In June, I facilitated a strategy review workshop for executives and board members of a SACCO whose membership is composed of salaried persons working within a single company. There was a general consensus amongst the participants to the effect that there was need to open up membership to non-employees of the company (usually referred to as opening up the common bond in the cooperative sector) if the society was to continue its growth trajectory. Examples were given of other SACCOs who had successfully opened up their common bond. There was however one participant – call him an outlier to use statistical jargon – who was not so keen and therefore warned the others about the potential risks of opening up the common bond to persons whose occupations were too dissimilar to the existing membership.
The outlier reminded me of a story in the Standard Newspaper in 2017 profiling a Kenyan bank whose dream of becoming a major player in the Kenyan financial sector was dimmed once the leadership made a strategic shift. The bank had historically positioned itself as a microfinance institution focused on serving low-income individuals and small businesses. However, between 2009 and 2015, the bank underwent a significant transformation, attempting to transition from a microfinance lender into a bank serving the Corporate, Small & Medium Enterprise (SME) sector. The strategic shift involved amongst other initiatives, attracting corporate customers, expanding its product offerings to suit the new target clients as well as acquisition of new talent. By 2021, the bank’s financial struggles led to its acquisition by a competitor.
The bank is not alone in this experience since other companies have gone through the same albeit with different levels of success. Examples include East African Breweries, whose venture into the lower-income consumers segment using low cost spirits as well as the non-alcoholic beverage industry did not yield expected success. The failure did not however have a significant impact on the company compared to the bank discussed above, Mumias sugar’s diversification into ethanol production and power generation as well as Uchumi Supermarket’s expansion into foreign markets.
The difference between East African Breweries (EABL) and the other three companies lies in the fact that though its planed strategic shift failed, the company remained strong primarily because it managed its strategic risk well. The other companies probably underestimated the potential impact of a failure in their radical change in strategy. EABL’s shift involved a low profile, low risk experiment while the bank, Uchumi & Mumias went for a high profile, high risk strategy. In other words, EABL went to test the waters and withdrew when things failed to work out as expected while the other companies dived into the deep end from the word go.
Potential impact of a strategic shift may emanate from a drain on financial resources, resistance to change, competitor response, employee’s skills gaps and disruption to operations amongst others. Financial resources may be drained due to substantial investments towards upgrade in technology and infrastructure which in turn hinders a company’s ability to execute its strategic objectives effectively. Employees can also feel anxious, uncertain, or overwhelmed by the sudden change, which can lead to resistance, decreased morale, and decreased productivity. In addition, a sudden strategic shift may provoke a response from competitors who seek to protect their market share or exploit the perceived vulnerability of the shifting organization with counter-strategies hitting the organization hard. The situation ca be made worse if the existing workforce lacks the skills and capabilities required for coping with the change as well as resultant disruption in operations. It is therefore advisable that businesses attempting a radical strategic shift evaluate the risks, come up with mitigation strategies and most importantly, start with low risk experiments before they dive into the deep end.
Dr. Weru Mwangi is the CEO & Lead Consultant at Ultimate Management Solutions, a firm specializing in training & consultancy in Finance, Governance, Strategy, Risk Management and Leadership Development. He can be contacted on weru@umslgroup.com
