Strategy in the media

Citation

Henry, C. (2012), "Strategy in the media", Strategy & Leadership, Vol. 40 No. 4. https://doi.org/10.1108/sl.2012.26140daa.002

Strategy in the media

Article Type: CEO advisory From: Strategy & Leadership, Volume 40, Issue 4

Prerequisites of radical change

… The momentum of and commitment to the prevailing strategy usually prevents companies from spotting changes such as a shift in either the market or the technology, and leads to a financial downturn – often a crisis – that, in turn, reveals the need for change. Few companies make the transformation from their old model to a new one willingly. Typically, they begin to search for a new way forward only when they are pushed …

Cadbury Schweppes, Tesco and Smith & Nephew all displayed the rare combination of making strategic transformations and, at the same time, achieving strong performance year after year for 20 years relative to industry peers around the world. This prompted us to choose them to examine in depth. These companies, we found, had three fundamental advantages over their peers: They were able to build alternative coalitions with management, create a tradition of constructively challenging business as usual and exploit “happy accidents” to make strategic changes. Together, these advantages helped them establish the virtuous cycle of strategic transformation that their counterparts could not.

A tradition of creating alternative coalitionsAlthough many executives recognize the need to exploit current capabilities while developing new ones, few are very effective at managing this conflicting set of activities … The companies we studied that transformed themselves had an unusual ability to maintain steady performance while pursuing strategic change. They did this by creating parallel coalitions of senior executives. The first group, typically the more senior one, focused on reinforcing current capabilities, strengths and successes. The second group, usually younger but still senior, actively looked to develop new strategies and capabilities. This parallel system came to be an accepted part of how the company operated. It was encouraged and eventually institutionalized …

Gerry Johnson, George S. Yip and Manuel Hensmans, “Achieving successful strategic transformation,” Sloan Management Review, March 2012.

What can leaders learn from Steve Jobs?

There is no denying [Steve] Jobs’s genius … Recently, however, I had two experiences that led me to believe it is difficult for bosses who want to improve their craft to learn from Steve Jobs. The first came after I had taught a two-hour session on innovation to forty CEOs of midsized Chinese companies. None spoke English and I don’t speak Mandarin, so there was a translator to enable communication. I put up a few Steve Job quotes and had fun figuring out that thirty-eight of the forty CEOs had iPhones. During the question-and-answer period, they seemed obsessed with Jobs.

The most interesting thing happened, however, after I ended the session. As I left, one CEO grabbed the microphone and started hollering into it, and as I walked outside for another meeting, they were yelling at each other. The translator told me they were arguing over whether Jobs was an asshole and whether they should emulate such behavior to be better bosses. When I came back thirty minutes later, the translators ran up to me – laughing – because those CEOs were still arguing over the same thing …

Then, a couple weeks later, I went to a party and talked with two people who worked closely with Jobs for years. They started pretty much the same argument that those Chinese executives had … As I listened, I believed once again that the idea of Steve Jobs was prompting people to make sense of and justify their behavior, personal values, and pet theories.

So I raised my hypothesis: that people couldn’t learn much from Jobs. That he was so hyped, so complex, and apparently inconsistent that the “lessons” they derived from him where really more about who they were and hoped to be than about Jobs himself.

Bob Sutton, Good Boss, Bad Boss, 2012.

The importance of believing

If there is one principle that explains why some organizations – Apple, Southwest Airlines, USAA, Cirque du Soleil, the Marine Corps, Pixar – consistently and dramatically outperform their rivals, it is that every person in the organization, regardless of job title or function, understands what makes the organization tick and why what the organization does matters.

Roy Spence, one of the toughest-minded business thinkers I know, is a cofounder of GSD&M, the legendary advertising agency based in Austin, Texas. In a provocative and saucy book, It’s Not What You Sell, It’s What You Stand For, Spence explains the unique beliefs behind many of the one-of-a-kind organizations he has studied or worked with over the years, from BMW to Whole Foods Market to Southwest Airlines Sure, these and other organizations are built around strong business models, stellar products and services, and (of course) clever advertising. But Spence is adamant that behind every great company is an authentic sense of purpose – “a definitive statement about the difference you are trying to make in the world” – and a workplace with the “energy and vitality” to bring that purpose to life …

What do you promise that nobody else in your industry can promise?

What do you deliver that nobody else can deliver?

What do you believe that only you believe?

The organizations that can answer those questions crisply, clearly, and compellingly are the ones that win big and create the most value.

Bill Taylor, “It’s not what you sell, it’s what you believe,” HBR Blogs, April 4, 2012, http://blogs.hbr.org/taylor/2012/04/its_not_what_you_sell_its_what.html

The power of smart questions

Escape from our pastThe problem that that many businesspeople, entrepreneurs, and would-be innovators suffer from is our inability escape from our past. Simply put, we are all shaped by our past experiences, whether good or bad. We look at the end results of these experiences – “this idea worked”; “this idea failed ” – and consciously or unconsciously turn these results into the rules by which we operate in the present.

Sometimes these rules, or assumptions are smart and valuable. However, the problems begin when we forget that these rules are a snapshot of an old paradigm or set of circumstances. In many cases, the world has moved on, but we are still clinging to the “obvious” ideas that were once true in the rapidly receding past. In order to progress, we need to learn to identify and ignore these “obvious” rules, ideas, or beliefs, and make room for future where the rules are constantly being rewritten …

Great questionsTo avoid the obvious, ask great questions. A great question is one that causes people to really think before they answer it, and one that reveals answers that had previously eluded them …

These “Killer Questions” include:

• •

  What are the rules and assumptions my industry operates under? What if the opposite were true?

• •

  What will be the buying criteria used by my customer in 5 years?

• •

  What are my unshakable beliefs about what my customers want?

• •

  Who uses my product in ways I never anticipated?

Phil McKinney, Beyond the Obvious: Killer Questions that Spark Game-changing Innovation, Hyperion, 2012.

Metrics and innovation

Measuring innovation can lead to unintended consequences. Here are eight ways to avoid the traps:

1. 1.

   Measure innovation alternatives, not just the current program. When assessing the impact of an initiative, always ask, “Compared to what?” Don’t fall into the trap of measuring only what the company is doing today. Rather, measure it against the next best alternative …

2. 2.

   Measure inputs, not just outputs. Companies are quick to judge innovation initiatives based on the yield of ideas. A better approach is to be mindful of what the company puts into innovation. Measure activity such as number of training sessions conducted, number of employees skilled at a methodology, and man hours used in innovation workshops. Benchmark these against competitors and other relevant companies to gauge whether you are investing enough.

3. 3.

   Measure quality, not just quantity: People focus too much on quantitative measures because they’re easier to collect than qualitative ones. Quantitative data seems more objective. Simple measurements like “number of ideas generated” may seem valuable on the surface, but these can lead to the trap of “idea churning” just to hit big numbers …

4. 4.

   Measure to improve, not to judge. Hold people accountable for what they do to improve innovation activities. It is tempting to judge employee performance and reward them for innovation output. This can lead to the unwanted rivalry between employees …

5. 5.

   Measure novelty, not impact. Senior leaders want to know the “bottom line” impact of innovation. When they see ideation results, they respond with, “Yes, but how many of these actually made it into the marketplace, and what revenues were generated?” … Holding employees accountable for impact will cause them to avoid the truly novel and game-changing ideas. They fear being punished for pushing great ideas that fall outside their category …

6. 6.

   Measure future potential, not just past results. Managers must be forward-looking so they can spot which innovation initiatives will make the firm more competitive. Looking backward at past results is like looking through the rear-view mirror to drive a car … Avoid this trap by analyzing where to invest in product, process, and service innovation. Quantify the value of innovating in key areas. This will help you find your leverage points quicker, ahead of the competition.

7. 7.

   Measure execution, not just ideation. Executing and launching new products takes financial and human resources. When poor execution delays a product launch, companies are hit with a cost that is often unnoticed. Poor execution delays the revenue stream that a new innovation will earn …

8. 8.

   Measure the immeasurable. Some aspects of innovation are immeasurable. But they should still be contemplated by the management team. For example, ideation sessions can cause employees to reconsider and move away from their long-held “pet” ideas. This sets employees free to move in new directions. Though immeasurable, it’s enormously valuable when employees give up mediocre ideas and focus their energies on more promising ones.

Drew Boyd, “The innovation measurement trap,” Innovation Excellence, April 13, 2012, www.innovationexcellence.com/blog/2012/04/13/the-innovation-measurement-trap/

An overlooked source of customer insight

A basic prerequisite for business success is to know – really know – your customers. There’s a variety of traditional research methods aimed at better understanding customers: usage analysis, conjoint analysis, cluster analysis, roundtables, panels.

But there are a few reasons why traditional research sometimes fails to deliver: 1) Customers don’t always say what is really on their mind; 2) Customers often don’t know what they don’t know; and 3) Those conducting the research may bias results with the types of questions they are asking (wrong questions mean wrong answers) …

There’s a variety of ethnographic consulting firms that use observatory data-collection methods ranging from video to “day-in-the-life” immersion with a targeted user. But most executives don’t take advantage of the best anthropological consultants already employed – their frontline employees. It’s the employees who are closest to serving and supporting the customer who get an unfiltered view of how customers interact with a product or service.

These frontline workers tend to sit at the lower end of the organizational totem pole, meaning their views are often overlooked. But if you take a moment to think about it, some of the best sources of observatory research can come from those at first point of customer contact or first point post customer contact …

Anthony K, Tjan, “Listen to your frontline employees,” HBR Blogs, April 4, 2012, http://blogs.hbr.org/tjan/2012/04/listen-to-your-frontline-emplo.html

Google confronts the Facebook challenge

Google was a technology company first and foremost; a company that hired smart people and placed a big bet on their ability to innovate …

It turns out that there was one place where the Google innovation machine faltered and that one place mattered a lot: competing with Facebook … Google could still put ads in front of more people than Facebook, but Facebook knows so much more about those people …

Officially, Google declared that “sharing is broken on the web” and nothing but the full force of our collective minds around Google+ could fix it. You have to admire a company willing to sacrifice sacred cows and rally its talent behind a threat to its business. Had Google been right, the effort would have been heroic and clearly many of us wanted to be part of that outcome. I bought into it. I worked on Google+ as a development director and shipped a bunch of code. But the world never changed; sharing never changed … As it turned out, sharing was not broken. Sharing was working fine and dandy, Google just wasn’t part of it. People were sharing all around us and seemed quite happy. A user exodus from Facebook never materialized. I couldn’t even get my own teenage daughter to look at Google+ twice, “social isn’t a product,” she told me after I gave her a demo, “social is people and the people are on Facebook.”

James Whittaker, “Why I left Google”, JW on Tech blog, March 12, 2012, http://blogs.msdn.com/b/jw_on_tech/archive/2012/03/13/why-i-left-google.aspx

Aligning budgets and strategy (I)

Why do so many companies undermine their strategic direction by allocating the same levels of resources to business units year after year? The reasons vary widely, from the very bad – companies operating on autopilot – to the more sensible. After all, sometimes it’s wise to persist with previously chosen resource allocations, especially if there are no viable reallocation opportunities or if switching costs are too high. And companies in capital-intensive sectors, for example, often have to commit resources more than five years ahead of time to long-term programs, leaving less discretionary capital to play with.

For the most part, however, the failure to pursue a more active allocation agenda is a result of organizational inertia that has multiple causes. We’ll focus here on cognitive biases and corporate politics, but regardless of source, inertia’s gravitational pull is strong – and overcoming it is critical to creating an effective corporate strategy …

Cognitive biasesBiases such as anchoring and loss aversion, which are deeply rooted in the workings of the human brain and have been much studied by behavioral economists, are major contributors to the inertia that prevents more active reallocation. Anchoring refers to the tendency to use any number, even an irrelevant one, as an anchor for future choices. Judges asked to roll a pair of dice before making a simulated sentencing decision, for example, are influenced by the result of that roll, even though they deny they are.

Within a company, last year’s budget allocation often serves as a ready, salient, and justifiable anchor during the planning process. We know this to be true in practice, and it’s been reinforced for us recently as we’ve played a business game with several groups of senior executives. The game asked participants to allocate a capital budget across a fictitious company’s businesses and provided players with identical growth and return projections for the relevant markets. Half of the group also received details of the previous year’s capital allocation. Those without last year’s capital budget all allocated resources in a range that optimized for the expected outlook in market growth and returns. The other half aligned capital far more closely with last year’s pattern, which had little to do with the potential for future returns. And this was a game where the company was fictitious and no one’s career was at risk!

In reality, anchoring is reinforced by loss aversion: losses typically hurt us at least twice as much as equivalent gains give us pleasure. That reduces the appetite for taking risks and makes it painful for managers to give up resources.

Stephen Hall, Dan Lovallo, and Reinier Musters, “How to put your money where your strategy is,” McKinsey Quarterly, March 2012.

Aligning budgets and strategy (II)

[At Rio Tinto] We start from the proposition that we are not strategic capital allocators; we are bottom-up capital allocators. We invest not by choosing the commodity in which to put money but by choosing the project in which to put money. For example, we observed that 80 percent of the money in the copper world is made by 20 percent or less of the world’s copper mines. Our objective is for all of our mines in all of our products to be in that 20 percent because we think we’re particularly good at running large, long-life, low-cost mines …

Ensuring investment disciplineWe institute checks and balances to manage internal lobbying. We have something called the Investment Committee, which approves sizable investments of any kind and consists of the chief executive, me, the head of technology and innovation, and the head of business services. In other words, it does not contain any of the divisional heads. The plan is that this committee has enough data to have a dispassionate discussion about an investment. Independence is essential: if it’s lost, we’re lost. Separation of powers is important. Is the committee completely immune to lobbying and strong characters? Of course it isn’t. But the discipline and the checks and balances are there …

The second discipline is a postinvestment review. After a period of some years, we go back to the original proposal and calculate what the return has been, which original estimates were wrong, which challenge was underestimated, what came out better than expected. From numerous postinvestment reviews we learn what we tend to get wrong and what we tend to get right. That’s an important discipline in any capital-intensive company because otherwise you don’t learn from your mistakes.

Guy Elliott, “Breaking strategic inertia,” McKinsey Quarterly, April 2012.

What can we learn from the Titanic disaster

As the recent loss of the Italian cruise ship Costa Concordia demonstrates, bad decision making can overcome even robust engineering. Virtually all man-made disasters – including the Three Mile Island nuclear accident, the space shuttle Challenger explosion, and the BP oil spill – can be traced to the same human failings that doomed Titanic. After 100 years, we must still remember – and, too often, relearn – the grim lessons of that night.

No disaster is a single event. Complex systems rarely fail without warning. Instead, accidents are the product of decisions made over hours, days, and sometimes years. Those choices are shaped both by the culture of the organization – whether it’s NASA or the White Star Line, which owned Titanic – and by outside pressures …

Success can breed complacency. During a career of more than four decades, the Titanic’s Capt. Smith had been involved in only a single accident at sea, one that ended without loss of life. The New York Times noted that Smith’s “rise in rank and importance was commensurate with the safe uneventfulness of his command.”

Major disasters often occur after such long, uneventful stretches. Before the partial meltdown of the reactor at Three Mile Island in 1979, no US nuclear plant had experienced a serious accident for 25 years …

Technology can outpace judgment. The construction of Titanic came at the apex of a remarkable period of innovation in shipbuilding. Well before the launch of Titanic, Capt. Smith expressed supreme confidence in the state of maritime engineering: “I cannot imagine any condition which would cause a ship to founder,” he said in 1907. “Modern shipbuilding has gone beyond that.”

With three powerful engines, Titanic could maintain high speeds day or night. But the crew’s ability to spot hazards was little changed from the days of sail. Two men stood in a crow’s-nest scanning the horizon – they didn’t even have binoculars. The ship was equipped with the latest communications innovation, wireless telegraph, and in the hours before the collision the ship received five warnings about icebergs from other vessels. But at the time, the telegraph was seen primarily as a luxury service for passengers, and the crew had no firm protocol for acting on the information …

Leaders may fail to plan for the worst. Just as Deepwater Horizon crews derived a false sense of confidence from their blowout preventer, the White Star Line put undue faith in the supposedly watertight compartments that composed Titanic’s lower decks. The compartments were not sealed at the top; if the ship’s bow dipped low enough, seawater would flow from one compartment to the next like water filling an ice cube tray. The probability of that happening? Low. The consequences when it did? Catastrophic.

James B. Meigs “Why we’re still learning the lessons of Titanic,” Popular Mechanics, April 2012.

Craig HenryStrategy & Leadership’s intrepid media explorer, collected these examples of novel strategic management concepts and practices and impending environmental discontinuity from various news media. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (Craighenry@aol.com).