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Strategy in the news
Article Type: CEO advisory From: Strategy & Leadership, Volume 43, Issue 3
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 (firstname.lastname@example.org).
Precursors of disruptive innovation
Steven Klepper’s work on firm survival and new entrants … found that firms tend towards oligopoly. They survive for as long as they keep the barriers to entry high and they often do this through high levels of investment in R&D … .
However, complex decision processes at the senior level of firms are also associated with an inability to respond to competitive pressure. While discussions of disruption tend to focus on singular cases, Klepper illustrated the impact of complex decision processes on whole sectors … .
Drawing on Klepper’s thinking and Schumpeter’s it is possible to identify a five step process that leads to structural disruption that affects all firms in a sector.
Concentration and hubris. The consolidation of market structure into an oligopoly, with satisfactory margins, but often accompanied by the growth of hubristic management.
The experimental era. What forces change on a highly concentrated industry? In the silicon industry Klepper identified early pressure coming from talented people working in oligopoly firms. This resulted in employees of existing oligopolists leaving to create their own companies because of dissatisfaction with how their innovative mindset is treated.
The new content layer. The growth of awareness, or a new content layer or changed information market, as consumers experience alternatives to oligopoly offers, often as co-creators or participants, is an often overlooked aspect of change.
Ecosystem consolidation. The consolidation of a durable start-up community with continuity of personnel and objectives over time, often represented as an ecosystem that takes on innovation risk is a consequence of an early experimental period.
Platform and price. The arrival of a platform company as an organising hub for a new industry, intensifies horizontal pressure on a whole sector and triggers multiple random adjacencies as platform providers can choose their ground – for example can Uber resist going into parcel delivery? Typically there is also a radical price reduction; apps for example, became free.
Haydn Shaughnessy, “Patterns of Disruption and the Great Transformation,” Drucker Forum, 18 February 2015, http://www.druckerforum.org/blog/?p=776
When the planning process compromises execution
When crafting strategy, many executives create detailed road maps that specify who should do what, by when, and with what resources. The strategic-planning process has received more than its share of criticism, but, along with the budgeting process, it remains the backbone of execution in many organizations …
Unfortunately, no Gantt chart survives contact with reality. No plan can anticipate every event that might help or hinder a company trying to achieve its strategic objectives. Managers and employees at every level need to adapt to facts on the ground, surmount unexpected obstacles, and take advantage of fleeting opportunities. … When managers come up with creative solutions to unforeseen problems or run with unexpected opportunities, they are not undermining systematic implementation; they are demonstrating execution at its best.
Such real-time adjustments require firms to be agile. Yet a lack of agility is a major obstacle to effective execution among the companies we have studied … . Just as managers want more structure in the processes to support coordination, they crave more structure in the processes used to adapt to changing circumstances … .
According to a study by McKinsey, firms that actively reallocated capital expenditures across business units achieved an average shareholder return 30% higher than the average return of companies that were slow to shift funds.
Instead of focusing on resource allocation, with its connotation of one-off choices, managers should concentrate on the fluid reallocation of funds, people, and attention.
Donald Sull, Rebecca Homkes, Charles Sull, “Why Strategy Execution Unravels – and What to Do About It,” Harvard Business Review, March 2015
Strategic decision-making in startups
Reid Hoffman – the co-founder and chairman of LinkedIn and partner at the venture capital firm Greylock – is a preeminent Silicon Valley strategist … .
Reid’s first principle is speed. One of his most popular quotes is, “If you aren’t embarrassed by the first version of your product, you shipped too late.” Another is, “In founding a startup, you throw yourself off a cliff and build an airplane on the way down.” Practically, Reid employs several decision making hacks to prioritize speed as a factor for which option is best – and to speed up the process of making the decision itself.
When faced with a set of options, Reid frequently will make a provisional decision instinctually based on the current information. Then he will note what additional information he would need to disprove his provisional decision and go get that … .
Reid’s second principle is simplicity – simplicity enables speed. Making the complex simple does not mean ignoring complexity. Reid is a nuanced thinker who does not shy away from detail, second order effects, exception cases, and so on. But especially in a group decision-making process where there are various points of view, it’s important for the leader to distill and frame the option set with simplicity. Wrestle with complexity, yes, but frame and commit to a decision that’s simple enough for everyone to understand and act on.
Ben Casnocha, “Reid Hoffman’s Two Rules for Strategy Decisions,” HBR blogs, 5 March 2015, https://hbr.org/2015/03/reid-hoffmans-two-rules-for-strategy-decisions/
The rise of the hyperscale business
Digitization is upending many core tenets of competition among industries by lowering the cost of entering markets and providing high-speed passing lanes to scale up enterprises. At the extreme are hyperscale businesses that are pushing the new rules of digitization so radically that they are challenging conventional management intuition about scale and complexity. These businesses have users, customers, devices, or interactions numbered in the hundreds of millions, billions, or more. Billions of interactions and data points, in turn, mean that events with only a one-in-a-million probability are happening many times a day.
Taken individually, each of these businesses seems like a special case. After all, how many companies can be like Google, which processes around four billion searches a day; Twitter, handling 500 million tweets a day; or Alibaba, the world’s largest e-commerce market, which facilitated 254 million orders in one day? …
Digital powerhouses already are flexing their hyperscale muscles to move from search and social networking into new sectors, like banking and retailing. Furthermore, hyperscaling will probably touch more areas as cheaper computer power, sensors, and communications accelerate the pace at which businesses adopt digital technologies … .
Digitization catalyzes rapid growth by creating network effects and evaporating marginal costs; the cost of storing, transporting, and replicating data is almost zero. WeChat, the mobile text and voice-messaging communication service developed by China’s Tencent, is an example of this digitally enhanced growth. It added 300 million users in two years – more than the entire adult population of the USA … .
Michael Chui and James Manyika, “Competition at the digital edge: ‘Hyperscale’ businesses,” McKinsey Quarterly, March 2015
RadioShack and the primacy of strategy
When RadioShack announced this month that it was filing for bankruptcy, not everyone was shocked by the news. Although it was once a leading electronics chain with thousands of outlets across the country, the rise of Best Buy and Amazon seemed to have already sealed the company’s fate. As far back as 2011, the satirical newspaper The Onion ran a characteristically damning headline: “Even CEO Can’t Figure Out How RadioShack Is Still In Business.”
From a strategist’s point of view, however, its downfall was not inevitable – the company simply failed to make the necessary changes to stay relevant. James Shein, a professor of strategy at the Kellogg School and author of Reversing the Slide: A Strategic Guide to Turnarounds and Corporate Renewal, says that when companies like RadioShack go bankrupt, it is usually because they never took a fresh look at their own fundamentals … .
For Shein, RadioShack’s late-stage efforts to cut costs and boost earnings were doomed to fail in the absence of a broader strategic vision. The larger problem was the company’s inability to define its competitive advantage. “When you’re setting strategy, you’re looking for a competitive advantage. Without it, you’re in trouble.” …
RadioShack offers a classic example of what not to do in a turnaround. Instead of identifying a clear go-to-market strategy, it focused entirely on operational changes in the name of cost cutting. Cuts are worth pursuing, especially if a company is in crisis mode and wants to stop the bleeding quickly. Sometimes it helps to strip out assets that no longer support a core competency, thereby rationalizing the balance sheet and improving the company’s short-term financial position. But unless a company defines its core competencies – and then determines which are competitive advantages – it may have difficulty determining which assets to strip and what kinds of people it needs.
Drew Calvert, “Phoning It In: RadioShack’s Non-Strategy,” Kellogg Insights, 24 February 2015, http://insight.kellogg.northwestern.edu/blogs/entry/phoning-it-in-radio-shacks-non-strategy
Design-thinking and invisible success
When is the last time you’ve been to an airport, checked in, made your way through security, walked to your gate, used the restroom, bought a sandwich, then boarded your flight without getting confused, disoriented, or lost? Yet we don’t think, “What great signs they have here! I found everything so easily.”
If Harding performs his job perfectly you will never think of him or his work. Its very success enables us to have our minds engaged elsewhere. In fact, the only time we tend to be aware of his craft is when it’s done poorly – when we are frustrated because we can’t find what we are looking for. Wayfinding, Harding’s specialty, is the process of designing cues – from signage to lighting and color, even the architecture, anything at all – to help people navigate a built environment …
The beauty of his work, when done right, is its invisibility. No ones leaves a compliment about the wayfinding in an airport comments box. His work directly affects thousands upon thousands of people every day, yet they never know to appreciate when he’s done an excellent job.
David Zweigjun, Invisibles: The Power of Anonymous Work in an Age of Relentless Self-Promotion (Portfolio, 2014)
When fear of success leads to failure
My recent clarion call for companies to be more open to experiment asked corporate leaders to live a new form of tolerance towards failure – by seeing it as often no more than a stumble on a longer path to new discovery. But, once they have seen the light, how can top-level executives get everyone in a company to work in the same spirit?
The problem is that innovation can be as exhilarating for one person as it is threatening to the next. That happens even in companies once prized for their innovativeness. The tech-journalist and Microsoft-alumnus David Auerbach has recounted* how a team within the company was already working on cloud-based word processing software, NetDocs, in the late 90s. But the NetDocs team was taken over by the much larger “Office” team, “which then proceeded to kill it, thus leaving the door open for Google.”
The anecdote is a great illustration of the natural conservatism of big companies. Even if a CEO thinks differently, an innovation and the specter of change will be seen an existential threat by many of his or her colleagues. What makes it even harder for the CEO is that this reflex is only too understandable for being all too human. The CEO’s challenge is to create a corporate structure that is not threatened by constant change.
Working with outside companies – especially start-ups – is a great way to introduce corporate employees to the culture of experimentation: They get to keep the existential threat of the potential disrupter at arm’s length, while witnessing the process – and hopefully the joys and fruits – of thinking and doing free of old corporate constraints.
Corporate collaborations have long been seen as a way to outsource risk and cost of experiment. But I think it’s high time we added a less cynical advantage to this list: Working with young and nimble start-ups is the easiest way for your employees to witness an experimental culture. You will find that some colleagues start living it.
Of course, start-ups aren’t the only way to introduce a more experimental culture into a big company. Indeed, the illustration above also makes two points of much wider relevance: Even big companies already have employees that can think like people who work for start-ups, they only need the right eco-system in which to thrive. You can call that a start-up. Or you can, more generically, call it a platform shielded from the “success-only” culture of the corporate world. Even a big company can provide that.
At best, a company should end up with a mix of “reservations” to protect out-of-the-box thinkers and experimenters: Mixed teams of internal and external talent when working with start-ups, and home grown teams operating as companies within the big company – with the freedom not always to be “successful” in big-company terms.
Michael Roemer, “Learning from Startups: How we can foster a culture of experiment”, Pulse, 20 February 2015, http://www.linkedin.com/pulse/learning-from-start-ups-how-we-can-foster-culture-michael-roemer
Why brooks brothers is not off-shoring
At Brooks Brothers, the customer is king. “If there’s a need in the marketplace, we respond,” says senior vice president of manufacturing John Martynec.
How does the venerable apparel company pull this off? By concentrating manufacturing in the USA, where design, production, and sales teams can react quickly and specifically to market fluctuations. Currently, 70 percent of Brooks Brothers suits are made in Massachusetts, 100 percent of the ties are made in New York City, and about 10 percent of the shirts (the luxury and made-to-measure range) are produced in North Carolina … .
But why make clothes stateside when it’s still less expensive overseas? According to Pamela Ellsworth, Chair of Global Fashion Management at the Fashion Institute of Technology, “Apparel production in the USA is once again becoming financially sustainable as wages increase in China and factory suppliers are demanding a higher volume of product.”
As Martynec puts it, “Cheaper isn’t always better. To get those low production costs in the Far East, you’re forced to produce big runs; you end up with a lower sell-through rate, and leftover pieces unloaded at cut prices.”
A lower sell-through rate is partly a result of lengthy design-to-market turnaround times. Conerly’s forecast posits that the apparel industry will continue to bring manufacturing back to the USA because transportation overseas “makes fast adjustments to production very difficult. It is particularly a problem when demand fluctuates quickly, as is the case with fashion apparel.
Martynec agrees. “With our factory in the USA, we can create a garment in 4-5 weeks from start to finish. Verticalization [consolidating control of design, production, and sales] makes a big difference. Manufacturing becomes a marketing tool.” Brooks Brothers has benefited from streamlining the design and production process in order to take full advantage of a sometimes capricious market
Jessica Dineen, “Why Brooks Brothers And Other Apparel Companies Are Moving Manufacturing Back Home,” View from the Middle, February 2015, http://www.cit.com/middle-market/common-interests/us-apparel-industry-reshoring-manufacturing/index.htm?cmp=VFTM_Newsletter_February_2015_2
The global consequences of drug-resistance bacteria
The increase in the number of bacterial and viral infections that are resistant to antimicrobial drugs poses a growing global health threat … . Recent economic modeling by RAND Europe has shed new light on the potential global impacts of failing to address the AMR threat …
We found that, depending on the scenario, by 2050, the total global loss in people of productive age could be between 11 million and 444 million. In economic terms, the world economy by 2050 would be smaller by between 0.06% and 3.1%, which corresponds to cumulative costs of between $2.1 trillion and $124.5 trillion. The … the upper bound reflects a scenario for a world with no effective antimicrobial drugs. To put things into perspective, this worst-case scenario amounts to losing almost twice the current annual global economic output, spread over almost four decades.
What is more, the costs expressed by our model are likely to be an underestimate of the true potential costs. First, due to data unavailability, the scope of our study was limited to three bacteria and three infectious diseases, which leaves out other situations potentially affected by resistance. Secondly, we did not consider any effects of the use of antimicrobials in animals, which leaves out a potentially important cost contributor. Thirdly, our model includes only costs resulting from the disruption of the supply of effective labor and does not include any other kinds of costs. This is very important because the removal of effective antimicrobials from healthcare systems would represent a serious disruption to modern medicine.
Jirka Taylor and Marco Hafner, “Ringing the Alarm Bess for Antimicrobial Resistance,” Rand blog, 20 February 2015, http://www.rand.org/blog/2015/02/ringing-the-alarm-bell-for-antimicrobial-resistance.html
Healthcare and the internet of everything
In the near future, we may see health and wellbeing devices being prescribed to us by our doctors. Keogh told the Guardian that “I see a time where someone who’s got heart failure because they’ve had a previous heart attack is sitting at home and wearing some unobtrusive sensors, and his phone rings, and it’s a health professional saying: ‘Mr. Smith, we’ve been monitoring you and we think you’re starting to go back into heart failure. Someone’s going to be with you in half an hour to give you some diuretics’.”
Patrick Burgoyne, “Your health in your hands,” Creative Review, 11 March 2015, http://www.creativereview.co.uk/cr-blog/2015/march/health-tech-and-you
GE embraces work simplification
GE, a company that is used to reinventing itself, has implemented a strategic focus on simplification over the last several years … . Led by Jeff Immelt, the CEO, simplification is now an integrated part of GE’s strategy, encompassing lean management, speed and competitiveness, commercial intensity, and digital capability. Simplification represents a cultural as well as a structural transformation.
First, GE is asking leaders to implement lean management: remove layers, increase spans of control, and reduce the number of checks and approvals needed to get things done. Wherever there is complexity and duplication, shared services are being created … .
Second, GE has developed a holistic program called FastWorks. FastWorks, which is based on the lean start-up methodology, involves a new way of working that begins with an intensified focus on – and understanding of – customer needs. Experimenting and iterating quickly to create solutions that add value or create value are hallmarks of the approach … .
Third, GE is implementing a set of mindset, belief, and behavioral changes to help leaders and employees reduce complexity and to create a new culture within GE. The culture of simplification is coming to life through a set of new “GE Beliefs,” which are focused on delivering fast, better solutions to customers. The GE Beliefs, created through a crowdsourcing process within GE, are:
Customers determine our success
Stay lean to go fast
Learn and adapt to win
Empower and inspire each other
Deliver results in an uncertain world
The GE Beliefs play a large role in leadership development and are also used to change how GE recruits, how it manages and leads, and how its people are evaluated and developed.
Fourth, GE has recently redesigned its performance management process, with an emphasis on agility, continuous discussions, and customer outcomes. Today, rather than targeting goals, managers emphasize priorities, helping employees continuously adapt and channel their efforts to the most important customer needs. The old world told people to “do more with less.” Today, GE tells its people to “do fewer things better.” This freedom and support to continuously focus, spend time with customers, and avoid trying to do too many things at once is core to GE’s new management process (renamed Performance Development), bringing simplification to the work life of every employee.
Dimple Agarwal, Burt Rea & Ardie van Berkel, “The Coming revolution,” DU Press, 27 February 2015, http://dupress.com/articles/work-simplification-human-capital-trends-2015/?icid=hp:ft:02
Why social media did not kill traditional advertising
In 2007, a young Mark Zuckerberg nervously addressed a room filled with analysts to predict the future. “The next 100 years are going to be different for advertisers starting today,” he announced. “For the last 100 years media has been pushed out to people, but now marketers are going to be a part of the conversation.”
That day, his presentation announced that brands were becoming an official part of the Facebook universe. Users would start to “like” brands on the social network and communicate with and around them; Zuckerberg called this “social ads”. “Nothing influences people more than a recommendation from a trusted friend,” he said. “A trusted referral is the holy grail of advertising.”
His speech ushered in a new era of social media. Agencies sprung up promising client services predicated on Zuckerberg’s vision of a more social, interactive approach to marketing communication. Rather than the traditional one-way model of mass communication, the agencies offered to “engage” with consumers and start “conversations” with them on behalf of clients.
But there were two problems with Zuckerberg’s vision. First, it assumed brands were as interesting as people. In reality, most people used social media as social media (stay with me) and eschewed contact with brands. Second, Facebook made more money offering brands the opportunity to buy audiences rather than developing naturalistic ones. Over time Facebook began to limit the amount of organic reach brands could achieve with their Facebook fans in order to monetize the contact process and drive their advertising model. These two factors ensured that even if social media did have the potential to allow a dialogue between brands and consumers, it was a conversation that only a tiny fraction could hear and an even more tiny proportion would respond to.
Mark Ritson, “Brands And Social Media: The Imaginary Revolution,” Branding Strategy Insider, 20 February 2015, http://www.brandingstrategyinsider.com/2015/02/brands-and-social-media-the-imaginary-revolution.html%23.VQm9MtLF_E0
A modern fable of toxic leadership
Between 1995 and 2015 … the most driven Boomer leaders mentored some high-performing Xer leaders and created a hybrid that I’ll call Boxers. This … happened across large public and private organizations. Boxers are cursed with unlimited drive (a Boomer trait) and the absence of trust (an Xer trait). Whenever a Boxer assumes a leadership position, writes policy or fills a primary staff role, woe follows. Boxers provide too much guidance, crushing innovation and subordinate initiative in the process. Boxers are significantly threatened by setbacks and negative events that can be linked back to them, even in the most peripheral or distant ways. They tend to over-react when people make mistakes. They pathologically reframe failure as success … . Boxers have an affinity for assigning blame and exaggerating impact … .
The prototypical Boxer policy is an over-reaction that fails to solve the problem coupled with metrics that fail to capture the impact relative to the need. If a Boxer wants to shade a picnic table, he/she doesn’t buy an umbrella or move the table into nearby existing shade. The Boxer plants an oak tree and requires subordinates to report the daily growth rate in inches during the morning stand up meeting. The Boxer becomes frustrated at the dismal rate of progress and demands his staff make the tree grow faster … . so they respond by measuring the oak in centimeters, which increases the daily status report number by 254% with no change in actual growth. Still frustrated by the lack of progress, the Boxer demands additional staff effort to make the tree grow faster. They switch to millimeters and include an additional 1,000% increase in the number on their annual evaluations despite no change in actual growth.
As the Boxer spins up the stress levels, staff members become creative. They report the amount of fertilizer added, by chemical component. They send a senior NCO to a technical forestry school so she can return and spread her knowledge via a Train-the-Trainer program. The staff begins to track and report hours of mandatory forestry training. They measure the daily temperature, humidity, barometric pressure and hours of sunlight. They report the volume of water poured on the tree each day and the number of leaves. Staff members work hard to display metrics on fancy slides, but measuring the tree won’t make it grow. When a Boxer plants an oak, measure the shade. When you measure impact rather than effort, poor decisions and ineffective programs become shamefully self-evident.
James Auvil, “Measure the Shade,” Medium, 11 March 2014, https://medium.com/the-smoking-gun/measure-the-shade-74cba4b982fd