Welcome to a p e r t u r e | Podcast, where we’re conversation with the people who are thinking and doing things differently.
Episode #5 — Strategy is dead. Long live strategy!
Also available on:
Resources referenced in this podcast:
- February 2019: “Spatially dispersed corporate headquarters: A historical analysis of their prevalence, antecedents, and consequences” — co-authored by Markus Menz, along with Sven Kunisch and Julian Birkinshaw
- 2017: “Determinants and consequences of corporate development and strategy function size”, Markus Menz and Fabian Barnbeck
- 1937: “The nature of the firm” — Ronald Coase
You can follow Markus on LinkedIn.
Full podcast transcript:
Ben Robinson: For this episode we are talking strategy… Our guest for this episode is Markus Menz, who is professor of Strategic Management and Vice Dean for Development at the School of Economics and Management at the University of Geneva. Markus, welcome, Thank you very much for joining us.
Markus Menz: Thanks for having me.
Ben Robinson: How long have you been teaching in the area of strategy?
Markus Menz: I’ve been teaching strategy for more than 10 years now. I actually joined the University of Geneva in 2015, so now about four years there. Before that I was teaching on the faculty of the University of St. Gallen. I was teaching strategy there for six years and before that I spent a year at the Harvard Business School, I did research there… and prior to that I did a PhD at the University of St. Gallen.
Ben Robinson: Ok. I guess, I guess since you’d been in the profession for 10 plus years, you… like us, have seen lots and lots of change in how strategy works. Maybe you can kick us off by just giving us some kind of definition of how you see strategy, how you would define it.
Markus Menz: I mean, strategy in general, I would still say is very much the same than, than 10 years ago, at least when it comes to the, that’s a more general definition. I can give you an idea of what I understand a strategy and what I usually, explain as being a strategy. Strategy is to me still, and there are referred back to let’s say as the old days of strategy to Michael Porter and others, who said, strategy is about making clear cut choices.
I think that’s still true for today. Strategy is about making choices and it is about deciding, what to do as, as an organization, as a firm, and what not to do. And that’s the harder part of that question actually. And to me that’s still relevant, even though nowadays it may have changed how strategy is being done, what the topics of strategy are about. And of course, also who is involved in strategy these days. But the core question to me is still the same of question of strategy. It is about making choices and deciding where to compete and deciding how to compete and making choices where not to be active. And this leads to what I would refer to as a fundamental trade off between being strategic on the one hand and being opportunistic on the other end. And we’re gonna discuss this probably a bit further later on, but to me that’s very complicated.
Ben Robinson: Do you think that line, is that where the line has changed in strategy? Cause I think the way you, the way my Michael Porter defined strategy, the way you are defining strategy, where it’s about choices and in particular the bit that people forget… choosing what not to do. These were, these are almost timeless concepts, right? Strategy defined like that we’ll look, we’ll always be relevant. But, so I guess the question is more in this self dichotomy between what is operational and what is really strategic. Is that where the line is changing? You know, I guess another way to express it would be, is his strategy becoming more about how to compete and less about where to compete?
Markus Menz: That’s a fascinating question to me and what is relating for me is the challenge to define what kind of time horizon strategy concerns. And well traditionally strategy is being defined as being concerned with the long term and Alfred Chandler said it’s about, the development of the company’s long-term goals… and to subsequent allocation of resources to reach those goals.
And, I mean this was done based on a study of industrial enterprises back in the 1960’s. So, it is something that was true back then. That strategy is concerned with the long term and what the long term means. I would say to me strategy is still about making choices that matter for a certain time horizon. But the question is what kind of time horizon do you consider. And that depends very much on the context you are in and the context has changed and therefore also the time horizon of strategy has changed to me.
Ben Robinson: But do you subscribe to the view of that just simply planning horizons have shortened? Or do you also believe that the companies can operate with more than one time horizon? I mean, the reason we ask that is because, you know, we we’re a big fan of this sort of zoom in zoom out theory. If, you know, you can plan on a horizon of say, five years or 10 years when you’re making very big decisions about product strategy for example. But, on a more operational basis, you’re maybe trying to optimize on a sort of nine to 12 month window? So I guess the question is, have time horizon shortened or have they bifurcated or multiplied?
Markus Menz: I mean, referring to the first point, we do have evidence for that. The time horizons have generally shortened strategy. So, we did, for example a regular studies. Where we surveyed chief strategy officers over the leading 500 companies in Europe. And those senior strategists indicated to us, over the past couple of years, that the strategy horizons have shortened from close to five years to a bit more than three years. This was something that we could figure out in our surveys. But of course, and I can come back to your second part in a minute. But of course this very much depends on the context again and I see as a deciding factor still what kind of industry sector you are in. So what is your investment horizon, for example? Are you in a software, environment? Are you in a industrial environment, for example, or in a service business? So it’s very much dependent on that.
Ben Robinson: Does the data that you’re referring to, do you see noticeable differences depending on the sector? Like it does TMT companies have a shorter horizon than manufacturing companies?
Markus Menz: Yes, they do… there’s a variance across industry sectors. Definitely so, it depends on the industry sector. And then the question is, that’s the second part of your question. Well are there different time horizons to consider, from what I can see, I would say yes and I would say, that a greater alignment or unification between operational tests and short term strategic or tactical decisions, has become visible on the other hand. And it refers to the longer time horizon, I still see that there is a need for companies to have a long term vision. Or I mean you could use vision as an analogy here for, for strategy. But I think that’s still very decisive to decide where the company should, should be heading at. Not just over the next six to 12 months, but in the long term.
I mean you, when you use this dichotomy, I’m of course, I’m asking myself what is it with the time in between and how to operate between those time windows. That’s a challenge that I see is to align the two.
Ben Robinson: But yeah, I think, and I don’t know if you have evidence to this effect, but it seems to us that the, as you say, but keeping a very long term time horizon, strategy is a constant. The idea that the business model shouldn’t change every 12 months… but the execution part becomes a rolling consideration that, you know. And then the time horizons can be whatever you want them to be, but that’s just a rolling consideration versus the constant that sits above it. Because you wouldn’t want things like brand strategy, business model changing every day, you know?
Markus Menz: No. But the challenging part here is to ensure that the rolling part, that the operational part doesn’t run across, your long-term vision. And what I see, for example, very often in organizations is that they — in larger organizations — is that they have two different ways of doing strategy. The one is a classic strategic planning process or where they have, I don’t know, a three to five year planning horizon window or even longer than that depending on the industry. And then they have more, this… well, which I would, I shouldn’t say opportunistic, but which I would call maybe the more spontaneous strategy process. Which builds on very specific strategic initiatives that they launch depending on the opportunities that are arising. And, and they adept those initiatives relatively fast and those two processes are usually aligned. But of course you need to ensure that they stay aligned over the course of the development of the organization.
Ben Robinson: Those longer term strategic planning exercises… I think we could argue whether they’re becoming obsolete. But I mean, it seems very much the case that they still happening at least according to your research.
Markus Menz: Yeas, at least when it comes to larger organizations and also when I talk to startups for example, or fast growing businesses. What I see is that they typically, they have still a vision. I mean it’s not as explicitly formulated or articulated and yet they don’t have necessarily a dedicated strategic planning process, but the team has a clear idea of where to go and what to focus on. And on the other hand, they usually are very good because of the scarce resources, probably they’re very good in prioritizing short term activities. So in coming up with dedicated actions plans where they prioritize for example, as the top three priorities over the next couple of months or so. And that’s a different from very large corporations where you don’t have typically those very specific priorities defined at the top level.
Ben Robinson: But I guess that leads onto the, to the questions that I wanted to ask you, which is to what extent have those strategic planning exercises evolved? Because, clearly, you know, I guess if we go back 10 or 20 years that there would have been exercises that were carried out by a small number of executives. Independently the rest of the organization and they would, and the strategic objectives would have been passed top-down, right? Very much as a directive, this is what we’re going to, this is what the plan is for the next five years, three years, whatever the number, the horizon was… go and execute. Have you seen a shift towards a model that’s closer to the startup world that you’re talking about, there. Where more people are empowered to develop strategy more people are involved in the... Or, there’s a better connection between the people who execute the strategy and the people to formulate the strategy?
Markus Menz: There have been significant changes, I would say also in the mindset of top management, how to do strategy. And you can consider a number of dimensions, for example, you can consider, first of all, why do you do strategy? This has changed. I mean it was, very often in the past, it was considered something necessary. I mean, I still remember when I consulted 10 years ago a company, a medium sized company in Switzerland, that was asking me to develop a strategy with them. But basically it was a CEO, he just wanted to have a written document as kind of a justification of what they were doing. And so this mindset I think has changed. Meanwhile top management, I don’t know any company that doesn’t consider strategic choices as, as strategic priorities and formulating them as something unnecessary.
So it’s the opposite, they consider it quite important. And so as the question is, who is doing it and why? And the who, I mean, strategy has become much more inclusive. That’s what I see in, I mean, on average and in organizations. But particularly in, also in organizations where in the past you wouldn’t expect it from. So, large industrials for example, who do surveys of their employees who involve employees and strategy development exercises. So, it seems to me it has taken maybe two or three decades of ideas that originated from IBM. For example, how to involve people in idea generation… has finally spread across companies. And this is certainly supported by the startup movement we are seeing globally, that somehow infuses new ideas of who should be involved. And this doesn’t only include employees. It also includes customers, suppliers, all kinds of stakeholders that were previously not necessarily considered in strategy exercises. I mean, strategy was something done in the board room previously, but not involving everyone in the organization. And then the final aspect is the how to… the tools. So, was a tool set you would use and and there, I mean you would assume that there should be some more change there.
But from what I see the tools to do strategy, of course some tools do facilitate those interactions of stakeholders meanwhile. But there are not necessarily modern or novel strategy tools out there. So I see that very often companies are still relying on let’s say traditional, could also say old fashioned, strategy tools that were fine for a certain era of strategy. But that are not necessarily useful for today’s environment.
Ben Robinson: So, you’ve raised at least two points there that we want to drill down more into. The first one is really about the purpose of the strategy team. Has the purpose of the strategy team changed from one that was charged with coming up with the strategy and overseeing the execution of that strategy. To being one that coordinates the activities of a much larger group of stakeholders within the organization? And in answering that it would be helpful is if you could share some of your, some of the insights from the report that you published about the consequences and determinants of strategy function sites. So like are you seeing that basically in terms of how well staffed the strategy team is, for example.
Markus Menz: Yeah, I mean just start with, you refer to the central strategy function in organizations. And I would say that not necessarily the tasks or general activities of those strategy functions have changed a lot. Of course they include some of the more recent developments these days. For example, coordinating strategic initiatives across the organization, overseeing sometimes new business development, sometimes you’ll see that internal venture capital arms of, companies are under the umbrella of the strategy function. So those kinds of activities have changed, but the core of their activity is still relatively similar, which includes, well aspects referring to strategy development. And aspects referring to strategy execution. So on the development side, the basic activity has changed, I would say from organizing a formal strategic planning process every year to a more coordinative task. As you mentioned, to coordinate between top management and middle management or even further down in the organization, line employees, coordinating horizontally.
This is something which is very frequently overlooked, horizontally between functions in the organization. So for example, coordinating between marketing, procurement, supply chain management functions and coordinating internally versus externally. So, internal stakeholders for example, in product management and external stakeholders, customers that are relevant or key accounts of the organization. So, this has changed more on the, on the strategic planning side. It’s oftentimes, it’s still referred to as strategic planning, but it has become quite different, how it is being done. On the other hand, the execution side yeah, is these days more concerned with strategic initiatives. It still concerns a lot of, the activities regarding how to execute the decision, where to compete. For example, it includes decisions regarding mergers and acquisitions, divestitures, alliances that are under that umbrella. So those activities are still the same. But it has become a much more, I would say, much more coordinative function than it was before.
Ben Robinson: On the subjects of where to compete, do you still think that’s as relevant a question as it used to be? Because, if you subscribe to the basic notion of the world is moving much faster and also that with technology change in particular, the clear boundaries between one industry and other industry are getting blurred. So is it really the job of the strategy team to continue to make those kinds of bets about where to play? Or is it much more about making sure that the company is fit to play? So it has, by that we mean has an excellent product, has an excellent or optimized business model, and then has real organizational agility. Are they not the sort of competencies that are much more important than deciding making big bets on where to play?
Markus Menz: That’s a tough question. What I see is that at least when I look at the larger corporations, they still rely very much on questions of where to compete, of course those concern the overall firm’s business model. So if you, for example, take recent examples of large industrial conglomerates in Europe, take Siemens, headquartered in Munich and what they want to become as a digital company. They’re trying to reconsider the boundaries of their business divisions in order to develop this corporate, you could say this corporate business model. But I still think that the central strategy function is concerned and should be concerned with questions of the overall firm and not necessarily of the specific, let’s say product specific business models. But rather as a corporate business model so, why does it make sense to have the different products under one umbrella? Why does it make sense to be in certain geographic markets active? And of course, if the market boundaries are blurring, if the product boundaries are blurring because this has consequences for the decisions that they make. But there should still be concerned with those choices because otherwise no one is in the organization. I think they’re the only ones really asking those questions besides the top management, the central or group top management.
Ben Robinson: Another question on the strategic function within organization may or may not be changing… cause clearly as well as the speed of change accelerating… We’re also living in a world where we have an abundance of information. I mean it’s, I think the amount of data that a strategy team works with today versus 10 or 20 years ago, it’s exponentially larger. Is that helpful? Does that lead to more precise decision making or is it at a,in some ways a distraction do you think?
Markus Menz: Well, I think it should be helpful. It should to lead to better decisions, but does it do so…. that’s, that’s a question that I would, where I would be a bit worried….
The amount of data is there, the question is how to deal with that data. And what I also observe, and this is something that also colleagues frequently note and I sees the same when it comes to to data and information technology and organizations. Very often, I mean, it’s considered, as something that must be done, that must be considered. But the question in the beginning should be, why do we need a certain data? Why do we need certain technology? And this is something that is not necessarily being asked. So that’s one aspect, one facet here you could say. The other facet this, when I look at large organizations, multinationals, sometimes there are very smart strategists working in those organizations who see a need for, developing new technology that supports eventually how to do strategy.
But the need is not shared by everyone in top management. But this is about to change. What I see now is that the top management has started pushing those topics as well.
Ben Robinson: Is data helping them to make better informed decisions… Because there’s so much risk involved in making these choices. The more that you can couch those choices in terms of data and demonstrate that it’s a really well formulated, informed decision is great. But I guess on the flip side, the more that you rely on data that potentially the slower the decision making comes. So do you, is that where the trade off is? Is it between collecting the data to make an informed decision versus continuing to make very quick decisions that are required and in a fast moving environment?
Markus Menz: I don’t think that this is necessarily a trade off. I mean, it sounds to me like an excuse that executives probably oftentimes articulate. Because what I think is required is a suitable technology. And the same applies actually when I discuss, for example who to involve in a strategy process with company executives. What they typically say is, yeah, of course we would like to involve everyone but we don’t have the necessary resources. But of course you could rely on technology that facilitates this. And I think you should start thinking about what kind of technology is suitable to deal or manages this amount of data. I don’t think that there can be too much data.
Ben Robinson: Okay, cause I guess it was another way of formulating the question which is… surely there’s an optimal point of which, you know, with, once you’ve reached 80% level of conviction based on all the data you have. Then making a decision there is preferable to waiting for 100% of the data because otherwise you’re not first mover…
Markus Menz: I mean the challenge for me would be not so much about the data here, but about just about making the decision. And I have the impression that many organizations rely on these days, at least, on very good data. Of course we can always improve. I mean, but maybe they’re close to the 80% already. But when it comes to the decision, the data’s not necessarily considered and…
Ben Robinson: Got it, so you’re saying it just becomes an excuse for people who are indecisive in the first place?
Markus Menz: Yes. It could be. I mean, I’m a bit worried about taking a very rational view on strategy and I experienced and therefore I also shifted to, part of my research focus towards the individuals who actually do strategy. I experienced that… this is a very much, I mean, strategy is as much depending on the behavior of the individuals involved as it is on rational choices. And therefore, yeah, we should be careful to, only rely on data. But that’s my experience and view that I developed over the past couple of years.
Ben Robinson: When it comes to decision-making, with or without lots of data, organizations, strategy teams see as are still relying on a lot of, of these tools and models. Are these same models and matrices still relevant because clearly one of the things that we’ve seen is in this new era of kind of networks and ubiquitous computing…. That the nature of strategic advantage or competitive advantage is shifting from way more from being about supply side economies of scale to being about demand side economies of scale. But most of these tools still assume, right, that a company is optimizing its strategy and optimizing its chances of success, based on internal resources and the resources that it could acquire or hire, right? So, do you think the strategy profession has adequately adapted its tooling for this kind of new modern world of networks effects?
Markus Menz: Well, let me start with a relatively mean saying, a fool with a tool is still a fool. And I think it’s not so much about the tools. The tools may facilitate a certain discussions. They may visualize certain analysis, but they’re not certainly not as the most important aspect. So, that’s just to start with. I do believe however, that those tools may be valuable if applied correctly and correctly. I mean, first of all, that you need to consider whether the underlying assumptions of those tools are still applicable or still relevant. And for example, if you take Porter’s Five Forces framework, where you try to understand the competitive forces in an industry, and potential and the threat of of potential new entrants and what you could do about it, the underlying assumption here is that you can clearly define an industry, right?
But the industry boundaries have become much more blurred these days. So there you would see an example where it’s probably difficult to apply the same tool and in the same forms these days. Another example is BCG portfolio metrics, um, where you try to map your businesses or you could say products. You could also do it with geographic markets, along two dimensions. One is market growth and the other one is a relative competitive position. And what you try to do is to get an overview of the activities of the organization. And I think this can be still relevant if you find the right criteria to define your markets, to define your products. And for example, Google is still working of that metrics. So, even a company that is considered for being at the forefront of the technology firms, one of the leading firms there is applying one of those more traditional, tools.
On the other hand you are referring to the more demand-side oriented tools. I strongly believe that there need to be more novel tools. But of course to come up with those tools requires also, at least from an academic perspective, it requires some data about the underlying assumptions about the firms or organizations that you consider. I mean, take for example, Porter’s Five forces, this was developed an industrial enterprise in the 1970s, 80s. So, we don’t necessarily have the data yet to develop those solutions. We have started doing it, but…
Ben Robinson: I think for me the Porter’s framework works very well for an established business. You know, like you’re relatively well established. What are the levers you could use to make this business perform better? What are the potential threats coming? I still think all of those things are relevant as long as they’re applied to an arena of activity rather than a very narrowly defined market. But I think the question is more if, you know if we believe that network effects are of much greater importance than they were historically. What strategic theory is there for example, that tells a company you should maximize the number of users because that will trigger, make way more value for the ecosystem and will enable you to become much more to deliver much more, much more value over the long term. Most models or matrices would probably want you to become as profitable as you could as quickly as possible, which would be in conflict probably with that aim of maximizing the number of users, for example?
Markus Menz: It could be in a way, I mean, you’re referring more to the tension between.
Ben Robinson: Tensions was what I was looking for, yeah.
Markus Menz: The tension between exploratory activities and maybe exploitative activity. So efficiency versus a growth for example. And efficiency, I mean, yeah, many of those tools are definitely targeted towards improving efficiency of organizations. Whereas relatively few are referring more to the growth ideas. I mean the Ansoff matrix you mentioned refers to it, the Portfolio Matrix does partly.
Ben Robinson: The problem with the Ansoff matrix is that for me there’s, this sort of implicitly assumes mass markets, you know. This idea that you could just take a product and introduce it to another mass market or, that’s what’s problematic about that. But, okay, I think you’re right. I think, you’ve kind of redrawn the question or you reframed it… About exploitation versus innovation and that’s cause I think that kind of takes this to the second section they want to talk about, which was organizational design. Because there are many ways in which to frame this question of organizational design. One might be, how do you ensure consistency and control versus autonomy and agility. But I agree with you, another one might be how do you ensure that you get maximum exploitation? Maximum efficiency at the same time as you would allow the organization to continue to innovate and you don’t become subject to threats from much more innovative players in your market. So with those two kind of, those two trade offs in mind, how do you, what what are your biggest learnings in terms of organizational design?
Markus Menz: Let me reply to your first trade off autonomy versus control, which is, let’s say one of the very classic trade-offs. Similar to this is also the classic distinction between differentiation and integration. So, you would associate autonomy with increasing differentiation whereas control with more coherent integration of the activities in an organization. Autonomy versus control is, as you mentioned alone, a huge topic and of course you can, you can think about all kinds of structural or procedural solutions that aim at resolving it. I mean, for example, you could argue that there, that you have a core business where you need to infuse more control. Whereas you have more let’s say more innovative businesses where you would like to have more autonomy and lead them separately.
If I really reflect on this and I don’t think that companies should necessarily strive for control. They should, based on what I see these days. They should strive for keeping people in the organization, teams in the organization as much autonomous as possible. And infuse control only were absolutely necessary. I think that’s true in a very general way.
And how do you achieve this? Well, of course, if you think about an organization with hundreds of thousands of employees. A huge enterprise, it’s very difficult to achieve this, solely by infusing a certain formal, organizational structure. What you need, at least to me are three things based, I mean, again, very general things. But as a starting point to think about it. The first one is culture.
You need to have a culture that allows this autonomy. That allows employees making their choices, that allows teams or units, think about a remote subsidiary… that allows a subsidiary to take choices. And without asking or getting back to headquarters.
Ben Robinson: And I guess the culture also allows for mistakes, right? Because if it’s a much more experimental world, we live in.
Markus Menz: Exactly that would be another aspect of culture. I mean you need to be open to those mistakes.
The second aspect that it requires, and this is closely related is the leadership. And with leadership, I mean that you have a certain leadership style in the organizations that you have a certain development of leaders in the organizations. That you have a certain characteristics towards leaders when you recruit people. And we know to look at highly successful organizations, what they care most about, I mean it is about how people are led. Again, I can only refer to Google here who became quite famous for developing, based on a huge amount of data, guidelines how people should be managed and, let an the firm. And it’s just one example of leadership
And the third aspect, it is about the people in the organization. And here, I mean not only who you have in the organization. But it is about how do you empower the people. I mean, you cannot provide autonomy to everyone without maybe educating or empowering the people to use this autonomy in a meaningful way. And, therefore I strongly believe in order to have an organization that functions well, that wants to benefit from autonomy, you need to invest in the people who are working with this autonomy.
I experienced myself in organizations when I talk to executives, when I advise to organizations or educated executives in organizations. That sometimes the people in those organizations didn’t want to have more autonomy because they had some fears. They had some reluctance that this would be something valuable for them. So you need to make sure that they have the skills and the ideas, how to use this autonomy.
Ben Robinson: A slightly more provocative question. Does this all need to still be organized within the structure of a firm? If we get back to a text you probably teach undergraduates, you know, Ronald Coase’s nature of the firm. And he argues that firm is necessary because of very high transaction costs. Therefore, it makes sense to coordinate the activities of people within a firm. Because otherwise, you know, they cost so much time and so much money each time to try to coordinate this if these people weren’t under some sort of common control and common management. Is that still the case or is that an antiquated notion?
Markus Menz: You already provided part of the answer, right? So, there are certain conditions these days in the environment that have changed compared to the times when Coase came up with his seminal ideas. And I mean, the question is, yes it is about transaction costs. It is about should we organize activities within a hierarchy? Is the market more efficient to do so? And I think what happened in the second half of the 20th century, there was a relatively strong movement towards hierarchies. Meaning, firms, corporations …whereas these days you see somehow a different development. You see that markets are becoming more and more important again. Take for example, labor markets outside of companies. Take for example companies that offer a workforce for certain projects, that, for example, allow you to recruit temporary management capabilities.
So, those are all examples that show you that there has been a shift more towards markets these days. And one of the reasons why it’s possible to, in economic terms at least, to have this shift is that the transaction costs have shifted. And it has become a much easier to communicate. It has become much cheaper also to travel maybe than it used to be. And all those kind of things have changed and the result is, and that’s what we see also in our research is.
The boundaries of organizations have blurred and have become less clear. So, and there are a number of trends associated with it. I mean think about open innovation. I mean this is something where you involve customers for example, in your innovation processes. I mean, this requires that there is some communication at it. It involves a blurring of the boundary of the firm, think about a temporary staff that you hire for, for certain priorities, peaks for example. I mean this is something that requires, a relatively weak boundary between the organization and the market. So, so definitely I think organizations have changed. Do we still see a firm? I think yes, firms will still be relevant, but they will change. Maybe the core of such a legal entity would be relatively small in the future and there will be a subset and network of, other legal entities surroundings this one. And supporting this one in an ecosystem, how it’s referred to today.
Ben Robinson: Do you see examples of companies that break themselves up into much more cellular structure… maybe to make themselves more agile, maybe also, to make them easier to work with a network that dissolve the groups themselves into smaller units.
Markus Menz: It’s actually a quite fascinating question, on the one hand, I mean, what you can observe these days is firms, organizations that have a size that never existed before. I mean, when you look at the largest companies these days, how huge those companies are on the one hand. So you see those giant firms on the one hand. On the other hand you see ways of new ways of organizing internally to make it possible to manage those giant firms. And one of the aspects is actually is this modularization you could say, or is it that dispersion of activities in order to benefit from unique aspects at different locations and different areas?
Yeah, and what we did, we studied specifically the dispersion of headquarters internationally and we were concerned what was the question of why do companies actually split up their headquarters and decide to have a dual headquarters? So two locations for the headquarter activities on more than two locations. So, we refer to it as dispersed headquarters. You could also say virtual headquarters. What we were not concerned with was a question of where’s they set up regional headquarters or not. Because our definition of dispersed headquarters is differently. We are not saying that they need to be necessarily regional headquarters. But we say that their central functions that benefit from unique aspects in certain locations, for example, that you have your legal entity, as a corporation, as a multinational based in Geneva.
Then you have your, maybe your finance function based in London split it also too to New York because you want to be close to your external stakeholders to capital markets.
And you have maybe your central it function you have spread around the world with a very large center of excellence maybe in Bangalore. So that’s one way of thinking about it and what we explored is why our companies are doing it. And we observed, for example, that already, and we relied on historical data here from colleagues and we observed that already in the late 1990s, 50% of the companies in our sample, it was a sample that covered Germany’s and Netherlands the UK and US. That 50% of those companies had dispersed headquarters so, more than just one location for their headquarters, even though it was referred to as a corporate headquarter.
And we explored why they are doing it and found that the strategy is decisive of that they have and besides that also the way how they interact with their businesses and functions in the organization is decisive. So whether they have a more, a central or a more decentralized approach towards managing the functions in the organization. At the same time we heard that, we asked ourselves is this a good thing or not? And we discovered it’s not necessarily a positive thing for companies to disperse those activities. I mean, it may pay off in the long run, but we also saw that it decreases the cost effectiveness of the headquarters.
So it increases the costs that you have because I mean, it’s again, a trade off. Should you co-locate activities at one location or should you disperse activities.
Ben Robinson: Because you might get some cluster effects and, yeah.
Markus Menz: Yeah. And do you have communication costs between the various units, think about the finance functions that you split between New York and London. And that has to coordinate with a legal entity in Geneva, then it involves quite some coordination costs here.
Ben Robinson: Just so, I want to move cause we don’t have long left. So, I want to move on to the topic of how education itself is changing. But just one last question. What’s the aspect of strategy that you’d like most like to debunk, or the, or a certain dogma that you think should be debunked.
Markus Menz: That’s a very tough question. Again, what I consider really annoying is the questioning of strategy itself.
Ben Robinson: Yep. Which always comes up, yes, “is strategy dead?”
Markus Menz: Yes, exactly and that’s, that’s something that I really don’t understand and don’t see because the essence of strategy is, as I said in the beginning of the podcast where it is about making choices for a certain time horizon in order to be able to develop an organization, a company in a certain direction. And I think this is necessary for all organizations that you cannot deny the importance of a good strategy. Of course, what a good strategy is then can be debated. But the existence or the need for strategy shouldn’t be debated at all.
Ben Robinson: Would you argue that strategy has become more or less important with everything that we’ve talked about?
Markus Menz: Well, certainly not less important. So, to me, strategy is something that is more relevant than ever. And if you think about, I mean, if you assume, and I’m saying assume because we don’t have much evidence yet. If you assume that there is a high of volatility in the market, if you assume that there’s more unpredictable development going on, if you assume that the workforce has changed, people are becoming more mobile of different preferences. If you assume this, I think strategy has become much more important these days…
Ben Robinson: I am inclined to agree. And then what’s the best way to teach strategy? So, I ask that I guess with two concepts in mind, the first one is, does it make sense to teach strategy in the abstract? Is it more important to teach strategy in a more practical sense than it was potentially in the past? And then the second part is, does it make sense for people to go to university for three years to learn strategy? Or is there a way in which we can educate people faster in a way that’s more liquid, more fluid and doesn’t involve them coming to a physical location every day for lectures?
Markus Menz: That’s a risky question for me because there’s clearly still a disconnect between how we are currently teaching strategy and how it should be taught ideally. In my ideal understanding at least, referring to the first aspect of your question, I don’t think, that strategy should be taught in an abstract way. And I also think that this is not the case anymore at most businesses… Of course you need to understand the theoretical foundations of the core concepts. And it’s still important to know what economies of scale are. It’s still important to, as it is, for example, to know what network effects are and how a networked economies work. But it is still relevant to understand those theoretical underpinnings. It’s still relevant to know the various concepts and frameworks and tools, but it is as important to be able to apply those tools…
Markus Menz: And just to give you an example of what we are doing is, we let students in the first year of their undergrads and not just learn those management tools, or strategy tools. But they also have to come up with business plans, with ideas for concrete businesses where they use those tools for and develop something based on the analysis building on those tools. That’s just one example. Or another example. I’ve worked with companies where we designed executive education management development programs. And there we usually have a mix. A blend of some input from myself on the various tools, recent developments as well as we have, a lot of group work on concrete projects that they will be pursuing later on in their organizations. So that’s something that, where we incorporate the actual doing of strategy, in how we teach strategy.
Markus Menz: The second aspect refers to the classroom setting. I mean, it’s still think it’s necessary to have it … when you consider a program on management and business administration that it’s three years that are necessary. For strategy alone, I wouldn’t see such a huge amount of time. What we do see at the same time, more on an executive education level is that there’s increasing demand for shorter executive education rather than the classic executive MBA or full time MBA programs. So we do see that, executives, aspiring executives, that they are looking more towards topic oriented, short term programs, like a three to four day programs or a regular online interventions where they can learn on specific topics.
For example, think about a program that develops aspiring board members in the area of digital topics. So, that will be a more specific education rather than a fully-fledged executive MBA program.
Ben Robinson: So, and it was unfair of me to position that as “either…or” because I knew, okay, there’s a lot of blended classroom and online learning and so on. Online learning does, is that as effective as classroom teaching in your experience?
Markus Menz: I mean, there are pros and cons when it comes to those two formats, I experienced myself that online learning can be quite effective particularly as it allows participants to or students to reflect more. To digest of the information and material in greater depth as it is the case with, or sometimes the case at least with in-class formats.
What I also experienced is, and I did this myself a couple of times, direct interaction can be very valuable when applied in an online format, which is not as feasible in an in-class format. So there are advantages of online learning, of course, there are also disadvantages. Students frequently mentioned the difficulty of having an engaging class discussion online. Of course, it is possible with today’s technology. But on the other hand, it’s very difficult to convey a certain spirit or atmosphere through online communication tools.
Ben Robinson: And do you believe that the institutions like yours are adapting quick enough? Or do you believe you are also at risk of some sort of Clayton Christensen type disruption?
Markus Menz: Hopefully we are, I’m confident because I see some relevance of an institution like ours. If you take the University of Geneva as a whole or the business school, the Geneva School of Economics and Management specifically… I think, there are certain facets of an institution like ours that make us unique, compared for example to a standardized online offering or even compared to another private business school. And this is of course, first of all it is a stimulating environment in which we are in. I mean, it’s not only about faculty educating, or teaching students. It is about interactions between students. It is about interactions between students and alumni for example, and the university serves as, as a facilitator of those interactions. And those are live interactions in person. And I think those are still the interactions that matter more than, than just as the online,or virtual interactions.
And secondly, I think we have a dedicated faculty that is very well known globally for their rigorous research. And so we not just teach or convene knowledge, but we also create knowledge. So we try to come up with insights that are unique and at the forefront of our fields. And we try to use this knowledge also to lead our teaching. And I think this is also something that prevents us from becoming irrelevant, as, as some colleagues claims these days.
Ben Robinson: So I’m going to ask you the same question again, but just about academia, is there an aspect of academia that you find really frustrating? That you would like to jettison or some aspect of academia that you find overly formalized that you’d like to do away with? For example, the nature of academic texts. What you said is very interesting, the way you said it’s very inaccessible to the lay person…
Markus Menz: That’s again, a very tough, but also to me, very interesting question. I mean, you could also rephrase the question and ask what will be the one thing you would like to change about about your profession? And I think personally if I think about academia and management specifically, not, I’m not speaking about other disciplines that I’m not that familiar with. But at about management as an academic discipline, you could also sometimes include economics here. But, but management in general, I would say there has been an increasing divide between between the academic world, and the world that some refer to as the real world. The world of practice and of those two to whom academics should actually contribute to. And the difficulty here is that some of my colleagues, I’m not saying all of my colleagues. But some of my colleagues clearly focus on their research on their fundamental research without considering its relevance.
And that’s to me relatively risky because I think we are serving one purpose and does this is improving how organizations work. How organizations are being led, being managed as these days, and if we are not concerned at all with the relevance of the questions, which can be very specific tiny questions. That are not necessarily important for the executive running those organizations. This is a huge risk because there is a risk of a further disconnect between academia and the questions that are being studied and the questions that matter for executives, and managers in the real world.
Ben Robinson: Should it be easier for business people to become academics? In this field, in particular, it’s one where if expertise comes from being a practitioner, then it would be good to blur the lines between practitioner and educator…
Markus Menz: Yes, exactly, it would be, it would be great if there would be a greater collaboration for example, or greater interaction. Just to give you an example, I mean I usually get my research questions that I study from conversations with practitioners or from newspapers, articles in and the Wall Street jJurnal, the Financial Times or wherever. So I see certain phenomenon going on and I then think myself, okay, how can I understand those phenomena better? But I also have many, many colleagues who look into the academic body of literature and ask themselves, okay, how can I, and that’s a starting point. How can I contribute to this academic conversation without necessarily considering that this conversation is, is actually something that is currently relevant for organizations.
And but of course, coming back to your question, I mean, is it needs to be closely collaboration for sure. There needs to be more interaction and maybe also more diverse backgrounds of academics working on, or studying those topics, the most fascinating studies that I oftentimes see from colleagues are those of colleagues who had a different career before they actually entered the academic profession. Yet it is quite difficult to make this career change, but this is something that is clearly enriching this conversation.
Ben Robinson: Okay. Just before we leave, so we’re gonna tweet out the links to some of the research, some of your research that we’ve alluded to during the conversation. Anything in particularly like you’d like to highlight to our audience, anything any blogs or journals or anything that you think for those people who’s super interested in strategy they might want to look into?
Markus Menz: Yeah, I still think that some of the more classic practitioner oriented outlets like Harvard Business Review, Sloan Management Review or even the McKinsey Quarterly are, are still very valuable sources for getting an overview on a specific topic or a specific aspect. I would also recommend your audience to get directly in touch with academics if they’re interested in certain topic areas.
I mean, they see oftentimes, for example what kind of areas of expertise in academic have on their web pages. And, and simply reaching out to them it doesn’t cost anything and it oftentimes provides them with some valuable input. And academics are usually, very open to share their insights and learnings on a specific topic. So, that would be an advice that I would, like to share here.
Ben Robinson: And if, if anybody wants to contact you, how do they do so?
Markus Menz: Well, the topics that I’m focusing on are these days primarily corporate strategy, still topics referring to corporate headquarters, centralization, decentralization and the organization of top management teams, and boards of directors. So, corporate governance questions as well and one question that I would like to particularly highlight that I’m currently concerned with is understanding how to do strategy in a way that keeps up with the modern development, both in terms of changes in the environment, but also keeping in mind technology, that builds on and copes with this complexity, but on the other side simplifies doing strategy. And if you have examples regarding that, I would be very happy to learn about them and to discuss with you, how to maybe generalize and further improve those strategy processes.
Ben Robinson: And if they, if they do, they should reach out to you through LinkedIn or your email.
Markus Menz: Yes, I’m fairly active on LinkedIn and I do have an email address… firstname.lastname@example.org
Ben Robinson: Great, Markus, thank you very much indeed. I think if I were to conclude, it would be that the nature of strategy, both in the way that it’s taught and the way it’s executed are changing. But strategy is more relevant than ever. So Markus, thank you very much for your time.
Markus Menz: Thank you very much for having me. Ben.