1st March 2004

"Turning strategic rhetoric into reality"

By AMIN RAJAN

In the seventh in his series on solving problems in fund management, Amin Rajan highlights what works in strategic planning. The record profits atRoyal Bank of Scotland, once a humble provincial player and now the world's fourth largest bank, underline an important point: the genius of strategy is not so much in design as in execution.

Prior to its takeover of National Westminster in 1999, the two banks followed similar strategies. Yet NatWest failed to convert its laudable aspirations into credible actions. The confusion that undermined its strategy, and that of countless large firms, is now evident in the fund management industry around the world.

It transpires that strategy is a much used and abused word. In one large fund management firm, for example, I encountered five different definitions in separate conversations with executives: strategy is about setting goals; it covers actions to achieve these goals; it involves giant leaps like mergers or straight through processing; it is the stuff of top table discussion; and it is about how the outside world perceives us.

With no common definition, strategy discussions are often akin to a dialogue of the deaf or an invitation to inaction. This results in business-wide corrosive cynicism that takes years to eliminate.

In reality, however, all five elements matter once it is realised that strategy defines the purpose for the entire business and guides its collective actions.

The simpler the purpose, the easier its execution. Slogans - such as General Electric's "number one or two in every business we are in" or Reebok's "we make a difference" - can be used to anchor a firm's business practices and the day-to-day actions that underpin them. One prominent fund manager follows the maxim: "Make a good deal of money a good deal of the time".

Such images provide fresh insights and play a powerful role in changing the prevailing mind set. Arguably, the success of Jack Welch, GE's former chief executive, lay not so much in coming up with new ideas as in using a powerful rhetoric that walks a fine line between incisiveness and ambiguity. He went from early generalities to later specifics, clarifying his actions as events dictated or permitted - all in the belief that few business plans survive reality. The unexpected always happens. So, new information and opportunities have to be exploited.

Yet, at the same time, employees need to be convinced that the strategy is for real, not a passing fad. That means taking highly visible actions from time to time.

Deutsche Asset Management's recent decision to reorganise its UK business around focused product groups and Standard Life's decision to think the unthinkable with respect to its investment arm are symbolic of the new courses these organisations are charting. Indeed, most of the recent big outsourcing deals by fund managers on both sides of the Atlantic have significance far beyond cost cutting. This is necessary but not sufficient.

Strategic opportunism also requires engagement of managers at all levels in all areas of the business. Strategy is not a cerebral activity, taking place at top level and resulting in ingenious forward looking plans to be executed at lower levels. That model has only worked in the former Soviet Union - and then only under the threat of a one-way ticket to Siberia.

Both design and execution are interactive learning processes that involve managers at every level because strategy is a bridge between the past and the future. This inevitably means a messy combination of formal plans and informal entrepreneurialism. Formal plans must be flexible enough to accommodate emergent actions that rely on individual intuition and evolving circumstances.

As in pre-takeover NatWest, so in numerous fund management firms today, strategy is still perceived as a preserve of the top executive team. The essential engagement of managers at all levels in all departments is often conspicuous by its absence. The longest bull market in history has promoted a silo mindset among them: they are still more inward looking than outward. The low nominal investment environment of today is forcing changes for sure - but not as fast as market conditions require.

For their part, those who manage money are less interested in grand visions. The scepticism they harbour towards the strategies of companies in which they invest is only exceeded by that towards the strategies of their own firms.

Equally, those who manage the middle and back offices have seen regular strategic blueprints that use many clever words to say a lot about nothing: these documents are no more than death by a thousand details. Both groups need to be engaged through a culture of leadership that seeks to address three of the most frequently asked questions by line managers across the business: how will the strategy affect my area of work, what is expected of me and what's in it for me?

The answers require a climate of trust between them and members of the top team. The latter not only need to listen actively to what the front-line troops have to say; they also need to be clear about the goals they are seeking to achieve, their rationale, the impacts and the blockers. Strategy, after all, is about implementing simple ideas in a complex environment. That means an intricate blend of improvisation and influence, originality and flair, passion and persistence. Amin Rajan is chief executive of CREATE, a research consultancy specialising in new business models in financial services: amin.rajan@create-research.co.uk.