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Strategy disconnects

22 Feb 2016

To emphasize their bold, overarching, and long-term intentions, nations and armies have a long tradition of packaging them as “grand strategy.” This is stirring stuff, so management thinkers were bound to follow suit. In an early definition of corporate strategy, Harvard Business School professor Kenneth Andrews said this:

Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of businesses the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic or noneconomic contribution it intends to make to its shareholders, employees, customers, and communities.

Business strategy, he said—or what would now be termed competitive strategy—was “less comprehensive and defines the choice of product or service and market of individual businesses within the firm.”[i]

Andrews and his HBS cohort taught legions of managers to think of strategy as a high-level view of how a firm should go about its business. Their students happily accepted this, given the virtually universal belief at the time in top-down control. They were more than content to wallow in platitudes and vagueness while giving short shrift to activities and action. If they were ultimately responsible for tough decisions, the laborious analysis that underpinned them was for lesser mortals. Micro-management was a pejorative term, and being branded a micro-manager plainly marked you as not being a leader.

The “vision, mission, values” gang continues in this tradition, as sure as ever that lofty notions and fine intentions will bring the results they want admid the scrum of hypercompetition. But this ignores two costly disconnects between strategic intentions and results:

  • Messages are lost in translation between the C-suite and the front line. Strategists decide one thing, and people who’re supposed to make it happen choose to do something else. Or they follow instructions, but do it badly. Or they fail to adapt what they must do as circumstances change.

You have only to suffer through one or two strategy sessions where senior people argue about the precise wording in vision, mission, or values statements to understand just how hard it is to create shared meaning. “Excellent,” “the leader,” “world class,” and “integrity” mean different things to different people. Deciding whether to declare that shareholders rank above customers, or the other way around, can waste a ridiculous amount of time. Even worse are debates about whether to insert a comma in a sentence, or a full stop; or to call your employees “associates” or “colleagues”; or to include an instruction to ‘Have fun!”

When CEOs brief me ahead of a strategy project, they almost always tell me, “We need to revisit our vision and mission.” But often, they can’t remember what these say, and when I talk to their colleagues, it turns out that none of them do either. It’s the same in my business school classes, where 20 or 30 senior people from a range of large firms have no idea of what’s in their own statements. (And these are the very people who so diligently crafted that guff!)

This happens with values too. Companies inevitably use the same words—customer service, innovation, integrity, responsibility, accountability, delivery, excellence, professionalism….blather, blather, blather. But again, these mean different things to different people, and are forgotten before the ink dries.

Strategy documents and presentations don’t help: there’s usually too much in them, and their logic is hard to follow. And few people pay attention to them after they’re produced.

Mixed messages are a fact of organizational life. It’s normal for high-level strategy to be ignored, misinterpreted, or side-stepped at other levels—sometimes deliberately, and sometimes because nothing is clear. And managers themselves either cause or worsen both problems.

They overestimate their ability to make themselves understood, and underestimate how much ongoing time and effort it takes. They assume that saying something once is enough. And that what they say arrives in other people’s heads exactly the way they said it, and means exactly what they intended.  And they kid themselves that when they speak, they’re believed.

Communication is without question the biggest challenge in any company. Just because we all do it every day, is no reason to think it’s easy or that we’re good at it. More than anything else, it makes the difference between success and failure.

  • The future is highly unlikely to turn out as the masterminds upstairs assume it will. Despite their best efforts to stay in tune and in touch, they only become aware of many changes long after they’ve emerged—and certainly long after people anywhere near the action can sense them. By the time they snap into action, and get around to redesigning their strategy and issuing new orders, it’s too late. If, like so many, they stick to a one-, three-, or five-year planning cycle, there is no chance they can stay in sync with their context. A divide between what they do and what they should do is assured. And the gap keeps getting wider.

These disconnects are so normal and so evident, and their impact so serious, that you’d think there would be more alarm about them. But managers keep getting predictable surprises on both counts. Things seldom work out as they expect. Their scintillating schemes are constantly upset by human nature, the internal machinations of their organizations, and the unpredictability of the outside world. Good intentions turn out to be no match for harsh reality.

Most firms continue in this futile mode. But as it has become increasingly apparent that strategy is only as sound as the activities that underpin it, and that turning strategy into action is finally what counts and is always a challenge, smart managers have come to realize two things.

First, no amount of analyzing and scheming will on their own bring success. The only thing that will do that is being better at a selected set of activities than rivals are. Since deciding what not to do is every bit as important as deciding what to do, every component of a company’s business model must carefully chosen. They must all mesh with each other, and the effect of each must be amplified through meticulous execution. The whole must be greater than the sum of the parts.

And second, strategy is a learning process. Commitments must be made, but they’re for a future you can’t quite see. So the best you can do is face up to that risk and then learn and adjust as fast as possible.

The past three decades have thus seen a distinct shift in thinking about strategy—at least by some people. Whereas once it was considered to be an intellectual undertaking, all about decisions and quite separate from the messy business of doing actual work, now the line is blurred. Whereas once it was assumed that the future would be much like the past, and that strategy could and should be designed to unfold in a predictable way over multiple years, today even the shrewdest strategy can unravel in days or weeks. If ever there was merit in fussing about the difference between strategy and tactics or about the relative importance of strategy and operational excellence, that time is long gone. Such hoary debates slow things down just when they need to be speeded up.

Strategy is not a desk job. Strategic thinking guides action, but learning through action is the only way to keep strategy relevant and effective.

The famous Tom Peters battle cry to “Try lots of stuff” is just what many companies need to hear. “Ready, fire, aim” goes down a treat in management conferences, and Nike’s “Just Do It” has been filched by any number of managers keen to show their mojo. But just being busy won’t make any company competitive. Action without reason is likelier to bring costs and risks than positive results. Action that doesn’t lead to useful learning is wasteful.

Studies by McKinsey Global Institute have shown that in the same industry across countries there are “almost always dramatic differences in either labor productivity or total factor productivity.” These differences says Robert Solow, who has long served as academic advisor to MGI, were to be explained not by differences in technology or investment, but rather by “organizational differences, to the way tasks were allocated within a firm or division—essentially to failures in management decisions.”[ii]

For strategy to be effective, it must be specific, not only about high-level aims, but also about the actions that will occupy low-level people. Anything less is just hot air. Fred Gluck, founder of McKinsey’s strategy practice, made a point of this in a 1979 paper that he drafted for the consulting firm’s staff, in which he advised that strategic planning should result in an “integrated set of actions designed to create a sustainable advantage over competitors.”[iii]

  • According to UCLA professor Richard Rumelt, “Strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge.” The cleverest strategies, “the ones we study down through the years, begin with very few strategic resources, obtaining their results through the adroit coordination of actions in time and across functions.”[iv]
  • Michael Porter writes, “The essence of strategy is choosing to perform activities differently than rivals do.”[v] The primary purpose of a strategy is “to inform each of the thousands of things that get done every day, and to ensure that those things are all aligned in the same direction.”[vi]
  • And Eric Van den Steen, a member of the HBS Strategy Unit, provides the best definition of strategy that I know of, saying it’s “the smallest set of choices and decisions sufficient to guide all other choices and decisions,”[vii]

All of these experts make it plain that strategy is not an end in itself, but rather a means to getting the right things done. This has led to another shift: in the way managers understand their roles and how best to drive performance.

Struggling to wring results from strategies that too often ape those of their competitors, they’ve relied increasingly on execution to differentiate themselves. This has led to a sharp rise in the number of books, articles, courses, and conferences on execution, many pointing to the need for intense, hands-on involvement in operational matters. So management by vague decree has given way to managing by getting down and dirty in the trenches with the troops. Micro-management is alive and well—though practiced under the cloak of empowerment, delegation, trust, and other fashionable notions.

The “loose-tight” approach identified by Peters and Waterman in In Search Of Excellence is vital.[viii] Managers have everything to gain from being more overt about it, and everything to lose by pretending that loose is good and tight is bad.

The dilemma, as with so much else, is how to strike the balance.

[i] Kenneth R. Andrews, The Concept of Corporate Strategy, Homewood, Illinois: Richard D. Irwin Inc., 1980

[ii] Martin Neil Baily and Frank Comes, “Prospects For Growth: An Interview With Robert Solow,” McKinsey Quarterly, September 2014

[iii] Fred Gluck, Michael G. Jacobides, and Dan Simpson, “Synthesis, Capabilities, And Overlooked Insights: Next Frontiers For Strategists,” McKinsey Quarterly, September 2014

[iv] Richard Rumelt, Good Strategy, Bad Strategy,” New York: Crown Business, 2011

[v] Michael E. Porter, “What Is Strategy?” Harvard Business Review, November-December 1996

[vi] Michael Porter, “CEO As Strategist,” Leadership Excellence, September 2005

[vii] Eric Van den Steen, “A Theory Of Explicitly Formulated Strategy,” Working Paper 12-102, Harvard Business School, May 2012

[viii] Thomas J. Peters and Robert H. Waterman, In Search Of Excellence, New York: Harper & Row, 1982

Tony Manning book cover 2015 IMG_0602

This is an excerpt from my book What’s Wrong With Management And How To Get It Right, Penguin Random House 2015

MANAGEMENT STUCK!

22 Feb 2016

Managing a firm of any size has never been easy. Now, managers have to produce consistent, sustainable results under awful pressure in a world that gets messier by the nanosecond. Their customers are informed, price-conscious, vociferous, and skittish. Their organizations and processes are increasingly complex. They function within a dense ecosystem of stakeholders with shifting—and often conflicting—agendas and growing clout. They’re ever more reliant on costly and unfamiliar technologies. Risk is all around. And with a growing premium on the imagination and spirit of human beings, and with the global “war for talent” growing fiercer, they must put more effort into people matters. Their employees’ lives are changing, so the new world of work must accommodate their personal needs while also enabling them to be more effective on the job.

This collision of factors keeps managers constantly unsettled. Their need for order, control, and predictability is at odds with the barrage of novel challenges they face. So they’re naturally eager to find the management tools and techniques that will save their skin.

And help is at hand—or so we’re led to believe. Scholars, consultants, executives, writers, and other members of the sprawling management ideas industry churn out a stream of theories, concepts, frameworks, and models, which are seductively packaged, confidently promoted, and eagerly snapped up.

Yet if truth be told, the experts who should be advancing management thought and enlightening harried managers are barely moving the needle. In fact, the best that can be said of many of their efforts is that they’re weighing down organizations beneath layers of activity, hog-tying them in growing complexity, and distracting them from what they should be doing.

For close to 30 years as a consultant, I’ve had a ringside seat from which to watch managers wrestling with demons—on the one hand, with the daily grind of their work and whatever the world throws at them, and on the other, with the “solutions” drummed up by the management ideas industry. I’ve also dug deep into the past 100 years or so of management ideas to find what’s endured, what has been most influential, and what is must-do vs. nice-to-do. And the overall picture is not encouraging.

In fact, given the importance of this matter, it’s downright ridiculous.

Consider these six worrying facts:

  1. Business is the engine of society, and will fund or otherwise facilitate most of the progress we need. So the future of humankind depends on managerial performance—and that performance overall is disappointing.
  2. Most companies do not achieve even average results, and certainly not with any consistency. Their life expectancy is falling. Their financial returns have flattened or declined. And since global economic growth is likely to be slower than in the past, and lead to increasingly vicious competition, better sales and profits will be increasingly hard to come by.
  3. Managers are overloaded with advice, much of which is clearly failing them. The use of just about any management tool is arbitrary, and as there are many ways to do things, there’s no evident downside to not using almost any popular tool.
  4. Hype about “reinventing management” has not translated into reality. Most changes in management practice over the past 100 years have come in response to social, technological, or other contextual shifts. Not only has a small set of basics—the critical core—endured, but most seemingly “new” ideas are actually just more of the same.
  5. Although yet-to-be-discovered management ideas may have some impact on business performance, no one knows what these might be or when to expect them. Meanwhile, failure to excel in known practices will ensure that firms do not exploit the opportunities that exist all around them, and that profits “keep falling through the cracks.”

Finally—and this is the one that should concern us the most:

  1. The most vocal critics of management scholars’ research methods, the relevance and practical value of their outputs, their inability to add much that’s new to management thinking, and the offerings and teaching methods of business schools are insiders, not outsiders. They include some of the world’s most respected management professors and a growing number of business school deans.

The good news is that we know exactly what it takes to compete and win. And there’s compelling evidence that the way to build your competitive advantage, capture and keep customers, and stay ahead in the profit game lies in what you may already know but just don’t focus on. That if you want to be a serious competitor today and tomorrow, less really is more and simpler is better.

As my research shows, and as I explain in my new book What’s Wrong With Management And How To Get It Right (Penguin 2015), there are eight critical strategy practices that apply to all companies everywhere:

  • Growth leadership—Effective leadership that’s committed to growth, and to achieving it by growing people.
  • Fast learning and adaptation—The ability to sense and make sense of change and act on it faster than competitors.
  • Focus, value, costs—Clarity about where and how to compete, and a relentless effort to drive value up and costs down for the “right” customer.
  • Business model innovation—Continual reinvention of the way value is created, captured, and shared.
  • Resource and capability development and leverage—Accessing, attracting, acquiring, and building the strengths needed to compete, and using them to maximum effect.
  • Stakeholder alignment and support—Persuading individuals and organizations with any interest in a firm to “vote” for it rather than against it.
  • Smart sequencing and pacing—Doing the right things in the right order and at the right time.
  • Disciplined execution—Having a deliberate and systematic way to turn intentions into action with sound outcomes.

As in other fields, each of the practices is a bundle of routine behaviors, concepts, tools, or techniques. If the practices are the what you must do, these are the how. There’s a rich array of them, and there will be even more in the future because this is where much study and experimenting occurs.

You might dismiss these practices, as one professor did, as mere “tickets to the game.” Or you might be tempted to write them off because “everybody knows that already.” But don’t be too hasty. Firms don’t fail because they choose not to use balanced scorecards or Porter’s five-forces framework, or because their managers aren’t fans of Six Sigma or blue ocean strategy. But we hear every day of firms that have failed because their inattention to one or more of the eight critical strategy practices.

Companies can’t do everything. It’s all too easy to throw sand in their gears. So they’re most likely to be successful if their managers get back to the principal drivers of business results—what they absolutely must obsess about, and why—and then apply them relentlessly and in the simplest, most practical way possible.

If the past is a guide, though, the management ideas industry will continue to slow them down and confuse them. Resources and effort will continue to be squandered in ways that don’t change what they do or how they do it—and certainly don’t improve their results. We’ll rail against management fads and fashions, or joke about them, yet continue to search for the next ‘silver bullet” that might bring us salvation.

Of course, saying this is an invitation to trouble. But those who disagree need to deal with a simple challenge:

Please name one thing managers must do that we did not know about maybe 50 years ago. Just one. If that proves impossible, perhaps we should just work with what we’ve got.

 

(Note: This blog first appeared as a Thinkers50 blog in July 2015)