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Strategy is not just talking and hand waving

Researchers show that unless companies understand what their capabilities are, they may end up attempting to do something that is not possible.

Strategic initiatives play a key role in enabling the company’s management to take advantage of new growth opportunities identified in its operating environment. But how will a company know whether initiatives are viable, and how, on the other hand, does an understanding of the implementation possibilities affect making initiatives?

Markus Kajanto, whose long career in business world includes the position of director of corporate strategy planning at Nokia, and Timo Vuori and Henri Schildt, professors of strategy at Aalto University, were looking for an answer to this question. Their study was based on 112 interviews that Kajanto conducted with managements of 37 Finnish companies.

‘When decisions about initiatives are made, the management’s ability to understand future capability requirements plays a key role,’ Kajanto summarises.

Capability is what the organisation can do; its possibilities to achieve.

‘Capability is what the organisation can do; its possibilities to achieve. An understanding of capabilities is based on concrete matters, such as quantitative metrics and the perceived skills of individual people as well as on how the management feels it has motivated the personnel. Appreciating the unpredictability inevitably linked with a strategy aiming at future is another important factor,’ he stresses.

Two risk areas

According to the researchers, the biggest differences between the companies were indeed related to appreciation of uncertainties. Many companies have – often due to circumstances – anchored themselves so tightly to the present that it is difficult for them to see into the future.

‘That being the case, they often end up trivializing the measures required by the change and attempt to do something that is not possible. When it does not work out, they have to make corrective actions, which are also difficult to implement because the required capabilities were originally not properly identified,’ states Markus Kajanto.

On the other hand, too pessimistic a picture of one’s own capabilities is also dangerous regarding success. The necessary initiative may already be there, but if the management doubts the company’s possibilities to implement it, no action is taken.

‘We often discovered in the interviews that even many good plans had not been implemented because the management had hesitated,’ Markus Kajanto says.

‘Because strategies are about something that has not been done before, the only thing we can do is to appreciate the possibility of uncertainties and surprises,’ he reminds us.

We should not overanalyse the present situation but set our eyes to the future while being prepared for a variety of outcomes.

Timo Vuori also encourages companies to have a bold attitude.

‘We should not overanalyse the present situation but set our eyes to the future while being prepared for a variety of outcomes,’ he advises companies.

Creating new knowledge

Kajanto says he was interested in postdoctoral research at Aalto University because, having worked in business life for 20 years, he wanted to share his expertise and create new knowledge about strategy for students and companies to use.

‘Many people seem to think that a strategy is very easy, just talking and hand waving. The reality is that you will very soon hit a wall if that is what you base your work on. Strategy is a difficult subject, which is why it has to be studied and taught,’ he stresses and reminds us that a strategy is much more than just the documentation of it.

‘A strategy is about big decisions that build the future, such as investments and how they are allocated. In other words, it is about very concrete actions, but if we cannot communicate them properly to the different target groups, the strategy may remain just empty words.’

The study ‘Forming capability beliefs: How do managers understand what their organization is capable of?’ completed by Markus Kajanto, Timo Vuori and Henri Schildt was presented in the Academy of Management conference in Vancouver in Canada in August 2015.

Further information:

Markus Kajanto, DSc (Tech)
Tel. +358 40 552 9710
[email protected]

Professor Timo Vuori
Tel. +358 50 441 9072
[email protected]

 

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