Rethinking strategic principles. How to have the right strategy for 2024? On October 30, 2023, New York Times published an article that said that Facebook ‘will introduce an advertisement-free subscription option for Facebook and Instagram … for users in Europe’ in November. European rules on user data protection forced the corporation to go along.
And this is not just a story about the social platform or the strict European regulations. It is a sign of a future strategic paradigm shift in strategic thinking.
What do we call ‘success’?
53 years ago, on September 13, 1970, NYT published another article by Milton Friedman, an American economist. He titled it ‘The Social Responsibility of Business Is To Increase Its Profits’. In it, Friedman proclaimed the shareholder primacy approach. He called shareholders ‘the economic engine of any organisation’ and the sole group to which the firm was socially responsible. As such, the primary business goal was to maximise shareholder value.
The Friedman doctrine became very influential. And though many experts heavily criticise it, many businesspeople still believe a company exists only to make profits.
Proving it is simple. Look at the metrics we use to evaluate a business – profits, revenue, market share, or market capitalisation.
Any organisation earns profits by satisfying customer needs. However, most business indicators reflect the value it creates for the single stakeholder group – shareholders. Facebook is a super-profitable enterprise. But it spends astronomical sums on lawyers both in Europe and in the US, because governments and public organisations accuse it of violating users’ rights for profit.
And this is not yet another tiresome ‘ethical business’ story. Future organisations will have to equally meet the needs of five stakeholder groups: customers, employees, shareholders, business partners, and society.
Is strategy ’a means to an end’?
Many experts criticise the idea of profit as a primary business goal. But most of them share the viewpoint of a strategy as a tool, as ’a means to an end.’ But if the only ‘end’ we have so far is profit or market cap, it is still the same Freedman’s concept in a new package.
This way of thinking has three negative implications:
- Companies still aim to make profits simply because nobody offers them other objectives.
- Words matter. If you proclaim profit as an ultimate goal, and the strategy is only a tool helping to reach it, your crucial assets, including employees, are nothing but resources.
- Paraphrasing Dwight D. Eisenhower, we may say that strategy is useless, but strategising is indispensable.
But the idea of treating workers as ‘resources’ looks outdated – to say the least.
And the process of strategy development itself advances the organisation. It enhances executives’ cognitive skills. It forces them to raise difficult questions and find answers.
Strategy always implies doing something we’ve never done before. It means we base our strategy on hypotheses we’ll have to test. It makes strategising an ongoing process.
‘Built to last’
Are you familiar with the following companies?
- Staffelter Hof Winery (winery, hospitality; Germany)
- Genda Shigyo Paper Industries (paper, Japan)
- Chateau de Goulaine (winery; France)?
It is unlikely. However, they are three of the ten oldest businesses in the world. They all are older than 1000 years.
In 2024, more businesses will start questioning the purpose of their existence. Is it to achieve some goals? But goals are only some future desired states of affairs. For instance, we may want our business to become a national leader with a certain market cap in five years. Would it be a great accomplishment?
On the one hand, it can look like a significant achievement. On the other hand, isn’t it better to build a sustainable, resilient business able to survive in any circumstances, a business that will be here in 30 or 50 years?
Conclusion
As someone whose work implies reading many articles and blog posts on strategy, I observe three major trends I mentioned in this article:
- Companies start revising their basic strategic approaches. They try to find a way to fulfill all stakeholder group’s needs. And they use respective metrics in addition to profit or market cap.
- Business leaders begin to see strategy not as a set-it-and-forget procedure but as an ongoing process.
- Businesspeople are rethinking the purpose of the organization’s existence. The focus is shifting from short-term (5-10 years) goals to more fundamental ones – building a sustainable business that can outlive its founders.
Following these trends will help you have the right strategy in 2024.
