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| Sunday, 3 February 2002 |
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Business |  |
| News Business Features Editorial
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Business strategy as simple rules by Eng. H.M.G.P. Bandara When the business landscape was simple, companies could afford to have complex strategies. But now that business is so complex, they need to simplify. Smart companies have done just that with a new approach;- A few straightforward, hard - and - fast rules that define direction without confining it. A simple 'rules' strategy and its underlying logic of pursuing opportunities are harder to see than traditional approaches. For instance Yahoo Internet service the secret of this company is strategy as simple rules. They know that the greatest opportunities for competitive advantage lie in market confusion, so they jump into chaotic markets, probe for opportunities, build on successful forays, and shift flexibly among opportunities as circumstances dictate. But they know the need for a few key strategic processes and a few simple rules to guide them through the chaos. In traditional strategy, advantage comes from exploiting resources or stable market positions. But in strategy as simple rules, by contrast, advantage comes from successfully seizing fleeting opportunities. Entrepreneurs have always used that kind of opportunity - grabbing approach because it can help them win against established competitors. What is surprising is that strategy as simple rules makes sense for all kinds of companies - large and small, old and young - in fast-moving markets like those in the new economy. That is because, while information economics and network effects are important, the new economy's most profound strategic implication is that companies must capture unanticipated, fleeting opportunities in order to succeed. Rather than picking a position or leveraging a competence, managers should select a few key strategic processes. Rather than responding to a complicated world with elaborate strategies, they should craft a handful of simple rules. Rather than avoiding uncertainty, they should jump in. Managers using this strategy pick a small number of strategically significant processes and craft a few simple rules to guide them. The key strategic processes should place the company where the flow of opportunities is swiftest and deepest. The processes might include product innovation, partnering, spin-out creation, or new market entry. For some companies, the choices are obvious - Sun Microsystems' focus on developing new products is a good example. For other companies, the selection of key processes might require some creativity. Akamal, for instance, has developed a focus on customer care. The simple rules provide the guidelines within which managers can pursue opportunities. Strategy, then consists of the unique set of strategically significant processes and the handful of simple rules that guide them. Autodesk, the global leader in software, refocused the strategy on the product innovation process and introduced a simple, radical rule: The new product development schedule would be shortened from a leisurely 18 to 24 months to, in some cases, a hyper-kinetic three months. That changed the pace, scale, and strategic logic with which Autodesk tackled technology opportunities. Over the course of studying dozens of companies in turbulent and unpredictable market, the simple rules are seen to be falling into five broad categories. How to rules, Boundary Rules, Priority rules, Timing Rules and Exit Rules: How to Rules: Managers just organised enough to seize opportunities - example Yahoo Internet service has done that. Business focuses strategy on the risk management process; Enron commodities trading has done with two rules 1. Each trade must be offset by another trade that allows the company to hedge its risk. 2. Every trader must complete a daily profit and loss statement. Process of rapid reorganisation around focused customer segments: Dell, the computer giant has done that by the rule "When the Revenue hits $ 1 billion, split into two companies." Boundary Rules Sometimes, simple rules delineate boundary conditions that help managers sort thorough many opportunities quickly. The rules might centre on customers, geography, or technologies. For example when Cisco first moved to an acquisitions-led straits, the boundary rule was that it could acquire companies with a maximum 75 employees, 75 per cent of whom were engineers. Priority Rules Simple rules can set priorities for resource allocation among competing opportunities. For example, Intel followed a simple rule: Allocate manufacturing capacity base to product's gross margin. Without this rule, the company might have continued to allocate too much capacity to its traditional core memory business rather than seizing the opportunities to dominate the nascent and highly profitable micro-processor niche. Timing Rules: That set the rhythm of key strategic processes. Pacing is one of the important elements that set simple rules strategies apart from traditional strategies. Timing rule scan help synchronise a company with emerging opportunities and co-ordinate the company's various parts to capture them. For example, Nortel Networks applies two simple rules project teams must always know when a product has to be delivered to the leading customer to win, and product development time must be less than 18 months. Exit Rules: Exit rules help managers pull out from yesterday's opportunities. At the Danish hearing aid company Oticon, executives pull the plug on a product in development if a key team member leaves for another project. Reference Harverd Business Review The writer is the production Planning Manger of Noritake Porcelain Lanka Ltd., Matale. |
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