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  • Writer's pictureSenthil Kumar

Designing a Shoaling Strategy

Strategy has been extensively addressed as unique positioning (cost leadership, differentiation, segment focused), gaining value addition through size and scope choices (diversification, integration) or process (operational effectiveness: TQM, building competence/capabilities). However in recent times, in many industries, the product quality, production capabilities, brand value, and product prices have leveled off among competitors, and almost all competitors and their offerings are at the value frontier or even beyond. Such a state of competitive parity has reduced the uniqueness among product or service offerings often resulting in head-on-collision among competitors. While incumbent firms are challenged by the complexities arising out of their big size and the market dynamism, the new entrants are finding the industry barriers almost insurmountable.

New business landscapes demand that competitors must try innovation across the value chain, or combine the production, marketing, service and distribution activities in idiosyncratic and agile configurations of modular units capable of delivering multi-pronged business strategies. Loss of GE's dominance and market leadership in home-appliances business and its eventual divestment from that industry is a case in point to think about the competitive challenges within a leveled-off-field packed with equi-capable rivals. Whirlpool, AB Electrolux, Osram Licht AG, Bosch & Siemens, Sears, Godrej, Haier, Samsung and LG all have become equally formidable players in this industry catering range of products across the entire value frontier. While companies that could not create cross-industry innovations are losing their turf to price wars, those capable of accomplishing radical innovations in product design combining smart phone technologies (wifi, touchscreen), computers and electronics into appliances, such as Samsung and LG are making big strides in this industry.

In light of the new competitive challenges and dynamic market landscape, Shoaling strategy offers a new synthesis of state-of-art management practices advancing new perspectives on how a firm's value chain can be strategically configured to stretch the resources and build creative formations to grow the business and counter competition with multi-pronged strategies.

"Shoaling or School of Fish Strategy is a strategic design or configuration of the organization's value chain and assets as smaller, dis-aggregated and dispersed units through modularity, franchising, alliances, teams, and ownership-sharing to create competitive formations and reach markets far and wide". "Shoaling Strategy fosters sustainable growth, learning economies, innovation, agility and speed while reducing cost and investment risk".

Main features of Shoaling strategy include:

  1. "High Growth without Bigness" : Through right sizing and slicing of the organization, Shoaling or School of Fish Strategy enables a firm to achieve high-growth with lesser asset concentration and investment.

  2. "Reduces Opportunity Cost and Risk" : Because of the reach and flexibility in value chain, School-of-Fish Strategy not only eliminates opportunity cost of losing emerging markets, but also reduces investment risk associated with large-scale.

  3. "Multi-Pronged Competitive Strategy" : School-of-Fish strategy enables creative formations and multi-pronged competitive strategies permitting a firm to develop unique or optimal strategy for each rival it encounters in the respective market or region.

  4. "Small, Beautiful, and Sustainable": Shoaling strategy reclaims and reinforces the spirit of sustainability by resizing the assets as smaller, agile and environment friendly. Shoaling not only enables leanness, but can enhance quality, customization, product variety, quality of work life (QWL), quality of life, and overall sustainability of enterprise.

  5. "Quick Fish, albeit smaller, can eat Large Fish" : Traditional business notion of "big fish eats small fish" can be defied with school of fish formation and smart kaleidoscopic organization delivering agility and speed for the smaller firms to challenge larger rivals.

"Shoaling strategy can be implemented through different mechanisms at different levels within a company depending on the corporate and strategic objectives. Shoaling design can be practiced as corporate governance, organization structure, at product or business unit level, for production organization or alliance and franchise management, or as a collection of brands, units or companies."

Nucor, one of the largest US steel makers, runs approximately 200 operating facilities throughout North America. Most of these facilities are located in rural areas, capitalizing on the high work ethic of the residents there. A multi-billion-dollar firm, yet with 95 people working at its corporate headquarters and surprisingly few layers of management from the CEO to the front-line worker consists of 90 businesses that operate independently, but compete collectively. It resembles a family of small firms as compared to a large corporation. Its managers have a high level of discretion to run its facilities and meet the needs of their customers.

Google, Alcoa, and HP are setting a new trend in splitting their structure and corporate governance as a shoal of small companies. Although 'shoaling form' resembles traditional SBUs, the strategic intent, function and process within 'shoaling or school of fish strategy form' are quite different from that of SBUs." Google, for instance has restructured the entire corporation into a collection of companies under the holding company called Alphabet. Alphabet includes the following entities: A smaller company called Google that includes the company's core businesses and products "search, ads, maps, apps, YouTube and Android and the related technical infrastructure."Other businesses, "such as Calico, Nest, and Fiber, as well as its investing arms, such as Google Ventures and Google Capital, and incubator projects, such as Google X, will be managed separately from the Google business."

The organizational structure of Kyocera Ceramics, Japan offers an interesting example of how a large global corporation of the size of 70,000 people with $15 billion revenue can be designed as a collection of small, customer focused business units. Kyocera’s organization structure is known as Amoeba management system or Inamori way developed by its founder Kazuo Inamori, has more than 3000 amoebas (small units), with each unit empowered to operate independently at the same time encouraged to collaborate with other amoebas to achieve synergy and profitable growth. Kyocera believes that this style of management spurs market agility, enhances customer service and entrepreneurial drive, and has helped the company to effectively manage dynamic technology environments.

Dynamic business environments, diminishing returns to assets, and high risk contexts are forcing firms to reconfigure their strategy, value chain and organization. Shoaling or school of fish formation offers a new framework to redesign the corporations to meet the challenges of the new millennium.

From the investment angle, If a large public firm is sliced into smaller firms with many listings as independent units, however the units brought under unifying brand or inter-locking board of directors or another holding company for the purpose of control and synergy, this will help realize the benefits of both integration and diversification on the one hand, and can yield higher returns to individual stocks of the sliced units on the other hand. Indirectly, it is equivalent to issuing many stocks (even new IPOs) for one large well established public firm. Of course, to get the maximum benefits of dis-aggregation and shoaling strategy, individual entities and their stocks still need to be identified with common brand or a coordinating group. Given the high volume of capital that flows into stock market expecting quicker returns, it won't be a surprise if each of the smaller unit stock will gain much higher returns than they would under one larger firm stock when they are brought under common brand or board or holding company.

For further reading and case studies on school of fish or shoaling strategy, please visit ; If you like the article, please share it with your network.


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