Strategy is
a unique process that helps firms and individuals steer their future. Many
firms and individuals believe in strategic planning over a three or five year horizon
and execution within the framework, inclusive of course corrections. Some, of
course, do not believe in rigorous strategic planning and move into future
based on aspirations. Surprisingly, despite robust planning and execution,
firms and individuals face strategic crossroads. If this were not the case,
behemoths like IBM and Sony would not have faced the need to divest their
computer businesses. Motorola and Google would not have faced the need to
divest and re-divest the Motorola mobility division respectively. Oftentimes,
however, the choices would not be clear.
Strategic
crossroads, and the ways to avoid and face strategic crossroads, is a concept
that could add value to the strategy literature. Strategic options are an
integral part of the strategy formulation process. Strategic options come with
relatively clear costs and benefits. They are often laid out in pursuance of
business objectives and have little emotional content, if any. However, strategic crossroads refers to a
situation where a firm or an individual feels that there is no assurance that
any of the routes would offer a decisive win. Decision making in strategic
crossroads has a significant emotional content. Also, options which have equal
advantages, disadvantages or uncertainties qualify for defining strategic
options. There is considerable literature on identifying strategic options and
facilitating decision making for the options. There is, however, little clarity
on decision making when faced with strategic crossroads, which this blog post
attempts to fill.
Crossroads
to dead-end
Physically,
crossroads signifies a place where two roads meet and cross each other.
Conceptually and in practice, it signifies an important point in a firm’s or an
individual’s life where a decision taken to follow a route could have an
irreversible impact. When someone is at crossroads, usually time is not on
one’s side; nor will profitability be. At a very simple level, a heritage
theatre with dilapidated infrastructure faces the crossroads of modernization,
expanding as a multiplex, complete exiting from the theatre business or
monetizing the real estate. At an industrial level, when a product technology
that forms the bulwark of a firm’s revenues becomes obsolete and needs massive
investments, the firm tends to be at crossroads of rejuvenating the technology
or going for an entirely new technology, exiting the product and business
altogether or in-licensing new products and businesses, for example. The
decision in such circumstances is often weighed down by the emotional burden of
leadership and managerial failure and a practical burden of ossified
organization.
Many times,
firms facing crossroads make compromised decisions. These are usually in terms
of making too little an investment in product rejuvenation, balking at
embracing new technology, keeping the declining products and businesses somehow
alive or going in for new but inadequate technologies. As such half-hearted
attempts fail to provide any impactful solution, the firm would only slip
deeper into red. The ability to exit with a reasonable profit declines even
more. The saga of once-upon leaders like Morepen, Koutons and Kingfisher
Airlines in India indicates a shared inability to read the signs of crossroads
appropriately. Kingfisher Airlines was at crossroads of consolidation versus
growth, and of organic versus inorganic development when it decided to acquire
the low cost airliner Air Deccan. The obviously wrong route taken has led to
the progressive slide of Kingfisher Airlines. For that matter, as it exited Air
Deccan itself faced similar crossroads; of riding out the low cost pressures
over time versus exiting, exiting with reinvesting in a new business and adding
a new business without exiting. Here again, for Air Deccan’s founder, exiting
airliner business and reinvesting in air logistics business was a wrong route
in combination. A wrong route taken when at crossroads can lead a firm to its
final dead-end.
Emotional
blinds
Decision
making at crossroads is challenging not only because of difficult performance
situation and uncertain revival options but also due to the emotional blinds
that prevent the leaders from taking an objective review of the past and view
of the future. At a professional level, one comes across cases of functional
leaders who are unable to make shifts despite apparent failures (or sustained
lack of progress) of their approaches. Many public sector companies such as Jessop, Scooters
India and HMT fall under this category where the professional heads and the
ownership (in this case, the government) were unwilling to see the writing on
the wall, and make an appropriate course correction, including revival or exit,
in each case by recognizing the strategic crossroads without emotional
blinkers. Such an emotion tinged approach is displayed in private enterprises as
well though these are expected to be more analytical and logical in terms of
profitability and sustainability. Firms in the airline, retail, realty and
infrastructure industries fall in this category. There are many firms in these
industries which got stalled facing crossroads, leading businesses to stages
that are beyond redemption.
Emotional blinds
work through several beliefs and perceptions to deter or defer meaningful
action when at strategic crossroads until it is too late. The first is an
ingrained belief that businesses are cyclical and, therefore, things would
perforce improve; this approach fails to recognize that it is the firm’s
actions, rather than the environmental cyclicality that leads to the crossroads
situation most times. The second is that undertaking organizational changes in
times of crossroads aggravates the already difficult position; this approach
fails to recognize that organizations under stress are often in search of, and
welcome, turnaround options. The third is that when at crossroads firms should
minimize investments rather than commit more; this approach fails to recognize
that reversal of failure and acceleration of success can only occur with
investments in hardware (facilities, technology and equipment, for example) and
software (people and processes, for example), the mix of hardware and software
varying on a case by case basis. The fourth is that firms at crossroads cannot
attract external support (financial or otherwise); this approach fails to recognize
that there would always be objective supporters for objective plans.
Reality
conundrums
The root
cause for emotional blinds developing in an organization is often deep and
certainly not any of those emotions that underlie the strategic behaviors that
are displayed when crossroads are faced. Fundamentally, the inability to understand
and appreciate realism as a way of life creates emotional blinds. When an
infrastructure firm which is well aware of the long term nature of infrastructure
investments, protracted payback periods and the inhibitory nature of the
external environment that are inherent in Indian infrastructure projects draws
up plans of quick returns to the investors, the inherent unrealism of the plan
becomes the core weakness for the future. Granted, no one can predict the
future from internal or external perspectives and therefore no one can also
come up with a realistic path forward; the concept of realism, however, is more
than that. Realism is being in touch with oneself, people, organization, environment,
plans, execution, results, competition, and all such stakeholder interests. Unrealism,
apart from not being realistic also includes being unduly optimistic or
pessimistic, unwarranted by reality.
While several
emotions such as feelings of infallibility, invincibility, egoism, and such
others are often touted as reasons for leaders bringing their firms to
crossroads and thereafter not being able to course-correct, the root cause
would still be unrealism as defined above. Being unreal and being excessively
optimistic or pessimistic is at the core of all strategic crossroads issues;
the run-up, paralysis and dead-end. It is not the intent of this blog post to advocate
a nebulous quest for realism nor is it to decry optimism and deprecate
pessimism. The fact is that for the future only an aspiration exists, and a future
reality can never be seen by mortals; every plan or action, therefore, tends to
be only either optimistic or pessimistic. And, many times it lies in our own
hands to turn aspirations into reality. What this blog post does advocate is
the need for people to be in touch with reality at every step or slide of
progress. When faced with reality that is not aligned with aspiration (could be
better or worse) it pays to be optimistic or pessimistic on future course as
warranted.
Realism as
DNA
Lest it
should sound philosophical or theoretical, the blog post would clarify that
realism in reality (no pun intended) is a way a person is wired and evolved
from birth to think and act, talk and listen, evaluate and respond. A realistic
person, like everyone else plans and acts unrealistically (that is, either too
optimistically or too pessimistically) but he or she is wired to continuously
measure the variance and calibrate his or her subsequent thoughts, actions, communication
and collaboration. The realistic person unlike most persons does not get
typified; he or she, on the other hand, is a continuously adaptive individual
or leader. The realistic person, like most others, lives on, and for,
aspirations; however, he or she never loses track of the variance between
aspirations and the results. If the results are lower, reformatory actions are
taken, and if the results are better, aspirations are set higher by such
individuals and leaders.
The ability
to treat optimism and pessimism as modulators to move towards realistic
realization of aspirations is vital for individuals, leaders and firms. Just as
being extroverted and introverted becomes relevant contextually, being
optimistic and pessimistic is also contextual. Optimism drives action and
aggression while pessimism enables caution and conservatism. As individuals and
leaders remain realistic, and absorb and assess the aspiration-result variation
realistically, they would need to apply optimism and pessimism in tandem to set
high aspirations and consistently achieve them. There have been excellent case
studies of institutions in India, outside the normal business milieu, which
have done exactly that with their leaders being responsible for such strategic
approach in no small measure. Indian Space Research Organization (ISRO) is a
striking example of live-wiring realism towards consistently higher aspirations,
and achieving them despite resource constraints. Individuals, leaders and firms
in their strategic journeys, and those at strategic crossroads may strive to embed
realism as their DNA.
Posted by Dr
CB Rao on May 18, 2014
No comments:
Post a Comment