According to a recent report by Innosight, a consulting firm, the average lifespan of an S&P 500 listed company had declined to 18 years as at 2011 and the decline in lifespan is expected to continue going forward. Several factors have been attributed to this, from creative destruction to psychological biases. One factor that encompasses most explanations is the strategy or the lack thereof to deal with long run growth and continued business existence. A strategy to deal with natural company decline is important for company managers and investors.
In a recent study conducted on Nigerian companies, only 2% of publicly listed companies in Nigeria have stated their company strategy publicly. Within the context of the study, a public strategy means having a strategy document or statement on the official website of the company. To reach this conclusion, in January 2016, I reviewed the website of 186 companies listed on the Nigerian stock exchange for any strategy statement. Only 1 company had a strategy document, 2 other companies had a strategy statement, 20% had a statement concerning their vision and mission and the other 78% stated nothing. Such statistics are hardly alarming as anecdotally, Nigerian company strategies are assumed top secret and reside primarily with company promoters and owners. So, is speaking up about your company strategy a bad thing?
In an article by Whittington et al in December 2015 and published in the Harvard Business Review, it was shown that American CEO’s that clearly and explicitly state their business strategy upon appointment are rewarded by the market with statistically significant movements in their stock price either positively or negatively. Therefore any new CEO appointed in America is advised to speak up quickly rather than later. In Nigeria, strategy presentations and discussion points are not common place but in reality CEO’s should speak up more often due to the tough business environment. According to the World Bank, Nigeria ranks 169 position out of 186 countries on the 2015 doing business index. The immediate implication is that doing business in Nigeria is tough and hampers the growth prospects of young and more established enterprises. CEOs need to speak up and tell investors how they plan to survive in such a harsh business environment.
Within Nigerian perceived wisdom, to illustrate the problem, Company A will keep mum on strategy to prevent its competitors and potential entrants from copying what it plans to do. Company A does this because; competitors copying their strategy will reduce the rents that could accrue to them. Unfortunately, this view of the world implies a poor understanding of what company strategy stands for or means.
Should Nigerian CEOs worry about competitors copying their strategy? All companies within a particular industry are different in several ways; therefore every company has a unique strategy for growth and survival within its climate. Two different companies cannot have the same strategy because of the following; companies competencies are different, available customers also differ as niches do exist. More important is that one company cannot copy the strategy of another and implement it in the same way using dis similar competencies whilst expecting to get similar results.
One thing, one can bank on is that those with a clearly defined public strategy are better placed than those not articulated or those with none at all. Based on the study in the US, investors and market participants view articulated strategy positively much more than no strategy at all.
In conclusion, not having a strategy is a costly omission on the part of any organization, to have it residing in the head of the manager or promoter makes it ineffective and not to have it well articulated and imbibed by all stakeholders is akin to it not being available.