 "Even start-ups today need a global strategy: Garth Saloner")
The changing business environment and globalisation are forcing companies to be ready to adapt their strategies in real time, Saloner tells Masoom Gupte
It has been more than a decade since your book, Strategic Management, co-authored with Andrea Shepard and Joel Marc Podolny, was first published. What are the major changes that you see in the field since then?
I think most of the principles of strategy are enduring. They don't turn upside down in a decade. So some of the messages in the book - about having a coherent strategy that is well understood and is aligned with the external environment and that you have the right leadership structures - endure. But if we speak about areas that continue to see the maximum change, there would mainly be two: first, entrepreneurship in the technology space. The start-up costs for a web-based business today are much less than traditional start-up costs. We see, then, many smaller companies experimenting. The focus of strategy really shifts from figuring out in advance the strategy and mapping it out to a more intuitive process, where you are trying something out, learning from it and then quickly adapting the strategy. This is a very different strategic approach when compared to the one described in classic textbooks.
The current economic uncertainity has highlighted the importance of strategic management. How can one really strategise in the face of such unprecedented changes?
One of the things that I find to be different when I speak to my alumni - and this is again something that has changed significantly in the past five or 10 years - is the way you assessed your challenges earlier. A decade ago you used to ask what are my challenges and how can I deal with them. The answer you received would have had a substantial inward focus, in terms of what you needed to do as a company, it may have been a little about competition even. Today if you ask the same questions, they talk about the big global forces like political upheavals, economic downturns and pressures across various economies that they don't control. There has been a shift in being more externally focused in strategic thinking, to understand what the forces are, what the possible scenarios will be in terms of political environments or the economic landscape, and how best to align one's strategies with these.
You have to strike a balance at the end of the day between being internally focused and being externally focused at the same time. Strategy eventually is about the choices you make for your company in the light of what could possibly happen outside of your company environment.
When you look at strategic management in big companies and start-ups, what are the differences you notice in the way they set strategy and execute it?
For young firms that tend to be small, long range strategic planning tends to be difficult as compared to established firms. The latter are already on a path and know where they are headed in a way and what the source of their success is. Entrepreneurial ventures have an idea about how they can be successful. But there are a lot of guesses and hypothesis involved in that conception of how they may be successful. As a result their strategy needs to be more flexible. In Silicon Valley, we see companies almost pushed to the limit - where they are expected to evolve very very rapidly, see what works and then adapt the strategies almost in real time. If we may generalise, venture capitalists and funders over time have become more interested in the quality of the team, technology and the market and their ability to adapt to the market and change rapidly.
You spoke about adapting strategies in real time. Do you feel then that short-term tactical planning is replacing long-term strategic planning?
As environments change and become more dynamic, this tends to happen. You do feel the need for your strategies to be more adaptive and flexible in nature. But I feel that the need for an overarching strategy and conception of goals continues to be important. Else you would be lost.
Saloner, a two-time recipient of Stanford’s Distinguished Teaching Award (1993 and 2008), is one of only two professors to receive this award twice. He has taught courses on strategic management, entrepreneurship and e-commerce
He has authored and co-authored two books, including Strategic Management and Creating and Capturing Value: Perspectives and Cases on Electronic Commerce
A native of South Africa, Saloner received a BCom and MBA from the University of the Witwatersrand in Johannesburg. He received an MS degree in Statistics, MA in Economics, and a PhD in Economics, Business and Public Policy from Stanford University
When you look at business practices that are peculiarly Indian, what are the things that you feel stand out with regard to strategic management?
One of the things that really impresses me about Indian businesses is how flexible and entrepreneurial they are. If you look at the large established companies or the number of markets they have gone into or the very different avenues they have explored with big bets, that takes a very flexible and aggressive form of strategic thinking. Take Reliance, for instance. It has gone into completely different areas in just five years, whether with retail or even the impending 4G entry. This is not in a small way but with significant investments. With the way the India story has unfolded over the past decade, there has been tremendous opportunity for the Indian companies to develop their skills in one environment and take them into other unexplored markets.
They have developed an entrepreneurial DNA that larger corporations in more stable environments don't always have. This works for Indian companies when they enter foreign markets. It takes a lot to have an internal structure that is flexible and innovative.
A decade ago, the thinking was to look at what could be done in areas where India had a cost advantage and could use that space to compete with firms abroad. But now you see firms broadening their horizons and saying that we are highly capable and we can compete with the best corporations even abroad.
It has been more than a decade since your book, Strategic Management, co-authored with Andrea Shepard and Joel Marc Podolny, was first published. What are the major changes that you see in the field since then?
I think most of the principles of strategy are enduring. They don't turn upside down in a decade. So some of the messages in the book - about having a coherent strategy that is well understood and is aligned with the external environment and that you have the right leadership structures - endure. But if we speak about areas that continue to see the maximum change, there would mainly be two: first, entrepreneurship in the technology space. The start-up costs for a web-based business today are much less than traditional start-up costs. We see, then, many smaller companies experimenting. The focus of strategy really shifts from figuring out in advance the strategy and mapping it out to a more intuitive process, where you are trying something out, learning from it and then quickly adapting the strategy. This is a very different strategic approach when compared to the one described in classic textbooks.
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Second, the world is globalising extremely fast with significant economies developing in countries like India and China. This is really making it imperative even for small companies to have a global strategy from the beginning. Take emerging economies, for instance. Understanding how businesses work there and how one interacts with the government is important. Some room must be left to factor these variations in.
The current economic uncertainity has highlighted the importance of strategic management. How can one really strategise in the face of such unprecedented changes?
One of the things that I find to be different when I speak to my alumni - and this is again something that has changed significantly in the past five or 10 years - is the way you assessed your challenges earlier. A decade ago you used to ask what are my challenges and how can I deal with them. The answer you received would have had a substantial inward focus, in terms of what you needed to do as a company, it may have been a little about competition even. Today if you ask the same questions, they talk about the big global forces like political upheavals, economic downturns and pressures across various economies that they don't control. There has been a shift in being more externally focused in strategic thinking, to understand what the forces are, what the possible scenarios will be in terms of political environments or the economic landscape, and how best to align one's strategies with these.
You have to strike a balance at the end of the day between being internally focused and being externally focused at the same time. Strategy eventually is about the choices you make for your company in the light of what could possibly happen outside of your company environment.
When you look at strategic management in big companies and start-ups, what are the differences you notice in the way they set strategy and execute it?
For young firms that tend to be small, long range strategic planning tends to be difficult as compared to established firms. The latter are already on a path and know where they are headed in a way and what the source of their success is. Entrepreneurial ventures have an idea about how they can be successful. But there are a lot of guesses and hypothesis involved in that conception of how they may be successful. As a result their strategy needs to be more flexible. In Silicon Valley, we see companies almost pushed to the limit - where they are expected to evolve very very rapidly, see what works and then adapt the strategies almost in real time. If we may generalise, venture capitalists and funders over time have become more interested in the quality of the team, technology and the market and their ability to adapt to the market and change rapidly.
You spoke about adapting strategies in real time. Do you feel then that short-term tactical planning is replacing long-term strategic planning?
As environments change and become more dynamic, this tends to happen. You do feel the need for your strategies to be more adaptive and flexible in nature. But I feel that the need for an overarching strategy and conception of goals continues to be important. Else you would be lost.
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When you look at business practices that are peculiarly Indian, what are the things that you feel stand out with regard to strategic management?
One of the things that really impresses me about Indian businesses is how flexible and entrepreneurial they are. If you look at the large established companies or the number of markets they have gone into or the very different avenues they have explored with big bets, that takes a very flexible and aggressive form of strategic thinking. Take Reliance, for instance. It has gone into completely different areas in just five years, whether with retail or even the impending 4G entry. This is not in a small way but with significant investments. With the way the India story has unfolded over the past decade, there has been tremendous opportunity for the Indian companies to develop their skills in one environment and take them into other unexplored markets.
They have developed an entrepreneurial DNA that larger corporations in more stable environments don't always have. This works for Indian companies when they enter foreign markets. It takes a lot to have an internal structure that is flexible and innovative.
A decade ago, the thinking was to look at what could be done in areas where India had a cost advantage and could use that space to compete with firms abroad. But now you see firms broadening their horizons and saying that we are highly capable and we can compete with the best corporations even abroad.