How can our company be successful? What is our business essentially about? How do we create value and how will our revenue mechanisms work – tomorrow, and in five years’ time? Answers to these questions touch on strategic management’s key tasks. Such considerations are of course relevant across a company’s entire life cycle as well.
If a book publisher, for instance, wants to convert parts of its portfolio from paper books to digital books, this may tie up its financial resources to a significant extent because it requires staff with different qualifications, different partners and different technologies. Path dependencies are thus created and repercussions have a long-term impact. That’s therefore a strategic decision, and it’s necessarily based on assumptions. How many potential customers would prefer to read a work as an e-book instead of buying a paper book, and what they’d be willing to pay for it, is a question that must remain unanswered for now. When we engage in such considerations, we’re of course only partly referring to today’s world, but instead more to the future world. In any case, the future state of the world differs from its present state. It’s just a question of to what extent, and which of these, is relevant to our company.
WHAT CAN WE KNOW, AND HOW DO WE BYPASS NOT KNOWING?
The first part of this question is one of the great questions of philosophy. It’s also highly relevant for senior executives and entrepreneurs. No one can really know in advance what will work in business. If you’ve got any doubts about that: isn’t taking business risks one of the defining characteristics of entrepreneurship? After all, risk means that someone doesn’t know the probability of an event occurring. Even trends in relevant factors are often completely uncertain. So if you’re aware of the probability of relevant events occurring and “know everything” in all other respects, then actually you might as well pack your bags, because you’re no longer needed as a senior executive or entrepreneur. Where there’s no lack of information, there’s no risk, no need to make decisions, no responsibility, no salary and no profit. Are you to be envied now? If so, enjoy your free time.
But that’s not all, because business success need not necessarily have to be based on a consciously designed strategy. I’m almost declaring large chunks of the school of strategic management obsolete now. Caution is called for here, but I still like to point to very successful companies whose trading is not based on firm or elaborate strategies. Or do you believe that every company in the world has a strategy that is the result of in-depth thought and contemplation? I have my doubts in this regard. If you then ask the people in charge there: “Why do you do everything in your company like this?” “How did you come up with this way of doing things?” Then they’re often downright astonished and actually find everything quite logical and self-evident. In the literature, people like to talk about emergent strategies. They are the result of lived business practice, quite naturally and almost incidentally.
Emergent strategies that are not the result of a rational overall design – yet lead to success – are thus not automatically irrational. Sometimes the people involved are not even aware of their strategies.
SO CAN WE JUST LET THINGS SLIDE, BECAUSE THINGS WILL KEEP ON GOING SOMEHOW, AFTER ALL?
Laissez faire in strategic management can work, but from a business point of view it naturally becomes more hazardous the more valuable the resources are, or the larger the budgets involved. Something is dedicated to a purpose, and once that’s happened, path dependencies rapidly emerge. Then we can really talk about the strategic relevance of the use. If the dedicated funds or resources are stripped of their purpose again, this will involve a loss of value, sometimes a total loss. That’s the danger of a correction from a business point of view, and the expected devaluation marks the limit of adaptability.
SO ALLOW US INSTEAD TO GIVE IT SOME SERIOUS THOUGHT.
Senior executives and entrepreneurs have though the task of preventing the devaluation of resources i.e. not exposing them to too great a risk. Whoever is concerned with strategic considerations therefore invests in a mechanism to avoid devaluation. But however far they pursue it, it will always remain somewhat unclear beforehand how effective afterwards the mechanism found will be. Oh well, we strive for security, but in so doing we regularly reach the limits of our ability to obtain and process information. Are you now thinking of Big Data and AI? Both can help, but only as long as the others don’t use them as well. With that in mind:
HOW FEASIBLE IS IT THAT – UNDER THE KNOWN AND ASSUMED CONDITIONS – OUR COMPANY’S FUTURE WILL LARGELY LOOK AS OUR OVERALL REASONING DICTATES, AND ACCORDING TO WHICH WE’RE PROCEEDING?
This makes it an obligation to constantly monitor business conditions and to constantly review one’s assumptions. After all, these have been made to overcome ignorance. So are our assumptions still correct? How do competitors act, whose activities also influence the success of our actions? How do other factors develop over which we have little or indeed no influence, and which we cannot manage, such as consumer preferences or the propensity to consume or invest? What influence might upcoming elections, poverty-driven migration, the Corona virus, the status of the natural environment or the price of oil have? Changed circumstances can be overlooked. They can also be predictable, or take us completely by surprise.
Management therefore builds bridges between what it doesn’t know and what it’s able to do with the resources available. Given the complexity of the circumstances, success will come to those who can count courage, experience and intuition among these means.