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How to distinguish smart big moves
from stupid ones
Big moves, in the form of strategic shifts
avoid a corporate disaster and increase
with a major commitment of resources to
the chances of a smart and ultimately
achieve a new goal, are pivotal points in the
successful
history of companies. When top executives
questions need honest, unequivocal
make shifts in direction that go well beyond
answers.
big
move,
six
critical
incremental experimentation or continual
adaptation in terms of the resources
1. What are the keys to success in your
involved, their decisions can make or
move?
break a company. The risks of making a
catastrophic mis-step cannot be ignored,
Focusing on the keys to success is Paul Strebel
because longitudinal case studies show
essential, because one of the common Sandoz Family Foundation
that even the most successful companies
errors, especially in larger companies,
undertake stupid big moves from which
is too many strategic projects that drain
they have difficulty recovering.
resources away from the activities that are
Professor
critical for the success of the big move.
The classic big moves are depicted in
Finding a new game is about creating a
the graph below, each corresponding
new business model to replace an existing
to a different position on the corporate
business that is dying, or take advantage
performance curve. The sequence of
of a new technological or market
moves shown is arbitrary. Over time,
opportunity. This requires substantive
corporate performance curves take on
change on all three axes of the business
many different shapes that have little in
model: what (the value proposition), who
common with the traditional s-curve of
(the valuable customers) and how (the
the product life-cycle model, since they
value chain of activities). The strategic Anne-Valérie Ohlsson
result from the interplay of many different
key to success is not opportunism, but IMD Research Associate
external and internal growth drivers.
entrepreneurship based on experience.
Too often big moves are misguided,
When Nokia decided to reinvent itself as
especially
overly
a telecoms and mobile phone company
influenced by the egos of top corporate
when
they
are
in the early nineties, by divesting its other
leaders and not subjected to rigorous
businesses, it created a new business
strategic thinking and critiquing. To
model for itself by betting exclusively
Performance
Relaunching growth
Getting back into shape
Going
for growth
Restoring profitability
Finding a new game
Time
We all know that
a strategic shift
can only produce a
breakthrough with
superior returns
on investment if it
is based on a clear
and sustainable
competitive advantage
that competitors
cannot easily copy.
on an already existing, small and fast developing
advantage that competitors cannot easily copy.
telecoms division.
This advantage may be based either on capabilities
Going for growth is about rolling out a business
(skills plus process and related culture) and/
model that works, developing the resources
or on a special position on either the demand or
needed to adapt the value proposition to new
supply side of the industry. Yet, many shifts are
markets and ride the growth wave. This is mainly
made without a competitive advantage. With the
about expanding the set of valuable customers.
prospect of a big move in view, top managements
The strategic key to success is not offering unvalued
too frequently underrate their competitors, only to
variety, but quickly determining exactly what will
find them ahead once the move is made.
create value for the customers in the new markets
Many of the banks that invested heavily in subprime
and segments. Between 1995 and 2000, Nokia
derivatives had no expertise in the evaluation of
rolled out its mobile phones worldwide by taking
those instruments and were far removed from the
its basic second generation GSM phone, keeping
origination and distribution of the underlying debt.
as much of the technology as constant as possible
The big banks that emerged best, like Goldman
and adapting the look and surface features to an
Sachs, Deutsche Bank and Credit Suisse (without
increasing range of tastes and needs.
special circumstances like regulations in Spain
Getting into shape is about reducing costs by
that prevented them from being involved in the
increasing the efficiency of the value chain of activities
first place), had people at the top with derivatives
and thereby enhancing the value proposition through
capability who understood the link between the
the way it is produced and delivered. The strategic
downturn in the U.S. housing market and the value
key to success is not a program of improvements,
of the derivatives on their balance sheet.
but developing the capabilities needed for greater
efficiency and alignment between the value chain of
3. How big is the value creating opportunity?
activities, the value proposition, and the valuable
customers. Before Nokia rolled out its mobile
A large commitment of resources only makes
phone division, it spent two years during 1993 and
economic sense if the opportunity is large enough.
1994 developing its logistics capability.
Evaluating the profit opportunity is usually easier
Relaunching growth is about increasing revenues
for moves involving cost reduction, as when
by redesigning the value proposition and/or adding
restoring profitability, or getting into shape.
new lines of business to serve well-defined growing
But more difficult when trying to boost top-line
markets. The strategic key to success is not trying
growth by finding a new game, going for growth,
to imitate the competition and beat them at their own
or relaunching growth. In the pursuit of higher
game, but doing something that’s distinctive. This
revenues, top management can easily see a market
is the lesson that Nokia learned when it failed to
of eager customers, which later turns out to be a
beat existing competitors in online gaming and
mirage. And even if the market materializes, not
mobile media between 2001 and 2004, and then
all revenue opportunities are profit opportunities.
relaunched growth in 2005 and 2006 by adapting
When Nokia made a big move into computer
its value proposition and leading edge logistics to
gaming in the early 2000s, it saw a large market
the rapidly growing emerging markets.
for its software platform in mobile interconnected
Restoring profitability is about turning around loss-
gaming that never really materialized. Before
making activities by refocusing the business model
making the big move, smaller bets may be needed
on the core money-making parts of the business.
to test the market potential.
Here the strategic key to success is not trying to
escape from the problem by growing the top line, but
4. Will the result be a better balanced business
to engage in bold restructuring.
model?
2. Will the move exploit / enhance competitive
Big moves often disrupt the balance between the
advantage?
resources devoted to the “what” (value proposition
offered to customers), “who” (customers served)
We all know that a strategic shift can only produce a
and “how” (chain of activities used to deliver the
breakthrough with superior returns on investment
value proposition). To get focus and the best return
if it is based on a clear and sustainable competitive
on scarce resources, it is difficult to put equal
How to distinguish smart big moves from stupid ones
weight on the what, who and how. Yet, success
against these forces. For example, big moves with
requires that the what, who and how are mutually
a small window of time for execution demand
reinforcing. If not, another move will be needed to
faster implementation than those that leave more
restore the balance.
time for deliberate execution. Big moves that face
When ABB tried to find a new game in the mid-
strong resistance require a top-down process
1990s and reinvent itself as an industrial software
to break through the obstacles, whereas when
solutions company by shedding its capital intensive
people are able and willing to make the move, a
power generation and railroad equipment divisions
bottom-up process creates commitment.
and acquiring software firms, it had neither the
The big moves attempted at ABB faced so many
front-end customer consulting capability to sell
obstacles and resistance that, even if they had
solutions, nor the integrated operations needed
been appropriately focused in terms of capability
to deliver solutions. ABB was soon forced to
development and acquisition integration, they could
make another big move reorganizing into front-
not have succeeded without very strong leadership.
end customer-centric divisions, as well as a
But ABB’s leadership was undermined by the
parallel big move to integrate operations with
tensions between Percy Barnevik, the previous
“global processes.” These two simultaneous big
CEO who was chairman of the board and the new
moves created a corporate disaster of confusion
CEOs who followed, Göran Lindahl and Jörgen
and gridlock that led the company to the brink of
Centerman, neither of whom was strong enough
bankruptcy at the end of 2002.
deal with the situations they faced. Their attempt
to drive massive organizational change with an
5. Will the move complement existing
incremental series of task forces failed dismally.
capabilities?
Answering the Questions: Beware of Ego-Traps
Making a big move happen requires a major
commitment of human and financial resources.
Making big moves requires leadership, ambition
The supporting capabilities cannot simply be
and self-confidence, but these often accompany
acquired overnight. They have to be developed
hubris (presumptuous pride fed by prior success)
incrementally. Even an acquisition takes time to
that make leaders overestimate their abilities
integrate into the existing corporate organization.
and underestimate the challenges involved. The
The less experience the organization has with the
line between confidence and arrogance is easily
new capabilities that are needed, the greater are the
crossed. Each of the five big moves is associated
chances of failure. The closer the new capabilities
with a related form of hubris that often traps
are to what the organization already knows how
successful ambitious leaders into avoiding reality:
to do, the greater the chances of successful
Those trying to find a new game often think they can
implementation. Prior to many big moves, smaller
run any business – all they need to find is a great
moves may be needed to develop the experience
opportunity. They fall into the trap of opportunistic
required to close the capability gap.
hubris – we can seize any opportunity, run any
ABB was an engineering products manufacturing
business. The banking boards and top teams who
company. The capabilities needed for industrial
knew little about subprime and credit derivatives
software solutions were hardly complementary.
fell into this trap without even realizing the extent
The attempt to acquire these capabilities through
to which they were altering their business model.
a series of acquisitions failed, because the
Those going for growth often overestimate their
acquisition integration process was ineffective,
understanding of the market and believe they know
nowhere near to providing a bridge between the
what the market wants. They fall into the trap of
existing and required new organizational culture.
inside-out projection – we know what customers
need. This often happens to initially successful
6. Do you have the right implementation process
hi-tech companies that are so in love with their
and leadership?
technological prowess that they keep launching
new products the market doesn’t want, like Apple
A smart implementation process and leadership
did in the early days with the Lisa and the Newton.
capitalizes on and adapts to the forces of change
Those trying to redesign the value proposition to
and resistance. It doesn’t try to battle needlessly
relaunch growth, often believe they can emulate
Making a big move
happen requires a
major commitment of
human and financial
resources.
The supporting
capabilities cannot
simply be acquired
overnight.
and beat successful competitors at their own
Valley, venture capitalists like to say that the
game. They fall into the trap of me-too imitation–
safest managerial bet is an entrepreneur with
we can beat the competition no matter what they do.
two previous failures. When he came back to
The banks that came late to the subprime party
Apple, Steve Jobs had been chastened by his
and thought they knew what they were taking on
experience outside and was much more realistic,
believed they could match and beat the competition.
not trying to create new markets, but addressing
This was especially reflected in the attitude of the
those that already existed. By contrast in the
CEOs of CitiGroup, UBS and Merrill Lynch.
banking industry, careers are so short that each
Those trying to get back into shape often believe
new generation of managers seems to have to
they are doing better than they are, in a state of
learn that you can’t lend money to people who
denial that anything is fundamentally wrong.
can’t pay it back. One of the reasons Credit Suisse
They fall into the trap of narcissistic denial – we’re
did much better then UBS in avoiding the sub-
the best, there’s nothing seriously wrong with the
prime disaster was that those at the top had more
business. When Apple ran into difficulty after the
recent memories of previous investment and
failed diversification into consumer electronics
lending excesses.
in the early nineties, they had difficulty admitting
there was anything fundamentally wrong and tried
Powerful sparring partners with red flags
to reduce costs with an improvement program.
The most effective antidote to the ego-traps is
Those trying to restore profitability often believe
sparring partners with sufficient personal and
they can avoid the pain of restructuring by growing
institutional power to block big moves that don’t
their way out of the problem. They fall into the
add up in terms of their strategic logic. The banks
trap of raising the stakes – we never admit defeat,
that did best in avoiding the sub-prime crisis
we always move forward. At Apple, when the
on average had boards of directors with more
improvement program failed to deliver, instead of
expertise in financial services. Powerful sparring
bold restructuring, they tried to stay in consumer
partners on the board or executive level that can
electronics and make a big move into business
raise the red flag are essential. In the words of
computing, which resulted in large losses in the
a global company’s CEO, “If I have one yes-man
mid-nineties.
on my team, I have one too many. I will fire him.”
Calling for greater self-discipline, exhorting
When it comes to avoiding corporate disasters and
executives to be open to facts that don’t fit their
increasing the chances of a smart big move, the
preconceptions, or open up time in their agendas
credit meltdown has highlighted once again the
to see, hear and understand what’s going on,
need for real feedback at the top.
adrenalin and energy needed to drive big moves
This article was first published in Strategy &
make it almost impossible to calmly weigh the
Leadership, March 2009 (Vol. 37, No. 2, pp. 21-26)
risks involved. More pointed checks and balances
are required.
Detailed examples and analysis of the five types of
big move and the strategic antidotes to the ego-traps
The school of hard knocks
can be found in the authors’ new book “Smart Big
The most effective source of self-discipline is the
Moves: The story behind strategic breakthroughs”,
painful memory of a previous failure. In Silicon
published in June 2008 by FT Prentice Hall.
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are good suggestions, but likely to be futile. The