From strategic ‘fit’ to ‘stretch’?

Table of Content

1. ‘Fit’ or ‘Stretch’?
2. SoftBank’s 100 billion Vision Fund
3. The Yin-Yang Dichotomy
4. Who is the legislator, the Rational mind or the Irrational one?
5. Reference

When a firm is drawing up a strategy, weighing up the balance amongst its external environment, internal resources and organisational objectives, finding the right fit is often the central pillar of strategizing activities, as the idea of ‘strategic fit’ has been a much-discussed concept in the context of strategic management. Whilst the notion of ‘strategic fit’ is essentially derived from a firm’s attempt to allocate its resources and capabilities as wisely, efficiently and effectively as possible, it seems, on the other hand, such a stance appears rather being on defensive, passive and lacking aggressiveness that is a requisite for steering an organisation forward.

1. ‘Fit’ or ‘Stretch’?

In contrast to ‘strategic fit’, Hamel and Prahalad (1993) elaborate on the idea of ‘strategic stretch’ as an analogy for leveraging resources, as opposed to merely allocating them, to take chances and keep pushing its way forward.

Stating that “creating stretch, a misfit between resources and aspirations is the single most important task senior management faces,” Hamel and Prahalad (1993) highlight the importance of insatiable ambition that top management must have in driving a company forward. So risky as it sounds, however, that was how Alexander the Great conquered the known world, including the mighty Persian Empire by overthrowing the king Darius III. Even in more modern times too, Henry Ford, Soichiro Honda, Bill Gates, and Steve Jobs, the list of such ambitious managers goes on.

In the 1990s, the world witnessed the ascendance of CNN, British Airways, Sony, Honda, and NEC, which, 10-20 years prior, occupied only insignificant positions, not comparable to the likes of GM, CBS, Pan Am, and RCA. In a matter of two decades, however, the tables were utterly turned, and what enabled them to surpass their predecessors was not merely the clever strategic allocation of resources but rather leveraging them in order to let a ‘misfit’ between ambition and their resources be accepted or even cherished.

2. SoftBank’s 100 billion Vision Fund

Recently, SoftBank Group has embarked on an unprecedented investment scheme for its future growth. In 2016, the IT conglomerate based in Tokyo has launched an investment fund called ‘Vision Fund’ that focuses specifically on the technology start-ups, for which the company raised $100 billion. The majority of the staggering sum, around 60%, came from the Middle East, such as Saudi Arabia and Abu Dhabi, as part of their diversification strategy, while $28 billion of equity comes from SoftBank itself (The Economist, 2018). The fund has already invested in an array of ‘tech unicorns,’ such as Uber and DiDi. The lifespan of Vision Fund has been set, for the time being, as 12 years, and for the audacious investment to be profitable, if the underlying investments altogether produce an annual return of 20%, the annual internal rate of return (IRR) would be around 27%. If they return only 1% annually, on the other hand, SoftBank’s annual IRR would be – 4%. Thus, given possible changes in external environments, the ‘strategy fit’ remains as a concerning factor for the firm’s $100 billion investment.

Those who view this investment project rather cautiously are probably mindful of what happened to SoftBank in 2000 when the dot-com bubble spectacularly burst, and consequently, the company was reduced to near bankruptcy. In spite of that, now, it seems that the lesson has been learned and the risk must be managed relative to its reward within reason, however audacious it may appear.

For the founder of SoftBank, Masayoshi Son, the notion of ‘strategic stretch’ has always been favoured over ‘strategic fit’. SoftBank was an early investor of Alibaba when it was still a relatively unknown Chinese start-up. Meanwhile, SoftBank co-founded Yahoo!Japan, currently the most visited web portal in Japan, in stark contrast to the original Yahoo! Inc., which has been in decline in the West over the years.

3. The Yin-Yang Dichotomy

A strategy that truly maximises the profitability of a firm inevitably entails the opposing forces: that which seeks efficiency to optimise the existing resources and capabilities of the firm; and the unparalleled ambition to grow far beyond anyone’s wildest dream; that is to say, being wise and strategic, on one hand, and being audacious and even on the verge of being delusional. However irrational it may sound, when one scrutinizes the history, numerous examples are found of astronomical success accomplished by embracing the heterogeneity of this approach based upon the yin-yang dichotomy. Even Alexander the Great had both the unquenchable ambition inherited from his father Philip II of Macedon and Olympias and a strategic mind cultivated under the tutelage of Aristotle, probably the wisest man in the whole Hellenic world.

4. Who is the legislator, the Rational mind or the Irrational one?

So what is this dichotomy? The 16thcentury Scottish philosopher David Hume famously wrote in his “Treatise of Human Understanding” that our rational mind is far superior to our irrational and emotional mind in that emotion, passion, and other irrational drivers are what makes us often astray in life. The irrational mind is impulsive, eclectic, and unconstructive, whereas our rational mind is rather logical, constructive and productive, and by applying it, we can often achieve fruitful results.

On the other hands, as the philosopher argues, what motivates us to do anything in the first place is actually the irrational mind, unexplainable inner drive, passion of some sort. Indeed, although the rational mind is far superior in terms of getting from A to B and fulfilling our objectives efficiently, without the initial motivation, passion and an emotional drive, there is nothing to be achieved, and often inertia sets in.

Just like a great nation or a romantic relationship that encompasses the endowment of freedom upon all citizens or partners to be able to express their opinions freely without letting the inevitable discord amongst them to blow up into destructive conflict, having internal contradictions while preserving itself intact is perhaps the characteristics of the organisational structure that allows most strategies to be successful (Amodeo, 2018; Tocqueville, 1945). Be it ‘fit’ or ‘stretch’, the yin-yang dichotomy seems to underlie successful strategic management.

  

5. Reference

Hamel, G and Prahalad, C.K. (1993) Strategic as stretch and leverage Intent. Harvard Business Review,71 (2), pp.75–84.
Hume, D. (2007)[1738]. A Treatise of Human Nature: A Critical Edition, David Fate Norton and Mary J. Norton (eds.), Oxford, Clarendon Press.
The Economist. (2018) The Son Kingdom: The impact of Masayoshi Son’s $100bn tech fund will be profound. In: Briefing. May 10th. San Francisco.
Tocqueville, A.D. (1945). Democracy in America. 2 Volume. New York: Vintage Books.
Amodeo, J. (2018). Is Your Self-Expression Damaging Your Relationships? Psychology Today. [Online] February 03. Available at: https://www.psychologytoday.com/us/blog/intimacy-path-toward-spirituality/201802/is-your-self-expression-damaging-your-relationships
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