Dr. Prashant Kale, is a Professor of Strategy at the Jones School of Management, Rice University. He also teaches at the Michigan Business School, the Wharton School, and the Kellogg School of Management. He has a degree in engineering, a PGDM from the IIM-Ahmedabad, and a PhD in strategic management from the Wharton School
His research and teaching focuses on Corporate Strategy, Strategic Alliances & Mergers and Acquisitions. He has published articles in reputed international journals such as Harvard Business Review, California Management Review, Strategic Management Journal, MIT Sloan Management Review, European Management Journal, Academy of Management Proceedings, etc on these subjects.
Before joining academia, Dr. Kale held management positions with leading companies such as Johnson & Johnson, Siemens, ICI Plc., in several countries. His consulting assignments have been with global clients including Philips, Hewlett-Packard, Parke-Davis Pfizer, Bausch & Lomb, the Tata Group, Infosys, Thermax, Quintiles, Dun & Bradstreet, Skoda, US Steel etc. He is also on the Board of several technology companies and venture funds.
Dr. Kale brings a rich blend of experience of on-the-ground reality and in-depth research in the field of strategy. We requested him to answer a few questions for us, here is what he has to say...
ET: What are the fundamental principles for developing strategy for a business?
PK: In very simple words, strategy is nothing but a 'plan to win' - a plan to achieve an advantage over rivals in terms of both, providing value to customers and creating value for shareholders. Developing such a strategy involves some of the following principles:
(a) A company needs 'to create a unique competitive position'- for e.g., it should be clear about what segments of the market it focuses on (and what segments it does not), what is its core value proposition (and what is it not) and how are these aspects distinctive as compared to other players in the market?
(b) It needs to undertake the core activities in its value chain in a distinctive manner and more importantly, these activities should be 'mutually reinforcing and aligned' in a way that they support the organizations' chosen competitive position.
(c) It needs to create some 'barriers to imitation' so as to be able to sustain its advantage over rivals.
The above principles are critical because a winning strategy is about becoming 'something to somebody' and not 'everything to everybody' - this requires a company to make clear choices and trade-offs in what it does to become a winner.
Apart from the above points a good strategy is also one that is 'sufficiently simple'- why? So that its core tenets can be easily communicated to all employees of the organization who are eventually responsible for executing the strategy. Too many companies have a strategy that is perhaps good but so complex that there are chances that nobody in the organization really understands what the organization's strategy is and hence the execution is compromised.
A great example of these principles of strategy is Southwest airlines in the US which has been a pioneer in creating a low-cost leadership strategy in the airline business.
ET: What challenge does a business face in keeping the strategy relevant?
PK: Any good strategy is made keeping in mind the conditions or the context of the external industry and competitive environment. But, as we know, these external conditions change over time, sometimes gradually or at other times rapidly. The biggest challenge for a business is to recognize key challenges in its external environment and be able to adapt the strategy as well as the organization to the address the changes in the external environment.
However, this is easier said than done. First, companies often find it a challenge to change their strategy because managers/executives suffer from what we call 'cognitive inertia' i.e. the ability to 'think differently' when the competitive context changes. Second, even if they are able to change their strategy successfully they face the challenge of changing their organization so that it is capable of executing the new, revised strategy - the latter happens because of what we call 'action inertia'.
Some examples of companies that have failed on this count are Kodak in the US when digital photography gradually began to replace traditional film-based photography or companies in India like Hindustan Motors or Premier Padmini when they failed to revise their strategies following the liberalization of the business environment in India in the early 1990s.
ET: How do you teach people to be strategic?
PK: First, in order to be 'strategic' you need to teach executives to develop the skills to 'ask the right questions' in the context of their business. Second, they need to have a 'winning mind-set' and develop an ability to be creative and 'think outside the box'- at the same time, they need to have a strong analytical bent. So, a good strategist needs to have a mix of both, excellent creativity and a strong analytical mind - thus one needs to develop both the 'right' and 'left' sides of the brain. Leaders also need to have the strength to be 'bold' because winning strategies often call for crafting a plan that goes against accepted wisdom. Some of these skills can be taught in the classroom but many others are simply developed on the job through repeated practice or experience - if it's the latter, organizations need to provide employees a supportive and conducive environment to nurture these skills over time.
Some recent, successful business leaders who perhaps demonstrate these attributes are people like Jack Welch, Steve Jobs, Ratan Tata, Laxmi Mittal, etc.
ET: How does the culture of an organization influence in building corporate strategy?
PK: Culture plays a very important role in both, 'making strategy' as well as in 'executing strategy' and here's how:
The final strategy of any company is really some combination of two types of strategies: a 'deliberate' strategy that is carefully planned ex-ante by the leadership team and an 'emergent' strategy that evolves over time in response to unanticipated or unexpected changes in the marketplace. The latter 'emergent' strategy often does not arise in the CEO's office but it can bubble up anywhere in the organization including at lower-most levels or the frontlines of the organization. The question is, does a company have a 'climate or culture' that allows this emergent part of the strategy to 'bubble up' from the lower ranks?
Are junior people given the freedom to voice their suggestions and does the senior leadership have the humility to acknowledge and accept these suggestions and even make them a central part of their strategy going forward? This culture is very critical especially when companies are making strategies in the context of fast-changing and/or uncertain business environment. Some examples that come to mind (of such a culture) are Intel - when it successfully revised its strategy to compete in the microprocessor business in the late 1980s or the recent example of the Tata Nano - while Mr. Tata was a key inspiration behind the conceptualization of this initiative most of its strategy 'emerged' along the way from the many youngsters who were an integral part of the Nano team.
Culture also plays a vital role in the execution of strategy - a company needs to have the 'right' culture for its chosen strategy. For example, if a company strives to create advantage in the market through innovation, does it have a culture that allows employee creativity and risk-taking to foster and develop? On the other hand, if a company is pursuing a low-cost leadership strategy in its business it would help to have a culture that emphasizes frugality, efficiency and productivity.
ET: Good strategy with poor execution or average strategy with great execution? Comment
PK: A good strategy is of no use, if it cannot be executed. So, if I were to choose among the two options, I would go for the latter - average strategy with great execution because then you at least have some chance of improving your performance as compared to where you stand currently (even though you may not be an outright winner on account of having an average strategy). Of course, all companies should strive to have good strategy and great execution!
