MAsTERING BUSINESS IN AsiA

STRATEGY FOR SUCCESS IN AsIA

MAsTERING BUSINESS IN AsiA

STRATEGY FOR SUCCESS IN AsIA

Kulwant Singh Andrew Delios

John Wiley & Sons (Asia) Pte Ltd

Copyright © 2005 John Wiley & Sons (Asia) Pte Ltd

Published by John Wiley & Sons (Asia) Pte Ltd

2 Clementi Loop, 4102-01, Singapore 129809

All rights reserved,

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any

means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted

by law, without either the prior written permission of the Publisher, or authorization through payment of the

appropriate photocopy fee to the Copyright Clearance Center, Requests for permission should be addressed to

the Publisher, John Wiley & Sons (Asia) Pte Ltd, 2 Clementi Loop, 4102-01, Singapore 129809, tei: 65-6463-

2400, fax: 65-6463-4605, E-mail: enquiry@wiley,com,sg.

This publication is designed to provide accurate and authoritative information with regard to the subject matter

covered. It is sold with the understanding that the Publisher is not engaged in rendering professional services. If

professional advice or other expert assistance is required, the services of a competent professional person should

be sought.

Other Wiley Editorial Offices

John Wiley & Sons, Inc., III River Street, Hoboken, NJ 07030, USA

John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester POl9 BSQ, England

John Wiley & Sons (Canada) Ltd, 22 Worcester Road, Rexdale, Ontario M9W Ill, Canada

John Wiley & Sons Australia Ltd, 33 Park Road (PO Box 1226) , Milton, Queensland 4046, Australia

Wiley-VCH, Pappelallee 3, 69469 Weinheim, Germany

Library of Congress Cataloging-in-Publication Data:

ISBN 13 978-0-4708-2137-4

Typeset in 11.5/13.8 pOint, Berkeley by Paul Lim Printed in Singapore by Saik Wah Press Pte Ltd 10 9 8 7 6 54 3

For our wives,

Usha & Jane

Contents

About the Series viii

Preface ix

1 Strategy 1

2 Strategy in Asia 43

3 Strategies for Working with Governments in Asia 79

4 Strategies for Profitable Growth 115

5 Strategies for Regional Expansion in Asia 153

6 Alliances for Success 195

7 Acquisitions for Success 239

8 Size and Scope for Success 279

9 Strategies for Success in Asia 323

Index 353

About the Series

This eXCltmg series provides comprehensive coverage of primary business functions , as well as vital business topics . Each subj ect is dealt with in a unique Asian context, making it an ideal addition to the business library of all business professionals and MBA students .

Each book is written by an Asian-based thought leader and includes the names of many top consulting companies , business schools and Asian corporate giants . The authors in the series draw on their wealth of experiences to provide a comprehensive overview of the subj ect and crucial strategic advice for Asia's next generation of leaders .

Preface

Conversations about business strategy in Asia have progressed

through three periods of hyperbole. In the first period, the 1970s

to mid-1980s, pundits extolled the virtues of the "Japanese model"

of business. Keiretsu, industrial policy, the pursuit of product quality

and operational excellence at all cost, the sacrifice of profits for

growth, and lifetime employment were the elements of the Japanese

model that firms from other countries strived to emulate. The second

period, the mid-1980s to mid-1990s, was one of rapid growth in

East and Southeast Asia that led to praise for the "Asian values"

business model. Confucianism, hard-working, disciplined, loyal,

and cooperative employees and managers, heavy savings and

investments, and the prioritization of economic growth ahead of

all alternatives were central elements of the Asian business model

that analysts and politicians used to explain the success of many of

Asia's firms. In the third period . from 1997 to the present, experts

now recognize that the cozy Asian business model in which tight

inter-firm, intra-firm, and government-firm relationships prevailed

had systemic deficiencies that ultimately led to the onset of the

Asian economic crisis in 1997 and the downfall of many Asian firms.

Unquestionably, there are aspects of truth in these statements,

but these viewpoints exaggerated selected aspects and ignored

contradictory evidence. Both the positive and negative accounts

overstate the unique aspects of the Asian business model, while

making attributions to business success that are strongly grounded

in anecdote or fable, but weakly anchored to facts. Unfortunately.

many books on strategy in Asia have reflected these perspectives.

X STRAT E G Y FO R S U CC ESS I N ASIA

The difficulty in understanding the reasons why businesses

succeed, and do not succeed, is not constrained to Asia. In all parts

of the world, businesspeople, public policy-makers, and academics

alike struggle with trying to identify and implement the drivers of

business success. This struggle is captured by the idea of corporate

and business strategy. The study of strategy is about trying to

understand why firms have different levels of success. Strategy

formulation and implementation is about identifying the outcomes

a leader wants his or her firm to achieve, selecting the best course

for achieving these outcomes, and undertaking all the actions

necessary to actually achieve the outcomes.

These ideas about strategy are not new. That said, the application

of mainstream strategic concepts to firms in Asia does require some

new thinking and some understanding of the context of business in

Asia. We wrote Strategy for Success in Asia with that in mind.

In developing this book, we bring the most current ideas on

business and corporate strategy to the competitive environment that

underlies strategic issues in Asia. We base our arguments on

established theory and rigorous empirical research, while making

this book accessible to the busy reader. These objectives mean that

in this book we apply ideas on strategy to the analysis of competitive

conditions in Asia, with the core notion that business in Asia does

have some unique characteristics. This, however, does not mean

we think that business in Asia is one of a kind.

Strategy and business share common characteristics regardless

of whether a firm is located in North America, Africa, Europe, or

Asia. What does differ across these regions, and across the countries

within these regions, is the national institutional landscape. A

country's institutions - its political, economic, societal, and

technological environments, and its laws, rules, and regulations -

define the conditions under which business occurs in that country.

These institutions influence which strategies can be pursued

successfully and which cannot. They define the level of government­

firm interaction, the level of competition in a nation, the level of

foreign participation in an economy, and so forth. As such, national

P R E FA C E xi

institutional environments influence strategy and the types of

strategies that can be implemented for success.

With development, many countries in Asia are undergoing rapid

evolution in their national institutional environments, some of

which were catalyzed by the Asian economic crisis, and others which

were part of long-term reform plans. These changes in institutional

environments have required commensurate changes in the types of

strategies a firm can pursue for success.

In developing this book, we bring the national institutional

context to the forefront of the discussion on strategy in Asia, while

maintaining an anchor in time-tested concepts and thinking about

strategy. We have also remained faithful to the business context in

Asia. This book is designed to be consistent with these goals. Each

chapter contains illustrations and cases drawn from countries across

Asia. The structure of the chapters also reflects these goals.

Chapter 1 introduces the core concepts on strategy thinking that

underlie the discussion in the rest of the book. These core concepts

apply to businesses operating everywhere, but their application

needs to consider the context of the business environment. Chapters

2 and 3 introduce the context of strategy in Asia by identifying the

key points of difference between Asia and the rest of the world, and

between Asian countries. We pay special attention to the roles of

governments, given their influence in Asia and the rapid changes

in government-firm relationships in many countries in the region.

In Chapters 4 and 5, we discuss strategies for growth in Asia.

Decisions about growth, and the reasons why a firm's management

pursues growth, must withstand the scrutiny of a strategic analysis.

Growth for its own sake has become more difficult since the Asian

economic crisis, although opportunities for regional expansion in

Asia have become more attractive since 1997.

In Chapters 6, 7, and 8 we look at specific decisions for achieving

success. These decisions include alliances and acquisitions, and in

which industries a firm should operate. The individual decisions

need to be considered in the context of a firm's overall strategic

intents, and we identify the means to do so in these chapters.

xii STRAT E G Y F O R S U CC ESS I N ASIA

Chapter 9 presents our concluding thoughts on strategy in Asia.

We make projections about future developments in national

institutional environments in Asia, which in turn might alter the

strategies and goals a firm pursues for its success. At the end, we

return to several core ideas that we believe are fundamental to

strategic thinking and consequently fundamental to the long-term

success of any firm in Asia.

We believe that the core ideas of strategy are relatively simple,

but easily overlooked in the complexity of running a business. A

realistic description of strategy, adapted from a famous quote on

war by the Pruss ian strategist Carl von Clausewitz, is that

"everything in business strategy is simple, but the simplest thing is

difficult." Leaders must maintain their awareness of the big picture

of Asia as they develop their firms' strategies, but they must also

combine this with a detailed understanding of their own firm and

of the specific business challenges that they face. The integration

of environmental, firm, and competitive contexts is central to the

perspective of strategy we develop in this book.

Acknowledgments

Many people have made this book possible. Our thanks go to Nick

Wallwork of John Wiley, who encouraged us to write the book. Janis

Soo and Malar Manoharan, who each acted as editors for this series,

provided great support and guidance, while maintaining patience

with our efforts to complete our work in a timely manner. Robyn

Flemming was the expert editor who worked with us to ready the

text for publication.

We would like to thank the numerous research associates and

assistants involved in the development of the text. Chan Kong

Chung, Ajai Singh Gaur, Nguyen Hoang Phi, and Elizabeth Khoo

each worked exceptionally well to help with the development of

various parts of this book. Jennifer Ilkiw also contributed, although

unknowingly, through her assistance on another project.

Numerous colleagues provided support and valuable feedback

on the book. Much of the material in Chapter 6 draws on jOint

research with Will Mitchell. The material in Chapter 3 owes a

substantial intellectual debt to Witold J. Henisz, whose research

and thinking is the foundation for much of the chapter.

Conversations, consultations, and collaborations with Jaideep

Anand had an unmistakable influence on the material we developed

for Chapter 7. We received a great deal of intellectual and collegial

support from our colleagues at the NUS Business School, particularly

Nitin Pangarkar and Loizos Herac1eous who helped develop some

of the cases used in the book. Finally, we would like to thank Peter

Alsop, who went beyond the call of friendship to preview various

chapters and offer insightful, detailed, and challenging comments.

xiv STRAT E G Y FO R S U C C ESS I N ASIA

Most importantly, we thank our families for their continued

support and encouragement, without which this project would not

have been attempted, much less finished.

Kulwant Singh

Andrew Delios

CHAPTER

Strategy

T his book focuses on strategy and s trategic thinking in Asia. Leaders who think strategical ly wi l l be better able to identify and exploit the myriad opportuni ties that exis t in Asia, avoid

the equal ly widespread risks, and develop strategies that can enhance the probabi l i ty of success for their firms.

In this chapter, we deve lop a framework for l eaders to th ink strategical ly about business, to help them focus on the key factors that determine success. This chapter provides an overview of s trategy and the factors that determine business strategy. We focus our overview on a strategic thinking framework which provides a systematic way to evaluate core business issues and focuses on the key factors that influence business success . This framework wi l l help managers to fulfi l l one of their primary responsibi l i t ies - the development of strategies that w i l l move their firms toward succes s . The s trategic thinking framework is not specific to Asia, but is appl icable to all business contexts . Even so, this framework is particularly useful in Asia, and is especial ly appropriate for managers in Asia-based firms .

2 STRAT E G Y FO R S U C C ESS I N ASIA

THINKING STRATEGICALLY

All choices have implications and all actions have consequences . Senior business leaders , in particular, regularly make decisions that have important, widespread , and long-term impact . Leaders must consider the impact and implications of their decisions . Doing so is , in effect , thinking strategically.

S tr a t e g i c th inking is t h e p r o c e s s o f c o n s i d e r ing t h e consequences o f one 's ac tions . A business leader who thinks strategically is one who identifies a desired outcome, and evaluates alternatives and their consequences in selecting the choice that will best achieve that outcome . If the focus is on the firm's success , a leader who thinks strategically first identifies measures of firm success , next considers alternative means for achieving this success , and then selects the strategy that is most likely to succeed. The strategic leader therefore knows what he or she intends to achieve, and selects from the many factors that influence success and from the alternatives available , the best means for achieving success .

Possibly the most fundamental of all questions in business is : "What determines business success? " This is an issue that is a t the core of every senior manager's j ob . A fair assumption , therefore , is that successful managers can and do devote considerable time and attention to understanding this issue from a strategic perspective . However, it is difficult to provide a clear or comprehensive answer to this question because of the complexity of business , the multiple external factors that impact business success , the multiple roles that leaders play in influencing firm performance, and the multiple paths that exist for a chieving success . Another reason is that many managers are inclined to action, rather than to introspection or to retrospective examination of the reasons for their successes and failures . Relatively few leaders think systematically about the issue of business success , so that even the most successful managers may find it difficult to identify the reasons for their success .

Most explanations for firms' success take the form of a list of resources , activities , functions , and environmental factors . Most of these are often unrelated, and some may appear to be almost random influences on business outcomes . It is usually difficult to explain how the fac tors in the list specifically influ ence success in a

S T R AT E G Y 3

particular case . I t is even more difficult to use this approach to generate insights and strategies to enhance future success . The fundamental problem with this approach - which we term the "laundry list" - is that i t generates a random collection of generic factors , most of which are important to some extent in many situations , but which collectively, do not provide a meaningful or rigorous explanation for business success in a particular context .

The danger in focusing on a laundry list is that by indicating that everything influences firm success to some extent , it suggests that nothing is of particular importance . Further, a laundry list often comprises many operational or tactical issues , distracting managers from s trategic influ ences on p erformance . More insidiously, a laundry l ist may reinforce the impression tha t managers are powerless to control the many factors that affect firm success . This may reinforce a manager's tendency to focus on concrete and urgent operational problems , rather than on the nebulous , long-term, and conceptual issues related to strategy.

The laundry list approach is likely to create senior managers who think and work tactically or operationally, and who focus on short-term opportunities or on correcting mistakes . This approach is unlikely to result in sustained success in complex and rapidly changing environments , such as those found in many Asian countries . To deal with such situations , leaders require an approach that is in essence the antithesis of the laundry list approach.

The s tra teg ic thinking approach d ic t a t e s a sys t emati c , organized, and iterative process t o developing and implementing strategies for business success . A strategic approach to answering the question, "What determines business success ? " defines firm success , identifies the many factors that influence firm success , generates alternative means of achieving success , and selects the alternative that is most likely to achieve the desired success . This approach or framework allows leaders to focus on the key factors that determine firm performance . A strategic thinking framework should be comprehensive , but intuitive and easy to use . It should allow leaders to focus on key strategic factors and encourage them to think strategically.

4 STRAT E G Y FO R S U C C ESS I N ASIA

Successfu l ma nagers o n the ir success

" M a ny peop l e d rea m o f s u ccess . To m e s u ccess c a n o n ly be a c h i eved t h ro u g h repeated fa i l u re a n d i nt rospect i o n . I n fact , s u ccess re p resen ts 1 % o f yo ur work w h i c h res u l ts f ro m the 99% t h at i s c a l l e d fa i l u re . "

Soic h i ro H o n d a, H o n d a M oto r

"Do your h omework a n d sta rt s m a l l . When you a re i n a n ew p l a ce , l e a r n . If t h e s i g n s a re pos i t i ve , t h e n d o n't b e a f ra i d to expa n d . "

Ka rtar T h a k ral, Th akral Grou p

Every s u cc e ssfu l c om p a ny " i s b u i l t o n a n i d e a t h at i s t a ken s er i o u s l y i n t h e m a rketp l a ce. For t h i s , a n i d ea h a s t o a c h i eve o n e or m ore o f t h e fo l l ow i n g: i m p rove c u st ome r sa t i sfact i o n , red uce cost, red uce cyc l e t i m e , i m prove p rod u ct i v ity, i n c rease c u st omer base , o r i m p rove com fort l eve l of c u st ome rs ."

N a ra ya n M u rthy, I n fosys Tec hnologies

"Al l you n eed i s t he best p ro d u ct i n t h e wo rl d , t h e m os t eff i c i e n t p rod u ct i o n i n t h e wor l d , a n d g l o b a l m a rket i n g . "

A kio Morita, S o n y

We now introduce the strategic thinking framework that is the foundation for this book. This framework is a guide for firm leaders to think strategically and is a systematic means for developing firm strategy.

A FRAMEWORK FOR THINKING STRATEGICALLY

In Figure 1 . 1 , we present the core elements of a model for thinking strategically for business success . For reasons that will become clear b e l o w, w e c a l l th i s m o d e l t h e " C u s t o m ers- C omp e t i t o rs­Competencies" model or, in short, the " 3 Cs" model .

The core o f the " 3 Cs" model comprises the relationships between leadership , s trategy, and success . This model rests on two key propositions or relationships , both of which are central to the

ST RAT E G Y 5

j ob of all leaders and fundamental for firm success . First , leaders are responsible for firm strategy and success . Second, s trategy is the primary determinant of firm success .

Lea dership ..... Strategy ..... S u c c ess

F i g u re 1 . 1 The "C u stomers-Co m pet i to rs-Co m petenc ies" M odel: Core Elements

Leadership

The first and most basic proposition at the core of the " 3 Cs" model is that senior leadership is responsible for the strategy and success of their organization. The model confirms that leaders have two primary responsibilities : they are responsible for developing their organi z a t i o n 's s tr a t e gy a n d fo r implement ing this s tr a tegy successfully. We will go further and suggest that these are the only two useful tasks for leaders . The many other activities that leaders typically undertake are often necessary but distract them from their primary tasks . These o ther activities always cost time and money, but often do not add commensurate value .

Many senior managers are not able to devote sufficient attention to developing their firm's strategy. Some leaders may simply be too involved in urgent and routine activities to commit sufficient time to long-term issues such as strategy. Others may rely on teams of advisors or managers to develop strategy for them, or may simply retain the strategy tha t the firm has always implemented. Some leaders wait for the s trategy to emerge by default from the actions and decisions of middle managers . Yet o thers assign the task to teams of strategic planners or to external consultants .

Some managers believe that it is relatively easy to develop a s tra tegy a n d tha t the grea ter chal lenge l i e s in i ts e ffe ct ive implementation. Another common view is that implementation is the responsibility of middle managers and employees , not of senior

6 STRAT E G Y FO R S U C C ESS I N ASIA

leaders . These leaders typically hold their managers accountable for the implementation of detailed plans and for achieving specific targets . They then attribute failure to achieve these targets to the poor implementation of the strategy by middle and junior managers . On the o ther hand, successful implementation and achievement of targets is attributed to the quality of the leader's s trategy. I t is worth repeating the principle that , regardless of these attributions , the chief executive is responsible for the effective implementation of his or her organization's strategy.

Leaders must recognize that their primary responsibilities are to develop and implement their organization's strategy. They cannot delegate the development of strategy to o ther managers . A leader obviously cannot develop strategy individually and completely independently, and must actively solicit ideas and feedback from the organization. Yet , he or she must be directly involved in the process of developing the strategy and must primarily determine its contents .

Having developed the strategy, the leader must then implement it. Implementation is the process of doing everything necessary to convert the strategy from ideas into action, to maximize the chances o f i t s s u c c e s s . T h e l e a d e r m u s t b e h e avi ly inv o l v e d i n implemen t a ti o n , t o k e e p t rack o f pro gress , problems , a n d contingencies . This will allow the rapid detection of delays and deviations , both of which are inevitable , so that the leader can intervene selectively to put the implementation back on track or, where warranted, to modify the strategy. Leaders must therefore play central roles in the development and implementation of their organization'S strategy.

Strategy

The second key proposition of the " 3 Cs" model is that business success depends fundamentally on having a strategy to achieve that success . Firms with well-developed and effectively implemented strategies will have higher likelihoods of success . Well-developed strategies will allow them to mobilize and deploy their resources to satisfy their customers , and to achieve the competitive advantage

S T R AT E G Y 7

that will ensure their success . Firms that do not have strategies face the alternatives of relying on luck for their long-term success , or of doing business in markets without competitors . N either of these situations is likely to occur.

Strategy focuses the resources of the organization on achieving specified outcomes which are its measures of success . This is done through detailed evaluation of the internal and external factors that influence how a firm can achieve these outcomes. This process includes design of the approach and actions the firm will take to achieve its obj ectives . The statement concerning how a firm will invest its resources to achieve its obj ectives is its strategy. We elaborate on the detailed development and contents of a strategy below.

S trategy formulation and implementation differ in many respects . Relative to implementation, formulation focuses more on the future , outside the firm, on competition and customers , and conceptually, draws ideas from the field of economics . Relative to formulation , implementation focuses more on the present, inside the firm, on competencies and resources , and conceptually, draws ideas from the field of management . Both are of equal importance for the success of a firm's strategy.

Leaders and managers must undertake many actions to ensure effective implementation of a strategy. Among these are :

• communicating the s trategy to the organiza tion in an appropriate form;

• aligning the reward structure to support implementation; • specifying and allocating required resources ; • monitoring actual implementation and performance closely ; • evaluating the strategy continuously to ensure its validity ;

and • intervening selectively to overcome problems and delays .

These are onerous and challenging responsibilities that are central to the j ob of all leaders . The leader's involvement and responsibility are central to this process , and his or her absence at any s tage during i t wil l redu c e the l ikelih o o d of s u c c ess fu l implementation.

8 STRAT E G Y FO R S U C C ESS I N ASIA

G i v e n t h e i m p o r t a n c e o f implementation, i t could reasonably be viewed as a separate element in the m o d e l p r e s e n t e d in F i g u r e l. 1 , s p e c i fi c a l ly a s a s e p a r a t e fa c t o r between strategy and success . We do n o t inclu de implementa t ion as a separate element for a very important reason - to prevent l eaders from viewing s tra tegy formula t ion and implementation a s separate activities undertaken at different times , and as different tasks for different people . As we have highlighted above , strategy fo rmu l a t i o n and implemen t a t i o n

" st r a t e g y

fo r m u l a t i o n

a n d i m p l e m e n t a t i o n

mu s t b e a single s e t o f

a c t i v i t i e s t h a t a r e

c o n c e p t u a l l y

i n s e p a r a b l e , w h i c h

l e a ders undertake and

manage jOintly. , , must be a single set of activities that are conceptually inseparable , which leaders undertake and manage j ointly.

Firms may formulate several strategies , but not implement them. A strategy that is developed but not implemented is not a firm's strategy but is merely a document or idea . Similarly, an intended s trategy that a firm deviates from in the process of implementation is not that firm's strategy. The only strategy that a firm has is the strategy that it implements .

At times , the implemented s trategy will deviate from the intended s tra tegy even for effective organizations , because of changes in the environment, competitors , and customers . In less effective organizations , deviations may not be detected, so that the implemented strategy varies substantially from the intended strategy. The primary means for preventing this problem is for leaders to regard strategy formulation and implementation as a Single process, to ensure their involvement. Any alternative way of thinking about strategy formulation and implementation carries the high risks of separation , lack of integration, and failure .

Strategy in Asia

Many Asian firms have traditionally under-emphasized strategy. The high growth environments in much of East and Southeast Asia in

S T R AT E G Y 9

recent decades created opportunities that allowed firms to succeed even without well-developed strategies . In fact , some managers not only do not formulate and implement strategy, they disparage it as an exercise in academic futili ty or as an unnecessary Western management tool that is irrelevant in Asia . In part, this a ttitude reflects the fact that relatively few senior managers in Asian firms have had formal management training. Founders and entrepreneurs , having bui l t their o rganizat ions without rel iance on formal management techniques , are often suspicious of ideas that require them to reconsider issues such as their desired business outcomes , how they deploy resources , and how much control they should exercise . Another reason why some Asian managers do not accord strategy the importance we believe necessary, is that many of their firms have succeeded as component suppliers to large Western firms . F or these firms , succ ess has been determined by increasing operational efficiency, rather than by achieving unique market positions and competitive advantage. However, circumstances in Asia have changed substantially in recent years , making inattention to strategy a maj or risk for all firms . In particular, the economic and competitive environments in most Asian countries have changed radically, making it essential for firms to invest in strategy and strategy processes .

Success

The " 3 Cs" model indicates that the goal o f all s tra tegy is the achievement of success . The starting point for leaders developing organization strategies is the identification of clear measures o f success . Success i s defined by a collection of outcomes or positions that a firm wishes to achieve in future . These will range from a broad vision that a firm may never achieve in full , to the mission that a firm attempts to achieve in the long term, to specific and detailed goals and targets that it seeks to attain in the short and medium terms .

The vision and mission of a firm collectively comprise its strategic intent, which is an outcome or leadership position that a firm wishes to achieve in the future but which exceeds its current

1 0 STRAT E G Y FO R S U C C ESS I N ASIA

capabilities . Strategic intents are useful for providing motivation and gUidance to firms , and for driving them to strike the right balance between focusing on urgent problems and building for the long term. A good strategic intent is one that a firm and its people believe in and support , and which energizes them toward long-term success . The intent is a maj or influence on strategy, as it provides guidance to leaders for the direction a firm's strategy should take and the outcomes it should achieve .

I t is inconceivable that senior managers do not understand the value of a strategic intent or are unfamiliar with the many benefits of having a well-developed strategic intent. It is common for many firms and managers to invest repeatedly - often with the help of expensive consultants - in developing and refining vision and mission statements . Unfortunately, these firms often subsequently disregard these expensively developed statements . Managers in these firms might not consider the strategic intent when developing or evaluating their strategies , or when setting goals and targets . For these firms , the time and cost of developing the strategic intent have been poorly utilized.

We should be clear here : we are not questioning the value of having a strategic intent. Rather, we question the value of having statements that do not motivate employees and that provide no guidance to management in the development of a firm's strategies . Managers and employees who do not value a strategic intent are unlikely to be fully committed to the strategy that seeks to achieve that intent. Clearly, visions , missions , and strategic intents will only be valuable if leaders value them, and can convince their people of their value . As we show in Table 1 . 1 , i t is possible to develop a mission statement without much reference to the core values and intent of a firm. In essence , firms do not need vision s tatements and mission s tatements , but need visions and missions . Belief in and commitment to the vision and mission are critical . Instilling these within an organization is an important task for leaders .

Ra n d om Vis i ons

S T R AT E G Y 1 1

I t i s poss i b l e to d eve l o p a v i s i o n statemen t w i t hout g i v i n g t h o ught to t he a s p i rat i o n s , a b i l i t i e s , a nd s pec i f i c c i rc u m st a n ces o f a f i rm . U n fo rt u n ate ly, i t a p pe a rs t h at s ome f i r m s t a ke t h i s ra n d om a p p roa c h to d eve l o p i n g t h e i r v i s i o n s . The t a b l e b e l ow o n ly req u i res t h e ra n d om se l ect i o n of o n e i te m fro m each co l u m n to gene rate a p l a u s i b l e v i s i o n statement. U nfort u n ate ly, t h e res u lts often seem s i m i l a r t o m a ny f i rms ' v i s i o n statem e nts . A l t h o ug h we present t h i s mode l t o i l l u strate t h e l i m i t ed va l u e of v i s i o n statem e nts t h a t d o n ot i n s p i re b e l i e f a n d com m itm e nt , we recog n i ze t h a t t h e re i s s o m e r i s k t h a t s o m e m a n a gers m ay i n fact u s e i t .

Table 1.1 The Wrong Way t o Develop a Vision

To b e a f i rm that in t h e i n d ustry to

p rovi d es

p rem i e r i n n ovat ive p ro d u cts h u m a n- sat i sfy se rv i ces c u stome rs

g row i n g h i g h-q u a l i ty se rv i ces i nfo rma t i o n c reate s h a re h o l d er va l u e

l e a d i n g cost -effect ive outcomes m ater i al- i n c rease sta ke-se rv i ces h o l d e r wea lt h

wor l d - foc used so l u t i o n s co n s u m e r serve t h e g l o b a I c l a s s p ro d ucts m a rket p l a ce

p referred wor l d - c l a ss sa t i sfact i o n b u s i n ess- i m p rove the p a rt n e r se rv i ces h u m a n race

1 2 STRATEGY FO R S U CC ESS I N ASIA

THE DETERMINANTS OF STRATEGY

We now discuss how a leader should think strategically and can develop a strategy. This development requires a full understanding of the concept of a strategy and of the factors that influence the strategy. We address these issues by fully developing our "3 Cs" model for strategic thinking.

Defining strategy

There are many d e finit ions o f strategy, most of which relate to h o w o rg a n i z a t i o n s u s e t h e i r resources t o realize their specified aims . Our definition of strategy is s i m i l a r a n d fo c u s e s on h o w organizations use their resources to a c h i e v e t h e i r i n t e n t . An organization's strategy i s how i t uses its competencies to satisfy its customers more effectively than its competitors in the context of i ts environment, so as to achieve its strategic in tent.

This definition specifies the

, , An organization's

strategy is how it uses its

competencies to satisfy its

customers more effectively

than its competitors in the

context of its environment,

s o as to a c h i e v e i t s

s trategic inten t . , , three key determinants of a strategy: customers , competitors , and competencies . Figure 1 . 2 shows the complete version of the " Customers-Competitors-Competencies " model, building on the core elements identified in Figure 1 . 1 .

I t is essential that the elements of the "3Cs" model are evaluated collectively, not in isolation. The value of competencies cannot be determined without reference to customers' needs and competitors' abilities . Similarly, discussions of how to achieve competi tive advantage will not be useful unless considered in the context of what the firm is able to undertake and what customers are willing to purchase . All factors must be considered within the specific business context in which the firm operates .

Custom e rs

\ ,--_Le_a_d_e _rs_h_iP---J -I

Competitors

/ S u ccess

S T R AT E G Y 13

Strategy I_I t

L...----......I

The e n v i r o n m e nt:

Compete n c i es • P o l i t i c a l

• Ec o n o m i c

• S o c i o-cu ltura l

• Te chn o l og i c a l

F igure 1.2 T h e Com p lete "C u sto m e rs-Com petito rs-Co m pete n c i es" M o d e l

Customers

Leaders and their firms are much more likely to achieve success if they focus on the value their firms create for their customers , and make this focus the key driver of the firm's strategy. This leads to the question that represents the starting point for the development of s trategy for every firm: "What value can we crea te for our customers ? " It is essential for the development of an effective s t r a t e gy, t h a t l e a d ers a r e a b l e to a n s w e r th is qu e s t i o n comprehensively. I t i s essential that strategy development efforts start with the customer, and that customer satisfaction is made the ultimate test of the effectiveness of strategy.

The success of all firms rests on their customers . This is perhaps one of the most obvious and well-established rules of business . Yet , many firms do not understand the implications of this simple principle , while o thers are unable to behave in ways consistent with it. A related mistake that senior managers commonly make is to regard customers as largely relevant in the context of marketing, but not as central to the strategy of the firm.

1 4 STRAT E G Y FO R S U C C ESS I N ASIA

In general , there has been a growing shift in power from producers to consumers . This shift increases the importance of placing customers at the core of strategy, not as an afterthought. Customers are increasingly well-informed and well-equipped with information on products , prices , actual performance, and reliability. Customers demand the latest products , at the lowest prices , and are increasingly intolerant of product defects or service failures . They require that their total experience is positive , and are more willing to switch to alternate suppliers when dissatisfied with their experience. These trends are common not only in the most advanced economies in Asia , but also in the poorer ones , where customers' limited disposable incomes translate into high levels of price sensitivity and high expectations of product reliability.

The customer imperative exists even in industries that are not focused on the individual consumer. Industrial customers have become better able to identify and source globally from lowest-cost suppliers , and have a greater ability to dictate the terms on which they make purchases . All these trends increase pressures on firms and require that leaders pay close attention to customers' needs .

The new customers

• Are bette r i n fo rmed • Sea rc h outs i d e t ra d it i o n a l b ou n d a ri e s • Have m o re c o n nect i o n s • Have m o re bu t wea ke r re l at i o ns h i p s • Have greater power t h a n ever • Wi l l i nc rea s i n g l y d i ctate te rm s • Expect m ore at l ower p r i c es • Expect a n i m m ed i ate res pon se • Are e a s i l y d i s a p p o i nted • Demo n strate l i tt l e l oya lty • Wi l l rea d i ly sw itch to oth e r s u p p l i e rs