Michael Raynor, Author of The Strategy Paradox, visited Ivey some time ago to speak about strategic decision making. Raynor holds an undergraduate degree in Philosophy from Harvard College in Cambridge, MA, where he graduated Magna cum Laude. He has an MBA from the Ivey School of Business, where he was awarded the Nelson M. Davis Memorial Scholarship.
He earned his Doctorate in Business Administration from the Harvard Business School with a dissertation on the sources of corporate value-added in diversified firms. At Deloitte Consulting LLP, Raynor is the Distinguished Fellow with Deloitte Research working with senior executives in the world’s leading corporations. Note, this is but one interpretation of the presentation given by Mr. Raynor. For a full version, in his own words, you can view a one hour video here.
Raynor spoke to a Strategy class full of eager HBA students about the strategic choices that companies make. Raynor outlined how companies that strategically have a lower dedication/strategy focus typically have a lower chance of failure. Wheras if companies have a higher dedication/focus with focused goals, and they strive to achieve them - they either hit their mark, or they don’t. Companies like Sears have actually been stuck in the middle between Wal-Mart and Nordstrom, and are at risk of being squeezed out. Businesses are typically stuck in the middle because they don’t do anything great.
They’re undecided on who they are serving and thus margins are inherently low. However, an interesting observation made by Raynor was that companies in the middle survive more often than companies on either end. A strategy of survival, low-risk, and lower chance of failure is fundamentally opposite of a “winner-take-all” mentality.
Raynor highlighted that companies do not need to have a complete focus on one specific area, but they should have that option so that if they need to be there, they have the capabilities. Microsoft did this with X-Box, when they identified strategic uncertainties in their long-term plan and wanted the option to dive fully into a cutting-edge gaming system. Companies, especially new entrepreneurial ventures, should identify short vs. long term goals and objectives/options, as well as the time horizons within which they can measure success.
Although these time horizons drive strategic uncertainty, a commitment to a strategy can become greater as uncertainty decreases and time horizons decrease. From these strategic options, entrepreneurs can make commitments to one or a few, and devise plans to execute them. The example provided was Johnson & Johnson who owned a company that manufactured endoscopic equipment. A few years ago, J&J was debating whether they should invest in the next round of technical improvements for the equipment to make procedures less invasive, or to invest in heavier sedation techniques to make the existing tools less painful for patients undergoing procedures. J&J made the decision to improve technically, but also invested in smaller funds that worked on precisely the other problem (sedation) so that their bets were covered either way.
Raynor outlined that businesses (and especially new ventures) should ensure that upper management (or business owners) are mitigating company risks so that middle managers have more motivation to pursue other opportunities, and are not just chasing numbers.
If the business has sufficiently diversified its risk portfolio, middle managers can be more innovative and do more creative thinking at their individual unit levels. Mr. Raynor’s presentation on firms balancing strategic options, levels of commitment and diversifying risk certainly rings clear in the current economic crisis. Thanks for some great lessons for businesses both new and established. Remember to check out the full video here.
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