R E T U R N  ON  S T R A T E G Y

The Definition

Skype is a type of company which was early on declared a success despite the fact that they burnt money from the very beginning and until a considerable span of time after they were acquired by eBay. They were not stock listed and would therefore not qualify for coming in the usual business books. However, Skype was a tremendously satisfactory business case in that the founders managed to come out of their KaZaA venture, achieved an impressive amount of downloads of their software, and they disposed off their shares at a much more attractive level that they had actually dreamt of themselves. In short, they were hugely successful as they had over performed their strategic ambitions.

Another example is Hotmail. The founders did neither have time, nor resources to strictly follow a strategy. They were – like the KaZaA predecessor to Skype – in a crisis and had to invent a mail system which they could access anonymously. Once invented, they had fulfilled their strategy but yet they discovered a need and a utility beyond their expectations for their product, which subsequently was strongly demanded in the market. Thus, Hotmail is an innovation or business development case much more than a case of profitability and stock development.

These examples illustrate that the conventional method of measuring success has no applicability with regard to such business cases where the initial goal may not be tied to profitability and where stock listing never occurred. Arguably, there is a need to (re-)define the success criteria. Rather than stock listing, profitability and similar criteria, success in the X-factor universe is similar to whether companies fulfil their strategic ambitions and deliver accordingly in a way that is attractive compared with its peers.

In summary, a major inroad to Return on Strategy™ is to deal with the “comparative effectiveness“, comprising two components, namely the internal part of Return on Strategy™ assessment (“effectiveness“) and the external component of Return on Strategy™ (“comparative“). This leads the company to the following questions: Do we have had 50% Return on our Strategy™ or do we have 100% or almost 100% return? And how is our performance compared with our peers?

In the cases of Lehman Brothers, Fannie Mae and Freddie Mac the Return on Strategy™ was low or 0%. In the cases of Skype and Hotmail, the Return on Strategy was over and above 100%.