The essence of business strategy

David Letterman named his production company Worldwide Pants, Inc. The motto is, “The leader in pants and entertainment... and pants.” I believe Letterman was poking fun of NBC’s parent company, General Electric. He makes a good point.

The essence of business strategy is deciding what you are not going to do.

In the United States, a corporate charter has a purpose clause which is usually phrased as follows: "This corporation is formed to engage in any lawful act or activity for which a corporation may be organized under law." The charter does not limit the company from doing anything. A snack food maker can choose to provide computer consulting and a computer consulting firm can choose to make snack food.

Every business, even General Electric, has finite resources. The leadership must prioritize those resources, which means some things do not get resources. It is so much easier to say "yes" than "no". People like us when we say yes. They get mad at us and call us names at happy hour when we say no. It is the simple ability to say “no” that differentiates a successful leader from just a manager.

Suppose there are three proposed projects for the group: Project APPLE, Project BEEF and Project CORN. Any good project head will calculate what he thinks he can get away with and then ask for a bit more. For instance, if he thinks they will give him four people, then he will ask for six, but not ten. This normal behavior guarantees that the sum total of the proposed projects for any group will always exceed the budget.

When faced with a decision on the three projects, a manager will take the easy way out and give the same budget to each project. Even though each project gets less than they asked for, they are still getting something, so they won't outright hate the manager. Plus, what if the manager chooses the wrong project and it fails? By funding all three, he avoids the pain of accountability. It is easier to choose mediocrity.

In reality, by under-funding all three projects, the manager is guaranteeing failure of all three. If he chose one or two projects, then he would have some chance of strong success and some chance of failure.

A leader must say, "No, we are not going to do that." For true success, a leader would over-fund Project APPLE and not fund Project BEEF and Project CORN. The project heads for BEEF and CORN are going to sulk and call the leader names, but he can live with that. A leader will have chosen APPLE not because he like apples more than corn, or because he likes the project head of APPLE more than the other two project heads; he will have made his decision based on the interests of the company and the likeliest chance of success.

A leader might decide to have tactical depth. He might decide to fully fund APPLE, under fund BEEF as a fallback and not fund CORN. There may be some risk involved in APPLE that cannot be isolated. He is counting on APPLE to succeed and expects BEEF not to succeed at the current funding level. If the risk in Project APPLE materializes, then the leader will stop funding APPLE and switch all funding to Project BEEF.

A leader’s decision for tactical depth is not the same as a manager’s compromise. A manager would partially fund Project BEEF at the expense of Project APPLE in order to appease people. If the risk in APPLE materialized, a manager might decrease the funding but he would never cancel the project. The leader is thinking about success. The manager is thinking about people’s feelings.

If you are a technology leader, then act strategically. Take time to decide what you are not going to do.