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Who Needs Principles?

Who Needs Principles?

Once upon a time, having a strategic principle could be more or less important, or more or less powerful, depending on the circumstances surrounding your business.

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Who Needs Principles?

Once upon a time, having a strategic principle could be more or less important, or more or less powerful, depending on the circumstances surrounding your business. Today, there are at least three situations in which strategic principles are critical to catalyse actions.

In times of retrenchment
Periods of retrenchment reduce the margin for error. In such times, a clear strategic principle can protect your trajectory and preserve your organisation's flexibility and responsiveness. A strategic principle also anchors priorities for renewed expansion. By sticking to its strategic principle captured in the phrase "Low prices, every day," Wal-Mart not only survived the 1987 and 1991 recessions-when consumers' concept of a low price was one lower than usual-it achieved gains through aggressive price rollbacks.

In industries fraught with rapid change
Radical changes in technology-driven industries have been costly for firms without a strategic principle. Nowhere in business has there been more uncertainty combined with so great an emphasis on speed, and such high odds of failure, as in the high-tech sector. Managers in these industries must react immediately to unexpected developments-positive and negative. The sum of these reactions becomes the company's strategic course. e-Bay, whose principle is "focus on trading communities," might have been tempted, like many e-marketplaces, to diversify into myriad services. Instead it chose to outsource and the company's strategic principle has ensured that everyone remain focused on the core trading business, where profit is built into every transaction.

In times of leadership succession.
A strategic principle is a powerful tool to smooth the transition. Today the need for such a tool has never been starker. A total of 2045 CEO's in the US left their jobs from November 1999 to October 2001, at an average rate of nearly three per day. In October 2001 alone, 80 CEO's exited, including the heads of Ford and United Airlines.

How does a strategic principle render such a transition less rocky? Just ask GE, Southwest or Vanguard, who recently passed the leadership torch with few flickers. Successors at these companies sometimes brought with them a change of strategy, but they stuck to their strategic principles. When terrorist attacks rocked the airline industry, Southwest Airlines' CEO made quick decisions in line with the company's principle of "addressing travellers' short-haul flight needs at fares competitive with auto transport." Although this CEO had only stepped into the position a few months prior, employees quickly aligned, accepting pay cuts to avoid layoffs and maintaining operations and low fares despite low loads. While other airlines reduced flights, Southwest kept a full schedule, winning customer and employee loyalty, along with market share.

Strategic principles have become particularly useful in today's volatile business environment. Over the past year, we have come to appreciate a strategic principle's ability to help companies maintain a strategic focus while fostering flexibility among employees, allowing them to innovate and respond rapidly to opportunities and threats. Strategic principles will become increasingly crucial to corporate success in the years ahead.

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