Strategy without intelligence, intelligence without strategy, страница 2

When Bear Sterns collapsed in 2007, and sold for $10 a share to JPMorgan Chase, one could point out a slew of characters responsible for the collapse of this once venerable financial powerhouse. Jimmy Cayne, its CEO, was clearly a good example. He was a salesman who was hired into Bears because he was good at the game of bridge. The one who hired him, Ace Greenberg, who would become Bear's CEO in 1978, was a fan of the game. As a salesman, Cayne was out of his element in the complicated world of hedge funds and derivatives and debt securitization, but it did not stop him from making it a cornerstone of Bear's business. When the sky fell down, he was the wrong man at the wrong time.

Bear Sterns' fall was technically due to the company reliance on very short term financing known as overnight repurchase agreements (repos) for the company daily's cash needs of about $50bn. When repo lenders become skittish, for whatever reason, and stop the overnight lending, it exposes the company to immediate bankruptcy. This is a hugely risky practice, and that is how most – if not all – of Wall Street operated! In Bear's case, the repos were backed by mortgage securities, again a common practice on Wall Street, and when those started to go bad, lenders scuttled. So was Bear's fall the result of competitors? No. The deterioration of the mortgage market brought down many respected firms, such as Merrill Lynch and Lehman Brothers. In the case of Wall Street, almost everyone followed the herd mentality and stacked their portfolios with questionable mortgage securities. It is much more difficult to find competitors that bucked the trend of excessive risk taking on mortgages. If Jimmy Cayne knew the details of competitors' repos deals to the last letter of their agreements, would it have made a difference?

There is a difference between strategic intelligence and competitor watching, and the latter has little relevance to the concerns and tasks of top management. Most business declines have little to do with direct competitors. Competitors may expose the underlying strategic problem, but they are rarely the strategic threat itself. In one study, “Seven ways to fail big” Carroll and Mui (2008) name seven reasons for strategic failure, but use only one example of a direct competitor (Wal-Mart) driving out another (Ames Department Stores), competing for the same customers (price-sensitive). Ames was first out with the concept of discount retailing but Wal-Mart's strategy, which relied heavily on tight logistical and inventory management, was superior. It ensured that Wal-Mart's costs were low enough so that the discount price still yielded handsome profits. Even in that case of direct competitor threat, Ames exacerbated the problem with disastrous acquisitions and lax internal controls.

The danger of watching competitors

While bird-watching can be an interesting hobby for some, one should make sure not to do it in a middle of a busy highway. Changing technology, the rise of substitutes and the myth of acquisitions are potent causes for dramatic failures. Motorola's foray into mobile phones started with Iridium, a satellite-based venture in which it invested $5bn. After years of struggling to make the technology operational, the unit filed for Chapter 11 just a short time after it deployed it successfully. The price of the service was too high and the handset was big and cumbersome. The root cause of the failure, however, was the rise of the cheaper and more reliable cellular technology that appealed not only to companies with deep pockets, Iridium's main focus, but to the average Joe, who literally wanted a handset he could put in a (not so deep) pocket. Then again, years later, the same Motorola and its main rival in the cellular handsets market, Ericsson, lost their way against Nokia who came from behind with more stylish handsets. While Ericsson and Motorola focused solely on the technology, Nokia focused on the rising number of young users. So did Nokia cause Ericsson to go out of business (basically handing its handset business over to Sony), or was it the shifting of cellular ownership from serious business people to a young, more hip crowd, a shift that was quite obvious to everyone but Ericsson's top management? And did it help Ericsson that its (excellent) CI unit sent detailed updates on Nokia's new products and pricing schemes on a regular basis?