Mar 112013
 

Strategy is the first and most important responsibility of business leaders. But although it’s a big deal in most companies of any size, it’s a major weakness in many of them and they get less from it than they think.

Research by McKinsey & Co. has shown executives to be largely dissatisfied with what strategy does for them. Many prominent academics who’ve spent lifetimes in the study of strategy-making are critical of how it happens and uncertain about its impact. Numerous studies report on the gap between companies’ intended strategies and their actual results. Many managers ask, “Does strategy matter?”

According to regular surveys of management tools by Bain & Company, another global management consultancy, strategic planning did not rank among the top 10 tools as recently as 1993. In 2000 and 2006, it was No. 1 in both usage and satisfaction—perhaps not surprisingly, as this was a period marked by the bursting of the tech bubble, extraordinary uncertainty and change, and hyper-competition.

But then in 2008 and 2010, strategic planning was displaced by, of all things, benchmarking. So at the height of the world’s worst financial crisis in 50 years, when sales, profits, and growth were all being hammered and competition in every sector was exploding, firms apparently thought it more important to watch each other than think about their future.

For all the attention strategy gets, there remains a lot of disagreement about what it is and how to make it. Neither have decades of academic research and theorizing, coupled with the real-world experience of any number of executives and consultants, added much to what we know about strategy or made managers more confident.

Will we see important advances anytime soon? Not likely. For some time—decades, in fact—the quest for new knowledge about strategy has yielded diminishing returns. So this critical subject, with innovation at its very core and so critical in driving innovation, will itself see little new thinking.

I expect a lot of people with an interest in strategy to take issue with this view. They’ll point to many past instances of similar predictions being overturned by advances in knowledge, by new technologies, and so on. But perhaps they should reflect on this challenge:

Name one major idea about strategy that we did not know about 10, 20, or even 50 years ago. Just one.

I’d be interested to hear the answer.

CONFUSION IN THE C-SUITE

There are numerous schools of thought about strategy, and a plethora of concepts, models, frameworks, checklists and other tools, all with their own champions and fans. But where is the “best practice”—a much-used management term—in this “body of knowledge”?

Answer: there isn’t one.

Most executives have attended management courses, read many books and articles on the subject and one way or another been involved with strategy for many years. Yet they lack a point of view about how to deal with strategy.

They’re somewhat familiar with the lingo, and may even be enthusiastic cheerleaders for this or that catchphrase. But question them, and it’s evident that they’re unsure about what various concepts mean and how to use them.

The result is that even close-knit management teams are divided about the best way “to do it.” They lack conviction about one point of view or another, and never commit to any process. So they keep flailing about and searching for a silver bullet that’ll deliver the results they want, and they chop and change on a whim.

It’s impossible to know all the consequences. But you can be sure that firms playing these games never do as well as they might. There’s always a gap between their potential and their performance.

HOW UNCERTAINTY BECOMES THE ENEMY OF STRATEGY

Strategy is, in essence, about the management of dilemmas. There’s an incessant barrage of these, and new ones arise continually. But strategists need to pay particular attention to four of them—all of which they ironically create for themselves.

First, is the question: What is the purpose of a company? Why does it exist? What should it achieve? Whose interests should it serve—and whose come first?

The answer used to be, to make a profit for investors. For only when that happens is anything else possible. But in recent years things have become more complicated. Firms are now expected to think beyond the bottom line to the triple bottom line—to concern themselves not just with profit, but also with people and the planet. To satisfy an array of stakeholders affected by their presence. “Sustainability” is the in word.

This is by no means a new idea but it’s one that’s gaining popularity. And it goes beyond mere altruism.

Harvard Business School strategy guru Michael Porter, who for almost his entire career has said that the measure of strategy is superior financial returns, has recently been arguing that companies would improve their competitiveness by creating value not just for shareholders, but for all stakeholders (the theme of my 2002 book, Competing Through Value Management.) That while setting out to alleviate poverty, for example, they might find opportunities to sell more products or services and produce superior profits. Other commentators are jumping on the same bandwagon.

But the balancing act is not easy—as companies in virtually every sector are showing. And it will get harder as stakeholders become more vociferous and more empowered by social media, and as politicians and regulators try to appease them.

Most CEOs are hesitant about publicly confessing to be focused first and foremost on profit. But watch them when times are tough and sales and margins take a hit. Without so much as a blink, they shove their virtuous intentions aside, become obsessed by the numbers and do whatever it takes to get things back on track. Their own wealth and survival hinge on satisfying their investors, so that’s what they focus on—if necessary at the expense of jobs, training and development, innovation, and social initiatives.

When the purpose of a business is undecided, every other decision is compromised. Many bad decisions will follow.

Second, is the presence of conflicting views about the causes of corporate success and failure. Do companies become great through focus or diversification? Should they think local or act global? Should they make or buy what they sell? Are there ideal business models for particular industries? Is the “first-mover” advantage a reality or should you be a fast follower? What’s the role of luck? Does leadership matter? And so on.

The answer to all these questions is, “It depends.” But that’s not an answer that makes executives sleep easier. So they keep searching, keep changing their minds, and keep blocking their own progress.

The causes of business success are many and varied, and they change from time to time. But if strategy is a point of view about where and how to compete, business leaders need to think through the “why” that underpins these decisions.

This leads to the third issue: which strategy concepts or tools to use. Should you begin with a review of your vision and mission, do a SWOT analysis, or a “five forces” exercise, or try to define your core competence? Can you disrupt your industry? What about exploring “blue oceans?” How important is agility, and how might you achieve it? Will a balanced scorecard help you implement your strategy?

As with the second issue, this leads to endless questioning, second-guessing, and dysfunctionality. A stream of self-inflicted upheavals keeps people off balance. And while the wheel is being reinvented the world moves on.

Fourth, is the question: which consultant to use. In more than 25 years as a consultant, I’ve never been the first one to facilitate a strategy session for any company. Others have always been there before me. Each arrived with their own process and language, their own pet ideas, and their own style. So each intervention was, in effect, a new beginning. Then I arrive, do my thing and move on too. Next year … another stab by someone else.

This may be entertaining, and management teams may enjoy the variety, but it definitely isn’t smart. In fact, it’s ridiculous.

For one thing, all consultants are not equal. Some do have the experience, knowledge and skill to make a real difference. Many others are hot on buzzwords, but have little practical understanding of how business works. And then there are those who are stuck on a particular theory or approach—and, as the adage says, “When you have a hammer, everything looks like a nail.”

The executives who hire them admit that, “Ketso went down well.” “Dave was so-so” Or, “Meg was disappointing.” But ask them exactly what they mean, and their answers are vague. Yet that doesn’t deter them from starting from scratch yet again—and again—with another stranger and another unfamiliar approach.

Of course, there’s much more. But these dilemmas are real performance-killers. Fortunately, they don’t have to be.

STRATEGY MASTERY REQUIRES BOTH CONTINUITY AND CHANGE

Running a business well requires both continuity and change. Strategy also needs this balance. It takes practice to master a particular way of designing and driving strategy, entrench the processes that flow from it and build the capabilities to support it. There’s no short cut.

Companies should obviously keep abreast of new management thinking, and adopt tools and techniques that will improve performance. A new consultant may well bring a breath of fresh air to a strategy conversation. But these are serious matters, and to be careless—or reckless—about them is an astonishing breach of sound practice and good governance.

It’s easier to sow confusion in an organization than to curb it. To continually replace one set of management ideas with another is to court trouble.  Companies might strike it lucky from time to time with a slant on strategy that really does make a difference, but chances are much greater that they’ll do long-lasting hurt to themselves. By shifting goalposts, processes, tools, and resources, they create uncertainty, disrupt programmes and activities, and stir up even more cynicism and distrust than already exists.

But that’s not the only downside. Because they never stick with one approach to strategy—or one strategy—for long enough, they never become as good as they should be at what they do. They never develop a sound “way we do things around here.” Instead of becoming better strategists and relentlessly honing their strategy, they scramble after new approaches, struggle to apply them, and dump them prematurely.

This is a shaky foundation on which to build any new initiative or grow a business over time. And given that firms are playing for increasingly high stakes, in increasingly tough circumstances, it should surely be avoided.

Running any company is hard work. So it makes no sense to undermine strategy  with a string of theories and dodgy experiments, and a constant quest for glitzier answers.

Managers will always face more dilemmas than they can easily cope with. But to add to them is a sure way to become uncompetitive and unprofitable. Until they acknowledge these five dilemmas and tackle them head on, they will never get as much from strategy as they should do. It will continue to be a matter they know they should know about, but never quite grasp; one that gives rise to buzzwords and bullshit, but whose impact on results is questionable.

LESSONS 

I’ve spent a lot of time studying these issues and thinking about them. As a consultant to many large organisations, I’ve had a front-row seat at their strategy deliberations for more than 25 years.  And I’ve learned a lot about what works and what doesn’t.

Here are some lessons:

  1. The business of business is profit. But profit is a product of value created for many stakeholders.
  2. There is no magical strategy process or theory. Everything we need to know has been known for decades. Stop searching!
  3. Business success is about making a difference for the “right” customers.
  4. Value up, costs down has to be the mantra in every company. It requires the input of every employee.
  5. Every company is a prisoner of its context, and every industry has its own “rules of the game.” So while innovation is critical, and “thinking out of the box” is an attractive notion, most firms could become more competitive by just fixing their basics.
  6. Strategy is partly a matter of analysis, logic and hard choices, and largely a social process. Job #1 is to take your people with you.
  7. Communication is the ultimate driver of business performance.
  8. Simpler is better.
  9. The time to start executing a strategy is when it’s created.
  10. By breaking all work down into 30-day chunks, and assigning them to specific people, you put pressure into the system, learn fast what’s working and what’s not and see who’s performing and who’s not.

Study and repeat. Again. And again. The more you practice, the luckier you’ll get!

(A version of this article first appeared in Directorship, the journal of the South African Institute of Directors, in January 2013)

  •  11/03/2013
Jan 262013
 

My motto is, “If you don’t make a difference, you don’t matter.”

Business competitiveness is all about making a difference. So key questions in strategy are: “What is our difference?” “Why does it matter?” and “How will we deliver?”

Any firm wanting to be successful has to be able to do some thing exceptionally well. Innovation, for example. Or operating across borders. Or recruiting and managing people with rare skills. Or developing alliances, design, manufacturing, marketing, service—or any of the many other activities that add up to the production of value.

That thing must set the firm apart from competitors and offer unique value to customers especially, but also to various other stakeholders. It must be durable and defendable. And most importantly, it must have “multiplier potential” so that excelling in it today will enable delivery of further value in the future.

Experts on business have been telling us this for ages, using terms like “core competence” or “core capabilities.” Most executives understand it well and will swear they’re driven by it—though in most companies there’s a surprising lack of focus on actually making a difference. Rather, it’s one of those taken-for-granted notions that hovers in the background but is not the central and explicit issue in every conversation or decision. I’ve sat in countless management discussions where no one mentions it at all.

What’s even more of a surprise is that strategy itself isn’t seen as a capability worthy of special focus or mastery. Almost everyone agrees it’s important and knows you have to have one, so you have to “do it.” But get it out of the way, and you can get on with making and selling stuff and making a profit.

Why do I say this? Here are some reasons, gleaned from my own 25-plus years of consulting as well as lots of research by others:

1. Just about every manager you talk to in any company—let alone across firms—has a different take on what strategy is about. They’re all over the place when it comes to why it matters, what it should do, or how to make and execute it. They’ve all read strategy books and attended courses, but they’re unclear about why one approach to strategy works while another is less satisfactory. So ask six senior people about this and you’ll likely get six different opinions. Ask the same questions outside the C-suite, and you can expect blank looks.

2. Few companies have a consistent approach to strategy. They bounce from this concept to that, switching tools and techniques on a whim. They don’t have a “strategy language” that their people understand and that anchors their discussions. As a result, their strategic conversations are poorly framed and conducting them over time is ineffective. A process that should cut through complexity, clarify priorities, and focus resources and efforts has the unintended consequence of constantly adding confusion.

3. They chop and change consultants as if whom they work with doesn’t matter. (Why don’t they do the same with their auditors or lawyers?) They think that outsiders can add value to a strategy process, but are careless about choosing them, often leaving it to some low-level, uninformed person to call around or do a Google search for someone new. They’re not fussy about whether the latest “guru” is really a strategy expert—or a sales trainer or retired factory manager hungry for a new assignment. So the value of the advice they get is spotty, and they’re jerked this way and that by it.

4. They fail to look back and learn, and to use each strategy discussion as a building block for the next one. Amazingly, there’s evidence that only a few firms systematically review their strategies or keep building on them. They make one, get on with life… make a new one… get on with life… and so on. Equally amazing, they rarely review their approach to strategy, asking whether it’s the best they can do or needs to be changed, or debating how to improve it.

5. Strategy is seen as a parallel activity to “real work,” not as real work. And certainly not as the most important of all real work. It’s not woven into the everyday agenda. It isn’t seen as the over-arching issue in business, or as something that concerns literally every person in an organization. It’s a task that has to be dealt with. It gets the spotlight from time to time, and then only a privileged few people get involved with it.

Competing in the future will be quite unlike competing in the past. Things will be much, much tougher. Firms will have to be cleverer and quicker in dealing with the challenges they’ll face. Making strategy “on the fly” will be increasingly necessary. Strategy smarts will matter more and more.

So if there’s one deep competence companies need to develop, strategy is it. The ability to craft and conduct strategic conversation —to design and execute effective strategy—will be the skill that “makes the difference that matters.”

Nothing else—not financial wizardry, innovation, collaboration, “human capital” management, technology, or whatever—counts as much. For without strategy, nothing else will get companies the results they want. And the difference between good strategy and bad strategy will count as never before.

MAKING STRATEGY MATTER
  1. Make building the strongest possible strategy capability an explicit goal and a priority—”Topic #1″ in your company. And involve everyone.
  2. Taking into account your specific needs, choose one approach to strategy and stick to it. Communicate it widely and constantly within your organisation. 
  3. Use a few tools and learn to use them well. Keep checking that they’re working for you (but beware of dumping them too readily). 
  4. Develop a “strategy language” so people talk about things the same way. 
  5. If you need help, pick your advisors carefully. Make it clear to them that while you want their outsider’s views and expert knowledge, you aim to develop a consistent process and to develop the strategic IQ of your team. Make sure that what they’ll bring to the party will be additive and not blow holes in your approach or take you in a totally different direction.
  6. Constantly review with your team what new knowledge and insights about strategy they may have picked up, and rigorously debate whether or not to integrate them into your approach. If you really think they have merit, plug them in carefully.
  7. Always review your current strategy before moving on. It’s tempting to race forward, especially when you face new challenges, but that can hurt programmes and initiatives already in place.
  8. Practice! Practice! Practice! Create opportunities to talk strategy. Begin every strategy discussion with the intention that it will be a building block for the next one. Keep asking, “Why is this working for us?” “How can we do it better?”
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  •  26/01/2013
Jan 212013
 

Strategic planning has a long history—and a dismal track record. Just about every company does it, obviously because they think it’s important, yet it’s value is highly questionable.

Ask almost any senior manager, “Is planning important to your company?” and you’ll get a strange look and a resounding “Yes.” But ask, “What exactly does it do for you?” and the answer is likely to be vague and unconvincing. Even when you do get a confident story, it’s easy to poke holes in it. There’s almost always a gap between intentions, expectations, and results.

In many firms strategy is reduced to an annual ritual tied to the budget cycle rather than timed to deal with critical challenges. It’s a stop-start activity that distracts people from “real work,” incites political games, and results in boring PowerPoint presentations and piles of paper which no one looks at again. While it’s happening, new challenges keep arising and decisions are made that override what was decided the year before. When it’s done, there’s a huge sigh of relief.

What should be a very serious matter is a recurring joke. “The Stratplan” is a calendar event more notable for what goes into it than what comes out of it. The best that can be said of it is that it keeps a lot of people busy while life goes on.

In consulting assignments and business school classes, I typically get questions like these:

  1. Does planning work?
  2. What’s the best process?
  3. Who should be involved?
  4. How can you communicate the plan throughout an organization?
  5. How long should a plan last, and when should you change it?
  6. How can you improve execution?
  7. How can a balance be struck between planning and innovation?
  8. What’s the best way to measure strategy?

This used to surprise me. After all, “everyone knows” that strategy is the overarching management discipline, the one that comes before all other and informs every management decision and action.

It’s a topic that has been researched and commented on for decades by academics, business leaders and journalists. There are countless books, articles and courses on it, and more than enough models, frameworks and opinions to provide the guidance any manager could want.

But having watched countless high-level executives struggle to make sense of strategy, I’ve come to the view that in their quest for better tools and techniques they have utterly confused themselves and everyone around them. Equally serious, their ceaseless experimentation keeps them from ever mastering and embedding any single approach that will serve them over time.

The questions above are not profound ones: they deal with what you might at best call “the basics.” So surely the answers should be well known to anyone with even limited exposure to strategy theory and a modicum of experience in making and executing strategy. But clearly they’re not. This very important—and very influential—subject is shrouded in mystery and mumbo-jumbo.

To develop strategy, managers tend to use an arbitrary mix of familiar tools and fashionable new ideas. SWOT analysis seems mandatory and Porter’s five forces framework is popular. During the past three decades, the vision, mission, values approach has gained a strong hold. Terms like core competence, agility, strategy maps, and balanced scorecards are tossed about.

In the introduction to Competence-Based Competition, a 1994 book they edited for the Strategic Management Society, Gary Hamel and Aimé Heene said this:

“After almost 40 years of development and theory building, the field of strategic management is today, more than ever, characterized by contrasting and sometimes competing paradigms … the strategy field seems to be as far away as ever from a ‘grand unified theory’ of competitiveness. Indeed, there is still much divergence of opinion within the strategy field on questions as basic as ‘what is a theory of strategic management about?’ and, more importantly, ‘what should a theory of strategic management be about?’”

A few years later, Hamel, one of the most prominent strategy gurus of all, wrote in the Financial Times that “The dirty little secret is that we don’t have a theory of strategy creation. We don’t know how it’s done.”

I disagree with both these comments. Hamel and Heene are right to say that there are many opinions about strategy theory, but there are not many strategy theories. In fact, there are just a few—and they underpin all the other stuff that “thought leaders” spin as breakthrough ideas. The real “dirty little secret” about strategy creation is we know more than enough about it but just don’t do it very well!

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  •  21/01/2013
Jan 182013
 

When developed economies slumped as a result of the financial meltdown which began in 2007, companies everywhere scrambled frantically to find new markets for their goods and services. Overnight, “emerging” markets (developing nations) became everyone’s target.

By the time of the crash, it was already clear that a massive economic shift was under way from the West to the East, and that future global growth would come more from developing nations rather than the established powerhouses: the U.S., Europe, and Japan.

From the earliest days of global trade, the lure of foreign customers in strange places has been a strong one. Following World War II, innovative technologies and logistics systems, the spread of democracy, and the increasing wealth of billions of the world’s citizens have led to fabulous opportunities for companies selling everything from cement to soap, from food to financial services. But it’s really only been in the past 30-odd years that emerging market mania has taken hold.

Ted Levitt at Harvard Business School alerted companies in 1983 to “The globalization of markets,” and the opportunities in marketing across borders. Jim O’Neill, chief economist at Goldman Sachs coined the catchy terms “BRICs” (Brazil, Russia, India, China) and “the next 11” (Mexico, Turkey, Egypt, Iran, Nigeria, Bangladesh, Indonesia, South Korea, Pakistan, the Philippines, and Vietnam). C.K. Prahalad wrote about “the fortune at the bottom of the pyramid.” New York Times columnist Tom Friedman’s books, The Lexus and The Olive Tree (1999) and The World is Flat (2005), were best-sellers. Many other observers spewed out analyses, reports, articles, and books on the same topic. And it gets hyped to the hilt at the World Economic Forum’s annual Davos get-together.

Growth in rich countries remains sluggish. All evidence suggests that developing countries are where companies will find the sales they need. So competition there will become increasingly hostile, and the demand for fresh thinking on it will rise fast.

But there are some realities that cannot be ignored.

A LITTLE THEORY GOES A LONG WAY

Interest in emerging markets has brought with it an outpouring of views on the attractions of specific countries and what it takes to succeed in them. Usually, these are couched in stirring tales of how this or that entrepreneur beat the odds to make a fortune in some poverty-stricken place; how companies from India, Mexico, or South Africa became admired multinationals; and how firms in rich countries found opportunities in poor ones. Much of what’s on offer is entertaining and even inspiring, but contributes little to a theory of emerging market strategy.

The need for advice on how to crack emerging markets is a big one, and its growth is explosive. So we shouldn’t be surprised if zealous researchers and managers underplay what is already known, and what expansionary firms have learned over many decades—even centuries. Breakthroughs are always more seductive than “the basics.”

A few experts have provided useful insights about emerging market strategy. But by and large, efforts to produce useful concepts or tools specific to this field have been less than fruitful, and will continue to disappoint.

As with other areas of management, there’s only so much that can be said. There will be some incremental advances, but executives should not expect revolutionary new models or frameworks. Those in the advice business will add most value by providing information about particular countries and sectors (context), and what it takes to win in them, rather than about strategy itself (concepts).

THE GLOBALIZATION OF … MANAGEMENT

As I pointed out in a previous post, virtually every market for everything is today an emerging market, in the sense that conditions are in flux, the future is unclear, competitive intensity is high, and the rules of the game are evolving. Strategies and business models that once worked well can quickly become recipes for failure, so both must be adjusted or maybe reinvented to meet new circumstances.

But it also means that whether you’re doing business in Europe or the U.S., or trying to get moving in Malawi or Myanmar, many of the challenges are fundamentally alike. And solutions to them will be much the same, too.

The principles of management that produce results are similar across industries. They’re also similar across countries. It may be fashionable to suggest otherwise, but the evidence is clear.

Management know-how has not only been commoditized, it has also been globalized. So instead of wasting time trying to reinvent this wheel, you can focus on the really hard work of getting to know the market you’re aiming at, and figuring out how to apply the best practices within it.

CONTEXT IS EVERYTHING

The first and most important question every firm must answer when it ventures into new territory is, How will we fit in? This is the make-or-break issue. Deep local knowledge makes all the difference. Personal relationships count for a lot. Most executives who’ve worked in developing markets talk about their steep learning curve, the time it took to gain traction there.

Wherever in the world you do business, you have to be wise to politics, culture, and economics; to the structure and character of whatever market you’re in; to customer expectations and behaviour; and to what competitors are doing. But in developing countries, three issues demand particular attention.

First, there’s the fact that “things don’t work”—or at least not as they do in developed nations. Companies are dogged by what Tarun Khanna and Krishna G. Palepu have termed “institutional voids”: poor infrastructure, dodgy regulation, weak capital markets, lousy services, a lack of skills, and much else. Unhelpful bureaucrats make things worse. Corruption may be a huge problem (although it also occurs in even the most advanced nations). Protecting intellectual property can be a nightmare.

Second, is the difficulty in connecting sellers and buyers. Informal trade is probably the norm; business ecosystems are ill-formed. There’s little information about customers or competitors. Promotions, logistics, and support all present hurdles.

Third, is the management of people. Individuals with appropriate capabilities and experience are in short supply. Productivity, quality, and customer service are not their priorities. They’re unfamiliar with sophisticated working methods. They have to be introduced to a host of new ideas—roles and responsibilities, technical systems, performance management, communication, disciplinary processes, and so on. So foreign executives need to be firm and persistent in providing new direction, while at the same time acutely conscious of local custom.

None of this should be under-estimated. No one should imagine that building a business in a developing country is a cake-walk. It’s folly to believe you can simply charge out of New York and set up shop in New Delhi.

Joburg and Lagos may both be in Africa, but South African managers who think they can easily crack the Nigerian market because “We are African, we understand Africa,” are in for a shock. Success in one country in Africa, Asia, or Latin America is no guarantee of success in others in the same region, let alone elsewhere. Sony’s notion of “glocalization”—”think global, and act local”—is as valid today as it was when it was coined about three decades ago.

Emerging markets—in the sense of developing markets in developing countries—offer exciting prospects for many firms. They differ in many ways from developed markets, but managers should not hope for fantastic new theories for entering them or competing in them. Instead, they need to do their homework, strike a careful balance between importing ideas that worked elsewhere and developing new ones, and recognize that as outsiders they have special responsibilities towards their hosts.

Strategy is always a learning process, and even more so in emerging markets. But emphasis needs to be on learning about these places, not about new strategy concepts or management tools.

IN SUMMARY

Success in these markets depends, more than anything, on putting the right people on the ground with all the support they need.

They should balance a core set of strategic principles and a proven management approach with a sensitivity to local attitudes, customs, and behaviours, and always be respectful of these.

They should understand the importance of local knowledge, and never stop searching for new insights.

And most importantly, they should couple these practical actions with a preparedness to do what it takes to fit in (within reason) and the determination to improvise through difficulties.

Tony Manning_Essentials for emerging market success

A CHECKLIST TO GET YOU GOING
  1. Mindset matters. Given the hurdles you’ll face, you and your people have to really, really, really want to try. You have to be bold, you have to be able to adapt, and you’ll need both courage and perseverance. Above all, you’ll need to be resourceful—your ability to “make a plan” will be constantly tested.
  2. Appoint people who’ll be happy there. Living in Luanda or Laos is not like living in Los Angeles or London. It can be tough. Especially on families. Everyone can’t do it. So give them every chance to understand what they’re taking on, and all the encouragement and support they’ll need.
  3. Go “where the warm armpits are.” As Ted Levitt liked to say, there’s only one way to really understand any market, and that’s to go there and immerse yourself in it. To watch the locals and listen to them. To get to know what turns them on and off, and to learn how things work.
  4. Remember the first principles. Just as focus, value, and costs must be your mantra in developed markets, so they must guide your every action in emerging markets.
  5. Explore, experiment and learn fast. No matter how you prepare, no matter how good your initial information seems to be, and no matter how carefully you think through your strategy, you will get things wrong. This is a fact of life in any market, and especially so in developing ones.
  6. Get stakeholders on your side. You have to gain the support of government, communities, workers—the same array of players you deal with in your home market. But in emerging markets you probably have to work much harder to educate people about business in general and your business in particular. They have to understand not just what you expect of them, but what you can do for them. “Out there,” they can make or break you.
  7. Develop local partnerships. In some countries, they may be mandatory. In many, they’re necessary to open doors, smooth your entry, build alliances, and facilitate your growth. Their knowledge, experience, and contacts can be invaluable and make the difference between success and failure.
  8. Clear values, no compromises. While adaptability is critical, you have to be certain about how you need to behave and what you will and will not do, or you’ll be jerked around constantly—and a sitting duck for crazy demands and corruption. So set the rules early, or someone with another agenda will set them for you.
  9. Be willing to build your own infrastructure. This may mean anything from a shopping centre to a power plant or a water purification facility, roads or runways, a sewage system, accommodation for your staff, or schools and clinics for communities. It could mean offering to train local officials or upgrade their IT systems. Or it could mean working closely with PR or advertising agencies, or other service suppliers, to develop their capacity.
  10. Try, try, and try again. Cracking an emerging market is not a quick process. It’ll take most companies a lot longer than they expect, and cost far more. If you don’t go in for the long haul, you’re wasting your time. If you can’t keep picking yourself up, and adjusting your strategy, you may as well stay at home.
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  •  18/01/2013
Dec 012012
 

Disruption must surely be the hottest strategy concept of the past decade. But it is less of a breakthrough than it’s made out to be. And it may unnecessarily impede your strategic thinking.

The idea grew out of a study by Joseph Bower and Clayton Christensen, both professors at Harvard Business School, which saw light in a 1995 Harvard Business Review article titled “Disruptive Technologies, Catching The Wave.” It was subsequently moulded into a theory by Christensen, making him a superstar and spawning many books and articles by him and others. Thanks to determined promotion, it’s now a term you hear in almost every management discussion—though it’s seldom used as precisely as Christensen proposes.

The gospel according to Christensen goes like this:

In their quest for the most profitable customers, companies innovate and improve aggressively—and give customers more than they need or will pay for. And the more intently they listen to their customers, the more they up their game and sustain that gap.

While they focus on the next-generation performance needs of the most attractive customers, guerilla competitors sneak in under their price umbrella and target less attractive customers who’re being overlooked, ignored or under-served. The upstarts ask, “Who is not getting attention?” “What is value to those customers?”

The customers they aim at aren’t in the market for state-of-the-art products. So these firms can ditch the bells and whistles and keep costs and prices low.

Initially, the leaders don’t see a threat. The challengers are of no appeal to their best customers and aren’t chasing them anyway. Those customers they do lure are likely to be ones who always want a deal, are satisfied with “good enough” offerings, and won’t be missed.

But this is just a lull before the storm. Quite soon, more mainstream customers are tempted by the no-frills competitors. They need to forego some of the “value” they’ve grown used to, but what they get does the job—plus it’s easier to use, more convenient, and more affordable. So it offers them value, albeit not the kind they’ve been used to.

Many established players have been hurt this way—think clothing, airlines, steel, medical devices, consumer electronics, autos, and so on. But then they make things worse for themselves.

In an effort to counter competitors who won’t play by their rules, they typically race even faster up the value path. They invest even more in innovation and pile on features and benefits. But in their efforts to stay ahead of their enemies, they also stay ahead of their customers; and the cost of their overkill forces them to keep hiking their prices.

Some customers stick with them because they don’t mind paying more for products that they perceive to be at the leading edge. But the pool gets smaller. And the harder these firms try to hang on to their traditional business, the more they lock themselves into their “superior” strategy—and the worse things get for them.

FEW OPTIONS

If the leader wishes to retain its low-end customers, it has three options:

  1. Pump up its promotional activities, to hopefully persuade those customers to stay loyal.
  2. Keep offering the same products, but at a lower price.
  3. Eliminate some features and benefits, and cut prices.

The problem with Option 1 is that if customers learn that a competitor’s low-end offering is OK and costs less, some will leave. No amount of hype will convince them to keep paying top dollar for “value” they don’t need.

Option 2 may keep customers coming back, but margins will take a hit and buyers who’d paid the higher price will feel they ‘d been screwed.

Option 3 will result in the loss of top-end customers. The company will cannibalize itself. By offering less and tacitly admitting to customers that they’ve been paying too much, it’ll drive them into the arms of cheaper competitors.

Faced with these unpalatable choices, and trying desperately to evade the pesky newcomers, firms tend to even more doggedly pursue their current customers—whose numbers keep shrinking. Meanwhile, their low-priced competitors improve their offerings, hone their processes, and become more and more dangerous. And as their sales and profits grow, they can afford to intensify their advance.

Market-leading firms attained their dominance by focusing on an attractive target market and working furiously to satisfy it. They have a lot invested in their current strategy—money, resources, capabilities, relationships, processes—and are weighed down by these sunk costs. But even more by their mindset. So they can’t suddenly or easily change. Newcomers, on the other hand, have little baggage and can switch tack with relative ease.

OLD INSIGHTS REPACKAGED

Following Christensen’s thinking over the years, it’s hard to avoid a sense of deja vu. Even a quick glance back into the history of management thought makes it hard not to conclude that much of his “theory” is to be found in Marketing 101 and Strategy 101. And that it’s not all it’s cracked up to be.

Take, for example, the notion of “the job to be done”—a Christensen favourite that’s sure to crop up in any discussion about disruption. This is, in fact, one of the oldest ideas in the marketing playbook.

So old, in fact, that it’s impossible to pin down its origin. But I suspect it gained explicit understanding in the 1930s, thanks to a famous American sales trainer named Elmer Wheeler who coined the phrase, “Don’t sell the steak—sell the sizzle.” His point was that it’s not a chunk of meat that customers want, it’s the pleasure that goes with it: the sizzle and aroma from the barbecue, companionship and fun with family and friends, and so on. This lesson has been drummed into copywriters and sales people for years.

In “Marketing Myopia,” a HBR article that won the 1960 McKinsey Award, Ted Levitt made the then-provocative case that too many companies limited their growth by defining their industries too narrowly, and by being more concerned with what their products could do than what their customers want done. Discussing the oil industry, for example, he noted: “People do not buy gasoline. They cannot see it, taste it, feel it, appreciate it, or really test it. What they buy is the right to continue driving their cars.”

Peter Drucker told us in his 1973 book Management: Tasks, Responsibilities, Practices:“The customer never buys a product. By definition the customer buys the satisfaction of a want.”

Levitt echoed this in his 1983 book The Marketing Imagination, writing that “people don’t buy things but buy solutions.” To illustrate his point, he recycled a quote from one Leo McGinneva, who’d said that when people buy a quarter-inch drill, “they don’t want quarter-inch bits; they want quarter-inch holes.” (Something another marketing guru, Philip Kotler, had said in 1980.) Levitt also observed that “The customer may actually want and expect less.” (My italics.)

Within months of his book appearing, Levitt also published an article in HBR titled “The Globalization of Markets.” The basic argument was that by stripping away the features and benefits that made products particularly appropriate for particular markets, firms could sell them to many more customers across the world. Citing the example of Japanese firms, he said: “They have discovered the one great thing all markets have in common—an overwhelming desire for dependable, world-standard modernity in all things, at aggressively low prices. In response, they deliver irresistible value everywhere, attracting people with products that market-research technocrats described with superficial certainty as being unsuitable and uncompetitive….”

And what about Christensen’s observation that the more closely firms listen to customers, and the harder they work to deliver what those customers say they’d like, the more likely they are to offer too much? Or that to compete with disruptors, the leader should spin off a totally separate business unit?

Nothing new here, either. This, and much else that he says, has been written about for decades. That disruption, as described by Christensen, has become such a fetish is a sad indictment of academic thought and management practice.

DEFINE “DISRUPTION” WITH CARE

The theory of disruptive strategy that so many people swoon over offers a very narrow view of how market disruption may occur, which firms are disruptors, or what disruptive strategy might be.

Can you possibly argue that Apple, say, is not a disrupter, because it sells beautiful, innovative products at high-end prices? (No “good enough” thinking here!)

And what would you say about Elon Musk’s award-winning Tesla S car? Or Woolworths, Nando’s peri-peri chicken, Discovery Health’s Vitality programme, Emirates airline, or Reckitt and Coleman’s household products?

By Christensen’s criteria, none of these deserves to be called “disruptor.” These products are all excellent, and priced accordingly. Their target market is not the “bottom of the pyramid.” Cheaper, “good enough” options are available from other firms.

But all have challenged convention and redefined their categories. And surely, that’s what disruption means.

The fact that some of these big names may face competitors who offer “good enough” products doesn’t shift the disruptor label from them to those upstarts. To split hairs about an arbitrary interpretation of what a word means is ridiculous.

Christensen has chosen one interpretation of what disruption means, and made it his own. He has focused on one strategic formula which highlights a very serious threat to market leaders, and also offers challengers a way to take them on. But no established firm should imagine it’ll be bulletproof if it follows his advice exclusively. Neither should any ambitious attacker close off strategic possibilities. Most managers would do better with a broader definition.

To disrupt something is to overturn the order of things. So how could you do that? Surely, not only by offering cheaper but “good enough” products to customers who’ve previously been ignored or overlooked.

The reality is that, in most markets, there are many ways to compete, many ways to upend convention. So strategic thinking should be about creating possibilities, not shutting them down. It should be about understanding the many ways you could be toppled, not just one.

If there’s one important thing all the chatter about disruption has achieved, it’s to focus managers’ attention on the three most critical strategy questions: who is your customer, what is value to them, and how will you deliver it? (Though you have to ask what else they’ve been thinking about!)

And yes, Christensen has added many examples of why this matters and some advice on making the most of your answers.

But three, five, or 25 years from now, will we look back on the Christensen era as a disruptive one in the annals of strategic thought, or one in which we woke up and went back to basics?

As Levitt said, “Man lives not by bread alone, but mostly by catchwords.” So it’s important to pick those catchwords with care, and to be clear about what they mean and how they might be applied.

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  •  01/12/2012
Jul 252012
 

No doubt about it: an outside expert can help you bring your strategic conversation to life, refocus your efforts, introduce useful concepts and fresh ways of thinking to your firm … and shift your strategy from good to great.

So surely if you’re going to take time out for this vital discussion with your top team—and spend whatever it takes—it’s worth getting the pivotal element right. In other words, your facilitator.

All too often, though, organizations leave this critical decision to last. They block time in their executives’ diaries and book flights, venues, meals, and even magicians and comedians … and only then wake up and think about a facilitator.

Result: while they want someone with an “outsider’s perspective” and experience—someone who can challenge, provoke, inform, and advise them—they all too often wind up with a mere “meeting manager.”

But that’s not all. They also give their facilitator too little time to prepare well—to learn about the company and its needs, think about the specific challenge and how it should be dealt with, and prepare any materials that may be necessary.

Choosing the right person to help you craft your strategy is a lot more important than choosing a venue, agreeing on tea-times, or deciding whether to include a round of golf. It’s a make-or-break decision that should be made early and with great care. The job is not for fad-merchants or amateurs. Don’t expect a motivational speaker to morph into a strategy guru, or a sales trainer to make the high-level inputs you need!

If you want real impact, be sure to get someone with 1) the ability to cut to the core of complex issues and identify the few drivers of your success, 2) in-depth understanding of the latest thinking on strategy design and implementation, leadership, and change management, 3) loads of experience with major organizations in virtually every sector, and—oh, yes—4) professional facilitation skill too!

IN OTHER WORDS, HIRE A HEAVYWEIGHT STRATEGIST WHO WILL PROVIDE REAL MEAT TO GET THE MOST OUT OF YOUR TEAM … NOT A LIGHTWEIGHT WHO MAY KEEP TIME AND TAKE NOTES BUT IS OUT OF HIS OR HER DEPTH WHEN IT COMES TO OFFERING INPUT OF ANY SUBSTANCE.

It may cost you more, but having a pro help you design and run your strategy workshop takes you a big step closer to getting the results you want.

What are your objectives for the meeting—i.e., what do you want to walk away with? What preparation is necessary? What should the process look like (presentations, discussions, frameworks, concepts, etc)? What should be on the agenda, and how should it flow? And most importantly, what comes next, when everyone is back at work?

Get this stuff wrong, and you’ll be sure to head down the wrong path. Get it right, and your time, effort, and money will be well spent. But make no mistake: this is where you need real competence.

And by the way, you may think you can facilitate your own meeting, but that’s seldom the best path. When you’re part of a team, it’s hard to stand outside of it; when you’ve been party to decisions and you’re involved in the politics of corporate life, you can’t easily be as objective as you should—and anyway, no one will believe you are.

So hire someone you can trust, brief them thoroughly—and early—and watch the meeting work!

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  •  25/07/2012
Jul 252012
 

The proof is everywhere: companies are better at talking than doing. They know strategy is important, and put a lot of effort into it, but then just can’t get the right things done. For all their action lists, KPIs, KRAs, compacts, dashboards and scorecards, their wheels keep spinning.

Tom Peters says 90% of strategies don’t get implemented and Kaplan and Norton, authors of the balanced scorecard, say the same. A study from Ernst & Young, cited in the December 2004 issue of Harvard Management Update, says it’s 66%. Research by Marakon Associates says firms lose about 37% of the financial potential of their strategies.

Precisely which number is right doesn’t matter. What does matter is that across the world and across companies there’s a yawning gap between good intentions and hard action. Almost every management team I’ve worked with in more than 25 years as a consultant has told me the same thing: “We’re good at creating strategy, but not at execution.”

Closing the gap must be a priority for any firm wanting to get ahead and stay there. The best ideas and plans of little value if you can’t turn them into reality. The costs of slippage are colossal. Besides, in a world of sameness, where it’s increasingly difficult to sustain a strategic position and avoid commoditization, operational effectiveness—also known as execution—might be your most important advantage.

Because execution is so hard, it’s tempting to look for a system, process, model, or other formula that might help. There are plenty of them around. Some are costly and most are complex. You’ll find one or more of them in most firms. But the fact that so many smart executives point to execution as a problem tells you something is wrong. The tools being used are clearly not working as they’re supposed to.

Executing strategy is not a once-off job. You’ll never excel in it by just instructing a few people to “do it.” It’s an all day, everyday activity that involves everyone, one way or another. It demands a simple, sound and practical approach, the involvement of key people, and enormous commitment. Above all it demands tough, determined, “in your face” leadership.

The good news is that with common sense and proven principles rather than fads and flashy answers, you can escape the execution trap. You can improve your organization’s ability to turn plans into action so you consistently get more done, faster, and possibly with fewer resources, than you do today.

GET A HEAD START

The time to think about how to execute your strategy is when you first think about making it. Not after the event when you have something on paper and need to make it happen.

The starting point is to recognize that your overriding challenge as a leader is to to take your people with you. Your brilliant vision is worth nothing if they don’t buy it and give it their all. Here’s where execution gets a kick-start—or failure gets baked in.

To help you win support, think about these two questions:

  1. WHAT MUST YOUR PEOPLE KNOW, SO THEY’LL BE ABLE TO DO WHAT THEY NEED TO DO?
  2. HOW SHOULD THEY FEEL, SO THEY WILL DO WHAT THEY NEED TO DO?

While the focus of these questions is different, they are inextricably linked. It’s almost impossible to effectively deal with one without at the same time dealing with the other.

To get your people on side, you have to ensure they understand what you’re trying to do, why it matters, what must be done altogether, who will be responsible for what—and what they personally need to do. So you need to provide a point of view (which may or may not yet be completely clear) about how you see the future. You need to ensure that they have access to whatever information will help them. And you need to solicit their opinions and ideas, and embrace those that improve your strategy.

At the same time, you have to inspire and energize your people to actually do the right things rapidly and well. And here’s good news. The very fact that you give them direction and information, and involve them in shaping your strategy, goes a long way towards winning their hearts and minds. The reason? People seek meaning in their work. They want a sense that they matter, they’re respected, and their opinions count.

GET THE RIGHT PEOPLE IN THE ROOM—AND THAT MAY MEAN EVERYONE

When I’m asked, “Who should be part of a strategy conversation?” my automatic answer is, “Everyone.” And I’m serious. (And yes, I do understand that it’s not always practical, may not be affordable, and you might need to talk about some particularly sensitive matters.)

It’s common practice for small teams of top people develop strategy, then pass it down for others to action. While there may be good reasons to confine initial choices and decisions to a just a few people, there are equally powerful arguments against doing so.

Here are some of them:

  1. When you invite anyone to a meeting, and particularly to one of high importance, you send them and everyone else a signal: “You matter; your contribution is valuable; we respect you and need to hear what you have to say; we trust you.” Not inviting them sends exactly the opposite signal—not an encouraging one!
  2. The top people in an organization may have a broad perspective of the world and the challenges they face, but they’re unlikely to know in detail what’s happening down in the trenches or out in the marketplace. First-hand insights from where the action is may be crucial to their decision-making.
  3. You never know where the best ideas will come from in an organization. Often, it’s from the unlikeliest people. But that only happens if they’re given the chance.
  4. Communicating a strategy is always difficult. The simpler a presentation, the more gets left out of it. The nuances of the conversation in which it was developed are lost. As a result, you may do a reasonable job explaining the “how”, but not the “why.” And it’s the why that helps people understand the significance of their efforts.
  5. Participation increases the likelihood of buy-in. Exclusion is a sure-fire way to make execution difficult.

Only by involving the right people early, and in a positive and constructive way, can you hope to either develop the best possible strategy or execute it effectively. For this is when your strategic conversation begins. The first discussions set the tone for all others. By focusing your attention here, you can sharpen your competitive edge and give your firm new advantages for the future.

We all know that strategy is an intellectual process, involving logic, analysis, decisions, and trade-offs. But that’s only part of the story. It is to a far greater degree a social process, involving people with all their strengths and weaknesses. Ignoring this reality, firms set themselves up for failure.

Without the insight and imagination of a critical mass of your people, you’ll never get the best strategy. Without their spirit and commitment, you’ll never execute your strategy. And the time to start work on getting their buy-in on Day 1—right up front.

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  •  25/07/2012
Jun 232012
 

No leader in their right mind would deliberately take their company on a suicide mission. No one would initiate projects, programmes or activities that would foul up their organization’s culture, operations or results. Or agree to major commitments that would be a deadweight on performance. Or assign valuable people to tasks they never should have been doing. Or waste their own time and energy confusing and demotivating their people. Or wear themselves out trying to drive an agenda that was full of flaws.

Or would they?

More often than they know it, executives are their own worst enemies. Their good intentions cause endless trouble for themselves and their firms. They create the very problems that they worry about. They pour resources down the drain and wonder why they never get the results they seek. And perhaps worst of all, they never discover just how well they might have done.

Here’s what I call The Performance Paradox: In trying to improve results, managers deliberately, systematically and at considerable cost apply measures that come back to bite them in the butt by hurting performance. 

If you think this is a hysterical rant with no foundation, think again. And look at how easily it happens—and why it’s so common.

Management’s cycle of self-destruction

Start with the fact that every leader wants to better yesterday’s results. Sales should go up. Costs and waste should fall. Productivity and quality should surpass previous levels. Innovation and improvement should take customer satisfaction to new heights and make it possible to capture new markets. Profits should rise.

Wanting all this, the first question is, “Why haven’t we got it?” So introspection and diagnosis begins. And inevitably—between comments about fickle customers, competitors playing foul, IT problems, a lack of resources and so on—answers like these pop up:

  • “Our strategy’s not working—we need a new vision, mission and values”
  • “Our culture is wrong, so we need to change it”
  • “There’s no teamwork—our people operate in silos”
  • “They’re disengaged”
  • “We have a skills shortage, so everything is up to the top team”

The second question is, “What should we do?” And the fixes seem obvious:

  • Get a new vision, mission and values (preferably through a companywide conversation)
  • Change the culture
  • Teach people change management and involve them in change management projects
  • Start some teambuilding
  • Become “customer-centric” by making speeches, running workshops for all staff and putting up some posters
  • Motivate the people—get a motivational speaker for the company conference, improve the canteen food, spruce up the place, set up coffee bars in open spaces, put happy faces on all screensavers, introduce “casual Fridays”
  • Have HR find a new performance management process
  • Make empowerment a way of life—spread the word about “servant leadership”, get an expert on “ubuntu” or offer some courses on personal branding and self-actualization

But are these the right fixes? Chances are, definitely not. The management field is abuzz with nonsense. Too many vendors peddle one-size-fits-all panaceas. Flaky fads and unproven “solutions” are a dime a dozen. There are more tools than can ever be understood or used—many of them utterly worthless. And for every one of them there’s sure to be a champion, all too eager to take charge of a budget, make work and build an empire.

Besides, what appears at first sight to be an obvious problem might not be where an intervention is needed.

Take culture, for example. What exactly might be meant by the sweeping statement, “We need to change the culture”? Is culture a proxy for lousy leadership, skills gaps, a toxic climate, a dysfunctional structure, uninspiring incentives, weak systems, inadequate performance reviews, poor communication or some other factor? And if one or more of these is the real problem, isn’t that where attention should be aimed?

Or take another favorite—team building—trotted out as the answer to almost all corporate ills. Is teamwork really a problem, and if so, why? Could it be that no one knows where “the hill” is, so they’re all picking their own? Do they understand the company’s priorities? Are roles and responsibilities clear, and do people know what to expect from others? Are the right people in the right jobs? Are there enough meetings, are they about the right things, do they include the right people and are they well managed?

Follow a poor diagnosis with inappropriate treatment—or treatment you don’t know how to apply—and it’s all downhill from there. In no time, you’re in a doom loop. The “solutions” that looked so smart either cause whatever problems might exist to become even more entrenched, or quickly lead to others. Suddenly, there’s a flurry of new activities all over the place and people are bogged down under their weight. Complexity increases, confusion mounts and frustration grows.

But hey—you’re busy, busy, busy! You’re being proactive! You’re taking action!

All of which costs money and distracts people from what they should be focused on. The same old problems keep coming up in meeting after meeting. And again and again, the same solutions are offered: work harder at the initiatives that aren’t working, or get another one … or a bunch more. Or make a video and some T-shirts to rally the troops and drive the message home. Or send some of the team to a course. Or … whatever.

So how do you avoid this cycle of self-destruction?

  1. Face reality. Get your diagnosis right. Separate facts from mere opinions. Be alert to how politics, agendas and emotions color things, and don’t let them get in the way or distort your views.
  2. Be especially wary of too quickly settling on the “vision, mission and values” issue, trying to change the culture, or teambuilding or “empowerment” projects.
  3. Don’t buy any initiative with a funny name. Avoid tools you don’t understand. Beware of hucksters selling quick-fixes, or wielding a hammer and treating everything as a nail.
  4. Take an inventory of projects already under way. What is essential (and why)? What’s showing progress? What’s not working, or simply lurking on someone’s desk? Stuff piles up. The old suffocates the new. You can’t do everything. So agree what you’ll stop doing to make way for what’s next. And chuck out whatever you can (which probably means more than you thought!) as fast as you can.
  5. Don’t launch anything new until you’re satisfied that what was on the agenda has been dealt with or no longer matters. When you do start something, be reasonably sure you can see it through to the end. Then, stick to what you set out to do. Don’t chop and change. Your people are watching. They’re cynical and skeptical.
  6. Agree on a very short to-do list with tight timelines and clarity about who will do what. Better to do a few things well than a lot badly. Better to act fast and learn quickly than to keep the wheels spinning while you plan for perfection.
  7. Clarify how you’ll communicate what’s going to happen next—and communicate like crazy.
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  •  23/06/2012
Jun 062012
 

The Bible tells us, “Where there is no vision, the people perish.” According to Steven Covey, one of the “seven habits of highly effective people” is to “begin with the end in mind.” Norman Vincent Peale, Tony Robbins, and countless other self-help gurus have pitched the message that if you focus enough on what you want, you’ll get it.

Obviously, this may or may not be true. But it’s a seductive idea, and since the mid-1980s, a chorus of academics, consultants, authors, motivational speakers, and business leaders have echoed the same theme. They assure us that the future will belong to companies that have a bold dream, a huge ambition, a stretch target, a strategic intent, a powerful purpose, a “BHAG” (“Big, Hairy, Audacious Goal”)—or, to use the commonest term, a vision.

At the same time, we’ve been told that visionary leadership is critical for success. So for a firm to be a winner, it needs a leader who has the foresight to sense where his industry is going and can figure out how to seize the juiciest bit of it. Who challenges convention and refuses to accept the status quo, abhors what others take for granted, sees possibilities where they see only problems, and has the courage to lay big bets and venture into unchartered territory.

This line of thought has become an article of faith in business. When a company does well, you can be sure the leader’s vision will be cited as a key reason. If things sour, the leader will be accused of lacking vision. No fix is worth considering if it doesn’t include work on a vision. Developing, reviewing, or tinkering with a corporate vision is normally the first step in a strategy process.

Often, when a CEO briefs me, he’ll say, “We need a new vision. We have to re-focus and re-energize the company.” What he’s looking for is a point of view about how to move forward: possibilities for product or service innovation, whether to get out of a mature business or into a new one, or whether to expand overseas, adopt a new technology, outsource work, restructure or re-brand his organization, or explore alliances. And he wants a set of words that will point his team in a new direction and fire up their spirit. (Clearly, he’s not sure of that vision himself.)

When I ask people lower down in a firm why it’s not performing, I know what to expect. “There’s no vision at the top,” they usually say. We don’t know where we’re going.” They couldn’t care less about a glitzy new vision statement. They want to know they’re being led by someone who knows what lies ahead and what to do about it, and will take them on an exciting and successful ride.

Visionary leadership has become a Very Big Subject—but for all the chatter, it remains a slippery one.

Vision, we’re told, is a quality that sets leaders apart from mere managers. Individuals who “have vision”—however you determine that—are highly valued. But vision is widely held to be a trait people are born with, not one you can teach. So if you want it, you have to find someone who’s already got it.

But wait. Before you take off on a quest for one (or more) of these rare birds, or dive into yet another “visioning” exercise, think about what you really need to do to improve your company’s prospects, and where you should focus your attention. You might be starting in the wrong place.

BACK TO BASICS

In theory, a company’s vision should spur it to explore new opportunities, outperform its competitors, and achieve far more than it has in the past. It should give employees a sense of meaning in their work, and inspire them to be fully engaged and passionate about it so they’ll perform to their full potential. All fine, stirring stuff!

In practice, most vision statements do nothing of the kind. In fact, they’re about as useful as an ashtray on a motorbike. Far from focusing and motivating people, they confuse them and make them even more cynical and distrustful than they were. And while they should lead to action, what they really lead to is snickers among employees who see them as just more management bullshit.

In practice, too, many so-called “visionary leaders” turn out to be value destroyers. They’re so busy peering into their crystal balls and making silly predictions about where their firms will be in five, 10, or 20 years that they fail to deal with issues that scream for immediate attention. They bog their teams down with new projects—that often don’t hang together. They mis-read how things will unfold, embark on lunatic ventures, and get high on their “blue sky” “out of the box” cleverness.

It is true that some firms struggle to do well, or get into trouble, because they lack vision. Or they run into difficulties because their vision is out of kilter with emerging realities. Or they set their sights too low and settle for ho-hum achievements. But I’m willing to bet that much more often the cause of their woes is nothing to do with vision, or a lack of it. It’s more immediate, more down to earth, and closer to home.

It’s that they just don’t do what they’re in business to do. They don’t understand the “rules of their game,” and don’t excel in them. They don’t deliver on their promises to customers. 

Simply put: they fail in the basics.

To use an analogy: think of a company as a car. Shareholders and management imagine that if it had wings it would take off and soar away from its competitors. But the real problem is that the driver doesn’t know how to drive. The engine is firing on four cylinders, not eight. The gas tank isn’t full. The tires are flat. So wings are not going to help.

Now, don’t get me wrong: every organization does need to know where it’s trying to go. A sense of purpose—of “why we exist”—is vital. You do need to look ahead for new opportunities. You do need to give your people some idea of which “hill” you’re aiming for, so they know where to focus. You do need to ensure that they “do the right things” and don’t  just “do things right.”

But the first task for the leaders of most companies should be to “do things right” and make today’s business work as well as possible. After all, that is their “growth engine,” and it has to generate or attract the funding needed for tomorrow’s ventures. What’s more, it probably has greater potential for further growth than is realized. Anything that distracts managers from getting it to peak performance should be treated warily.

This is especially important in these tough times, when sales are hard to come by and customers are skittish and shopping around. Your current customers are vital to your future. Keeping them is critical, as is winning their enthusiastic support. To lose them or piss them off because your “engine” is sputtering is daft.

Big dreams are important, but the biggest opportunities for most companies may lie in fixing the basics—and that also creates a solid platform for the future

This isn’t a message that goes down well. After all, it’s hardly a big turn-on, and thinking big thoughts is much more exciting. But it’s one you need to consider carefully before you shoot for the moon.

If you don’t think it worth your time, ask yourself:

Why do so many customers have such a hard time buying almost anything—from the very companies that spend so much trying to attract them in the first place? Why do they have such lousy experiences with the products and services they buy? Why are they so disloyal?

If that doesn’t convince you, ask this:

Why does product development always seem to run late in so many companies? Why do their inventories keep swelling, while their out-of-stock level of key items gets worse? Why do their sales people make so few calls, and why are their calls are so ineffective? Why do their debtors’ days keep moving up? Why do their suppliers let them down so often? Why do their machines keep breaking down? Why do their warranty costs keep rising? Why is there so much scrap and waste in their plants? Why is the volume of paperwork growing? Why do their teams work in silos? Why does the left hand not know what the right hand is doing?

And the list goes on.

Surely this doesn’t make sense. Surely it points to internal weaknesses that could and should be fixed. Surely it suggests massive opportunities—right under your nose—to make your organization stand out from the crowd and steal a march on your competitors. (And if you think your company is different, maybe talk to some of your customers, suppliers, distributors, or employees!)

If your business is in good shape, many things are possible. If it’s not, your most brilliant ideas will never take off.

BABY STEPS…AND ACTIVE WAITING

No strategy lasts forever. You have to prepare to change when it’s necessary. But you also have to acknowledge that:

  1. You know less than you think about the challenges and opportunities ahead
  2. There’s no way you can be sure that the direction you choose will turn out to be the best one
  3. The more radical your vision, the bigger your risks.

The fact is, most winning companies get there not by making bold leaps, but by methodically putting in place the building blocks for the future. They take one small step at a time, and they make every step count.

Track the history of almost any firm, and you’ll see there’s not a straight line from where it started to where it is today. A leader may intend to follow a specific path to a glorious future, but that seldom happens. Strategy is only partly about hard choices and trade-offs, and largely about adaptation to new circumstances. There are many detours, blind alleys, and dead-ends.

If there’s one industry in which vision should be a very serious matter, it’s information technology. Yet consider how four extraordinary leaders have dealt with the matter of vision:

  • Bill Gates labelled it “trivial.”
  • When IBM got into trouble two decades ago, analysts said that the only course was to break up the company and sell the bits. Lou Gerstner took the helm and spent six months travelling the world to talk to customers and staff. He faced enormous pressure to spell out a new vision for the company. But he famously told analysts, “The last thing IBM needs right now is a vision.” In his book Who Says Elephants Can’t Dance? he explains that “if you’re going to have a vision for a company, the first frame of that vision better be that you’re making money and that the company has got its economics correct …. execution is really the critical part of a successful strategy. Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future.” Gerstner did lay some big bets, but job #1 was to get on with making “Big Blue” a great computer company again, selling both hardware and software.
  • Steve Jobs was widely admired for his vision and his obsession with design. Yet he was always reluctant to comment on where he intended taking Apple. Instead, he said that he was “waiting for the next big thing.” And while customers, competitors, analysts, and others never let up on trying to figure out his “long view,” he was busy building one of the world’s most effective engineering companies, obsessed with detail and operational excellence.
  • When Mark Zuckerberg, the founder of Facebook, was asked why he wouldn’t sell shares in the company in its early years, his consistent answer was, “We have no idea how big this thing will become.” No amount of visionary thinking could have told him that or prepared him for where he is today. Neither he nor anyone else can possibly know what Facebook will look like tomorrow.

In each case, these leaders focussed the present, on doing a great job one day at a time. Not on making crowd-pleasing statements about a future nobody could see. The lesson is an important one. More companies and leaders would do well to listen up.

Visionary leaders can make a huge difference to a firm’s fortunes. They can also cause it to plunge to earth. You might think that visionary leadership is what your firm needs right now. But maybe it’s the last thing you should seek.

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  •  06/06/2012
May 272012
 

It goes without saying that leaders are driven to succeed—to do the best they can for both themselves and their organizations.

It also goes without saying that they expect their people to succeed—to do well in the jobs they’re paid for, meet and exceed targets, handle projects effectively, produce new ideas, create constructive relationships with colleagues and business partners, develop the people around them, reach their own potential, and so on.

Yet all too often, leaders set themselves and others up to fail. They “throw sand in the gears” of their organizations, by creating conditions in which under-performance is guaranteed.

That’s a hell of an indictment, so let me explain it.

For more than a decade, I’ve encouraged my clients to reduce all their strategies to a few goals and a series of 30-day action plans with specific people responsible for each result. This has four critical benefits:

  1. It forces people to break work down into “do-able” chunks, and to focus on the few things that really matter rather than the many which otherwise crowd their agendas.
  2. It puts immense pressure into an organization, as 30 days isn’t long and there’s no time for wheelspin. When it’s clear exactly what needs to happen, by when, and whose name will be called, people have to put their heads down and get moving.
  3. It enables you to see, very quickly, whether your strategy is on track or needs fine-tuning, and how the people responsible for various actions are doing. Fast feedback and accelerated learning let you deal with problems and opportunities in as close to “real-time” as possible.
  4. It enables you to quickly praise or reward people for a job well done, or guide, sanction, or replace those who don’t deliver. So the very process of driving your strategy becomes a powerful performance management process. And because success does lead to more success, celebrating some quick wins provides important motivation.

Making plans and assigning work is the easy bit. The hard part comes when you start reviewing progress. For that’s when things either get a boost or fall apart.

Every time you bring your team together, you have an opportunity to either turn them on or turn them off. The way you craft and conduct your conversations will either bring out the best in them or the worst.

Review meetings need to be both respectful and robust. So on the one hand, people must be treated decently. They must be listened to and given the sense that they are valued and their ideas count. But on the other hand, they need to know that your purpose is not to create a “social club” or win a popularity contest.

This is about work and results and progress. Everyone must know that they’re expected to deal in facts and well thought-through opinions, and that there’s zero tolerance for blaming, bluster, bullshit, or excuses.

I’ve sat through any number of these review sessions, in companies of many types. Some leaders get things right: people come well prepared, the conversation is informative and constructive, and they leave feeling positive and knowing exactly what they need to do next. But often, things break down quite quickly.

Typically, everyone pitches for the first meeting. The first few people to report back do it well. Mike, Sue, and Dumesani seem to have a grip on things and achieved what they had agreed to. And they’ve thought about what they need to do in the next 30 days. They get a “thank you” and a pat on the back. Smiles all around.

But then there’s a hiccup. Damien couldn’t do what he should have because he was still waiting for budget approval. Or a supplier had let him down. Or he’d had to deal with some emergency or other. Or he hadn’t been able to recruit a key person because the headhunters hadn’t come back to him. Or the IT guys hadn’t delivered. Or Jeff or Derek or Sam or whoever had been away for much of the month and hadn’t been available to discuss certain issues. Or…

What the leader should do when this happens is come down hard on the individual, question each of his “reasons” and make him explain why he couldn’t do something about them, demand that he take his plan for the next 30 days 100% seriously, and make it clear to everyone that such behavior is not acceptable. In other words, the “rules of the game” must be firmly established right from the get go.

What the leader actually does when she gets the ducking and diving is say, “Oh, OK. Thanks, Damien. Well, do try to sort those things out and get things moving before the next session. Now, let’s move on. Who’s next?”

In that moment, the leader has done two extremely dumb things: first, she has taught Damien that not meeting commitments is acceptable, that non-performance doesn’t matter. (And she has thanked him for letting the team down!) But even worse, she has taught the whole team the same thing. So her very first review session has set the tone for trouble.

When the next meeting comes around, one or two people don’t show up and more of them report that they haven’t done what they promised. Even fewer pitch for the third meeting and there’s a longer list of excuses. Meeting four gets called off because too many call in to say they can’t make it. Meeting five gets rescheduled a few times, but then doesn’t happen at all.

Game over!

Strategy reviews are, in effect, training sessions. You can make them work for you or against you. Clients who use my 30-day planning process say it’s the best thing they’ve ever done. The pity is that things so often start with a bang but end with a whimper. And that clever executives keep wondering why executing strategy is so hard, when it’s they who enthusiastically agree to a sensible way of working then show they didn’t really mean it.

Effective leadership requires tough love. Leaders need to show empathy, foster teamwork, and be unfailingly polite to their people. But they also need to instill discipline, enforce compliance with agreed procedures, and show courage in handling those who play fast and loose with their organization’s future.

Notions like “servant leadership, “principled leadership,” and “values-driven leadership” are all popular. However, if they’re not leavened with firmness, they cannot possibly drive performance and results. Being nice is no substitute for managing. Empowering people does not mean simply letting them loose and leaving them free to do or not do whatever they choose.

The buck stops on the leader’s desk. He owes it to himself to use the power of his position to make things happen. If he doesn’t, he’ll undermine himself because his people will know in a flash and lose respect for him.

If bad habits are allowed to creep into a business, it’s hard to get them out. Only the leader can stop them in their tracks. And strategy review sessions offer the ideal forum for doing it, because they usually involve senior people who, in turn, teach the rest.

Of course, virtually any other get-together—even those chance encounters in the passage where people share ideas or update each other  about projects—provides a similar opportunity. But the discipline, structure, and status of a 30-day review makes it special. Not to be wasted.

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May 232012
 

Every company today faces growing uncertainty and complexity. Executives are under increasing pressure. Employees are nervy, and many are not fully engaged in their work. So how do you stay competitive and keep producing results?

What you don’t need now is another complex formula. So instead, here’s a simple checklist to remind you of what’s really important and to keep you focused.

Keep it on your desk. Pin it on your wall. Share it with your team. Use it in your meetings and strategy review sessions. And if you think it’s just too simple, read it again, and ask, “Is this what I do?… Is this the way we work around here?… What must change?”

  1. Your #1 challenge as a leader is to take your people with you. So create a climate for high performance and engage them constantly in a rich, robust conversation.
  2. Accept complexity, but simplify everything you can. Cut through clutter and focus on the few things that make the most difference. You have limited resources and a lot to do, so don’t try to do everything and be everything to everybody.
  3. Know what you’re aiming for, and spell it out loud and clear and often. Make sure your entire team understands your purpose, strategy, values, and priorities. You can never communicate enough, so keep repeating yourself.
  4. Focus on your “right” customer … forget the rest. Create clear criteria for defining your “right” customer (industry, size, growth potential, reputation, buying power, ease of doing business, ability and willingness to pay, what they can teach you, etc.) Make these criteria clear to all your people. Be ruthless about customers that don’t fit—they’re a dangerous distraction and you can’t afford them.
  5. Get your “basics” right. Put “gas in your tank and air in your tyres” and do what you must to get your “engine” firing on eight cylinders, not four. Strike a balance between consistently meeting customers’ current expectations and surprising them with something new, better, or different.
  6. Relentlessly drive value up, costs down. It’s the only way to compete.
  7. Learn from everything you do, and share new insights with your whole team fast. The more you learn, and the quicker you do it, the more adaptable your company will become.
  8. Hold your course. Be boringly consistent and persistent. Don’t be tempted to zig-zag. Sustainable strategy might be an impossible dream, but you have to repeat yourself for some time to hone your performance and build key resources and capabilities.
  9. Be ready to change when you must … then do it with everything you’ve got. Gather all the information you might need. Think about what you might need to change, and how. Develop the strengths that will matter. Practice, practice, practice. And when the time comes, don’t dilly-dally—go for it!
  10. Pace yourself … when you think it’s time to make a new decision, ask, “Is this really the time? If it’s not, wait. Sometimes, doing nothing is best. In another day, week, or month, you’ll have more information and a clearer picture of what you need to deal with. And it’s quite possible the risks you see right now, or the challenges you think you need to respond to, will have come to nought.
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  •  23/05/2012
Apr 162012
 

Managing a business of any size is a hell of a job. The world is a complex and dangerous place. Change is constant. There are surprises around every corner. And there’s unending pressure to perform through good times and bad.

Companies are complex, too. And the bigger they get, the more complex they become. Coordinating their efforts was always a challenge. But today, many firms sprawl across the world, so there are facilities, people, and many other factors to worry about. Just-in-time production, a growing amount of outsourced work, and intricate networks of suppliers all add logistical challenges. Relations with governments and regulators are of increasing concern. Investors, analysts, unions, environmentalists, lobbyists, and a host of other stakeholders all demand attention. And of course, there’s always the need to drive innovation, improvement, and cost cutting; to adopt new technologies and ways of delivering world class quality, productivity, and customer service; and to survive the daily deluge of seemingly trivial matters which may quickly explode.

Executives face a stream of dilemmas with no easy answers. Their to-do lists keep getting longer. They’re torn this way and that by people with competing agendas, and bogged down by meetings, video conferences, phone calls, e-mails, and so on. Many of them also have grueling travel schedules. Time is their scarcest resource.

It goes without saying that any war on complexity must be fought with a determined drive for simplicity. That in itself must be an ongoing effort with targets, projects, champions, regular reviews, and whatever else it might take. But on its own, it’s not enough. For there’s an over-arching problem of managers themselves creating conditions in which complexity flourishes. They introduce ideas and activities that often don’t line up, won’t produce the results they expect, and lead to unnecessary work, waste, and costs—all as a result of how they manage.

With few exceptions, they’d do well to ask themselves:

Why they so readily make life even more difficult, with management ideas, practices, and tools that in theory should help them, but in reality make little sense?

Why they keep searching for new answers to their management questions, when the answers they need are probably already well known?

Why they develop strategies that are either too vague to be useful, or too complex to explain?

Why they’re such suckers for buzzwords and bullshit when they have so much on their plates, and so many people expecting guidance from them? 

These are questions that have bothered me for the past 30-odd years. During this time, I’ve read countless management books, scholarly journals, and popular articles, and talked to many of the most prominent thinkers in the field, trying to learn three things:

  1. How should firms compete?
  2. What causes some succeed over the long term, and others to fail?
  3. Why do some executives produce better results than others?

You’d think by now the answers would be clear and widely accepted. But apparently not. For the quest for new ones is accelerating, not slowing. Or, at least, the amount of stuff published on these matters is growing by the second. And someone is grabbing all those books off airport bookstands!

Whatever you want to know, a Google search will instantly yield tens of thousands, if not millions, of links to possible answers. Authors of business books and articles slice and dice management issues into ever narrower opinion. The internet gives voice to anyone and everyone who has anything to say about strategy, structure, organizational behavior, people management, change management, analytics, leadership, IT, systems thinking, six sigma, values, culture, presentation skills, or whatever.

With all this “expertise” to hand, it’s little wonder that firms are jammed up by initiatives, or that managers are totally shell-shocked from being bombarded with information and advice about their world and their craft. The exploding volume of management flim-flam has made managing increasingly difficult.

Executives get in their own way because they’re always looking for another answer to their management questions—a quick fix or “silver bullet”—when the answers they need are right under their noses. And to compound their problems, they radically over-complicate things, and cause much of the mess and muddle that bogs things down. They also continually introduce new initiatives—or allow others to do so—while seeing few to a sensible end. And even as the pile deepens, they chop and change their priorities so fast that their people haven’t a clue what’s going on or what they should focus on.

Put differently, only by getting back to basics, simplifying things, lightening your load, and sticking to one view of how to manage will you ever make the progress you want.

I’m willing to bet that, right now:

  • you’re using management-speak that you don’t fully understand
  • your strategy is a mystery to many or maybe most of your people (and possibly to you, too!)
  • you struggle to turn your strategy into action
  • your priorities are not really what you should be focusing on
  • your people are doing things for reasons that aren’t clear to them, and don’t make sense to them
  • they’re expected to use tools that they don’t grasp
  • there are too many projects in your firm, many of which should never have been started, and many others past their sell-by date
  • quite soon, you’ll latch onto some new management idea, and launch a flurry of new initiatives to replace the ones you haven’t properly finished
  • there is a better, simpler way to get the results you want.

Sound crazy? A lot of nonsense? Well, think about this:

  1. When I ask company employees or participants in my business school classes why their firms’ strategies don’t work, the number one reason is, “We don’t know what the strategy is.” Many say, “We don’t have a strategy” (they probably do, but no one told them or they just weren’t paying attention).
  2. Companies love strategy documents. And usually, the thicker the better. I read these things for a living, and when I get to the end of many of them I have no idea who is supposed to do what. They’re heavy on detail that should have been left on a functional manager’s desk. A clutter of thoughts, lack of logic, poor structure, big words, and long sentences make them murky. So they say too much, but explain too little.
  3. Management tools are mostly not all they’re cracked up to be. They’re as fashionable as hemlines. As Bain Consulting’s periodic tools survey shows, usage and satisfaction scores go up and down. Besides, very few tools are truly new, based on sound research, or proven across industries, companies, or even functions; and what works at one time, in one set of conditions, may not work when things change. The catchy language that management “thinkers” use to draw attention to their recipes should be cause for suspicion.
  4. When a new tool is adopted, others that are already in place tend to stay there. So the pile grows. Each new idea creates a blast of activity, and sucks time, attention, and money from others. It becomes a nightmare trying to figure where to focus, how to integrate all this work, and what comes first, second, or third. And it becomes impossible to know which intervention caused what result.
  5. Explaining strategy is a never-ending job. I once heard a senior manager ask former GE chairman Jack Welch, “How often do you have to tell people what your strategy is?” Said Welch: “You have to explain it, and explain it, and explain it, and explain it, and explain it, until you drive yourself crazy. Because nobody is paying attention!”

So where to from here?

For starters, clarify your own point of view about what you’re trying to do. Think of strategy as the frame through which people see your company’s future. What exactly do they need to know? Answer: not much. In fact, the four things here tell the whole story.

Framing your strategy – keep it simple, or you won’t make it work!

Get this story right, and you have a good chance of success. Get it wrong, and you make a really bad start. So keep it simple. Keep it short. Cut to the chase. Maybe, at last, your team will get the message.

And what comes next?

First, a few tools, carefully chosen, well understood, and relentlessly applied so you and your people become expert in their use. (I’ll talk more about these in a future post.) Toss out anything you don’t really, really, really understand; anything you can’t use properly; anything that doesn’t produce the results you expect. And any duplicates.

Second, make a list of all the initiatives currently in your organization. (Some will be in use, others just lurking somewhere, and probably at some cost.) Ask: what do we really need to do? Which of these initiatives helps us? What should we kill right away? Then, zap as many as you can, fast, and slam the door on new ones.

Third, keep reminding yourself—and drum it into your colleagues—that whatever approaches, methods, models,tools,  or processes you go for, all work hinges on conversation. On what you talk about, how you do that, and who you involve. So make sure you talk about the right things, in the right way, to the right people.

Above all, understand that everything follows from your point of view. And the surest way to cut complexity is by avoiding it in the first place with your ideas about managing.

Life is hard. Managing is one of the toughest jobs around. There’s no point in making it harder for yourself.

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  •  16/04/2012
Mar 282012
 

If there’s one topic that gets more than its share of airtime today, it’s the shift in economic power from West to East, and the importance of emerging markets to companies seeking growth. This had to happen given that more than half the world’s population lives in those regions and have recently joined the mainstream of commerce. Three-and-a-half billion new customers are not be be sneezed at.

The Great Recession has given new urgency to capturing those shoppers. Hypercompetition affects all but a few industries, and managers everywhere are in a dogfight over customers. Sales have slowed in the big developed markets—the U.S., Europe, and Japan—so must be found elsewhere. Asia, Latin America, Africa, and central Europe now look particularly attractive.

Not too long ago, developed countries ran surpluses, while developing ones ran deficits. Now, the picture is largely reversed: many developing nations run surpluses and export capital, while developed ones have racked up huge deficits. And whereas infrastructure in many developed nations is in a sorry state, developing nations are spending vast sums on it. They’re also becoming more amenable to foreign investment, sucking up resources from everywhere, and rapidly advancing up the competitiveness ranks.

A key message from the World Economic Forum’s January 2012 Davos shindig was that emerging markets are where many firms will find their future growth. This is hardly news, as we’ve heard the same thing from countless commentators for at least the past 30 years. But repeating it yet again will surely spur more executives to leave their comfort zones and venture into new territory.

Before they rush ahead and do this, though, they should think hard about what it might mean. They should beware of doing it while starving the opportunities that exist where they already operate. They should be careful not to overlook the treasure that’s right under their noses in their own backyards. And they should ask themselves a critical question:

“Are the ‘developed markets’ we think we know not in fact ‘emerging markets’ that we need to learn about fast?”

A BRIEF LOOK BACKWARDS

The term “emerging markets” was coined in the early 1980s by Antoine Van Achtmael, an economist at the World Bank’s International Financial Corporation, to draw attention to investment opportunities in low- to middle-income countries. Then, after the Berlin Wall fell and eastern Europe opened up, and as southeast Asia began its own economic revolution, things started to get interesting.

Democracy and consumerism spread and firms became increasingly keen on globalization. They started to shift from focusing purely on exports to setting up their own facilities across the world. New technologies made it easier for them to coordinate complex networks of suppliers; and new logistical systems enabled them to move raw materials, components, and finished products swiftly to wherever they were needed.

In 2001, Jim O’Neill, chief economist at Goldman Sachs (he’s now chairman of Goldman Sachs Asset Management) invented the “BRICs” acronym—Brazil, Russia, India, China. These four populous and economically ambitious countries, he said, would propel the growth of the global economy in coming decades. So they offered huge opportunities for both investment and business.

That story got wide coverage and created a lot of interest. Then, in 2002, two business school academics, C.K. Prahalad and Stuart L. Hart, added both impetus and an important insight to it with an article in Strategy+Business which they seductively titled, “The fortune at the bottom of the pyramid.” Their unremarkable observation was that the populations of poor countries comprised a few wealthy people at the top of the pile, and untold millions mired in poverty at the bottom. Individually, the bottom lot had little spending power; but taken together, they made up an attractive target.

In 2005, O’Neill’s team sought to identify another group of developing countries that would follow the BRICs closely, and came up with the “Next Eleven,” or N-11—Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey, and Vietnam.

Six years later, O’Neill decided that “emerging markets” was no longer the right label for the BRICs or four of the N-11—Indonesia, South Korea, Mexico, and Turkey. “These are now countries with largely sound government debt and deficit positions, robust trading networks, and huge numbers of people all moving steadily up the economic ladder,” he says (Jim O’Neill, The Growth Map, New York: Portfolio/Penguin, 2011). “I decided that a more accurate term would be “Growth Markets.”

This new language of “BRICs” and “BOP” (bottom of the pyramid), of the “N-11” and “growth markets,” has provided plenty of inspiration for new ventures. Executives trot the terms out at every opportunity. Companies that not long ago were nervous about operating in backward and unfamiliar places are now trying it. And every day there are more good reasons to do so.

The spread of industrialization is creating a new global middle class. Angola, Estonia, Cambodia, and Argentina are exploding with newly affluent shoppers.  More and more people, including large numbers are women, are finding steady employment. Income and education levels are rising in one country after another. Medical advances and healthier living mean more ageing people (many with savings, welfare support, or even pensions). And at the same time, new media, new distribution processes, and new branding strategies are changing buyers’ behaviour and encouraging them to experiment, shop around, and flaunt what they buy—and in the process, to keep moving the marketing goalposts.

These markets are a complex mix of young and old, rich and poor, sophisticated and unsophisticated consumers, who buy both branded goods and commodities. They’re mostly served by local businesses, but increasingly by outsiders, too. Their attraction is that they bulge with potential customers who’ve largely been overlooked or underserved. And a big plus is that competition may not be as tough as in developed markets.

There is absolutely no doubt about it: the BRICs and the N-11 merit close attention. As do many even less developed countries. And there’s a case for moving fast, for in no time at all the fight for customers in all these places will intensify.

But companies should not ignore the opportunities in their traditional markets. For that’s where they’re comfortable and where they earn the bulk of their profits today. That’s also where they are most vulnerable right now.

Customers in rich countries like the U.S., Europe, Britain, Japan, and Sweden have a lot of spending to do. Losing them will come at a heavy cost.

EVERYTHING IS UNFAMILIAR, EVERYWHERE
Anyone contemplating a foray into developing countries should consider two facts:
  1. Doing business there will be harder than you think.
  2. It will distract you and divert resources from where your priorities should be and where your best opportunities may lie—in the developed markets you already know.

Developing countries might look exciting, but they present a host of major problems: political interference, bureaucratic blockages, institutional voids, poor or nonexistent infrastructure, lousy services, entrenched social traditions, widespread poverty, health issues, security, crime, and corruption. Key skills are in short supply. Many industries are immature, and often hard to break into because of vested interests or old relationships. Supply chains are unreliable. Distribution channels and media are not what they should be. Protecting intellectual capital is a nightmare. Customers must be taught the value of new products and services, and companies must learn how to deliver them. So altogether, getting things done may be extremely difficult—especially for executives used to places where things work.

But look at the changes under way in developed countries. In virtually every market for every kind of product or service, the game of business is being turned on its head. “The new normal” is not “the old normal.” Conditions have changed in untold ways, and there’s novelty all around.

There are new political realities, new regulation, new infrastructure. Populations are ageing, shrinking, and moving; and migrants are radically changing their structure, language, beliefs, and habits. Old ways of life are giving way to new ones. Competition is hotting up and new strategies are making old ones obsolete. Technology makes possible new offerings and new ways of reaching and satisfying customers. And just as in developing nations, there are new customers with new needs, values, expectations, and behaviour.

Today, in the most advanced markets, there’s probably not a company whose managers can say, “Nothing has changed for us in the past decade or two.” Neither would they be smart to think, “There aren’t any major changes ahead, so we don’t have to do anything drastic.”

The reality is that selling almost anything, to almost anyone, anywhere in the world is a brand new challenge.

Few products or services—or the companies that sell them—have made it into this new era without significant innovation. Further progress will demand even more of it.

Yesterday’s business models can’t be expected to deliver the same results as they used to. The shelf-life of today’s models is limited. A tweak here or there will undoubtedly help some companies do better, but sooner or later more radical change will be vital. And for growing numbers of firms, the time for that is right now.

It’s time for a strategy reset!

INDUSTRIES IN TURMOIL

To make the point, some examples:

  • Think media—where’s it headed? Do newspapers have a future (and what about the paper industry and the printing press manufacturers that serve it”) What further impact will technology have on it? Where are social media taking us? What about “citizen journalism”? How will the widespread availability of ultra-fast wi-fi change things?  What’s the future of television in an age of Tivo, PVRs, and streaming video?
  • Think photography—How will cell phones with high-resolution still and video cameras affect makers of stand-alone digital cameras? What breakthroughs lie ahead in lens technologies, sensors, and storage devices? What new post-processing software is on the way?
  • Think laptop computers—who needs them when tablets are so handy? What might they be used for tomorrow? What will new processors and memory technologies enable them to do? How much smaller can they get, and how much sharper and brighter can their screens become? What new battery technologies can we expect? How will applications be sold?
  • Think fast-moving consumer goods—what’s going on with formulas, packaging, distribution, promotions, pricing, recycling? What will be the impact of new health concerns? How important will store brands become?
  • Think autos—how much smarter, lighter, more economical, and safe will they become? What new energy systems can we expect (and what is the prospect for “green” cars?) Where will vehicles be produced? What further mergers and acquisitions can we expect, and how will they alter the industry’s structure? How will traffic congestion be managed, and what might that mean for vehicle makers?
  • Think clothing—what are the fashion trends to watch … and what can be ignored? What new fabrics are coming? What new production technologies lie ahead, and where will garments be made?  How much more time can be cut between design and in-store display? What will be the future role of haute couture and fashion shows?
  • Think retail—what shopping trends are emerging, and what might be next? What are the prospects for online sales, and what changes will we see in that area? What’s the outlook for malls … big discounters … speciality retailers … small independent stores? What new stock control systems are down the line? How will customers pay?

These questions address just a few of the changes already under way. And of course, there’s also the impact of new regulation, of environmentalism, and  of a host of other factors that are restructuring the business landscape. So this you can be sure of: there’s massive change to come. The market you’ve come to know so well—whatever sector you’re in— is not the one you’ll play in tomorrow.

Much of what we though we understood about “developed” markets is no longer useful. Almost all of them are today, in effect, emerging markets. Not in the sense of being poor and backward, but rather in the sense of taking shape, of not being fully understood, and whose potential is unclear.

This process has been under way for some time. Buyers of everything have been learning about new ways to satisfy their needs and wants, communicate and participate, enjoy and express themselves, and shop and pay. They’ve discovered that just as quality should be a “taken-for-granted” fact, so should low price. They’ve taken to buying portfolios of products and services, some bearing names like Louis Vuitton, Ford, Swatch, Tumi, Gap, Hyundai, or Samsung, and many with names you’ve never heard of, but offering “good enough” design, feel, durability, and so on—often at rock-bottom prices.

Recently, the spread of financial trouble has had a dramatic impact on customer behaviour. Collapsing asset prices, government austerity programs, and rising unemployment have forced shoppers to save rather than spend. Companies serving them have had to do the same. So prices and costs have become more important than ever. Buying down is the new norm. “Frugality” is today’s reality.

 HOW (AND WHERE) WILL YOU COMPETE TOMORROW?

Dramatic changes are under way in even the richest, most developed parts of the world. They present both breathtaking opportunities and deadly threats to virtually every business. And the one thing you can be sure of is that the situation will get more challenging.

Today, there’s no shortage of new market possibilities. The growth prospects offered by what we call emerging markets are phenomenal. But developed markets are the most important markets for most major companies today—as they will be tomorrow.

Your traditional competitors are not the only ones you should worry about. You’re probably surrounded by upstarts from down the road. Emerging market multinationals are swarming into rich nations fast and aggressively to eat the lunch of local champions. Protecting yourself in your backyard is getting harder by the minute—but doing so is imperative. This is a turf war you shouldn’t lose.

So how will you compete tomorrow? Which customers should you focus on? What do you need to learn about them (what do they value?… how, when, and where do they shop?… what media do they use?… what influences their decisions?) How should you reach them? What should you promise them? What kind of business model do you need to capture and keep them?

For many firms, developing countries are where the future lies. But think before you label those “emerging” and the ones you’re in right now “developed,” “traditional,” or “mature.” There are obviously differences, but here’s what’s the same everywhere:

  1. The rules of tomorrow’s game aren’t clear.
  2. You don’t understand them.
  3. They will keep changing.
  4. You will face more competition—and more hostile competitors from all over the world—than you think.

Developing regions that you don’t know may look extremely appealing. But the ones you’re familiar with—those where you trade now, that you see as “developed,” and that maybe bore you—have their own possibilities. However, to take advantage of them, you need to start by accepting that you don’t really understand them, and then spend the time getting to know them from scratch.

Every market is now an emerging market. We’re all feeling our way into the future.

WHAT”S YOUR NEXT MOVE?

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  •  28/03/2012
Mar 092012
 

In these uncertain times, the value of strategy is often questioned by anxious executives. Is there any point in having a strategy, they wonder, when conditions change so fast and it’s so hard to be sure what might happen next? What’s the best way to make strategy? Can we still reply on the process we’ve always used, or is there some new way to go about it? Are we wasting our time on long-term plans when we’d be better off just tackling what’s on our agenda right now? Should we spend less time trying to fine-tune our strategy, and more on building our capabilities and honing our ability to flex and adapt as things change around us?

While different companies and consultants may go about developing strategy in slightly different ways, every management team needs to ask and answer three fundamental questions:

  1. What’s happening around us, and what might happen next?
  2. What are we trying to achieve?
  3. How shall we go about it?

To help answer these questions, firms may commission market studies, gather detailed competitor information, conduct benchmarking exercises, or create future scenarios. Many default to a SWOT exercise (but wind up listing most of the same strengths, weaknesses, opportunities, and threats that they wrote up last time around!) Some are fans of Michael Porter’s “five-forces” or “value chain” analysis. Others prefer to talk about “core competences” or “capabilities,” or about finding a “blue ocean” in which they’ll happily have no competition.

A lot of companies do much of the work internally, perhaps using off-site retreats for focused debate. Many hire consultants to do the grunt work, guide their discussions, and provide an outsider’s perspectives—and hopefully some fresh insights. Or they bring in economists, political analysts, demographers, trend watchers, or functional experts to enhance their understanding of the environment and their industry.

Invariably, the end result is some kind of document. Answers to those three questions should—but don’t always—provide the basis for allocating resources and developing budgets. (Strategizing and budgeting don’t always sit easily together!)

Of course, you might ask any number of other questions to enhance your strategy discussion. There are many tools, developed by very smart people, to help you. But these three questions are the ones that matter. If you avoid them or treat them carelessly, you’ll be sorry.

Now, let’s consider them from a slightly different perspective, and using slightly different language. Let’s look at a model that will help you shape your future agenda … and your business.

THE 3Cs OF COMPETITIVE ADVANTAGE

Almost always, when CEOs brief me for a strategy assignment, they start by telling me, “Our business is different.” Then they spell out their situation and challenges in much the same way as others in quite different firms and industries have done. So I’ve heard the same script over and over.

While it’s true that businesses are different, there are many similarities, too. There is a common story. Whether you sell hot dogs or passenger jets, luxury goods or financial services, there’s a core set of issues you just have to think about. I call them the 3Cs. They are:

  1. Your operating context (external and internal)
  2. The concepts that shape your thinking and that you use to manage your business
  3. How you conduct your affairs.

The 3Cs are the foundations of strategy

  • Your external context is largely out of your control. It’s the hand you’ve been dealt. You might be able to influence parts of it, but never all of it. But you have to fit into it, so the best you can do is adapt to what’s happening around you. Your internal context, on the other hand, is something you can mould and change. You can shape both the culture and climate in your firm. You can choose the people you hire; what processes, systems, and technologies to use; and what kind of working conditions to create.
  • Concepts help us make sense of things. They help us cut through complexity and make things simple enough to understand. So we have concepts of how the world works. Of how businesses should work (business models). Of how we can make them work (management ideas, philosophies, and tools). And of what a business might look like in 3, 5, or 35 years.
  • Conduct is about what we do and how we do it. It’s our behaviour—as individuals or a team—at work and towards each other. And towards customers, competitors, investors, government, unions, and other stakeholders. It also describes the processes, systems, and technologies we use, and how we deal with matters ranging from discipline to customer service, from quality and productivity to innovation and acquisitions.
MANAGERS TEND TO PUT CONCEPTS FIRST … BUT NOT ALWAYS THE MOST IMPORTANT ONES

In my experience, most companies spend most of their time thinking about concepts. But instead of dreaming up new ideas about how to compete, and designing new business models, they flail around in search of the latest tools—most of which turn out to be fads—that may save their skin. Too often, they have no idea whether they have a hammer or a saw in their hands, and no clue about using either. Besides, they fail to master whichever new “thing” they fall for, or to entrench it in their organizations. And when it doesn’t work quite as they expected, they dump it and dash after something even sexier. So it’s little wonder that they make less progress than they’d like.

Competing for tomorrow’s customers involves many factors, and management concepts (ideas, philosophies, and tools) are critical. But first you need a business concept—a point of view about how best to compete. For without a clear model, map, or blueprint, you’ll not only struggle to make sensible decisions, you’ll also fail to focus and integrate your activities. And it will be impossible to choose the right management concepts.

Today, one industry after another is being transformed by companies inventing new ways of creating and capturing value. The boundaries between sectors are blurring and even disappearing. There are overlaps everywhere. Suddenly, yesterday’s friends are eating each other’s lunch.

Executives who understand the “new normal” and the need for “business unusual,” are frantically clawing their way into the future. They’re cooking up new business models to make old ones irrelevant. And because it’s happening on so many fronts, and so fast, the shelf life of these models is shrinking—which, in turn, leads to even more frenetic activity.

Upstart firms with no baggage pose an obvious threat because they’re not encumbered by installed infrastructure, sunk costs, or deeply ingrained beliefs and habits. Their founders are usually determined to turn convention on its head, and to raise the customer service bar from day one. Their focus is on creating new concepts of business, rather than tweaking old ones with some new-fangled management tool.

Established firms can be even more dangerous, simply because they are established. They’ve survived good times and bad and periodically reinvented themselves. They know how things work in their sector, so they don’t have to figure that out from scratch. They have deep skills and valuable relationships, and their delivery mechanisms are in place. They have a presence and a reputation in the marketplace, so customers know what they offer and how to find them. And they can afford to conduct research, experiment, explore—and make mistakes.

IT’S WHAT YOU DO THAT COUNTS, NOT WHAT YOU SAY

Concepts are clearly important. You need a mental picture of how your industry works and how best to compete in it.  You also need to understand what management ideas are available, which are best for you, and how to use them.

But it’s equally important to understand how your company should act (its conduct) and to make that behavior a way of life. (This was highlighted for me in a discussion with Willie Pietersen, professor of strategy at Columbia Business School. At that time I was focusing on context and concepts. He pointed out that there was a missing factor—conduct—that could make all the difference. For that, I thank him.)

Strategy does matter. In fact, it matters more today than ever. But it has limitations. The whole notion of “sustainable advantage,” the core idea in most strategy books, is under siege.

Because we live in an information age, it’s easier than ever to find out what you need to know about markets, customers, competitors, and so forth. At the same time, executives are taught more or less the same things in business schools, read the same books and journals, attend the same conferences, and network with peers in their industry and with analysts and journalists who watch it.  And companies belong to the same industry bodies, hire the same consultants, recruit  each other’s people, buy from common suppliers, and—increasingly—collaborate with their competitors.

The result: there are very few secrets, and even the most closely-guarded of strategies is unlikely to stay under wraps for long. Breakthrough ideas and strategic shifts in one company are quickly noted, decoded, and adopted by others. Sustainable advantage is a fine ideal, but the reality for most firms is that the best they can hope for is a series of unsustainable advantages.

Harvard strategy guru Michael Porter advises that companies should avoid “running the same race” as their competitors, and rather “run a different race.” The theory is sound, but in practice that’s mostly a pipe-dream. Like it or not, you’re going to wind up running the same race as your enemies. And it’ll happen faster than you think.

Staying ahead of the game today depends increasingly on the ability of your organization to constantly adjust its conduct to fit your changing context. Or, as I tell my clients, to run faster than the other guy.

The external environment is where companies usually focus their search for opportunities. But as I’ve already said, “in-the-box” thinking may be even more profitable than “out-of-the-box thinking. For the internal environment is where things go right or wrong, where external opportunities are captured or squandered, and where you can score some quick wins and build some long-term advantages.

THE NEW BUSINESS ARENA

Concepts and conduct deserve attention. But whatever you do in those areas will only pay off if it fits your context—your zeitgeist, or the “spirit of your time.” Without a deep understanding of the environment around you, and of the context inside your firm in which your people work, you will never design the most appropriate business model, choose the most suitable management tools, or settle on the most appropriate behaviours.

The astonishing changes that are now taking place around the world, in every aspect of our lives, have profound implications for business. This is a time to reset your strategy. To dissect it, put it under a microscope, and think long and hard about what you see. And then to make whatever changes might be needed.

But first, you need to know more about the context in which you do business. You need to understand the trends that affect you, and the players who influence your organization in one way or another. You need to review your assumptions about politics, the economy, society, technology, customers, and competitors, and other “stakeholders.” And you need to keep testing those assumptions, embracing new information and insights, and  sharing them with your colleagues.

Starting today, make it an obsession to understand your context. Change the way you spend your time to make this your priority. Talk about it in every conversation. And watch how soon you start to see new possibilities, and your team gets the message that change must be normal.

A NEW AGENDA FOR EXECUTIVE DEVELOPMENT

For the past 100-odd years, most management and leadership programmes have focused on skills development. In the future, they’ll need to redirect their attention from management concepts (ideas, philosophies, tools) to concepts of business (business model design) and to the context of business (the environment in which business gets done).

The fact is, there is just a handful of management concepts that matter, and they can be taught very quickly; after that, practice has to kick in. The real challenge for tomorrow’s leaders is to know about new business models, and to know how to create them. And for that, they need to have a deep understanding of the world around them.

This will be a big shift, so I’ll have more to say about it in a future blog post!

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  •  09/03/2012
Mar 052012
 

Most companies have a strategy, but the quality of those strategies varies greatly. Not all are equally sound. A lot are utterly useless. And all too often, even the best of strategies won’t get turned into action because of organizational weaknesses.

You might wonder if strategy really is necessary in today’s environment of extreme uncertainty, roller-coaster volatility, resource constraints, and rising competitive hostility. The answer: unequivocally yes! In fact, right now, strategy matters more than ever. Precisely because the world is so hard to understand and there are so many surprises, you need a strategy in order to give you the best possible chance of defining your own future.

This is no time to be careless or vague, to bet on yesterday’s strategy taking you into the future, or to bank on your competitors being idiots. A carefully thought-through, robust strategy is essential for riding the “white waters” we’re in, and that in turn requires a systematic, disciplined strategy process. Now, more than ever, you need to subject your strategy—and the way you made it—to tough, dispassionate review.

No doubt you and your colleagues have put a lot of effort into your strategy. You’ve probably thought long and hard about the best process to use, what it should address, what you should finally say, and how you should communicate the outcome. But before you rush ahead with implementation, pause for a moment. Stand back and take another long, hard look a what you’ve decided. Use this checklist to stress-test your strategy. These 20 questions may highlight weaknesses, trigger new insights, or lead to new decisions.

One set of questions helps you evaluate your overall strategy:

  1. Is your strategy based on specific and sound assumptions?
  2. Is it based on adequate and accurate information—most importantly, about customers, competitors, your operating context, and your own capabilities?
  3. Does it address all the key issues facing your company, or have you overlooked some or skirted around the tricky ones?
  4. Are you clear about the results you want, and will it raise your chances of delivering them?
  5. Will it give you a meaningful advantage over competitors, and can you capture the value of that edge?
  6. Have you made the right trade-offs, or are you making too many compromises?
  7. Do you have what it takes to make it work—resources, capabilities, attitude, stakeholder support, etc?
  8. Will it be sufficiently hard for competitors to understand, copy, or nullify?
  9. Will important competitors worry about it, and wish they’d thought of it first?
  10. Does it lock you into a particular course, or will you be able to change direction when you need to?
  11. Is this strategy unquestionably the best you can do given your current circumstances?
  12. Does it have legs – i.e., will it give you the results you want for long enough to make it pay off?

A second set of questions looks at your chances of making your strategy work:

  1. Is your strategy simple, clear, and specific (i.e., will it be easy to explain, will it make sense, and will you be able to stay “on message”)?
  2. Does it have just a few (3-5) key goals that are unquestionably the priorities, and will achieving them get you where you want to go?
  3. Are those goals followed by (3-5) well-defined actions, and are specific individuals responsible for those actions within specified time-frames?
  4. Do you have the right people in all functions, and are they excited about your strategy and aligned behind it?
  5. Do the “pivotal people” on your team (the few who are the most critical “gears in the system”) have the skills and clout they need to make things happen?
  6. Do they have the information, resources, and support they need, and will they continue to get it?
  7. Will your organizational arrangements (structure, processes, systems, culture, incentives, etc.) support your strategy?
  8. Do you understand the risks that lie ahead, and do you have plans to deal with them?

All of these appear to be quite simple questions. But they may be tougher than you imagine. Getting to the answers may be painful, and you and your colleagues may not like them.

But remember, strategy is not just about logic, analysis, and hard decisions. It’s also a highly-charged social, political, and emotional subject. If you don’t start out with that understanding, and if you fail to confront reality while you craft your strategy, don’t expect great results. The world is just too tough for that, and it’s getting tougher.

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  •  05/03/2012