The Role of Strategy Directors in the Current Economic Environment

Table of Contents

1. Introduction

2. The role of the strategy director

3. Shape of the current recession

4. Identification of valuable models/concepts in the current economic environment

5. Conclusion

6. Literature and References

7. Appendices

1. Introduction

This work assesses models/concepts that may prove valuable for strategy directors in firms in the context of the current recession to design strategies. Therefore first the role of the strategy director will be discussed briefly. Then an overview over the shape of the current recession will be provided, based on OECD and E CB reports. Based on this background common models drawn from the field of strategy research will be assessed. Thereby this work identifies models that help the strategy director to fulfil his/her role and take the current economic environment into account. This work takes a generic angle and doesn't focus on a particular industry.

2. The role o f the strategy director

Much has been written already about the role of Senior Strategy Directors (SSDs) or Corporate Strategy Officers (CSOs) (e.g. Breene et al. 2007 and Nadler, Nadler 1998). Angwin (et al. 2009) provides an overview:

SSDs have a complex role in organisations. They have to

— develop and implement srtategies,
— adjust strategies to different levels of the organisation and with global trends
— and ensure that they fit into the overall corporate strategy.

In their role they are navigating in a sea of tensions, for example between short-term focus of managers and long-term objectives of the business or between conflicting initiatives across the organisation. The question for this assignment is a classic example for the former (time-related) tension: That businesses hire strategy directors in times of economic crisis implies that they expect these directors to help them to survive today in the troubled environment (short-term focus). But strategic initiatives are designed to be prepared for sustained competitive advantage in the future (mid-to long-run focus).

Three key activities

According to Angwin (et al. 2009, p.81) SSDs achieve this by three key activities:

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Even though they usually have relatively small teams and little organisational power they are (at least in a UK context) heavily involved in implementing different strategic initiatives. Therefore they maintain close-meshed social networks within the organisation across various levels. That enables them to disseminate and develop the work of strategy basically through influencing, persuading and discussing. Very rarely they use reflected or organisational power as practitioners believe it would undermine SSD credibility. Thus strategy models need to enable SSDs to persuade different stakeholders and to bridge or buffer the tensions.

3. Shape o f the current recession

The crisis that started in US credit markets in 2007 now has become one of the biggest economic downturns after World War II. The collapse of major players in the financial industry (e.g. Lehman Brothers) was the macro shock that impacted businesses around the world and different industries. It prolonged the credit cycle and banks couldn't or didn't want to provide credits to companies and organisations any more. The crisis then spread rapidly to almost every sector of the global economy and especially exports plummeted (OECD 2009). After food and petrol price rises in spring 2008 household and company confidence in economic rebound in some of the biggest economies of the world (USA, Germany, UK, France, etc.) is low (Chris 2008). Since early 2007 the European and even earlier the US economy steadily lost momentum and slipped into recession.

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Euro area and US GDP growth, annualised two-year growth rate in per cent (OECD 2 009)

Rescue packages for the financial industry and economic stimulus packages for national economies have boosted the public expenditure quota to historic heights — causing public deficits that will place heavy burdens on governments and tax payers. E.g. in Germany, Europe's biggest economy, it will exceed 50 percent (Eisenring 2009). However, there are indications of the recession bottoming out with moderate growth rates in the global economy later this year (E CB 2009).

Nevertheless insecurity in these forecasts remains high and valuable strategic models should be flexibly adaptable to unforeseen external circumstances.

4. Identification o f valuable models/concepts in the current economic environment

The objective of corporate strategies is to achieve sustainable competitive advantage in order to earn profits in particular markets. This links strategy to firm performance. Different sources of profits exist. These are the macro economic environment, the competitive or meso environment and the internal environment (Angwin et al. 2008). In the economic environment that they face today, strategy directors must consider all of these different levels. Despite that the economic crisis began with a macro-shock originating in the financial services industry, the situation affects all different levels of corporate strategy. This chapter identifies useful models for strategy directors on each level.

The Macro Environment

Today the context of organisations is in flux — for example do governments increase regulation of financial markets as a reaction on the credit crunch on the US housing market. The macro environment of organisations consists of multiple highly interrelated areas. Strategists need to understand this complex setting and the impacts changes might have on their business. PEST (or its branches PESTEL, ESTEMPLE, etc.) as one of the most common models in strategy analysis in this level, enables them to structure the complexity. As a process technique it is able to show how environmental forces will change over time. (See appendix one for an example of a generic PEST analysis in the current economic environment.) Clearly the extend to which these developments can be predicted varies with the turbulence of the environment. Turbulence is defined by three factors: dynamism, complexity and unpredictability (Volberda 1998). The following figure provides a high-level-overview over the current economic situation:

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Turbulence in the current economic environment. Adapted from Courtney et al. (1997)

It suggests that the situation is clear enough to identify a few discrete outcomes that define the future. For what Courtney (et al. 1997) call alternate futures Angwin (et al. 2008) suggest scenario planning for analytic refinement.