Tuesday, September 14, 2010

Strategy, Innovation and Competition

Strategy is what you need when you don't have enough resources. It is the art and the science of the short blanket. For a for profit operation, strategy is mandatory. Costs and expenses eat into profits, so stockholders whant to keep overhead to a minimum and prioritize investments correctly. Now that's the tricky part. Achieving a lean operation is not trivial, but widely feasible. Selecting where to focus the investments for the future is the real challenge.

Some of the most respected authors in management, Drucker and Prahalad, had interesting ideas on how to compete. Drucker said that strategy is knowing what to do today so that there will be a tomorrow. Prahalad thought of competition in terms of dynamic becoming, instead of the more mainstream, textbook approach of static analysis.

To learn and adapt become more important than having the most 'cash cows' or the top quality or cheaper product on the market. Building relationships and creating mutual value becomes more impostant than evaluating bargaining power and squeezing existing value from suppliers or clients. The way I see it there are two possible approaches to the problem of being relevant and getting paid in the future - fighting for it with teeth and claws against anyone who might stand in the way of your firm, or building it in partnership. The 'fight' approach assumes that the value will be given and that everyone else has the same mindset, and if we don't fight, we will lose. The 'build' approach sees value as having no upper limit: The more we are able to produce, the more we all will have access to. Obviously, as in any dichotomy, reality lies somehwere in the middle. We have parts of value being hard to increase (land, commodities supply, talent pool, etc) and other parts being highly variable (technology, relationships - political and social capital...). And we have both types of people: some will fight for limited resources, some will want to create new resources together.

Who do you want to be?

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