A successful business strategy goes hand in hand with a successful HR strategy, and it is easy to spot those companies that fail on either. This first extract from Paul Kearns’ book, The Bottom Line HR Function, published this week, looks at the warning signs
Of all the management jargon created over the past 50 years, the most over-used and abused phrase is "business strategy". Most people would probably not describe this as a buzzword because its meaning is obvious and it is common business parlance. The reason I am more sceptical is that, like buzzwords, this strategy is heavy on image and light on substance.
The dot.com companies talk about their "business models", which are forecasts of the number of Web site hits, customers and sales and advertising revenues. This is probably a more accurate description of what many businesses have and does not really equate to having a clear strategy.
Just because a CEO talks about their company strategy does not mean that they have anything that could accurately be referred to as one. Of course, no one running a large corporation is going to admit they do not have a strategy since it will make them appear as though they are not in control of their own destiny and will be vulnerable to their more canny and ruthless competitors.
If you had to choose the best business strategy you have ever seen, what would be top of your list? I would guess that the number-one choice would be that of Jack Welch of General Electric, who has become a legend in his own lifetime. I do not know who would be in second and third places, but how many corporations would be in this league table – 10, 15, or perhaps 20? That is an infinitesimal part of the total business world.
What is it about good business strategies that makes them stand out from the crowd? They normally stem from a visionary leader who has crystal-clear thinking, a brilliant business brain and is totally committed to making their chosen strategy work, regardless of how ruthless and brutal that may sometimes appear. They are normally (although not exclusively) long-term thinkers and seem to lead rather than follow the market. There are probably a million other things that could be said about the best strategies but most, if not all, would have to be said with the benefit of hindsight. We can only gauge the effectiveness of a strategy by looking at its long-term success.
My own choice for the number one in strategy would have to be Toyota. My workshop and seminar audiences get fed up with me extolling its virtues. I wish I believed that more companies had equally good strategies, just so that I could give other good examples in support of my arguments. Certainly, GE is up there with Toyota, but even I was surprised to read in The Sunday Times on 31 January 1999 that Eiji Toyoda "the genius who built Toyota from a provincial truck maker into Japan’s top motor company" had given Welch advice. Apparently, after meeting Toyota, Welch cut a swathe through GE’s "bloated bureaucracy and shop-floor over-capacity", which was a key element in the early days of his attempts to turn GE into one of the most successful companies in the world.
Good strategies become very much a part of our business myths and legends. Brilliant strategies – like talent – are rare by definition. If talent were commonplace, it would not stand out as talent. Because strategic talent is so rare, it suggests that formulating and implementing strategies is not easy. After all, more companies get it wrong than right. So how do we learn from this?
Other companies have gone some way to emulating Welch’s success, including his own former colleague Larry Bossidy, who has achieved similar successes at Allied Signal and Wire. So there are lessons that can be learned and these successes stand out from the crowd.
However, can we learn anything from companies that have lost their strategic direction?
Here is an interesting story from The Economist on 6 March 1999 about Hewlett-Packard, "Everybody agrees, Hewlett-Packard is a nice company. It has nice, well-engineered products. But it is also just a bit dull. Worse still, there is a suspicion that the celebrated ‘HP-way’ of doing business may be a little too cosy for it to compete successfully against some of the most relentless firms on the planet. HP desperately needs to inject a little excitement into its stodgy culture and to become, in the words of its gentlemanly chairman, Lew Platt, ‘more focused and nimble’."
As far as I am aware, Platt has been a very successful leader of HP for years, with some sparkling results. Yet he is obviously well aware it needs to change. It appointed a new CEO in 1999, Carly Fiorina, to try to bring about some of the necessary changes. But can she transform HP without being as ruthless as Jack Welch? After all, HP is well known for its progressive "people" policies and is regarded as a "nice" company to work for. If HP is to be turned around, will these nice people policies have to go?
You may have noticed that we have shifted our focus from business strategy to people (or HR) strategy. Whether you have a "nice people strategy" or a "hard-nosed people strategy", no CEO can get away from the fact that, if they are going to be successful strategically, they have to have a successful people strategy. Some would say that HR strategy has to follow business strategy. I would go further and say the two are inseparable. As one HR director said to me once, "the business strategy is the HR strategy".
Another interesting example is Ford. Does it have a good business strategy? It appears from its trail of acquisitions over the past few years that it has a clear business strategy. However, its manufacturing base in Europe is having serious problems trying to make money, especially as it is recognised that there is significant over-capacity in the European car industry.
By February 2000 there had been several recent announcements from Ford in the UK. First, Ford has apparently decided it would be a good idea to have a scheme whereby all of its employees have a personal computer at home. Presumably, this is something to do with helping employees learn new technology and keep abreast of many new developments. They may also be of the belief that a more PC-literate workforce will be a more productive workforce.
Second, Ford has suffered the threat of white-collar strike action, the first for many years, over differentials between white- and blue-collar pay settlements (yes, I too cannot believe that in 2000 I still write about white- and blue-collar workers).
Third, Ford announced it was to shed 1,500 jobs at Dagenham. Then there were newspaper reports that there was an air of resignation about the inevitable demise of the entire Dagenham plant. We now know the plant is to close.
Is it just me, or do these three different aspects of HRM at Ford hang together? They seem to be rather incongruous and could even be regarded as conflicting. There may be a grand design that sits behind all of this but, if there is, Ford does not seem to have convinced its white-collar staff. And how do the production line workers feel about the new personal computer idea? If workers at Dagenham, or other Ford plants, think their own plant might be on the over-capacity hit list, where does the idea of getting a PC from their employer fit in? What must be going on in the minds of the striking white-collar workers, who may not even have a job next year?
This leads me to one conclusion: If Ford has a clear and coherent HR strategy, it has a funny way of showing it.
Maybe what we are experiencing is a global business environment in which life is too complex for businesses to have clear, long-term strategies. As soon as you put a strategy into place there are so many unpredictable variables that the best-laid plans can come to nothing, or can be seen as seriously off course.
This has led some people to conclude that systematic, strategic thinking is directly opposed to the modern business environment. As Platt of HP seems to be suggesting, organisations such as his need to be infinitely adaptable to changing circumstances. But that does not stop Platt wanting a strategy, or at least trying to have one.
Welch is no different. GE has faced as many changes, challenges and complexities as its competitors, but its strategy has seen it through. So anyone who argues that they cannot devise a business strategy is making excuses. They are also admitting they do not know where their business is heading. And from an employee perspective, this is not good. If the organisation does not know where it is going, neither will the employees.
This point is important for senior HR people. If the basic theory is that business strategy dictates, guides and shapes HR strategy, then what can an HR director do if there is no clear business strategy – make one up or do their best to determine where the business is heading?
This is an edited extract from The Bottom Line HR Function by Paul Kearns, Chandos Publishing. ISBN 1 9023 7562 9. Price £49.95. Next week: strategic dilemmas.
For more extracts from The Bottom Line HR Function go to www.personneltoday.com