Mar 112013
 

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

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

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

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

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

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

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

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

I’d be interested to hear the answer.

CONFUSION IN THE C-SUITE

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

Answer: there isn’t one.

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

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

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

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

HOW UNCERTAINTY BECOMES THE ENEMY OF STRATEGY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STRATEGY MASTERY REQUIRES BOTH CONTINUITY AND CHANGE

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

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

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

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

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

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

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

LESSONS 

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

Here are some lessons:

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

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

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

  •  11/03/2013
Jan 262013
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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  •  21/01/2013
Jan 182013
 

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

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

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

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

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

But there are some realities that cannot be ignored.

A LITTLE THEORY GOES A LONG WAY

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

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

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

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

THE GLOBALIZATION OF … MANAGEMENT

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

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

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

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

CONTEXT IS EVERYTHING

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

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

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

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

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

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

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

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

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

IN SUMMARY

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

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

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

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

Tony Manning_Essentials for emerging market success

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

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

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

The gospel according to Christensen goes like this:

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

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

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

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

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

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

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

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

FEW OPTIONS

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

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

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

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

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

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

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

OLD INSIGHTS REPACKAGED

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

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

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

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

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

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

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

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

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

DEFINE “DISRUPTION” WITH CARE

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

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

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

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

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

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

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

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

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

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

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

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

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

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  •  01/12/2012
Jul 252012
 

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 062012
 

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

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

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

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

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

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

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

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

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

BACK TO BASICS

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

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

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

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

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

Simply put: they fail in the basics.

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

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

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

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

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

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

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

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

If that doesn’t convince you, ask this:

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

And the list goes on.

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

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

BABY STEPS…AND ACTIVE WAITING

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

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

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

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

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

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

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

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

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  •  06/06/2012
May 272012
 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Game over!

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

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

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

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

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

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

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May 232012
 

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

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

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

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