
...

Fig. 4: Recognizing the key future challenges

Only as a second step is it asked what challenges – in the sense of


opportunities and risks – these developments will bring with
them for one’s own company. By following this approach, we
allow the key future questions to be detected, systematically and
as early as possible, on our strategic ra­dar. The challenges are
­classified by importance and urgency. We recognize the need
for action, or rather the need for anticipatory action, and that
is the real prerequisite for strategic corporate management that ­

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controls in advance, in order – in Gälweiler’s words – to safeguard
today’s potentials for success and to create the potentials for
­success of the future .

This is possible even when the future developments can be detected


only in a shadowy form and in broad outline. Certainty about the
future only comes when the future becomes the present, and then
it is generally too late.

Attention can be drawn here to the analogy with the Titanic,


the pride of an era. On board the Titanic, everything seemed
to be perfectly under control. All the engines were at full
steam ahead and the passengers were having a splendid time
­enjoying ­themselves. If only the iceberg had been spotted earlier.
Metaphorically speaking, effective strategic management calls
for charts, constantly updated weather reports, radar and echo-
sounders, or in other words a view outwards and forwards.

The most effective way of avoiding risks is early detection.

Something different, and of even greater strategic importance, is the


matter of opportunity, the opportunity for a customer requirement
to be recognized and satisfied earlier than it is by others. The iPod
is a marvelous example of how a latent demand, recognized first,
and a perfect product can go on to become a massive success on
the market.

As part of the PIMS research project, the world’s largest research


project into strate­gy, the importance of the «first-mover ­advantage»
is also being confirmed and quantified empirically.

The really crucial key strategic resource is not money but time.

3
See mo.m.®-Letters 8/2001 and 6/2002

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Process of transformation Scenarios and hypotheses

New Globalization Lifestyle and Examination of possible effects on our business


technologies demographics

Drivers and the


Outside

New Change Legal


way in which
competitors in the rules of conditions they are developing
the game

Raw material Consoli-


markets dation in the retail
...
business

What is happening
around us?
Strategy What are the opportunities
and risks?

Assessment of the initial situation Change in the rules of the game


The right factors for orientation
Factors for Key assets and capabilities Goals and standards of Key initiatives
Inside

orientation performance

# Familiarity and brand reputation # Improvement in market position in # Communication campaign and exploitation
above all in the boxed segment in defined growth markets by … % of brand awareness in our core segments
Market countries XY p.a.
to support brands XY
# Establish key account/boost and build up
position # Wide range of experience and wide # Achievement of a "critical mass" in the private label business with X
competencies with private labels countries XY

Strategic Key future


# Leadership in quality in areas XY # Market leadership in existing XY # Develop and launch line extensions in the

Future success factors


Innovation # Ability to develop and market segments with a market share of … business in XY core brands
successful line extensions quickly in % in each case # Enter the growing segment of sugar-free
performance products by developing and building up
the core business # Improvement of innovation new brands - with the support of the image

initiatives challenges
performance in XY by … % p.a. in the core-brand business

# ... # ... # ...

Productivities

Attrac- # ... # ... # ...


tiveness to
good people

# ... # ... # ...


Liquidity

# ... # ... # ...


Profitability

Today The future

Fig. 5: An overview of the Direttissima® approach

As a first step, a strategic assessment of the initial situation is


made by reference to the six key factors. In the overview shown
above we are in the box in the bottom left-hand corner. At the
end of this step, there is a clear picture of the company’s own
strengths, the room for maneuver that exists and the business
optio­ns.

Taking this as a starting point, the second step then follows,


namely the «from outside in» view. This is mental time-travel
into the future, travel that takes place clockwise in the overview,
beginning at the top left-hand corner: identification of the principal
drivers, development of possible scenarios, appreciation of the ­effect
on the rules of the game in the business and finally recognition of
the key future challenges for one’s own company.

The «from inside out» and «from outside in» circle has thus been
closed.

How do we now recognize the correct priorities for our own


strategy?

m.o.m.®-Letter No. 10 –11/06 Page 159


www.mom.ch
6. Prioritizing and balancing

B ased on the findings from the assessment of the initial ­


situation and from the look forward, in the final step the
­opportunities the company itself has – the strategic options – have
to be ­assessed.

In many companies, this priorization process takes place by ­reference


to monetary criteria. However, this one-dimensional orientation to
net-present-value considerations leads, systematically, to the wrong
strategic decisions.

These superficially precise – forecast-based – quantifications are


very susceptible to manipulation and entirely ignore the essential
strategic assessment criteria.

The four aspects that are crucial to the strategic assessment of the
options are as follows:

ÿ the market and customer potential that can be opened up


ÿ the degree to which the company’s own strengths are exploited
ÿ the resources required
ÿ the likelihood of success

The first two aspects are indicators of the attrac­tiveness of an


­option. Aspects three and four describe the risk profile.

A rough scale of large/medium/small is perfectly adequate for a


comparative evaluation.

The crucial fact is that the strategic priorities cannot be measured


only from an isolated assessment of the individual options. We do
not appreciate what is really important until the possible actions
that are open to the company are compared with the future
challenges.

For each one of our options, the question is where exactly this
­option makes a contribution to enabling the future challenges to
be mastered. Looked at the other way round, a check is made to
see which options address the future challenges that have been
identified.

m.o.m.®-Letter No. 10 –11/06 Page 160


www.mom.ch
Strategic
Key future challenges significance
of the option
1. Growing health 2. Full-range supplier 3. Increase in market
4. Safeguarding of *** = High
consciousness among hence category share in hard-discount
supply markets ** = Medium
consumers captain field
* = Low

1. Communi-
cation campaign
to support the
brand
*
2. Optimization

***
Strategic options

of processes
and build-up of
private label
business

3. Develop-

**
ment/launch of
line extensions in
core-brand
business

4. Product

**
innovation in the
field of sugar-free
products

Need for
additional
action*

= None: challenges fully addressed


Option fully addresses challenge
= Low: challenges partly addressed
= High: challenges not/inadequately addressed Option partly addresses challenge

Fig. 6: Matching the future challenges to the opportunities the company 


has for action

This simple system forces us to deal with the questions that are
­really important. It forces us to focus on the right things when
­discussing strategy. On the one hand, it helps us to grade the
­priorities of the options and on the other it also helps us to ­
appreciate which of the strategic challenges are not mastered, or
are only inadequately mastered, by the options that have so far
been thought of. If cases like this are found, the information has
to be looked through again to remedy the deficiencies in the plan
of campaign by thinking up more intelligent solutions.

What is crucial for the setting of the correct strategic priorities


and directions of advance is not what we would like to do as a
­result of financial considerations but what we have to do as a result
of strategic considerations.

m.o.m.®-Letter No. 10 –11/06 Page 161


www.mom.ch
There is a risk in doing something, but so too is there a risk in not
doing something.

More often that we would like, we are faced in strategic manage­


ment with risks that we cannot afford not to take just to stay in
business.

Finding the right strategy is more than just deductive analysis. What
it demands are power of judgment and correct interpreta­tion.

It is matter of finding the right balance between the «outside» – the


world in which we have to hold our ground regardless of whether
this world suits us or not – and the «inside», namely our own
strengths; and, on the other hand, between «today» – for this, too,
is important because investments in the future have to be financed
from the business of today – and «tomorrow».

Finding the right balance in the field of conflicts and tensions


between outside and inside and today and tomorrow is a basic
principle of cybernetics. When it comes down to it, the ­Direttissima®
approach is nothing more than pragmatically applied cybernetics.

Outside

Process of transformation Scenarios and hypotheses

Globalization Examination of possible effects on our business


New Lifestyle and
technologies demographics

Drivers and the


Outside

New Change way in which


Legal
competitors in the rules of conditions they are developing
the game

Raw material Consoli-


markets dation in the retail
...
business

Strategy
Today Future
What is happening What are the opportunities
around us? and risks?

Assessment of the initial situation Change in the rules of the game


The right factors for orientation
Factors for Key assets and capabilities Goals and standards of Key initiatives
Inside

orientation performance

# Familiarity and brand reputation # Improvement in market position in # Communication campaign and exploitation
above all in the boxed segment in defined growth markets by … % of brand awareness in our core segments
Market countries XY p.a.
to support brands XY
# Establish key account/boost and build up
position # Wide range of experience and wide # Achievement of a "critical mass" in the private label business with X
competencies with private labels countries XY

# Leadership in quality in areas XY # Market leadership in existing XY # Develop and launch line extensions in the
Innovation
Strategic Key future Future success factors
# Ability to develop and market segments with a market share of … business in XY core brands
successful line extensions quickly in % in each case # Enter the growing segment of sugar-free
performance products by developing and building up
the core business # Improvement of innovation new brands - with the support of the image

initiatives challenges
performance in XY by … % p.a. in the core-brand business

# ... # ... # ...

Productivities

Attrac- # ... # ... # ...


tiveness to
good people

# ... # ... # ...


Liquidity

# ... # ... # ...


Profitability

Today The future

Inside

Fig. 7: Finding the right balance

m.o.m.®-Letter No. 10 –11/06 Page 162


www.mom.ch
The key question is this: What do we have to put in hand today in
order to continue to be successful in business tomorrow?

Peter Drucker put it in a nutshell as follows: «Strategic planning


does not deal with future decisions. It deals with the futurity of
­present decisions».

The time scale of the things that we put in hand today may vary
widely, depending on the topic and the nature of the business. It
is nonsensical for one common end-date to be set for all strategic
initiatives. Where strategies are called by their target date, such
as the «2010 strategy» for example, doubts about the quality of
their content are in order. The right course is for strategies to be
identified by the time at which they are developed. Good strategies
always have an open time scale.

7. From the strategy to quantifiable results

D espite its importance, a good strategy is only a first step as


far as maintaining the viability of a company is concerned. In
the aftermath, it has to be implemented and converted into actual
performance and results.

Any strategy is only as good as the results that are achieved with it.

The Integrated Management System shows the areas of


­organization that are necessary and sufficient for the successful
­implementation of a strategy.

m.o.m.®-Letter No. 10 –11/06 Page 163


www.mom.ch
Company-related Employee-related
Long-term (> 1 year)

Management
development and
employee
Strategy
development

Organizational
structure

Management
process
Short-term (< 1 year)

Managerial
Effectiveness

Results
Controlling
systems

Fig. 8: From the strategy to quantifiable results

For a strategy to be successfully implemented, three points deserve


particular attention.

1. In line with the principle that «structure follows strategy»


or «structure enables strategy», care has to be taken that the
­organizational structure is helpful to the successful
­implementation of the strategy, or at least does not hamper it.
It is not a matter here of the utopian idea of an ideal ­organization,
but simply of getting rid of any major barriers there may be in
the organization. This may make it necessary for adjustments to
be made to structures and processes.

2. The managers and employees must know and understand


the strategic intentions of the company. Only someone who
knows its intentions is capable of acting in accordance with
the company’s wishes. This is why internal communication
of the strategy is so important. The communication has, of
course, to be organized in a way suited to the level in the
company.

3. The content of the strategy must make an input into the


­management pro­cess. This is where the company-related
goals set by the strategy and the measures specified in it are

m.o.m.®-Letter No. 10 –11/06 Page 164


www.mom.ch
transmitted to the individual managers and employees by
means of agreement on targets. It must be clear to each
­employee what individual contribution he has to make so that
the company can achieve its goals. He must understand his
­contribution to the whole.

8. S
 trategic management as a continuous
process

«S taff departments work out detailed long-term strategies and


these are solemnly approved by the top management and
then passed to the operational units for implementation. In this
way, the strategy question again disappears from the agenda for
­several years.»

Does that sound familiar to you?

Even today, it is this sort of static understanding of strategy that


­prevails in many companies or – and the effects of this are equally
dangerous – that the people in the companies live by. Once they
have approved the strategy, the top management, metaphorically
speaking, leave the strategic bridge of their ship and again give all
their attention to optimizing the operational business. The company
is running on autopilot. It becomes a ghost ship as far as strategy
is concerned.

The picture that is painted by the investigation by Kaplan and


­Norton published in January 2006 in the Harvard Business Manager
is a disillusioning one:

Despite assertions to the contrary, managers spend relatively little


time on checking strategy or concerning themselves with the subject.
85% of management teams spend less that an hour a month on
­discussing the strategy of their unit. Of this 85%, a further 50% do
not spend any time at all on it. Around 95% of employees do not
know the strategy or do not understand it.

m.o.m.®-Letter No. 10 –11/06 Page 165


www.mom.ch
Right and good strategic management calls for three things.

a) developing the right strategy,

b) effective implementation of the strategy

c) and finally, the ability to appreciate when the strategy needs to


be adjusted and how.

It is no longer sufficient for strategy to be formulated in a four-year


cycle and for people to confine themselves to implementing it in the
interim.

As has already been mentioned, we are going through a phase of


fundamental changes. Detailed long-term forecasts are not possible.
The reliance that can be placed on a four-year forecast is the same
as can be placed on a horos­cope in the yellow press.

What consequences does this have for the strategic management


of a company? In the first place, it means that the life, the half-
value time, of a strategy has become shorter. This is related to the
accelerating rate of change.

However, it would be wrong to conclude that corporate strategy


itself is becoming less important because of this. There are many
places at the moment where it can be read that the primacy of
­strategy is giving way to the primacy of tactics. The opposite is,
in fact, the case. Precisely because the pressure of competition
is continuing to increase, it is only companies that have an
­entrepreneurial logic that is as clear as crystal and firmly anchored
in the market that have any right to exist.

So, the question is not whether we need a strategy but how


we ­ develop and update this strategy efficiently and effectively. It
is ­ increasingly clear that the ability to maintain a constant state
of «strategic readiness» is one that is becoming a key to the
­viability of a company. This can only be achieved if companies
can manage to switch the antennas described in Section 4:
­Anticipating rather than reacting to «receive» all the time, to connect
the cables running from them securely into the management ­
systems of the company, and to process the signals received «in
real time».

m.o.m.®-Letter No. 10 –11/06 Page 166


www.mom.ch
The strategy does not have to be adjusted in a four-year cycle but
when something fundamental has changed, or can be foreseen as
going to change, in the conditions that governed the framing of the
strategy. Whether the change takes place four months or four years
after the final approval of the strategy is absolutely immaterial. It
is precisely this that makes the difference between a static, date-
related understanding of strategy and one that is dynamic and
­related to the flow of events. The strategic control center (or bridge)
is permanently manned.

A dynamic understanding of strategy should not be confused


with a blind frenzy of operational measures, with abrupt and
­arbitrary changes of direction, quite the contrary. A sign of good
strategic management is continuity during change. This is seen
in the persistent and targeted exploitation and further development
of one’s own strengths in a changing environment.

Strategic management is one of the key tasks of top management


that cannot be delegated. An overwhelming flood of strategy-
related processes often makes it difficult for management to do
­justice to this task to the extent required.

Thanks to the way in which it confines things strictly to the relevant


issues, the Direttissima® approach makes it possible for the key
points of a strategy to be developed or checked, as the case may
be, at three well prepared, one-day workshops.

The Direttissima® approach thus reveals a way in which top


­management can discharge the responsibility it has for strategic
­management effectively and efficiently.

m.o.m.®-Letter No. 10 –11/06 Page 167


www.mom.ch
Index
60 or 70 or as much Influencing factors Priorities 159
as 80% of the external 157 Productivity 149
strategy 152 Innovation Profits 150
Analytical phases 146 performance 148 Radar 157
Assessable 152 Integrated Rate of change 166
Assessment 160 Management System
163 Readiness
factors 147 strategic 166
Attractiveness 160 Intentions 146
Real time
Balance 162 Interlinking 155 in 166
Basic direction 152 Interpretation 162 Responsibility 167
Blind spots 156 Key factors 151 Results 163
Capabilities 152 six 147
Retropolation from
Communication 164 Key question 163 outside 155
Competitive Liquidity 150 Risk profile 160
advantages 152 Logic Risks 157
Continuity during conceptual 154
of the content of Room for maneuver
change 167 159
­strategy 154
Contribution to the Rules of the game 157
whole 165 Management
strategic 166 Slimming-down 145
Customer’s problem Speed 145
147 Managers
top-level 153 State of health 149
Cybernetics 162
Market position 147 Strengths 151
Delay 156
Minimum 151 Sustainability 148
Directions of
advance 151 Mission 146 Targets
Need for action 157 agreement on 165
Direttissima 152
Opportunities 157 Time 158
Drivers 155
Options 159 Time scale 163
Dynamic tempo 155 open 163
Early detection 158 Organization 164
Pattern 152 Time-travel 159
Extrapolation from Top management 167
inside 155 People
good 150 Transformation
Factors used for process of 155
orientation 146 Perceptual
hysteresis 156 Understanding of
First-mover strategy
advantage 158 Perspective of
viewing 157 dynamic 167
Focus 146 Viability 166
From outside in 159 Potentials for
success 158 Workshops 153
Ghost ship 165
Power of
Goals 151 judgement 162
for growth 147

m.o.m.®-Letter No. 10 –11/06 Page 168


www.mom.ch
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