What is your company capable of? 

To help you get in the proper mindset for next June's Annual Conference and Manufacturers Forum, IMDA Update presents the first of a series of articles on strategic planning for small businesses (which will be the focus of the Conference, to be held June 19-23, 2002, in Tucson, AZ). Conference Moderator Ron Stephenson from Indiana University hand-picked this article to demonstrate some new ways in which companies are approaching strategic planning. Check future newsletters for more thought-provoking articles. 

  Where you choose to compete is important. But how you do so is even more important. Take Kmart and Wal-Mart.
  Back in 1979, Kmart was king of discount retailing, and Wal-Mart was but a small discount retailer in the South. Today, the tables are turned. How'd that happen? 
  It happened because Wal-Mart developed and perfected certain capabilities, while Kmart merely stayed the course, according to George Stalk, Philip Evans and Lawrence Shulman, authors of "Competing on Capabilities: The New Rules of Corporate Strategy" (Harvard Business Review �1992). It's a strategy that today's businesses (including medical specialty distributors) must employ in order to compete and succeed in a dynamic business environment.
  Wal-Mart's success lies deeper than the charisma of Sam Walton, the folksiness of the stores' "greeters" and even the allure of its everyday low prices, says Stalk et al. In fact, it lies "in a set of strategic business decisions that transformed the company into a capabilities-based competitor," they say.
  The strategy began and ended with the relentless pursuit of satisfying customers. A simple goal, but hard to execute. It's hard to give customers what they want, when they want it, at the price they want. How did Wal-Mart do it? It focused on one key capability (a very unsexy one, at that) from which many others flowed -- inventory replenishment.
  The company perfected the art and science of cross-docking, so that goods cross its docks from manufacturers' trucks to trucks destined for its stores, without sitting idle in a warehouse. This "largely invisible logistics technique" allows Wal-Mart to buy truckloads of goods without getting killed on inventory and handling costs. That helps the company pass on to customers its "everyday low prices."
  If that was the secret, why didn't everyone - including Kmart - do the same? Because cross-docking is hard to do. And it's expensive. Wal-Mart had to make a huge investment in information systems. After all, the technique doesn't work unless the company gets up-to-the-minute information on what customers are buying at its stores. Wal-Mart also beefed up its transportation system.
  Perhaps most important, Wal-Mart made fundamental changes in the way management controlled the company. If customers in effect "pull" products into stores, then the people at headquarters can't very well dictate what products are stocked at each store, how they're priced and how they're promoted. In fact, headquarters' responsibility shifts to creating an environment in which individual stores managers learn from the market and from each other, then take appropriate action.

Familiar story
  In industry after industry, front-runners are being outperformed by more dynamic, capabilities-based rivals, say Stark et al. Witness such dynamic companies as Honda and Canon. "In this more dynamic business environment, strategy has to become correspondingly more dynamic," say the authors. "Competition is now a 'war of movement' in which success depends on anticipation of market trends and quick response to changing customer needs. Successful competitors move quickly in and out of products, markets and sometimes even entire businesses - a process more akin to an interactive video game than to chess. In such an environment, the essence of strategy is not the structure of a company's products and markets, but the dynamics of its behavior. And the goal is to identify and develop the hard-to-imitate organizational capabilities that distinguish a company from its competitors in the eyes of customers."

      For IMDA members, here are the take-aways:

1.  Identify your key business processes and consider them your primary object of strategy. Manage them carefully and invest in them heavily, looking for a long-term payback.

2. Make sure those key business processes begin and end with the customer. (In Wal-Mart's case, cross-docking meant rapid response to customers' needs and wants.)

3. Think of your organization as a "giant feedback loop that begins with identifying the needs of the customer and ends with satisfying them."

4. Keep in mind that your company's key capabilities most likely are collective and cross-functional. In other words, they constitute "a small part of many people's jobs, not a large part of a few." This means that departments that ordinarily do not work together - e.g., sales and customer service - will have to change.

  Creating a capabilities-based organization calls for enormous change in your organization. Because capabilities are cross-functional, this change can't be directed by middle managers .It has to be guided by a hands-on CEO. Paradoxically, this top-down change will drive business decision-making down to those directly participating in key processes. You as the CEO have to be ready to let that happen.