Nora's Blog Leadership – The Individual Journey

What’s in a Strategy?

In today’s Wall Street Journal Nov. 30, 2009, there is a front page article on Oracle CEO Larry Ellison’s decision to vertically integrate through its purchase of Sun Microsystems which makes hardware, something Oracle never did before. In fact, Oracle’s strategy for the first time in its 32 year history is to create a conglomerate of computer software, hardware and components like “TJ Watson Jr’s IBM”, Mr. Ellison said in September.

SO, what’s in a strategy? When do you hold ‘em and when do you fold ‘em? In Mr. Ellison’s case, it was opportunistic. He suddenly had access not only to Sun’s software, for which he originally bid, but the hardware and computer components business as well. Mr. Ellison began to think about the benefits today in vertical integration. Lots of other companies are doing it too. Companies that were selling off parts of the business to be more efficient only 2 years ago are selectively buying parts that they now want to control. SO, would that work for Oracle?

Well, guess what? Times and conditions change. We make certain assumptions about the world when we set a strategy. Assumptions like, the dollar is stable and the banking system can depend on the US market. Or, the basic commodities on which my company depends will be cheap and readily available.  Or, I can count on delivery times from my suppliers. Efficient world markets and ready supply of commodities made this all true for many years. Now, that has been challenged and companies that could afford to focus on only what they excel at are now looking at gaining back direct control. Their assumption that we could depend on efficient markets is no longer certain. If they cannot deliver the correct product at the correct time at a fair price, they will not maintain their dominance in the market.

Secondly, the break-up of large conglomerates accelerated efficiency in the market. All the benefit from that has been incorporated in these new companies. Future growth has to come from something else. Each of these suppliers had to make a profit along that chain. By, integrating them, some of that profit and some of the redundancy (back office, overhead, etc) can be squeezed out at the same time as control gets tighter. This will benefit the new conglomerate and ultimately the customer.

Thirdly, a strategy is not written on a stone tablet. Many competitors exist in a given market with differing successful strategies. You do need to have a strategy and to take careful steps to execute that strategy. You do need to evaluate your success with a cold eye. If it is not working then you do need to figure out whether another strategy is likely to be better. That’s what Ellison did. Is he right?  According to the Wall Street Journal Ellison said,  “We’re really brilliant, or we’re idiots.”