Quick takes

Strategy & Leadership

ISSN: 1087-8572

Article publication date: 27 April 2012

643

Citation

Gorrell, C. (2012), "Quick takes", Strategy & Leadership, Vol. 40 No. 3. https://doi.org/10.1108/sl.2012.26140caa.004

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited


Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 40, Issue 3

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

Interview - Michael Beer – higher ambition leadership - Brian Leavy

Strategy & Leadership interviews Professor Michael Beer of Harvard Business School, whose recent book is Higher Ambition: How Great Leaders Create Economic and Social Value to learn what methods these leaders use – what they actually do, the principles that guide them, and the practices they follow.

Overview - What stood out was the leaders’ deep commitment to fully realizing the potential of their firms to create superior and lasting economic and social value, and to achieve both goals simultaneously, which Beer calls their “higher ambition.”

Two important differences distinguish this work from previous studies of the qualities of excellent companies or great leaders:

  • First, Beer’s higher ambition leaders 1) operate in a complex, pressurized global business environment that encompasses a greater diversity in national cultures, ethnicity, gender and religion than ever before; 2) built and sustained their companies despite managing in the current “shareholder first” era, which forces CEOs to deal with unrelenting market pressure for short-term earnings performance.

  • Second, these CEOs have converged on a distinctive way to lead that delivers better and more sustainable results in both economic and social terms.

Key points for higher ambition (HA) leadership

  • HA leaders enact higher purpose by integrating strategy and values to achieve sustained economic performance.

  • HA leaders build a strong community of common purpose across their diverse global operations, connecting the parts into a globally integrated whole, socially and emotionally.

  • Creating social value unlocks the dormant creative energies that exist in people…and with the resulting growth in profits comes more ability to attract motivated employees.

  • Four strategies are offered to those who aspire to become a higher-ambition leader.

Bottomline - To lead with higher ambition leadership values and behavior requires the courage and persistence to advocate policies and practices that are not common or accepted by all. Creating a HA company is a marathon, institution building, process. Sticking to the goal and making progress on the journey requires unusual amounts of emotional commitment: this is essence of a high commitment, high performance organization.

From maximizing shareholder value to delighting the customer - Stephen Denning

Jack Welch said, “Shareholder value is a result, not a strategy” (2009). Peter Drucker said, “There is only one valid definition of a business purpose: to create a customer” (1973).

These statements are in stark contrast to the dominant belief and prevalent practice of companies who put shareholder value first and foremost. The “shareholder first” premise was introduced as an attempt to focus executives on improving the real performance of their companies and thus increasing shareholder value over time. Yet, precisely the opposite occurred. In the period of shareholder capitalism since 1976, executive compensation has exploded while corporate performance has declined. “Maximizing shareholder value” turned out to worsen the disease it was alleged to cure.

Bottom-line: capitalism is at risk - It is no exaggeration to say that capitalism hangs in the balance. An analysis of the real performance before and after the “shareholder first” practice shows a steady decline. The situation is even starker looking at the rate of return on assets or the rate of return on invested capital: today they are only a quarter of what they were in 1965. The economically disastrous practices that enable firms to meet their quarterly targets – looting the firm’s pension fund, cutting back on worker benefits, and outsourcing to another country in ways that further destroy the firm’s ability to innovate and compete – need to be stopped.

What to do? - Given the numbers of the people and the amount of money involved, rescuing capitalism from these catastrophically bad habits won’t be easy. For most organizations, it will take a phase change. It means rethinking the very basis of a corporation and the way business is conducted, as well as the values of an entire society. “We must shift the focus of companies back to the customer and away from shareholder value,” says customer-value-advocate Roger Martin.

Three firms who are focused on the real world of customers and products are Johnson & Johnson, Procter & Gamble, and Apple. All believe that if their firms get things right for the consumers, shareholders will be rewarded as a result.

How to change: step up - The increasingly widespread recognition that maximizing shareholder value is a dumb idea is still a radical idea. Ultimately, change will happen, because it makes more money. Once investors realize what is going on, the economics will drive the change forward. None of these shifts involve sacrifices for the shareholders, the organizations, or the economy. That’s because delighting the customer is not just profitable: it’s hugely profitable.

Disruptive innovation: a new model for public sector services - William Eggers, Laura Baker, Ruben Gonzalez and Audrey Vaughn

In many parts of the private sector, we’ve grown accustomed to steadily falling prices for better products and services. But the public sector seems immune to the kind of innovation that produces more services for less over time. To change this the authors propose that public sector agencies adopt “disruptive innovation”: “[…] a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves ‘up market,’ eventually displacing established competitors.”

Public sector opportunities - There are many applicable cases where the use of technological innovation could make public programs radically cheaper without slashing services. But to get more public service for less cost requires doing things differently. Discussed are the three principal components to break the traditional trade-offs pattern: focus it, shape it, and grow it and extend it into core operations.

Where to start? - Disruptive innovations nearly always involve the application of a rapidly improving technology. The technology enables existing trade-offs to be broken, gaps between the real and the possible to be closed, and the vision of the disruptive hypothesis to be made a reality. The key is to find a low-cost emerging technology that is rapidly improving, and match it with a solution that meets the disruptive business model. One example is electronic monitoring; the technology was first Radio Frequency Identification (RFID) tags and then rapidly improving GPS technology. Now non-violent criminals can be “controlled” with the use of home monitoring devices for much less cost than being incarcerated in prison.

When compared to the private sector, the government has built-in advantages:

  • Their huge buying power can steer markets to favor deliverers towards more low-cost, disruptive approaches.

  • Their array of tools and channels can foster the growth of disruptive technologies – by removing subsidies to level the playing field and reducing funding to favor better, cheaper business models.

A path to getting more from less - From homeland security to education, from health care to defense, what is needed are innovations that break traditional trade-offs, particularly that between price and performance. This entails new business models, new entrants, new technologies, and the willingness to reduce or phase out existing practices.

Global leadership teams: diagnosing three essential qualities - Robert J. Thomas, Joshua Bellin, Claudy Jules and Nandani Lynton

There are many tensions that must be managed for a global company to succeed: between global and local, between differentiated and integrated and between many cultures and one organizational culture. When surveyed, top leadership teams cited three attributes as essential to their managing the complexity and tensions of a global scale:

  • Global leadership teams need a clear charter and operating principles in order to keep them focused and to enhance their ability to speak with one voice.

  • Top teams need to be agile; that is, capable of adjusting the way they think and whom they draw into the decision-making processes.

  • Global top teams need to “change ahead of the curve,” often ahead of the rest of the organization, in order to lead others into an uncertain future.

Sustaining the top leadership - Executives stressed the importance of next-generation leaders as a condition of enterprise survival in a global economy. As one CEO of a successful global firm explained, “internationalization has brought into sharper relief the whole talent development question in developing markets, and how to ensure we got the right local talent in those markets. We are progressing into how we develop that talent into global roles, and then ultimately, as succession candidates for the top jobs. Consequently, in five to ten years’ time, the upper levels of our leadership cadre will look different from what they are today.”

How ready is your global leadership team? - “To a small extent ← 1 – 2 – 3 – 4 – 5 → to a large extent”: diagnostic questions are offered to help assess whether your team has the three attributes that are essential to its effectiveness.

Total of 15 to 35: Your team may be highly successful in mature, non-volatile markets but you may be caught off guard in new markets or as new contenders challenge you in your home market. Your major risk is groupthink and missing developments that can catch you unaware.

Total of 35 to 55: Your team is working but missing some opportunities to raise its effectiveness. Your risk is staying in the mid-range while more agile and informed companies overtake you.

Total of 55 to 75: Your team has most of the pieces in place to achieve high performance. Be aware of habits that may hinder agility.

Beyond stage-gate: restoring learning and adaptability to commercialization - Nate Hutchins and Amy Muller

The stage-gate methodology of innovation commercialization has brought several welcome management practices to the field of new product development, including enhanced efficiency and control. But to the extent that executives must battle rigid stage-gate processes to promote a creative investigation of opportunities and then adjust their business model accordingly, the stage-gate methodology has fallen short.

So how can executives reap the benefits of the stage-gate approach yet avoid the pitfalls of its bureaucratic processes that kill innovation? Are there guiding principles that managers can employ to add essential learning and adaptability opportunities to the commercialization path?

Keep the best intent of stage-gate - The establishment of gate reviews – aligned with key milestones – breaks the commercialization process into natural stages of development. Such an approach allows “pay-as-you-go” funding for the next stage of development, contingent upon satisfactory completion of the previous stage.

But modify the methodology - Adopt these three principles which, when applied to each stage of a project, will serve to restore learning and adaptability while also preserving efficiency and control:

  • Be assumption-driven – re-conceive the stage-gate approach as an assumption-driven process centered on learning, rather than simply a sequence of activities marching towards a pre-determined outcome.

  • Diverge, converge, repeat – use a series of sequential divergent-convergent cycles – one cycle per stage – each centered on testing the major assumptions for that stage as the means for learning.

  • Set gates reviews for both metrics and learning objectives – by evaluating projects relative to not only metrics but also learning objectives, executive teams can better harness the potential downstream value of a new venture.

Continuous learning and unlearning is essential to the process of developing raw ideas into viable commercial applications. Executives who enforce process control at the expense of learning will likely eventually find that the firm has lost its adaptability and agility.

Case - How cloud computing maximizes growth opportunities for a firm challenging established rivals - David Rader

Cloud computing – conducting business functions on shared, off-premises computing systems – introduces strategic options and business-control challenges. It offers ubiquitous access to applications for interacting with all parts of a firm’s value chain and it connects an organization with the rich learning opportunities percolating in communities formed by the users of the service. The range of activity being conducted on cloud-based community platforms has expanded to include virtually every business activity – from R&D, engineering, and manufacturing to procurement, sales, service, accounting, corporate finance and talent management.

For a firm hoping to grow, but with fewer resources than its rivals, cloud computing offers the potential to do more with less, thus benefiting an agile, strategic adopter of its rapidly evolving technology and service.

Capabilities-comparison matrix - The practical question for adopting any new technology is, “what is the value of what can we do (with the technology) that we could not do before?”

To clarify choices, a capabilities-comparison matrix is presented to help decision makers focus on which business activities should go into the “do” and “don’t” classifications.

Working through the capabilities matrix (Exhibit 1) redefines the competitive space with new strategic choices – the how, who and where the challenger will elect to take on its bigger, stronger competitors. Sample questions are presented, as well as possible answers.

The cloud as competitive strategy - The next wave of business models will likely create and capture the value of a community of users participating in any specific cloud service.

Executives can use this capabilities-comparison-matrix approach to uncover, evaluate and rank opportunities for employing cloud computing to advance a challenger enterprise’s growth strategy.

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

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