The Grinch who stole the business

Volume 4 Letter 12

“The general who wins the battle makes many calculations in his temple before the battle is fought… The general who loses makes but a few calculations before hand… It is by attention to this point that I can foresee who is likely to win or to lose”

Over the holidays I was sitting on the couch with my family watching Jim Carrey as the Grinch. In one scene the Grinch was sucking the content of peoples’ houses up the chimney in his giant vacuum cleaner – the Grinch was stealing Christmas!

The same sucking sounds can be heard in businesses around the world, except the Grinch usually wears a more traditional suit. In a recent study, authors Paul Kocourek, Jim Newfrock, and Reggie Van Lee found that in the last five years more shareholder value had been sucked away by poor business strategy, poor strategy execution and bad management decisions than by all the recent compliance scandals combined (including Enron, Nortel and others).

Of 1200 companies studied with a market capitalization of one billion or more, just less than a third destroyed shareholder value. Of those, less than five percent were due to issues of compliance and ninety five percent of the losses were due to management teams that stumbled on basic business strategy. The failures fit into three groups – failure to react (or react appropriately) to competitive pressures, ineffectiveness forecasting of customer demand and cost overruns on M&A integrations.

Many companies have reacted to the headline grabbing issues of corporate compliance and for sure these issues need to be addressed but not at the expense of pushing business strategy to the sidelines. To thrive in the current business environment companies need to do much more than comply with regulations. They must be proactive in addressing business risk by understanding and anticipating the full range of threats and opportunities to their businesses. Risk management must be embedded in strategic planning. Companies must develop business strategies that protect and enhance shareholder value.

Take time this year to define your business strategy, identify areas of business risk and develop early-warning systems. Expand the definition of risk beyond market, legal, and natural hazards and consider other threats that can have a long-term impact on company performance. (Changes in customer turnover, price pressure, and brand impairment are some areas to consider). Additionally organizational behavior issues, management and cultural factors can also influence strategy. Examples are misaligned incentives, communications breakdowns and systems and structures that don’t support the business strategy.

Take time in 2005 to do a real strategic plan. It is all too easy to skip over developing a strategy with disastrous results. Don’t let the Grinch steal your business!

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1. Sun Tzu “The Art of War” New York Buccaneer Books 1996
2. Paul Kocourek, Jim Newfrock, and Reggie Van Lee It’s Time to Take Your SOX Off www. strategy-business.com

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