Business Strategy Navigation 2009 - Part 3
July 23, 2009
Welcome Back. We've got lots of in depth business strategy to share with you today.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:
-
Determine the key performance metrics, knowing if you are ahead of or behind.
-
Determine where business performance is worrisome.
-
Assess where you are strong.
-
Appraise your competitive position.
Tomorrow we’ll continue this discussion with Setting Objectives.
Strategically Yours,
Bob
Competitive Advantage - part 4: What to do with Intellectual Capital Now that you Found it?
July 22, 2009
What to do with it now
The true beauty of intellectual capital management lies in its implementation. First and foremost, recognize that—unlike structural, physical, and monetary capital—intellectual capital is people-dependent. Brook Manville and Nathaniel Foote note that “executing a knowledge-based strategy is not about managing knowledge; it’s about nurturing people with knowledge.” The first step toward “nurturing” management is trust of employees and of their knowledge-building practices. Encourage collaboration and group innovation among employees. In order to make this work (among humans, who tend toward selfish hoarding), create a culture of sharing, not of competition. Knowledge silos are deadly:
knowledge, unlike information, grows healthily only when it is debated, massaged, and passed around.
Stewart’s basic intellectual capital policy closely mirrors Strategy International’s fundamental strategic concept. Stewart encourages executives to DNA :1
Define. Why does your business exist? (See the white paper “Strategic Navigation” for descriptions of purpose, mission, and vision, which together comprise a business’s self-definition.)
Nurture. What intellectual resources are necessary to fulfill that definition? To whom do these resources belong, and how do those people best use their talents? What ensures an innovation-friendly environment?
Allocate. Where should resources be funneled for the greatest innovation and new knowledge generation? How can knowledgeable people be managed well?
Like anything, intellectual capital is fragile; it is by no means a panacea. The dot.com implosion perfectly illustrates the need to combine this new resource with extant ones—to ensure teamwork among intellectual capital and structural, physical, monetary, and relationship capital. The key is to make the most of your company’s every facet, without needless and ineffective overlap. Allow people to do what they do best and technology to do its job, as well. Yogesh Malhotra of Brint.com explains this idea:
“Knowledge management caters to the critical issues of organizational adaptation, survival, and competence in the face of increasingly discontinuous environmental change. Essentially, it embodies organizational processes that seek synergistic combination of data and information-processing capacity of information technologies, and the creative and innovative capacity of human beings.”
The strategic planner of the future will create competitive strategy through strategic planning that uses this “creative and innovative capacity” that too often hides untapped, even unnoticed, by otherwise brilliant and successful companies. Experience has shown, though, that true business brilliance is a dazzling, eminently flagrant display of knowledge, creativity, and innovation.
Strategiclly Yours.
Bob
If you like what you’ve read so far, please subscribe to BobJonas.com. Go to the top right side of this screen and fill in your name and email, and we’ll be sure to keep you up to date on new articles and news being posted here on this blog. Thanks.
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.
Competitive Advantage - part 3: How to Find Intellectual Capital?
July 13, 2009
Like almost any strategic change, a commitment to intellectual capital demands an adjustment of focus. And since knowledge (unlike information) is by definition personal, you must focus on people. Stewart recommends a move from “paying people to investing in them” and looking for specific ways to invest. Don’t expect employees to be walking databases. Instead, tap their experiential knowledge; even if it seems irrelevant, it could prove useful at an unexpected juncture.
Scheffman and Thompson of Vanderbilt University recommend an “intellectual property audit” wherein managers and front-line employees brainstorm a list of the company’s intellectual resources. Some hidden ones include branding, which capitalizes on customer knowledge; patents; and the tacit, wide-range knowledge of all employees.
When identifying and cataloging intellectual capital, consider three categories: commodity skills (nonspecific knowledge that is equally valuable to all businesses), leveraged skills (industry- but not company-specific knowledge), and proprietary skills (company-specific knowledge; trade secrets).
Tomorrow we will discuss what to do with Intellectual Capital to give you the Competitive Advantage.
Strategiclly Yours,
Bob
Competitive Advantage - part 2: Why Intellectual Capital?
July 9, 2009
Why Intellectual capital?
It’s so popular, it’s nearly propaganda: the Industrial Age has surrendered to the quiet but ruthless Information Age. What you may not know is that analysts have lain to rest the short-lived Information Age, too. A business culture of technological information harvest is being replaced by a culture of actual knowledge creation. The distinction between the two is clear, says McKinsey: “‘information’ is generally a fact, whereas ‘knowledge,’ which focuses on linkages or relationships, is subjective.” Knowledge, not information, rules the world. Entire companies stem from it, and specific jobs revolve around it. Every company and job requires it.
The business environment of the twenty-first century is unpredictable and chaotic. Absolutely critical to a business’s success is adaptability to that environment. (See the article “Harnessing Chaos” for more information on adaptive strategy.) But the adage about new wine in old wine skins fits the current situation beautifully: adaptability cannot take place in the present, age-old business structure. As Thomas A. Stewart, author of Intellectual Capital: The New Wealth of Organizations, puts it, “structural capital [alone] cannot break the mold, because it is the mold.”1 Innovation requires a new, hybrid business paradigm.
Such a paradigm accounts for a variety of capital sources. Because shareholders appreciate the link between intellectual savvy and marketable adaptability, the intelligent company’s market price inevitably exceeds its book price. The difference between the two comprises intellectual capital. Luiz Antonio Joia offers a set of equations describing this phenomenon:
process capital + relationship capital + innovation capital = structural capital
structural capital + human capital = intellectual capital
monetary capital + physical capital = book value
book value + intellectual capital = market value
Intellectual capital adds raw value to a company. And not only monetary value, but also the value of flexibility: most companies with large market-to-book ratios are astute enough to morph quickly and innovatively. Adaptability, increased market price, harmony with a knowledge-based business environment: the case in favor of intellectual capital is closed and sealed.
Next week we’ll go into ‘How to Find Intellectual Property”.
