The current sea change in energy markets brings the need for foresight to the front stage.
Foresight feeds the foundation of strategy. The ability to read and react to the likely future defines organizations and executives.
On November 25th, energy expert Daniel Yergin (writer of The Prize among many other interesting books and articles) appeared on CNBC to outline the impact of revolutionary changes in U.S. oil and gas production. Here’s the Link. Video here.
The upshot? The U.S. is becoming a bellwether energy producer…so much so that Russia and OPEC are losing sleep over how to handle the ocean of oil and gas that is slated to come from the U.S. in the next few years.
Subsequent to Yergen’s commentary–on Thanksgiving day–OPEC chose not to alter its production schedule. This was a move to maintain share at the expense of price. The decision sent oil prices plummeting more than 10 percent on Friday. Here is CNBC’s report on that.
These issues impact you, your organization, your city, state, and country. Pick an affinity that you have–any affinity–and this news matters.
Imagine first a future where energy stays cheap. Imagine that the economics of the petrochemical supply chain are severely impacted by low prices. Maybe the dynamics crush upstream commodity producers. Maybe they enhance smart specialty producers who benefit from consumer spend and lower commodity costs. However, lower energy prices directly impact players who depend on energy production, particularly in specific geographies. Laborers in geographies that lie on the high end of the cost curve might not enjoy this news; neither will suppliers to those work-forces–the ones that provide uniforms, tools, meals, and services like laundry and transportation. The more localized the impact, the worse it could be.
But every shock means opportunity. So, meanwhile…
Imagine second a future where consumer and corporate disposable income is unlocked from the dungeon of costly energy. Where an average family receives a dividend that amounts to real cash to spend, just because the world has become more efficient at extracting (and, yes, using) energy. Imagine that the average manufacturer can also contemplate reinvestment of such gains.
Those two imaginary impacts of lower energy prices are strikingly significant to all companies, whether they play in the petrochemical space or not. Now is the time to contemplate change (yes, 2011 was the time, but still, get on board now).
What does this mean for your end products? How about for your capital projects? What about for your procurement targets and programs? Perhaps more importantly, what does this mean for your job?
The market-wide impact of energy costs is practically instantaneous. In 2008, we saw a tremendous reallocation of production in the automotive industry due to sustained spikes in oil prices. SUV and truck plants were closed, not just idled, as reality set in. Demand for efficient vehicles spiked as well, spurred by some (perhaps spurious) legislation in that era. Such corporate moves dwarf in relation to moves that consumers make as energy costs crowd out other spend categories.
What will this sort of change mean for your company or your career? How do you sense and predict what different end states of the world look like, and how each one impacts your capital and expense allocation?
Think about the the future, and develop options for it. Options are the foundation of strategy, and foresight feeds them.
What do you think?
The NFL’s concussion settlement might be more cynical than its decades-long deceptions on the topic.
While I have nothing to gain from the National Football League’s concussion settlement, I have been an interested observer. As I stated in an earlier commentary, I played the sport and understand its intensity. So, I take notice of big moves related to the concussion issue.
In a recent article in ESPN The Magazine, Peter Keating outlined how difficult it would be for a retired NFL player to be compensated under the NFL’s new concussion settlement the league is putting in place.
Just to put things in perspective, Keating writes the following:
First, to be eligible for compensation at any point, you must register with the settlement within 180 days of its final version’s being posted on its web site. Then, if you’re feeling symptoms, you must see a doctor approved by the settlement plan’s claims administrator. These basic hurdles, combined with athletes’ lack of awareness, will be enough to knock nearly 40 percent of potentially eligible players and families out of the deal, according to estimates by the NFL’s actuaries. That gets you from about 20,500 potentially eligible players to around 12,500, according to both sides.
Next, you will need to submit to a battery of 32 neurocognitive tests. Invented by the NFL, the players’ lawyers and their consultants, this scheme is new, untested and at points bizarre — one part is a 338-question exam about your psychological state and personality whose results won’t even be used to decide if you get compensation. Stern estimates that the whole thing will probably take you around five hours to complete, and if you give up or can’t finish — and remember, you are already feeling subpar; that’s why you’re getting yourself checked out — you are out of luck.
If you do get to the end of the assessment, you will need extraordinarily poor grades to qualify as neurocognitively impaired under the settlement. For eligibility, the deal requires players to score at least 1.7 standard deviations below expectations on multiple cognitive areas, including learning and memory and executive function. That’s worse than doctors often see in patients who already have moderate-stage dementia. “Most guys don’t realize how badly off you need to be,” says Stern. “You have to be really, really bad, basically unable to take care of yourself during the day.”
That’s not a settlement, it’s an insurance policy against payouts.
Basically, retired players are presented with a catch-22. In order to collect on the compensation offered, they have to be too impaired to complete the tests that are required in order to justify eligibility to collect.
Sometimes, cynicism is on display for all to see.
In this case, the NFL might have gone too far.
I write this because it involves a critical view of professional standards and their impact on the long term strategy of any organization. We all have to choose where we draw the line on supporting stakeholders of our brands, our organizations, and our communities. Some choices are more transparently cynical than others.
Kneecapping the retired performers its business depended on might not be the highest and healthiest long term play for the NFL.
What do you think?
Sometimes, learning from your successes can be the hardest learning of all.
“History is written by the victors.”
– Winston Churchill
The most difficult leadership disease to overcome is one that springs from success. A victory—whether it be in business, war, or sports—is a victory. A win is a win. The disease I write on here is what I’ll call the “blind man’s bullseye” disease or BMB disease for short—the ability that leaders have during time of success to recast a win…any win… as intentional and well planned. We read a lot about how business and political leaders have learned from “adversity” or from failure. It is less common to hear how these leaders learn from their lucky breaks, particularly if they are in an environment that doesn’t respect luck.
BMB disease—this tendency to recast luck as acumen and to avoid learning from it—kills agility and learning; and it does so when the organization just might have the most to gain from being more agile and focused on learning. In its most extreme form, this disease destroys trust and implants a ticking time bomb of false confidence that will trigger when tough times hit.
Why the name? I use the analogy of a blind man’s bullseye because this leadership affliction is akin to a blind man firing an arrow from a bow and then painting the bullseye around the arrow—no matter where it hits—after the fact to match the hit. Apost hoc fitting of strategy to results vs. measuring results and adjusting strategy.
In reality, this concept is an offshoot of well-known cognitive biases outlined by Daniel Kahneman and others. In particular, BMB is a type of survivorship bias—it’s a way of promoting success at the expense of learning from failure. It is a cousin of the “Texas Sharpshooter” logical fallacy that derives from a similar, but different, projectile analogy.
So where does the affliction come from?
A true irony of the information age is that spin has become easier than ever. The availability of data, networks, relationships, and ostensible transparency ought to result in an environment where escaping hard truths is increasingly difficult. It’s logical, right? Give me enough information about any problem, and I should know the truth.
It’s just not so.
Today, leaders of all stripes have tremendous power to form, propagate, and change messages at any given time. At its best, this power allows for obvious flexibility in moving an organization forward—influential control of a mission-based approach. At its worst, it forms the basis for the meanest sort of revisionism at both a personal and organizational level—Orwell’s memory hole writ large. “I meant to do that” becomes not only a means of self-promotion, but also of self-defense and self-delusion.
Where might we see this in the business world? Here are a few examples from my experience:
The Strategic Management BMB:
I had the opportunity to spend my early career in the venture capital space during the rise and fall of the dot com. During that era, many corporations got into the game of venture capital investing in the name of it being “strategic,” particularly while it was profitable, only to find that the game is not only difficult but also highly volatile. Many companies who accumulated large venture capital portfolios on their balance sheets ended up with a bucket full of write offs when the market turned. Incentives being what they are, we tend to define as “strategic” that which is immediately profitable versus that which is sustainably profitable.
This is going on in your office today, and it is a natural bias—In fact, you may be mining a highly profitable small account today (bullseye!) at the expense of a more difficult but potentially much larger account your strategic aims say you should be mining. We paint the bullseye on the things in our portfolio that pay off now, and downplay the risk-adjusted strategic approach that may have been our target in the first place.
The Talent Management BMB:
One of the more malicious aspects of the BMB is its tendency to drive out diversity of thought and experience. In the run-up to the sub-prime lending crisis, most anyone who had the gall to question lending standards or the lunacy of some securitizations ran the risk of being squarely ostracized. Many people who were bearish on the securitized debt market as a whole spent years and a tremendous amount of capital convincing others that it was overvalued. A few of them made a killing in the subsequent turmoil. The reality is that understanding the value of “minority reports” in an organization or market sector is a key leadership trait. If we spin our success as intentional, we will push these thoughtful perspectives to the side and drive them out of our organization.
In your own organization, there are people who think differently about your success. They should be embraced for their diversity and not ostracized because they “don’t get it.” We paint the bullseye (mark them as “successful,” that is) on the employees who are immediately productive—or, in the worst case, simply sycophants and acolytes—in the current environment vs. those whose points of view, talent, and mindsets will move the organization forward in different states of the world. In times of plenty, people who have a cost and risk discipline are valuable counterweights; just as people who are entrepreneurial, creative, and growth-oriented are in times of cost control and retrenching.
The Thought Leadership BMB:
Perhaps the most egregious use of the BMB in existence is in business literature. Every business school case study and almost every business book in existence takes what was almost certainly an ambiguous, amorphous circumstance that resulted in success and attributes it to structured planning, vision, and “good business thinking” that can be summarized in 10 bullet points or fewer. The success of an organization can be written into a tidy story suitable for consumption by a business school class or an aspiring professional; but the ambiguity of actually muddling through a difficult business environment—the many shifts, turns, decisions, and blind alleys—almost never get displayed for consumption.
Storytellers being as common as they are, the thought leadership BMB is likely right under your nose—it may even be your own work product. Internal case studies and after action reports often exhibit BMB disease because they fail to confront the lessons learned that will make the organization better the next time around. “We brought the project in on time and on budget” sounds a lot better and cleaner than “we brought the project in on time and on budget but we burned-out 5 of our best professionals and alienated our two most strategic business partners in the sector.” We paint the bulls-eye on the end state of “great” companies, businesses, or projects but rarely examine the structural, cultural, or risk-taking advantages they had—along with the real failures they endured—along the way.
These are all examples where valuable learning opportunities are papered over in the interest of the promotion of success. In some instances, such papering over implants a ticking time bomb in the organization. In the first two instances, the time bomb was the future profitability or organizational health of the company. In the third, the ticking time bomb is that we imbue young business leaders with a view of business success as somehow formulaic and simple vs. ambiguous, random, and hard won.
Overcoming this disease is hard. You and I have incentives to promote success and minimize failure. Those incentives are as basic as dollars or as ephemeral as ego. Recognizing that you, as a leader, have both the motive and, increasingly, the opportunity to spin your way to a dangerously revised view of success is prerequisite to solving this problem.
The best leaders I have had the opportunity to work with and around do a few things better than others to avoid the BMB disease. In times of success, they (1) acknowledge when their arrows have landed randomly, (2) evaluate and understand why they landed randomly and why they were successful, (3) celebrate the win and the intent—the what and the why—but own and fix the process—the how, (4) seek objective counsel, and (5) aggressively eliminate spin and the habits that propagate it in the organization.
Step 1–admitting it–is the hardest for most leaders, but without it the other steps never happen.
Enlightened leaders pursue a learning mindset, a learning team, and learning organization. The leader has the power either to succumb to BMB disease or to overcome it. But, the leader has to have the discipline to assess component failures within grand successes in order to lower the probability of grand failure in the future.
One warning: Don’t take this article as an indictment of risky or random wins. Seizing on emergent opportunities is important. A win is a win, even an ugly one. As leaders, we have to embrace and bask in the joy of what John Madden called the “no-no-go-go” where a risky, unorthodox, or simply bad decision becomes a great one. We never need to scoff at off-strategy wins; we just need to know whether they are sustainable. Blind Man’s Bullseye disease is manifest in “spinning” or moving the organization’s bullseye to the organization’s results without a sound rationale to do so—fitting the strategy to the result, vs. assessing results and adjusting strategy.
As we write the history of our victories, may we all have the humility to admit when we were lucky, and to grow from the experience.
I invite you to share examples of this affliction from your own experience if any come to mind…
Overcoming the intellectual separation of strategy and execution by testing whether you’ve “packed for the journey” can unlock flexibility, creativity, and action.
At a conceptual level, the strategy to execution gap is real. I’ll leave it to the reader to search The Internet for “strategy to execution gap” and to then peruse the studies that show that execution matters…deeply.
But, with all due respect to the percentages derived from executive surveys and the implications they provide, separating strategy and execution in this way amounts to a waste of valuable time. The strategy vs. execution dichotomy is an overly convenient tool used to separate the thinkers from the doers. At its most dangerous, the strategy/execution split leads to recrimination vs. reconciliation—attack and defense vs. collaboration—when it (purposefully or accidentally) pits stakeholders against one another.
As strategic leaders, we must grasp that strategy encompasses execution. Execution is strategy. Strategy is, quite simply, knowing where to place the right kind of pressure on one’s environment to achieve a given set of objectives; but also—and this is important—how much pressure to place and how and when to trigger adjustments.
Noted military theorist Karl von Clausewitz referred to war as “merely the continuation of policy by other means.” War isn’t an end in itself, any more than our vaunted concept of “execution” is. With apologies to Clausewitz: Execution is merely the continuation of strategy.
So, when we accuse execution of derailing a good strategy, are we accusing instead our strategy as a whole? The best strategic plans hinge on a single, defining and definable question: Have we packed for the journey? Any organization’s strategy is evident in the resource and reactive decisions its leaders make on an ongoing basis. Because execution is the most honest expression of strategy (indeed, a more honest expression than any PowerPoint deck could ever be), it’s important that strategic plans encompass readiness for action and change.
As an executive who has formulated, tested, and implemented strategies across sectors and companies, I have used four practical questions to test for whether my teams and clients have “packed for the journey.” In any journey, we prepare to go the distance (enough food, fuel, water, rest, etc.) and we prepare for the unexpected (poncho, first aid kit, a bottle of pepto, etc.). Questions on resourcing and risk are fantastic acid tests for a given strategy because they move beyond a linear plan and force discussion on capability and flexibility. With that in mind, when evaluating a strategic plan, ask these questions:
1. What are the major “chunks” of activity needed to achieve the plan?
So, you want to climb Mount Everest. Okay. Got it. Where are your base camps going to be located? What is your supply chain going to look like? Where will you hide your oxygen bottles? In other words, have you defined the immediate “chunks” of resources and objectives that keep you on schedule to your strategic goals? The body of knowledge on effective intermediate term planning is immense, but shockingly untapped. Find or become an expert at hoshin kanri or its many offshoots (many organizations refer to hoshin planning, goal deployment, strategy deployment, policy deployment, or other terms for the same thing)–take a 5 year strategic plan and turn it into a one, 2, and 3 year plan. Define reality and required resourcing for the plan this way to mesh “strategy” and “execution.”
2. Do your resource allocations reflect the competitive reality of the situation?
Classical military theoreticians proposed that facing an opponent with twice your resources requires four times the quality of resources to merely achieve parity–your quality has to increase exponentially while their quantity advantage increases linearly.The so-called “Lanchester square law” applies conceptually in business, too; and it’s a scary proposition. In many business environments, quantity of customer touches can overcome quality of touch. An organizational plan that assumes twice the account penetration with half the sales personnel per customer of the next competitor needs to be tested for the personnel quality assumptions it implicitly contains. Likewise, a financial plan that reflects deployment of capital at ever increasing returns probably needs to be re-tested for the defensibility it implies.
We all (well, most of us) want extreme productivity and distinctive capabilities; and it’s easy to make that look good on paper. However, there is a tremendous difference between a lean approach to business vs. one that is merely cheap: Long term effectiveness. Test your strategy for effectiveness, not just a pretty model and the fool’s gold of unsustainable efficiency.
3. What are your pivotal assumptions?
Can you define the turning points of your strategy? For instance, do you know what your and your competitor’s strategies look like based on changes in regulations, demographics, demand, or the financing environment? Pivotal assumptions are the ones that, if flexed, cause you to take a significantly different course. Sometimes the most basic test of a strategy is whether the executive can name the 3 pivotal assumptions, in short sentences, and how changes in them cause changes in the strategy. Can you?
4. Will your strategy survive a punch in the mouth?
Former heavyweight boxing champion Mike Tyson’s contribution to the body of strategic knowledge is a great one. He famously stated “Everyone has a plan ’til they get punched in the mouth.” Is your plan built for speed and flexibility? Can it survive a shock? What are the trigger points for improvising? When will you improvise? Embracing uncertainty through scenario thinking will make you more nimble; and it will help ensure that when the “punch in the mouth” inevitably comes, you can improvise and carry on.
There you have it, 4 questions–2 on resourcing and 2 on risk–that help link the typical notion of “strategy” with the typical notion of “execution.” Remember: Execution is strategy. Artificially separating the two may feel tidy, but real strategic leadership is rarely tidy.
Now it’s your turn: How do YOU test your strategic thinking?