Sunday, October 5, 2008

Scientific Study of Companies - Beyond The Blue Ocean Strategy

Study and Research
Consider two finacial institutions - Fannie Mae and Wells Fargo. These are two of the few companies that apparently made the jump from Good to Great.

Fannie Mae survived only because of government intervention and Wells Fargo is taking over Wachovia (well not quite, even as I type Citi Bank announced that it has persuaded a New York judge to block the Wells-Wachovia deal (see here - you will have to skip the advertisement that comes up when you click the link)

So what happened? Why did the two great companies diverge?
Well the answer seems to be in the Blue Ocean Strategy. W. Chan Kim and Renee Mauborgne, the authors of the Blue Ocean Strategy obviously put in a lot of effort to choose the unit of their analysis. Obviously companies cannot be examples to be followed. Not when "great" companies drop like flies soon after they are pronounced great.

To quote from the Blue Ocean Strategy: "If there is no perpetually high-performing company and if the same company can be brilliant at one moment and wrongheaded at another, it appears that the company is not the appropriate unit of analysis in exploring the roots of high performance ... our study shows that the strategic move, and not the company or the industry, is the right unit of analysis for explaning the creation of blue oceans and sustained high performance."

However, I would go a step further and modify the above a little - ok I am not a INSEAD professor, so what? This is my blog ;)

All strategic moves are right or wrong within a context. Remove the context and you have a strategy that has no standing. Blindly following any strategic move - even if it is part of a best seller - cannot be called a wise move.

So, why do I think a company does well at times and poorly at others. It is because what we call a company is a binch of people. The people take decisions. Not one but a set of people. When a company does right, find out what people were involved and what was their thought process. When the same company does poorly, find out whether the same people are still with the company; they may have moved on. Or if the same people are still around, are they still stuck to their old thought process.

I am sure all business thinkers are very good at what they do. But their methods are unscientific. A measure of good scientific theory lies in its ability to predict. Post facto curve fitting is not scientific.

If I were to conduct a scientific study on business strategies, I would report the context and the decisions live, recording the thought process (as revealed by behaviour) as it happens, without drawing any conclusion. Very much like the National Geographic or such similar recordings of wild life.

I might have just hit upon a new field of management study :-))))
Remember, you read it here first!

Note: The photograph used belongs to Mikhail Lavrenov. Please go here to see more such photographs.

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1 comment:

Michael Bolden said...

I think your point of people are a given company is good. I do feel that smart people can also still make bad decisions. I think tools such as blue ocean strategy help to mitigate the number and significance of bad decisions made.

Many blue ocean strategy cases highlighting both good and bad decisions are on www.mikebolden.com. It talks about the results that blue oceaning thinking has had on profitability and losses for a variety different companies.

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