Quick takes

Citation

Gorrell, C. (2007), "Quick takes", Strategy & Leadership, Vol. 35 No. 5. https://doi.org/10.1108/sl.2007.26135eae.002

Quick takes

These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.

Interview with innovation consultant Geoffrey Moore: seeking solutions to seeming intractable problemsAlistair Davidson and Brian Leavy

In this interview, innovation guru Geoffrey Moore shares his unique opinions on innovation management. Here are some summaries of them.

Mindset for innovation

To begin, a better way of thinking about innovation is to not structure innovation as a “program” or an initiative in a company, but rather to put company resources in service to an attractive target market to work on a solution to a seemingly intractable problem. That will inherently call innovation into existence.

Problems with innovation initiatives

The biggest challenge comes from the life cycle of innovation, which calls for different management focus at different stages. Large firms well understand the management of sustaining innovation in an established enterprise. They also understand the incubation of next-generation innovations in skunk-works-like settings. What they struggle with repeatedly, however, is the transition between the two. It is as if they have a model for childhood and adulthood but no model or patience for adolescence. Most innovations are killed during their adolescent stage.

Selecting and aligning around the right innovation strategy

Categories of product offers go through a market life cycle that parallels the innovation life cycle, meaning that different types of innovation are rewarded at different stages of the market’s maturity. My first guidance is to help the management team decide where it believes the category is in this life cycle and then to focus it on the innovation options that are most likely to generate customer preference.

Innovation of business model

Incremental adjustments to business models are necessary on an ongoing basis. Each involves renegotiating the current relationship with one’s business network, exporting some work formerly done internally out to other companies serving either as partners or outsourcers, and importing work formerly done externally to increase your own value-adding capabilities. But I think focusing too much on business model innovation may be a mistake. Innovation in any dimension of economic competition can create superior returns; monkeying with your business model is hard to do effectively. The key task for leadership, in my view, is to focus the company on the distinction between core – that which competitively differentiates the company’s offers – and context – all other processes for which the company is responsible. The more the company can extract resources from context to fund core, the more successful it will be in sustaining effective innovation over time.

Other topics Moore discussed: the mental model for how companies can perpetuate innovation, the five potential returns of innovation, types of innovation vis-à-vis resource allocation in business life stages, innovation in complex systems vs. volume operations.

Bain’s global 2007 management tools and trends surveyDarrell Rigby and Barbara Bilodeau

Since 1993, Bain & Company has surveyed executives around the world about the management tools they use and how effectively those tools have performed. The findings about which tools companies are using, under what circumstances and how satisfied they are with the results, allow managers to make better choices in selecting, implementing and integrating the tools to improve their performance.

The top rated tools

Strategic Planning, Customer Relationship Management, Core Competencies and Customer Segmentation all rated above average in both usage and satisfaction. In all, 25 tools are sorted by “the top 10”, by satisfaction, by usage, and by four categories – rudimentary tools, specialty tools, blunt instruments and power tools. Underlying the voting is the fact that the successful use of tools, and executives’ willingness to use them, is influenced by the tool’s adaptability and their ability to measure and communicate resulting benefits. “If the tool does not allow the user to understand the cost and benefit, it is unlikely to be embraced.”

Four themes for 2007

1. 1.

   Companies worldwide see the need to better understand their customers and to boost customer loyalty.

2. 2.

   Companies in emerging markets are more likely to say collaboration can help them boost innovation. Companies in established markets are more likely to pursue cross-border acquisitions and work with China and India over the next five years.

3. 3.

   Companies are eager to complement cost-cutting tools (like Shared Service Centers and Offshoring) with tools that are designed to help them manage:

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     Their global businesses – as opposed to merely reducing costs–including preparing for both the opportunities and risks of globalization.

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     Their corporate culture, which has a significant impact on process improvements and decision making.

4. 4.

   The emergence of a class of “power tools” (Strategic Planning, Customer Relationship Management, Core Competencies and Customer Segmentation). These are valuable components of almost any company’s toolkit, especially as more firms seek growth via strategies to reach new customers in emerging markets.

The different attitudes from respondents around the world, by region (Asia, Latin America, Europe, and North America) are also presented.

Going forward: recommendations for tool use

• •

  Get the facts. Every tool has its own strengths and weaknesses.

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  Champion enduring strategies, not fleeting fads.

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  Choose the best tools for the job. A tool will improve results only to the extent that it helps discover unmet customer needs, helps build distinctive capabilities and helps exploit the vulnerabilities of competitors – or a combination of all three.

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  Adapt tools to your company’s particular circumstance (not vice versa).

SBU 2.0: a new tool for selecting business opportunities for the multi-unit organizationGillis J. Jonk

Traditionally, the strategic business unit (SBU) has served as the fundamental organization unit to ensure market focus, with accompanying benefits of entrepreneurial control, clear accountability and clean measurement. Today, the evolution of the SBU means that it can be aggressively leveraged for new growth: activity-sharing, activity sourcing, and activity re-combination across both intra company organizational boundaries and inter company strategic alliances.

Good news, bad news

The opportunities for growth through SBU “synergy” or “leverage” are numerous and welcome, but they can also be overwhelming. For management, the core question is how to best mine SBU functional relationships without one unit harming another or the corporate strategy itself being derailed by incremental selections of unit by unit opportunities.

New A.T. Kearney tool

For executives to assess the multitude of opportunities that present themselves, ATK proposes a new model–SBU 2.0. It consist of both analysis and recipe guidelines. Combining the two allows the organization to see and evaluate many opportunities, not just the obvious or the trendy ones, and to make the best tradeoffs in deciding what to pursue and what to forego.

The SBU 2.0 elements

The basis is a new mindset. Business managers should no longer be rewarded for managing tens of thousands of people, but rather for managing and developing their core business through a network of contracts for delivering the non-proprietary portions of their value chains. The modern multi-business, leveraged corporation will contain resource-contracting SBUs, several functional businesses, and a corporate center capable of making tradeoffs between the two types. SBU boundaries may be redrawn from time to time as a result, but that is a part of the adaptability inherent in SBU 2.0 model.

Two steps

The first step is to do the analysis of the value chain at the SBU level. Three essential answers are pursued. An example case study is offered.

The second step is to apply the recipe to construct an organizational design, one that not only chooses the most appropriate opportunities but also firmly anchors control and coordination. Although it sounds dauntingly complicated, the essential recipe has only three steps: 1) focus on the most important parts, 2) be prepared to leverage the rest and 3) but don’t leverage when there is good reason not to.

Conclusion

Because the recipe aligns the entire organization to chosen strategic priorities, they become that much easier to implement. In other words, SBU 2.0 isn’t an organizational design tool; it’s a strategy deployment tool.

Engaging the board of directors on strategyDonley Townsend

A firm’s strategy determines the course it will try to pursue over several years; strategy guides the allocation of resources – financial, physical, and human. Clearly, strategy must be a subject that engages the interests of all the members of a firm’s leadership – top management and the board of directors and the Chief Executive Officer.

Implementing a corporate career lattice: the Mass Career Customization modelCathleen Benko and Anne Weisberg

In order to attract and retain talent, organizations will need to find ways to build careers that are both rewarding to women and men of current generations – and inviting to future ones. The proverbial corporate ladder must evolve, the authors believe, into the corporate lattice.

Problematic factors with the existing approach

1. 1.

   The traditional corporate career ladder has numerous limitation factors:

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     Move up or stop moving.

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     Singular path upwards.

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     Assumes workers’ needs are static.

2. 2.

   Workforce trends require changes in company HR practices:

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     Shortfall of workers;

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     Changing family structures;

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     More, better educated women who do not work continuously full-time throughout their careers;

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     Changes expectation of men to gain more family and personal time.

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     Generations X and Y, who view career as a personalized path of interests and goals;

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     Technology that creates new options for when, how and where works gets done.

3. 3.

   Today’s flexible work plans are not the answer because they are not scaleable.

4. 4.

   Because loyal employees lead to loyal customers, organizations need to offer career paths that create loyal employees.

Solution: MCC=mass career customization

1. 1.

   Definition:

   • •

     MCC is a corporate lattice organization.

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     It encourages a continuous collaboration between employer and employee to design customized career paths, taking into account both the changing needs of the business, and employees’ changing lives. The result is a more transparent, adaptive model of career progression.

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     The MCC framework reflects reality by articulating a definite, not infinite, set of options along the four core dimensions of a career – Pace, Workload, Location/Schedule and Role – with articulated tradeoffs for each choice, and also by allowing for choices to change over time.

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     Examples are given that show how MCC provides real options for an employee to fit work into life and life into work, while staying continuously engaged with the business. This “option value” gives employees confidence they will have the ability to customize their careers as priorities change in their personal lives. Providing this option value gives employers a competitive advantage in attracting talent, and a powerful retention tool.

2. 2.

   Bottom line benefit: Customizing careers within a corporate lattice construct can benefit employees and organizations in a number of ways, and this approach shows promise of significant competitive advantage over corporate ladder organizations. Just as mass product customization improved profitability, reduced costs and increased loyalty, MCC has the potential to inspire greater employee productivity, reduce the costs of turnover and generate greater loyalty through a customized, collaborative approach to designing careers.

Considering the utility of Altman’s Z-score as a strategic assessment and performance management toolJoseph Calandro Jr

A detailed statistical study was undertaken to identify the performance metric that “provided the greatest relative information about the market-adjusted return to shareholders.” Surprisingly it was a financial distress metric that tested best: the change in the Altman Bankruptcy Predictor, widely known as the Z-score.

The others tested included a variety of widely used performance metrics–such as return on equity (ROE), return on assets (ROA), residual income (or economic profit), and the growth rate of sales, cash flow and expenses. Although the Z-score model has been a well-accepted financial distress model for almost four decades, strategists generally haven’t discovered its potential as a performance management tool.

What is it?

Altman utilized a statistical technique called discriminate analysis to create a financial distress prediction model. Significantly, Altman utilized basic financial ratios as inputs to his model, which made it inherently practical (unlike so much of modern academic finance theory).

Applications

Altman’s Z-score has been immensely influential in areas such as credit risk analysis, distressed investing, M&A target analysis, and turnaround management. The recent study now expands its usage as a practical and powerful strategic tool for performance management or even with value-based management.

Case study presented: GTI

GTI’s employment of the Altman Bankruptcy Predictor (or Z-score) is described as a specific illustration of how an ordinary passive model can be used actively with substantial success in performance management, even under severe conditions. The value of this metric is in part due to its ability to measure a change in condition versus static measurements that represent the value of an indicator at a given point in time.

Going forward

The use of Altman’s Z-score as a strategic assessment and performance management tool deserves practical consideration to provide insight in the areas of entrepreneurship and strategic management.

But, in your company, would you say that rather than focus on strategy, your directors:

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  Always manage to stray off into tactical issues?

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  Get inappropriately involved in initiatives, even designing new products on napkins?

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  Not staying on the agreed strategy course when the allure of an acquisition tempts them?

Solution: a five-point process for effectively engaging a board of directors on strategy.

Step 1: Map out a strategy agenda with the board

Mapping out the strategy process the board will follow provides time for thought, reflection, dialogue, and iteration and allows management to make meaningful use of directors’ expertise and knowledge.

Step 2: Describe your strategic planning process

An explanation giving the directors the “how” and “why” of management’s work on strategy, can lead to new dynamics. In one case, once the directors saw that management’s process was robust, their questions shifted from challenging management’s conclusions to fostering a dialogue that extended management’s thinking.

Step 3: Emphasize the external environment and competitive pressures

Chairmen and CEOs who have forged an effective and collaborative path with their boards of directors focus considerable attention and board time on looking outward.

Step 4: Be clear about the required resources

Specifying the resources required for a strategy and where and how management plans to come by these resources provides an opportunity for real collaboration between the board and top management.

Step 5: Know the warning signs of trouble and tell the board

The CEO needs to insure that his management team provides the board with the evidence behind management’s confidence in the organization’s capability to execute the planned strategies.

This field tested five-step formula for improvement is based on two premises. One is that the strategic work of an organization – the delineation of a future direction, the commitment to that direction, and the execution of the work needed to achieve the goals of a strategy – is a process that involves the whole of management. The second premise is that there should also be a process for appropriately engaging the board of directors in strategy. When the CEO thinks through this process and engages the directors, the board and the CEO can enter into a dialogue that leads to collaboration and a greater chance of achieving the goals of the organization.

Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (mcgorrell@sbcglobal.net) and a contributing editor of Strategy & Leadership.