Business Strategy Navigation 2009 - Part 3
July 23, 2009
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Right Now: Confront Reality
As Magellan gazed at the mouth of the waterway to bear his name, he had a choice. He could worry himself blind about the future; turn left and take the (safe bet) long route; stab blindly into potentially vicious waters; or take stock of his situation and make an educated guess. Fortunately, he chose the last. The first step in business strategy is similar: confront reality. Kaplan and Norton say it well: “Merely slapping performance measures on existing processes may drive local improvement but is unlikely to lead to breakthrough performance for the entire organization.” Your “existing processes,” mindsets, and goals must be assessed before strategy can begin. Without knowledge of your company’s present situation (or “current reality”), movement from that situation is arduous, if not impossible.
Elements to consider in your confronting reality assessment include:
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Determine the key performance metrics, knowing if you are ahead of or behind.
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Determine where business performance is worrisome.
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Assess where you are strong.
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Appraise your competitive position.
Tomorrow we’ll continue this discussion with Setting Objectives.
Strategically Yours,
Bob
Strategic Planning Harnessing Chaos - Part 2
July 21, 2009
What most companies do about chaos
Scientific “chaos” doesn’t refer to everyday mayhem. Executives, though, tend to attack the chaos in their companies as they do the chaos in their hall closets: through desperate attempts to order it. Traditional management logic emphasizes corporate control and convergent thinking. Goals are set, problems articulated, solutions presented and undertaken—all under one pre-formed philosophical roof titled “business as usual.” In this framework, commotion must be kept at a minimum: it strains managers, wastes time and resources, and wrecks any bottom-line predictability. The only way to prevent workplace disorder is top-down management that sets guidelines and deadlines all the way to the front lines.
Some companies—the lucky ones—escape the mayhem by hiding: they burrow into a comfortable niche, undaunted by the competition scurrying above them. Unfortunately, “creating a niche” is far too often synonymous with what Foster and Kaplan call “cultural lock-in.” The stages of a business’ development resemble the common shape of human life: youthful vision and excitement yield to the narrow-minded—albeit successful—tedium of old age. Niche-oriented companies pour resources into predictive strategies, and so drain any creative preparation for the future.
The result? Most companies are unable to adapt when the “outside world” crashes down on their heads—when a perky startup explodes the market; when stock prices unexpectedly plummet; or when innovation changes an entire industry. Next week I’ll share with you what should do about chaos.
Business Strategy Navigation 2009 - Part 2
July 9, 2009
The State of the Environment
It hardly takes a rocket scientist to point out the economy’s unpredictability. It is painted vividly all over business today: the Herculean rise and Icarean fall of dot.coms; the ever-present fear of “getting Amazoned” by the newest phenom; fickle and unrepresentative market data; a “winner takes all economy” that rewards aerodynamic little prodigies with world-power status; and heavy dependence on intangible assets. This—an environment stocked with and characterized by uncertainty—is the market we inherit. Our only hope of navigation is strategy—the sort that flooded the explorers with both order and industrious creativity.
Getting Started: The Need for Strategic planning
Unpredictability offers managers three options: to idly float with the environment’s current and winds; to drop anchor and cling to the present (albeit mediocre) position; or to harness the currents and charge ahead. The first two represent stasis and, therefore, death. To survive, an organization must be dynamic. Does your company exhibit “a sense of urgency, or complacency?” If you recognize the urgency of the present, be proactive and commit to strategy. If complacency defines you, move.
What I do with my organization, Strategy International, is partner with companies to develop business strategy according to a time-tested, proprietary strategy design: a choice blend of plan and action that has produced visible change for clients in a range of industries. In our experience, the process of designing a strategy (defined by CEO Bob Jonas as “a plan for the skillful conduct of a large field of operations towards the achievement of a known goal”) consists of seven elements:
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Confront reality
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Set objectives
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Anticipate demand
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Set strategy
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Invent
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Plan Execution
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Implement
All of these, by necessity, happen in the market environment. The secret is to create a competitive advantage strategy that both adapts to and controls that unpredictable medium.
Next week we’ll continue this discussion with the first element: Confront Reality.
Strategically Yours,
Bob
Business Strategy Navigation 2009
June 25, 2009
Let us Consider:
Our corporate strategy research has determined that firms that lack acceptable profitable growth are driven by one or more of these five issues:
1.Lack of Profitable orientation
2.Not enough focus on customers to drive the competitive advantage
3.Lack of cross-functional, cross-border, intra-hierarchical teamwork
4.Lack of sense of urgency
5.No shared vision or common strategy planning
This business strategy report expresses a solution for the strategic planner to solve these problems.
Every American third-grader is taught to chase her dreams—if not by Oprah, then (surprisingly) through the oft-dreaded academic discipline of social studies. Textbooks regale children with stories of the great explorers (Cortés, Drake, Erickson), whose adventures are celebrated with pomp and circumstance. When Columbus Day meant a class popcorn party, the explorers’ heady determination was the stuff of heroic myth. As Columbus Day became less important—coincided with the high school marketing test or, later, the marketing managers’ meeting—so did the explorers. Our new heroes are successful entrepreneurs who command wealth from mahogany desks instead of wresting it from foreign mud. Upon reflection, though, it becomes apparent that in a New Economy as vast and exhilaratingly uncertain as the (old) New World, today’s successful manager more resembles explorers half a millennium away than s/he does the CEOs of two decades ago.
Consider Ferdinand Magellan, who piloted the first global circumnavigation. Magellan’s ambition drove him to forsake his unsupportive Portuguese government, relinquish military titles, and bargain for patronage with the king of rival Spain. Having found support, Magellan set his sights on reaching the Spice Islands, a globally coveted commodity, via a circuitous and uncertain route around South America. In September of 1519, Magellan left Spain with five ships, 250 men, broad sailing experience, a general plan, and a fistful of chutzpah. While at sea, he encountered and over-came mutiny, debilitating storms, malnutrition and scurvy, the loss of ships and theft of supplies, and ambi-guous direction. In order to discover and navigate the now-famous (and globally indispensable) Strait of Magellan, the crew tried inlet after inlet without success. 38 backbreaking days after its discovery, the icy-cold Strait coughed them into the Pacific Ocean, a vast field of adventurous potential. Magellan’s navi- gational strategy was simple: goal in sight, he set off with a general master plan—and trusted his knowledge and intuition to guide him through waves of uncertainty.
The New Economy and the New World may not be physically identical—but in an age when knowledge is gold and markets depend on the windy whims of innovation, a comparison between managers and Renaissance explorers is apt. It was the explorers’ well-defined missions and plans, combined with capitalization on uncertainty, which facilitated profitable serendipity. Like Magellan, every company needs a strategic navigational tool that’s strong but flexible; that impels, inspires, and self-enforces; and that encourages creativity, adaptability, and surprise. Next week we will discuss the State of the Environment and How to Get Started.
Strategic Planning Harnessing Chaos
June 22, 2009
Perhaps there’s no hope for the hall closet, but take the thought experiment to another arena—your business strategy, or your market. Naïve is the executive who claims to control her company’s smallest details; a degree of uncontrollable uncertainty exists in every people-dependent system. In the last fifty years, that common-sense statement has become quantified in the form of chaos theory and its daughter, complexity theory. The business relevance of these two models demands an active and adaptive response from forward-thinking strategic planning executives and managers.
The world is chaotic and complex. What’s new?
Chaos theory endeavors to explain any system whose end results are “sensitive to [the system’s] initial conditions.” This sort of system, though mathematically regular, seems random. Chaos science made its public debut when meteorologist Edward Lorenz serendipitously failed in his attempt to predict the weather by computer; the pattern the program produced became the model for chaotic behavior. The chaos theory phenomenon itself exploded from its starting point and has appeared in myriad arenas, revealing patterns in everything from family dynamics to dripping faucets. Theorists famously claim that a Japanese butterfly’s slightest flutter can wreak weather havoc in Iowa.
Chaos theory’s application to the business world depends on its close relative, complexity theory. Complexity theory offers an apparently anti-scientific approach to science: it rejects the investigative methods of breakdown and categorization. Instead, complexity theorists examine a system at its macro level, focusing attention on the interactions among individuals—not the individuals themselves. The theory assumes that a complex system—like a company—is only a bundle of interactive simple systems.
Stemming from complex-ity theory, and vital to business, is the biological concept of emergent properties. According to this theory, some of a system’s macro-characteristics are not shared by the system’s individual members. (None of the molecules in your body, for instance, becomes nervous—but you do; an individual raccoon cannot exhibit a birth rate, but a community of raccoons does.) Emergent properties do not violate principles that operate at lower levels of organization,” states one college biology textbook; “however, emergent properties usually cannot be detected or even suspected by studying lower levels.” The apparently random macro-properties of any system stem from interactions, not from individuals.
Most complex biological systems, left alone, adapt fluidly to their environments. If a herd’s life-or-death success depended on one antelope, one ill-timed rainstorm could be catastrophic. But the interactions of the herd’s members—not the members themselves—drive its success; mistakes are diffused and triumphs shared.
Why chaos and complexity matter in business?
Businesses are chaotic. Obviously, life in business is chaotic: employees are uncontrollable, shareholders seldom pleased, the market up one day and down the next. But “chaos” in the colloquial sense—craziness, unmanageability—isn’t chaos theory’s final frontier in business. And chaos’s application to business is not metaphorical. “It’s not about saying let’s look at business organizations as if they are complex systems,” says Roger Lewin, co-author of The Soul at Work: Embracing Complexity Science for Business Success. “They are complex systems.”
Any company is comprised of “parts”: business units, branches, hierarchical levels. The company depends on individual people and individuals’ individual projects. In theory, if all of these elements work together, the system functions perfectly: Accounting’s numbers agree with managers’ demands, and each department earns its keep. But it doesn’t take a chaos scientist to observe the results of one interaction—between departments, or even between individual people—gone awry. It is these unquantifiable, uncontrollable interactions that actually determine the dynamic of any company.
Markets are chaotic.
Markets are also complex systems, but they are not—nor can they be—top-controlled like individual companies. They are fluid and allow for change, and this keeps them afloat. According to Foster and Kaplan, markets generally “perform better than corporations because markets allow new companies to enter more freely.” In order for a company to perform well in a given industry, it must simultaneously mirror and lead that industry as often as possible. Only a company cognizant of the important interactions between its members can gain market-like flexibility. A corporation emphasizing rigid microcontrol is quickly shattered by industry’s chaotic elasticity.
