Mar 112013
 

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

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

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

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

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

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

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

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

I’d be interested to hear the answer.

CONFUSION IN THE C-SUITE

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

Answer: there isn’t one.

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

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

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

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

HOW UNCERTAINTY BECOMES THE ENEMY OF STRATEGY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MASTERY REQUIRES BOTH CONTINUITY AND CHANGE

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

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

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

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

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

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

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

LESSONS 

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

Here are some lessons:

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

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

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

  •  11/03/2013
Jan 262013
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

MAKING STRATEGY MATTER
  1. Make building the strongest possible strategy capability an explicit goal and a priority—”Topic #1″ in your company. And involve everyone.
  2. Taking into account your specific needs, choose one approach to strategy and stick to it. Communicate it widely and constantly within your organisation. 
  3. Use a few tools and learn to use them well. Keep checking that they’re working for you (but beware of dumping them too readily). 
  4. Develop a “strategy language” so people talk about things the same way. 
  5. If you need help, pick your advisors carefully. Make it clear to them that while you want their outsider’s views and expert knowledge, you aim to develop a consistent process and to develop the strategic IQ of your team. Make sure that what they’ll bring to the party will be additive and not blow holes in your approach or take you in a totally different direction.
  6. Constantly review with your team what new knowledge and insights about strategy they may have picked up, and rigorously debate whether or not to integrate them into your approach. If you really think they have merit, plug them in carefully.
  7. Always review your current strategy before moving on. It’s tempting to race forward, especially when you face new challenges, but that can hurt programmes and initiatives already in place.
  8. Practice! Practice! Practice! Create opportunities to talk strategy. Begin every strategy discussion with the intention that it will be a building block for the next one. Keep asking, “Why is this working for us?” “How can we do it better?”
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  •  26/01/2013
Dec 012012
 

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

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

The gospel according to Christensen goes like this:

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

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

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

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

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

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

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

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

FEW OPTIONS

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

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

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

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

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

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

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

OLD INSIGHTS REPACKAGED

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

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

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

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

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

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

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

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

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

DEFINE “DISRUPTION” WITH CARE

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

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

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

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

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

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

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

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

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

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

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

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

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

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  •  01/12/2012
Jul 252012
 

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

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

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

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

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

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

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

GET A HEAD START

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

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

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

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

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

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

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

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

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

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

Here are some of them:

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

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

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

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

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  •  25/07/2012
Jun 232012
 

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

Or would they?

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

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

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

Management’s cycle of self-destruction

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

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

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

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

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

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

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

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

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

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

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

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

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

  1. Face reality. Get your diagnosis right. Separate facts from mere opinions. Be alert to how politics, agendas and emotions color things, and don’t let them get in the way or distort your views.
  2. Be especially wary of too quickly settling on the “vision, mission and values” issue, trying to change the culture, or teambuilding or “empowerment” projects.
  3. Don’t buy any initiative with a funny name. Avoid tools you don’t understand. Beware of hucksters selling quick-fixes, or wielding a hammer and treating everything as a nail.
  4. Take an inventory of projects already under way. What is essential (and why)? What’s showing progress? What’s not working, or simply lurking on someone’s desk? Stuff piles up. The old suffocates the new. You can’t do everything. So agree what you’ll stop doing to make way for what’s next. And chuck out whatever you can (which probably means more than you thought!) as fast as you can.
  5. Don’t launch anything new until you’re satisfied that what was on the agenda has been dealt with or no longer matters. When you do start something, be reasonably sure you can see it through to the end. Then, stick to what you set out to do. Don’t chop and change. Your people are watching. They’re cynical and skeptical.
  6. Agree on a very short to-do list with tight timelines and clarity about who will do what. Better to do a few things well than a lot badly. Better to act fast and learn quickly than to keep the wheels spinning while you plan for perfection.
  7. Clarify how you’ll communicate what’s going to happen next—and communicate like crazy.
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  •  23/06/2012
May 272012
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Game over!

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

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

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

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

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

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

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May 232012
 

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

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

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

  1. Your #1 challenge as a leader is to take your people with you. So create a climate for high performance and engage them constantly in a rich, robust conversation.
  2. Accept complexity, but simplify everything you can. Cut through clutter and focus on the few things that make the most difference. You have limited resources and a lot to do, so don’t try to do everything and be everything to everybody.
  3. Know what you’re aiming for, and spell it out loud and clear and often. Make sure your entire team understands your purpose, strategy, values, and priorities. You can never communicate enough, so keep repeating yourself.
  4. Focus on your “right” customer … forget the rest. Create clear criteria for defining your “right” customer (industry, size, growth potential, reputation, buying power, ease of doing business, ability and willingness to pay, what they can teach you, etc.) Make these criteria clear to all your people. Be ruthless about customers that don’t fit—they’re a dangerous distraction and you can’t afford them.
  5. Get your “basics” right. Put “gas in your tank and air in your tyres” and do what you must to get your “engine” firing on eight cylinders, not four. Strike a balance between consistently meeting customers’ current expectations and surprising them with something new, better, or different.
  6. Relentlessly drive value up, costs down. It’s the only way to compete.
  7. Learn from everything you do, and share new insights with your whole team fast. The more you learn, and the quicker you do it, the more adaptable your company will become.
  8. Hold your course. Be boringly consistent and persistent. Don’t be tempted to zig-zag. Sustainable strategy might be an impossible dream, but you have to repeat yourself for some time to hone your performance and build key resources and capabilities.
  9. Be ready to change when you must … then do it with everything you’ve got. Gather all the information you might need. Think about what you might need to change, and how. Develop the strengths that will matter. Practice, practice, practice. And when the time comes, don’t dilly-dally—go for it!
  10. Pace yourself … when you think it’s time to make a new decision, ask, “Is this really the time? If it’s not, wait. Sometimes, doing nothing is best. In another day, week, or month, you’ll have more information and a clearer picture of what you need to deal with. And it’s quite possible the risks you see right now, or the challenges you think you need to respond to, will have come to nought.
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  •  23/05/2012
Apr 202012
 

Governments and business everywhere live in a state of tension. Neither behaves exactly as the other would wish. They have different agendas and different ways of meeting their goals. They need each other, but mostly don’t like each other.

In some countries, they do work reasonably well together. Some governments do try hard to create a business-friendly environment. But more often, the relationship is an uneasy one.

When a prominent business leader speaks out against his government—and more so in a country like South Africa, still struggling to escape its past, and where politicians are prickly and many are socialist or harbor deep anti-business feelings—he needs to think carefully about what will follow. The outcome is unlikely to be what he wishes for. The response from those he’s criticized will be defensive and angry. His peers in business will duck for cover. His own business may be negatively affected.

This is exactly what we now see unfolding in the drama between Reuel Khoza, non-executive chairman of Nedbank, and the ANC-led government of South Africa.

Khoza lit the match with this comment in his chairman’s statement in Nedbank’s latest (2011) annual report:

“UPHOLDING OUR CONSTITUTION

“SA is widely recognised for its liberal and enlightened constitution, yet we observe the emergence of a strange breed of leaders who are determined to undermine the rule of law and override the constitution. Our political leadership’s moral quotient is degenerating and we are fast losing the checks and balances that are necessary to prevent a recurrence of the past. This is not the accountable democracy for which generations suffered and fought.

“The integrity, health, socioeconomic soundness and prosperity of SA is the collective responsibility of all citizens, corporate or individual. We have a duty to build and develop this nation and to call to book the putative leaders who, due to sheer incapacity to deal with the complexity of 21st century governance and leadership, cannot lead.

“We have a duty to insist on strict adherence to the institutional forms that underpin our young democracy.”

The ANC/government immediately struck back at Khoza. The attacks—labelled in the media as “boorish,” “hypersentive,” “paranoid,” “personal,” “inappropriate,” and “illogical”—ensured that the matter got wide publicity, and may have done more damage to SA than anything he’d said. Various commentators called for open and polite discussion of the issues he’d raised. Khoza visited the ANC’s headquarters to discuss the matter, and the movement issued a statement afterward, saying:

“We are happy that this interaction took part in a cordial atmosphere and was fruitful.

“The meeting resolved what was perceived as a stand-off and addressed a variety of issues related to governance and business leadership.

“We are encouraged that a variety of options in terms of engagement were considered. The meeting resolved that there will be more meaningful interaction between the two parties in future.”

OK. And what now? What might “more meaningful interaction” mean? Is all forgiven? Has Khoza’s message been given short shrift or taken to heart?

Will there be further chats…or actual changes of leadership…more careful recruitment of future leaders…leadership development programs…? Is Khoza now going to back down and pretend he didn’t really mean what he said? Or will he repeat it the next time some journalist asks him if he was serious? How will he deal with questions about this matter that will surely be lobbed at him when next he speaks at a conference?

While all this was happening, Garth Griffin, outgoing chairman of Absa, wrote in his own bank’s annual report that SA needed less talk, more action. Then Nicky Newton-King, CEO of the Johannesburg Securities exchange (JSE), told the Cape Town Press Club that investors wanted certainty from markets, but Khoza’s views reflected uncertainty about the direction of South Africa’s policies.

Some people saw these as signs that “business” was starting to speak out, and hoped for more.  But that’s not been the case.

While there were murmurs from the corporate sector about government being wrong to expect business to stick to business and stay out of politics, hardly anyone said Khoza was right. That was left to “outsiders” like Institute of Race Relations CEO John Kane-Berman, the indomitable Business Day letter writer, Dr Lucas Ntyintyane, and the CEO of the SA Chamber of Commerce and Industry.

Massmart CEO Grant Pattison saw Khoza’s comment as having hit a nerve because it was “too close to the truth.” But when the Sunday Times sought comment from other captains of industry, most became unavailable or refused to speak.

Corporate SA has once again been cowed.

SO WHAT EXACTLY HAS BEEN ACHIEVED?

Reuel Khoza was brave to do what he did. He stuck his head above the parapet to say what many other people think. Nick Binedell, dean of the Gordon Institute of Business Science (GIBS) said he was “a bit provocative” but “should be commended for getting the debate out in the open.”

The political climate in SA has soured badly in recent years. The national conversation has become toxic, uncivil and destructive—and will get more so in the months ahead of the ANC’s December policy conference at Mangaung, as power struggles intensify. Politicians and bureaucrats worldwide get slammed for their behavior, but ours are drawing more and more negative attention.

Relations between government and business have never been good since the 1994 transition, and are marked by mutual suspicion and distrust. While government struggles to deliver on its mandate, and desperately needs business investment and assistance, too many of its policies, actions, and words add up to a different message and have the opposite effect.

One objective of the Nedbank Group strategy is, “Becoming the public sector bank of choice.” But the threat has been made that the ANC might need to review its dealings with the bank, and with ANC cadres so firmly entrenched across the public sector, this doesn’t even need to become a formal position to have some impact.

Nedbank also aims to become the leader in business banking, and its retail unit has been performing well. But again, in both of these areas, ANC supporters may be turned off by Khoza’s criticism.

Although he opened his chairman’s statement by emphasizing the importance of sound corporate governance, Khoza then waded into risky territory—in the name of his company. Strange, given that one of Nedbank’s “Deep green aspirations” is to be “worldclass at managing risk.” And that in the risk management review in the annual report, it states:

“Nedbank Group has a strong risk culture and follows worldclass enterprisewide risk management, which aligns strategy, policies, people, processes, technology and business intelligence in order to evaluate, manage and optimise the opportunities, threats and uncertainties the group may face in its ongoing efforts to maximise sustainable shareholder value.”

So what risks has Khoza exposed the bank to? Did Old Mutual, Nedbank’s parent, know this was coming—and what was their view about it? Did Nedbank’s board have advance warning—and what inputs did the members make? Who else in the bank saw the statement before it was published?

QUESTIONS FOR THE FUTURE

Past experience has shown the ANC/government to be extremely sensitive to business statements it doesn’t like. So if one thing was guaranteed in this case, it was that the response to Khoza’s opinion would not be calm, respectful, or kind. He pulled no punches, and the fact that he had been close to the Mbeki administration was probably an added irritant.

However, some of the country’s political leaders may think carefully about what he said, and may even try to change their ways and try to get people around them to change, too.

South Africa badly needs all hands on deck, and government and business to work together to create the much vaunted “better life for all.” Now, that is either much more or much less likely. Much depends on whether government is able to tone down its anti-business signals, convince business that it really does value it, and do whatever is needed to make SA a good place to do business. Without that context, business will always be reluctant to invest, create jobs, or contribute in all the other ways that it can.

So here we have an interesting case study for business leaders—and for business schools. With some difficult questions:

  1. What should characterize the relationship between government and business?
  2. How freely and openly should business speak about national affairs?
  3. Should business leaders speak out personally, and under the banner of their firms, or should they leave comment to the organizations that represent them (chambers of commerce, Business Unity South Africa, the Black Business Council, the Black Management Forum, etc.)?
  4. Should they engage publicly with government about contentious matters, or should they do it behind closed doors?
  5. How should companies evaluate the risks of making statements critical of government?
  6. How should they manage the flak that flies when things go badly?

We live in testing, touchy times. Creating a “burning platform” might be the only way to get some things done, but it can also take you down. This saga could have a happy ending. It would be a pity if it ended in tears.

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  •  20/04/2012
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.

 

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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!

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  •  03/04/2012