These Giants Should Just Admit Their Strategy Is Clout
What is the definition of strategy? Elementary question, you say. This is my elementary answer: Strategy is a plan of action designed to achieve a defined goal.
There are all sorts of strategies in today’s business — at the top is corporate strategy, followed by countless functional and sub-functional strategies ranging from social marketing to waste management.
Clout can be a very effective growth strategy for many organizations. According to licensing agreements and industry sources, Monsanto’s global stranglehold on the genetically-engineered seed market squeezes customers, limits competitors and provides staggering profits. Regulators now worry that declining seed competition may lead to price increases on foods that every family consumes. That’s because many of the foods we eat throughout the day were likely produced from crops grown with Monsanto’s patented genes.
For years, Monsanto has been criticized by farmers, government and environmentalists for its practice of leveraging clout. You wouldn’t know this from the first page of Monsanto’s website: “Better Seed for a Brighter Future. If there is one word to explain what Monsanto is about it would have to be farmers. We create the seeds, the traits, and crop protection chemicals that help farmers produce more food using fewer resources.” How’s that for spin?
Clout is also Kraft’s business strategy, achieved through acquisition (General Foods was the first big catch, then came Tombstone Pizza, Jacobs Suchard, Nabisco, Danone Biscuits and Cadbury). But to hear Kraft/Mondelez tell it, the company’s phenomenal growth is the result of astute brand building. Sheer size provides huge economies of scale throughout the operation, especially in production, overheads, distribution and marketing. This offers a tremendous competitive edge. But you will never hear about clout from their leaders or read about it in the annual report.
For the record, this is how Kraft articulated their growth strategy before splitting into two companies: “The complementary nature of our portfolio is at the heart of the three strategies that will drive our growth: delight global snacks consumers, unleash the power of iconic heritage brands, and create a performance-driven, values-led organization. Delivering on these strategies will put us in the top tier of our peer group and provide our shareholders with top-tier returns on their investment.”
I’d like to know how they measure that. Top-tier returns? No doubt about it — $3+ billion in earnings last year. Don’t for a minute think that the clout factor responsible for those returns weakened by splitting Kraft into two companies. The new Mondelez boasted sales of $35 billion in 2012, and the business that remains Kraft is $18 billion. $18 billion is still a lot of cheese slices, bowls of cereal and cups of coffee.
In the petroleum industry where access to oil is tight, Exxon Mobil and Royal Dutch Shell say they are adjusting their strategies to meet the growing demand for alternative energies. There’s truth in this. You might think the current squeeze on oil supply would hurt their profits. Think again — 2011 profits for Exxon and Shell exceeded a year ago by 35 percent and 48 percent respectively, and although returns were more modest in 2012, the combined earnings of these two giants tallied $70 billion.
Exxon Mobil, with refineries 50 percent larger than the industry average, is one of the few giants prepared to declare clout as strategy. They position their power this way: “The superior scale of our refineries provides a competitive advantage.” I salute them for honesty.
Shell, on the other hand, muddies the strategic scope: “global exploration, focused acquisitions, accelerating resources to value, cost efficiency, integrated gas leadership, technology + partnerships, portfolio concentration, selective growth…” blah, blah, blah.
I wonder if ‘clout’ companies worry that their employees might be demoralized if and when they discover that the company’s success comes from size rather than smarts. This could be the reason why the kingpins of these enterprises won’t admit to clout as a strategic slam-dunk.