Strategy in the New World

Date:   Monday , December 06, 2010

A friend of mine who was a CFO at a Nasdaq-listed public company made this comment over a cup of coffee, “Success is strategy!” Brevity, it seems, is not just the soul of wit but also of wisdom.

Strategy is focus and allocation of resources to a defined set of products/services and systems/processes to market and deliver them. Billions of words and millions of articles have been written on effective leadership and strategy. Ultimately, if a person or a business succeeds, then the approach adopted by that person or the business is lionized as the “right” strategy. But we know a couple of things:

a. A strategy that works for a company today may not work for the same company tomorrow.
b. A strategy that works for one company today may not work for another company in the same space.

Given the furious velocity of change in technology, consumer behavior and competitive landscape, strategy definition has become simultaneously even more difficult and critical. For those of us in the new media space, this is even more difficult because it is far easier for companies to change direction and business model as there are no huge investments sunk in land, factories, buildings, machinery and inventory like it is in other industries.

Michael Porter, a guru of strategy, said he went in search of external factors that possibly caused a series of bad decisions in good companies. He studied this for 20 to 25 years and concluded that it’s not so much driven by external conditions – but “strategic errors that the company does to itself.” Often, strategic errors are most clearly visible looking back after some crucial time has elapsed.

In some ways, defining strategy is like developing a movie script. Robert McKee, the famous Hollywood scriptwriter says, “A rule says, You must do it this way. A principle says, This works and has, through all remembered time. The difference is crucial. Anxious, inexperienced writers obey rules. Rebellious, unschooled writers break rules. Artists master the form.” While no one can assert the rules of strategy-definition, there are certain abstract principles that could inform strategy definition. What follows is a few of them that we have deployed to avoid some dangerous pitfalls at Sulekha. While this by no means guarantees continued future success, it is merely to serve as instruction on what had worked for us in the past.

One principle is: Don’t fight leaders offering the same service as they do. Strategy is as much about what you choose not to do as you choose to do. Right from the start, we at Sulekha decided we will not waste our time on providing basic infrastructure services such as Search and Email. Because, we figured we would lose the battle competing head-on with industry leaders such as Yahoo, MSN, Rediff, Sify and Indiatimes in providing a free, commodity service that requires an enormous infrastructure, innovation outlay. Looking back, this was a smart thing to do. By the same token, we believe it would become increasingly difficult for country-specific players to compete head-on and win against global leviathans like Google, Yahoo and Facebook.

Another principle is: Don’t bet the business solely by overcoming entrenched consumer or customer resistance. Conventional wisdom in entrepreneurial circles says companies wildly succeed when they develop new models that the customer has never thought of. Examples of Sony Walkman, Apple iPad, eBay are trotted out to prove this point. But there is a difference – and it is a crucial one – between catering to an unarticulated, latent need of a consumer versus overcoming a known, existing resistance.

Let us take two examples. There is a resistance on part of Indian consumers to buy and pay online for used electronics goods from strangers because they don’t trust them to deliver goods as advertised. This is completely at variance with the consumer behavior we observe in United States, for example, where people generally have a higher level of trust in others. So, a used good auction site like in US will not work in India. Another example is that big brand marketers don’t believe they can build their brands online; they do believe TV and Print are suitable media for building brands. In other words, they see TV and Print as marketing channels and they see online as a sales channel; this explains why they pay the former based on viewership (CPM), they seek to pay online sites based on response (CPC/CPA).

There is a resistance to viewing the Internet medium as a brand-building, marketing channel. So, any strategy that is crucially dependent on overcoming customer resistance will find it hard to succeed.

A third point about leadership is related to the plethora of choices that are available to the senior management team at any given time. The Internet environment offers the latitude and ease for companies to try multiple things at once. Since irrespective of the industry or the situation, companies are relentlessly pushed by stakeholders to “grow, grow, grow…profitably” and because market premiums are usually reserved and accorded to companies that do that, many try to do multiple things. This can either be good or bad, based on circumstance. On the one hand, companies have set themselves back by either not evolving over time or by diluting their focus. There are as many examples of the former as there are of the latter.

Overall, defining a sound strategy and sticking to it requires clear knowledge of the past and present coupled with a prescient understanding of how the markets are evolving. Plus a bit of luck.