Taking Big Risks Can Pay Off – If The Strategy Is Correct

Risk

In turbulent emerging markets, why do some companies flounder and others fly? US business consulting giant Boston Consulting Group (BCG) recently published a report titled “How Companies in Emerging Markets are Winning at Home”, naming 50 companies from developing countries around the world as Local Dynamos – companies that powerfully outperform competitors and succeed on home ground where others, including global companies seeking a foothold in emerging markets, fail.

South Africa’s biggest healthcare company – Discovery Health – was one of those that made the list. BCG credits Discovery for competing on innovation rather than cost, by for instance rewarding its customers for modifying their lifestyles and habits. It is this strategically significant fact that has set the company apart from other medical aid schemes in the world. When South African entrepreneur and businessman Adrian Gore launched Discovery in South Africa in 1992, his focus was on wellness – not illness, right from the start. From this strategic choice, the company has evolved into a multinational organisation over the past 22 years, with total income flows in excess of $5 billion and a worldwide patent for the Vitality programme.

There are many lessons to be learnt from the phenomenal success story that is Discovery Health – as well as from other Local Dynamos. A common denominator in their success is the ability to think and act strategically.

Many CEOs and managers are intimidated by the idea of strategic thinking. But in fact all of us are making use of the principles of strategy in the course of our daily lives. When we think about our resources – our money, our time, our energy – we are thinking about their limits and we make choices and trade-offs all the time. Consciously or intuitively, we are constantly prioritising and making choices to get what we want. This is the essence of strategy.

Strategy is both about common sense and imagining possibility. The key strategy questions reveal gaps in the current way of doing things – unmet needs, or smarter ways of doing things – and help us prioritise what choices and trade-offs to make, given the all limitations and constraints that we invariably face.

But of course, sometimes, we don’t do this as well as we would like to. This is where an appreciation of the psychology of strategy can come in handy. When we start to consider business strategy through the lens of human behaviour, where we explore the sensibilities of others through both the heart and mind, and try to understand how people may feel as much as how they think, a new realm of behavioural tools become available to us for strategic thinking, planning and execution.

Two principal areas of focus in examining the influence of human behaviour on business strategy involve considering, within any organisational system or environment, the characteristics or personality of the key individuals within the system and the nature or culture of the various groups or teams that exist within the organisation.

Personal preference plays a big role in the lives of individuals – who may be in charge of big corporations. Along with preferences come blind spots – and without a cultivated awareness, we may make mistakes when making strategic decisions, guided by our blind spots instead of strategic thinking.

Business leaders need to understand their own blind spots and be able to see how these could pose a threat in a business environment. They would also do well, in terms of strategy, to learn how to diagnose and influence the behaviour of many different groups, such as customers, suppliers, staff and other stakeholders. There are many tools available to help business leaders understand the psychology and human behaviour that can be influenced through business strategy.

Sound business strategy will enhance personal effectiveness as well as improve organisational efficacy. It also helps business leaders to see what opponents are doing in their field and how they can gain the competitive edge they need.

Innovation is an important part of this process. Consider once again the example of Discovery and its innovative decision to focus on wellness and preventing disease, rewarding people for leading healthy lifestyles and giving money back for cash spent on fruit, vegetables and healthy foods. This radically different way of thinking is a prime example of a strategic decision underpinning a business plan and company ethos.

Another good South African example is insurance expert Outsurance, which also took an innovative approach to its customers and policy, fundamentally changing the rules of short-term insurance by offering to give back to clients a percentage of premiums.

Companies, especially in emerging market economies, deal with a lot of uncertainty, unstable markets and changing conditions. But there are tools available to business leaders to help them develop a strategy that will help them master these conditions and lead their company on a path of growth and prosperity. Discovery and Outsurance are living proof of this. They found out what they needed to do to lock competitors out and keep in customers for longer – and now they continue to seek ways to fine-tune the model so that it becomes more effective.

Thinking and acting strategically is not only about planning. It involves five very different thought processes. There is the thinking stage, then the planning and the processing, which leads to the decision-making. But after that comes effective and timely implementation, perhaps the most important stage of strategy development process.

Apart from the obvious benefits for an organisation, mastering business strategy is very empowering for business leaders. It helps them to be more influential and persuasive, to get their point across and gives them the tools to go beyond logic, personality, psychology and intuition to become more empowered as individuals and business leaders.

Business strategists can give company managers and business leadership the confidence to embrace radical innovation in the face of turbulence. This aspect of strategy is quite exciting as many executives shy away from behaviour that is considered risky or foolish. But there is always risk in a business environment and the question really is how do we manage risk? Horizons need to be expanded in order to make more bold and innovative decisions.

As the BCG report points out, emerging markets are global growth engines that offer big opportunities to both local and global companies if they understand what needs to change in the way they approach and manage risk.

by Grant Sieff: CEO of IC Growth Group and Programme Director at University of Cape Town’s Graduate School of Business.

SOURCE:     http://www.leader.co.za/

IMAGE CREDITS:     https://zeynepnazan.files.wordpress.com

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