Strategic Commitments and Flexibility: Can they be Reconciled?

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The tension between strategy and agility has long been recognized as a major paradox at the heart of multinational corporations (MNCs). One relies on commitment, the other on flexibility. Both are essential, yet a common perception is that they represent far from natural bedfellows.

The former CEO of Nestlé touched on the problem when he spoke of the need to move "from a supertanker to a series of mini-fleets." Such a shift reflects the challenge of managing large numbers of units and employees across various locations while constantly responding to different competitive pressures and ever-varying market environments.

It is easy enough to grasp the limitations of the supertanker. Monolithic and unwieldy, it runs to a course laid out well in advance and innately resistant to revision. Changes in direction are planned, telegraphed, deliberate and difficult to reverse. Once made, commitments are near-total.

Mini-fleets should be nimble by comparison. They do not have to trail relentlessly in their flagship's wake or slavishly hold formation. They can dart here and there, exploiting their manoeuvrability. They can act – and, just as importantly, react – with a degree of independence.

Yet there is always a risk that they will veer into perilous waters if afforded too much freedom. They could become cut off from the rest of the flotilla and even end up lost, sometimes without anyone else noticing until it is too late. They may well sink without trace.

A key question, then, is whether strategy and agility, instead of being a source of permanent tension, can become a basis for lasting synergy. Is it possible to evolve and effect a strategy in which agility is encouraged rather than constrained and the farsighted allocation of investment and resources sits comfortably alongside an ability to adapt selectively and at speed?

We recently completed a study of how a leading MNC has strived to achieve this subtle equilibrium. The company chosen for the research, Tetra Pak, provides processing and packaging solutions in more than 170 countries and has 20,000 employees, extensive subsidiary operations and a turnover in excess of €10bn.

Examining Tetra Pak's strategic planning permitted us to identify three distinct phases in a transformational journey. It would be impractical to try to present all the complexities here, but a distillation of the key insights should be sufficient to illustrate how the company has gradually squared competing considerations that many have traditionally regarded as nigh on irreconcilable.

From 2003 to 2005 Tetra Pak pursued a multi-product expansion strategy that focused on growth in all of its units and was driven primarily by emerging markets. It set targets both for the group and for individual units and granted substantial leeway to subsidiaries in defining and executing initiatives. Strategic and operational reviews were merged at the end of each year, as a result of which issues entailing distinct choices were not always brought up systematically or resolved explicitly. Operational management decisions were often taken implicitly and without thought for the consequences for other units or the company's overall development capability.

In 2006, amid mounting competitive pressures, a new CEO sought a more rigorous strategic standard, as laid out in a 100-page corporate plan. Strategic discussion by units was separated from operational reviews, and the company began to realize that in some areas a particular strategy might require further development before implementation. An investigation of existing initiatives found many had never been properly reviewed and that governance was scattered at best. This led to a portfolio management methodology centered on prioritizing cross-functional initiatives and coordinating implementation.

By the end of 2009, with competition still intensifying, there was a fear that strategic planning was in danger of descending into a repetitive, time-consuming and resource-sapping process dictated not by needs but by the calendar. It was felt that the accumulation of facts and data – supposedly with a view to informing and influencing strategy – had somehow taken precedence over facilitating dialogue and actually making decisions. The nascent consensus within Tetra Pak's units was that strategic plans were prepared for the board and then left on a shelf, leading to limited impact on the business.

Following a major strategy review that sought to strengthen the link between strategic and financial planning, a new framework for fostering the desired flexibility across the entire company started to emerge. It was founded on a fundamental awareness that strategic planning could be reasonably simple and that Tetra Pak's Global Leadership Team should concentrate only on the most critical cross-functional efforts to build capacity rather than struggling to keep close track of every single initiative. In short, Tetra Pak saw that customization of strategic planning was pivotal.

This journey – or, to further the nautical analogy, this voyage – might at first glance appear arbitrary in parts, but in essence the path was one of evolution. Moreover, there is no disputing the significance of the final destination. Ultimately, the ongoing involvement of managers in reassessing strategic decisions in the course of a genuinely cyclical process has enabled Tetra Pak to dramatically augment what is called its agility to commit.

The principal corollary is that the company's adaptability now goes hand-in-hand with long-term capacity-building. Resource investment decisions have become continuous rather than periodic (at the time of completing the strategy process); initiatives have become cross-functional (to build capabilities for the company as a whole) rather than unit-specific; and modifications of the strategy process have become unit-specific and timed (depending on the environment, performance and management) rather than unified.

It is not hard to discern why the old ways are more suited to a supertanker and the new to the aforementioned series of mini-fleets. Yet the new ways not only preclude the manifest failings of the former: they also guard against the potential and much less appreciated shortcomings of the latter.

The obvious attraction of mini-fleets, after all, is that no two need be hamstrung by the same commands. One can push ahead while another is ordered to slow down. One can maintain course while another is advised to change tack. Those sailing the calmest of seas can be treated quite differently to those confronted by violent storms and raging torrents.

It is in this delicate balance that strategy and agility truly meet. Here, perhaps more than anywhere, lies the answer to the enduring puzzle of commitment and flexibility. There is no doubt, as the example of Tetra Pak highlights, that the middle ground between straitjacketed rigidity and haphazard autonomy can prove elusive for even the most successful of MNCs; but that is not to say it does not exist and is not well worth seeking out.

Bettina Buechel is Professor of Strategy and Organization at IMD, where she co-directs the Singapore edition of Orchestrating Winning Performance, a global business program for individuals and teams.

[This article has been reproduced with permission from IMD, a leading business school based in Switzerland. http://www.imd.org]