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What's the Toughest Strategic Challenge of 2010?

A year ago, the most bedeviling strategic problem was stark: It was getting through the night -- how to make sure that what you did to survive the recession didn't leave you too maimed to enjoy the recovery. (If and when...) Five years ago, the nastiest problem -- at least for companies in established markets -- was how to cope with competition from low-cost competitors. That problem hasn't gone away, but many multinationals are coping with it pretty well, except where host governments play favorites with a heavy hand.

My candidate for toughest-to-crack nut these days is a problem my colleagues and I call "fluidity." Simply put, it's how to bring world-class capability to bear on any situation anywhere in the world without building a bloated business. Here's why fluidity is so important -- and so hard.

Importance first. Most businesses face a complex competitive equation. Odds are you operate in multiple geographies, push multiple product or service lines, and face a varied set of competitors. Some rivals have a family resemblance and comparable economics (these days Ford looks a lot like Toyota); some don't (Tata is in a category of its own). A bank like HBSC operates 8000 offices in 88 countries; mega law firm Baker & McKenzie deploys 3900 lawyers in 39 countries. But they -- and you -- don't win on the basis of size, product lines, or even global expertise. The battle is actually fought in "cells" created by the intersection of all three, for example: intellectual property law + electronics industry expertise + Kuala Lumpur. If you change any variable that defines a cell, you potentially change the entire strategic equation: competitor set, profitability, and headroom for growth. The imperative is to create a right to win in enough of those cells that you gain overall, just as the outcome of a great battle is the sum of an infinite number of battlefield encounters.

One way to deal with rivals from everywhere competing with you on everything is to put a bet on every number of the roulette wheel, but you don't win that way: you win by placing bets that matter, like a general concentrating his forces and firepower.

It's easy to see how hard this is. To win you have to be fluid enough to bring relevant scale and expertise to bear in any cell, keep it there as long as needed, and move on when the next opportunity presents itself -- all without stretching yourself thin or letting yourself get fat. The challenges include:

  • In this funky economy, throwing resources at the problem isn't an option
  • Skimping on what you deliver isn't an option, either, because customers are choosier than ever
  • Planning is little help: Given that any biggish company competes in hundreds of cells, it's extraordinarily difficult to predict where a strategic opportunity or threat will emerge
  • You're flying blind: In every company I know, sales and profitability data are rolled up in one or at most two ways (usually a regional p&l or a product-line p&l); consequently senior management is blind to what's happening at the cellular level
  • Incentives and resource allocation are ill-designed to reward or support activity in cells, especially when it's necessary to move fast.
Where, then, does fluidity come from? That is a question too big for one post, but we can tee up some ideas now and drive them down the fairway over the next few weeks. Fluidity, first, means blowing up the mindset and organizational junk that dams your rivers. Second, it means identifying ways to see new information and move in new ways. For example, analytics can illuminate what's happening at the cellular level. Motivating the informal organization can help with the incentive and resource-allocation issues. More important, fluidity comes from remembering the strategic challenge: To create a right to win often enough that you move ahead. That requires identifying the capabilities -- not the assets -- that distinguish you from your rivals.