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?”
Print This Page Print This Page
  •  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!

Print This Page Print This Page
  •  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.
Print This Page Print This Page
  •  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.

Print This Page Print This Page
  •  01/12/2012
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.

Print This Page Print This Page
  •  16/04/2012
Apr 082012
 

The market shares of South Africa’s four big banks—Standard Bank, Absa, First National Bank, and Nedbank—go up and down, but with few big swings. Despite government pressure to do more for the bottom end of the market, and some stabs at doing so, all have continued to focus on their traditional middle- to upper-end customers. That, they’ve held, is where the money is.

And it’s true, that’s where the money was. But growth in that sector has slowed. Profits are under pressure. So the giants been forced to look downmarket, where there are an estimated 8 million “unbanked” and “unsecured” customers, and plenty of growth to come.

The fight will be brutal. They’re all charging into the same arena at the same time, so they’re tripping over each other. The big banks have clout, and are deadly serious about this new venture. But they’re stepping onto the home turf of two smaller banks—African Bank and Capitec—which know how to fight there.

These two operate in different niches. They’ve been growing fast, and extending their presence into new areas with appealing offerings. They’re also solidly established, and far from rolling over under the current onslaught, they now have no choice but to become even smarter and more aggressive.

The bigger of them, African Bank, hardly advertises at all, but has many years of hard-earned experience at the lower end of the market, a sophisticated approach to credit management, almost 16,000 highly motivated people, and a large pool of customers who are real fans and not just locked-in by some gimmick.

Capitec is a younger business, but its promise of simpler, cheaper, and more convenient banking has strong appeal. After initially aiming at poorer black customers, it’s now opening branches in wealthy areas and attracting whites, professionals, and suburban housewives.

There’s a classic disruption strategy at work here, as described by Harvard Business School professor Clayton Christensen:

  1. Incumbent firms keep improving what they’ve been doing, assuming they’ll keep customers happy by doing more of the same better.  But they do lots of stuff customers don’t care about. As they add more and more bells and whistles, their costs rise and they create a “price umbrella” for upstarts.
  2. One or more newcomers sneak in under that umbrella. They focus on customers the dominant firms have overlooked or underserved, with products tailored precisely for “the job they want done.” Unencumbered by entrenched mindsets and legacy policies, practices, and infrastructure, they’re able to keep costs and prices low. They go unnoticed while they fine-tune their processes and build awareness, capabilities, experience, and muscle.
  3. Stuck with a price disadvantage and lots of baggage, the big players struggle to move downmarket. At the same time, the disruptors start moving upwards, to pick off their customers.

The current process has a way to go. The latest phase in the banking war illustrates just how hard it is to stand out in the marketplace today—and why “sustainable advantage” is for more and more companies an impossible dream. It highlights the importance of delivering a “difference” that really is different, but also that matters to customers so they’ll pay for it.

THE DELIBERATE DESTRUCTION OF DIFFERENCE

Virtually in unison, the big guys have announced a flurry of new products and services (or re-promoted existing ones), and started to move downmarket. They’re hoping for the best of several worlds: to keep customers they’ve got, while also stealing some from each other—and to snatch business from African Bank and Capitec, while also luring unbanked customers in that territory.

Since March, print media have been stuffed with one page of ads after another extolling the promises of three of the Big Four: Absa, Standard Bank, and First National Bank.

Absa promises “Better banking”:

IMMEDIATE PAYMENTS…STAMPED BANK STATEMENTS…APPLY ONLINE…SCAN AND PAY…SEND CASH AROUND THE WORLD…FREE eSTATEMENTS…CELLPHONE BANKING…CASH ACCEPTING ATMs…UNIT TRUSTS ONLINE…OPEN ACCOUNTS ONLINE…OVER 8 000 ATMs AND 900 BRANCHES…RECHARGE WITHOUT CHARGE…LOW-COST BANKING…REAL BUYING POWER…REAL CASH REWARDS…

Turn the page, and there’s Standard Bank “Moving forward:

THE CONVENIENCE OF 18 450 PLACES YOU CAN DO YOUR BANKING…HELPING CUSTOMERS SAVE UP TO 50%…ELITE BANKING COSTS R99.00 A MONTH…YOUTH…STUDENT ACHIEVER…GRADUATE AND PROFESSIONAL BANKING…ACHIEVER ELECTRONIC…PRESTIGE BANKING…PRIVATE BANKING…

And without a gap, you get First National Bank, answering its “How can we help you?” slogan with its own laundry list of promises, and its claim to be the industry innovator:

INNOVATION…VALUE…PAY2CELL…KRUGERRANDS…ONLINE FOREX…FNB LIFE COVER…SLOW LOUNGE…eBUCKS…SELF-SERVICE BANKING…INCONTACT…INSTANT ACCOUNTING…FNB BANKING APP…SHARE INVESTING…FUEL REWARDS…MULTICURRENCY ACCOUNTS…eWALLET…TABLET & SMARTPHONE OFFER…

Now, as a customer, what do you make all of this? What’s the difference—or is there really any difference? What does it mean to you? Are you impressed by this growing range of offerings? Or overwhelmed? Or perhaps you just don’t care.

The South African banking industry ranks among the healthiest in the world—thanks to tough regulation. But banks have long been accused of over-charging, lousy service, and bullying tactics. Nobody I know is excited about dealing with their bank. Nobody has ever recommended their bank to me.

As a customer myself, I have absolutely no idea what sets banks apart. I deal with them because I need to, not because I want to. They make a lot of noise, but I can’t hear what they say.

Bank strategists would do well to pay close attention to Beating The Commodity Trap by strategy professor Richard D’Aveni of the Tuck School of Business at Dartmouth. Because that’s exactly the trap they’re creating for themselves—at huge cost, and despite their desperate efforts.

Describing why firms get into a commodity trap, D’Aveni writes:

“…the reasons most companies find themselves in the trap in the first place is because they failed to innovate early enough to avoid it or they later differentiated and cut prices so much that they have exacerbated the trap.”

They’d also to well to heed to these words of Harvard Business School professor Youngme Moon in her excellent book Different:

“Competition and conformity will always be fraternally linked, for the simple reason that a race can only be run if everyone is facing the same direction.”

“…the way to think about differentiation is not as the offspring of competition, but as an escape from competition altogether.”

“There is a kind of difference that says nothing, and there is a kind of difference that speaks volumes.”

Making a “difference that speaks volumes” has always been a challenge to companies and their ad agencies. It’s getting harder as competitors crowd into a field, and as they watch and learn from each other, benchmark themselves against each other, recruit people from each other, attend the same industry events, read the same publications, buy from the same suppliers, and so on. They strive to be different, but do everything possible to look alike.

First National Bank has seized an advantage by not just re-segmenting the market, but by using product innovation as its differentiator and a character called “Steve” to grab attention in broadcast media. But how long will it be before others do the same? Technology constraints might slow some of its competitors down, but they’re sure to fix that. So the rapid reinvention of business models will continue. Future ad campaigns will surely become both more factual and more emotional.

If experience from other industries is anything to go by, the banks have started what could be a costly “race to the bottom” (and not just the bottom of the market). Together, they’re transforming their world. The best they can hope for is that none of them does anything really silly, and that the market stays reasonably stable. They also need to hope that their efforts don’t create a credit bubble and provoke their regulator to clamp down on them.

Whichever way things go, we’re about to see:

  • What difference strategy can make, vs. the importance of being able to think on your feet, change direction in a blink, and run faster than your enemies.
  • How important real product innovation is vs. vaguer corporate branding.
  • Whether conventional forces can take on guerrilla fighters and win, and what it takes.
  • How guerrillas can withstand an onslaught from multiple well-armed attackers.

There will be important lessons here for all managers, so  this is a battle worth watching closely. (More on this in a coming post.)

 Capitec and African Bank have given the South African banking industry a long-overdue wake-up. Now, watch the shake-up.

 

Print This Page Print This Page
Apr 042012
 

When Samsung announced in mid-2010 that to grow its business in Africa, it would design products specifically for Africa, it confirmed two facts about global competition today:

  1. As growth in developed markets gets more difficult, firms must seek and exploit opportunities in developing markets.
  2. To succeed there, they need to “act local.”

Explaining Samsung’s plan, George Ferreira, COO of Samsung Electronics SA, said:

“In line with our key value of co-prosperity, coupled with our business and development sector partnerships, we have a vision of developing technology that is built in Africa, for Africa, by Africa”…We will over the next few years be allocating more local R&D investment for further local product planning, design and development.”

A press release from the company added:

“Samsung have undertaken extensive research and development (R&D) to develop technology innovations, specific to the African consumers’ needs. These include, TVs with built in power surge protectors, triple protector technology for air conditioners to ensure durability, power surge protection and safeguarding against high temperatures and humidity, deep foam washing machines that are 70% energy efficient – saving up to 30% water use, dura-cool refrigerators with cool pack – allowing the refrigerators to stay cool without power, as well as dual-sim technology and long battery life phones with battery standby times of up to 25 days.”

According to a report on Moneyweb, “The electronics group hopes to attract the African market with a range of television and refrigeration products that are designed to withstand power surges, dust particles and humidity and camera and camcorders that are designed to take “better” pictures of dark toned people.”

In one example of how it will pursue its strategy, Samsung has teamed up with the University of Cape Town (UCT) in South Africa and Strathmore University in Kenya to develop unique mobile phone applications for Africa. Such collaboration is sure to yield ideas that the company wouldn’t develop on its own, and to speed up the time-to-market process.

However, what the electronics giant did not say was that innovations in developing markets may prove valuable in developed markets (a process known as “reverse innovation” or “frugal innovation”). This has been the experience of companies producing products as diverse as soap, tractors, and medical scanners. And innovations may include not just new products, but also processes and business models.

Innovations from developing markets give firms new opportunities in developed markets by providing simpler, cheaper products

Reverse innovation will be one of the most important trends of coming years. It opens many new opportunities for developing markets and for the companies and innovators in them. And it provides new reasons to go to places you weren’t really sold on, to invest there, and to make a deliberate effort to learn whatever you can from being there.

Champion of the movement is V.J. Govindarajan, professor of international business at Tuck School of Business at Dartmouth College, and the first professor in residence and chief innovation consultant at General Electric. His October 2009 Harvard Business Review article, “How GE is disrupting itself,” co-authored with GE chairman and CEO Jeff Immelt and Chris Trimble, another Tuck faculty member, won the McKinsey Award. His new book, Reverse Innovation (co-authored again with Trimble), will probably draw similar praise—and stoke interest in the concept. They provide many examples of how firms have gone about it, plus advice for those who want to.

In an interview with [email protected] (April 2, 2012), Govindarajan explained some of the rationale behind the concept:

The fundamental driver of reverse innovation is the income gap that exists between emerging markets and the developed countries. The per capita income of India, for instance, is about US$3,000, whereas it is about $50,000 in the U.S. There is no way to design a product for the American mass market and then simply adapt it and hope to capture middle India. You need to innovate for India, not simply export to India. Buyers in poor countries demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and “good enough” quality.”

“Poor countries will become R&D labs for breakthrough innovations in diverse fields as housing, transportation, energy, health care, entertainment, telecommunications, financial services, clean water and many more.

Reverse innovation has the potential to transform wealth in the world. Growth in developed countries has slowed down. Much of the growth is now in developing countries. The 2008 financial crisis and the more recent debt crisis [in Europe] have only exacerbated this situation. As such, we are likely to see the center of gravity for innovation shifting from rich to poor countries.”

Questions to ask now:

  • What will developing countries do to promote not just their market opportunities, but also their innovation opportunities?
  • What will local firms in those countries do to take advantage of this trend?
  • How will local universities and other potential partners respond?
  • How can you exploit this idea?

The entire world is a learning laboratory. No place has a monopoly on ideas. Today, it’s foolish—and potentially costly and risky as well—to be myopic.

Print This Page Print This Page
  •  04/04/2012
Apr 032012
 

Harvard Business School recently announced a stand-alone course on Strategic IQ that “examines the essential concepts and practices that will help you make your organization more agile and better equipped to prosper in a changing marketplace.” This is good news, and it’s sure to be an excellent programme—but why has it taken so long? Why is strategic IQ not as big a deal for business schools, academics, authors, consultants, and conference organizers as emotional intelligence? Why has so little been said about it?

As I’ve pointed out for as long as I can remember, in articles, books, talks, business school lectures, and conversations with clients, strategic IQ is not just an essential factor in any company’s competitiveness, it’s the essential factor.

To survive and thrive in a rapidly-changing world, you need people who can think and act strategically—not just efficient drones who’re oblivious to their environment, mindlessly take orders, and just do as they’re told. But while much has been said about the importance of people, teams, empowerment, “virtual organizations,” “organizational learning,” “emergent strategy,” “the wisdom of crowds,” innovation, and so on, one key point is glossed over: without a particular set of intelligences, no one will ever be worth of the label “strategist.” And which company do you know where there is a deliberate, systematic effort to develop strategic capabilities outside of the executive ranks?

In my 1988 book The New Age Strategist, I wrote:

“…while the ‘strategist’ might be one person, or even a small team, strategy formulation is not the strict preserve of that person or group—and certainly not of top management. The fact is, because so many of a firm’s people might set off a response to environmental changes, strategic management is a task almost everyone must be involved in.”

Then, in a 1997 article titled “Questions of strategy,” I said:

“Business strategy, like every journey through life, is a learning process. The first goal of every organisation should be to raise its “strategic IQ”—the ability of every person to participate to the best of their ability in scanning the environment, providing new insights, applying their imagination, and exploring the bounds of what’s possible.”

But this led to two questions: 1) what capabilities did an individual need to be able to participate that way? and 2) how to develop them?

These were questions I wrestled with for a long time. For answers, I dug into books and journals on management, psychology, and education, talked to leaders about their growth experiences, and watched people making decisions at work. And the more I read, saw, and heard, and the more deeply I reflected on it, the more convinced I became that the answer was, in fact, both clear and simple—and right under our noses.

It lay in strategic conversation.

After pointing out, in my 2001 book, Making Sense of Strategy, that “The ‘strategic IQ’ of your firm is, literally, a life and death factor,” I went on to say:

“Most valuable human development takes place in”the school of hard knocks, not in the classroom. Most people’s growth and inspiration results from their day-to-day activities and interactions. The conversations they’re involved in shape their attitudes and aspirations, and impact on their capabilities. Yet, common practices ensure that too many individuals are constrained rather than liberated, and that only a few are able to think and act strategically.

“… In effect, people are forced to short-change their companies, because their companies cut them out of the conversational loop and limit what they can do and what they can become.

“While the ‘heavies’ engage in a ‘big conversation’ about the firm’s context, its challenges, its strategy, and so on, the majority of employees are allowed to take part only in a ‘small conversation’ which focuses narrowly on their jobs, their specific tasks, the methods they use, and the results they must get.

The strategic IQ of most firms is pathetically low—because of the way they make strategy. But you can change that fast, by immediately involving as many people as possible in your company’s ‘big conversation.’ This single step will do more than anything else to align and motivate your team, and to empower them to conquer tomorrow.”

Harvard’s new programme focuses on four intelligences:

  1. Rational
  2. Creative
  3. Emotional
  4. Social

These are undoubtedly important, but I have a different take on the matter. Let me explain it like this:

Assume you’re about to hire a consultant to help you with your strategy. You obviously want the best strategy you can get. What mental skills would you expect of the person you’re about to rely on? Surely they’d be these:

  1. Foresight—the ability to look ahead into the future and anticipate what lies ahead, what’s likely to happen, and how things are likely to unfold.
  2. Insight—the ability to cut through clutter and complexity and to understand things incisively and in a new way.
  3. Analysis—the ability to collect information, decipher and make sense of it, and make it useful.
  4. Imagination—the ability to see what others have not seen, to think “what could be” where others are content with what is.
  5. Synthesis—the ability to connect disparate snippets of information, different sensations and perceptions, and unrelated ideas, to give them new meaning.
  6. Judgment—the ability to weigh up situations, facts, feelings, opinions, and so on, and to make choices about what must be done in a way that best balances risk and reward and leads to the most desirable outcomes possible.

Now, if these are the traits you’d want in a consultant, what about the people on your own team? What should you seek in them? What should you strive to develop in them? Other capabilities? Or these ones?

Answer: these ones.

This isn’t a contest between Harvard’s list and mine. In fact, there’s a strong case for putting them together, for they work as one. But it is important to recognize that strategic thinking skills are quite different from equally critical social and emotional skills.

What happened to creative IQ, you might ask? And the answer is, it’s a product of all the six elements in my model. Creativity is a complex process. It’s not just about wacky ideas.

And rational IQ? Same thing: if the term refers to the ability to confront and deal with reality, to keep a cool head under pressure, and to make well-reasoned decisions, all of those come from the capabilities in my model. Couple those strategic thinking skills with social and emotional skills, and everything is covered.

The fact that strategic IQ has made it as a Harvard Business School course is an important breakthrough. Now, watch the “thought leadership” mob leap onto the bandwagon.

Thanks, Harvard!

Print This Page Print This Page

 

  •  03/04/2012
Mar 172012
 

When Greg Smith, a 33-year-old London-based Goldman Sachs executive director published reasons for his resignation in the New York Times on March 14, he was scathing in his criticism. In a knife-to-the-heart Op-Ed piece heavy on praise for himself, he wrote:

“…I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.”

“…culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief”…

“It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as ‘muppets,’ sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s Work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding.

“I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.”

Andy Rosenthal, the Times editorial page editor, told The Huffington Post that Smith had approached them about writing the article. “We checked him out,” he said. “…the whole idea of Op-Ed is to generate debate and discussion, so the more, the better.” The article has certainly generated plenty of both. Its all over the internet and according to BloombergBusinessWeek, book agents and publishers are keen to sign a deal with him.

THE FIRST RESPONSE

According to the NYT, Smith’s “wake up call to the directors” exploded “like a bomb” within Goldman. “He just took a howitzer and blew the entire firm away,” said one observer. Within a day, investors stripped $2.15bn from the bank’s value.

As happens in this age of instant opinions, citizen journalism, and social media, the story “went viral.” The public and the media quickly added fuel to the fire with a mixture of praise and condemnation. Smith was variously described as “brave,” “reckless,” “foolish,” “disgruntled,” and “disloyal.” The fact that he’d held back his resignation until he’d been paid his $500,000 bonus for 2011 drew snide jabs. But journalists who dug into his background and talked to people who knew him when he was growing up in South Africa reported that he had a reputation for integrity.

A Bloomberg News item in the San Franscisco Chronicle tackled Smith for his naiveté, implicitly supporting Goldman and saying what many business leaders no doubt thought:

“It must have been a terrible shock when Smith concluded that Goldman actually was primarily about making money. He spares us the sordid details, but apparently it took more than a decade for the scales to finally fall from his eyes…

“We have some advice for Smith, as well as the thousands of college students who apply to work at Goldman Sachs each year: If you want to dedicate your life to serving humanity, do not go to work for Goldman Sachs. That’s not its function, and it never will be. Go to work for Goldman Sachs if you wish to work hard and get paid more than you deserve even so. (Or if you want to make your living selling derivatives but don’t know what a derivative is, as Smith concedes in passing that he didn’t at first.)”

Forbes columnist argues that this event is a mere a storm in a teacup, and says the excitement over it will soon blow away:

“So what should our reaction to this be? No, not as clients of the firm, that’s obvious. Similarly for the management, what they need to change is obvious. But what should we, the people out here in the public and political square be trying to do about the company?

“Nothing of course, we should be doing nothing at all. For one of the great joys of this mixed capitalism and free markets system is that mistakes like those allegedly being made by Goldman Sachs are self-limiting, indeed, self-correcting.”

Of course, Goldman—the target of much criticism in the past few years—quickly denied Smith’s accusations:

We were disappointed to read the assertions by this individual that do not reflect our values, our culture and how the vast majority of people at Goldman think about the firm and the work it does on behalf of our clients.”

WHAT’S NEXT?

So where do things go from here? How will Goldman deal with Smith and the continuing fallout? What does this drama mean for other banks—and, indeed, for other companies of any kind? (And let’s not forget to ask, how will Smith’s career be affected?)

Unfortunately for banks, they’ve made themselves a juicy target for outrage. When Smith’s article appeared, a lot of people probably thought to themselves—or said to others: “I knew it. Here we go again. Scumbag bankers. Can’t trust them an inch. Bastards got bailed out, but keep stealing our money!” So what’s likely out in the “public and political square” is that this story will get so much airtime it will be impossible to ignore. The media will continue to make a feast of it. Politicians and regulators will seize the chance to sound off, and maybe try to force change. The anti-capitalist, anti-business crowd will jam the infosphere and the profit motive will take another beating. Smith’s act will become a popular dinner table topic, the stuff of business school class debates, and a trigger for massive introspection at both Goldman and other firms.

Business leaders need to tread carefully through this minefield. The CEO of Morgan Stanley told his staff not to circulate the Smith piece. Jamie Dimon, CEO of JP Morgan Chase & Co., sent word to his people that they should continue to act in the above-board way they always had. In a widely-publicized e-mail, he warned:

I want to be clear that I don’t want anyone here to seek advantage from a competitor’s alleged issues or hearsay—ever. It’s not the way we do business.”

You can bet the bosses of other financial institutions have sent similar messages to their staff and clients, and will spend a lot of time and money trying to distance themselves from the blast and confirm that they’re above reproach. And you can bet that a lot of people, from spin doctors to corporate governance gurus, from HR executives to career coaches, from management consultants to IT security experts, will hop onto the bandwagon and make new work for themselves.

Make no mistake, this event has huge implications. It affects not just financial institutions, but all of business.

THE DIFFICULTY OF PROTECTING A REPUTATION WHEN YOU CAN’T PROTECT SECRETS

One of the most important social trends of the past half century has been the move towards openness and transparency. That’s a very good thing. But it doesn’t make life easy for business.

Windows to the internal workings of organizations are being forced wide open. Largely as a result of scandals at Enron, Anderson, and many other firms, corporate governance has become a growth industry. Firms are required to provide more and more information about themselves. They face a growing number of regulators and a growing tide of regulation, vigilant law enforcement agencies, and courts that are under pressure to impose severe sanctions for shenanigans.

News-hungry media are quick to spot wrongdoing. Consumer hotlines not only give disgruntled customers a voice, but also make it likely that one complaint will trigger a shitstorm of others. Facebook, Twitter, YouTube, blogs, e-mail, instant messaging, and other social media make it increasingly hard to keep anything under wraps, and easy to be a critic or spread dirt. And reasonableness, objectivity, balance, and truth do not always prevail.

Wikileaks, has created awful problems for governments, the military, corporates, and individuals by splashing confidential material all over the internet. A growing community of criminal hackers break into government and business databases, and don’t hesitate to fraudulently use credit card details or post personal information on the web.

Whistleblowers like Greg Smith have long been a concern to employers. But if once they were vilified, they’re now encouraged, protected, applauded, and rewarded—true social heroes. Their motives don’t matter; the fact that they’re insiders, and therefore must know what’s going on, gives their views credibility and clout. And in a verbal war between a whistleblower and a company’s leaders, the underdog invariably wins most sympathy and support.

Dealing with anonymous attackers is no easy task. Fighting back when your attacker is a valued member of your team, apparently with nothing to gain by opening up—and apparently of unquestionable integrity, too—may be worse.  The reputational damage that follows leaks is hard to contain or fix. A carefully-crafted image that has taken years to establish can be shredded in an instant.

VALUES DON’T GUARANTEE “GOOD” BEHAVIOUR

Surveys show that public trust in companies and their executives is at an all-time low. The trust level in many teams is also nowhere near where it should be. So what now? Do you demand that your new hires all sign confidentiality agreements? (And how enforceable are those, and do you really want to explain yourself in court?) Do you require the same of the people you already employ? How do you deal with those who refuse? How do you deal with violators?

According to Smith, Goldman has a culture problem. He has just provided the culture-change crowd with new inspiration—and a new promotional drum to beat.

One of their favorite tools is values. “Values-based management” (not the same thing as value management) or “managing by values” is a hot fad, and thanks to Smith, just got hotter. The theory is that if you spell out how you expect your people to behave, they’ll stay on the straight and narrow, be nice to each other, bust a gut for customers, and produce innovations galore. But that’s a very big “if.” And anxious executives should beware: changing culture is never easy and always slow, and values are no silver bullet. So while we’re in for a noisy debate about all this, and opportunists will make pots of money peddling “new” ways to make things better, don’t expect miracles.

Most values statements include the same handful of terms—”integrity,” “respect,” “innovation,” “service,” “responsibility,” “teamwork,” “accountability.” Yet precisely what these mean is often open to interpretation. And you have to ask: if this guff  features so strongly in business books and leadership courses, if so much prominence is given to it in company documents and presentations and on office walls, and if it’s discussed so often and so seriously in team-building sessions and strategy workshops, why is “walking the talk” so uncommon?

The first reason is that it’s damned difficult. (The 10 Commandments haven’t done too well, have they?) It’s one thing to say that companies would solve many of their problems if they “just did the right thing,” but it’s quite another to actually do it. Values that sound so right when you adopt them are almost certain to clash with future circumstances, and what then? How much “flexibility” should you tolerate? When and how should you bend the rules? After all, values can’t be cast in stone … or can they? Should everyone be allowed to bend them, or just a special few?

The second reason is that all too often the very people who espouse a set of values are the ones who violate them. And are seen to violate them. They set a bad example—”Do what I say, not what I do.” Perhaps they never really believed in those values in the first place, but needed something to improve their company’s performance and thought a values statement might do the trick. Or maybe they were just humouring the HR department. Or they just wanted to be seen to be standing for the right things and to be in tune with the latest management thinking.

Individual and groups all have values of one sort or another. These may be either implicit or explicit. But it’s sheer delusion to think that merely drafting an explicit set of values will keep a company out of trouble. Take another look at Goldman’s response to Greg Smith:

“We were disappointed to read the assertions by this individual that DO NOT REFLECT OUR VALUES…”

This begs several questions: What exactly are those values? How were they defined and how are they communicated? Who champions them? How rigorously does the firm test itself against them? What sanctions exist for violating them?

It also illustrates the high probability of mixed messages about this very central, very potent subject. Leaders do not always send consistent signals. People interpret things differently. And they misinterpret things very easily.

For all the value in  values, there’s also a risk in making a big deal of them. When you tell your team that you expect them to adhere to a certain code, every word immediately becomes a potential rod for your own back. From the minute you utter them, the people around you listen, watch, and wait: “Oh yes … let’s see if she really means this.” And if you’re not 100% resolute and consistent in your own behaviour, their response will be, “If she was so serious about those values, but then didn’t stick to them, what else is she not being honest about? How can I trust her about anything?”

DID SMITH DO THE RIGHT THING?

It’s easy to be critical of corporate behaviour—and much of it deserves major criticism. Whistleblowers do have an important role to play in exposing corporate misdemeanors and ensuring that executives are held to account. But while Smith complains that “It makes me ill how callously people talk about ripping their clients off,” he also admits, “I don’t know of any illegal behaviour…” No doubt, we’ll hear more about that. Meanwhile, several clients have commented on the internet that they use Goldman because it gets results for them.

Smith spent 12 years at Goldman, in New York and London, so had plenty of time to choose to leave. For at least a decade he “recruited and mentored candidates through our grueling interview process”—most likely in the last 10 years of his career there, not the first. So how was he able to suppress his growing disgust at Goldman’s ethos and its leaders, and what did he tell those young people? Why did he agree to keep selling something he abhorred?

In his essay, he makes a strong effort to establish his own bona fides, but doesn’t say whether he ever spoke up before he savaged the hand that fed him. We’re left to guess whether the practices that caused his disappointment in Goldman in any way helped him earn his bonuses.

Smith isn’t the first person to leave a firm in a public huff. He won’t be the last. But his use of the New York Times to strike at his employer was a particularly spiteful move.

The Greg Smith/Goldman Sachs case is a special one in many ways, and the story is a work in progress. It has a long, long way to run.

Print This Page Print This Page
  •  17/03/2012
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!

Print This Page Print This Page

 

  •  09/03/2012
Feb 092012
 

As a voracious reader of business books and journals, I’ve become increasingly jaded and disillusioned. I’ve spent countless hours over the past quarter century searching for insights, concepts, and tools that might really change things. Yet for all the hype that “management” gives rise to and is prone to, most of what I’ve seen is just more of the same, repackaged for a new time and possibly a new audience. Some of it is vaguely interesting. A good deal of it is just plain nonsense.

For all the efforts of academics, consultants, executives, and writers, there’s been surprisingly little progress in the field of management thinking. A handful of concepts cooked up 30, 40, 50 – or even close to 100 years ago – are still the ones that matter; and they are the core of what now gets touted as “new,” “breakthrough,” or “revolutionary.”

The DuPont chart, a tool for thinking about how companies create wealth, appeared almost a century ago. Fifty-odd years ago, Peter Drucker noted that every company needs to answer three questions: 1) who is the customer? 2) what is value to that customer? and 3) how can we deliver it? And around the same time, the human resources school of organizational behavior gathered momentum with its message that people are the most important resource, and treating them well is smarter than treating them badly. So what has changed? Answer: nothing. What better advice is on offer? Answer: none. These long-in-the-tooth ideas remain the bedrock of today’s “freshest” management thinking. Again and again, they’re tarted up for a new audience by management’s “thought leaders.”

Of course, there will be howls of protest at this view. After all, a lot of people have a lot riding on the world being eager to hear what they have to say – and being willing to pay for it. But one thing I’ve learned about management is that we have a very good idea of what works. Get these few things right, and you have a chance of success; get them wrong, and you’re roadkill. Another lesson is that there are no silver bullets in business. And in this time of great change, we really can’t afford to keep reinventing the wheel or flailing around for answers that don’t exist.

There are three possible tests of the value of any new insight or concept: 1) how useful it is to busy, practicing managers; 2) whether it advances our understanding of a particular topic such as strategy, leadership, change management, customer service, or operations; or 3) whether it becomes a catalyst for further investigation and thought. By these tests, very little of what’s dished up is worthwhile.

This is alarming, given that management is the discipline at the very centre of human affairs. The one that makes pretty much everything happen. That makes businesses competitive and schools, hospitals, and armies effective. That makes cities, ships, trains, power stations, and much else work. And that drives innovation and progress.

You’d think that, by now, we’d have figured out how to manage things. That we’d have settled on a set of core principles and a proven set of practices. But we haven’t. Instead, we keep on searching. And searching…

Print This Page Print This Page

<a href=”http://feedburner.google.com/fb/a/mailverify?uri=tonymanning/strategist&amp;loc=en_US”>Subscribe to Tony Manning|Strategist by Email</a>

  •  09/02/2012