Diploma in Financial Strategy
I have just finished my first module at Oxford University as part of a Diploma in Financial strategy at the Saïd Business School.
I wanted to share my thoughts on my time for the benefit of (1) my customers who are mostly business owners and executives, (2) my organisation, which has been supportive of my further studies and (3) my family and myself so that I can track what I have learned and make the most of the investment in my human capital. The course is a part time course that runs over 12 months and involves four intensive modules each taught over four days, spread evenly through the year beginning from January. There are 3 exams to sit, with one smaller project and the major 10k word project due the following January. The class has 57 people from over 35 countries and an average age of 37. The class sits in a tight-knit circular auditorium to promote discussion.
The diploma was of particular interest to me due to its focus on two key aspects;
1. Providing a proper financial analysis to understand the fundamental return drivers of various businesses; and
2. Showing how business returns could improve with appropriate management strategy.
The primary responsibility of most individuals involved in finance is to analyse the expected returns of income streams, which are often a business’s core operating earnings. If the level of risk and an appropriate expected return exists, they will allocate capital, through provision of debt or purchase of equity. Business owners and executives on the other hand are primarily concerned with the allocation of scarce resources that give the greatest possible return on the capital deployed. Strategy is ultimately concerned with challenging a business to ‘place these resources for its best possible use’ (Richard Whittington 2016). The diploma addresses in great detail these two facets and inspired my application to the course.
Before arriving, I reached out to a friend from Sydney University, Jacob Taylor, who is doing a doctorate in Anthropology, analysing group dynamics and efficiencies. We had lunch at the Vincent’s Club, which is the sporting club at the University where he suggested I come with him to grab a short term stay at his college, St Johns. Through good luck, the college had a guest room available for my stay at Oxford. This was fantastic as it enabled me to fully integrate into college life, being very centrally located where I stayed for the week.
Module 1 – STRATEGY – January 18th – 21st, 2017
Day one was a very intense day.
We were given a general overview of the course along with introductions by various members of the faculties and the importance of each: from the course co-ordinator, to the librarian showing us the databases available, to the chief examiner guiding standards and conditions, to our mathematics co-ordinator who provided an overview in mathematics and prepared us for later modules. The opening module is Strategy, taught by Richard Whittington who is a professor at the business school. Before commencing we were provided a reading list and requested to come prepared with a personal case study for analysis and group discussion. Most of the lectures consist of short lectures, interspersed with group conference on real situations.
The four key w’s to strategy are why, where, what and which. Each company should be able to formulate a strategic statement in 35 words or less answering each of the “w’s”. Collis and Rukstad (HBR 2008) argue that most executives cannot articulate their strategy in 35 words or less, and those that could, found superior results in the market. A good strategy statement shows a business’s goals, scope and advantage. Vision and mission statements are also very powerful with three key tests, being:
1. is it clear for all stakeholders;
2. is it credible for all stakeholders; and
3. is it consistent with powerful stakeholders’ needs?
Can you formulate your answer to the “w’s” in 35 words or less?
The afternoon session began by exploring industry analysis with an introduction to the zero-sum game of Porter’s Five Forces, which was very ably described as ‘an arm wrestle’ between each interaction of the forces. The force with the most power on each competing variable in the model is able to extract all of the value and profit, with the key message being that you are only as strong as your weakest five force.
After a long and fantastic day we went upstairs in the business school to the dining room for a drink and a sit down dinner.
As I sat around dinner after the first day, I really understood what a special place Oxford was, with my dining table being a great summation of the diversity and quality of the individuals that existed throughout. On my dining table sat a lady from Angola who worked for BP in Oil & Gas, an advisor guiding policy at the Bank of England, an aerospace pilot from Texas, the head of corporate audit in a manufacturing business in Switzerland, a business owner looking to grow and develop a solar power business in Africa, an investment banker from London and the Professor, Richard Whittington a ‘god of strategy’ who taught the day-long course. The exposure to this diversity is something very special and a real privilege. Following dinner we went to a local tavern for a drink before retiring for much needed rest.
My jetlag was still affecting me, so I had a run along the canal in the very cold morning and after breakfast was fresh and ready for a big day of class. Day two was aimed at addressing the ‘where’ question within strategy, in particular, locating attractive industries and markets and dealing with uncertainty. The first key concept within this section was examining the industry life cycle: companies first compete on a product level (design, make, key product differentiation points), but as the industry matures with an agreed upon best product competition occurs at the process level, with the key feature driving efficiency. The second key concept discussed and evolved by the class was dealing with the four key postulates of uncertainty, the primary takeaway from which was that what is happening now may not happen tomorrow and, as such, we should define the level of uncertainty, identify the key and opposing drivers, then develop scenario stories and actions from this.
The afternoon was taught by Olivier Sibony, a management consultant and professor. Olivier introduced “behavioural strategy” and the importance that our cognitive biases play within the decision-making process. Olivier began by displaying to the class the cognitive biases that we all have through a series of games, followed by explaining what we can do to eliminate these biases. A key part of the decision-making process is to have a checklist to remove the bias that occurs within each decision-making process (see Atul Gawande’s The Checklist Manifesto for a popular explanation of the benefits of checklists). This section was fascinating as it revealed our internal biases and I left the class appreciating our “system one” and “system two” modes of thinking (as Kahneman describes them) and what we can do to eliminate or reduce our biases. After class concluded we were hosted for a cocktail party and given a tour around our associate college St Hugh’s, which is the college that the current English PM Theresa May attended.
Day 3 started with a bang, diving into the “what” question of strategy. In particular we looked at identifying a business’s core competence and how businesses need to compete within activity systems rather than seeking a silver bullet which will be the company’s overall point of difference. Michael Porter is a legendary Harvard strategist who introduced strategy based on generic competitive advantages and much of the class was taken up with discussing these. Porter indicated that there are only two ways to make money in business, either as a cost leader or as a differentiator. By not founding a business at either end of this spectrum, competition will dominate and profitability evaporate. All the businesses who sit outside the cost leader / differentiator segments are seen to ‘sit in the middle’ and, thus, have no competitive advantage and make no money. The Dynamic strategy was also advocated which argues strategy is continual, meaning ‘do not be stuck in time’. My takeaway is that strategy theorem indicates that we should be looking for niches within our strategy canvas rather than be searching for a blue ocean to dominate.
To conclude the day we discussed the concept of planned strategy and emergent strategy. The key theorist in the emergent end is Henry Mintzberg, who uses Honda’s successful entry into the US market as an example, where they entered the market looking to sell big bikes, but through front end emergence they found a niche that they could dominate in smaller bikes. The key message here is that businesses must have views on the front end and be adaptive to changing industry tastes.
On conclusion of class, I took my Rugby boots down to Iffley Road, which is the famous Oxford rugby ground. I was due to play for the team on Sunday. Before I headed to Oxford, my father – a graduate in the 1970’s – gave me one bit of advice: “as soon as you can you must take your boots down to Iffley Road son”. I trained for half an hour before ducking back to change and head for another fantastic dinner, this time at St Peter’s College, which looked like a Harry Potter movie set. I slept very well on Friday evening!
Our final day answered the “which” question of strategy and in particular whether diversification of organisations creates value or diminishes value. The thought provoking point in this section was drawing out how unsuccessful managers had been brought into some businesses trying to apply a successful strategy from one field to another. The key takeaway here is that some managers did not understand what their competitive advantages were and thus they lost their way. The afternoon discussed a globalisation strategy and its advantages and disadvantages. What was interesting was that through ‘going Global’ a business has weaker returns than if it invested that capital domestically and, furthermore, that the ramp-up to obtain suitable returns on investment is generally much slower. I took the main message to be that one must address the advantages and disadvantages of global strategies and the competing forces. The general consensus is that often returns in the domestic geographies are far superior to international returns. Or, for Star Wars fans, work out where the Force is and then check that the force is with you!
To finish we were provided with a review on the examination for the next module to be held in March and we all said our goodbyes. It was a fascinating four days with so much content to review and extra material to read.
In summary, strategy is fundamental for all businesses as it is the co-ordination and management of the limited resources within a firm to increase the future returns from expected levels. Many business owners constantly evolve and coordinate their strategy, without having a strategic map that clearly articulates the businesses strategy.
I am very excited already about the next class in March which will test our knowledge from this module and be instructed in the next module which is Finance.