Strategy in the news

Citation

Henry, C. (2015), "Strategy in the news", Strategy & Leadership, Vol. 43 No. 2. https://doi.org/10.1108/SL-01-2015-0008

Strategy in the news

Article Type: CEO advisory From: Strategy & Leadership, Volume 43, Issue 2

Craig Henry

Craig Henry, Strategy & Leadership’s intrepid media explorer, collected these examples of novel strategic management concepts and practices and impending environmental discontinuity from various news media. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (craig_henry@centurylink.net)

New challenges for the food supply chain

Amid rapidly transforming supply-and-demand pressures – from a growing middle class in developing markets to increasing weather volatility – the leading food and beverage companies are rethinking their supplier relationships. Are the current suppliers prepared to apply new technology, adequately control sources of supply, and respond quickly in today’s dynamic, global marketplace? Do sourcing agreements favor short-term price advantages over long-term sourcing availability and security? Are supply partnerships adeptly managing increasing regulations on food safety, sustainability, and ingredient traceability? Are the right partnerships in place to deliver innovation to tomorrow’s consumers?

… As the path from farm to fork narrows, the world is moving to a global industrialized system of food production … . Future competition will not be between companies but rather supply systems. Forward-thinking operators, distributors, and manufacturers are already reevaluating their sources of supply.

The food value chain

The food system’s industrialization is speeding up as new market demands emerge, and regulatory and resource constraints may limit the number of companies that have the internal resources to manage supply volatility and regulatory requirements. Access to approved suppliers will become more difficult; dedicated supply systems will be required to assure adequate supply and manage costs in a volatile environment. To win the competition between supply systems, successful companies will need to ensure their sources of supply and develop strategic partner-ships with suppliers that have the tools, resources, and agility to achieve a competitive edge.

“Rethinking Supply in Food and Beverage, ” A.T. Kearny, November 2014, http://www.atkearney.com/consumer-products-retail/rethinking-supply-in-food-and-beverage/detail/-/asset_publisher/AyZfLYRGRBWI/content/rethinking-supply-in-food-and-beverage/10192%23sthash.4PWRFhVf.dpuf

Why transformation proves elusive

It’s been almost 10 years since Harvard Business Review published John Kotter’s classic article, “Why Transformation Efforts Fail.” And although his suggestions for how to improve the odds have been widely accepted, the success rate of major corporate change programs remains essentially unchanged – it still hovers at 30 per cent … .

… my sense is that there’s an underlying semantic problem, stemming from confusion between what constitutes “change” versus “transformation.” Many managers don’t realize that the two are not the same. And while we’ve actually come a long way in learning how to manage change, we continue to struggle with transformation … .

“Change management” means implementing finite initiatives, which may or may not cut across the organization. The focus is on executing a well-defined shift in the way things work. It’s not easy, but we do know a lot more today about what to do … .

Transformation is another animal altogether. Unlike change management, it doesn’t focus on a few discrete, well-defined shifts, but rather on a portfolio of initiatives, which are interdependent or intersecting. More importantly, the overall goal of transformation is not just to execute a defined change – but to reinvent the organization and discover a new or revised business model based on a vision for the future. It’s much more unpredictable, iterative, and experimental. It entails much higher risk. And even if successful change management leads to the execution of certain initiatives within the transformation portfolio, the overall transformation could still fail.

Ron Ashkenas, “We Still Don’t Know the Difference Between Change and Transformation,” HBR Blogs, January 15, 2015, https://hbr.org/2015/01/we-still-dont-know-the-difference-between-change-and-transformation

Small improvements and breakthrough innovations

The recent launch of the iPhone6 featured an exciting new technology – ApplePay – which, if widely adopted, will allow Apple’s discerning customers to make electronic payments from their phones in situations where they would have used credit cards or cash.

In other words, if all goes well, Americans will soon be able to do something that Kenyans have done every day for 10 years. M-PESA, the mobile payment system offered by Safaricom, is used by more than two thirds of adult Kenyans and is the model for hundreds of digital payment startups across Africa and around the globe.

The reason Kenya is 10 years ahead of the USA on mobile money is simple: Kenya needed phone-based payment systems more urgently than the USA did. Credit card penetration was (and is) low in Kenya. Most Kenyans don’t have bank accounts, making paper checks largely useless for all but the largest transactions. M-PESA was an appealing alternative to the status quo for transferring money from city to city. Before you could transfer money via an SMS message, it was routine to give a stack of bills to a taxi driver heading to that town and ask him to deliver your payment for you.

In the USA, on the other hand, we have a system of credit cards and checks that, despite fraud, inefficiencies and other flaws, works well enough to enable trillions of dollars in consumer spending. Our system, while imperfect, is good enough. And good enough is a problem … .

When systems are good enough, we maintain them, sometimes well, sometimes poorly. Rarely do we throw out a good enough system and innovate to fill the vacuum we’ve created. Instead, good enough systems tend to block innovation, to prevent the exercise of creativity in that specific space.

Ethan Zuckerman, “How “good enough” technology can stifle innovation,” The Conversation, January 6, 2015, http://journalistsresource.org/studies/society/internet/how-good-enough-technology-can-stifle-innovation%23sthash.NcIlnDoQ.dpuf

The danger in “digital darlings”

According to the Wall Street Journal, there are at least 48 venture-capital backed companies with an implied value of over $1 billion, while the number of such companies peaked at ten during the height of the 2000 dot-com boom. Moreover, these firms – not yet profitable, not yet stable and not yet assessed by normal market metrics – are burning through vast amounts of cash each month.

… Uber, for instance, has a valuation of $41 billion, even though total taxi revenue in the USA is about $11 billion a year.

Billion dollar acquisitions of these young firms and the desperation of venture capitalists to be part of the next Whatsapp acquisition or Facebook or Twitter IPO have created exactly the kind of pressures that can cause them to redouble their investments, hoping that the beneficiaries will be “the” category leader and shut everyone else out. One or two of the new crop of hot startups may well accomplish this, but the reality is that most of them won’t.

So if you’re an investor excited about the prospect of potential new business combinations, take a few minutes to check out this all-too common recipe for failure:

• Untested assumptions are taken as facts.

• Few opportunities exist for inexpensive, low-commitment testing.

• Leaders are convinced they have the answer and not willing to change course.

• Huge up-front investment, rather than a staged or sequenced flow of resources.

• Massive uncertainty and a sense of time pressure.

Put these ingredients together and the result is often toxic. My advice: It’s much better to take a look at the assumptions behind that “transformative” startup before diving in head first with your checkbook.

Rita Gunther McGrath “15 years later, lessons from the failed AOL-Time Warner merger,” Fortune, January 10, 2015

Amazon agonists

Introduced with grand ambitions last summer, the Fire Phone is widely seen as a fiasco. Originally priced at $199 (with contract) and intended as an iPhone competitor, it now sells for 99 cents, and Amazon has taken a $170 million write-down largely attributable to unsold Fire Phone inventory. Yet Bezos finally answers the question with the kind of reasoning that investors, customers, and pundits have come to expect from him: Amazon is going to pour more resources into its phone. Defending the Fire Phone as a “bold bet,” Bezos argues that it’s “going to take many iterations” and “some number of years” to get it right … . It’s the kind of answer that has served Bezos well over the years, that has helped justify the fact that the company has produced so little profit even as it has grown into the behemoth of e-commerce.

But lately it’s not an answer that Wall Street has liked. In October, Amazon shocked shareholders when it reported a $437 million net loss for the quarter, its biggest in 14 years. Quarterly revenue hit $20.58 billion, but the company’s growth rate, once a bright spot for those leery of Amazon’s lackluster profits, is slowing … . “For years, the story has been that Amazon isn’t profitable because it is growing so fast,” wrote hedge-fund manager David Einhorn, in a letter to his Greenlight Capital investors. “Now growth is slowing, but rather than unleashing higher profits, the slower growth is leading to even greater losses. One of the principal bullish assumptions supporting many bubble stocks is, ‘The company is growing too fast to be very profitable.’ We think Amazon is just one of many stocks for which this narrative will ultimately prove false.”

Those are some seriously harsh words, especially toward an icon of the Internet age. But Bezos has made a habit of forcing naysayers like Einhorn to eat their words. Every time that this sort of complaint has been raised about Amazon in the past – and this moment is hardly an aberration in Amazon’s history – the company has roared back to prove its doubters wrong. Dubbing Amazon just another “bubble stock” can seem shortsighted, even foolhardy. Betting against Bezos has never turned out well.

Austin Carr, “The Real Story behind Jeff Bezos’s Fire Phone Debacle,” Fast Company, February 2015

In marketing, there is still no substitute for strategy

One of the disheartening effects of the proliferation of media options has been the ascent of tactics and the decline of strategy.

Far too many brands are buying into the nonsense of “360° marketing” which is code for trying to be everywhere. 360° marketing is not a strategy. It is absence of a strategy. As David Ogilvy said, “The essence of strategy is sacrifice.”

There are two inevitable consequences of this folly.

First, nobody has enough money to be everywhere. The result of trying to be everywhere is that you spread yourself so thin that you are not very effective anywhere.

Second is that the tactical drives out the strategic. Each media type is assigned its own objective. And as each media type is optimized for that objective, it gets a little farther from what’s going on in every other medium. Like our stellar universe, the brand universe keeps expanding. Each initiative moves farther away from every other one.

There is only one way to avoid this. Have a simple strategy, be clear on what it is, and make sure everything you are doing conforms to this strategy.

And remember, it is better to do three things well than thirty things half-assed.

“Why You Need A Strategy” Ad Contrarian, December 29, 2014, http://adcontrarian.blogspot.com/2014/12/why-you-need-strategy.html

Understanding the “thinking” of thinking machines

Machines that think think like machines. That fact may disappoint those who look forward, with dread or longing, to a robot uprising. For most of us, it is reassuring. Our thinking machines aren’t about to leap beyond us intellectually, much less turn us into their servants or pets. They’re going to continue to do the bidding of their human programmers.

Much of the power of artificial intelligence stems from its very mindlessness. Immune to the vagaries and biases that attend conscious thought, computers can perform their lightning-quick calculations without distraction or fatigue, doubt or emotion. The coldness of their thinking complements the heat of our own.

Where things get sticky is when we start looking to computers to perform not as our aids but as our replacements. That’s what’s happening now, and quickly. Thanks to advances in artificial-intelligence routines, today’s thinking machines can sense their surroundings, learn from experience, and make decisions autonomously, often at a speed and with a precision that are beyond our own ability to comprehend, much less match. When allowed to act on their own in a complex world, whether embodied as robots or simply outputting algorithmically derived judgments, mindless machines carry enormous risks along with their enormous powers. Unable to question their own actions or appreciate the consequences of their programming – unable to understand the context in which they operate – they can wreak havoc, either as a result of flaws in their programming or through the deliberate aims of their programmers.

We got a preview of the dangers of autonomous software on the morning of August 1, 2012, when Wall Street’s biggest trading outfit, Knight Capital, switched on a new, automated program for buying and selling shares. The software had a bug hidden in its code, and it immediately flooded exchanges with irrational orders. Forty-five minutes passed before Knight’s programmers were able to diagnose and fix the problem. Forty-five minutes isn’t long in human time, but it’s an eternity in computer time. Oblivious to its errors, the software made more than four million deals, racking up $7 billion in errant trades and nearly bankrupting the company. Yes, we know how to make machines think. What we don’t know is how to make them thoughtful.

Nick Carr, “A crisis in control,” Rough Type, January 17, 2015, http://www.roughtype.com/?p=5431

The Uberfication of work

HANDY is creating a big business out of small jobs. The company finds its customers self-employed home-helps available in the right place and at the right time. All the householder needs is a credit card and a phone equipped with Handy’s app, and everything from spring cleaning to flat-pack-furniture assembly gets taken care of by “service pros” who earn an average of $18 an hour. The company, which provides its service in 29 of the biggest cities in the USA, as well as Toronto, Vancouver and six British cities, now has 5,000 workers on its books; it says most choose to work between five hours and 35 hours a week, and that the 20 per cent doing most earn $2,500 a month. The company has 200 full-time employees. Founded in 2011, it has raised $40m in venture capital.

Handy is one of a large number of startups built around systems which match jobs with independent contractors on the fly, and thus supply labour and services on demand. In San Francisco – which is, with New York, Handy’s hometown, ground zero for this on-demand economy – young professionals who work for Google and Facebook can use the apps on their phones to get their apartments cleaned by Handy or Homejoy; their groceries bought and delivered by Instacart; their clothes washed by Washio and their flowers delivered by BloomThat. Fancy Hands will provide them with personal assistants who can book trips or negotiate with the cable company. TaskRabbit will send somebody out to pick up a last-minute gift and Shyp will gift-wrap and deliver it. SpoonRocket will deliver a restaurant-quality meal to the door within ten minutes … .

This boom marks a striking new stage in a deeper transformation. Using the now ubiquitous platform of the smartphone to deliver labour and services in a variety of new ways will challenge many of the fundamental assumptions of 20th-century capitalism, from the nature of the firm to the structure of careers.

“There’s an app for that,” The Economist, January 3, 2015

Data vs. intuition

Microsoft’s Ronny Kohavi, a pioneer in online experimentation since his days as director of data mining and personalization at http://Amazon.com, likes to challenge his Internet-savvy audiences with a little experiment. Kohavi, a Microsoft distinguished engineer and general manager for analysis and experimentation, shows screenshots of simple but real A/B experiments that Microsoft ran to test different Web design options. Some visitors saw the A version, some the B version – and Microsoft tracked which version yielded better results. Kohavi then challenges his audience to predict the real-world outcomes of the test: Did Option A win? Did Option B win? Or were the results a statistical dead heat?

Almost without exception, his audiences fragment; not even a rough consensus emerges. “Stop debating,” Kohavi advises. “It’s easier to get the data … Data trumps intuition.”

Data from experiments such as Kohavi’s should ideally encourage executive curiosity and humility. Unfortunately, that rarely happens. Too many executives worldwide would rather use their expertise to “think” or “intuit” what’s best for their customers than run even the simplest experiment. They take pride in their “gut.” That’s a huge managerial mistake.

Organizations may be confident they know their customers, but they’re very likely to be overconfident. Most executives aren’t nearly as smart, perceptive or customer-centric as they believe. Leading researchers, such as Daniel Kahneman, who received the 2002 Nobel Prize in Economic Sciences, and psychologist Philip E. Tetlock, have persuasively demonstrated that “experts” are particularly prone to predictive overconfidence.

Michael Schrage “Embrace Your Ignorance,” Sloan Management Review, Winter 2015

Second thoughts on the internet of everything

If there was one big buzzword out of this year’s CES, it was the “Internet of Things.” Just about every major tech company seemingly wants to sell products or services as part of the Internet of Things. According to Cisco chief executive John Chambers, the Internet of Things could be a $19 trillion opportunity, with more than 50 billion objects hooked up to the Internet by 2020. The momentum behind the Internet of Things seems to be pretty much unstoppable, right?

Not so fast. The internet of things still has a long way to go before it becomes a reality. Here’s why:

1. Price

This is a real deal-killer – the current generation of consumer products for the Internet of Things is still way too expensive. Who needs a $99 “smart” light bulb or a $99 “smart” toothbrush? …

2. The “basket of remotes” issue

And even if the costs of these Internet-connected things come down, it will be a nightmare interoperability issue to get all the different things talking to each other. Fifty billion devices connected to the Internet by 2020 could lead to a “basket of remotes” problem on steroids – … .you have a whole bunch of remotes that you don’t use and that you can’t program to take advantage of their full functionality … .

3. Privacy

Third, the accumulation of all that Internet-connected stuff – stuff that’s presumably going to be outdated by the time of the next CES show in Vegas – is going to present nightmare privacy and security issues for users … .

Dominic Basulto, “3 reasons why the Internet of Things (still) doesn’t make sense.” Washington Post, January 16, 2015

The components of organizational culture

In the 1980s, psychologist Edgar Schein of the Sloan School of Management developed a model for understanding and analyzing organizational culture. Schein divided an organization’s culture into three distinct levels: artifacts, values, and assumptions.

Artifacts are the overt and obvious elements of an organization. They’re typically the things even an outsider can see, such as furniture and office layout, dress norms, inside jokes, and mantras. Yes, foosball and free food are also artifacts. Artifacts can be easy to observe but sometimes difficult to understand, especially if your analysis of a culture never goes any deeper. The Palo Alto office of IDEO famously has an airplane wing jutting out from one wall, a surprising and puzzling artifact if one doesn’t understand IDEO’s culture of playful experimentation and free expression.

Espoused values are the company’s declared set of values and norms. Values affect how members interact and represent the organization. Most often, values are reinforced in public declarations, like the aptly named list of core values, but also in the common phrases and norms individuals repeat often. Herb Kelleher was famous for responding to a variety of proposals from Southwest colleagues with the phrase “low cost airline,” reaffirming the espoused value of affordability.

Shared basic assumptions are the bedrock of organizational culture. They are the beliefs and behaviors so deeply embedded that they can sometimes go unnoticed. But basic assumptions are the essence of culture, and the plumb line that espoused values and artifacts square themselves against. Zappos call center employees share a strong belief that providing outstanding service will result in loyal customers, so much so that employees send potential customers to other retailers if Zappos doesn’t have the item in stock … .

It’s easy to examine quirky artifacts and mistake them for basic assumptions. There is nothing magical about a free food program, but a free food program in a culture with basic assumptions about the value of collaboration and sharing can enhance the creative output of the entire organization by providing meals over which to share ideas.

David Burkus, “How to Tell if Your Company Has a Creative Culture,” Harvard Business Review Blogs, December 2, 2014, https://hbr.org/2014/12/how-to-tell-if-your-company-has-a-creative-culture