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DEFINE STRATEGY TO COMPETE
MAY 18, 2003 -
THE STAR
BY KAREN P.S. YUE
We are told that the average life span of a big company is 40
years. But recent events, not only in Malaysia but also the
world over, tell us that it is much shorter for most companies,
big or small.
A recent study placed the figure at 12.5 yean for companies in
Japan and Europe, regardless of size. If we consider dot-com
companies that came and went in recent years, the average lift
span will be in single digit.
This contrasts greatly with the fact that Stora, a Swedish
company established in 1288, has survived for 700 years. The
paper, pulp and chemical manufacturer began life as a copper
mine according to Arie de Geus, author of The Living Company.
What determines the success of companies today?
Given the competitive environment, it is obvious that companies
need to do more than survive. It must be able to sustain
whatever business it is in. Growth per se is not enough.
Consistent and sustainable profitability is a more effective
measure of performance and long-term success.
According to Michael E. Porter, master of competitive strategy
who was in Kuala Lumpur, recently, companies must compete in
order to achieve sustainability.
And to compete, they must have a strategy, which is not the same
as wishing to be number one or even being good in what they do.
The former is only a vision; the latter translates merely into
operational effectiveness.
Operational effectiveness alone, according to Porter, is not
enough either because it only assures you of short-term success.
To Porter, operational effectiveness is trying to run the same"
race faster.
To have long-term success, you must choose to run a "different"
race. And that is strategy-a strategy to compete on something
distinctively different from others. This will create a unique
and sustainable competitive position for your business, says
Porter.
What exactly is a strategy?
According to Porter, a strategy is:
* A unique value proposition versus competitors.
* A different, tailored value chain.
* Clear trade-offs, and choosing what NOT to do.
* Activities that fit together and reinforce each other.
* Continuity of position with continual improvement in realising
it.
What is not a strategy?
Porter says a strategy is not: Best practice improvement;
Aspirations; A vision; Learning; Agility; Flexibility;
Innovation; The Internet or any-technology; Restructuring;
Mergers/Consolidation; or Alliances/Partnership.
Businesses are reminded to have both: operational effectiveness
and strategy. This is the single most important lesson for
management.
"Unless you're good at operational effectiveness, strategy
doesn't matter," says Porter.
"The problem with many companies is that all they do is pursue
best practices. It is very hard to win, because everybody
is-doing the same thing. It's hard to stay ahead because your
competitors are getting better too."
Companies that wish to have long-term profitability must move to
the next stage. In simple terms, they must rethink their way of
competing.
Porter shares five fundamental changes that companies today must
understand.
First, the period of easy growth is over. It is true for
Malaysia, as well as for many parts of the world.
Second, low wages no longer give competitive advantage to
businesses in Malaysia. Although Malaysia has a higher GDP per
capita than many low-cost countries, its compounded annual
growth rate (CAGR) of GDP per capita is lower than that of
emerging economies.
Relative to the US, in figures based on the World Development
Indicators 2002, Malaysia's CAGR of GDP per capita for 2001 was
a significant five to six percentage points lower than that of
China, which really had a much lower GDP than Malaysia.
On this score alone, it only suggests that Malaysian businesses
are losing out to businesses in China and certainly cannot rely
on low wages or low cost as a competitive advantage.
In the meantime, the labour productivity-performance is not
growing in tandem with Malaysian prosperity. Over the period
1995-2000, Malaysia's labour productivity growth was just about
average among Asian economies, lagging behind the more dynamic
economies like Singapore and Taiwan.
Third, open trade is on the way, if not already here. Despite
attempts to slow the tide of globalisation and its impact on
developing and less developed economies, the effects have
already been felt.
And it cuts across all industries. Many without a competitive
strategy will find themselves unable to compete under such
market conditions. Eventually, it will sound the death knell for
these companies.
Fourth, businesses need to appreciate that government
distortions in industry competition are getting less. These
distortions have to do with the role of the government in
industry-specifically government policy that impacts the
industry structure, which is made up of a complex interplay of
market forces and rivalry among existing competitors.
Evidently, removal of government distortions can lead to radical
shifts in the structure and profitability of businesses.
Fifth, corporate governance is getting more open. Companies are
becoming more accountable to investors; they no longer can hide
the results-financial, economic or otherwise-from the investing
public.
Business leaders must understand all these changes that are
taking place. Only then will they be able to know what
competitive advantage they have and then be in a better position
to decide how they are going to compete and ensure long- term
success.
And then maybe we'll see more companies lasting beyond their
average 40 years.
For more details on management development programmes, contact
MIM at 03-21654611, e-mail enquiries@mim.edu or visit
www.mim.edu.
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