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A Delicate Balance In Strategy (Int'l Edition)


International -- Editorials

A DELICATE BALANCE IN STRATEGY (int'l edition)

Planning vs. market-driven: Which is the better business strategy? It's an endless debate. On the one side have been the fast-growing companies of East Asia. Aided and abetted by government technocrats, these businesses have followed a conscious strategy of targeting key markets, such as semiconductors or petrochemicals, because of their long-term potential, rather than short-term profitability.

The story has been much different in the U.S. Not only did the U.S. government reject industrial policy, but over the past decade, American corporations dismantled much of their strategic planning staffs as well. Corporate executives there focused on lopping off deadwood, creating efficiencies, and driving up stock prices. Grandiose ambitions were replaced by a simple goal: to boost productivity and cut costs.

Both approaches have registered successes. Countries such as Taiwan and South Korea showed spectacular growth for much of the 1990s. Meanwhile, the drive to cut costs in the U.S. has helped propel soaring investment in high-tech equipment and restore America's competitiveness in key industries.

But now the two poles may be beginning to converge. In the U.S., the era of the chainsaw may be nearing its end. At companies such as Procter & Gamble and Hewlett-Packard, the new emphasis is on strategic planning: identifying and shaping new markets. More managers are turning into architects and carpenters, visualizing and building rather than cutting. And there is a whole new school of management gurus who exhort companies to focus on where they are going, rather than where they are today.

The new wave of planning in the U.S. stresses growth and investment. Many companies are nearing their limits in their current markets. Strategic planning creates an atmosphere that encourages managers to look for new opportunities, rather than simply cutting a few more workers.

Simultaneously, East Asia is under pressure to rethink its reliance on planning. The region's businesses had a clear vision of the future--but one that may not come to pass. East Asian companies committed themselves to major investments in industries such as petrochemicals, autos, consumer electronics, and semiconductors. The goal was to move up the value-added ladder: South Korea and Taiwan would compete with Japan and the U.S., while China, Indonesia, Malaysia, and Thailand would follow in the footsteps of South Korea and Taiwan. The result so far? Massive overcapacity and slowing export growth across much of the region.

This will likely be only a temporary setback. Nevertheless, East Asian corporate and government leaders will have to listen harder to what the markets are telling them today, even while U.S. companies become more willing to look toward the future. Achieving this balance between flexibility and planning is the best route to success.


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