In a Harvard Business Review blog posting yesterday, Roger Martin , the Dean of the Rotman School of Management at the University of Toronto in Canada and the author of The Design of Business: Why Design Thinking is the Next Competitive Advantage, explains why most CEOs are bad at strategy. Here is an excerpt of what he writes:
The two most fundamental strategic choices are deciding where to play and how to win. These two decisions — in what areas will the company compete, and on what basis will it do so — are the critical one-two punch to generate strategic advantage. However, they can’t be considered independently or sequentially. In a great strategy, your where-to-play and how-to-win choices fit together and reinforce one another.
The trouble is, CEOs don’t usually get to the top by integrating different logics in that way. More often they rise by pushing a single logic. They like to analyze a problem and come up with a single, sufficient answer, like how to globalize or get costs under control or introduce a new product, rather than trying to look for answers to two questions that fit together elegantly.
I won’t go as far as Mr. Martin and say that most CEOs are bad at strategy, but I generally agree with his points about the way companies approach strategy development. Our brains are wired, or perhaps trained at school, to think sequentially. Evaluating multiple variables at once, across different decision trees, is simply too complex for our minds to process. This is why business intelligence and analytics (optimization) software was created after all, and perhaps it’s the reason why these solutions, with their ability to reveal non-intuitive correlations, are all the rage these days.
Does Mr. Martin’s argument about CEOs apply in the third-party logistics (3PL) industry? I asked myself this question after reading the piece, and although I need to think about this question a bit more, here are my initial thoughts. Over the years, whenever I have asked 3PL leaders how they plan to grow their business moving forward, their answers usually include one or more of the following strategies:
- Expand globally. In the past, European LSPs looked to North America for growth and vice versa. Today, all LSPs have their sights on Asia.
- Introduce new services. Warehousing firms have added transportation services; many freight forwarders now provide customs brokerage services, etc.
- Target new industries. LSPs that started out serving a niche market now look to leverage their capabilities in other industries with similar customer requirements.
- Penetrate the small and midsize business (SMB) market. The vast majority of companies that work with LSPs are Tier 1 enterprises (over $1 billion in revenues). But this market segment is almost saturated, so LSPs need to penetrate the mid-market to sustain their growth.
I would say that most of the strategies I hear from 3PLs fall into the “where to play” category. The question of “how to win” is either not addressed, poorly defined, or me-too in nature (e.g., we’ll win by providing clients the most complete end-to-end solution).
Mr. Martin concludes his piece by saying, “Strategy is a creative act and the way to produce good strategy is to go beyond basic analysis to creatively integrate your choices concerning where you play and how you propose to win.”
Creativity is the key word here, I think. Simply put, the quasi standardization of strategy development, using tools such as Porter’s Five Forces that every MBA student carries on their belt, has all but eliminated the opportunity for raw creativity to feed into the process. Maybe companies should hire poets and philosphers to assist with strategy development, but that’s a topic for another day.
My key takeaway: A successful 3PL strategy is one that, in Mr. Martin’s words, creatively integrates where to play and how to win. Moving forward, this will be the measuring stick I will use to evaluate the strategy of 3PLs. But as someone commented on Mr. Martin’s blog post, coming up with an integrated strategy is only part of the battle. Having the right people, skills, and tools to execute the strategy is just as important, if not more. And this is another area where I think many 3PLs fall short, whether it’s a lack of IT sophistication, a lack of management talent, a lack of sales and marketing skills, or the most common culprit of all, an overpowering resistance to change, particularly at lower levels of the organization.
Are 3PLs CEOs bad at strategy? Maybe some are, but certainly not most of them. Perhaps the better question to ask is this: Are they worse at it than CEOs in other industries and what can they do about it?
Post a comment and start the debate.