The things you leave behind

The toughest part of business strategy is choice.

Geoff Wilson

We live in a fantastically privileged time and I live in a fantastically privileged place.  When thinking about taking a journey with my family, I am rarely, if ever, really constrained by my capacity to carry things along with me.  A large SUV and a few containers and attachments that my family of six has accumulated over the years have made sure of that.

But, those who take serious journeys in the real world know what it’s like to deal with constraints on a journey. On a hike of hundreds of miles that might cover tens of thousands of feet of elevation change, the difference between carrying a 5-pound sleeping bag and a 2-pound one can be the difference between a comfortable hike and terminal fatigue or injurious fall.

In other words, how we deal with the constraints around us can be defining, and if we aren’t careful, we can become numb to the fact that constraints do still exist.

Your business will be defined by choices.  Those choices might be purposeful, or they might be passive.  Still, you will make choices.  Those choices will come in the form of positive choices about “what we will do,” and negative choices about “what we will not do.”

Positive choices are a call to action. They point the way.

Negative choices are a call to create capacity.  They explain how we will create focus.

But, if we aren’t careful, we can become numb. We can let profitability (which is like a large SUV…it allows you to carry many things) mask overburden or distraction, and those things can crush us when the economy turns.  We make many positive choices, and we avoid the negative choices.  We decide not to decide on what to leave behind.  Because, well, that’s hard.

And, there’s risk in that.  Because, like in the hike I outlined above, a failure to make choices on what to leave behind can be the difference between a comfortable success and a painful failure.

Those choices might be about which customers to fire.

Or employees.

Or markets to exit.

Or businesses.

Or assets to shed.

Or brands.

Or meetings to cancel.

Or trips.

Or products to eliminate.

Or partners.

What you leave behind can be as defining to your strategy, and your well being, as what you take with you.  Don’t forget it. The journey is long.  Pack for it the right way.

Your strategy really does need to contemplate WAR

Where does true value add come in to your business or professional strategy?

Geoff Wilson

Hedge fund and other investment managers call it alpha. That’s the value a particular investment or configuration of investments creates after you strip away all the risk taken by making the investment.

Baseball statisticians call it WAR, or “Wins Above Replacement.” That’s the number of wins a particular player theoretically accounts for by being on the field instead of a backup player.

Any old general manager might simply call it value add.  That’s the very tired but still useful term for what’s added to a product or service that a customer actually wants.

Choices, choices

Your business strategy is about choices.  In running your business or building your career, you are going to make two very important choices.

One is about where to play.  That’s about what kinds of customers to serve, what segments to specialize in, or what company to work for.

The other is about how to win.  That’s about what value proposition you are going to offer the world.  This is true for you as an individual or for your company.

But, here’s the rub:  In thinking about these choices, what you really ought to be thinking about his how to create alpha…or WAR…or value add.

In other words, the question on your mind when creating strategy is one of how to create excess risk-adjusted value in the eyes of your customer. The fundamental question should be about how you create wins for your customer above that customer’s next best alternative.  After all, the only thing sustainable (at least in the private sector) is to create excess value for customers.

The test

A good test of this that you can practice right now is to think about a current client, boss, or other customer relationship.  Take a recent case, and ask yourself: Were you a differentiating partner, or were you along for the ride?  Did you “sell” to the customer, or did you really “add value?”  The proof is in how you answer that question. Usually a positive answer comes with some kind of phrasing like “they would have had a very hard time finding a partner who could have accomplished X in that particular case…and we (or I) did that.”

That’s a “Win Above Replacement.”

That’s WAR.

That’s value add in the moment.

So what?

So many businesses have client or customer case histories that read like a “who’s who” mashed up with Good to Great and In Search of Excellence.  But when you dig into the details, the business itself was a bit player. They perhaps have some reflected glory from a project or get tremendous cachet from merely referencing a huge brand name on their customer list; but the huge brand name might say “who?”

Don’t let your business be a “who?”

Don’t just be “there.” Be alpha.  Be WAR.  Be value.

What do you think?  How do you employ a WAR mindset?

 

Who is defending your customer?

When you are setting strategy, who plays the customer advocate role?

Geoff Wilson

In a meeting this week with a very thoughtful management team that was in the midst of a heated discussion, the CEO made a comment that stuck with me.

He noted that one of the more direct and opinionated voices in the room was “defending the customer” while talking about strategic priorities.

And that got me thinking:  When you are building your strategy, do you ensure that the customer has an advocate in the room?  We talk about the voice of the customer as if having it in the mix automatically means something, but what if the voice of the customer doesn’t have an advocate?  What if it’s just another “opinion” in the room?

That would be a tragedy.

When you are planning your strategy, think about how to ensure that the customer’s point of view is not only known, but actively represented in the room.  That may be as simple as designating a customer advocate in your strategic discussions, or it may mean actually bringing customers into the room.

You never know what you might learn, or what you might prevent yourself from doing.

What do you think? 

 

Actually, the issue is that you have no vision

Single issue focus is just as bad for business as it is for government policy.  It’s vision that counts.

This post springs from the debates surrounding the tax reform legislation currently gestating in the bowels of D.C.

Interviewed on one of the many news programs early this morning was a leader of a home-building special interest group.  With great bluster, this gentleman spoke of how the capping of mortgage interest deductions for mortgages above $500,000 would be detrimental to home values, and because of that it is ultimately a bad idea.

This guy was a single-issue representative–the very personification of a “special” interest lobbyist with a single issue to flog up on Capitol Hill.  The interview was admirable for its pureness; but it was cautionary for a single reason: It lacked any nod toward vision for what the government ought to subsidize through tax policy.  When you are a homebuilder, a lot of what you focus on is the amount of money that can flow to homebuilding.  You care a lot about whether the government decides to stop subsidizing mortgages for homes that only really wealthy people buy because, well, those kind of homes represent a lot of income for you.

What you might NOT focus on is whether the government ought to subsidize luxury housing of any kind.  A reasonable person could ask whether tax policy ought to subsidize jumbo mortgages at all.

The interview didn’t get into the role of government, it only got at the desires of a single-issue interest group; and it brought to mind an important management imperative for almost any of us:

Never, ever, allow an issue of any sort take the place of a vision.

How often do you see managers focused on productivity in a single part of the plant or shop floor, or efficiency of a single department in a company, only to have no concept of–or, indeed to work against–how the overall company delivers value for customers.

You may think you don’t see this, but you do.

You see it every time you sit on hold waiting for a customer service representative whose time was determined to be more valuable than any specific customer’s (if that weren’t the case, then why make the customer wait and the rep not wait? Hmmmm?).  You see it every time you walk around a big box retailer…searching for a person to help you find that item you are looking for.  You see it every time you receive an appointment window of 4 (or 6?) hours for a service call at your house.

These are the outcomes of single issue votes in the business world.  They are the results of a focus on efficiency (or inefficiency) in one place at the expense of the whole or, in the worst of cases, the customer.

A customer-centered vision for service would envision no customers waiting, just as a citizen-centered focus on the tax code might envision no subsidies for luxury homes.   Yet, we have special interests that win in the corporate office at the expense of the customer; and we have special interests mining the tax code in spades.

The next time you entertain that consultant who just wants to help you cut “inefficiency,” make sure you ask how that inefficiency fits within your vision for value delivery.  That consultant’s issue isn’t a vision.

Just make sure that your issue isn’t that you lack vision.

What do you think? 

Contemplating the clean slate as a part of your business strategy

When in your planning cycle do you wipe the slate clean?

Yesterday, I had the pleasure of sitting through a planning session with a client management team. The team defined a new direction for its product management function. The old structure worked well during an earlier phase of the company’s growth but was now taxing very senior resources who needed to re-deploy their time. So, the team needed to build a new structure for the new phase.

It was time to wipe the slate clean and draw up a new structure.

The conversation got me thinking about the question of when to start with a clean slate.

When do you start over?

When do you fire yourself and start again?

When do you throw out the old and begin again with the new?

While I’m a big fan of the tried and true, it’s clear that “doing things the way we’ve always done them” can be antithetical to the needs of today’s strategic management environment. So, when do you know it’s time to wipe the slate clean? I’ll lay out three areas, and then leave it at that.

First might be the most obvious:  You’ve kept doing what you do, and aren’t getting the results that you need.  This is the old “definition of insanity:”  Doing the same thing and expecting a different result. It’s probably time to wipe the slate when results just aren’t adding up.

Second is a little tougher, but it’s one we face every day:  You have adequate results, but the ideal state would be so much better.  Transformation in “ok” times is perhaps the most challenging. It’s probably good to pick one or two “ok” areas of your business on a periodic basis and wipe the slate clean just to test the “ok to better” opportunity.

The third is the toughest, particularly for stretched organizations:  You are getting great results, but at the expense of higher use of the talent as you have it currently deployed.  Ever see the organization where the most talented person does everything?  Or, have you ever seen a high performing business unit whose massively talented leader can’t get a promotion because his bosses don’t want to lose the local performance?  This is one of those issues.  If your most talented people could be re-deployed to improve overall results, but at the expense of locally great performance, it might be time to go with a clean slate.

In a lot of organizations, this is the time of re-setting budgets for the coming year.  Is it time to wipe the slate clean in your organization? Are there parts that deserve the clean slate treatment?  Are you brave enough to try it?

What do you think?

The elephant in the strategic planning room is often an 800-pound gorilla

A world-beating competitive advantage doesn’t make you smart, it makes you lucky; so don’t try to emulate people who have one.

Perusing my “clutter” folder today, I came across a post on the Harvard Business Review that highlights how “The Best Companies Know How to Balance Strategy and Purpose.”

It’s not a bad read, other than the fact that it introduced me to the jargon-ized notion of “corporate plasticity.”  Seriously, folks, we very well might need another term for the overused and tired notion of “agility” at this point, but…plasticity?  Good grief.

However, I digress.

In developing the thesis that purpose has to be dominant over strategy, the authors–a couple of A.T. Kearney partners and a Senior Advisor–choose a set of companies to serve as exemplars.  The names?

Apple

SpaceX

Nestlé

Unilever

Lego

You notice anything interesting about these companies?  I do.  They are the 800-pound gorillas of the markets they serve.

And there is the rub.  Management thinking that is guided by what the best companies do is fine…to a point. That point is that such thinking has to be careful about what “best” really is. If the company you aspire to be really derives all of its value creation mojo from a competitive advantage that is singular, then you might want to look elsewhere.  Or you might want to at least acknowledge that to be the next Apple, you have to build the brand- and customer experience-driven loyalty that Apple has built over the past couple of decades, rather than trying to “innovate like Apple” as so many misguided management teams have tried.

Once you recognize that the companies you compare your own company to have competitive advantages that you simply don’t have, you will have identified a really big elephant in the strategic planning room.  Then, you can get busy building your own competitive advantage vs. trying to be someone you are not.

What do you think?

What Monty Hall taught us about strategy

New information is always valuable to your strategy in life, business, and the occasional game show.

Note: I woke up this morning and found an obituary to game show host Monty Hall of Let’s Make a Deal fame.  This is a draft that was buried deep in my queue that I thought might be a sort of mini-tribute to Mr. Hall.  RIP Monty.

Geoff Wilson

The famous game show host Monty Hall used to rule the airwaves with Let’s Make a Deal.  He left some lessons that matter a lot for your thinking on business (or career) strategy.

The Monty Hall problem

One of the most memorable aspects of the Let’s Make a Deal show was the “three doors” scenario.  In that scenario, Mr. Hall would show the contestant three doors with the promise of a fabulous prize behind one of them, and then have the contestant pick one. After the contestant picked, Monty would reveal what was behind one of the other two doors–usually some funny item like a goat…and then give the contestant a chance to change their original choice to the remaining (third, and unrevealed) door.

This little game, as simple as it is, has left us with what is known as the “Monty Hall Problem.” The correct solution to the little game is for the contestant to always switch doors to the remaining door (more on that in a second). The “problem” is that this solution is entirely counter-intuitive to even highly experienced and educated people. These people see the original choice as completely independent of the subsequent revelation and proffered opportunity to switch doors.  The say “the odds of winning were 1 in 3 at the start, and that didn’t change just because ol’ Monty revealed what was behind one of the other doors.”

And, they are wrong.

The answer is to always switch, and while the explanation of that answer can be done quantitatively through multiple means (that link above has plenty of them), the simplest explanation that I have encountered is this: Imagine that instead of three doors, Monty presents 100 doors, still with only one of them containing a fabulous prize.  Then, the contestant chooses one. Monty then opens 98 of the remaining 99 doors to reveal that each one is worthless, leaving one unopened door.  What should the contestant do now?

It’s much clearer now that Monty has presented very valuable information by revealing 98 doors as worthless. So the one door Monty hasn’t revealed becomes very likely the one with the prize.  The contestant goes from a choice that had a 1% chance of success to one that is nearly certain to win by switching.

All this is well and good, but why does it matter?

It matters because you are faced with opportunities to make choices based on updated information all the time.  And, sticking with your prior choices when new information says that doing so is a bad idea makes you…un-smart. I’ve written on the value of this kind of thinking before, in one of my earliest posts.  But the “three doors” as a specific case plays out more often than you think.

You might be making choices about what markets to emphasize and settle on two of them because you think that your product is competitive. Then, you find out one of them is no longer a good fit.  Maybe the competition launched a killer app.  What do you do?  You switch.  That might mean you develop your own product, but it definitely means you update, you adjust.

One that hits close to home for me relates to career choices. Perhaps you’ve cast your lot with a boss who looked interesting and visionary at the start when you took the job, but who after a few years of exposure is revealed to be a tyrant and schemer. What do you do?  Do you stick with your original boss choice because you already chose?  Not at all.  Ol’ Monty taught you something:  Switch!!!

Just remember, when you’ve picked door number 1, it doesn’t mean you are stuck with it.  Your experience provides you with some additional valuable information, and sometimes it makes sense to switch your choice.

Thank you Monty Hall!

What do you think? 

To build a fully-aware business strategy, you need a dose of meta

A fully aware business strategy must consider the trend behind the trend. Finding meta trends can accelerate and sharpen your thinking.

Geoff Wilson

Great business strategy is–to put it simply–aware. It is aware of the market, it is aware of capabilities, it is aware of trends: both micro and mega trends.  But I’m going to go out on a limb and say that while most deliberately built business strategies are aware of micro-trends–trends that drive choices on customers, products, etc.–and plenty of those strategies are aware of mega-trends–trends that drive choices based on overarching facts are driving overall opportunity, risk, and performance–far too many strategic plans are ignorant of meta trends.

Meta trends are the higher order effects of known trends. They are the trends behind the trend, if you will. These are the things that ensure enduring success or crushing failure.

Meta trends are the trends that managers wave away when thinking about strategy because they don’t fit the framework. Higher order impacts of known trends need to be considered for a strategy to be truly aware. Things like increasing frustration with change programs, disengagement due to poor decision making approaches, or customer angst that is just below the surface and that can’t be surveyed are perhaps acknowledged, but they often don’t get built into the plan as worthy trends.

So, you have to ask yourself: what is meta in your organization? An example of a meta trend at the micro level might be a lack of confidence in a specific manager, team, or organization to carry out a mission that is critical to the business strategy. Plenty of highly skilled managers have dropped the ball enough for those around them to lose confidence.  You may know that you need to shore up delivery in that person or organization as a part of your strategy, but what if the “meta” reality is the organization just doesn’t have any confidence? 

Another example might be a higher order impact of a known demographic change. Your workforce is going from young to middle-aged. Does the shift in quantitative age portend a shift in willingness to sacrifice for the organization?  Some regard a workforce that is entering maturity as a clear strength, but a meta trend might be that the workforce won’t work like it used to. That’s important to know. You might think differently if you know your workforce’s values are changing even as the names on the roster are not.

A final example, and a significant meta trend for your organization, might be secondary impacts from known changes in the way people are working. We love the capabilities that come with digital transformations, but do we realize the meta trend of analysis paralysis that can come from the ubiquity of data?  Are we fighting it? Similarly, connectivity is a plus, but what are the productivity implications of a workforce that is constantly fighting distractions?  These are real “meta” issues that come from commonly understood “mega” trends.

The bottom line to this thought is that we often invest time to understand first order trends.  These trends are worthy of consideration. But, to build a fully aware strategy we have to get better at looking at the higher order effects of known trends.

Try it out. Be “meta” for a while and see what happens.

I would love to have your thoughts on this one, including any examples of missed meta trends. 

Don’t forget the strategy!

Many tactics can be mistaken for business strategy.

Geoff Wilson

Have you ever been part of a “strategic” effort that just doesn’t feel … strategic? For example, I’ve written about how “strategic” cost-reduction efforts can become merely “whacking.” That’s the kind of thing I have in mind, but there are many others.

I’m reminded of a classic (to me) scene from the movie “Revenge of the Nerds”. John Goodman, playing a college football coach (and looking as svelte as I’ve ever seen him), delivers a speech to his team on the field about the importance of homecoming. He gets the players really fired up about it. They get so amped up, in fact, that they—as victims of a practical joke involving jock straps and liquid heat balm—run off the field and into the locker room after the speech. Here, see for yourself:

The coach, oblivious to the practical joke, simply yells “Shower up!” at the end of his speech. As his players frantically sprint into the locker room, he looks at the ground and says a powerful thing, almost in passing:

 “Sh*t, we forgot to practice.”

It’s that end point that’s important: “We forgot to practice.” The coach expends all of his and his team’s energy on a speech and forgets the core activity of the moment.

How often do you go through strategy efforts and end up saying “Sh*t, we forgot to do the strategy”? Here are some examples I’ve seen.

  1. Forming a strategic “show” for the board vs. a strategic plan for the business. The board wants a strategy; you deliver a shiny document. Seems like a fair trade, right? No. The dazzling document is the equivalent of the coach’s speech above. It makes the business the object of the conversation vs. the subject of the conversation. The board is the subject.
  2. Mistaking a financial model for business strategy. A good financial model has to underpin a good business strategy, but a business strategy is not a financial model. If your strategy is to gain 200 bps of margin through SG&A reduction, you’ve set a goal, but you haven’t set a strategy. This brings me to my next point …
  3. Mistaking organization for strategyThis one cuts both ways. It may be very strategic to reorganize, but tell me why. If your answer is that you end up with lower costs, then great. Tell me about your cost-leadership strategy: How does that create a sustained competitive advantage in the market? If you can’t answer that, you’re likely not forming a strategy. The same can be said for a strategic hire. I once advised a CEO that his VP of HR would be the most strategic hire he would make—in this case because of shoddy systems, style, engagement, and a host of other ills that the hire would be tasked to cover. There was strategy behind my recommendation, but too often our shiny new hires come with no strategy behind them.
  4. Missing the market. Management teams often fall into this. They forget that the reason for a company’s existence—really any organization’s existence—is to serve someone else. That’s the only way value is created. However, too many strategy efforts are focused inwardly. In fact, points 1-3 above can be summed up that way: They are internally focused failure modes. If  you’ve forgotten the market, you’ve forgotten your strategy.
  5. Using “strategy” as code for “my agenda.” You don’t see this one too often, but occasionally executives spin up elaborate strategy efforts to get to answers they already have in their heads. That can be fruitful if the answers are grounded in fact and built for the market, as it brings other people on board. However, if the strategy effort is simply a ruse to quiet the masses while pursuing an adverse agenda, the executive has missed the point.

Those are a few examples, but there are many other ways to forget strategy. Some of them come while running the business and others while leading people. Strategy synthesizes market, organizational, financial, and other knowledge sources into direction via a logical argument. If you take only one element and make that the strategy, you’ll fall short.

Don’t be left staring at the ground and saying “Sh*t, we forgot to do the strategy.”

What do you think?

Your organization is a good expression of your strategy, so get it right

How you allocate talent and prioritize functions directly reflects your business strategy.

Geoff Wilson

What is an organization, really? It’s almost that time when many companies begin hard discussions about budgets for next year. In most cases, that conversation crosses at least partially into the topic of organization structure, so it’s good to think about what an organization really is.

The old-school theory of the firm argued that firm structures form at the point where owning a service is more efficient and valuable than buying a service from another firm. It’s usually more efficient for you to own your own sales force than to try to get alignment with a third party to outsource sales (or to hire sales people like day laborers). Therefore, one discussion about organization structure must consider the own-vs.-rent decision.

On another axis, a firm really exists to do two things: capture opportunities and manage risks. Those two objectives aren’t always mutually exclusive to individual parts of the organization (for example, a CEO has to do both, as do many other people in the organization), but they are the two considerations when designing an organization.

A third axis of organization decisions involves what I’ll call centering. In a given company, there is efficiency to creating centers of skill in some cases, and to distributing skill in others. You might easily centralize procurement operations, but you might need to keep your sales force distributed and close to the customer in order for it to be most efficient. This is the old division-of-labor argument that is subtly written into every organization: Do you expect your general managers to be great at HR and IT, or are those functions better handled by true experts elsewhere in the organization (or by outsiders, if you’re thinking about own vs. rent as noted above)?

The interesting discussion during the annual budget cycle should then be on four levels:

  1. Have we established the right boundaries for our firm? Should we stop doing some things in house that somebody else can do effectively? Should we rent vs. own? Many companies have decided to outsource activities that were traditionally in house. Information technology is an example of a function that is easily outsourced to a third party that is both better and more cost-effective than in-house operations. One cautionary note: Don’t outsource your competitive advantage.
  2. Have we covered key risks with the right organizational investment? Legal, human resources, accounting, finance, credit, and many other areas are examples of risk-management functions (in most cases). They are investments made to manage risk, not necessarily to capture opportunities.
  3. Have we covered opportunities sufficiently? This is usually the toughest of these questions for companies to answer with confidence. Do you have the right investment in product development, engineering, sales, and other potential revenue-producing resources. I’m always struck by companies that consistently operate understaffed—at least a person or two down—on their sales force, but never allow their accounting function to be shorthanded.
  4. Have we centered and distributed functions appropriately? Are there competencies that need to be concentrated and improved? Are we properly structured to ensure we get the best of those competencies and the best distribution of their use across the company? A good example of this can be R&D staff. They may be best placed in a center that can allow quick knowledge sharing and effective processes vs. having a broad set of individual researchers spread throughout a company. But they also might be best positioned right next to the customer in a distributed form. Your mileage may vary.

As you look at your organization, can you answer these questions? I’m not sure most management teams can. Like my anecdote about companies with fully-staffed accounting functions yet people-starved sales functions, I see resource imbalances in organizations all the time. One company I encountered had an accounts-receivable function that was staffed with excellent people, and many of them. In fact, the company had more and better talent evaluating customer-credit decisions than it had in pretty much any sales function. That allocation of talent says a lot about management’s priorities.

I’ve noted in past posts that your budget is the best expression of your strategy. It turns out your organization is a pretty good approximation of your budget.

Now, what do you think? Share your thoughts on this topic.