Prof. Bala Chakravarthy (IMD, Switzerland) Leadership Dilemmas

Date: May 29, 2008 Time: 19:00 - 20:00 Venue: AC 2 LT
Leadership Dilemmas in Sustaining Profitable Growth
CONCEPT
DISCUSSION
1. Business Leaders are faced with Dilemmas not Decisions
a) If you have a clear goal and are provided resources, you are low or the company’s organizational hierarchy
b) If you have one goal and there are no resources given to you, you are a Manager
c) If you have many goals and no resources readily handed out to you, you have a leadership role.
2. Total Shareholder Return – Profit or Growth?
A study of 7,000 publicly traded companies from around the world has indicated the following –

Strategy Shareholder Return
Pursuing Profit only 15.5%
Pursuing Growth only 17.5%
Pursuing Profit & Growth 27.5%

Takeaway:
Pursuing a strategy that seeks both profitability and growth translates to sustainable shareholder return.
3. Sustainability –
Profit or Growth?
The same study also indicates that –

a) Only 1 in 4 companies manage to achieve at least $1 increase in sales and ensure operating profit at the same time over a 5 year period.
b) Only 1 in 20 companies manage to achieve at least $1 increase in sales and ensure operating profit at the same time over a 10 year period.
c) Only 1 in 1000 companies manage to achieve at least $1 increase in sales and ensure operating profit at the same time over a 20 year period.

Takeaway:
a) Balanced Companies outperform profitable companies focusing only on profit
b) Balanced Companies outperform growth companies focusing only on growth
4. Strategy Dilemma
A company must always ask itself the 4 questions and try to answer them simultaneously –

a) What a firm can do?
b) What a firm might do?
c) What a top mgmt wants to do?
d) What a firm should do?

Takeaway:
But the answers to these are never static.
The first two questions (a & b) are popularly referred to as SWOT
5. More recent wisdom of Strategy
Porter’s Take:

Cost Leadership or Specialist (Differentiation) Choose either one to succeed & don’t get stuck in the middle

Prof. Bala challenges this theory stating that it’s essential to stay differentiated and achieve cost leadership to stay ahead. Volkswagen and Toyota are great examples that differentiate their products really well (on style, performance and other criteria) while at the same time striving for cost leadership so that they can increase the profit pie.

Takeaway:
Challenge theories if they don’t make sense.
6. Strategy to Protect the Core and Explore the New
Often discussed perspectives of strategy
a) Grabbing new markets - Businesses of the Future (explore the future)
b) Protecting existing markets and distinctive competencies - Protect & Extend (exploiting the core)

Prof Bala says one can choose to be in between through –
a) Build a capability to serve existing problem and also creates a platform for future. 3M, always asks the question what other industrial markets can we serve with a new technology besides the one that needs this immediately? Ask this question before you commit investments in the new technology
b) Leverage on distinctive competencies in new markets Eg. Honda extended into Motocycles, Lawnmovers etc. with it’s new engine technologies