Merkulova N.V., Burdakova O.L.

Donetsk National University of Economics and Trade named after Mikhail Tugan-Baranovsky, Ukraine

Fundamental Dilemmas Every Company Faces

The more strategic decision-making gets, the more it’s fraught with dilemmas. A dilemma is a difficult choice of some sort, and there are multiple types:

• “This-versus-that” dilemmas are about resource constraints. There’s simply not enough money, time or manpower to tackle all business opportunities — which one to choose?

• “You-versus-me” dilemmas are about the needs of the stakeholders in the company. Shareholder requirements do not necessarily match the needs of employees. Consumers pose difficult dilemmas, too: They require the lowest possible price, but they also increasingly demand that a company should be socially responsible and have a green approach as well.

• “Now-versus-later” dilemmas are about the need to find a way to satisfy short-term requirements, such as quarterly profitability, while ensuring long-term success, for example by investing in innovation.

Every organization has a particular way of dealing with its dilemmas. There are four states you can be in for each of the six dilemmas: stuck, neutral, biased (left or right) or stretched.

Stuck means the organization scores low on both sides of the dilemma. This is the worst situation; you can neither optimize nor innovate, nor can you control for either the short-term or the long-term.

Neutral means the organization is doing OK, but lacks competitive differentiation.

Biased one way or the other (either to the lefthand or the righthand side of the dilemma) means that the organization scores relatively high on one side but low on the other. There is a natural preference for inside-out thinking, for example, or for profit maximization, and the other side of the dilemma is often an afterthought. Indeed, the inside-out approach and a profit focus are the two most common biases.

Stretched is the state you want your organization to be in. A stretched organization has found a way to encompass both sides of the dilemma — for example, by listening to its customers while leading them at the same time. It's neither a balance nor a compromise, but instead a true reconciliation — in other words, a synthesis.

The biggest area of strategic bias is the value-versus-profit dilemma. Some organizations focus on the customer, following the philosophy that profits will follow as a logical consequence of providing value. But this is not always true. Most customer profitability analyses show that a certain percentage of large and respected customers are often simply not profitable. Having large account teams, offering quantity discounts, and other measures to keep and grow large customers adds to the cost of sales, which is not always considered in the customer relationship.

However, it’s more common for organizations to have a strategic bias for the profit side, even to the detriment of customer value. This cannot be a sustainable situation for the long term. There must come a point when customers discover the organization’s bias, or they find an alternative provider and defect.

Solutions to Dilemmas

· Value and profit. Providing a transparent price structure and transparent terms and conditions makes it easy to create a clear value proposition for customers. Transparency can be a competitive differentiator, leading to higher market shares and profit.

· Long-term and short-term. Adopt an "options-based" strategy. When assessing your strategy, don’t think just in terms of whether it’s right or wrong; consider whether it helps you adapt to changing circumstances. Take decisions that address today's issues, while keeping your options open for future change.

· Top-down and bottom-up. On the tactical level, align financial top-down planning with operational forecasting, linking resources to activities and financial results. On the strategic level, let go of the idea of a financial portfolio of activities, and focus only on activities that contribute to the brand.

· Inside-out and outside-in. Many organizations seem almost to cherish the conflict between back office and front office, and treat their needs as trade-offs. However, there’s no contradiction between the need for administrative efficiency and the need for sales flexibility. Customer self-service models bring more efficiency to the back-office, while improving the customer value proposition.

· Optimize and innovate. Create aspirational goals that cannot be met by optimizing existing processes and ways of working. Disturb existing processes on purpose with new and different inputs to see how people react to them and to ensure that your teams will be ready if external conditions change.

· Listen and lead. Why not lead your customers while listening to them? If you’re able to detect the question behind the question or understand customer behavior better than your peers, you can develop a great source of competitive differentiation.

So, performance management professionals need to rethink their best practices. Many of these methods have proven to work perfectly when solving linear and tactical problems, but they’re not useful for strategic decision-making processes. You need to bring a bigger toolbox to that job, and it must include an understanding of the dilemmas that executives have to deal with, the various ways your company tends to deal with them, and the practical solutions that have evolved in other companies, times and industries.

It’s time we had fewer people calling themselves analysts, and more people seeing themselves as synthesists.

Literature:

1. Frank Buytendijk. How Finance Can Ratchet Up Strategic Thinking//Business Finance. – 2010.

2. Site of Harvard Business School «Working Knowledge» - http://hbswk.hbs.edu/topics/marketing.html