Strategic Stretch

Strategic Intent is seen as going beyond Business as Usual Seen as Core Competency in Practice Apple and Honda's strategic intent was global dominance. Compare with Strategic Fit which doesn't have a long term component. Basically they used their core competences to achieve Strategic Intent. The difference between Intent and Resources is call Strategic Stretch.

Examples:

• Apple beat Microsoft in mobile apps market
• Google beat Microsoft is search and categorization of networked information
• CNN beat CBS is news and current affairs presentation

Firms first need to understand the competitive environment - e.g. those companies winning and losing market share. The next step is to diagnose the competitive environment. e.g. Its market segments, potential for profitability and growth.

Industrial structure analysis points us to the what of competitiveness. i.e What make the company more profitable. News whats have been exhorted such as Six Sigma, become customer led, compete on time. Understanding the what of competitiveness is a prerequisite to catching up. Understanding the why is the prerequisite for getting out in front. Who do some companies continually redefine the competitive environment e.g. Apple while others just follow.

Many companies focus external factors such as monetary and fiscal policy, education policy, tax and other factors as ways of explaining their competitive decline. Instead they should focus on internal factors as the key to their competitiveness success.

Breaking the Managerial Frame

Managers require their frame of reference from the culture of the company, business school education, peers, consultants and their own experience. They therefore frame their competitive stratagems from these managerial frames.

From Fit to Stretch

A good place to start to break these managerial frames is to ask the question What is strategy? The answers normally center around;

• The concept of fit or the reparations between the company and its competitive environment.
• The allocation of resources among competing investment opportunities
• A long-term perspective towards building a company.

This perspective is not wrong just imbalanced. It has obscured the merits of alternative frames in which the concept of scratch supplements the idea of fit; leveraging resources is as important as allocating them. Take two companies. Company A is big, dominant on the market and can outspend its competition on R&D, marketing and other resources. Company B is an upstart, with fewer resources, employees and financing etc. Strategically, Co A can preempt Beta by building new plant, increasing production and introducing new products at a lower cost. But B can retaliate by adopting guerrilla tactics, searching for undefended niches, etc. What distinguishes Co B from Co A is not B's limited resources but the greater gap between its current resources and its aspiration or stretch Alpha's problem is insufficient stretch. The products of stretch i.e. Encirclement not confrontation, accelerated product development, focus on a few core competences, strategic alliances.

From Allocation to Leverage

Perhaps GM was too strategic. It had the resources to employ new technology but the employees were unable or unwilling to adopt new practices and absorb new technologies. At one time Canon had 10% of the market share that Xerox had but eventually displaced Xerox. Upstart CNN became the first place to go for breaking news instead of tuning in to CBS, ABC or NBC. There are two approaches to increasing productivity. One is by downsizing and maintaining the same output with fewer resources. Or, take the Ikea approach, can do more with the existing resources and stretch the organization.

The Arenas of Resource Leverage

Management can leverage its resources, both financial and non-financial in five basic ways. By

• Concentrating them strategically
• Accumulating them efficiently
• Complementing one resource with another
• Conserving them
• Recovering them from the market place in the shortest possible time

Concentrating Resources

Leverage requires a strategic focal point which has been called strategic intent.e.g. Komatsu's encircling of Caterpillar. British Airways and the World's Favourite Airline and Ten Tuner's CNN quest to be the first place people tune in for Breaking News. In all these cases there was a convergence of the company's managerial and financial resources and capabilities. Convergence prevents dilution of resouces over time and focus prevents dilution over any given time. No single business can give its full attention to all the goals of the company especially when some many be competing and non-complementary and its efforts are likely to be diluted. Komatsu focused almost entirely on quality. Only when has that been achieved did they focus of product development speed or low cost production.

Accumulating Resources: Extracting and Borrowing

Because experience comes at a cost the ability to maximize insights is a critical component in resource leverage. Mazda has the ability to develop new products at a fraction of the time and cost of other car companies. Their smaller relative experiences make the managers more focused for clues for improving their manufacturing techniques. It also requires a corporate culture that is willing to challenge long term practices. Borrowing resources from other companies is another way to accumulate and leverage resources. Sony was one of the first companies to commercialize the transistor pioneered by AT&T. The skill is to internalize those skills an exploit and merge then with the company;s existing resources. NEC relied on hundreds of alliances, licensing deals, etc. This enabled them access to new technologies and new markets. Borrowing can take many forms - sharing development risk with customers, using cheaper labor form developing markets, participitating in intra-national research developments using taxpayers money.

Complementing Resources: Blending and Balancing

By blending resources you can multiply the value of each synergistically. Blending requires technology generalists, systems thinking and the capacity to optimize complex technological trade-offs. Blending functions such as Marketing, R&D, Production etc is one form of blending while another form involves a company's ingenuity for dreaming up new product permutations. For instance The Ipad tablet is a larger version of the iPhone. Sony combines its miniaturized earphone technology and audio playback to create the Walkman. Balancing is anther approach to to complementing resources. A company must be above to develop, produce and deliver its products. EMI was able to develop a revolutionary CAT scanner but had difficulty producing and had no distribution capability and eventually had to withdraw from the market

Conserving Resources: Recycling, Co-opting and Shielding

Sharp was able to recycle its capabilities in liquid display calculators for its Flat Screen TV's. A common saying in Japan is No technology is abandoned its just reserved for the future. Co-option can entice a fellow competitor against a common enemy. Alternatively, companies may work to establish a common new standard. In borrowing resources management seeks to absorb a partners' skills and make them its own. In co-opting the goal is to enroll others in pursuit of a common objective. the process begins with the question How can i convince other companies that they have a stake in my success Philips plays off Song against Matsushita. the other approach is the stick and withdraw the technology from being exploited by the market. To understand shielding the third form of resource conservation think of Dell. They could not compete with Compaq's dealership network so it sold its computers through the mail. Searching for undefended territory is another way to shield resources. Honda went in to small motor bikes, Canon went in to convenience copying. Toyota Lexus took on Mercedes not in Germany but California.

Recovering Resources: Expediting Success

The time between the expenditure of the resource and their recovery is another source of leverage. Also the quicker the recovery the higher the resource multiplier. In the 1980,s and 1990;s Japan had a two-to-one developmental time advantage over the US. One way to expedite a recovery time it to build an international recognized brand name. Apple customers will buy its latest iPhone on the back of its reputation for highly technologically advanced products and a highly mature distribution chain that is largely controlled by itself.

Stretch without Risk

The essential element of the strategy frame is the aspiration that creates a chasm between resources and ambition and how its strives to close the gap. The notion as strategy as stretch helps to bridge the gap between those who see strategy as a grand plan and those who see strategy as a series of incremental decisions. On the one hand it can be strategy as stretch as design and strategy as stretch by incrementalism. Ultimately, it recognizes the essential paradox of competition: leadership cannot be planned for, but neither can it happen without a grand plan an well considered aspiration.

From Strategy as Stretch and Leverage by Hamel and Prahalad HBR March-April 1993

See also

• Acting Strategically
• Core Competency in Practice
• Strategic Positioning for MNE's
• Designing Performance Measures

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