Bruce Henderson: On Corporate Strategy

Corporate capabilities

Competitive reaction

We must analyze:

Financial - are there any underutilized assets, have we achieved our cost potential (lowest)’

Technology economics

Brinkmanship (competition) - competitors determine your price. Competitors occupy market share. Competitors may try to increase market share and decrease yours. 

Induce your competitors to not invest in products and markets where you expect to invest the most. 

Organizational factors

Market strategies - you can segment your (and your competitor’s) businesses into multiple product-market pairings. If you can find a way to segment the market in a way that minimized your competitors strengths and maximizes yours, there is a huge opportunity to concentrate your resources into that segment. 

Capacity is a good word. Capacity limits market share if the market grows (better word for supply)

Concentrate your strength against a competitor’s relative weakness. 

There is a normal competitive environment 

And there is competition in a growth situation. The market is increasing, and thus the market share of each competitor has a real chance to change. 

Strategies must change. The strategy that made you big might not allow you to survive once your big. 

Similarly, the strategy that helped you succeed in your home market may not work when you try to expand internationally. 

Spectacular business successes are usually new ways of doing business in familiar markets with familiar products. 

Business fact: there is an observable and predictable price decline after the early life of a product (as more competitors enter, as suppliers get more efficient at producing, etc)

Cost of developing new product - expected profits

is overhead within fixed costs?

“This appraisal should include any factors which may become important” - within company / company capabilities, Finance, marketing ability, technology, costs, organization, morale, reputation, management depth

First, there are growth strategies

Second, there are strategies to maximize profit on a steady business

Static products have a high profit, but present low investment potential

High-growth products have a negative profit, but offer a very high investment return in the future

Acquisitions can represent an instant increase in debt capacity and also an instant increase in investment opportunity. Both of these are true if the acquisition is strategic (into a new business avenue or adds a strength to an existing one)

The two most universally observable biological patterns are: owning your rank and owning your territory. 

The rank ordering process determines where initiative will be respected. 

Rank = your status in the org = the ability to initiate activity in others and to disregard others initiatives. 

The usual mechanism to grow your power is a system of favors (from being neighborly to politically blocking something for you)

“Giving or withholding favors is the lever of organizational power”

I do something for you that costs me less than it is worth to you. Later, I can call on you for a favor that costs you less than it is worth to me. 

If I can invest the net proceeds in additional favors, then I can compound a power base. 

The real basis for status is the importance of the activity to the organization - that is the underlying reason why initiative will be accepted. 

“Conditional” is a very good word. This is my hypothesis, it is conditional on X being true. 

The essence of leadership is the ability to change the organization’s conception of ideal performance. 

Leadership = motivating people to do what they ought to do. 

Insight: to be a good leader you have to be able to sense other’s attitudes. The key question is: how can you understand each team member’s feelings over zoom? I did two things: a) made sure to meet with every member 1-on-1 and b) pair team members to check in on eachother in a mentorship model. I cycled them through so everyone was a mentor. 

In that meeting, I would start with - “walk me through how you feel, and where you feel there is room for improvement”

Set individual goals. 

Here’s how to lead:

“These are our objectives; this is how we propose to reach them; that is the area in which initiative will be acceptable.”

A significant strategy problem for a multidivisional business is identifying the real advantages of association (of the divisions) and the directions in which these can be best exploited. 

The nature of the chief executives job shuts off free and easy communication with his peers. 

He has so much power that even his best friend’s find it difficult to argue with him. No one likes to tell him bad news. 

He has no peers anymore inside the company. 

The problem, of course, is to reconstruct a more formal communication system which will provide all the necessary inputs. 

A strong corporate staff can source and provide the material and arguments for discussion. They can work with the group VPs, so that the VPs do not have to openly discuss each other’s businesses in front of you. 

This is the whole idea of the experience curve: costs decrease over time. 

The leader has a lower cost than his competitors because his superior market share permits the accumulation of more experience. 

Sometimes we have to ask: Is the cure worse than the disease?