All Strategy is Local
The Harvard Business Review had an article on Strategy being local which as Tom Peters states "is brilliant but counter-intuitive" and he goes on "it
reinforces my longstanding bias that beyond a certain point Big ceases
to be beautiful."
Here are some of Tom’s selected quotes from the HBR:
"Sustainable domination is more likely in markets of restricted
size. It is paradoxical but true that economies of scale are subject to
scale limitations themselves. … When a market gets too big,
diseconomies of coordination can prevail over economies of scale."
—Bruce Greenwald & Judd Kahn/"All Strategy Is Local"/HBR09.05
"Some observers have argued that Wal*Mart owes its superior returns
to its enormous size and, as a consequence, its purchasing power. [But]
if the purchasing power that comes with size were responsible for the
company’s success, then Wal*Mart’s profitability should have increased
as the company grew. Yet its operating margins have not increased since
hitting their high watermark in the mid-1980s. … As Wal*Mart has
grown, its profit margins have suffered in comparison with those of
more geographically concentrated competitors, such as Target. … Sam’s
Club appears to be no more profitable than Costco and BJ’s Wholesale
Club. The fact that Sam’s Club is the least geographically concentrated
of the three competitors appears to have offset any advantages derived
from Wal*Mart’s efficiency. … Wal*Mart’s experience overseas tends to
confirm the limited impact of the retailer’s operating advantage.
Overseas returns are less than half its domestic margins."—Bruce
Greenwald & Judd Kahn/"All Strategy Is Local"/HBR09.05
"In media, broadly defined, actual experience has been even more
strikingly at odds with prevailing strategic wisdom, which has
proclaimed that successful media companies would be those that
integrate content and distribution, are global in reach and embrace and
master new technologies. … None of the leading media companies [Time
Warner, Viacom, Disney, News Corp] has equaled the performance of the
S&P 500 over the last 15 years." (Also way below traditional
newspaper companies.)—Bruce Greenwald & Judd Kahn/"All Strategy Is
"For all their talk of the global convergence of consumer demand,
separate local environments are still characterized, in both obvious
and subtle ways, by different tastes, different government rules,
different business practices and different cultural norms. … The more
local a company’s strategies are, the better the execution tends to be.
Localism promotes decentralization—and since the days of Alfred Sloan,
decentralized management has consistently served as a superior
structure for concentrating management attention."—Bruce Greenwald
& Judd Kahn/"All Strategy Is Local"/HBR09.05
The key is the last point I think. Decentralized management – allowing people to make decisions quickly and respond to changes in the market far faster than bigger behemoths like WalMart – it would seem is more effective than centralised, spoke and wheel-type management models.
I did a study around six years ago looking at the global strategies of legal and financial institutions for the Economic and Social Research Council which reflects a lot of what the HBR report says. One of the key things I picked out from the research I conducted [amongst over 100 senior managers] was the transferability of knowledge and, perhaps more importantly, ‘know-how’. From this I started to think that the local is the global. Networks are inherently local and only gain any global strength through their relational interdependence – and in this sense they are only as strong as their weakest link.
There was a marked distinction in the success of legal and financial organisations strategies.
Only a few of the law firms managed to become successful global entities due to different legal systems requiring very different staff with relevant languages, interpretive frameworks and knowledge of regional and national legal practice. The other key thing in legal firms was that lawyers become managers, through their rise to senior partners. Lawyers don’t always make good managers of people or resources. Law firms were being pulled into becoming global because local companies wanted to deal with them as they themselves expanded into foreign markets. It did not come easy to them but many succeeded despite these difficulties, often partnering with local firms.
Banks and other financial institutions on-the-other-hand were able to benefit in their global networking from greater standardisation of practice. There may be subtleties in the regulatory environment but there were sufficient standards around language [not the case in Law] and practices such as trading, to enable banks to move staff around relatively easily and to expand into new markets. Yet, perversely, banks found it harder to establish a strong presence in many of their new markets and gain any form of competitive advantage *because* they did not take heed of subtle differences in the marketplace and in the local culture and this was, I believe, because they were less dependent upon it and embedded in it. Their strategy was global whereas the law firms strategies were more obviously local and because of that and despite the difficulties they faced law firms often performed very well.