Posts Tagged ‘strategy’

An even-briefer definition of strategy

Tuesday, May 29th, 2012

From a working paper by Eric J. Van den Steen of Harvard Business School (”A Theory of Explicitly Formulated Strategy“), via Harvard Business School Working Knowledge:

I define a strategy as the ‘smallest set of – intended or actual – choices and decisions sufficient to guide
all other choices and decisions’ (or, more concisely, the ‘smallest set of choices to guide all other
choices’).

The concise definition is 10 words long. Our prior brief definition, also via HBR, was 15 words long.

HBR article recommends confronting new venture risks early

Wednesday, May 19th, 2010

Once upon a time in innovation, there was a general rule: get to market as quickly as you can, meaning you should start on your “long-pole” development activities as soon as possible. But there’s a growing consensus in the innovation community that the best way to succeed isn’t to start developing quickly, but instead to do as much work as possible on paper, to validate assumptions cheaply and quickly, and defer more expensive, riskier (and even long-pole) activities until after some of the basic assumptions are validated.

Part of this thinking encourages innovators to rank their risks – to work on critical assumptions first. In case those assumptions don’t pan out, the entire venture might fall apart: all the better to look at them early. That’s the premise behind the article “Beating the Odds When You Launch a New Venture” by Clark Gilbert and Matthew Eyring in the May Harvard Business Review.

The authors identify three types of risks that should be evaluated early in a new venture’s life:

1) Deal-killer risks – risks that can sink the venture. Often these seem to be marketing and sales related risks: will anyone buy the product we want to build? Given that engineers often start with a product idea, it’s easy to see why market testing is often left to last. However, prototyping and beta launches (common with internet products today) can provide cheap and quick data about a product’s attractiveness to the market.

2) Path-dependent risks – these are situations that could go down multiple paths – for example, a new product that could be useful to consumers or businesses. Committing to one of these paths, and later learning the other path was a better choice, wastes time and money, and risks the venture never fulfilling its potential. The authors recommend entrepreneurs carefully evaluate these alternate paths early on, and consider outsourcing or other ways to cost-effectively pursue both paths until the correct one becomes clear.

3) Risks that are simple and quick to evaluate – validating other assumptions, that may not be as critical as the above two, but which can be simply and cheaply tested, can reduce the overall risk of the venture.

This thinking is similar to ideas put forward in last year’s book “Innovation Tournaments” by Terweisch and Ulrich, which also discussed testing high-impact risks early, before expensive steps like building supply chains.

And, of course, all these efforts owe a debt to the thinking of McGrath and MacMillan, whose book “Discovery-Driven Growth” is the bible of the test-assumptions-first school.

Related posts:
A brief definition of strategy (Clark Gilbert)
When innovating, try more and more varied ideas (Innovation Tournaments)
On “Discovery-Driven Growth”

Common sense isn’t common

Wednesday, May 5th, 2010

“It’s just common sense,” people say, as if this is a resource that we all possess in ample quantities. Yet if that’s the case, we don’t tap this resource very effectively.

The very impressive Wikipedia entry on common sense helps illuminate why this is so: “The common sense is an actual power of inner sensation (as opposed to the external five senses) whereby the various objects of the external senses (color for sight, sound for hearing, etc) are united and judged, such that what one senses by this sense is the substance (or existing thing) in which the various attributes inhere…”

commonsenseSo, common sense is not a pool of basic information that everybody has at hand; instead, it’s a way of putting information together to gain a deeper understanding, in a multidimensional fashion. In this, it has some similarity with Roger Martin’s term “integrative thinking,” or the way of finding creative approaches to reconciling two seemingly contradictory notions (such as, from fifty years ago, the thought that high quality and reduced costs could go hand in hand.

“It’s just common sense” doesn’t mean that an answer to a problem is easy – it means that in order to solve it, you have to find the common “inherence” between what you observe with all your senses. It doesn’t mean nod in agreement when the beautifully-formatted spreadsheet is presented; it means to probe the numbers, try to find flaws, vulnerabilities; it means, in the words of my son’s Kindergarten teacher, “Using your resources,” instead of blurting out the first thought that comes to mind.

“Beating the Commodity Trap” – how, maybe, to beat back the zombies

Monday, March 1st, 2010

livingdeadCommoditization is a word that sends chills up the spines of CEOs worldwide. A commodity is a completely replaceable, fungible item, purchased from any of many suppliers, with prices depressed to not much above the variable cost of production. Yuck!

The strategies that companies have used to battle commoditization, like product differentiation and bundling, are themselves being commoditized. Private-label copycats and new competition from emerging markets are increasing the forces of commoditization. With all this comes the need to look at the problem anew.

beating the commodity trapRichard A. d’Aveni of Darmouth’s Tuck School of Business has produced a slim volume entitled, “Beating the Commodity Trap: How to Maximize Your Competitive Position and Increase Your Pricing Power,” that performs just such a task. The best part of the book is the framework it lays out for thinking about commoditization; the three “traps”:

Deterioration – in which competitors duplicate some or all of your value proposition at a lower price

Proliferation – in which various firms serve business niches that eat away at your market

Escalation – in which competitors increase value and reduce cost at the same time

d’Aveni goes on to describe various strategies to use if you find yourself in one of these traps. Probably the most successful example cited is Microsoft’s response to a proliferation trap, in which smaller competitors created add-ons to Windows to provide capabilities like media management, virus protection and (the most famous case) web browsing. Microsoft used its monopoly power to duplicate these features and include them in Windows for free, both making Windows more valuable and eliminating the market potential for these competitors (”overwhelming” the trap, in d’Aveni’s parlance).

Of course, despite d’Aveni’s rigorous analytical approach and his numerous examples of successful counter-commoditizing, reading about the many ways commoditizers attack industry leaders in “Beating the Commodity Trap” may leave you with the feeling you have when you watch “Night of the Living Dead.” Even when you think the zombies are defeated, more always emerge from the shadows.

Why “Undercover Boss” is dramatic, and why that’s a bad thing for business

Thursday, February 25th, 2010

7-11 undercover bossI finally got a chance to check out “Undercover Boss” this week, after being curious about it since first hearing about it at the Super Bowl. It follows many reality show conventions, including dramatic music, montages and strategic repetition (I heard, “Those items are supposed to be going to charity!” at least three times).

Why, though, is “Undercover Boss” dramatic? In short, it’s based on an assumption that big-company CEOs are completely disconnected from the front lines of their businesses. Only by the CEOs being out of touch can these shows create the surprise and drama they depend on. Seeing Joe DePinto, CEO of 7-11, struggling to make coffee is funny, but it’s also telling. Selling coffee is how 7-11 makes money. According to DePinto, the store he works in serves 2500 cups per day. DePinto spends his days attending meetings and reading reports, not making coffee, and it shows.

I saw a terribly sad example of the “undercover boss” last week while watching “The Hurt Locker.” One of the soldiers meets with a psychologist colonel who is counseling him for his stress-related illness, caused by his daily encounters with IEDs and their carnage. The soldier teases the colonel that he doesn’t know what it’s like out on the streets. The colonel replies that he’s been out on the front lines earlier in his career. One morning, surprisingly, the colonel shows up and offers to accompany the group on their daily missions. The tragic ending of this amazing scene really struck me and pointed up in an extreme way the costs of the out-of-touch boss. How can one lead when he has no idea what it’s like where the rubber meets the road?

Related posts:
Business Book Hall of Fame: War & Peace
Time to start listening to front-line employees
A method for gathering and using insight from front-line staff

Two blogs you should read about the future of business

Tuesday, February 23rd, 2010

Two bloggers on Harvard Business Review’s website (http://hbr.org) in very different voices are helping to define the next era of business, post-crash. Umair Haque provokes and hyperbolizes, while Roger Martin writes sober, crafted prose, yet both say much of the same thing: business as usual – shareholder value maximization, “greed is good,” arbitrage- and exploitation-based commerce – needs to go. In its place will be socially-aware businesses that profit by garnering their workers’ best efforts and delivering distinctive, thick value to customers.

Samples:

Haque:

Hypercompetition — and hypercollaboration — is accelerating. The people formerly known as consumers are now your peers. Regulators have a keener eye and a longer arm. Stakeholders went from being hippie pacifists to shark-toothed activists. In this world, mere innovation and “strategy”are commodities. Globally, naked consumption must transition into durable investment. Meaning is the new cornerstone of advantage: Does what you produce actually make anyone meaningfully better off?

Martin:

as corporations have ballooned in size, the [CEO's] community has become far more impersonal and distant. Customers and employees have become more dispersed and distant and the home city has become less central — even expendable, as Boeing’s abandonment of Seattle demonstrated. And perhaps most important, a company’s owners have become a group of distant professionals who trade their holdings at the click of a button. Many large shareholdings, in fact, aren’t even managed by people.

Are they seers, or delusionists? I hope it’s the former. But you should read them both and decide for yourself.

Related posts:
Prior mention of Umair Haque
Posts mentioning Roger Martin

P&G’s strategic review of brands isn’t really strategic

Thursday, October 29th, 2009

The Wall Street Journal today reported that Procter & Gamble’s new CEO, Robert McDonald, had put a number of brands on notice that they had to improve results or risk being sold off.

Many of the brands reviewed, such as Duracell, IAMS and Braun electric appliances, “have long been considered extraneous to P&G’s focus on beauty, health and nonfood household staples,” according to the Journal.

If that’s the case, why is McDonald threatening to sell the brands if they don’t improve results? Why isn’t he just going ahead and selling the brands?

“This business segment is extraneous to our focus, but if it is profitable enough we will keep it,” is not a strategy. It is an anti-strategy. And I would doubt, given the many strategic threats that McDonald is facing, coaxing incremental improvements out of Duracell or IAMS is a place he should be spending any of his management time.

Documenting and testing assumptions early is essential to good new-venture planning

Tuesday, October 27th, 2009

One of the most useful lessons in Rita Gunther McGrath’s and Ian MacMillan’s “Discovery-Driven Growth” is a basic one: when you’re planning a new business venture, your initial plans are laden with assumptions, and treating these assumptions as facts will get you in trouble. Yet it’s done all the time.

This lesson was reinforced in the nice interview with Rita that appeared in yesterday’s Wall Street Journal Business Insight section (”Learning from Corporate Flops“). The headline is a bit misleading – she talks less about learning from your flops than about carefully documenting your assumptions, testing them as early and cheaply as possible, and revising them when you learn they don’t hold up.

Having a detailed list of assumptions allows many people to weigh in on a new business idea – even if you can’t speak authoritatively on the whole concept, you may have very good insight on one particular assumption. And assumptions are expected to be wrong much of the time, so questioning one or showing evidence why it’s not valid is easy for the new product team to accept.

On the other hand, probing and questioning a business plan in which the key assumptions are buried and not distinguishable from known facts tends to invite emotional arguments which rarely improve the quality of the plan.

Related post:
On “Discovery-Driven Growth

Strategy as an appreciation of serendipity

Monday, October 12th, 2009

Today is Columbus Day in the US (my 6-year-old son was singing to himself at breakfast, “In fourteen hundred and ninety two, Columbus sailed the ocean blue”), and it’s a good time to think about strategies and objectives. Management consultants will tell you that developing a clear set of objectives and committing to a well-considered strategy to achieve them is essential to success in the business world.

Columbus had a clear objective – open a new trade route to India. At that objective he failed miserably, bumping into a land mass more than 10,000 miles short of his target. Yet, his mistake ended up being far more important in world history than reaching his initial goal would have been.

Like the earth in Columbus’ time, the future of any business is unknown and unpredictable. Therefore, while objectives and strategies are important, so is an appreciation for serendipity. Good things you didn’t anticipate emerge while you’re in execution mode. And being able to recognize these, and adjust your strategy (even possibly your objectives) as a result, is more valuable than being able to stick to a course of action.

Related posts:
Time for a new strategic-planning process
Describe your strategy in a simple picture

Wireless companies are no longer in the network business

Friday, August 7th, 2009

When I first went out on my own, my father-in-law, an attorney who had his own practice for many years, told me: “If you think you’re in the consulting business, you’re wrong. You’re in the sales business.” What that meant to me was, there are lots of consultants. If I can’t articulate and communicate the value I bring, clients will hire someone else–no matter how accomplished my consulting work is.

It’s 2009, and a similar fate has finally overtaken wireless companies. You see, they believe they are in the network business. You see it in their advertising (”More bars in more places,” “The Now Network,” “The nation’s most reliable network“). You hear it when they talk, and you see it when they present at conferences. The network rules.

Except this: there are lots of networks (five or more in many areas). Wireless companies are able to drop calls no matter how many bars they have in how many places. People don’t make decisions anymore based on network–they make it based on handset, or price plan, or maybe what ad they saw most recently.

So the mindset needs to change. Wireless companies are now in the customer service business. How can you provide an attractive product, with good reliability, at a reasonable price point… and make customers feel wanted, valued, and treated fairly?

In other words, AT&T needs to be more like Ritz-Carlton and less like… Southwestern Bell, one of its progenitors.

The changes needed to do this are immense. They are no less than devaluing where the company came from (networks, cell sites, etc.) and empowering fringe groups, such as customer service. It means re-evaluating the entire product portfolio and purging it of things that have become shackles to their customers–contracts, bucket plans, hidden profit centers.

It means radically simplifying your business, removing programs, processes and systems that don’t add value anymore.

It means getting real, and putting corporate commitment behind “our customers are our most important asset.” Because don’t say it if you really believe your most important asset is your IMS infrastructure.

Does any company have the courage to do this? One would wager that Sprint has little to lose. Mr. Dan Hesse, why don’t you have a go at it?