The new imperative for uncertain times: supply chain strategy

May 2022  |  SPECIAL REPORT: BUSINESS STRATEGY & OPERATIONS

Financier Worldwide Magazine

May 2022 Issue

All generalisations are suspect. Writing on strategy is rife with generalisations, yet necessary to explore nuanced narratives in our dynamic global business context. When we take a look at current events – wrenching climate-driven weather changes, a global pandemic and a hot war in Europe – we realise that each of these events individually would have disrupted global supply chains.

In combination, however, they have added to a growing list of sustainability topics that have ushered in the environmental, social and governance (ESG) movement and a rush toward Globalisation 2.0. To prepare for this shift, a business strategy must assess, adapt and attend to a rapidly evolving global, technological, geopolitical and sustainability context.

A well-executed strategy is as transformative as a new technological discovery. Strategy is a subject that is often poorly understood and yet critical to endurance, resilience and competitive success. If Peter Drucker was the grandmaster chronicler of deep business insights, Michael Porter holds the ‘strategy’ crown with his monumental book, Competitive Strategy. While there are fewer books written on strategy than leadership, ‘great strategy’ captures the imagination of both business and military scholarship as much as ‘great leadership’ due to its consequential role in achieving successful outcomes.

Unsurprisingly, the majority of business scholarship focuses its attention on and hindsight analysis of the very largest enterprise organisations. However, the vast majority of business is conducted by small to medium-size businesses. In this paper, we intend to define strategy, demonstrate how the current global context requires constant strategic reassessment, and share some practical steps to operationalise internal strategy discussions and decision making in an enterprise or embryonic organisation.

Strategic frameworks

The world is abundant in both capital and ideas; business creation is constant and compelling. New technologies, emerging industries, empowered entrepreneurs and innovative business models proliferate. In every new or existing company, competitive strategy really matters. Yet, the language, frameworks and understanding of strategic analysis are limited. This hinders management’s ability to drive a strong strategic thesis toward a compelling course of action. Porter’s 1980 strategic analysis framework called the Five-Forces model assumed a relatively stable context in which customers, suppliers, substitutes and new entrants characterise the competitive rivalry of any market. Porter pointed out that their relative strengths and weaknesses define any opportunity.

Strategy, in its most basic form, is a thesis or an idea about an opportunity created by an anomaly in a market. That anomaly is often driven by a technological discovery, invention, shift or disruption. One of the most basic ideas of strategy is the application of strength against weakness around a market anomaly that creates new business opportunities. In short, an enterprise business strategy defines an organisation’s unique set of differentiated capabilities, defining where it will play and how it intends to win.

A good strategy has clearly articulated priorities, defined application of resources, coordinated actions, detailed processes that all cohere toward a clear set of goals or objectives leveraging unique and specific advantages against adversaries to win within a specific market context. A good strategy, like a good scientific hypothesis, requires a means of evidence or measurement. Constant feedback assesses the success and progress of the strategy within the evolving context toward the desired goals, outcomes or objectives. Measurement, progress and adaptation are everything.

Strategy and globalisation 2.0

The strategy of globalisation and outsourcing must align with this framework. For decades, business has sought to migrate production of dangerous, highly regulated and unprofitable operations to low-cost jurisdictions. Measurement techniques have included earnings before interest, taxes and amortisation (EBITA), growth, and other financial performance measures. The result has been best illustrated by the unprecedented manufacturing dominance of China and the Asia Pacific region.

However, a good strategy recognises and balances short term practical constraints with longer term objectives and north star vision. Measurable implications of these strategic efforts include loss of intellectual property advantages, rising competition among global competitors and the inability to access overseas produced goods and services. Hence, businesses must now adapt to realities that extend beyond pure financial considerations.

Traditional strategic planning related to supply chains presumed a relatively stable external context to assess the industry dynamics and select a set of choices that differentiate the business among competitors or alternatives. In today’s turbulent environment, multiyear strategic plans and decision-making cadence of prior generations are often outdated. Non-financial considerations, such as volatility of oil and transportation prices caused by invasion and port closure due to disease outbreaks, must factor into decision making.

Globalisation 2.0, an appropriate name for the evolution to a better version of globalised sourcing, requires a balancing of the value of engaging low-cost partners with the risks inherent in their geography, business practices and raw material utilisation. The attempt to balance these factors is visible in the modern ESG movement.

Strategic decision making in this re-engineered globalised economy will be different. The future of global commerce and trade will likely require a network of countries and companies with a more closely aligned set of social, humanitarian and environmental values. Widening the aperture, companies and countries will now respond with financial and economic strategic choices, acting as a collective toward shared values.

Companies and countries will no longer hold their nose or turn a blind eye, as the profit-optimising businesses once did. The strategic framework pursuit of winning with a singular purpose of profits at the expense of other social and environmental considerations is no longer sustainable. Sustainability is now both a means and an end in any strategic discussion, analysis and hypothesis. Doing the right thing matters.

In addition to strategic context considerations that recognise human suffering, the drumbeat of climate concerns reverberates into every boardroom of business. ESG measures are now deeply embedded in all strategic discussions and plans in both public and private companies. Any strategic analysis must attend to the full internal and external context and constraints. Measurements must include benefits for all stakeholders in which people, community and planet are included in the calculus. Advancing from strategic frameworks of analysis toward decisions and action, management must now organise and operationalise more frequent internal strategic discussions.

Strategic adaptation and implementation in the new world requires four key steps, outlined below.

First, the right stakeholders (investors, board, leadership and teams) must collaborate, organise and align on the short term and long term aspirations for the business. It is critical that leadership gain clarity on the material ESG, climate and non-financial topics that are material and meaningful to key stakeholders. A strategic review will always include traditional narratives like product and service differentiators, industry and segment focus, and market share competitive targets including growth and profitability aspirations.

Second, leadership must develop a clear, concise, written and quantitatively modelled picture of the current external (total addressable market (TAM)) and internal context (historical data evidence of past and recent strategic choices with their success). This data set is required to gain a shared perspective of the environment in which it is about to make choices. Strategic decisions cannot be made in a vacuum and must account for understanding the full current dynamics of the market the business serves.

Third, the hard work begins with a robust debate and discussion that incorporates existing and potentially new hypothesis proposals describing where and how you intend to differentiate, compete and win. The intent of this exercise is to visualise a strategic path of what is possible and likely most probable among various paths, consistent with the company context, capabilities, conditions and constraints.

Finally, and most importantly, the choices and decisions committed to until the next strategic review period must be widely shared and communicated clearly to all constituents. Communication of not only the what, who and how but also of the choices or paths not selected including the why not is as important for stakeholders and particularly team members to gain a clear understanding of their why and how and how all their processes and activities must adjust to ensure they all cohere.

Concluding thoughts

It is critical to knit together information from disparate sources into clear decisions and choices impacting priorities and plans in each functional area. The objective of the debate is to achieve understanding and consensus. This exercise will establish a pragmatic path forward that is both probable and executable. The distinctive feature of this strategic synthesising process is that it takes in and evaluates information from disparate sources and puts that information together in ways that make sense.

Business leaders must be both practical when asserting strategic hypotheses and aspirational when articulating a path forward. The best methodology to bridging this divide is by leveraging historical success, distinct advantages and new contextual dynamics that will allow strategic leaders to balance multiple objectives while maintaining attention to a moral compass that historically has often been ignored.

If strategic analysis concentrates on perfecting one face of the Rubik’s cube (e.g., traditional strategic objectives) while ignoring the others (e.g., sustainability goals), we might end up with a cube with one coherent face and the rest an incoherent mess. We need to be conscious of how a move with respect to one face of the cube will have implications with respect to the cube’s other faces. Recognition of the integrative approach to strategy is crucial in the richer mosaic of context-driven hypothesis driving consequential decision choices.

 

Andrew Waitman is chief executive and Travis Miller is general counsel at Assent. Mr Waitman can be contacted on +1 (866) 964 6931 or by email: andrew.waitman@assent.com. Mr Miller can be contacted on +1 (866) 964 6931 or by email: travis.miller@assent.com.

© Financier Worldwide

BY

Andrew Waitman and Travis Miller

Assent

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