Strategy Development

Roger that: Roger Martin on Management Systems

I'm looking forward to getting my hands on Roger Martin and A.G. Lafley's upcoming book Playing to Win: How Strategy Really Works, which is due out later this month. But in the meantime I've been reading a couple of their teaser articles in HBR and Rotman Magazines. This passage caught my attention:

The last of the five essential questions is about management systems – the systems that build, support and measure a strategy. This last question is typically the most neglected, but is no less crucial to effective strategy than the others. Even if the other four questions are well answered, a strategy will fail if management systems that support the choices and capabilities are not established as well. Without supporting structures, systems, and measures, the strategy will simply be a "wish list" – a set of goals that may or may not ever amount to anything. To truly win, an organization needs systems in place to support and measure the strategy. It needs robust process for creating, reviewing, and communicating about strategy; it needs structures to support the core capabilities; and it needs specific measures to determine whether the strategy is working (or not).

The article this was excerpted from is called A Playbook for Strategy: The Five Essential Questions at the Heart of Any Winning Strategy, and was published in the Rotman Magazine Winter 2013. As always, Roger has produced some well considered and thought provoking work. You should give this article a read for a quick preview of the book's content.

Enter your email address:

Delivered by FeedBurner

Five Forces vs. The Customer?

You may have seen the reports of Monitor Group's recent demise. Steve Denning of Forbes wrote a forceful blog post entitled, "What Killed Michael Porter's Monitor Group? The One Force That Really Mattered." This article has been the basis of a lot of bandwagon jumping lately. Not in a good way in my view.

I like strong opinions. As such, I like the Denning piece. But as a skeptical consumer of information, I'm not convinced that the conclusions he's drawn are correct.

Are we to believe the very approach that Porter and Monitor were famous for was exactly what lead to their demise? It may be a poetic and clever assertion, but I don't buy it for a second. You'd also have to forgive me for questioning the motive of the article itself, since Denning is clearly a management consultant. It feels a tad righteous and self-promotional as well.

But that's not my real beef with the article.

I take umbrage with anyone who thinks they can stand back from a safe distance and accurately assess why a particular business succeeded or failed. Looking retrospectively at any event, whether it is a game of schoolyard basketball or the management of a multinational, is incredibly problematic. Suggesting you have the definitive viewpoint is just plain fatuous.

There are thousands of moving pieces, decisions, people and contributing and conflicting influences that we could never appreciate or comprehend. Even if we are intimately involved in the enterprise we still don't know the totality of things that were going on around us. If you’ve ever worked in a dissolving business you’ll know what I’m talking about. Everyone on the outside has an “expert” opinion as to why the company failed. And yet, I doubt any of them are fully correct.

Just as the validity of predictive forecasting is suspect, so is the validity of retrospective analysis of business failure. It would be nice if things were as cut and dried as some would have us believe.

“When the number of factors coming into play in a phenomenological complex is too large scientific method in most cases fails. One need only think of the weather, in which case the prediction even for a few days ahead is impossible.”
― Albert Einstein

“The cord that tethers ability to success is both loose and elastic. It is easy to see fine qualities in successful books or to see unpublished manuscripts, inexpensive vodkas, or people struggling in any field as somehow lacking. It is easy to believe that ideas that worked were good ideas, that plans that succeeded were well designed, and that ideas and plans that did not were ill conceived. And it is easy to make heroes out of the most successful and to glance with disdain at the least. But ability does not guarantee achievement, nor is achievement proportional to ability. And so it is important to always keep in mind the other term in the equation—the role of chance…What I’ve learned, above all, is to keep marching forward because the best news is that since chance does play a role, one important factor in success is under our control: the number of at bats, the number of chances taken, the number of opportunities seized.”
Leonard Mlodinow, The Drunkard's Walk: How Randomness Rules Our Lives

Enter your email address:

Delivered by FeedBurner

"Killzone" Economics. Why You Should Care.

Decreasing interaction costs and sublinear enterprise productivity could create market volatility that can be your friend, or your enemy, when building and managing your enterprise. Are they your friends?

Let’s start with some definitions.

Killzone is a military term, or at the very least a gamer term (from Urban Dictionary):


“A military term describing an area of ground that is well defended, possibly including pre-sighted machine guns, mortars, artillery, as well as a variety of obstacles such as razor wire and tripflares. (Weapons will be pre-sighted to these obstacles, as approaching troops will get caught in them, making them ideal targets.) This creates a literal "killing zone," hence the name.”


Clearly from that definition, this is not somewhere you want to end up as a company. Your odds of surviving a trip to the Killzone are low.

To understand interaction costs, you need first to understand transaction costs. Transaction costs, which were the focus of Ronald Coase’s Nobel Prize winning work in the 1930’s, include the costs related to the formal exchange of goods and services between companies, or between companies and customers (ie. How much does it cost me as a company to sell you, the customer, my goods or services?).

These costs play a critical role in determining how large your firm can grow. Coase’s work included a linkage between transaction costs and the size of a firm. Simply put, Coase’s Nature of the Firm suggested that a firm will continue to grow to the point where an internal transaction can be outsourced more cheaply than if executed within a company. When a transaction can be accomplished more cheaply outside of the firm, there is no incentive to continue growing.

Interaction costs are now more widely used than transaction costs as they include transaction costs, but also add the costs of exchanging ideas and information. Thus they cover a more full picture of economic interactions between companies and their customers. Interaction costs are comprised of search, information, bargaining, decision, policing and enforcement costs. As more and more work is information related in our economy, interaction costs can be incredibly important to watch and manage.

Most importantly perhaps, interaction costs are exactly the kinds of costs that are rapidly decreasing due to the ubiquity of connected devices and the growing power of functionality facilitated by this connectivity.

Now for sublinear enterprise productivity. Wha? Yes, sublinear enterprise productivity. In short, this refers to some interesting work done by Geoffrey West and his collaborator Luis Bettencourt recently where they discovered when studying 23,000 publicly traded companies, that as the number of employees grows, the amount of profit per employee shrinks. Corporate productivity then, was shown to be entirely sublinear. This should not be taken as the last word on the topic, but they are interesting results. In particular their assertion that, “the bleak reality of corporate growth, in which efficiencies of scale are almost always outweighed by the burdens of bureaucracy.” Furthermore, they go on to state that, “the inevitable decline in profit per employee makes large companies increasingly vulnerable to market volatility.”

So what if your firm is experiencing both decreasing profit per employee from the growth dynamic described by West and Bettencourt, and is also seeing interaction costs drop as value chain activities migrate more to information-driven interactions so as to be more exposed to interaction cost decreases? Wouldn’t that lead to even more volatility? Wouldn’t that that promote unequal rates of change inside and outside of companies?

It’s a hypothesis at this point. And it’s probably not original. I’m inclined to invoke Bob Sutton’s law in this regard, “If you think you have a new idea, you are wrong. Somebody else probably already had it. This idea isn't original either; I stole it from someone else."



 

If there is any validity to the hypothesis, it might suggest there is a systemic way to identify which markets and companies are ripe for disruption. If interaction costs are dropping around you in your market, and your profit per employee is declining, perhaps it’s time to think about disrupting yourself before someone else does? At the very least, you’d better get a grip on your interaction costs so they are in line with the market.

If you’re an insurgent, this seems to be a particularly good time. Dropping external interaction costs and decreasing profit per employee might suggest a market which is stumbling into your Killzone.

 

[Author’s note: I am not an economist. The post above is based on a hypothesis only. The underlying science surrounding transaction and interaction costs and sublinear enterprise productivity are well-known and evidence-based to the best of my knowledge. However, my leap to a meaningful connection between the two is only hypothetical at this time. Contributions and refutations are welcomed. My goal is to explore some of the possible underlying reasons (outside of the current political and monetary policy upheaval, of course) for what I perceive to be the current economic conditions for enterprises: characterized by hypercompetitiveness and increasingly volatile markets.]

Enter your email address:

Delivered by FeedBurner

Hustle As Strategy

I was scanning through a stockpile of saved research/articles that I have accumulated on my drive over the past 25 years, and came across Amar Bhide's HBR article from September-October 1986 entitled, "Hustle as Strategy."

While I don't think this is Amar's best work (to be expected as he was a doctoral candidate at the time), it contains a nugget that I love:

"The competitive scriptures almost systematically ignore the importance of hustle and energy. While they preach strategic planning, competitive strategy, and competitive advantage, they overlook the record of a surprisingly large number of very successful companies that vigorously practice a different kind of religion. These companies don't have long-term strategic plans with an obsessive preoccupation on rivalry. They concentrate on operating details and doing things well. Hustle is their style and their strategy. They move fast, and they get it right."

It's a nice idea that you could spend your time as an executive creating and managing strategy. I've even seen fancy titles that suggest someone is the "Chief Strategy Officer." Sounds incredibly cool and rarefied.

In my experience though, it doesn't seem to matter if you've chosen to use a Competitive (Porter), Resource-based (Hamel & Prahalad), Blue Ocean (Kim & Mauborgne), Disruptive (Christensen & Raynor) or Emergent (Hamel, Mintzberg)...it does all come back to execution.

Reminds me of that old saw, "Great ideas are a dime a dozen; only execution counts."

 

Enter your email address:

Delivered by FeedBurner

Strategy is Crap!?

Talking, or writing about business strategy creates some very polar reactions. Strategy has been raised to such vaunted heights in business school's that you'll often find graduates striving to get into consulting companies like Monitor, Bain, Booz, McKinsey or BCG as they charge higher fees and enjoy the highest status among graduates.

The elevation of business strategy in business schools has created a trickle-down effect of new snobbishness for those who study and practice it.

Type strategy into Amazon...

AmazonStrategySearch2.png

Now, search for implementation...

AmazonImplementationSearch.png

If you try this little experiment in Google, you'll find similar results. Strategy has much more cache, much more being written about it, and seems to pay better than good old implementation.

Henry Mintzberg forcefully articulates that explicit strategies are "blinders designed to focus direction and block out peripheral vision." And that "setting oneself on a predetermined course in unknown waters is the perfect way to sail straight into an iceberg."1 And of course, Michael Raynor, the author of the Strategy Paradox would no doubt agree that traditional strategy development approaches can pour cement into your business.

But with the goal of strategy being to focus efforts and allocate resources for their best return, then what is a company supposed to do?

John Sall, a cofounder of SAS Institute, asks "Why should it take two years to teach smart people [MBA's] the secret to success: listen to your customers, listen to your employees, do what they tell you?"2 I would suggest that is a strategy in itself; your resources and attention are focused on those things that are brought to the fore by your act of listening.

Andy Grove of Intel, has a more inclusive perspective:

"I don't think we should forget that there is more to running an enterprise, small or large, than strategy. The revolution in quality control, and the revolution in manufacturing techniques that has taken place in the last 15 years were all data driven...And the U.S. economy has benefited incredibly over the last 15 years without a change in strategy, just by seriously embracing the science of manufacturing and quality control. So, strategy is important. Figuring out what to do is important. Doing them and doing them well is equally important."3

Sounds to me like Plan Your Work, Work Your Plan, and Listen. Funny that.;)

1, 2, 3 J. Pfeffer and Robert Sutton, Hard Facts Dangerous Half-Truths & Total Nonsense: Profiting from Evidence-Based Management (Boston, Harvard Business School Press, 2006)

Enter your email address:

Delivered by FeedBurner

When Times are Tough, Strategy is Critical (video)

Is it just me, or does Michael Porter seem to age incredibly well? What does he know that we don't?  He looks exactly the same as he did 10 years ago.

The guy is totally switched on, as usual, in this video with Karl Moore, filmed at McGill University after he was awarded an honourary doctorate (I think).

Nothing terribly enlightening on the strategy front from him, but always a pleasure to see a strategy luminary in action; putting together a stream-of-consciousness response to a complicated question.

Enter your email address:

Delivered by FeedBurner

Once More From the Top - Creating Strategy










 

If you are a CEO, you make a big bet each time you move to,
or found, a new company. You invest your experience and reputation into an enterprise
and expect that the opportunity cost of doing something else isn't greater than
the reward you'll derive from the position you've just taken or created. Of
course, these aren't just monetary rewards we're speaking of, but the whole
complicated bundle of motivations and aspirations that serve as rewards for
doing a very difficult job.

 

The biggest decisions will need to be made by you as the
CEO, and as such, you also fulfill the role of Chief Strategy Officer. And so,
when you take the reins, you'll need to review or define the mission, vision
and values of the enterprise, and undertake a reasonable amount of strategic
analysis along with your Executive Team (if you have one), or even your Board.

 

You'll potentially use Porter's five forces framework and do
a PESTEL (Political, Economic, Social, Technological, Environmental and Legal)
macroeconomic analysis, but you'll almost certainly undertake on a SWOT
analysis (Strengths, Weaknesses, Opportunities and Threats) before you take on
the task of actually formulating any strategy.

 

Then you'll need to decide what strategy framework you'll
use to express what the strategy is, and how the company intends to deliver on
it. Depending on your preference, you'll select a framework from one of the
current schools of thought including Competitive, Resource-based, Blue Ocean,
Disruptive, or Emergent Strategy; or, you may decide to employ a hybrid version
of a couple of these.

 

When you and your team sequester yourselves at an off-site
location, the strategy formulation often emerges after lengthy discussion,
debate, analysis, fact-checking, bad food and the requisite gnashing of teeth.
So far, so good.

 

Then you'll devise the major strategic objectives, measures,
and targets and create supporting strategic initiatives that will surely deliver
the results within the selected timeframe you desire.

 

Let's pause here; because this is where things usually go
off-the-rails.










It isn't the creation of the strategy that is the problem. Most
companies are quite adept at creating strategy. And they also seem to be quite
happy with the current tools
used in creating strategy. It's
the translation of that strategy into effective action by your entire
enterprise. This is where the Strategy-to-Performance Gap occurs.

Enter your email address:

Delivered by FeedBurner