Archive for August 25th, 2008

The tragedy of strategy (The Financial Athlete #45)

August 25, 2008

“When people ask me what really makes a good manager I say two words…good players. All that strategizing stuff is overrated. Games are won or lost by how well the players play, not how well the managers manage.”– Yogi Berra (from his book, You Can Observe A Lot By Watching).

Most business competitive strategies fall under either cost leadership, differentiation, or a focus strategy. These generic strategies were classified and discussed at length by Michael Porter, the guru of strategic management. If there’s anything an M.B.A. remembers from graduate school 20 years later, it’s generic strategies because these are an integral part of the M.B.A. curricula.

Senior management are well versed in the generic strategies. Even incompetent managers know how to speak what I call “strategese”. Of course, having a strategy gives you an edge over competitors who have no sense of direction. But more important than strategy is execution. The #1 question I ask myself in evaluating management is “Can they execute?” To judge this I not only evaluate management’s level of competency, social skills, and drive, but also (1) the company’s (and products’) reputation in the industry; (2) their connections with the investment community; (3) their connections within the industry (for example, distribution channels).

Writing a good business plan is not difficult. Neither is making an organized presentation with computer generated bar charts and pies. Don’t be too impressed by these. To actualize lofty goals separates the men from the boys in terms of real leadership.

The tragedy of strategy for investors is to be deluded into believing execution automatically will follow someone’s articulate road map to success.

(Photo above: Yogi Berra, who will always be remembered for his oft quoted: “It ain’t over ’til it’s over!”)