FOUR STYLES OF STRATEGY FOR SOES
Many business leaders in Thailand and from abroad have shared with me stories of their continuing efforts as well as the challenges faced in improving the performance of state-owned enterprises (SOEs). These enterprises in Thailand comprise many companies from diverse industries, with varying competitive dynamics — some may be playing on a global scale, while others monopolise local markets.
State enterprises also require different competitive advantages as well as strategies to achieve their goals, whether they are about financial or social welfare. For the most part, improving the performance of SOEs is not much different than at private enterprises — the first and most important step, I would argue, is to get the strategy right.
The right strategy is expected to deliver business results or exploit competitive advantages to win in today’s dynamic marketplace, which is borderless and becoming increasingly unpredictable. But does a company in the oil and gas sector respond to its business challenges or devise a solution using the same strategy as a company in the technology industry? Possibly. But do the same strategies work or produce the same results when applied in different industrial sectors? In all probability, they don’t.
The kind of strategies that would work in one industry have little chance of success in another, as different sectors operate in different environments and are affected by different market forces. Likewise, the skill sets that strategists in different industries need are worlds apart as well, because they operate on different timescales, use different tools and have very different relationships with the people on the front line who carry out their plans.
Companies operating in dissimilar competitive environments should be planning, developing and deploying their strategies in markedly different ways. But all too often, our research shows, they are not. Responses from a recent Boston Consulting Group survey of 120 companies around the world in 10 major industry sectors show that executives are well aware of the need to match their strategy-making processes to the specific demands of their competitive environments.
However, the survey found that in practice many executives still rely instead on approaches that are better suited to predictable, stable environments, even when their own environments are known to be highly volatile or mutable.
Four strategic styles: What’s stopping these executives from making strategy in a way that fits their situation? Companies need a systematic way to go about it, in other words, a strategy for making strategy. BCG’s framework for choosing a strategy begins with two questions: How unpredictable is your environment? How much power do you or others have to change that environment? The answers give rise to four broad strategic styles, each one suited to a distinct environment.
Classical strategy (the one everyone learned in business school) works well for companies operating in predictable and immutable environments.
Adaptive strategy is more flexible and experimental and works far better in immutable environments that are unpredictable.
Shaping strategy is best in unpredictable environments that you have the power to change.
Visionary strategy (the build-it-andthey-will-come approach) is appropriate in predictable environments that you have the power to change.
How you set your strategy constrains the kind of strategy you develop. With a clear understanding of these strategic styles and the conditions under which each is appropriate, more companies can do what we have found that the most successful ones are already doing — deploying their unique capabilities and resources to better capture the opportunities available to them.
However, there can be circumstances in which none of our strategic styles may work well — for example, when access to capital or other critical resources is severely restricted, by either a sharp economic downturn or some other cataclysmic event. Such a harsh environment threatens the very viability of a company and demands a fifth strategic style — survival strategy, which requires a company to focus defensively — reducing costs, preserving capital, trimming business portfolios.
Survival is a short-term strategy, intended to clear the way for the company to live another day. But it does not lead to any long-term growth strategy. Companies in survival mode should therefore look ahead, readying themselves to assess the conditions of the new environment and to adopt an appropriate growth strategy once the crisis ends.
In the final instalment of this series of three articles, we will delve deeper into what these distinct styles of strategy mean to your business, in the context of your industry, the external and internal environment, and your stakeholders.
Isada Hiranwiwatkul is a partner, managing director and head of The Boston Consulting Group in Bangkok. For more information, email hiranwiwatkul.isada@bcg.com.