Middle-market firms may be the backbone of the U.S. economy, but they face considerable competition at home and abroad. Not least among those are continuously upgrading skills and systems to match a complex and rapidly changing environment. One area where these firms often fall short is strategy.
Most executives agree that strategy formulation and execution are important, but many midsize firms lack dedicated strategic planning, leaving its development and deployment as yet one more task for already overburdened executives.
As a result, strategy can be an afterthought. Managers talk about, or assume it is “somewhere there,” but don’t systematically and consciously apply it.
No room for excuses
The excuses for this state of affairs range from “we are too busy fulfilling orders” and “when we have a quiet moment, we’ll get to it,” to a belief that strategy will happen on its own, exemplified by “if you have a good product, the market will take it off your hands.”
Nothing could be further from the truth. Without proper strategy and execution, a firm can lose its way — today’s hit can turn into a bust.
Critical resources may not be marshaled, properly allocated and usefully deployed. Efficiency (proficient utilization of resources and assets already in possession) will often be confused with effectiveness (ability to garner valuable and rare resources to be transformed within the firm), to the detriment of both.
Breaking it down
Strategy seems like a simple exercise, trying to answer two questions: In what industry should I compete, and how should I compete there?
The answer to the first is often taken for granted, especially in traditional family firms in the same business for years or generations. The answer isn’t simple, however, when companies need to diversify or face a turbulent, transformational environment that undoes traditional sector boundaries, such as when previously disparate industries merge (think TVs and personal computers).
The second question is even more challenging: How to deploy your limited resources in a highly contested environment, populated by large companies that can throw a lot in the game, as well as newcomers and disruptors not bound by past conventions.
When a firm goes into the global arena, it gets even more complicated. Global strategy isn’t an extension of domestic strategy. It requires different capabilities and tools, which middle-market companies often lack.
Understanding global trends, with their cultural and political trends, is no longer a luxury enjoyed by large multinationals. They should be the bread and butter of any midsize firm.
Add formal systems, processes
Finally, the value of strategic planning cannot be realized without proper implementation, which requires a formal system and process.
Data collected by the National Center for the Middle Market shows that “growth champions” — firms that grow at three to five times GDP — are more likely to have a long-term growth strategy, set formal growth targets each fiscal year and have a formal process tracking progress toward specific growth targets. They also have a formal process to disseminate those to employees.
Middle-market firms will do well to emulate those steps.
Oded Shenkar is the academic director of the National Center for the Middle Market, the leading source for knowledge, leadership and research on midsize companies, based at the Fisher College of Business, in collaboration with The Ohio State University. Oded is the Ford Motor Co. chair in Global Business Management and a professor of management and human resources at the Fisher College of Business.