How can we distinguish between good and poor strategy?

This question was raised on LinkedIn a while ago and received massive feedback from professionals from a wide variety of industries.

One of the respondents answered the question by referring to a blog by Roger Martin for Harvard Business Review and argues that a good strategy “provides the road map to future with data driven sign posts. It tells you what to do and which way to move forward depending upon key big events (e.g. if Event A occurs we will move to doing this and if Event B occurs then we will move to doing that)”.

This view gained a fair share of support in the discussion and other participants provided their insights by claiming that the major difference between a “good” and a “poor” strategy comes from the execution of the strategy. “An excellent strategy (on paper) which is poorly executed is always worse than a fair strategy which is exceptionally executed”, a participant claimed.

Another participant stressed the importance of building the strategy upon the company’s existing capabilities and resources and the opportunities and threats posed by the environment.

The reason why I found this discussion interesting is that, although strategy making goes thousands of years back, we are still struggling in defining the term – let alone distinguishing between a good and a poor strategy.

Furthermore, most of the answers on LinkedIn seemed to be made on the following two assumptions:

•         Strategy is prescriptive.
•         Strategies are developed at the top of the organization

Therefore, in my next posts I will challenge these two assumptions and come up with alternative strategy development processes.

Is profit-maximizing finally social responsible?

Since the term was made common in the late 70s, Corporate Social Responsibility (CSR) has had its fair share of attention. It seems like we have come a long way since Milton Friedman’s statement that a company’s obligation to society is solely to “make profit, pay taxes and provide jobs”. According to a report in 2003, only one of ten adults shares Friedman’s view of corporate responsibilities. A follow-up poll actually found that over 80 percent agree that “larger companies should do more than give money to solve social problems”.

But what is really corporate social responsibility all about? Only one thing seems to be certain; whatever it is, it is not correlated to making organisational profit.

Government, activists and the media have in recent years become adept in holding companies responsible for social consequences of their activities. In order to keep such important stakeholders happy, managers have done very much to improve their companies ranking(s) among the many CSR performance-indexes. 

Simplified, the traditional view of corporate social responsibility is that you have got the profit-maximizing companies on one hand and the generous companies thinking about the future generations on the other hand

In a Harvard Business Review article from 2006, Michael Porter and Mark Kramer argue that there are four justifications for why companies should invest in CSR; first is the argument that companies have a duty to be good citizens and to “do the right thing”.

The second argument for investing in CSR is sustainability. “You should meet the needs of the present without compromising the ability of future generations to meet their own needs”, as former Norwegian Prime Minister Gro Harlem Brundtland once said it.

Third is the license to operate. Each company needs license from various stakeholder groups to operate, and an investment in CSR will help the company get this permission.

The fourth (and maybe the most common) justification for CSR; it will improve the company’s reputation. 

Last year the world’s biggest retailer Wal-Mart told its 1,000 Chinese suppliers last year that it would hold them to strict environmental and social standards. This might not be surprising in itself - a lot of companies have said that to its employees over the years.

However, Wal-Mart is not social responsible because of sustainability or because it improves the company’s reputation. They are doing it purely based of economic factors. Wal-Mart has been encouraging companies to cut down on packaging. This enables it to fit more goods into each delivery truck, not only reducing its emission, but also cutting the amount it spends on petrol!

Another example is Mars, the world’s biggest confectionery company, who announced that its entire cocoa supply will “be produced in sustainable manner” by 2020. Also Cadbury, the UK confectionery group, announced that all the cocoa in Dairy Milk, Britain’s biggest-selling chocolate, would be certified by Fairtrade.

For the fourth successive year, cocoa production fell in 2008. Mars and Cadbury are both worried about how few cocoa farmers’ children intend to go into the business. They are hoping the investment in farms that Fairtrade encourages will persuade them cocoa farming is a worthwhile occupation.

Someone please call Porter and Kramer and tell them to add a fifth justification for investing in corporate social responsibility; profits!