Running a company in competition is an inherently political task. As a political task, it is characterized by being carried out with a frame of reference that is more chaotic than orderly. Anyone with experience in leading a company has experienced the typical disorder with which problems appear. Although the manager can and should do his best to establish an order, the challenges that arise usually appear in a certain random order. Surely these respond to some kind of order, but the truth is that it cannot be anticipated by the manager. Speaking in simple, directing requires performing with order in an environment of disorder.
Tidying up the mess
The disorder to which I refer here is none other than that in which the best and most detailed plans are spoiled by the appearance of exogenous factors, often the result of the actions of the competition, of a regulator or simply the disorder that is generated in an unexpected and even surprising behavior of a member of the organization itself.
Although there is a tendency to think that people behave in a predictable way, this is only true in general terms. But you can’t lead people in general, you have to lead Juan, María and Pedro, in particular. The truth is that as long as companies are made up of people, customers are people and suppliers the same, uncertainty will be present, complicating life for those who want to rest on detailed plans.
Molke the elder made famous the sentence that reads: “No plan, however good it may be, resists the first contact with the enemy”. That the famous Prussian general is right It doesn’t mean you don’t have to plan. Only that it may have to be done with a focus on broad guidelines based on known cause-effect relationships that give a good starting point for reacting. The messier reality is, the more mental order one must have. It is more necessary to find cause-effect relationships that make it easier to decide quickly and well, more model on which to rely to prevail in the chaos.
Some useful relationships
Some basic relationships linked to company policy are those that link environment, strategy, structure and power. They may be basic and somewhat rustic, but their simplicity allows them to be used as a starting point when the waters go down murky. Many new businesses, or new businesses from existing businesses, start when they find an environment in which the demand is greater than the supply. Faced with such a situation, the company puts all its efforts into a strategy that favors the highest volume of production. If there is unsatisfied demand, the name of the game is to generate the largest amount of product. Although within a logical range, cost efficiency is not even very important, since power is on the supply side and, therefore, eventual cost inefficiencies will be passed on to the customer. When this is the situation, the structure will be centralized and with few decisions assigned to middle or lower positions.. The challenge is to optimize the means of production available, so the most valuable information resides in the one who can plan the best use of all of them, maximizing production. Hence, the right to decide is located in the highest positions.
As the volume strategy is implemented and succeeds, the environment changes. Both our company and our competitors will increase the volume offered until it begins to be more or less similar to that of the demand. This moves the needle of power, which is no longer on the supply side to be in an intermediate position in which industry and client meet with a balanced power. In this situation it is no longer enough to be good at producing much. Efficiency in producing at the lowest cost becomes the key to the new strategy, since the client has gained power and no longer pays for the inefficiencies of the production process. The most appropriate structure continues to be the centralized one, in which supply decisions, production series planning, set-up optimization and the like are centralized.
Time passes and the increasing production to optimize production costs leads the power pendulum to swing towards the customer, leaving the industry in a weak position. Supply exceeds demand. If there are no processes of acquisition of competitors, or
develop actions to limit competition by capturing the regulator, the tendency is to work with minimal margins. In this environment there is only one differentiation strategy, either by developing a new functionality to the same product, adding a service that no one
offers or innovates with a product that finds an avid demand that does not have an equivalent supply. To carry it forward The structure will have to turn towards a much more decentralized one, because if what is sought is to give quick and original answers, placing all the power to decide at the top is a sure path to failure.
The search for the philosopher’s stone
Actually, what every differentiation strategy tries to do is correct the balance of power between supply and demand, striving to go to an environment where supply falls short of demand again, and thus power returns to industry. Of course, the cycle will not stop here and will repeat itself as we have narrated it. And faster and faster. This will mean that we are continually attentive to the levels of power, adjusting the strategy to respond to the new environment, which will force us to be consistent with the degree of decentralization.
Whoever keeps a cool head in the chaos will know how to make the right political decisions. Having simple and powerful models will be the philosopher’s stone, the one that assured wisdom for whoever found it. It is not an easy stone to find but who said that what is valuable does not require effort?
