"At the heart of every good strategy is preserving the company’s ability to change"
"At the heart of every good strategy is preserving the company’s ability to change"A key responsibility of any leader is to make sure that the organization is headed in the right direction. In the strategy classroom, we often talk about strategy versus tactics and formulation versus implementation.
We always say strategy establishes the business model, what becomes the essential infrastructure of the organization. Hence, strategy establishes the context for operations and day-to-day managerial decision-making. In well-run organizations, tactics respond to local context but uses the lens of organization-wide strategy.
Effective strategy formulation is important. Efficient implementation of the wrong strategy simply accelerates failure. However, even if the core strategy is right, it can be implemented badly.
Framing Challenges
Two important challenges confront organizational leaders in making strategic decisions, challenges that are particularly critical in this pandemic.
At the point of strategy formulation, leaders must create a strategy using what they know about their organization, the market, and what they believe will happen in the future. Classic strategy formulation typically relies on presumptions concerning two industry characteristics—industry predictability, that the future of the industry can be predicted with a reasonable degree of certainty and industry malleability, that the industry basic structure cannot be controlled or molded by a single corporation.
Together, these two conditions mean that a company can rely on a predictable context for steering the organization’s future. To be entirely fair, in many industries, especially brown field industries, these conditions existed and continue to exist. There are uncertainties but there is a degree of predictability and it is incredibly tough for a single company to change the rules of the industry. However, these conditions do not always exist. Sometimes, the future is tough to predict and occasionally, conditions exist that allow a company to mold the structure and future of an industry. In these cases, companies can use other approaches to strategy. If the industry is neither predictable or more malleable, then strategy needs to be adaptive. If the industry is malleable, then a company can attempt to mold the structure or the future of the industry.
The key lies in knowing what is knowable and what is controllable.
Ability to change
At the heart of every good strategy, however, is preserving the company’s ability to change.
The reality is that all industries are subject to uncertainty and change. The strategy that works today may not work tomorrow and what works in one country may not work in another. Any strategy must be revisited when the conditions that led to its adoption have changed.
Once strategy has been set, focus shifts to implementation. Implementation is not merely a matter of ensuring that what is planned is executed, it is also about monitoring progress and change. If a particular approach isn’t working, a company needs to understand why, and proceed to address the situation. Sometimes this means trying a different approach. Sometimes, it means admitting its reading of the situation was wrong and the strategy must be changed. Sometimes, the situation has changed quickly and radically, and the strategy needs to be revisited. On the other end of the spectrum, sometimes an opportunity presents itself and the company must decide whether to refocus its resources.
Nokia Experience
Nokia is an interesting example of a company that has reshaped itself multiple times. The company traces its origin to a single paper mill operation in 1865. It was acquired in 1898 by an entrepreneur who eventually merged his original three businesses, pulp, rubber and cable works into a single firm under the Nokia name in 1967. By this time, Nokia had already invested in electronics and telecommunications and eventually became the largest mobile phone maker in the world, controlling about 40 percent of the world market in 2007. In 2014, Nokia sold off its legacy mobile phone business to Microsoft and purchased Alcatel-Lucent, becoming the second largest company in network telecommunications. Microsoft eventually sold the Nokia brand back to Nokia in 2016 and Finnish company HMD Global brought the Nokia mobile phone back to market in 2017 via a long-term exclusive license. In 2017. Today, Nokia continues to be an important player in network telecommunications.
Closer to home and one of the beneficiaries of the COVID-19 pandemic is Sea, owner of Shopee. Sea traces its roots to founder Forrest Li’s first company, Garena, a name that was a mash up of the two words global and arena. Garena was founded in Singapore in 2009 as a game publisher using a simple idea, a platform that allowed people to discover, share and purchase games. By 2014, Garena was touted as the largest internet company in Singapore, with an estimated value of US$ 1 million.
In May 2017, Garena changed its name to Sea Limited, keeping Garena as one of its brands. Sea applied for an initial public listing (IPO) on the New York Stock Exchange (NYSE) in October of that same year, aiming to raise US$1 billion. In its filing, Sea pointed to the Shopee growth story and the future of ecommerce in Southeast Asia as the foundation for its own future.
Shopee was not the first mover in the ecommerce market in Southeast Asia, or even in Singapore. In 2012, the Lazada group, which includes Lazada Philippines, was founded with the backing of Rocket Internet. Lazada began by selling inventory from its own warehouses and shifted to allowing retailers to sell through the company’s platform a year later. Lazada quickly became Southeast Asia’s ecommerce powerhouse, attracting the interest of Alibaba, which acquired the company in 2016, a scant year after Garena entered the ecommerce market by founding Shopee. At the beginning of 2019, iPrice group reported that Lazada was the most visited ecommerce platform in the Philippines, Singapore, Vietnam and Malaysia.
Lazada had roots in online commerce. Shopee had roots in social and community building. As Lazada began to penetrate the market, Lazada relied on mother company Alibaba and its uniform approach to ecommerce. Shopee focused on the user experience, focusing on making the interface for both seller and buyer easier to use.
Sea listed at a little over US$16 in 2017 and its share price had dipped to about US$11 in January of 2019. By 2020, its share price had increased to over US$40. Fast forward to 2021. Shopee now dominates the Southeast Asia ecommerce marketplace. Sea shares are trading at above US$230 as of the first week of April 2021, primarily on the back of the performance of Shopee.
For both Noikia and Sea (formerly Garena), strategy was not about keeping to a single direction or even a single identity. It was about knowing how to change. But even more importantly, it was about using what it had learned and earned in the past to create a better future.
Readers can email Maya at [email protected]. Or visit her site at http://integrations.tumblr.com.