DREAM. THINK. BECOME. Essays For The Mind Of A Strategic Thinker by Strategic Thinking Group

[as re-edited by KR, as at March 30, 2009] The Place Where Dreams Are Born Essays for the Mind of the Strategic Thinker Why Did I Write This Book? - An Introductory Statement from the Author The clever man has all the answers; the wise man has all the questions. This isn’t a book about management theory. I’m a practitioner, not a theorist, so my aim is to stimulate your thinking about how to craft, execute and sustain strategy. I’ve devised a seven-step template that outlines how to do that, and the essays in this book fit within that template. I invite you to dip into the essays in whatever order you choose, depending on the issues you’re facing in your organisation. Know what you don’t know I first started writing these essays in the mid-1990s, but I had formulated the ideas over many years and I’m still developing them, so I believe they’re still applicable today. I don’t claim to offer answers – the essays are designed to help you devise the right questions, and to “know what you don’t know”. One of the things I ask my clients to do is to list three questions, the answers to which would give them tremendous insights into their business and its likely future. Simply by asking the right questions, they open their minds to possible solutions. Often, CEOs don’t ask the right questions. They have to grasp and digest a huge amount of information, and they also fear exposing their weaknesses. If you’re a CEO, the most important question is probably “Do I believe I can do it?” – all the other questions become irrelevant if you hesitate. Clever men; wise men The financial meltdown of the past five years has been driven by “clever men”; arrogant men who thought they had all the answers; “shepherds of soul-less, number-driven strategies” (as I write about in one of the essays). They don’t appreciate the purpose behind the numbers, so they begin to spin out of control and make bad decisions. Wise business leaders, by contrast, understand that the questioning process is the most effective way to formulate a strategy. Good questions make people think differently. Concerning the financial meltdown, we should all be asking “Why didn’t the banks and the regulators ask the right questions about subprime loans?” Why didn’t the banks and regulators ask “Why are we doing this?” And why didn’t someone say “STOP this madness!”?

It’s a matter of ethics. Ultimately, the CEO is responsible for setting the tone of the organisation, so he or she needs to have an inner compass that says “This course of action does not seem to fit with our values.” My hope is that the essays in this book, within my seven-step template, will help you, the CEO, to follow your inner compass. Knowing what / Thou knowest not / Is in a sense / Omniscience. Piet Hein, poet and scientist (1905-1996) James Haybyrne Hong Kong, April 2009 ….. James Haybyrne is the founder and CEO of The Strategic Thinking Group (www.strategicthinker.com). He lives in Hong Kong.

INTRODUCTION Strategic thinking is the art of war applied to business. It is thought, analysis, imagination and judgment applied to a competitive situation in which there are economic winners and losers. Around the world, you, as today’s CEO – or the CEO who will be leading tomorrow’s businesses – need to survey the business battlefield and to answer key questions that will help you determine strategy and use it to move your organisation purposefully into the future. These essays have been written for you, an often-beleaguered warrior. They guide your strategic thinking through clearly drawn pictures of the many types of terrain over which you must now expect to fight. They draw on author James B. Haybyrne’s more than 25 years of practical experience in advising and guiding CEOs worldwide to craft, execute and sustain the results of highly specific strategies for their increasingly global businesses. It incorporates the insights of some of today’s most influential and provocative thinkers and doers in and out of business, blending their views within a powerful “story” about strategy entitled The Journey Begins…Seven Steps To A Successfully Executed Strategy. It takes the reader behind the scenes of some lesser-known enterprises such as Zildjian and Levenger to see how they have used the strategic concepts, as set out in various essays, to emerge victorious from the battle. A detailed colour “Battlefield Map” provides a strong visual summary of strategy and the complex variables that influence its execution. Together with a second “Seven Steps Map”, they provide a straightforward framework for strategic decision-making. This will enable you, 2

as the CEO, to work with your senior executive team to turn readily available information into strategic, actionable knowledge, using “Common Sense, Uncommonly Applied” ® to establish clear new directions for the future. These essays challenge you, today’s and tomorrow’s CEO, to cast your role as a strategic thinker as you lead your organisation through the dawn of the 21 st century. •

WHY I WROTE THESE ESSAYS Busy CEOs have no time to reflect, but reflection will drive future success as we move from a knowledge society to a thinking society. So I wrote these essays to provide insights and to offer a seven-step framework and a mental map.

•

HOW THIS BOOK IS ORGANISED (THE SEVEN-STEP MODEL) o It follows the models for change developed by Kotter and others o It’s a fast read o o It’s structured yet flexible, just like strategy o It uses quotations o At the end of each step is a series of questions to prompt new insights o o

•

THE AIM OF THESE ESSAYS o To give a CEO’s broad perspective of the world o To offer insights o They are based on experience and, I hope, wisdom o There is an emphasis on belief systems and values in conducting business o They avoid technical outside solutions but rather get you to come up with your own answers to complex problems.

•

WHO SHOULD READ THESE ESSAYS? o CEOs and anyone who leads teams in a business or organisation o Anyone who wants to understand leadership

•

DISTINCTIVE FEATURES o Maps o Guiding questions

• •

HOW TO READ THIS BOOK

o Once you read the seven-step model, feel free to read the essays in any order you wish. o Make notes. o Ask your team questions. 3

o Choose the essays that have the most influence on your thinking. Ask your team to read those essays and consider how the ideas apply to your organisation.

THE PLACE WHERE DREAMS ARE BORN ESSAYS FOR THE MIND OF THE STRATEGIC THINKER PART I DREAM. THINK. BECOME. A.

You, As A Leader…

[insert page number]

…Must Possess the Skills of A Strategic Thinker …To Understand the Future B.

Strategic Thinking …Is the Responsibility of the CEO and Executive Team …Is Systematic …Must Produce Bottom-Line Results …Uses “Common Sense, Uncommonly Applied”® …And is “Back To Basics”

The Journey Begins…Seven Steps To A Successfully Executed Strategy

PART II ESSAYS TO GUIDE YOU ON YOUR JOURNEY

CRAFT What Should Our Future Business Be? Guiding you on your journey… Step 1 Create a sense of urgency for superior performance Monkey does as monkey sees That’s a great idea! It just won’t work here! 5

A castle built on dreams needs a foundation As the world turns… Step 2 Build a powerful executive team Finding commonality within diverse cultures Want a great team? Start with humility and discipline Negative self-talk needs to be silenced Effective leaders create effective conversations Judge a leader by the led When it is wise to dissent Step 3 Craft a strategy Strategy is a map about “a” future Drawing your “map” - Six strategic questions Focus or diversify? Do both! Diversifying can be fraught with danger One company, two systems spells disaster Growth for growth’s sake: A recipe for failure Forming alliances allows firms to broaden their selling base without compromising their core activities EXECUTE! How Will We Manage The Execution Of Our Strategy? Guiding you on your journey… Step 4 Communicate the strategy “No excuses!” strategy execution A measured strategy How to keep your edge Trial and error – A way to scale the learning curve Step 5 Empower your people to execute the strategy Shepherds of soul-less, number-driven strategies Privilege is derived from principles Cynicism undermines corporate cultures “No Excuses!” leadership

Step 6 Build momentum Rules for victory Staying one step ahead of the rest Marshalling forces Take the time to guard your patch Revolutionary results through evolutionary change When defence may be the best form of attack

SUSTAIN How Will We Manage Our Response To Inevitable Change? Guiding you on your journey… Step 7 Make performance a habit How to gain an edge Stay on the lookout Market share The importance of gathering accurate data about rivals and shifting winds applies as much to business as to battle

PART III LIVING TOWARDS THE FUTURE LESSONS FOR A FUTURE CEO Lesson 1: Strategy absorbs the shocks of radical change by creating new skills for the organisation of the future. Lesson 2: Strategy helps us build and rebuild the adaptive organisation of the future. Lesson 3: Strategy must drive family-owned businesses. Lesson 4: Strategy helps us understand changes in the “rules” by which we will play. Lesson 5: Strategy considers which technologies will most shape your future and create opportunities for your business.

Lesson 6: Strategy manages knowledge. Lesson 7: Strategy expands boundaries. Lesson 8: Strategy lives with contradiction. Lesson 9: Strategy changes as circumstances change.

THE PLACE WHERE DREAMS ARE BORN ESSAYS FOR THE MIND OF THE STRATEGIC THINKER PART I DREAM. THINK. BECOME. I am enough of an artist to draw freely upon my imagination. Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world. Albert Einstein Dream. Think. Become… three powerful words that describe the leadership role of the Chief Executive Officer (CEO), as he or she pursues the creation, growth and preservation of wealth for their organisation. Leadership in this sense, as someone once observed, “…is truly the most creative of all arts, since the medium is human talent itself”. We must accomplish great things with others, bound to them only by a common understanding of the journey and its end. A.

YOU, AS A LEADER…

But leadership and the skills of a CEO take meaning from the context, the battlefield, in which the leader finds himself or herself. I believe that much of a society’s success rests on the effectiveness of its institutions to bring to life fair and equitable social, political and economic policies. To do this, its institutions must be well managed by unusually talented Chief Executive Officers, fighting always in the thick of the battle, the noble struggle to create something greater than themselves. Perhaps Theodore Roosevelt, the American President, best captured this timeless role and responsibility of a CEO when he wrote in 1910: “It is not the critic who counts; not the man who points out how the strong man stumbles or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, and comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows the great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory or defeat”. In essence, unlike some politicians who seek so-called “third way” solutions by compromising principles, you must be a principled leader of people – not a facilitator of public opinion. Creating an organisation in which the people have both the ability and the bounded freedom to think, dream, and become greater than they thought possible is the hallmark of true 9

leadership. But to create this type of organisation, a CEO must have a range of skills and attributes that he or she is able to bring to bear on the organisation. And this is what these essays capture… The CEO – a risk-taker, committed to the long term, who relentlessly pursues product and service improvement by managing knowledge, guided by intuition and judgment. …MUST POSSESS THE SKILLS OF A STRATEGIC THINKER What then are the skills a CEO uses to have such a powerful impact on organisations and individuals? What kind of a leader and thinker is he or she? Robert Shuler successfully captures the essence of optimistic CEO leadership: “Seeing the invisible, believing the incredible, performing the impossible.” But there is more: First, the CEO will always consider the future as an important dimension of management time. He frequently reminds his people to think about that future and the role their organisation will play, because he understands the meaning of the ancient proverb: “Without a vision, the people will perish”. He is able to think about possible futures because he understands the trends and developments not only in business, but in our social and political dimensions as well. The picture that he paints is a plausible one that many people can understand. Bill Gates of Microsoft and Jerry Yang of Google were useful examples of leaders who thought about the future and their organisations’ roles within that future. Second, since the future is less than certain, the CEO is able to operate with less than perfect information. He relies, as Joel Barker tells us, on intuition – the ability to make a decision in the absence of complete information. Many people have access to a wealth of information but do not have the ability to convert that information into strategic knowledge. Intuition, a muchmisunderstood attribute, allows a CEO to interpret his surroundings so that he can pursue opportunity while avoiding pitfalls that threaten the organisation’s existence. Third, as the CEO looks into the future he or she is able to see the “big picture” without being confused by the various parts of that picture. All the variables that influence the organisation’s strategy are considered in relationship with and in proportion to each other. When he makes a decision he understands the possible impact that decision will have on all the various parts of the organisation. He is a systems thinker. Fourth, the CEO has a capability to understand and incorporate abstract ideas such as the values or basic beliefs that drive the organisation. He has the character and strength to ask his organisation to internalise those values and use them as a beacon in turbulent times. Leaders such as Anita Roddick, Tony Blair, Condoleezza Rice, Lee Kuan Yew, Margaret Thatcher, Ronald Reagan and Aung San Suu Kyi come to mind. Fifth, the CEO is able to take all of these concepts about the future and create a clear picture and “story” that all his or her people can understand. He or she is an excellent communicator and spends considerable time thinking about the creation of a positive reputation for the organisation. This “story” not only gives a sense of purpose to the lives of the individuals for whom the leader is responsible, but also reinforces the perception that outsiders have of that organisation. This is critically important, since a successful strategy must be executed with the assistance of “outsiders” such as suppliers, investors and communities. Ultimately, what your customer believes about you will ensure your success or demise. 10

Sixth, the CEO has a drive to preserve the organisation. Therefore, he is willing to sacrifice short-term gain for long-term survival and growth. While he understands shareholder value, he views that as a long-term proposition that only reflects the market viability of a business concept. Thus, at the end of his tenure, there will be something of immense value to be passed on to future generations. In essence, he or she has created a customer, the sole purpose of any business. As John Allston wrote, “The only thing you take with you when you’re gone is what you leave behind.” …TO UNDERSTAND THE FUTURE Why must a CEO think strategically? The simple answer is that a CEO’s mind lives in the future. Thus, in crafting a strategy, the strategic thinking of the CEO must begin in the future, where customers, wealth, growth and, I might add, the CEO’s legacy lie. We must begin at the end. As such, we must develop ways to visit, quite regularly, that future. Yet, as Peter Drucker reminds us, there are only two things we can know for sure about the future: • •

We cannot predict it. It will be different from the present and from what we expect.

However, it is also true that we only have to “guess” a few key things correctly to gain an advantage. We don’t have to be “right” about everything that might happen – just a few things. For example, we do know that there are present forces shaping our future that, if we could make sense of them, would give us a glimpse of what that future may be like and where customer opportunities await us. We can then, by using strategic thinking, begin to influence that future so that our organisation can benefit from that future. Thus, it is not so much about what you can predict but more about what your imagination can inspire. For it is our imagination that creates our future. Begin to think strategically. Use your imagination to “see” what your world will be like in the near future. What current possibilities in education, work and organisation will become realities? And how will you, your family and your company prepare for this future? Let me paint a plausible, not perfect, future scenario to stimulate your own strategic thinking as you begin your visit to your future. A Virtual Future… Your family in this future enjoys conveniences unimaginable in the 1990s. TVs, VCRS, telephones, PCs, CD players and video game machines went to the junk pile when an Asian technology giant began marketing its all-in-one home entertainment and communications technology. With the introduction of this technology, the distinction between the personal computer, the television and the telephone disappeared. Technology therefore transformed the structure and fabric of life. The most important of these were: • The learning process for children and adults was revolutionised by the merging of educational and entertainment technologies; and • The traditional separation between home and office disappeared. 11

…Where The Virtual School Educates… Your children spend less time in traditional classrooms. The educational system has been restructured by a transformation in the concepts of education, entertainment and work. In 1995, only 30 per cent of American and European homes had a PC; in the year 2020, over 95 per cent have them. Buyers of home computers want to educate their children. The result is that educational software and multimedia hardware sales for the home market have boomed. Some software publishers, book publishers and entertainment companies foresaw what was happening and moved quickly to take advantage of the trend, using multimedia platforms. But offline newspapers have ceased to exist as mass-market media; they have been replaced by online sources of customised news reports. …The Virtual Worker… Significant trends affecting work had their beginnings in the mid-1990s. Today, workers perform in cyberspace. Developments that brought this about included: • • • • •

The downsizing of corporations created the need for managers to set up their own businesses to earn a living. Companies began to experiment with satellite and virtual offices in order to cut their overhead costs. Many professional women perceived that they could achieve more success with their own home-based business than in the traditional corporate structure. In order to reduce pollution and ease traffic congestion, cities will require corporations to limit the commuting of their employees, thus creating further demands for telecommuting and satellite offices. Family-owned businesses are increasing their dominance of the economic battlefield, as large organisations begin to form virtual networked organisations linked throughout the world. Licensing and franchising have become the most accepted form of geographic expansion. …Who Works For The Virtual Corporation…

Traditional offices have shrunk to “mere landing sites, where mobile professional workers dock for an hour or so at a communal electronic desk”. When workers show up at the central workplace, they plug in their personal digital assistants and retrieve from the network all the communications and data that they need. As the future unfolded, organisations were spending more than 60% of their information technology budgets to support the “extended enterprise”: a complex web of relationships within companies and between their customers, suppliers and markets. It became routine for companies to team with suppliers and distributors at the earliest stages of product design. 12

…Led By The Virtual CEO! Older CEOs are not always comfortable with the technology or the changed organisation that has been created by the technology, unlike the thriving younger generations. In the 1990’s, the organisation defined the work to be done. Now, in the virtual world, the work to be done defines the organisation. As such, the role of the CEO is markedly different. First, there is never any downtime. You are on duty and on call 24 hours a day, because communications and information flows do not respect space boundaries. Second, since the virtual organisation has no hierarchy, the basis of your authority as CEO has changed. Executives and managers in the 90s had noticed how quickly e-mail caused traditional power structures to dissolve. Now anyone who holds a stake in your company is able to talk to you directly. The word “employee” has long since disappeared from the vocabulary. All of this created a paradox. Because things changed so fast, it seemed that what employees, directors and shareholders wanted most of all from you, the CEO, was a vision of the future, but you rarely had the time to step back and think, not only to make sense out of the present, but to try to envision the future. No time to think? How then are you, the present or future CEO, preparing for this new world? How can you create the time to envision the future? How will you think strategically? B.

STRATEGIC THINKING…

Strategic thinking has been around for centuries. It begins with a clear focused idea of an end result some time in the future, such as Cato’s declaration: Delenda Carthago! (“Carthage must be destroyed”). Simplicity generates results – Carthage was destroyed a few years later. Ronald Reagan also believed in simple, though not simplistic, ways to speak of clear end results. When he referred to the struggle between freedom of democracy and the oppression of Communism he wrote: “It’s simple. We win, they lose.” One business example involves one of our Asian-based clients who, when working out his company’s strategic direction, traced the roots of his company to one clear idea enunciated by his great-grandfather in 1906: serve the accommodation needs of expatriates living in remote locations. From that one simple idea of serving a specific customer grew an organisation with a vast purchasing and distribution network stretching from Europe to Asia and serving markets as scattered as Africa and the Indian Ocean. He answered the central questions of strategy: What will I sell? To whom will I sell? Where will I sell? The basic business idea was not a tangible product – our client produced nothing. Rather, he acquired and handled everything. He anchored his business to a defined, describable customer. It was a one-stop-shop service needed by foreigners often unfamiliar with their 13

surroundings, in remote locations, who were always unable to locally procure certain highend goods and services. Since they were willing to pay a premium for access to those goods, our client’s great-grandfather sold them “access”. Simple idea, focus, results. … Is the Responsibility of the CEO and Executive Team Ensuring that a strategy is adequately framed, debated, and effectively executed is the prime responsibility of the CEO – some would say the sole responsibility. Get this one right, and the organisation will prosper. Get it wrong and the organisation will sink without a trace. And they won’t make a movie about you like they did about the Titanic! Some people saw the story of Apple Computer in its early years as a failure to implement a carefully worked-out strategy. Others saw it rather as a failure to arrive systematically at a correct strategy – one that would have turned Apple into a software manufacturing company so that it could license its operating system to other computer manufacturers. They misjudged the opportunity. They got it wrong as much as Microsoft got it right. As a result, the better product lost an early battle. But only for a time. The IPod was launched, then Apple introduced their computers that ran on both Microsoft and Apple operating systems. They began the march to outflank Microsoft. The iPhone was born. They learned. They changed the rules. Apple’s recent strategic move reminded me of Douglas Adams’ statement: “I may not have gone where I intended to go, but I think I have ended up where I intended to be.” Steve Jobs and Apple’s leadership team fulfilled its responsibility to continuously think, act, learn and think again. … Is Systematic Strategic thinking relies on judgment and intuition and as well as fact and analysis. And it is systematic. As well as envisioning the future, it also leads forward logically from a review of present business through a consideration of all the opportunities and finally to the task of execution. Let me briefly sketch the outline of strategic thinking here. First, the business itself. As a CEO who looks to the future, you must fully understand and question the nature of your present business. For example, unless you know one critical piece of information, “You are here”, a map to some other destination will be useless. Next you will study the opportunity factor, which we find nicely balanced between the immediate present and a desired future. Here you will use your knowledge to search out and evaluate alternatives, the resources needed for each alternative and the associated risks for each one. Strategic thinking creates options, frames a debate around those options, and guides a CEO to conclusions and decisions about the preferred option. In summary, strategic thinking guides you through these 10 decisions. The first six focus on the crafting of strategy; the final four on execution. 1.

What is our business? The answer to the question ‘what is our business?’ is the first responsibility of top management. 14

Peter F. Drucker 2.

What will be the future business environment? Organizations must … gain a deeper understanding than their competitors of the trends and discontinuities – technological, demographic, regulatory or lifestyle – that could be used to transform industry boundaries and create new competitive space. Gary Hamel C.K Prahalad

What strategic options do we have to compete in that business environment? The decision (about your future business) must be based on a conscious choice of alternatives rather than on suppression of different and dissenting opinions and points of view. Peter F. Drucker

What should and should not be our business and what are our expectations for performance? The question ‘What should our business be?’ … should prevent managers from uncritically extending present trends into the future, from assuming that today’s products, services, markets, and technologies will be the products, services, markets and technologies of tomorrow, and, above all, from dedicating their resources and energies to the defense of yesterday… …wherever we find a business that is outstandingly successful, we find that it has thought through the alternatives and has made a concentration decision. Peter F. Drucker

What critical changes must we make in the way we currently do business in order to achieve our strategy? Think fast, act quickly, meet the future! JVC Corporation

Who will be responsible and accountable for making those changes happen? Everything that is planned becomes immediate work and commitment. Peter F. Drucker

…Must Produce Bottom-line Results 15

Your final test involves execution, the “messy” and most difficult side of strategy. The decisive plan of action that you draw up to achieve the best potential will be executed in large part by other knowledge workers, and it is up to you to lead and inspire them to help them through the imprecision and vagaries of everyday business life. But strategic thinking requires accountability and responsibility. As we shall see, without these elements, brilliant ideas remain just that – brilliant ideas. You are paid not just to think, nor just to act. You are paid to think and act. Thus, we complete the strategic thinking process with:

What clear, measurable targets or strategic positions must we achieve and defend in order to implement our strategic intent? Progress lies not in enhancing what is, but in advancing toward what will be. Kahlil Gibran, “A Handful of Sand on the Shore”

What customer needs/wants must be met by our products/services in order to achieve or defend our strategic positions? Nothing is more terrible than activity without insight. Thomas Carlyle

What tactics will we use to meet those needs and achieve our targets, and who will be responsible for execution? We don’t think our way into a new way of acting; we act our way into a new way of thinking. Larry Bossidy and Ram Charan

10.

What strategic architecture, based on our organisation’s capabilities, must we create to carry out our strategic intent? It is a view of strategy that recognizes that a firm must unlearn much of its past before it can find the future… what is needed is a Strategic Architecture that provides a blueprint for building the competencies needed to dominate future markets. Gary Hamel and C.K. Prahalad

Strategic thinking is systems thinking taken to its ultimate conclusion; that is, powerful, directed action that must bring credible and demonstrable bottom-line results within the real world.

Strategic thinking provides you with a roadmap – the formal structure you need to point you and your executive team in the right direction for thinking strategically. As such, you must have a compass before your journey starts – not look for one once you are lost. Then you may not find it. Thus strategic thinking is not high theory, only taught in the world’s business schools and argued in the academic journals. Yet it is based on sound management principles codified over a succession of generations of management practice. They were actions managers performed based on a core idea of the business they held. Strategy, therefore, is a combination of theoretical concepts and practical systems. As the dictum guides us, “Theory without practice is empty; practice without theory is blind.” Strategic thinking is for practitioners who are prepared to sit down and think reflectively about their business, turn that thinking into action and finally measure its success. …Uses “Common Sense, Uncommonly Applied” ® As we begin to uncover the principles that underline strategy, we find that there is a revolution occurring in management. Fortunately, it is a revolution in the medieval sense of the word – a rotation, a return to first principles. While CEOs have been bombarded with a vast array of new management techniques and fads to help them leap into the 21 st century, it is comforting to note that basic, well known principles of management, when relentlessly pursued, lead to success. Fads tend to lead to high consultancy fees. In a recent management article, the authors discussed a study they conducted of several US companies that had consistently paid annual dividends for 100 years. Yes, that’s 100 years! They included companies such as Corning Glass Works and Diamond Match in the United States. According to the authors, these companies, very different from each other, achieved this remarkable track record by following similar management principles. For example, they stayed focused; were low-cost producers; developed their own executives; knew their customers well; had integrity, and did nothing at the expense of customers or employees. Yet given the simplicity of these principles and their obvious effect, it is remarkable how often they are violated. But therein lies the heart of competitive strategy: “Common Sense, Uncommonly Applied”®. … And is “Back-to-Basics”. Management is not an intellectual exercise. It is not enough, when speaking of basic principles, to say “I know all that.” An effective executive says: “I apply all that.” How then are successful companies taking advantage of basic principles and using them to beat their competitors? In our work with clients, we make them think about simple, straightforward ways to gain an edge in their market. This thinking forces them to address five key competitive areas. First, the focus of strategic thinking must obviously be on creating or anticipating customers’ needs or wants. This requires constant tracking of change in areas such as lifestyle (women in the workforce, health consciousness, and more leisure time) that may affect customers’ buying behavior. For example, The Body Shop in the UK successfully captured a market concerned about environmental issues, and Just Gold in Hong Kong focused on the market 17

for jewellery among young, unmarried Asian women with high levels of disposable income. If you know more about these changes than your competitor does, you can more quickly adapt existing products or create new ones. A second basic principle is to differentiate your product or service. Several ways stand out. The use of list pricing and discounting, as Wal-Mart has successfully done; adding value to your service, as illustrated by hotels putting individual wireless services in guest rooms; continuously improving the quality of your product, for which Toyota is famous; or using technology to gain an edge. Or you can differentiate your product by customer service. Singapore Airlines transformed itself by its excellent cabin service. But differentiating your product or service is not enough. A third principle is to create choice for consumers. Markets now are no longer segmented, they are fragmented. For example, Nike has transformed canvas and rubber sports shoes into high-technology running, walking, squash and other type of sports shoes you may ever need. And they sell for US$200 and more. Choice is a key that will unlock your customer’s purse. A fourth principle is to provide easy access to your product or service. The growing popularity of internet shopping sites such as eBay and amazon.com and direct selling companies such as Avon illustrate this point. Finally, a fifth principle is to satisfy a customer’s need quickly, once that need is identified. In earlier days, a visit to the bank typically took 30 minutes: the average time now at an automated teller machine is less than two minutes. How long is your customer willing to wait for your service? One of the wonders of the free-market system is that it forces us to think, to seek an edge over the competition. And although our world is becoming increasingly complex, success may come simply from understanding and applying basic principles. But applying these principles requires Strategic Thinking – a process designed to give executives a roadmap to the future. We can’t emphasise too much that the process of strategic thinking is essentially a back-to-basics operation. It must cut itself off from the easy habits of mind that make each corporation like the next. It must orient itself dynamically towards a clearly envisioned future, not a misty vision or a distant mission. As someone from New York, I would rather have a leader tell me: “We want to get to San Francisco by April end”, not “Go west, young man, go west!” We want to be clear about the end point so that we won’t believe that if we have moved ten feet to the west, then we have accomplished our strategy. To the experienced CEO, common-sense, back-to-basics thinking will be as second nature as breathing; for others it will always be more or less part of a conscious process. But in a world of rapid change, commonsense needs uncommon application, consistency and focus if it is to win. Knowing how to breathe on land is not the same as knowing how to breathe underwater at 15 metres. Knowing how to sell your services in a retail shop is not the same as knowing how to sell over the Internet. How then are successful companies taking advantage of basic principles and using them to beat the competition? By crafting strategy using a process of strategic thinking. 18

The following seven-step model and the associated essays will help you prepare your thinking. The execution of your a strategic thinking remains your own responsibility. Just do it! As someone once wrote: “We are told never to cross a bridge until we come to it, but this world is owned by men who have ‘crossed bridges’ in their imagination far ahead of the crowd.” Let me guide you across that bridge. Let the journey of strategic thinking begin. C.

The Journey Begins…

Seven Steps To A Successfully Executed Strategy.

Someone once observed that the race to perfection has no finish line. Our map opposite, “The Journey Begins…”, illustrates that the crafting and execution of strategy is truly a journey that has no end. It is a dynamic process of thinking, acting, learning, and thinking once again. It emphasises that successful organisations are characterised by consistency, focus and discipline; and are led by CEOs who use intuition as much as data, have the courage to make decisions, and are committed to long-term success. They can visualise their destination and have the courage to take that first step, to begin the journey. But that journey can be easier if you, the CEO, and your organisation have the strategic thinking processes to assist you in crafting your strategy and then managing your response to inevitable change. Strategic Thinking Group’s comprehensive approach, Seven Steps To A Successfully Executed Strategy, has been tested over time and represents our application of the work of the best practitioners and theorists in strategic thinking, such as John Kotter. Our approach helps CEOs to craft, execute and sustain their organisation’s strategic direction… to build and lead a performance-based organisation. Craft: What should our future business be? You see things as they are and ask ‘why?’ I dream things as they never were and ask ‘why not?’ George Bernard Shaw Step 1. Create a sense of urgency for superior performance. Somehow (and we leave that “how” up to you!), create a great sense of urgency within your organisation to achieve the next level of performance. We all have a very strong comfort zone, an unfortunate sense of complacency, from which we don’t wish to move: “We are successful. We know the markets. Our customers love us.” Yet we all know that success lasts a relatively short period of time and requires continuous renewal. Therefore, a prime responsibility of a CEO is to inspire and enable people to perform at levels greater than they are achieving today. Without that aspiration and the means to achieve greater levels of realistic performance, little will change, for in the absence of a compelling alternative vision of what the future could be, the status quo will always win. Create that compelling vision of future accomplishments and instill the sense of urgency to get there, and your organisation will follow you… if you lead by example. Step 2. Build a powerful executive team. The first group that you must lead is your direct reports, the people responsible, by virtue of their positions, for the long-term viability of the 19

organisation. Therefore, carefully choose the team that is going to work with you in crafting the strategy. Break down the walls of functional thinking and bring together executives who represent your organisation’s entire value chain, from suppliers to customers. And never let an outside consultant set your strategy! They simply don't know your business. Only you, with your executive team, can set a strategy, since you must live with the consequences of that strategy. To ensure a sound debate, reach outside your inner group and install some young members who represent the future of the company, and some members near retirement. Retirees have nothing to lose by pointing out some unpleasant facts that may be ignored by the bureaucrats in your group. But once you have selected the team, you must give them a task to accomplish and the tools to accomplish that task. That task is to craft a competitive strategy. Step 3. Craft a strategy. One of the major obstacles to crafting a competitive strategy is the absence of a process to guide the debates intended to reach the strategic decisions that will pull your organisation into the future. Without a process, a meeting on strategic issues can degenerate into an operational meeting focusing on day-to-day crises. With a process, you are able to systematically tap the collective knowledge base of you and your executive team, and to develop a common language that guides you to conclusions, decisions and, most importantly, actions. Formulating strategy using a structured, disciplined process such as we offer is not a one-off effort. Rather, it is a series of debates about how your organisation will continue to be effective and competitive in the future, and about how you will ultimately be able to respond to the inevitable changes that will occur. Execute: How will we manage the execution of our strategy? I hear and I forget. I see and I remember. I do and I understand. Confucius Step 4. Communicate the strategy. People ask their leaders two simple questions: “Where are we going?” and “What do you expect of me?” Therefore, when you communicate your strategy, you must address those two questions, thereby making the strategy relevant to the people receiving the message. Strategy is the foundation of all organisational communication, a “story” about the future and the organisation’s role within that future. It requires both a storyteller and a listener. Too often, we simply look at strategy from the storyteller’s (i.e., the CEO’s) point of view, and we don’t make the message relevant to the listeners, our people. Thus, measuring realistic performance goals that reflect our strategy serves as a powerful, relevant way to communicate. Measurement is a way to observe the impact that our ideas, our strategic thinking, have on the performance of our people and our business. Yet what we measure and communicate must have meaning and must help answer the strategic question, “What do we want to become?” We need ways to measure our effectiveness, to measure those things that should be accomplished and that will produce positive lasting results. Yes, everything you must know in order to answer the second question: “What do you expect of me?” Step 5. Empower your people to execute the strategy. However, once you help your people understand what you expect them to do, through clear, measurable and inspirational goals, you must lead by standing behind them, letting them get on with the job (“the job” 20

having been defined as the execution of the strategy). While strategy is the framework that gives your people the bounded freedom to think creatively, your leadership is the glue that holds them together. It speaks of the future and what people can accomplish if they are willing. Leadership also speaks in terms of values and the principles that guide people’s actions within your organisation. And it recognises that if an organisation abandons principles for the sake of performance, it will sow the seeds of its future destruction. Your role as a leader, as a CEO, therefore involves inspiring ordinary people to do extraordinary things. This transformational leadership appeals to the higher needs and aspirations of men and women. It taps into the unconscious desire in all of us to achieve things we never dared dream. In business, there are many good leaders who are what we call “transactional” leaders. From year to year they make deals with shareholders, labour leaders and employees, and they run “good” organisations. But those leaders who are able to envision the future and motivate their colleagues to accomplish extraordinary things will run great organisations. Step 6. Build momentum. Success breeds success. It reinforces a belief system that supports extraordinary performance. In the execution of strategy you must have some early successes, events that essentially prove that the team is capable of executing their strategy. We look for this in areas such as successful accomplishment of a critical change issue, or the successful launch of a particular product that originated from our strategic thinking. These successes give us feedback, allow us to say, “It was all worth it”, and prove the inevitable cynics wrong. The principle of momentum in competition is well known. Those who play sports, to those who are in politics, know that gaining early momentum is a key to long-term success. If it weren’t, we would not spend so much time trying to prevent our competitors from building their momentum! Sustain: How will we manage our response to inevitable changes? We are what we repeatedly do. Excellence, then, is not an act, but a habit. Aristotle Step 7. Make performance a habit. Someone once observed: “We become what we measure.” To illustrate this point, put a small black dot on the lower left-hand corner of a blank piece of paper and ask someone what they see. Most will ignore the large white space and tell you they see a small black dot in the bottom left, proving the lesson that what you choose to see is what you pay attention to, measure, and ultimately act upon. If our sense of observation is focused simply on the black dot (what we are doing today), we will miss the white space, the opportunities of tomorrow – future opportunities that will be relentlessly pursued by our competitors. Successful organisations therefore use a strategic intelligence system to look at the “white space” and answer questions about future customers and competitors: • • • •

Where do future product opportunities lie in meeting changing customer needs? Who are tomorrow’s competitors and how will the competition react to changes in customer preferences? How and where should we attack these competitors? What must we defend? How will we protect ourselves? 21

•

What level of superior performance must we achieve to exceed customer expectations?

By constantly asking and answering those questions, your organisation will make sustained superior performance a habit, a part of your organisation’s culture. But a final question brings you full circle. It leads you to where your journey began, for once you arrive at your destination, your “castle”, you will inevitably turn around and ask the strategic question once again: “What do we want to be as an organisation?” And once again, “The Journey Begins...”.

CRAFT What Should Our Future Business Be?

You see things as they are and ask ‘why?’ I dream things as they never were and ask ‘why not?’ George Bernard Shaw Guiding you on your journey… some initial questions for your direct reports: •

What is happening in the marketplace that we need to be aware of?

•

Are we positioned to respond to those changes with our current competencies and capabilities?

•

Must we change? If so, is it a moderate or radically transforming change?

•

What should our future business be?

Step 1. Create a sense of urgency for superior performance. Somehow (and we leave that “how” up to you!), create a great sense of urgency within your organisation to achieve the next level of performance. We all have a very strong comfort zone, an unfortunate sense of complacency, from which we don’t wish to move: “We are successful. We know the markets. Our customers love us.” Yet we all know that success lasts a relatively short period of time and requires continuous renewal. Therefore, a prime responsibility of a CEO is to inspire and enable people to perform at levels greater than they are achieving today. Without that aspiration and the means to achieve greater levels of realistic performance, little will change, for in the absence of a compelling alternative vision of what the future could be, the status quo will always win. Create that compelling vision of future accomplishments and instill the sense of urgency to get there, and your organisation will follow you… if you lead by example.

MONKEY DOES AS MONKEY SEES Everyone wants to change humanity, but no one is willing to change themselves. Leo Tolstoy For those of you who are monkey-lovers and who may be insulted by my comparing monkeys to people (because monkeys are superior?), please bear with me as I tell a story about leadership and corporate culture. Leaders can learn a lot from monkeys. In a study designed to better understand behaviour, social scientists placed five monkeys in a room that had only a ladder, at the top of which, from the ceiling, hung a bunch of delicious bananas. Naturally, when the monkeys were led into the room and saw the bananas, one of them immediately ran up the ladder to grab his reward. But when he did so, the scientists outside the room used a fire hose to spray the monkey off the ladder. Then they turned the hose on the other four monkeys and soaked them with a full blast of water. A second monkey climbed up the ladder to get at the bananas. And again the scientists hosed the monkey off the ladder, and again hosed the other four monkeys. Now the monkeys were quite upset. But they had begun to learn, for when a third monkey began to climb up the ladder, the other four monkeys grabbed him and pulled him off the ladder. They had begun to learn that when one monkey tried to achieve something, not only was he punished but they were all punished as well. And they didn’t want that to happen anymore. A day later, the scientists replaced one of the original five monkeys with a new monkey. As soon as the new monkey saw the bananas and the ladder he immediately tried to climb to get his reward. And yes, you got it; the other four monkeys pulled him down. Well the experiment continued until they had replaced, one by one, all of the five original monkeys with five new monkeys. And now with five new monkeys in the room, and a bunch of delicious bananas hanging from the ceiling with a ladder leading upwards to the reward, not one of the new monkeys, who had never experienced getting hosed, would make a move! Somehow they “knew” that if they choose to go up the ladder and get the bananas they would get punished. What happened was that as each new monkey came into the room, the “old” monkeys educated the new one not to go after the bananas, because they would be punished if they did so. And so “the way we do things around here”, the culture of the monkeys in that room, was to not achieve what they could easily see as their goal, the bananas. Any new monkey that was subsequently brought into the group was told “we don’t go after the bananas; it’s the way we do things around here.” It was an extraordinary experiment in monkey business, not to mention an extraordinary example of how performance expectations, whether high or low, are effectively communicated to organisational members over long periods of time. But the experiment also teaches similar lessons about human organisational behaviour, culture, and the role of leaders in determining the level of performance people within an organisation believe they can achieve. In our organisations the same is true: “the way we do things around here” is our organisational culture. This so-called intangible culture has a tremendous influence on our expectations, our ability to achieve, and our motivation to achieve. I’m sure that we all can relate to an instance when we joined a new organisation and before we had even settled down to a routine, someone came up to us and said: “This is the way we do things around 25

here”, saying, in effect: “Don’t go after the bananas!” And that culture is a learned behaviour. In low-performing organisations, achievers are hosed off the ladder, and the rest of the staff has been hosed as well. They have been told: “Don’t you dare try to do that!” And yet culture can also be a very positive dimension of performance. In high-achieving, constructive types of organisations, people are cheered when they find the ladder and reach for the highest performance they are capable of doing. In this story, people, at times, are treated like those monkeys. We learn our work behaviours from observation and from rewards and consequences, as much as we do from our own inner drive for self-actualisation. We watch what happens: what is rewarded and what is punished, and then we act appropriately. And who do we watch most in order to get our cues as to what is right and wrong? Our leaders. As they go, so go the rest of us. It is not as though we do not have choice. We do. Leadership only exists because of the decision of followers to follow. But it does mean that leaders, like the scientists in this story, have an extraordinary influence over the culture and nature of organisational behaviour. Leaders of organisations are a key determinant of the culture of an organisation. Leadership, in fact, accounts for about 30 per cent of all the factors that determine organisational behaviour. And leadership itself is essentially behaviour. If you’re a new CEO to an organisation you have about three weeks during which people will actually listen to what you say. But after those three weeks they simply observe what you do. And that’s what they follow. You can talk all you want about integrity, about performance, about good communication, about quality, and about all the endless issues that CEOs inherently worry about. But at the end of the day, if you don’t behave in the same way that you want your employees and colleagues to behave, they won’t do want you are preaching. They will do as you do. As parents and as former children we all know that principle so well. But leadership can be used to reflect your commitment to extraordinary performance. As philosopher Peter Koestenbaum reminds us, you motivate people not with techniques but by risking yourself with a personal, lifelong commitment to greatness – by demonstrating courage, the essential characteristic of a leader. When people see you “reaching for the bananas”, taking risks, being extraordinarily productive, setting challenging goals, helping to develop them while developing yourself, and promoting a co-operative, performance-oriented organisation, and doing all of this with a tremendous sense of integrity, they will follow you. Period. The change you want to see in your organisation, “the way you want people to do things around here”, truly rests within yourself. As Mahatma Gandhi intoned: “Be the change you want to see in the world.” You can’t ask for sustained superior performance from your people if the only thing that you do as a leader is hose them off the ladder when they try. You must create that sense of urgency for superior performance.

THAT’S A GREAT IDEA! IT JUST WON’T WORK HERE! The genius of a good leader is to leave behind him a situation which common sense, without the grace of genius, can deal with successfully. Walter Lippmann The former chairman of General Electric, Jack Welch, knew the difficulties in turning a vision into positive action. His analysis of conditions at his company serves as useful guide to those who are attempting with their Executive Leadership Teams to change the direction of their company. According to Welch, he took his firm through three distinct phases: awakening, creating a vision, and redesigning the organisation. In the awakening stage, he said, the chief executive creates a sense of urgency for change. He explains the dynamics of a new age and the need for the organisation to re-focus its efforts on new ideas and concepts; to begin rethinking how it does business and how it serves customers. While this can be the most exciting time for a chief executive, it is also when he is most vulnerable to failure. He or she has dared stir the organisation and engage the imagination of a few visionaries but they have also stirred the forces of resistance. Resistance to change comes in three forms: technical, political and cultural. Technical resistance is driven by the bureaucracy that thrives in any organisation. Habit and inertia are valued more than innovation and action. These people fear the unknown; it paralyses their minds and binds their hands. They have a vested investment in the old way of doing things and they seek solace in familiarity. Then there is political resistance. Any move taken by a chief executive must pass the filter of “political expediency”. “Forget the markets and customers. Why should we give up power to other departments?” These people view life in the organisation as a zero-sum game. Sharing resources, doing more with less and cross-functional teams are merely ways of losing power. Cross those people at your peril. Finally, there is cultural resistance. Having lived in the basement of the organisation all their lives, these people see the sunlight of change as a sure way to shrivel up and die. They work in isolated departments, shun communication and honestly believe they cannot change. Turning vision into action, as Welch achieved, begins by “blowing up the organisation”, an expression coined by Lee Iacocca of Chrysler. Not, thank heaven, in a literal sense, but in terms of bringing down the walls of limited thinking that so inhibit implementing new strategies. In Welch’s case he challenged resistance in a number of ways. First, he broke up the walls that separated top from bottom. He aggressively reduced the hierarchy and endless layers of bureaucracy that protected the technical “resistors” to change. And he installed an incentive system that rewarded performance, not long service. Next, he went after political opponents. He created cross-functional teams to work towards strategic objectives. He organised staff around projects rather than departments and created 27

partnerships among various groups of employees. The politicians had to look else where for a power base. The internal walls were crumbling around them. Finally, he created alliances with key shareholders such as members of the board, and got them on his side in calling for change. He began to measure customer satisfaction and their thoughts on changing the organisation â&#x20AC;&#x201C; acting on their requests for change. Then he built alliances with suppliers, bringing them into his call for a change of values. At the end, when the dust settled, the result was Welch 1, â&#x20AC;&#x153;Resistorsâ&#x20AC;? 0. It was a hard-fought battle to bring his vision into action.

A CASTLE BUILT ON DREAMS NEEDS A FOUNDATION Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. Sun Tzu Henry David Thoreau, noted writer and thinker, was not a strategist CEO but he understood, long before Nike, that the fundamental essence of life rests not simply in dreams but rather in doing something about those dreams. In a word, execution. As he wrote, “If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them.” My experience as a CEO in business, and as an Officer in the US military, has taught me the value of the execution of ideas; that without execution those ideas are merely unformed intentions held in check by fear. While we always talk about doing something, we are simultaneously afraid of doing something. The author Sidney J. Harris wrote: “Our own dilemma is that we hate to change yet love it at the same time; what we really want is for things to remain the same but get better.” But we all know that things never seem to get better unless we are willing to change and we have the discipline and optimism to change: to execute our ideas. I am sure that most of my CEO colleagues will agree that the purpose of the execution of a business strategy is to create and retain customers. Without customers there will never be the “beloved” shareholder value. And yet CEOs realise that success does not come about just by thinking and talking about the changing needs of customers. Rather, success comes from the ability to successfully execute the strategy and get things done – the ability to link strategy, leadership and performance – the three essential elements of strategy execution. But success often eludes us. We struggle to communicate our strategy and so often lack the discipline to prioritise our efforts. Oftentimes our mindset or culture allows us to drift away from achievement, fearing its demands. We always have an excuse why we didn’t execute our dreams. Over the years, I thought about the issue of strategy execution and the difficulty people have in executing their ideas. And as a result, we developed an approach that we call "No Excuses!" Strategy Execution™. It came about simply because I found that too many people in leadership positions, myself included, had reasons or excuses as to why they were never able to accomplish what they dreamed. It’s no wonder that when Robert Kaplan of Harvard business school studied strategy execution, he found the following unsettling results: • • •

95 per cent of the typical workforce does not understand their organisation’s strategy 85 per cent of executives spend less than one hour per month discussing strategy And a whopping 90 per cent of organisations surveyed failed to execute their strategy. 29

So why is it so difficult to execute, and why all the excuses? Two words come to mind: discipline and optimism. The discipline side of business is simply the ability of a senior executive team, the leaders of the organisation, to stay focused on the things that have the greatest impact on the overall success of the organisation, to not lose interest as time goes by. The optimistic side of business is the culture of the organisation, a fundamental belief that people can achieve what they have set out to achieve. Without that sense of optimism it is difficult for any organisation to execute a strategy, even if they have the discipline to do so. David McClellan, who wrote a landmark book, The Achieving Society, believed, quite simply, that achievement-oriented organisations are comprised of achievement-oriented individuals. And both the organisation and individuals within it followed five ideas or principles of achievement: First, they had an extraordinary preoccupation with excellence. Everything they did was driven by a sense of being the best at what they did. No shortcuts. Just excellence. Second, they had a belief in cause-and-effect thinking. They understood how their organisation worked and the relationship between individual performance and organisational success. They made decisions, not in isolation, but rather within a full understanding of how their organisation operated in a business environment. They were able to “connect the dots”. Third, each individual believed that their effort “counted” within the organisation and they had the control to set their own goals and possessed the ability to achieve those goals. Fourth, they were moderate risk-takers. And when they had taken that moderate risk and successfully achieved their goals, they raised the bar higher, repeating this process in a disciplined way that enabled them to grow and sustain their business. Fifth, they were always looking for feedback. Ed Koch, the infamous former Mayor of New York, would constantly ask his fellow New “Yawkers”: “How’m I doin’?” And so achievers had good performance-measurement systems both at the organisational level, such as the balanced scorecard, and good, regularly reviewed individual performance appraisal systems and culture measurements. Martin Seligman, a noted cognitive psychologist, added a further dimension to organisational success. In studies of achievement of individuals and organisations, he found that aptitude (“I am able to do it”), coupled with motivation (“I want to do it”), did not necessarily lead to sustainable success unless people also had the third dimension, optimism (“I believe I will do it”). Individuals who scored lower in aptitude yet very high on optimism generally would outperform those with higher aptitude but with less confidence in their own ability to “make it happen”. Remember that, the next time your “athletically superior, highly paid” sports team loses to the underdog! So when you review Robert Kaplan’s statistics and you look at your own colleagues around the boardroom table saying, “we have a strategy”, remember, that is only part of the game. Ask yourself whether you have the discipline and the optimism to seize the moment. A sense of urgency to do something better, to move out of your comfort zone. If you don’t, your great strategy without a sense of urgency to change may simply be the beginning of a long rut. And a rut, as Alan Lampkin reminds us, is simply “a grave with no ends”. Once you create 30

that sense of urgency you must set an example. You must lead and be that change you want to see in your organisation.

AS THE WORLD TURNS… Much of a firm’s success rests on correctly identifying trends in population groups, which may create new customers. For example, many opportunities for future growth rest in changing customer perceptions of what they need or want, driven often by trends in lifestyles and income. When you think about your company’s future, where do you believe your future markets will come from? Think about what is happening in the world. Globally, the population is estimated to stop growing at the end of the 21 st century, when there should be 10.2 billion people, a 35 to 40 per cent increase from now. But research indicates that for every child born in a developed country, 10 will be born in a developing one. Eighty per cent of the world’s population will live in Africa, Asia (excluding Japan) and Latin America. While Asia accounts for 55 per cent of the world’s population, almost 70 per cent of the developing world’s wealth is generated by Western Europe, Japan and America, or only 15 per cent of the world’s population. In the early 21st century, 90 per cent of the world’s 15-year-olds live in developing countries. Western businesses must be concerned with these trends. Lower per capita incomes mean less purchasing power for sophisticated and expensive Western goods. Overcrowding will place a demand on survival goods, such as food and housing, and market-oriented values and systems, which are having a profound effect on major parts of the world such as Russia and Asia, will most likely come under attack in the near future. As a result, there may be a mounting call for more government intervention in the market. These trends will have an influence on the strategy that companies will create, particularly those competing globally. Where are your geographic markets? In the United States, a major market for Asian countries, other trends will also shape a company’s strategy. One may also look at these trends as ones that may ultimately transform Asian society as well, hence the constant fear of cultural colonialism. First, there is a changing age structure. The US, Western Europe and Japan are becoming older nations. America’s “Baby Boomers” are driving this trend. Of course, this can have a profound effect on new opportunities. For example, I now use the same baby shampoo that I used as a tiny tot. My hair has come full circle, thus providing the Johnson & Johnson baby shampoo product manager with a new opportunity. Another trend that is shaping consumer preferences is marriage, with men first marrying at the age of 26 and women at 23 [check this]. This creates an opportunity for new lifestyle products such as mountain bikes, vacation packages and continuing education services. Women who are still single at 35 have only a five per cent chance of ever getting married. While this may be good news for them, it is even better news for the companies able to produce products and services, such as luxury apartments, for this new and wealthy group. Another trend in the US, which has the world’s highest divorce rate, is that the number of one-parent households has risen 100 per cent since 1970. Ninety per cent of these families 32

are maintained by the mother, but the number of single-parent families maintained by the father is also increasing. Johnson & Johnson picked up on this trend by changing its business concept, “Health products for doctors, nurses, patients, and mothers”, to now include “fathers”. Another trend to consider is that there are more people living alone in the US. One interesting statistic pointed out to me is that 80 per cent of individuals over the age of 65 are women, since they outlive men by almost six to one. Cosmetics company Avon responded to another trend aimed at direct-selling to women: about 55 per cent of American women now hold jobs outside of the home, and about 56 per cent of these women are married. The US labour force participation rate for women exceeds almost every other industrialised nation. Avon changed its target location and now sells directly to women in the office. Other companies focused on the increased demand for childcare services, convenience foods and insurance. Many of our clients in the hotel industry are affected by this trend in working women and have used it to their strategic advantage. The purpose of any business is to create a customer. Capturing a trend and understanding its implications for your business is a result of strategic thinking.

Step 2. Build a powerful executive team. The first group that you must lead is your direct reports, the people responsible, by virtue of their positions, for the long-term viability of the organisation. Therefore, carefully choose the team that is going to work with you in crafting the strategy. Break down the walls of functional thinking and bring together executives who represent your organisationâ&#x20AC;&#x2122;s entire value chain, from suppliers to customers. And never let an outside consultant set your strategy! They simply don't know your business. Only you, with your executive team, can set a strategy, since you must live with the consequences of that strategy. To ensure a sound debate, reach outside your inner group and install some young members who represent the future of the company, and some members near retirement. Retirees have nothing to lose by pointing out some unpleasant facts that may be ignored by the bureaucrats in your group. But once you have selected the team, you must give them a task to accomplish and the tools to accomplish that task. That task is to craft a competitive strategy.

FINDING COMMONALITY WITHIN DIVERSE CULTURES Leadership is a combination of strategy and character. If you must be without one, be without the strategy. Gen. H. Norman Schwarzkopf Catastrophic events, personal or public, tend to crystallise our thoughts, demanding us to reflect and often rethink our purpose as an individual or as an organisation. Their unpredictability demands explanations and forces lessons and learning upon us, though we never would ask fate to do so if we had the choice. It just comes to us. As I learned of the Columbia spacecraft disaster in 2003, my mind was drawn to the makeup of the seven-crew members who were called to embody Shakespeare’s words that “It is not the stars to hold our destiny but in ourselves.” A white woman, a Jew, an Indian, a black man and three white men – a mosaic of talent, aspirations, capabilities, cultures, life experiences and, one may assume, ways of thinking. How does a culturally diverse group of heroic adventurers come together to aspire, to plan, to act, to craft a strategy? And what leadership lessons can we learn from them? Are cultures so different in the way that we think and act that our role as leaders of culturally diverse management teams is inherently impossible? Managing cultural mosaics is a common occurrence in Asia, particularly in enclaves such as Hong Kong and Singapore, where diversity is generally celebrated. In strategy, we think about where we wish to go, no matter the stars or earth, and then we marry our past experiences and current resources with our dream of future possibilities. This complex thinking and planning process can benefit from looking at cultural similarities in dealing with uncertainty and, in doing so, seek meaning from even tragic events such as the Columbia. Angeles Ariens, in The Fourfold Way: Walking the Path of the Warrior, Teacher, Healer, and Visionary, studied indigenous peoples throughout the world to see whether our diverse cultures evolved in ways that today reflect a commonality of thinking and leading organisations. What she found was intriguing. Whether it was the Lakota Sioux, ancient Celts or indigenous cultures in all parts of the world, each had a similar approach to giving meaning and purpose to their lives, using the seasons and the weather as truths and realities. The rising and setting of the sun, the tides, the moon and the stars became the way people described their relationship to the world. Feng shui, astrology and other mechanisms became the windows through which societies sought certainty and predictability. Asian leaders who scoff at modern strategic management techniques to divine the future should reflect on their own common cultural manifestations to do exactly the same. Enter Rod Napier, a strategist. Napier explains the work of Ariens in terms of modern leadership. He suggested that the most common symbols of all cultures (the four seasons, the four directions) were used by ancient societies the world over to explain uncertain and unpredictable behaviour in society, and ultimately became ways of describing individual 35

behaviour. Each of the four cardinal directions (North, South, East and West) held meaning about human behaviour and the impact that behaviour had on a society’s success. It was the first attempt at understanding leadership. And we have learned from our common heritage that it is from seeking a balance of the attributes and flow of the four seasons and four directions, the good times and the bad times, that nurtures our success as leaders. As the Buddha taught, “What we cultivate in times of ease, we gather strength for in times of change.” Let the journey begin. Look within your organisation at your various leaders, a mosaic of different cultural and personality heritages, and see what direction, what season, each one reflects in terms of his or her behaviour. How you manage that cultural and personality mosaic is a determinant of your organisation’s success. North -- The way of the Warrior. Tough, resilient individuals, Warriors can deal with the North’s difficult climate. They say what they mean and embody integrity. They lead by doing and take charge in most situations. They are courageous and most willing to take risks. Taskoriented, they are highly demanding individuals and expect others to adopt their model of behaviour. On the downside, they become inflexible, overbearing control freaks. And nobody has the nerve to tell them so. Their self-confidence becomes the unbending tree. It breaks. South -- The way of the Nurturer. If the North represents the task, the South, the place of support, collaboration, and unconditional acceptance, represents the opposite. It is the yin to the yang. “South” leaders pay attention to process – how things are done. They encourage a multitude of voices to participate in the strategic thinking process, creating a sense of community. They are concerned about people. But these leaders also have a soft underbelly. They may tend to seek approval rather than results, and may avoid the risk of new ideas that demand challenges. The hostility of the North must be avoided. People are more important than the task. East -- The way of the Visionary. The East is the spring of birth and rebirth, a sunrise leader who sees the world through new eyes each day. The East is optimism, a “can-do” spirit, offering clarity to possibility. She understands the big picture, and embodies G.K. Chesterton’s “I dream things that never were, and ask ‘why not?’” Yet dreamers can also be impractical leaders, prone to reflection over action. As opposed to Warriors, the Visionaries may lack the drive to get the task done, and may not survive the harsh winter of the North. West -- The way of the Critical Thinker. Now it is the fall, the setting sun. “West” leaders seek reason through inquiry and are driven by facts and information. They suffer few illusions and pay relentless attention to the details overlooked by their Eastern counterparts. Their downside is that they often let details kill creativity; they over-intellectualise a problem and lose the forest for the trees. Organisations within most cultures of the world are composed of one or more these types of leaders. And these behaviours are driven by a common need to explain the uncertainty of the 36

world in which we live. But we also learned that a common element of all people is to seek balance among the four directions and four seasons, to build an executive leadership team that manifests the good of each of the four directions and to use these directions in strategic thinking. We begin in the South by gathering data, then move to the West where that data is critically analyzed and tough questions are asked. Then we travel to the East and visit the future ideal of the organisation, the castle upon the hill. And finally we go North, where the fruition of our ideas emerges in the face of the harsh reality of execution. And execution ultimately is strategy. Let us return to the mosaic of the crew of the Columbia, whose cultural diversity reflected the challenges we as leaders in multicultural societies are asked to bear. Our task is to make diverse people from diverse backgrounds act as one, to understand that unpredictability, uncertainty and even tragedy are part of the human condition. To do so we must seek a centre point among all the four seasons, within each of the four directions. We must become balanced leaders who create common purpose from the mosaic of talents and viewpoints.

WANT A GREAT TEAM? START WITH HUMILITY AND DISCIPLINE It is impossible for a man to learn what he thinks he already knows. Epictetus I must admit that speed is not always a competitive advantage. Enron took four years to add US$50 billion in market capitalisation and then only 10 months to destroy it. It took Global Crossing only four years to sink into almost certain bankruptcy. In both cases, the axiom “speed kills” seems to apply. What causes these swift declines in organisations such as Enron and Global Crossing? At the risk of sounding too simplistic, I lay the blame squarely on the shoulders of the leadership of both firms; leadership so inept that perhaps the Enron and Global crossing shareholders, having seen the departure of these Chief Executive Officers, are now singing: “Free at last! Free at last! Thank God almighty, we are free at last.” Let me repeat some of the characteristics and skills that I believe a chief executive must have to sustain the viability of the organisation for which he or she is responsible: • • • •

•

She always considers the future as an important dimension of management time. Since the future is less than certain, the chief executive is able to operate with less-thanperfect information. She relies, as Joel Barker tells us, on intuition – the ability to make a decision in the absence of complete information. As the chief executive looks into the future, she is able to see the “big picture” without being confused by the various parts of it. The chief executive has the capability to understand and incorporate abstract ideas such as the values or basis beliefs to drive the organisation. She has the character and strength to ask the organisation to internalise those values and use them as a beacon in turbulent times. It is vital for the chief executive to be able to take all of those concepts about the future and create a clear picture and “story” that all the people can understand. She is an excellent communicator and spends considerable time thinking about the creation of a positive reputation for the organisation. The chief executive has a drive to preserve the organisation. Therefore, she is willing to sacrifice short-term gain for long-term survival and growth. At the end of her tenure, there will be something of immense value to be passed on to the future generations of management.

I thought about all these characteristics whenever I reflected upon the Enron and Global Crossing cases. Something of great importance was lacking in the leadership at both firms. It then made me think of the characteristics of organisations that seem to sustain themselves over the years, in good times and in bad. One common characteristic was that these successful organisations had a humble, but disciplined, chief executive. Not a “flash in the pan”, a publicity-seeker, or one who took all the credit; rather a stable individual who was able to guide his or her organisation over a long time to achieve greatness. In all, when I think of great organisations I think of leadership. 38

Jim Collins, in a study called “Good to Great”, captured some of this thinking about leadership and the ability of firms to make the transition from a “good organisation” to a “great organisation”. He said that “the vast majority of companies never become great, precisely because the vast majority become quite good – and that is their main problem”. Organisations, much like people, become settled in a comfort zone, living the good life. It is that acceptable level of success that prevents them from asking and demanding more of themselves, to become great. So how does an organisation make the transition from good to great? It is a slow transformation that occurs over years, according to Mr. Collins. This process is broken into three broad stages: disciplined people, disciplined thought, and disciplined action. Building an organisation that has disciplined people and that aims for future greatness begins with leadership; but not high-profile leaders with big personalities and celebrity status. Rather, they are reserved, quiet leaders who have a firm dedication to the organisation and its success. Further, these leaders surround themselves with the right people before they begin their journey. And they have the confidence and humility to use the skills of those people around them. If you do not have the right people around to implement your strategy, then you will waste your time trying to improve them. Great companies are not built by “one genius with 1,000 helpers”. In the second stage, disciplined thought, he found that the “good to great” organisations had leadership that “maintained unwavering faith that they could and would prevail in the end regardless of the difficulties”. But they also had their feet on the ground and were able to confront the failures of everyday business life. They used information effectively, and required disciplined feedback to ensure that they were on target. It would be difficult in that type of organisation for the Enron chief executive to say: “I didn’t know what was going on.” But disciplined thought also requires the interaction of three basic principles: an understanding of what you can be the best in the world at, an understanding of where your “profit zones” are, and a passionate belief in what you are doing. In my experience, it is the third concept that gives life to the others. Without passion, and without an understanding of the greater purpose for which an organisation stands, it is difficult to sustain its effectiveness, let alone achieve any greatness: “Give me a challenge and I’ll meet it with joy.” In the third stage, disciplined action, the organisation executes its beliefs, and achieves what I call “the castle on the hill”. To do this, great organisations have a culture of discipline, an ability to constantly adapt to, and learn from the world around; to execute what it has agreed to do; to be accountable for results. Transformations from good to great never occur because of just one event. Rather, they occur because the organisation has disciplined people, has focused and disciplined thought, and executes in a disciplined manner. They are led by courageous leaders. As Ronald Reagan said, “The future doesn’t belong to the fainthearted. It belongs to the brave.”

NEGATIVE SELF-TALK NEEDS TO BE SILENCED Keep away from people who try to belittle your ambitions. Small people always do that, but the really great make you feel that you, too, can become great. Mark Twain Benjamin Zander, the world-renowned former conductor of the Boston Philharmonic Orchestra, believed: “In any performance, there are always two people on stage: the one trying to play and another one who whispers: ‘Do you know how many people play this piece better than you do? Here comes that difficult passage that you missed last time – and you’re going to miss it again this time!’ Sometimes that other voice is so loud that it drowns out the music. As a leader, I am always looking for ways to silence that voice.” That “voice” that Zander tried to silence is what is called negative “self-talk”, that little voice in our head that so often strips us of confidence and lays bare our feelings of inadequacy. We may not all be performers in an orchestra, but undoubtedly most of us have encountered similar situations: in sports, acting on stage, or giving an important presentation at work. We may possess all the skills necessary to accomplish the task at hand, but then that small voice emerges from the depths of our mind and says, “You’re going to screw this up!” And that is essentially where it comes from: your mind. Self-talk affects how well you perform and, as a leader, how effectively you help others to perform. Now I am not describing a psychotic condition where you walk around the office mumbling to yourself, but rather a common phenomenon that represents our mind’s conditioning or programming about our self-worth. It is a set of beliefs we hold about ourselves and that greatly influence how we perform. Like the orchestra performer, we may screw up if we believe that we will screw up. As our mind believes, so too will we act. The concept of self-talk for the most part is common sense. We have all experienced it. And it is a powerful force. But the good news is that self-talk does not have to be negative and, as the story of “The Little Engine That Could” tells us, positive self-talk produces positive performance. Dr. Shad Helmstetter, author of What to Say When You Talk to Yourself, has researched the subject and found, not surprisingly, that each time someone makes a statement about themselves, they’re programming their minds to such an extent that they actually become the person that their mind is telling them they are. Listen now to what you are telling yourself each day and see whether it sounds like the following examples. You may be limiting your ability to perform if you say to yourself: • • • • •

I always freeze up when I present to a group I'm not creative I'll never make budget I can’t seem to get organised You can’t trust anyone anymore

So if you do freeze up in front of a group, never produce a creative piece of work and never trust anyone, it may be simply because of what you are telling your brain. As Helmstetter found, “The human brain will do anything possible you tell it to do if you tell it often enough and strongly enough!” If you fill your mind with negative and limiting thoughts, then most likely that is how you will act and perform. Let me return to Benjamin Zander and his concept of leadership – silencing the negative selftalk in our people and in our organisations. As a conductor, Zander was familiar with the oftstated comparison of the CEO to an orchestra leader who integrates diverse elements to produce a coherent whole. While the objective may be similar, Zander rejected the rest of the comparison since he believed that a traditional orchestra leader can be tyrannical, arrogant and someone whose authority must never be challenged. Over time, Zander recognised the obvious: a conductor doesn’t make a sound. Rather, his power comes from his ability to make other people powerful. Thus, he began to focus not simply on his directing role but rather on what other ways he could enable his performers to become the best performers they could be, to be fully expressive in their art and musical skill. And in doing so, he wanted to silence the voice of negative self-talk (“I can’t do it”) and replace it with one of positive selftalk (“I am doing it”). Think of your organisation and how it is being programmed by self-talk. After all, the concept of positive or negative self-talk applies equally at the organisational level. As Chief Executive Officers, we are always concerned about results and we know that results are driven by the behaviours in which our people engage. Obviously, we are looking for behaviours that result in positive contributions. But what if you have an organisation in which people dislike their jobs, believe they cannot successfully accomplish their goals and inherently mistrust their leaders? These negative feelings essentially drive negative behaviour, in turn driving negative performance. Self-talk becomes a self-fulfilling prophecy. If self-talk within an organisation is programmed by someone, perhaps the first place to start to listen is around the conference table with your executive leadership team. As I have written before, leadership is a key determinant of organisational success. And if your team is composed of people whose self-talk is positive, people who understand that their role is to silence the voice of doubt and “make other people powerful”, success is likely to come. Your principles and beliefs, which drive your self-talk and that of your team, will guide your people a lot longer than the next quarterly results. As Daniel Vasella, CEO of Novartis, said, “It may sound trite, but I truly believe my ability to keep shareholders’ faith in our company depends in the end not on whether I make the quarter figures but on who I am, what my guiding principles in life are, my behaviour. What counts is who you are personally.” Now there’s great self-talk! The end result of your positive self-talk leadership will be a constructive team culture.

EFFECTIVE LEADERS CREATE EFFECTIVE CONVERSATIONS The future is not some place we are going to, but one we are creating. The paths are not to be found, but made, and the activity of making them changes both the maker and the destination. John Schaar Each year end, I am reminded of Abraham Lincoln’s observation: “The best thing about the future is that it comes only one day at a time.” The future is manageable if we accept its inherent slow entry into our lives. So as we look forward to each year on our journey to create a noble future for our organisations, it is worth reflecting on how we will reach our destination. Many alternative routes exist. Some bold leaders will walk Robert Frost’s road, “the one less travelled”, while others may choose to sail close to a shoreline, never losing sight of the shore’s comforting permanence. But no matter which route you choose, each route has as companions the people you lead: your executive leadership team. And it is their thinking, feeling and behaving that will either help or hinder you in completing the journey. Perhaps I can capture the thinking, feeling and behaving of your journey’s companions by imagining three possible conversations your team could be having as you prepare to craft your strategy. The first describes a team that will help you in constructive ways to execute your strategy. The second describes a passive way of holding you back, while the third describes an aggressive approach that always results in win/lose situations. Which conversation most accurately describes your current executive leadership team? Conversation One We think, feel and behave in co-operative ways that satisfy our personal needs and the needs of our organisation for growth and achievement. At the heart of this team is an overriding desire to balance the needs of people with the task at hand. It is a self-sufficient team that appreciates the richness of life in which there are, as Dave Weinbaum says, more beginnings than ends. You’ll hear this constructive team saying: •

We treat people as members of the team, are sensitive to the needs of others, and interact in friendly and cooperative ways. In constructive teams there are high degrees of social affiliation, looking out for one another. People are friendly and there is a high degree of information-sharing.

•

We set challenging but realistic goals, establish plans to reach those goals, and pursue them with enthusiasm. But they are demanding of themselves, helping you to achieve your high expectations. People are organised, plans are set, and accountability is a key ingredient.

•

We are supportive of people, helping those around us to grow and develop, and provide people with positive feedback. And to achieve those team goals, individuals are given the support necessary to grow, with positive reinforcement acting as the nourishment. 42

•

We gain enjoyment from our work, develop ourselves professionally and approach problems with interest, creativity and integrity. Finally, constructive teams are content but not complacent. They relish in seeking out and solving new problems. They recognise, as Heraclitus did, that within the life of the organisation you cannot step twice into the same stream. Your values and integrity, therefore, become the only constants.

Let’s look now at two other conversations, each of which will hold you back from crafting and executing a winning strategy. Conversation Two We think and feel insecure and apprehensive. We behave in a controlled and constrained manner, showing that we are uneasy about interpersonal relations. We ‘play it safe’ rather than take risks. This team will fight you in passive ways, capturing the thought that a change imposed is always opposed. They engage in behaviours such as: •

We try to avoid any possibility of being blamed for a mistake, shift responsibilities to others, and maintain a low profile. Bureaucrats to a fault, this team never makes a mistake because it never tries to do anything, paralysed by the fear of accountability. There’s so much finger-pointing going on within this team you could lose an eye walking by them.

•

We must gain the approval of those around us: “Go along to get along”. We maintain superficially pleasant interpersonal relationships. You won’t get this team to challenge any of your ideas. In fact, they will exhibit the worst behaviours of what Irving Janus calls “group think”, where silence within a debate is deemed agreement.

•

We try to conform, fit the “mould” and follow rules, policies, and standard operating procedures. In their passive quest for mediocrity, this team will conform to any rules set forth, suspending their own judgment and intuition, and avoiding common sense as though it were dengue fever.

•

We do only what we are told, clear all decisions with superiors, and please those in positions of authority. However, if you need a team that pays homage to you, these people won’t disappoint you. These risk-averse minions will make sure you make all the decisions...and I mean all the decisions.

Overall, passive resisters will drain a lot from you as a leader and make sure that every executive physical you take produces one more ulcer. But be careful what you wish for, since the next team may not even let you take your next executive physical! These are the aggressive-style teams, as described by: Conversation Three 43

We think, feel and behave in aggressive and forceful ways because we are anxious about our status and influence. We worry about how we look relative to each other and we are fixated on short-term performance criteria. This is the team that has reached meltdown and is about to explode. They want the task accomplished and are less concerned with the needs of people. The future performance of your organisation is less important than closing the deal at hand. Their behaviour is further characterised by: •

We set unrealistically high goals, stay on top of every detail, and work long hours to attain narrowly defined objectives. With this team, you never seem to accomplish anything. There is never closure, and perfectionist thinking drives everyone to live to work rather than working to live. Not a detail is missed but neither is a goal achieved.

•

We point out mistakes, gain status by being critical, and dismiss even good ideas due to minor flaws. To ensure that goals are never achieved, this team picks more nits than a quality-control monitor in a semiconductor clean room. New ideas are dismissed under a barrage of critical, demoralising comments, followed by the lament: “Why are there are no new ideas forthcoming?”

•

We act forceful and aggressive, control the people around us and build up our power base. But what is important is power; my power, not yours. The team’s members will jockey for position, seeking to dominate other parts of the organisation. They take the alpha dog concept very seriously, biting the necks of anyone, male or female, who attempts to usurp their power.

•

We operate in a “win-lose” framework, outperform our own peers and do anything to look good. And finally, like the alpha dog, there is only one winner. Everything the team does must result in someone losing. Co-operation is not valued and is viewed as a sign of weakness. They will blow out someone else’s candle in order to make their own candle glow brighter.

So let me come full circle to the point of greeting the future one day at a time. The three conversations above represent the thinking, feeling and behaving of three different leadership teams: one team constructive and productive, the other two defensive and ineffective. But a commonality of each of the teams is that their behaviours are created by the leader of that team, you. Each day, as the future unfolds, your leadership style creates one of those three conversations within your team. And like Ebenezer Scrooge in Dickens’s A Christmas Carol, who learned that he could create his own realities, so the three conversations illustrate what are your choices. Choose your leadership style carefully, for the behaviours of the team that you are leading will then unfold one day at a time.

JUDGE A LEADER BY THE LED In the choice between changing one’s mind and proving there’s no need to do so, most people get busy on the proof. John Kenneth Galbraith Harold Wilson, former UK Prime Minister, once wrote: “The only human institution which rejects progress is the cemetery.” But if organisations are to progress, cemeteries aside, certainly leadership is at the core, calling that organisation and its people into a compelling future. If you and I were to look back at our history of working in organisations, what kind of leaders seemed to inspire us, got the most out of us, and taught us to be future leaders when they left the scene? Now that we are leaders, how well did they teach us? What is our leadership style today, and how effectively did we learn our lessons from those that we believed were outstanding leaders? We probably experienced two broad types of leaders: transactional and transformational, as noted historian James MacGregor Burns identified. Transactional leaders lead simply by making deals with us. This quid pro quo type of leadership worked under certain circumstances, usually short-term in nature. Organisational politicians, in the broad sense of the term, were most likely to be found in this category of leadership, and we never seemed to perform our best under their leadership. Yet there was another type of leader who transformed us, who made us think and act beyond what we thought possible, and had an effective way of getting the best out of us. They were demanding but they were fair. And most likely, we aspired to be like them when we assumed the mantle of leadership. But did we become like them or do we now act and lead more like those who brought out the worst in us? The effectiveness of a leader can only be evaluated by assessing the impact he or she has on the performance of those whom he or she is trying to lead. J. Clayton Lafferty, a noted cognitive psychologist, identified 10 sets of activities in which a leader engages to influence followers. Each of these 10 skills can be approached from a positive, prescriptive style of leadership: “The way things should be”; or a negative, restrictive style of leadership: “The way things should not be”. See whether you can identify yourself in each of the 10 leadership skills in which you now engage. 1.

I envision. Do you talk about the kind of performance-based organisation you are trying to create in the future and share this with your people? Or do you talk about the way things shouldn’t be in the future organisation and emphasise the negative to your people?

I act as a role model. In your daily activities, do your behaviours reflect the way in which you want others in your organisation to behave? Or are you constantly avoiding certain types of behaviours that you do not want to see emulated? 46

I am a teacher. Do you create an environment that is “safe” for learning, in which people share their own positive experiences and knowledge? Or do you try to get people to learn from their own personal mistakes and experiences, without sharing your own experiences?

I get people to think. Do you challenge people to identify new approaches to problems and to question the existing rules? Or do you ensure that people stay within boundaries, to “do things the way they have always been done”, and to follow the rules?

I am a storyteller. When you talk about the past, do you always emphasise stories about people who have succeeded and were extremely competent? Or are you always using people who made mistakes and failed, as the basis of your stories?

I monitor what goes on. Do you actively look for what is going right in the organisation and focus on what people are doing particularly well? Or are you always looking for and pointing out mistakes and identifying things that were not done well?

I provide feedback. Do you evaluate people’s activities and performance primarily when they were performing well? Or do you always wait until things go wrong to give your evaluation by pointing out mistakes?

I empower.

I reinforce behaviour. Do you use rewards to recognise and encourage accomplishments? Or do you punish people to prevent them from making future mistakes?

10. I create a positive work environment. Do you create an environment in which performance and thinking are encouraged? Or is your work environment one of rules and regulations that limit thinking and performance? If the questions made you feel uncomfortable about your own leadership style, then I suggest you go back over the 10 leadership skills and evaluate your current boss. It’s usually easier that way and gives you a tremendous amount of self-satisfaction to believe that he or she is worse than you are! If you find that in your organisation you are not achieving the levels of performance that you believe are possible, then perhaps you may want to consider how effective is your leadership style, and the style of your leadership team. If most of your answers to the above questions seem to be on the negative side, then you might be using a restrictive type of leadership style, emphasising “the way things shouldn’t be”. Generally, restrictive leadership tends to constrain activities within an organisation. They prohibit behaviours and are always talking about the negatives. And these negatives begin to add up to a corporate culture that is risk-averse and defensive, with employees always looking for somebody to tell them what to do. Those types of cultures, in which you are always pushing to get things done, usually result in a leader becoming burned-out fairly fast. His or her stress levels are very high, performance is relatively low, and all the creative 47

thinking in the organisation is aimed at figuring out “how not to do things”. For you, the leader, something must change. Victor Frankl, the Austrian psychiatrist and author, wrote: “When we are no longer able to change a situation, we are challenged to change ourselves.” So leadership styles can change but it takes awareness of your behaviour, acceptance of the validity of the feedback, and ultimately action to change your behaviour. But don’t look to motivational seminars on leadership as a solution. In working with leaders for most of my career, I have found that it is more beneficial to spend time on changing your behaviour initially rather than on attempting to change your thinking. I say this because I have observed so many inspirational types of leadership programmes that get people all pumped up, but give them little in the way of knowing how to change behaviour. Consequently, the enthusiasm dies fairly quickly and the leaders go back to their old way of leading. They know no other options. But if someone focuses on actually getting someone to act in a different way, they will soon learn the impact the new behaviour has on others’ performance. By getting positive feedback, they then begin to change the way they think. And when they ultimately change the way they behave and think, they are able to sustain a whole new way of leading. Is it easy to change your leadership style? Of course not. The American author Jacob Braude wrote: “Consider how hard it is to change yourself and you’ll understand what little chance you have trying to change others.” But within that statement lies the heart of leadership. You are not there to change others. You are there to create an environment that allows them to change themselves; the same way you were able to change your own leadership style.

WHEN IT IS WISE TO DISSENT The believer is happy; the doubter is wise. Hungarian proverb Three million lives were lost in the Vietnam War, 58,000 of them Americans. Yet the former US Secretary of Defence, Robert McNamara, wrote: “We were wrong, terribly wrong.” But how did a group of intelligent, experienced men in the highest offices of the United States during the Kennedy and Johnson years of the 1960s allegedly make errors of such magnitude? What were they thinking? Perhaps a better question would be: How were they thinking? For it is the ability to think, question and debate issues – to raise the voice of dissent that often determines the quality of the decision reached. Most CEOs are strong-willed individuals, chosen as leaders because they instill in an organisation a sense of purpose. They often have a singular strength to rally their people to achievements beyond what they may have thought possible. Yet these same CEOs often must turn to their executive group for solutions beyond their capabilities as an individual. Tapping the thinking of the executive group is often a sign of strength of a CEO, for it signals a willingness to acknowledge that he or she does not have all the answers. In most cases this collaborative approach to managing works wonders. But in the case of US President Lyndon B. Johnson and his inner circle, it did not. The philosopher Nietzsche observed that madness is the exception in individuals but the rule in groups. Although I do not share his extreme pessimism, I know from experience that the quality of strategic thinking can be diminished by a CEO who, while seeking advice from a cohesive group, subtly dominates it to such an extent that dissent is stifled and creative thinking limited. This is what happened to McNamara and his colleagues under Johnson while they debated the course of the Vietnam War. In Irving Janus’s 1972 book, Victims of Groupthink, he described what happens to a group’s ability to make decisions when internal pressure for conformity results in the absence of reality testing, mental efficiency and moral judgment. The lessons for CEOs and executive teams are profound. Think about your own team, and the environment within which you now make strategic decisions. Are you and your colleagues victims of “groupthink”? Groupthink is most likely to occur, as it did with McNamara, when there is a high level of cohesion in the group; it is insulated from the rest of the organisation, and the CEO makes clear what the preferred solution is. As a result, these symptoms emerge: • • •

The group has an illusion of invulnerability and so encourages excessive risks; It downplays warnings to reconsider key assumptions about the group’s strategy; The group believes it is inherently moral and ignores the ethical consequences of its decisions; 49

• • • • •

Individuals subordinate their own views in favour of the group’s views; The group has an illusion that all members think alike and that therefore silence means consent; Members act as “mindguards”, protecting the group from adverse information about the effectiveness of their decisions; They believe the enemy (the competition) is too evil or weak to deal with; Dissent is quickly killed.

Group cohesion and strong-willed CEOs are essential to leading an organisation into the future. But it is just as important to have dissent in the boardroom, critical appraisal of strategy and the assumptions supporting the decisions. The consequences of not thinking through the implications of your executive group’s decisions can be disastrous - although that pales in comparison with three million lives lost. So Jim Collins is right when he uses the bus analogy: • Get the right people on the bus • Get the wrong people off the bus • Get the right people in the right seats Now you are ready to craft your strategy.

Step 3. Craft a strategy. One of the major obstacles to crafting a competitive strategy is the absence of a process to guide the debates intended to reach the strategic decisions that will pull your organisation into the future. Without a process, a meeting on strategic issues can degenerate into an operational meeting focusing on day-to-day crises. With a process, you are able to systematically tap the collective knowledge base of you and your executive team, and to develop a common language that guides you to conclusions, decisions and, most importantly, actions. Formulating strategy using a structured, disciplined process such as we offer is not a one-off effort. Rather, it is a series of debates about how your organisation will continue to be effective and competitive in the future, and about how you will ultimately be able to respond to the inevitable changes that will occur.

STRATEGY IS A MAP ABOUT “A” FUTURE The future is not some place we are going to, but one we are creating. The paths are not to be found, but made, and the activity of making them changes both the maker and the destination. John Schaar How does a CEO carry out his or her role to craft a coherent wealth-creating strategy? What is the process of strategic thinking and how does it apply to strategy? And where does it fit into our role as a CEO? Let’s explore this critical dimension of our professional lives: strategic thinking and the crafting of strategy. There are two dilemmas that organisations find themselves in: one is that they have the wrong map, but the right leader; the other is that they have the right map, but the wrong leader. Either situation spells disaster. Since we assume that you are the right leader, let’s focus now on building the right map, a “Battlefield Map” within which you will wage economic war. If your map is wrong, will you make wrong strategic decisions? California is an Island I remember hearing a story about a map. Maps can be very interesting. For example, did you know that California in the United States is an island? If you lived in 1701 and you had a map of North America, you would find that California was depicted as an island. The map was drawn by a Dutch mapmaker named Herman Moll, who based his map on the explorations by the Spanish some 70 years earlier. Confusing some inland waterways with the ocean, and not having the advantage of satellite photography, the Spanish mistakenly concluded that California was surrounded by water, and thus reported these “facts”. In and of itself, that was no problem, unless you happened to be a missionary who landed on the west coast of California and wanted to get inland into the Americas. Following the map, it would be clear that you would need a boat when you got to the other side of California so you could sail to the west side of the mainland, where you could then conduct your missionary work. Choosing not to sail around the “island”, the missionaries selected what they believed to be the shortest route: they disassembled all of their boats hauled them across the island of California, up 12,000 feet through the Sierra Nevada Mountains and back down again, only to find that there was no beach, and no water, on the other side of the “island” to cross! They were in fact in the middle of the desert of the (now) state of Nevada. There was no “island” of California. Although the Spanish, who eventually got the correct facts, changed their map, Moll did not. He insisted that his map was correct and that people were simply in the wrong location! It took Moll 20 more years before he took corrective action and changed his map. As Peter Schwartz, noted futurist and strategist, observed, the story illustrates that if you get your facts wrong, you get your map wrong. If you get your map wrong, you go to the wrong place. As leaders, our minds have similar maps. From our vast experiences, both successes and failures, we programme ourselves to think in a certain way. Our experiences have all justified this way of thinking. We thus tend to live our lives looking backwards, seeking familiar landscapes that may no longer exist. We seek security and predictability. And many times, 52

these “maps” that helped us achieve success in an earlier time become totally inappropriate when the world changes. As CEOs we sometimes get our facts wrong and consequently we lose our direction. Yet like Moll, we find it difficult to change. We insist that our map is correct and that anyone giving us contradictory information must be wrong. Mental maps are such a powerful force that, relying on these “maps” ingrained in our minds, we assume we are leading our organisations in the right direction. While the world has changed, the map we are using as a guide has not. We have gotten our facts wrong and our map is no longer valid. We are not on the “island” of California. So the map of the present is not always useful as a guide to the future. We must redraw it. As the journey progresses, leadership characteristics that helped us achieve a successful position are no longer valid as well. The map is right but you lead in a different direction. Leadership style must be appropriate to the situation that the organisation finds itself in. If one assumes that organisations, like people, have a lifecycle (birth, growth, maturity, decline, death), then many people believe that leadership style must be appropriate to the stage in which the organisation finds itself. In turbulent times, you may not have the appropriate leadership style to lead your troops out of harm’s way. William Rothschild believed that leadership style varies according to the stage that the organisation is in. “Leaders must understand when their talents and abilities fit the situation; and when they don’t fit, leaders must be smart enough to move on to situations that do fit them.” When you look at your organisation, do you have the right map and the right leader? Strategic thinking: Drawing the right map Strategy is a present decision with future consequences – it is in your mind. It is a vision to you, the “unseen” to others. Instead of saying “I’ll believe it when I see it”, the strategist CEO says: “I’ll see it because I believe it!” This extraordinary belief in the power of vision, a map of the future, is what drives many good CEOs and entrepreneurs. They become extraordinary leaders and thinkers; but above all, their true accomplishment is that they manage to get all of us to act on their beliefs. Let us begin the CEO’s process of strategic thinking by using a visualisation or depiction of an economic battlefield. Although this “picture” or “map” (see the following page) may not capture all of the elements of strategy, nonetheless it identifies the most significant issues that most CEOs have faced, or will face, as they compete in the marketplace of competitive ideas in the next decade. This “map” will allow you to follow the key issues of strategy and perhaps allow you to craft your own picture of your particular economic wargame. Surveying the battlefield: Begin at the end Within the “map”, you will see four key parts. The first part is the future, “the castle on the hill”. Strategy, of necessity, must begin in the future. It is like writing a book in reverse, from the back to the front, a technique that allows the authors of detective novels to make their 53

heroes and heroines seem like intuitive geniuses! We, as CEOs, want to be like those mystery book authors and write the “story” of our organisation, starting from the future and ending in the present. We will already know the end of the “story” that we want to create, so we will use that “ending” as the guide for all that we do. Our colleagues and staff become the intuitive geniuses, the detectives who solve the “mystery” (except that in our case, the strategy will never be a mystery to them!). Thus, strategy is a story of about future success created by distinct capabilities, supported by people aligned behind the strategy and using their brainpower as the true competitive advantage.

Strategy is a story. It has an ending, an unseen yet describable future about products/services, customers and markets that guides all the activities of our organisation. Ultimately, strategy gives you a purpose for your actions and your knowledge. Strategy, your “castle” on the map, is the result of clear decisions that you make about the products or services you wish to offer, to which customers or end users, and in which geographic or industry segments. It answers the three strategic questions that define an organisation’s role in society: “What products or services will I sell or offer; to whom will I offer them, and where will I offer them?”

In order to achieve that end position, or “castle on the hill”, each company must build its own distinct sets of capabilities…ones that differentiate it from competitors, principally when looked at through the eyes of its customers. This leads us to the next three parts of our “map”: the Attack, Support, and most significantly, Strategic Thinking and Learning Capabilities of your organisation. These three categories of capabilities will enable us to defeat our competitors (both current and future), protect us from our vulnerabilities, build upon our strengths, and minimise the impact of our weaknesses. Ultimately, these capabilities will be reflected in the reputation we will enjoy in the marketplace and, by extension, the confidence that shareholders will have in our ability to create wealth for them. Attack Capabilities First, our Attack Capabilities are those capabilities that lie within the organisation and from which the organisation gains competitive advantage. We call this concept the Strategic Anchor® of a business, the core idea from which strategic decisions emerge. Understanding and utilising that Strategic Anchor®, and its associated Core Competencies, is essential to successful execution of strategy. An Attack Capability must be built effectively within an organisation, since it allows an organisation to simultaneously focus and diversify. Let me cite one example of simultaneously focusing and diversifying. Honda, as a small company, knew its strengths and where to deploy them to help them hold their own against bigger rivals as they grew their business. Honda’s distinct capabilities gave them several advantages – but what were those advantages? To illustrate this point, did you know you can fit six Hondas into a two-car garage? The fact that you can is not a feat of miniaturisation but rather reflects the range of products derived from the manufacturer’s core competency in small-engine design. Although famous for its cars, the company also produces power 54

generators, lawn-mowers, motorcycles, pumps, outboard boat engines and snowmobiles – all of which fit nicely in a garage. Engine technology is Honda’s Strategic Anchor ®, its distinct advantage. What then is a Strategic Anchor ? As Peter Drucker wrote, “Every company has an idea of its business: a picture of itself and its specific capabilities.” Thus, each business idea is usually a balance between the need to focus and the need to diversify. Too focused and you become a “one man band”; too diversified and you spin out of control. The balance point you choose between focus and diversification will greatly affect your decisions about your strategy: which products and services, customers and markets you pursue, and equally importantly, those you will not pursue. This latter decision is perhaps the most difficult for a CEO to make. According to Drucker, focus and diversification in isolation from each other are seldom effective. Organisations need to have a core idea, a centre of unity around which strategic decisions about products, services, customers and markets can be made. The company should be either highly focused in a basic knowledge area and diversified in terms of products, markets and end-users, or highly focused in products, markets and end-users and diversified in its knowledge area. This core idea of your business becomes the basis for a common language among your managers that allows them to fully understand the nature of the business they are responsible for managing. Forward and backward integration is often used as a means to focus or diversify. Extending the business toward the market (forward integration) typically adds diversification. Moving away from the market (backward integration) is a way to focus. Drucker’s original concept of the core idea (1964) is similar to, and the basis of, the concept of driving force (Tregoe -Zimmerman 1979) and centre of balance (Galbraith 1986). Honda illustrates that a company’s competitive advantage can be built on knowledge instead of on a particular product or service – it focuses on technology and diversifies in products. Specialised knowledge, combined with out-sourcing of other non-critical activities, allows small companies to leverage a limited resource base and compete with larger, more established enterprises. The root of Honda’s expertise and its strategy lies in its knowledge of designing small, efficient engines, first for bicycles then motorcycles and later cars and other products. This knowledge has become the cornerstone of its entry strategy into new product areas. For example, when it entered the motorcycle market and had to compete with the capital and distribution resources of much larger foreign and Japanese producers, it did not seek to replicate those resources. Instead, the company used the following approach: • • • • •

It focused its development and production reserves on the engines for the motorcycle; It created a very small, efficient assembly operation; It out-sourced as many non-engine fabrication operations as it could to gain economies of scale; It developed extremely low-cost, capital-intensive manufacturing focused on the components necessary in the uniqueness and quality of its engines, and It acquired the skills to manage a vast, creative distribution network.

Honda essentially looked at the pre-production, production and post-production stages of the value chain and concentrated on those areas in which it could create unique capabilities or – as C. K. Prahalad called them – core competencies. From this engine technology competency, Honda has launched a range of products, each with a competitive edge in its market segment. James Brian Quinn writes that “rewards come from intellect, not bricks and mortar”. Organisations often succeed not because they have more resources, but rather because they have become intelligent organisations, which are simply smarter than their competitors. They have imagination. They invest in intellect and learn to leverage that intellect, as Honda has so successfully done. Quinn also argues that unless your company is at a world-class level in a critical activity in the value chain, you are sacrificing competitive advantage by performing that activity yourself. And once you develop those competencies you must keep competitors from replicating them. The sports shoe manufacturer Nike understands and applies these principles equally well. It has anchored its business to sports footwear, the foundation of an athletic lifestyle and makes nearly 400 different models of shoes. The highly volatile, high-risk market convinced the company it could not be all things to all people. So it is concentrating on what it does best: design, product control and marketing. As such, it relies heavily on outsourcing. Nike thus adds value at the pre-production (product research and development, market image) and post-production (advertising, distribution) stages of the value chain. Using these core competencies, it then competes on product differentiation, flexibility, innovation and supplier management. And in doing so, Nike either avoids or manages the volatility of the market that has plagued its competitors. Support Capabilities Our second set of capabilities allows you to gain maximum advantage from your Attack Capabilities, by aligning your organisation behind those attack capabilities. This alignment or focus is what we call Support Capabilities. They involve elements such as your human resource base, your information technology and business process systems, and your financial management. All of these capabilities are valuable only to the extent that they allow your Attack Capabilities or competitive advantage to create a customer, the sole purpose of any business. Strategic Capabilities The third set of capabilities comprises what we call Strategic Capabilities, the essence of which is strategic thinking: those who sit within the “tent” of the organisation and plan its future based on their vision of the future business environment. Competitive advantage oftentimes comes from an executive team’s ability to out-think its competitors, rather than the basic issues of “access to resources”, “innovation” or “quality”. Although these are important dimensions of any organisation, it’s what lies between the ears of each senior executive, their 56

brains and thinking capacity, that has a major long-term effect on the competitiveness of an organisation. As we shall see, this executive team or, as we call them, the internal strategic thinking group, is responsible for managing critical actions, measuring performance, monitoring strategic intelligence and communicating the strategy directly to all key stakeholders. This group, led by the CEO, is responsible for the future.

MIND ON, HANDS OFF Drawing your Battlefield “Map” I am enough of an artist to draw freely upon my imagination. Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world. Albert Einstein This battlefield map, a visualisation of strategy, can be crafted by answering six key questions around which strategy is formulated. Pay attention to these questions and see how you would answer them. Better still, what answers would your senior executive team give? These six questions act as the beginning of your overview of strategy and will lead you through the process of developing an effective strategy within your organisation. A further point that I would like to make to you as a CEO is one that I am sure you must wrestle with each day, and that is: Where does a CEO have his or her mind, the present or the future? We have discussed and will discuss this in other essays, but let’s clarify this point once again, using the previously shown map as a point of reference. If you look at the map carefully, you will find the answer. Notice that the Chief Executive Officer stands simultaneously in the future and in the present. He or she is “standing in the Castle on the Hill” (the future, the “what”), while working on operations within the “tent” (the present, the “how”). From the future point of view, the CEO is responsible for creating a vision of what that future will be, and what he believes the organisation should look like within that future. His or her mind is constantly thinking about the future. He stands in the “castle” and, like a burning lighthouse, calls the organisation into that future, challenging the people to become greater than they thought possible. The CEO does this by engaging the imaginations of his or her employees; leading from this imagined future, not driving from behind. Calling his or her people into the future. Pulling rather than pushing. You will notice that the CEO is also in the back of the organisation, looking towards the future. This symbolises the present. An effective CEO must not only know where the organisation is going, he must also ensure that the organisation is performing day-to-day operations effectively in order to create that future. Pushing, encouraging, motivating…while still pulling from the future. This dual positioning of the CEO emphasises the idea that strategy is the “unseen” – it is what is in our mind, the future thinking of a CEO. But it also must be remembered that the “hands” must do what the mind tells them to do – the “seen”. That is the present or the operational issues. Mind on, hands off! Successful CEOs and their companies are able to do both – act in the present, (“how to do it”) while understanding and “seeing” the future (“what to do”). Balancing the mind and the hands, the yin and yang, is a key responsibility of a CEO.

Begin drawing: Six strategic questions What follows are the six major questions that will act as an initial framework for formulating strategy. We have framed the six questions that the CEO must ask in such a way that, between them, they cover critical events that may arise on the battlefield. They focus a CEO’s attention on creating customers, and in turn wealth, by building a set of capabilities – Attack, Support and Strategic. And they emphasise the essential ingredient of successful strategy – purposeful action. Read these questions and make a note of your answers. This is the beginning of strategic thinking. 1. What will the future look like and what strategy should we pursue? 2. What will our competitive advantage be? What are our core competencies and how will we use them? 3. How should we organise and use our Support Capabilities in order to enhance our strategy? 4. What changes must we make to compete in the future? 5. Does our reputation allow us to leverage our resources and enhance our Attack Capabilities? 6. How well do we use our Strategic Capabilities, and can we successfully guide the implementation of our strategy? Some CEOs already know the answers to these questions about their organisation, and to them I offer my congratulations! They are already great leaders, and the world will soon be hearing about their conquests. We hope they are not your competitors! Perhaps, on the other hand, such far-reaching questions nag at you but never get properly addressed because you are too busy fighting your immediate battles. In that case you owe it to yourself and your people to set your thinking on real conquests, creating customers and wealth by using what “Common Sense, Uncommonly Applied”® has to teach. The Role of the Senior Executive Team If information, or better, strategic knowledge, is critical to the success of a CEO in guiding an organisation through a turbulent 21 st century, what then should the role of his or her senior executive team be? A simple, yet powerful answer is to help a CEO think strategically; to provide not simply information but insight; not only analysis but judgment as well. For the role of a senior executive team, of necessity, must flow from the role of the CEO. And the role of the CEO is to make sense out of a changing world. And how will he or she make sense of the world? Essentially, by applying the concepts of strategic thinking supported by information converted to strategic knowledge.

1. What will the future look like and what strategy should we pursue? Strategy begins by reconnaissance and surveillance, creating a vision of the future in terms of factors such as economics, technologies, marketing methods, product design features and demographics. A company can envision, through information, debate and imagination, a plausible future business environment. Within that future, they decide their strategy: what products or services they should provide, to which customers, and in which geographical locations. But if one is to understand the future, one must build the capability to systematically monitor the environments within which a business operates. This monitoring must be based on the acquisition and application of information, and therefore the Chief Intelligence Officer (CIO) must play an important role in designing these monitoring systems. The CIO must design ways to collect information and convert it to knowledge for the CEO and other members of the senior executive team, so that they are able to craft a strategy for that future. They must visit the future through their imagination. Within that future, that end state, they continue to create. 2. What will our competitive advantage be? What are our core competencies and how will we use them? To succeed in this future, companies must understand and use their Attack Capabilities. These range from the technologies they have to specific products and unique selling methods. Successful companies fully understand the base from which they launch their attack. This is their competitive advantage. Faber-Castell, for example, builds its strategy on a single product, a pencil. Canon chose a different launching point, technology. It makes not one product but a range of products, each traceable to core technologies of precision mechanics, fine optics and microelectronics. Each company has a launch pad for its attack, and each has a different combination of core competencies to support its attack capabilities. But both are very successful companies. By selecting and focusing their Attack Capabilities, organisations can take market share from weak competitors and defend against stronger competitors. But how does a company determine its advantage, and what role does information technology play in support of success? Strategy is a central idea within a business that allows its CEO to decide: What will I sell, to whom, and where? Which products or services, customers or geographic markets will we pursue? That central idea, which I term the Strategic Anchor速 of a business, permits 60

the CEO to hold in his or her mind a seemingly contradictory idea: a company, in order to succeed, must simultaneously focus and diversify. Not one or the other, but both as one: focus with diversification. The first two strategic questions (“What will the future look like?” and “What will our competitive advantage be?”) highlight the central role that information, converted to knowledge, plays in a CEO’s strategic thinking. The next four questions, probing key parts of our battlefield map, complete the framework for understanding the role a senior executive team plays within a partnership with the CEO. Although they are not described in depth at this point in our story of strategy, they nonetheless complete the overview of the strategic context within which strategy is formulated. 3. How should we organise and use our Support Capabilities in order to enhance our strategy? The senior executive team must also define and use the support capabilities of their organisation. Each capability, such as human resources, finance and information technology, must add value to the company’s product or service at each step of the value chain. If they do not, the attack capabilities or competitive advantage of the company is lost, no matter which Strategic Anchor® it has chosen. In addition, these attack and support capabilities are linked by clear values, which guide the behaviour of the various cross-functional teams assigned to carry out the strategy. This linkage allows the whole organisation to align its thinking and ideas towards a common purpose. 4. What changes must we make to compete in the future? Strategic positions reflect the targets that organisations will pursue and, equally important, the ones they will not pursue. To achieve these positions, organisations need to identify and manage the critical changes they must make in terms of aligning structure, systems, skills and rewards. 5. Does our reputation allow us to leverage our resources and enhance our Attack Capabilities? In this battle, successful companies sometimes seek alliances and they always seek to have their shareholders on their side. But at the end of the day, what symbolises their strength as an organisation is their corporate reputation. Their reputation is the first thing that crosses the bridge to the future, and it will either strike fear in the hearts of its rivals or it will give reason for the competition to mock them.

6. How well do we use our strategic capabilities, and can we successfully guide the implementation of our strategy? The CEO’s team sits in a position that gives it a view of the whole battlefield. Here, they effectively employ their strategic capabilities in:

• managing the critical changes necessary for their organisation to get across the bridge to the future;

• intelligence-monitoring of competitor movements and changes; • performance-monitoring to know exactly how successfully the campaign is being waged; and

• communications management to ensure that the right (and wrong!) signals are being sent to appropriate stakeholders and competitors.

And in the centre of all this is strategic thinking and learning. In the end, it is the capability of the senior executives to think strategically that will ensure success. In summary, the central role of the CEO and the executive team is to think strategically: to provide not simply information but insight; not only analysis but judgments as well. In doing so, we will all be able to use information and imagination as a way to make sense of a changing world.

FOCUS OR DIVERSIFY? DO BOTH! The best vision is insight. Malcolm Forbes If you are a serious reader, writer or communicator of ideas you will be familiar with Levenger – a company dedicated to helping its customers “lead a well read life”. In 1987, Steve and Lori Leveen founded Levenger and sold halogen floor and desk lamps providing “serious lighting for serious readers!” As they grew their business from an initial investment of US$8,000, they realised that the market was in serious readers rather than just serious lighting. So they shifted their business from a Product Strategic Anchor ® (lighting) to a Customer or End User Anchor® (serious readers). Doing so allowed them to expand their business from a small garage in Boston earning US$189,000 in revenue (1988) to a US$59 million business by 2007. As a Customer Anchored® business, Levenger now produces a broad range of products, including:

TARGETING A SPECIFIC CUSTOMER GROUP(S)

Furniture, Leather products,

Games

Computer related products

Readers, Writers, Communicators

Desk accessories,

Pen and ink,

Paper,

And, of course, Lighting! What do all these major product categories have in common? They are aimed at the specific customer groups of readers, writers and communicators. 63

Levenger has clearly segmented its customer groupings into these three major areas, and has targeted mainly professionals:

SEGMENTED MARKETS

LEVENGERS

Doctors,

Lawy ers,

Writers,

Executiv es,

Scientists,

Teachers,

Architects

These professionals are mainly in the age group of 30 and above, with a reasonably high percentage in their 40s, 50s and 60s. Levenger believes that these customer groups have lived their professional lives in the age of sophisticated technology. While technology may be good for most of us, many of us now seek products that are comfortable and have a sense of nostalgia and a “back-to-basics” look and feel. Levenger taps into that customer sentiment. One reason Levenger does this is that Lori and Steve believe that “great old things” have been cast aside and replaced with impersonal, technologically advanced items that lack warmth or originality. As such, they seek to gain a competitive advantage by providing products whose design incorporates originality, inspiration, nostalgia and exclusivity. All of their products with these characteristics are, in essence, high-quality “tools” that allow their customer group to read comfortably, write stylishly and think intelligently – a very clear business concept. Levenger is constantly researching these customer groups and responding to new needs by providing a broad range of new products. For example, they have introduced virtual books (“Reading into the future”), which allows a reader to download a book from the Internet without taking physical possession of the book. This is an Internet service provided by Barnes & Noble, as well as other book publishers and distributors, and reflects a major shift in the method that people are using to access the information in “books”, which are normally printed on paper. This technology will allow “serious readers” to access books faster and more conveniently. Levenger also seeks a competitive advantage by doing the following:  Selling direct to their target customer groups through the use of a well designed catalogue and website (this is a unique selling method).  Using what is called “Industrial Archaeology” – the culling of ideas from old products and modifying them for modern use. 64

 Offering well designed products derived from an in-house design capability. This design capability allows Levenger to differentiate its products from those of its competitors  Providing excellent customer service. Levenger provides a 24-hour service to customers, picking up and replacing any defective products. In executing its strategy, Levenger has made some strategic changes that have increased its earnings and created a significant competitive advantage. As mentioned earlier, the company first changed its Strategic Anchor ® by moving from halogen floor and desks lamps (Product) to a broad range of products aimed at readers, writers and communicators (Customer/End User). This shift from a Product Anchor ® to a Customer Anchor® was followed by a shift in the nature of the products as well. This included expanding its range to include low-tech products (e.g., pens) as well as high-tech products (electronic books). Another tactical move by Levenger was to complement manufacturing its own products by developing alliances with other manufacturers such as Herman Miller (furniture), so that it is able to respond to the constantly shifting demand by its three customer groups for a broader range of consistently high-quality products. This alignment with other manufacturers provides a win-win situation for Levenger and companies such as Herman Miller, Waterman pens and others. Although Herman Miller and Waterman may have a different strategic direction from Levenger, they still have a commonality in the fact that they are targeting some of their products to Levenger’s customer groups. Levenger has also changed its selling methods to some extent. For example, in the early years it sold its products using a black-and-white brochure. Now it has upgraded to a colourful catalogue and also sells through a well designed website. All these methods use the direct selling approach, which is a tactical advantage for Levenger. In 1994, Levenger started selling its products through a retail store and outlet based in Florida, where the company’s headquarters are located. Levenger intends to develop 55 town square “concept stores” that will provide retail space, a museum and a room for lectures and concerts. Rather than thinking of this as a “store”, it is probably better to think of it as an “experience for readers, writers and communicators”. One can see that Levenger is truly a Customer/End User Strategic Anchored ® business, since it will consider changing its selling method but it will not change its customer group. Many lessons can be learned from the Levenger experience, in which a company’s strategy is focused on a customer/end user while diversified in the products it brings to the marketplace, or rather, the “Marketspace”.

DIVERSIFYING OFFERS CHANCES FOR GREATER PROFIT AND GROWTH, BUT THE MOVE CAN BE FRAUGHT WITH DANGER If you do not know where you are going, every road will get you nowhere. Henry Kissinger There is an old belief that if you chase two rabbits at the same time, you won’t catch either one. The same principle applies in business too. Al Ries, in his book Focus, identifies many companies that have tried to be all things to all people. In doing so, the CEOs drove their companies in different directions, pulling them apart. Rather than focus on a core idea of their business, they pursued growth targets that led them into areas they knew very little about. Two examples illustrate the point:  

[insert an example] [insert an example]

But diversification in itself is not wrong. Johnson & Johnson has a diversified product range but stays very focused on a specific customer base (health-related products for doctors, nurses, patients and mothers). Sony provides a wide range of products but remains focused on the sound and visual technology behind the products. In Asia, the balance between focus and diversification will become a major strategic issue, as more Asian companies, such as Lenovo, become global players. The lessons that can be learned from the success and failure of diversification moves by European and US companies should act as a guide. In Taiwan, Acer is an example of a company making a significant diversification. Having established itself as a global player in the PC market, it seeks to be a leader in a new market of “intelligent” consumer products. Business Week outlined Acer’s strategy in shifting from a product Strategic Anchor ® to one focused on digital technology. The focus will also be on family “edutainment” – a combination of education and entertainment.

Obviously, Acer is attempting to build its strategy around the converging technologies of computers, telecommunications and learning. Technological developments have prompted companies like Acer to diversify, but only by building on a strong base. In Acerâ&#x20AC;&#x2122;s case, it already possessed one of the technologies needed to compete in the new digital technology marketplace. In addition, the company has advanced design capability, integrated manufacturing capability, experience in managing a decentralised global business and knowledge of low-cost production, and is an established leader at a low price point. From these capabilities, Acer will diversify its product range into areas such as highresolution TV, set-top boxes for cable and satellite TV, and flat-screen monitors. Although the rationale behind Acerâ&#x20AC;&#x2122;s diversification is understandable, the move is not without risk. I am certain that Acerâ&#x20AC;&#x2122;s top management has debated the implications of the move, including its ability to compete directly with a much broader range of technology-based companies. This internal debate by the executive team is essential prior to any diversification move. It is a debate that would perhaps have helped many companies avoid strategic blunders. Such a debate must first centre on several questions. What kind of company are we and what kind do we want to be? What value will we bring to the new business or will they be better off without us? What critical changes must we make in terms of our structure, people and systems in order to ensure the success of our diversification? And finally, does it make sense to us? Diversification is a strategic option. But if a company loses focus it is more likely to fail in the marketplace.

ONE COMPANY, TWO SYSTEMS SPELLS DISASTER The art of leadership is saying no, not yes. It is very easy to say yes. Tony Blair This is going to be a boring essay. It is about the accounting profession. I couldn’t help notice the similarity between the tribes in Afghanistan and the tribes of the “Big Four” accounting firms. As in Afghanistan, when times get tough and you find that your side is losing, you don’t fight back. You simply switch sides to the winner. Above all, you must do it with a straight face, at times even offering unbelievable Dilbert-like statements such as “This move will benefit our clients”. (Why? Are they not coming with you?) But the reality is that it is a strategic issue that is confronting the management of the accounting firms, an issue that is at the core of their existence. In my judgment, the accounting profession in the United States, and by extension globally, is not addressing what could be the seeds of destruction of one or more of the “Final Four”. When the music stops and all the switching has taken place, the Final Four and the next tier of accounting firms must begin a process of self-evaluation of their industry and the particular firm within which they work. They must reflect on their future and decide what type of organisation they are and want to be. They must begin by evaluating their core idea as a business. From an outside perspective, it would appear that these firms, although basing their reputation on advising clients, simply have no strategy and have lost sight of what their true business is. They have allowed a strategic conflict to fester within their organisations simply because, in the short term, dollars and growth distorted the strategic thinking of the partners and principals, prompting them to pursue all sorts of businesses that were not related to the independent audit. In the quest for growth and dollars, they deluded themselves into believing that the marketplace demands the services of a “one-stop shop” for professional business advisory services, beyond the audit. It does not. But in trying to respond to that myth, the auditors, pushed by their consultants, capitalised on their brand name and global presence in the market through a vast, loosely linked network of locally owned accounting firms (tribes?) to capture a significant share of the rapidly growing consulting market. In doing so, they lost sight of the true nature of their business, which is objectivity and independence, a third party helping all of us to properly assess business situations. They have been seduced by the marketplace into becoming something they are not and should never be. And they were aware of this conflict right from the beginning. Years ago, when Dick Measelle was chairman of now-disintegrated Arthur Andersen, he believed that, at least on the audit side, the Andersen name and what it stood for was the essence of the business: objectivity and independence. But he seemed to believe that the same was not true on the consulting side: “If the market believes that this is not a firm where 68

objectivity is alive and well, then our future at Arthur Andersen is bleak,” he said. He continued: “Andersen Consulting has not been built exclusively on objectivity.” As Robert Bruce, former editor of Accountancy Age who interviewed Measelle, observed, the ultimate destruction of Andersen had been set. Andersen Consulting eventually morphed into Accenture. The major source of the competitive disadvantage these firms experienced is that two business concepts and cultures existed simultaneously within the same organisation, as evidenced in Maeselle’s comments. One company, two systems. One concept focused the firm on a defined product (audit), while diversifying its customer base. The other focused on technology (consulting) while diversifying into a very broad range of unrelated products. Each concept competes with the other for resources, management attention, and client fees. Curiously, these two concepts were merged together because the partners of these firms believed that this would serve client needs more effectively. Too little attention was paid internally in these organisations to the inherent strategic conflict that they had set up. So what are these two different concepts? First, the audit side of the business is based upon a Product/Service concept, anchoring its business to a long-term, enduring and specific need of a broad range of customers. They made a bet in the marketplace that a narrowly defined customer “need” will not go away. In auditing that was and still is a safe bet. There are no realistic circumstances in a free-market system in which an audit would not be required for publicly listed firms. Second, the accounting firms then introduced a whole new business concept to live side-by-side with the product/service concept. And therein they sowed the seeds of their demise. Consulting operations, unlike an audit operation, are technology companies: solutions looking for problems. We see this business concept in the marketplace all around us: Saint Gobain in Europe in materials technology, the infamous 3M in coatings and adhesives, Merck in pharmaceuticals, to name just a few. The business concepts of these technology firms centre on their ability to invent or acquire hard technology (for example, chemistry) or soft technology (for example, know-how). They are constantly updating and extending that knowledge and seeking new applications. No one knew they needed a miniature mobile device that played music, as the Sony Walkman proved years ago, or sticky stuff that didn’t stick, as the 3M Post-it Notes proved. Consulting firms, following that technology model, diversify their business by creating many different types of products and services, servicing a multitude of market segments and customers. Their focus is the technology, while their diversification centres on customers, products and markets. In consulting firms, they apply their technology or know-how in innovative ways in order to satisfy existing, emerging or completely new client needs. Unlike auditors, they create markets rather than respond to a defined long-term need. Consulting firms must stay at the forefront of various technologies and are willing to change their product and service scope as technology advances. They will give up the product or service as the market changes but will never give up their technology base. In a product-anchored business such as auditing, they will never give up their product or service (auditing). 69

These are two business concepts, one a single-product focus, the other a multipleproduct, technology focus. And each has a distinct business culture that doesn’t mix well: one inherently risk-averse; the other a risk-taker. When you have auditors thinking “solutions for multiple business problems” you know you are in trouble. And when consultants advise audit clients while fearing the loss of the audit fees, you are in bigger trouble! When you set up two business concepts that co-exist in the same organisation, you set up a strategic conflict that will ultimately spin the firm out of control. I believe this is the lesson we learned from the accounting firms: audit and professional consulting must be split into two separate independent businesses, for the sake of their clients and ultimately the end users of their clients’ products and services. The accounting profession is essential for a global, market-oriented economy. And while we place our trust in the audit partners who manage these firms, I ask that they simply focus on the roots of their business and the services they do well. To do otherwise is a disservice to the global business community. Accounting must last a long time. For all our sakes. No matter how boring it might be.

GROWTH FOR GROWTH’S SAKE: A RECIPE FOR FAILURE Don’t be afraid to take a big step when one is indicated. You can’t cross a chasm in two small steps. David Lloyd George Can eating out in a restaurant only the once make you overweight? Perhaps not for most of us, but the merger by Coopers & Lybrand and Price Waterhouse suggests it is possible to leave the dining table much larger after only one meal. At a restaurant in New York, the chairmen of then Price Waterhouse and Coopers & Lybrand decided to merge their firms to become the largest accounting and management consultancy in the world, as measured by total revenue (about $92.8 billion) and workforce (130,000). Strategy is the result of clear decisions you make about the products you wish to offer, and the customers and markets you single out. Your company’s position in the competitive realm reflects your judgment of how you can outflank your rivals. It is your “castle” on the map. You can take a number of different routes to get where you want to be. For example, you can concentrate on one particular product line, devote your attention to it and constantly improve its performance. This is the approach of a company such as Zildjian, which concentrates on a product (cymbals), or Levenger, which concentrates on a customer group (serious readers). An alternative approach is for a company to focus on size and growth. Although all companies are concerned with the size of their operations, adopting this principle as the sole basis of your strategy will significantly change the strategic profile of your present operations. Size-growth companies tend to set levels of growth significantly different from their present ones. They are willing to sacrifice earnings in order to achieve growth, in terms of either physical size or geographic presence. Size gives them their competitive advantage. Generally, these companies are especially good at maximising volume (for example, utilisation rates in hotels or airlines) and managing a wide variety of assets (people or multiple businesses). One has only to look at South Korea over the past several decades to see this principle in action. The chaebols (Korean conglomerates) have consistently used growth as a key part of their strategy, in some cases as an end in itself. Many other companies have tried to become bigger, only to find they have created a monster rather than a “lean and mean” company fit for the 21st century. The US banking system comes to mind. If the big eight, five or now four accounting firms pursue “growth for growth’s sake”, they might become complex lumbering giants susceptible to a competitive onslaught 71

from smaller, more focused auditing and accounting firms able to use networks and technologies to achieve the same advantages large size used to accomplish. But, if they are using growth as a conduit to broader, well planned strategic positioning, they might create a very competitive position for themselves. For example, many companies use growth to help them build the foundation of a global distribution network. These companies have tied their business to distribution and will offer a wide range of products and services through that network. How many offices around the world do the Big Four accounting firms now have? The competitive edge of distribution-anchored companies lies in the method they use to distribute their products or services. Their core competencies are in the organisation of their distribution system and the system’s effectiveness in delivering large volumes of products and services globally (Federal Express and McDonald’s). Other examples of successful distribution strategies include 7-11 and several global financial services institutions. Distribution-based organisations assume that the customer is seeking a wide variety of products and services available from the one source – famously know as the “onestop-shop”. According to this principle, many companies have thrived through acquisition and diversifying the products and services on offer. It was a principal reason that auditing firms decided to offer consulting services in the 1960s. However, if companies wish to build a distribution-driven organisation, they must be able to develop common methodologies deliverable worldwide. This allows customers to access their system at any point and receive the same type of service they would receive at any other location. Although a distribution-based strategy is difficult to execute, it can be a potent strategic move. As time moves on, we see that companies are seeking multiple broader pools of knowledge about products and services, and are concerned less about the origin of those products and more about their quality. In a world that increasing favours quality over size, companies that pursue size as an end in itself are at risk. As the ancients knew, “Without a vision, the people will perish.”

FORMING ALLIANCES ALLOWS FIRMS TO BROADEN THEIR SELLING BASE WITHOUT COMPROMISING THEIR CORE ACTIVITIES Consider the little mouse; how sagacious an animal it is which never entrusts its life to only one hole. Plautus What do Avon and UPS (United Parcel Services) have in common? On first thought, perhaps very little in terms of product lines, markets or customers. But they both share a common characteristic: an ability to think strategically and move beyond convention to become creative without becoming radical. They are able to balance focus and diversity, the key strategic decision a CEO faces. As part of a strategy, each company decided to build upon the central idea of its business and use its core competencies to exploit new markets. Avon is a company that has anchored its business to a unique selling method: direct sales. It has an estimated 2.3 million Avon women, 85,000 of whom are in China, mostly selling door-to-door. Avon is able to quickly enter a market such as China because it can bypass the traditional distribution channels of fixed selling locations. It gains a competitive advantage by providing the customer convenient access to the product and adds a dimension by emphasising relationship-based selling — a nice counter to the competition, which may sell through the impersonal Internet, catalogues or television. As a selling-method company, Avon has strategically defined its business using these characteristics: • All its products must be sold using a form of direct selling. Since it will not offer products that cannot be sold this way, it is a filter that screens out certain products. • Using this criterion, it will also make a strategic decision to avoid certain customer groups and geographic markets where direct selling is not effective or accepted. • Since its selling method is its edge, Avon’s core competencies lie first in the recruitment, retention and training of its sales team, and second in maintaining the effectiveness of its selling method. While selling-method companies focus on how they sell, they diversify on what they sell. This type of company can offer a very broad range of products through its unique selling methods. For example, while Avon historically sold cosmetics, it sold Duracell batteries in Latin America, and sold Barbie dolls in China for Mattel (Toys) Inc. Mattel and Duracell recognise that strategic alliances work best when two strong partners combine unique advantages in areas either partner cannot (and does not want to) 73

replicate. Avon’s strategic thinking allowed it to exploit the opportunity with Mattel because it understood there was no conflict with its Strategic Anchor ®. Another company that exploited its strategic anchor is UPS. As a distribution-anchored business, UPS is concerned with getting someone else’s products to customers. Distribution-anchored companies have a unique advantage in their method of distributing products, and consequently have core competencies in the organisation and effectiveness of that system. These companies always ask the question: “What else can I distribute?” UPS thus stays focused on its unique distribution network but will diversify the products it distributes. UPS decided to diversify from parcels to people. As a distribution company, UPS had a fleet of cargo aircraft representing a key part of its global network. Given the nature of cargo transport, these planes were used primarily at night and sat idle during the day, under-utilising the company’s capital. Unlike passenger aircraft, which work 12 hours a day, these aircraft worked 12 hours a week. So what is UPS now experimenting with? A passenger airline, distributing people rather than parcels. It takes the idle aircraft at dawn and by 10am the planes are carrying charter passengers. A good idea, but one hopes that UPS management is clear about whether it is making a tactical move to fill up idle planes or a strategic move to become a new passenger airline. Time will tell. Both Avon (anchored on selling) and UPS (anchored on distribution) offer some insights as to how companies can simultaneously focus and diversify. Doing so allows a company to innovate and grow without losing sight of its core business and unique competitive advantages.

Come to the edge, he said. We will fall, they said. Come to the edge! We are afraid! Come to the edge! They came… He pushed… They flew. Guillaume Apollinaire

EXECUTE! How Will We Manage The Execution Of Our Strategy? I hear and I forget. I see and I remember. I do and I understand. Confucius Guiding you on your journey… some more questions for your direct reports: •

Do we now all agree what is our strategy, our castle? Do we agree how we will measure success and what our “preferred” culture should be to facilitate the execution of our strategy?

•

Are our key stakeholders aware of the need for change and is there a sense of urgency to make the changes?

•

Who will lead the change effort to guide the execution of our strategy?

•

What styles of thinking and leadership do we use to execute our strategy? Do these styles enhance or limit our ability to change and increase our performance?

• • •

What is our plan to achieve that “preferred” culture or mindset to better execute our strategy? What key initiatives must we accomplish to shift our mindset/culture, and successfully execute our strategy?

•

How will we communicate to our whole organisation where we are going and what we expect of them? What behaviours must we role-model?

•

What are the driving and restraining forces working for and against the execution of our strategy and the change of mindset? What is our plan to manage these forces?

•

In which parts of our organisation can we set objectives and get “quick wins” to build momentum and a sense of self-confidence in our workforce?

“NO EXCUSES!” STRATEGY EXECUTION How will we manage the execution of our strategy? Step 4. Communicate the strategy. People ask their leaders two simple questions: “Where are we going?” and “What do you expect of me?” Therefore, when you communicate your strategy, you must address those two questions, thereby making the strategy relevant to the people receiving the message. Strategy is the foundation of all organisational communication, a “story” about the future and the organisation’s role within that future. It requires both a storyteller and a listener. Too often, we simply look at strategy from the storyteller’s (i.e., the CEO’s) point of view, and we don’t make the message relevant to the listeners, our people. Thus, measuring realistic performance goals that reflect our strategy serves as a powerful, relevant way to communicate. Measurement is a way to observe the impact that our ideas, our strategic thinking, have on the performance of our people and our business. Yet what we measure and communicate must have meaning and must help answer the strategic question, “What do we want to become?” We need ways to measure our effectiveness, to measure those things that should be accomplished and that will produce positive lasting results. Yes, everything you must know in order to answer the second question: “What do you expect of me?”

A MEASURED STRATEGY The creation of a thousand forests is in one acorn. Ralph Waldo Emerson Someone once observed: “We are what we measure.” To illustrate this point, put a small black dot on the lower left-hand corner of a blank piece of paper and ask someone what they see. Most will ignore the large white space and tell you they see a small black dot in the bottom left. The lesson is that what you choose to see is what you pay attention to, measure and ultimately act upon. Measurement is critical in strategic thinking, and it serves as a way of observing the impact our ideas have on the performance of our business. Yet what we measure must have meaning, and must help answer the question: “What do we want to become?” However, some executives see their business from the narrow perspective of financial measurement (the black dot — what we are) and tend to ignore the opportunities of the future (the white space — what we want to become). It is not that measuring financial performance is not meaningful. It is. But to understand “What you want to become” rather than simply “What you are”, your organisation will need other measurements that, when combined with financial ones, will give you a powerful way to measure and manage your strategy. We need these ways to measure our effectiveness; to measure those things that should be done and will produce positive results. When, then, should we measure? First, the measurements must reflect that some conditions have changed that influence what we need to know about our business. Today, we are concerned with issues such as working on a global scale, how we can manage workers, the role of innovation, links to customers and suppliers, customer segmentation and how to use cross-functional skills. These issues are external to the organisation, such as global markets, and internal, such as our business processes. Measurements, therefore, must deal with those dimensions and be balanced. Robert Kaplan and David Norton, building on earlier research, have designed what they call a “balanced scorecard” for measuring strategic performance and translating strategy into action. The scorecard reflects four perspectives of a business: the financial, the customer, internal business processes, and learning and growth. Each asks a different strategic question and thus each requires different yet complementary measures. Essentially, these measurements must create a model of your business that follows this sequence: • • • •

What must I know? (Your knowledge base) What must I do? (Your operation) To satisfy my customer. (Your targeted customers) In order to make money? (Your wealth creation) 79

The first question is: “To succeed financially, how should we appear to our shareholders?” Financial measures are ways of measuring the economic consequences of past decisions. They focus on profitability (operating income, return on capital employed, or economic value added), but these measurements are akin to sailing a boat by looking at the wake, where you have been, rather than moving to the bow, where you are going. To look to the future and see the white space of opportunity, other questions must be asked and answered. Thus, the second question reflects the key to successful financial results: “To achieve our vision, how should we appear to customers?” In this area, measurement must focus on present and future customers and will often include indices such as customer satisfaction, retention, new customer acquisition, customer profitability and market share of targeted segments. What influences those numbers are factors such as short lead time and on-time delivery, issues that customers value and are willing to pay for. But your ability to service customer needs or wants is determined by the answer to the third question: “To satisfy our shareholders and customers, what business processes must we excel at?” These processes enable you to attract and retain customers, and they tend to be measured by indices such as product innovation, capacity utilisation and warranties. The fourth question centres around measuring learning and growth in the organisation: “To achieve our vision, how will we sustain our ability to change and improve?” Your organisation must be able to learn how to develop the business processes that create products and services that customers will buy, and which thus create profits and shareholder value. Measurements are focused on the capabilities of your employees, of information systems to provide actionable information and the organisational environment within which learning takes place. The four dimensions of an organisation must become an integral part of how you measure the strategy's success or what you want your organisation to become. These measures become a way to look at the white space and the black dot.

HOW TO KEEP YOUR EDGE Innovation is one of the keys to a successful company Gaining a competitive advantage is only half the battle. Sustaining this over a long period of time is the way to win the war. In my many years of working with CEOs and their executive teams in formulating strategy, I have always emphasised the need to review strategies continuously. To do this, it is essential the organisations have a clear way of monitoring and measuring the results of those strategies. In the previous article, I wrote of the need for what I called a strategic score-keeping system. The system must be designed to measure the success of the strategy from four perspectives, the first three of which are the traditional financial measure, customer satisfaction and the effectiveness of internal business processes. These are essential tools for understanding how successfully your strategy has been, and will be, implemented. But the fourth area is perhaps the most critical since it drives the other three. And that is innovation. Innovation is the driving force behind the success of the business. It ensures that the company is producing products and services that will generate future revenue. But how do you measure innovation? In my groupâ&#x20AC;&#x2122;s work with clients, we use a set of measurements designed to look at innovation from different viewpoints. As with any system, there is no single measurement that can capture the entire innovation process. But it is a good idea to ask yourself the following 10 questions to assess your own companyâ&#x20AC;&#x2122;s capability to innovate. 1.

How many of your products introduced in the past three years are still in the market? This measurement is designed to assess the survival rate of your product launch. It allows you to assess the response of the market to your innovation.

How many of your new products are exceeding the original revenue forecasts you made for them? This measurement is designed to determine how successful your product has been in terms of revenue and your ability to judge markets.

This concerns innovation effectiveness. So how much gross profit has been earned from these new products?

This measurement is designed to determine whether you are spending enough in research and development (R&D) and whether you are spending it effectively. R&D investments must be converted into new products that yield a solid return. 4.

What has been the cumulative three-year R&D expenditure allocated only to new products? This measure is designed to determine how much of your total R&D investment is being allocated to the development of new products.

What has been the cumulative three-year annual revenue generated from new products? This measures the revenue from your innovation efforts compared with the total company revenue from sales. If innovation is important to growth, then this ratio will probably be 15 to 25 per cent annually.

What is the cumulative three-year expenditure allocated for new-to-theworld products? This measurement is designed to assess the level of investment allocated to totally new and different products as opposed to line extensions of existing products.

What percentage of new product revenue comes from the following types of product innovations?    

New to the world. New to the company. Line extensions. Product line improvements.

If you are attempting to have a balanced portfolio of sources of innovation, then 40 per cent of new products should be in the “new-to-the-world” and “new-to-thecompany” categories. 8.

How many new product concepts are at each stage of the development process at year's end? This measure gives you an indication of how full the pipeline for new product development is. You should be able to judge the potential revenue from future products generated by your innovation process.

What is the total annual revenue from new products per employee? This measurement is designed to assess the effectiveness of your employee resource allocation and the learning rate of your employee base. Innovation from the internal knowledge base is critical for the future success of your company. 82

10.

What are the cumulative three-year net profits from commercialised new products? This will give you an indication of your total return on innovation. This is derived by dividing your three-year net profits from new products by the cumulative threeyear total spending on new products.

In his book Innovation, Thomas Kuczmarski reminds us that innovation is a mind-set as much as a process. What you are is based on what you think.

TRIAL AND ERROR – A WAY TO SCALE THE LEARNING CURVE Encouraging experimentation and watching others is as important to success as a sound strategy. We learn by observation and experiences, seeing what others do, and when they are successful we aim to repeat that by trying it out ourselves. In business we can do this by observing not only our competitors but also those from other industries. This is what enables us to expand our strategic thinking about the direction we should take our organisation. Let me return to one of my favourite examples of an organisation that can teach us a great deal - Minnesota Mining and Manufacturing, or 3M, as it is commonly known. Perhaps 3M’s most famous product is the Yellow Post-it Note™, which, second only to the telephone, has become one of our most cherished forms of communication. Each time someone uses the yellow notepaper with the “sticky stuff that doesn't stick”, they use a product that represents the heart of 3M’s strategy. For 3M has anchored its business to technology: polymer chemistry, coatings and adhesives. In all it has developed some 60,000 products from that technology. It is virtually impossible to predict 3M’s next product, since much of its success lies in innovation and experimentation. Interestingly, the company has a very high tolerance for failure. In its early stages it failed in making car wax and polish but, undaunted, it continued innovation until it struck lucky with its highly successful masking tape. Therefore, 3M’s strategy of anchoring its business to technology means that its success lies not in brilliant plans but in brilliant thinking. Brilliant thinking only occurs where there is an organisational climate that effectively encourages it. Consistent with that climate, 3M judges new product ideas according to criteria that reward failure as much as success. For example, its criteria state that if an idea is proven not good, then the price paid to experiment is worth the peace of mind that results from having proved it impractical. The company constantly experiments, trying, as it says, “to make lots of little things, some of which turn into big things”. 3M therefore does not select innovative products based strictly on market size. Its strategy centres around certain principles that reflect technology-based companies: •

Let research and developments drive your company to satisfy customer needs. 3M spends about seven per cent of sales on it; 84

• • •

Do your own manufacturing of core products so you hold on to your technology (similar to Honda); Let operating business units drive your business, and Remember, synergy among those units gives you a competitive advantage.

3M, like Corning Glass Works, use acquisitions as both a mode of growth and a way to gain access to new knowledge it may not possess. However, it pursues these acquisitions with common-sense principles as a guide:

• Seek long-term synergy, not short-term profits; and • Make sure you are well represented on the board. In sum, we can learn from observing other companies and applying their commonsense principles such as: • • •

Do not sit still. Experiment and reward people for trying to do things that are consistent with your strategy. Learn to love failure for what it teaches you; Take small incremental steps that may lead to large strategic shifts. But do it consciously, and Know where your business is anchored and build from that base.

It is from applying these common-sense principles that organisations survive and are able to grow over time – that is, they learn how to learn.

Step 5. Empower your people to execute the strategy. However, once you help your people understand what you expect them to do, through clear, measurable and inspirational goals, you must lead by standing behind them, letting them get on with the job (“the job” having been defined as the execution of the strategy). While strategy is the framework that gives your people the bounded freedom to think creatively, your leadership is the glue that holds them together. It speaks of the future and what people can accomplish if they are willing. Leadership also speaks in terms of values and the principles that guide people’s actions within your organisation. And it recognises that if an organisation abandons principles for the sake of performance, it will sow the seeds of its future destruction. Your role as a leader, as a CEO, therefore involves inspiring ordinary people to do extraordinary things. This transformational leadership appeals to the higher needs and aspirations of men and women. It taps into the unconscious desire in all of us to achieve things we never dared dream. In business, there are many good leaders who are what we call “transactional” leaders. From year to year they make deals with shareholders, labour leaders and employees, and they run “good” organisations. But those leaders who are able to envision the future and motivate their colleagues to accomplish extraordinary things will run great organisations.

SHEPHERDS OF SOUL-LESS, NUMBER-DRIVEN STRATEGIES Integrity Must Guide Corporate Leadership CEOs must be reasonably certain they produce the results intended by their organisation, essentially wealth-creation. But wealth at any cost? Certainly not. In a Business Week cover story, Bausch & Lomb, a major US company, was criticised years ago for its “relentless pursuit of results [that] caused the company’s culture to spin out of control”. Nicholas Leeson, who once headed Barings’ futures trading office in Singapore in the 1990s, also achieved his targets but through alleged fraud, sent his employer, one of the world’s oldest banks, crashing to the ground. And a Daiwa Bank executive who exceeded his target for 11 years was charged with covering up millions of dollars in losses. Now we have seen the global meltdown caused by corrupt politicians and deal-hungry financial institutions. Are CEOs losing control of their companies, or are they causing their companies to self-destruct by emphasising the relentless pursuit of short-term financial goals? What then is the nature of organisational performance, and how should it be controlled? On a marble block in the heart of Rockefeller Center in New York are engraved the words John D. Rockefeller wrote in the 1930s as part of his value statement: “I believe in the sacredness of a promise, that a man’s word should be as good as his bond, that character, not wealth or power or position, is of supreme worth.” And the late Anita Roddick of The Body Shop once lamented: “I am still looking for the modern-day equivalents of those Quakers who ran successful businesses, made money because they offered honest products and treated their people decently, worked hard, spent honestly, saved honestly, gave honest value for money, put back more than they took out, and told no lies.” Both of these thoughts beg the question about CEOs: Are high levels of character as important as high levels of performance? “Yes”, according to Heidrick & Struggles, a top executive search firm, which states that the No. 1 criterion in every CEO search today is integrity. CEOs need not become Quakers to succeed, but perhaps we need to develop a more comprehensive view of performance and how we measure it; to define it in terms other than economic value added or increased shareholder value, the “numbers” that we assume to be the holy grail of success. Certainly we, as CEOs, have been led to believe those numbers. And in the heady days of the 1990s in the United States, CEOs were lionised as the saviours of business and wealth-creation. Stephen Case (AOL), Jack Welch (GE) and others became more likened to celebrities than pragmatic, humble business leaders. And when the “numbers” arrived we cheered them on even further. Dennis Kozlowski of 88

Tyco, Ken Lay of Enron, Bernie Ebbers of WorldCom, Gary Winnick of Global Crossing and John Rigas of Adelphia became the heroes of the “new economy” to whom hollow management consultants would point and preach: “Be like them. They are the future leaders of these new business models we have created for you.” Then dawn broke and we awoke from the heady dream. And we found that Ken Lay, Bernie Ebbers and the other shepherds of soul-less number-driven strategies were nothing more than what Jeffrey Sonnenfeld of Yale calls “serial acquirers of businesses”. Growth for growth’s sake. Like Harold Geneen of ITT fame (over 400 unrelated businesses under one roof), they had skills in the acquisition of companies, not the management of them. And bad corporate governance and creative accounting only fed the beast. For as long as the numbers arrived, no one had the character to say “This is wrong.” In 2008 we relived the nightmare as our financial institutions imploded as a result of simple greed and government intervention in the marketplace. So what can we do? We must begin, first, by redefining what “performance” means, and second, by recognising that CEOs are human beings who may yield to temptation when the rewards outweigh the perceived risks. Because we are human, we need regulators and auditors who fulfill their responsibilities. As CEOs we must be reasonably certain our actions are producing the results intended by our organisation. And the essential result sought by business organisations is wealth-creation. But wealth at any cost? Certainly not. Therefore, CEOs must constantly debate the parameters that will guide pursuit of this wealth, seeking ethical ways that ensure the long-term survival and growth of their firms. Understanding what performance is and how it must be measured begins with an understanding that organisations must seek to balance often competing needs: the need to monitor vs. the need to build; the need to control vs. the need to empower. And CEOs must build performance systems that reconcile the conflict between creativity and control. Too much creativity can allow an Enron to emerge, while too much control avoids necessary risk in the pursuit of growth and future revenue. Seeking a balance allows a CEO to send the right signals throughout the organisation as to which goals are important for people to pursue and what is acceptable behaviour in the pursuit of those goals. Robert Simons writes that performance in organisations has four dimensions: • • • •

To achieve something To do something right To create To contribute to something greater.

To achieve something requires a measurement system that allows the CEO to set clear targets for performance and help the organisation to focus its resources on the areas of highest return. These are the performance measurements that are most frequently used to manage an organisation.

But the drive to achieve financial and other growth targets can lead to behaviour distortions, as illustrated by the Enron case and the financial meltdown of 2008. So something must guide achievement: a code of behaviour whose purpose is to guide people to do something right. People must know what they canâ&#x20AC;&#x2122;t do, a book of rules that gives them the bounded freedom within which they can create solutions to achieving financial and growth targets. Yet they must be absolutely clear as to what behaviour is unacceptable. These codes of behaviour, freedomâ&#x20AC;&#x2122;s boundaries, become the basis for the third area of performance measurement: to create. Organisations must constantly learn and seek out new opportunities for growth, and therefore they need systems to acquire and share external information. The learning and the subsequent creation of new products, customers and markets occur when the team-members interact and make decisions, sometimes foregoing short-term profits to gain long-term sustainable growth. Yet those creative solutions and decisions are always guided by the firmâ&#x20AC;&#x2122;s principles or values, the fourth dimension of performance. An organisation must perform in ways that contribute to something greater than itself. Here we measure the values that bind all that work within the organisation. Without these values we lose our ability to understand the broader purpose of our tasks and the ways in which those tasks make a difference to people other than ourselves. And so performance, when defined in one-dimensional terms such as economic value added or shareholder value, can sow the seeds of destruction. When you sacrifice character on the altar of short-term financial performance and when you ignore clear rules of behaviour, the ethical context of wealth-creation, is it any wonder that organisations eventually self-destruct? Please, tell me no lies.

PRIVILEGE IS DERIVED FROM PRINCIPLES When a company tells the truth, it is raising the chances of its success and nurturing its principles. Several years ago, while in the United States working with a client, I wrote this essay. My location was significant only in terms of the continued debate that was taking place on the role that “character” plays in influencing the effectiveness of a leader. Of course in this particular case the “leader” was Bill Clinton, the President of the US. The problem had become so acute that even The New York Times, a traditional supporter of Mr Clinton and most of his policies, felt compelled to write: “We may never know with certainty whether Mr Clinton has behaved badly towards these women or is just unlucky in the way people talk about him. But it is possible to trace how the Clinton presidency is shaping voters’ expectations for the future. Americans are not naïve enough to expect candidates with uncomplicated personal lives. But we may see a resurgence of the old conviction that character counts, and that rigorous inquiry into the character of [leaders] is not an intrusion but a civic obligation.” In November 1997, shortly after Mr Clinton’s re-election, I wrote an essay about leadership and argued that an essential attribute of great leaders is their willingness to tell their followers the truth – to speak in a way that recognises that the privilege of success in a free society is derived from principles. A society or organisation that abandons principles for the sake of privilege will sow the seeds of its future destruction. In other words, a country’s economic success or an organisation’s high stock prices do not justify their leader’s abandonment of principle. Times are good so why worry about our leaders’ character and “private” conduct? The simple answer is that principles, not simply the privilege of prosperity, ensure survival. The debate over the role that character plays in a leader’s effectiveness surely is not limited to the US. British Prime Minister Tony Blair seemed to suggest at that time that a leader’s character was less important than the public policies the leader espoused. How hypocritical the West must therefore appear to various country leaders when they are lectured about corruption. Surely some of these leaders must be tempted to say: “Our country’s economy is good, so don’t be concerned with my private corrupt actions.” But privilege in a free society is derived from principles. To my clients, my message has always been clear: leadership is central to strategy. If someone wishes to accomplish something through and with others, something that touches and shapes their lives, more than brute power and economic success must be at work. For leaders are not rulers, power-wielders or despots. They are something more, since people choose to follow them. There is no such choice with tyrants and despots. Transformational leadership involves getting ordinary people to do extraordinary

things. These leaders tap into the unconscious desire in all of us to achieve things we never dared dream. But to do this, the leader of a country or organisation, in the West or in Asia or in the Middle East, must understand that the privilege of success grows from the soil of principles. Telling the truth nurtures both.

CYNICISM UNDERMINES CORPORATE CULTURES The next time you feel frustrated because of the lack of progress in executing your strategy or in implementing any other change within your organisation, think about whether your workforce is a group of cynics, people who simply don’t believe what you say. As I wrote in one of my essays, workers ask two simple questions of their leaders: “Where are we going?” and “What do you expect of me?” But for them to execute what you are asking assumes that they fundamentally trust what you’re saying and have a sense of loyalty to you and to the organisation. But unfortunately, reality oftentimes gets in the way of our dreams and aspirations. People don’t always trust you as a leader. And in fact many believe that you are simply lying to them in order to achieve your own personal agenda. T. J. and Sandra Larkin in Communicating Change: Winning Employee Support for New Business Goals cite a study conducted by Philip Mirvis and Donald Kanter, who found that 43 per cent of employees surveyed were cynical, believing that management regularly lied to them and was trying to cheat them. In another study conducted by Right Associates, two-thirds of senior personnel managers said that employees’ trust in management worsened after an organisational restructuring took place and, fuelling the fire, a Council for Communication Management study showed that 64 per cent of employees believe that management is often lying. What causes this cynicism in an organisation? Oftentimes it is generated by the behaviour of management that translates into a culture of mistrust and low performance. Organisational culture, defined as simply “the way we do things around here”, is rooted in behaviour. When you want to see an organisation’s culture simply look at how leaders behave, not what they say they value. Let me cite two situations as examples of the root of cynicism. First, a university in Hong Kong had part of a Professor’s salary deducted because he exceeded his holiday entitlement. Now that may not seem too much of a problem, except for the fact that at that time the Professor was in a prison in China, which, when last checked, was not listed as a holiday destination. In order to provide further entertainment, the University then cited him for not providing an address on the mainland (to deliver overdue student papers in prison?), although he did not know where he was being held. The Professor was then told that the University must approve future trips to the mainland. The reason: rules must be followed. Whether the Professor needs the University’s permission to go to jail in the future is still in question. The second example involves a telecom company that had as part of its mission statement “to attract the best talent as the employer of choice”. The leaders of this organisation made the following decisions several years ago: first, they laid off staff and put a pay freeze in place for the remainder of the year, for the apparent reason that the economy was nearing a recession and costs had to be cut. Sounds reasonable? Absolutely. Until you link it to its next decision, which was to then reward its Board of Directors with increases in their remuneration during the same economic downturn. This is a company whose share price was down 72 per cent

and that posted a US$1 billion net loss for that year. One might conclude that the value statement “employer of choice” applied only to its directors. What causes leaders and their people in an organisation to disregard common sense and rely so heavily on seemingly illogical “rules” or personal biases? Nietzsche, the German philosopher, once observed that insanity is the exception in an individual, but is the rule in a group. The leaders of organisations, including board of directors, create a culture, “the way we do things around here”, that can either enhance the performance of its people or act against successful performance. That makes them either believers or cynics. That elicits dedication or creates disloyalty. That rewards common sense or provokes insanity in decision-making. When leaders make decisions that appear at best foolish or at worst deceitful, one has to wonder what the culture of these organisations is and how it affects their thinking and decisionmaking processes. Culture consists of the values, beliefs and norms that are exhibited in the way that people within an organisation accomplish their work, relate to one another and solve the problems that confront them on a daily basis: “The way we do things around here”. While culture is “soft”, it has a profound impact on the hard decisions that are made in the organisation. Understanding the company’s culture helps decisionmakers understand why choices have been made in the past, the ability and willingness of the organisation to change in the future, and the roadblocks to strategy execution. Measuring a culture beyond simple observation of “what people do”, i.e., their behaviour, can be a complex process but it is one that is essential to understanding the nature of an organisation’s decision-making processes. But does culture truly play an important role in organisational performance or is it a soft area that strong CEOs shouldn’t pay attention to? A study conducted by Kotter and Haskert at 207 top firms over an 11-year period seems to suggest that culture does affect performance. The difference between a Constructive Culture (encouraging achievement, self-actualisation and openness) and a Defensive Culture (maintaining bureaucracy, dependence and punishment of mistakes) was staggering. During that 11-year period, Defensive Cultures increased their revenue by 166 per cent, while Constructive Cultures increased revenue by 682 per cent. In terms of stock price, Defensive Cultures stock price rose 74 per cent while Constructive Cultures stock price rose 901 per cent. In terms of net income, Defensive Cultures rose one per cent during the 11 years while Constructive Cultures rose 756 per cent, demonstrating that Constructive Cultures were not only able to increase their revenue but were also able to contain their costs and increase their margins. [Jim – decide whether you want to include chart. If so, just provide basic text/numbers to graphic designer and let him/her decide on size/layout/colours.]

Revenue Stock Price Net Income

Constructive Companies +682% +901% +756%

Defensive Companies +166% +74% +1%

Strategy is decision-making. And leadership is tasked with creating an environment within which those decisions can be carried out effectively. Corporate culture, â&#x20AC;&#x153;the way we do things around hereâ&#x20AC;?, is a major determinant of organisational success. Decision-making that loses sight of positive values and constructive beliefs and ignores common sense in the course of doing business does so at its own peril.

“NO EXCUSES!” LEADERSHIP Harold Wilson, former UK Prime Minister, once wrote: “The only human institution which rejects progress is the cemetery.” But if organisations are to progress, cemeteries aside, certainly leadership is at the core, calling that organisation and its people into a compelling future. If you and I were to look back at our history of working in organisations, what kind of leaders seemed to inspire us, got the most out of us, and taught us to be future leaders when they left the scene? Now that we are leaders, how well did they teach us? What is our leadership style today and how effectively did we learn our lessons from those that we believed were outstanding leaders? We probably experienced two broad types of leaders, as noted historian James MacGregor Burns identified. Firstly, there were transactional leaders, who led simply by making deals with us. This quid pro quo type of leadership worked under certain circumstances, usually short-term in nature. Organisational politicians, in the broad sense of the term, were most likely to be found in this category of leadership, and we never seemed to perform our best under their leadership. Yet there was another type of leader who transformed us, who made us think and act beyond what we thought possible, and had an effective way of getting the best out of us. They were demanding but they were fair. And most likely, we aspired to be like them when we assumed the mantle of leadership. But did we become like them or do we now act and lead more like those who brought out the worst in us? The effectiveness of a leader can only be evaluated by assessing the impact that the leader has on the performance of those whom he or she is trying to lead. J. Clayton Lafferty, a noted cognitive psychologist, identified 10 sets of activities in which a leader engages to influence followers. And each of those 10 activities can be approached from a positive, prescriptive style of leadership: “The way things should be”, or a negative, restrictive style of leadership: “The way things should not be”. See whether you can identify yourself in each of the 10 leadership activities in which you now engage. 1.

Communicating your goals. Do you talk about the kind of performance-based organisation you are trying to create in the future and share this with your people? Or do you talk about the way things shouldn’t be in the future organisation and emphasise the negative to your people?

Acting as a role model. In your daily activities, do your behaviours reflect the way in which you want others in your organisation to behave? Or are you constantly avoiding certain types of behaviours that you do not want to see emulated?

Being a teacher. Do you create an environment that is “safe” for learning, in which people share their own positive experiences and knowledge? Or do you try to get people to learn from their own personal mistakes and experiences, without sharing yours?

Getting people to think. Do you challenge people to identify new approaches to problems and to question the existing rules? Or do you ensure that people stay within boundaries, to “do things the way they have always been done”, and to follow the rules?

Being a storyteller. When you talk about the past, do you always emphasise stories about people who have succeeded and were extremely competent? Or are you always using people who made mistakes and failed, as the basis of your stories?

Monitoring what goes on. Do you actively look for what is going right in the organisation and focus on what people are doing particularly well? Or are you always looking for and pointing out mistakes and identifying things that were not done well?

Providing feedback. Do you evaluate people’s activities and performance primarily when they are performing well? Or do you always wait until things go wrong to give your evaluation by pointing out mistakes?

Influencing behaviour. Are you open to changing your mind if a subordinate has a better idea? Or do you reject the idea because it wasn’t yours?

Reinforcing behaviour. Do you use rewards to recognise and encourage accomplishments? Or do you punish people to prevent them from making future mistakes?

10. Creating a work environment. Do you create an environment in which performance and thinking are encouraged? Or is your work environment one of rules and regulations that limit thinking and performance? If the questions made you feel uncomfortable about your own leadership style, then I suggest you go back over the 10 areas and evaluate your current boss. It’s usually easier that way and gives you a tremendous amount of self-satisfaction to believe that he or she is worse than you are! If you find that in your organisation you are not achieving the levels of performance that you believe are possible, then perhaps you may want to consider how effective your leadership style is, and the style of your leadership team. If most of your answers to the above questions seem to be on the negative side, then you might be using a restrictive type of leadership style, emphasising “the way things shouldn’t be”.

Generally, restrictive leadership tends to constrain activities within an organisation. They prohibit behaviours and are always talking about the negatives. And these negatives begin to add up to a corporate culture that is risk-averse and defensive, with employees always looking for somebody to tell them what to do. Those types of cultures in which you are always pushing to get things done usually result in a leader becoming burned-out fairly fast. His or her stress levels are very high, performance is relatively low, and all the creative thinking in the organisation is aimed at figuring out “how not to do things”. For you, the leader, something must change. Victor Frankl, the Austrian psychiatrist and author, wrote: “When we are no longer able to change a situation, we are challenged to change ourselves.” So leadership styles can change, but it takes awareness of your behaviour, acceptance of the validity of the feedback, and ultimately action to change your behaviour. But don’t look to motivational seminars on leadership as a solution. In working with leaders for most of my career, I have found that it is more beneficial to spend time on changing your behaviour initially rather than attempting to change your thinking. I say this because I have observed so many inspirational types of leadership programmes that get people all pumped up but give them little in the way of knowing how to change their behaviour. Consequently, the enthusiasm dies fairly quickly and the leaders go back to their old way of leading. They know of no other options. But if one focuses on actually getting people to act in a different way, they will soon learn the impact the new behaviour has on others’ performance. By getting positive feedback, they then begin to change the way they think. And when they ultimately change the way they behave and think, they are able to sustain a whole new way of leading. Is it easy to change your leadership style? Of course not. The American author Jacob Braude wrote: “Consider how hard it is to change yourself and you’ll understand what little chance you have trying to change others.” But in that statement lies the heart of leadership. You are not there to change others. You are there to create an environment that allows them to change themselves. The same way you were able to change your own leadership style.

Step 6. Build momentum. Success breeds success. It reinforces a belief system that supports extraordinary performance. During the execution of strategy you must have some early successes, events that essentially prove that the team is capable of executing their strategy. We look for this in areas such as successful accomplishment of a critical change issues, or the successful launch of a particular product that originated from our strategic thinking. These successes give us feedback, allow us to say, “It was all worth it”, and prove the inevitable cynics wrong. The principle of momentum in competition is well known. Those who play sports, to those who are in politics, know that gaining early momentum is a key to long-term success. If it weren’t, we would not spend so much time trying to prevent our competitors from building their momentum!

100

“STAYIN’ ALIVE”

101

There is nothing more difficult to plan, nor more dangerous to manage, nor more doubtful of success, than the creation of a new order of things. For the reformer has fierce enemies in all who would profit from the preservation of the old, and only lukewarm defenders in those who would gain from the new. This lukewarmness arises partly from fear of their adversaries, who have law in their favour, and partly from the incredulity of mankind, who do not truly believe in anything new until they have had an actual experience of it. Nicolo Machiavelli â&#x20AC;&#x201C; 1513

102

RULES FOR VICTORY An article in the Asian Wall Street Journal was entitled “Conglomerates are out, being number one is in”. The article focused on the trend for large companies to shed major portions of their operations then try to dominate narrower fields of business. This approach would please those followers of the Jack Welch school of management thinking! Many factors account for this trend toward consolidation and domination in various industries. Deregulation, excess capacity and dramatic shifts in the market, such as evidenced in Asia, are forces that are driving this trend. If one is not a large player, the strategists tell us, then it is difficult to win the game. However, my message is for those smaller companies that may panic because of these recent events: there are ways of competing when you are not No. 1. Nobuo Taoka calls this the “strategy of the weak”, for those companies that do not have overall market leadership. In other words, they’re number 2 or lower. Companies that do not have a dominant position must approach the playing field a bit differently from their competitors. There are a number of ways to do this so that you can avoid losing significant amounts of market share or worse, by being taken over by your larger competitors. Let me cite several different approaches that companies can take when they are not in a strong position. These approaches involve being different, fighting only local battles, engaging in one-on-one combat, and using the principle of “one-point concentration”. Be different! Differentiation means having something the competition does not have. This is the most basic strategy for companies in a weak position. Since larger competitors can replicate this strategy, the weak company must be able to adapt to the counter-moves of the larger competitors. Differentiation can take many forms. For example, you can lead the attack by creating a different product than the larger competitor; but you must convey that differentiation to the end user. Product differentiation can occur when you configure your product in a way that makes it stand out. For example, continuously upgrading the features and functions of a product and, by doing so, staying ahead of the competition. You can also create differentiation through your marketing skills. This involves your brand name and company reputation, as well as developing innovative selling methods such as door-to-door sales, or the use of the Internet. Differentiation also can occur through your provision of service that is associated with your main product. For example, banks and other industries provide 24-hour access to their service facilities. Other companies provide advice or consulting along with their major product line, adding value to their customers’ life or business. Distribution channels are also another way of creating differentiation. Insurance companies sell (distribute) their insurance policies through alternative channels such as banks, department stores, and through alliances with door-to-door selling companies such as Amway, Duracell and Avon. 103

Fight a local battle! A local battle is one that is limited to a specific area. You can create a specific area in which to fight by simply segmenting or even fragmenting the market in different ways. First, you can segment your market geographically and target those areas the larger competitors have decided to ignore. Usually these areas are in remote locations or are cut off from surrounding areas, making access difficult. Some trading companies have made a fortune out of following this strategy and one may make the case that UK companies who focused on the colony of Hong Kong, in the mid-1800s, followed this type of strategy. You can also segment the market by scale, such as targeting only small businesses and servicing their particular needs. Larger competitors tend to stay away from these types of small-scale customers. You can also segment by industry such as health care, and even within that industry by occupation, say internal medicine. This type of focus allows you to service the needs of a particular group and dominate that market. Again, large competitors will tend to stay away from these areas. There are many other ways to segment the market and create a local battle situation. Segmentation allows you to concentrate limited resources on a particular target. Fight a one-on-one battle! Pepsi Cola against Coca-Cola have used this principle for decades. Smaller companies can use the same principle as well. In single combat, your guiding principle is to take on a stronger competitor in a situation where there are only two of you. This may be a situation where a larger competitor monopolises a particular geographic market or dominates a particular client or customer. In situations like that, weaker competitors can excel. First, because it is easy to differentiate you compared to one other company. Second, when one company monopolises a particular situation, some dissatisfied customers can be easily won over. Microsoft is running a risk of being so dominant that it may be picked off, market by market, by smaller more focused competitors. Concentrate on one point! This strategy is a logical extension of the segmentation strategy. The only difference is that you attempt to achieve a number one status in that particular segment. For example, you can be the leader in terms of a particular customer base, distribution channel, geographic region or product. Although you may not achieve overall market leadership, you have achieved a significant leadership position in one particular segment. Following this strategy requires that you concentrate all of your resources on a particular point and attempt to dominate that area. Weaker companies often use this strategy as a building block to achieve overall market domination. This strategy also helps to build morale in the organisation since it allows you to achieve a significant victory that can be demonstrated to your personnel. Doing so builds a culture of achievement, which allows you to launch larger and more significant attacks later. If your company is not as large as your competitors, think twice before you embark on a merger and acquisition programme. There are many different ways to be competitive and profitable without necessarily being the largest player.

104

STAYING ONE STEP AHEAD OF THE REST There’s an old saying: “If you’re not the lead dog on a dog sled, then you have only one view in front of you – and it’s not a pretty sight.” In the previous essay, I described the “strategy of the weak”, which outlined what small companies can do in order to gain an advantage over larger rivals. These small companies are frustrated with the view in front of them and are eager to become the leader of the dog sled! Larger companies, as the leader of the pack, will do anything to maintain that leadership position. This is what we call the “strategy of the strong”, the focus of this essay. When companies enjoy a large market share, they generally will pursue a defensive strategy aimed at preventing weak companies from attacking them. There are several tactics that strong companies can use to prevent smaller companies from gaining market share. These include: • • • • •

Matching competitors’ operations, Engaging in “wide-area” battles, Encouraging your enemies to fight among themselves, Engaging in remote battles, And finally, inducement operations.

Therefore, if you are in a strong competitive position and you come under attack by a weaker competitor, consider taking the following actions: First, match your competitors’ operations. Remember that weaker companies are always seeking some differentiation in order to compete with you. If you are vigilant about their movements in the market place, you can match any type of action that they may take. However, it’s extremely important to match a competitor’s operations quickly to prevent the weaker competitor from gaining momentum and confidence. Once they have confidence and momentum, it’s difficult to stop them. There are many ways to match a competitor’s operations, including launching “me too” products immediately after the competitor has launched his new product, matching their publicity campaigns, and matching any new channels that the competitor may use. Companies in strong positions find that this aggressive “matching” is the most effective way of preventing a new rival from entering the market place. Second, fight a “wide-area” battle. Strong companies use this tactic to get weaker companies to expand their campaign and dilute their resources. Smaller companies always want to battle in a focused area, such as a particular customer segment or small geographic market. This allows him to dominate that market and compete effectively with larger rivals. However, if you are a larger rival you must prevent your smaller competitor from doing this. One way to do this is to focus your efforts on customers who “follow the crowd”. These customers, usually the masses, are easily influenced by what is going on around them and consequently are susceptible to aggressive marketing campaigns. For example, Microsoft should stay away from 105

pursuing die-hard Apple Computer customers since they are very stubborn and dedicated to the Apple product. Rather, Microsoft should continue its attempts to go after the broader base of customers who can be generally influenced by multiple marketing approaches. Weaker rivals will always lose these “wide-area” battles for large numbers of customers or broad geographic markets because they cannot generate enough resources to sustain a competitive attack against you. Third, strong competitors should encourage their rivals to fight among themselves. In situations where there are many competitors fighting over the same customer base, the larger competitor inevitably has a major advantage. When there are a lot of competitors, customers will generally be confused about the product offerings. Therefore, the large competitor who has a good performance record and high name recognition will generally win this battle. Smaller companies will tend to drive each other out of business. Much of the consolidation that we witness in many industries driven by the use of this principle of business warfare. Fourth, strong companies should fight their battles from a distance. Hand-to-hand combat only gives the smaller rivals an advantage. For example, weaker rivals will target a particular customer segment in a particular geographic area where the larger rival does not have a direct presence. The intention of the weaker rival is to “blindside” the larger competitor. If you are a strong competitor that has excellent market intelligence, and can foresee this type of attack, you can make some very effective counter moves. These include making the full use of your wholesale channels, engaging them as a principal attack force of your organisation. You can also place heavy emphasis on advertising and publicity as a way of dominating the communication channel in a remote geographic area. This will counteract a weaker rival’s attempt at taking away your customers in distant places. Fifth, use deception to lure your enemy into a situation where you have the advantage. In this case, the stronger competitor will provide mis-information about its intentions. For example, some companies will announce the launch of a product in the near future, but when the time comes, the product is never launched. This has the affect of either freezing the weaker competitor’s actions because he believes that you will get to the market first, or he is deceived into trying to develop a similar product. Although this tactic is considered illegal in many countries, nonetheless competitors still use it. In summary, strong competitors must constantly fight a defensive battle that prevents weaker rivals from gaining market share. Simultaneously, they must have a clear offensive strategy that guides them into the future where they will dominate new markets.

106

107

MARSHALLING FORCES To protect their companies’ position in the market, canny CEOs must think like military strategists. In a survey conducted in 1923, 25 dominant brands were identified in the United States market. During the next 60 years, 20 of those brands were still dominant – a remarkable achievement given the relentless nature of some competitors. Honda, for example, approached one of its competitors with the unifying slogan: “We will crush, squash, slaughter Yamaha”. Who said business is not warfare? If you’re a market leader, then all your competitors will be attacking you. Losing that dominant position can spell disaster for a CEO – not only in financing but also in terms of ego. After all, what CEO wants to admit he was “crushed, squashed, and slaughtered”? How then do you protect your company and your ego? William Finnie, in his book Hands On Strategy, uses military strategy to identify key actions a market leader can take to protect its dominant position. These actions, defensive in nature, are not passive. They all require a clear understanding of your own strategy and the strategic thinking skills necessary to respond to the various challenges you will face from a competitor. And they are all based on the necessity for quick decisive action. In business, anything is better than indecision. What then can you do once you believe you are going to be attacked? There are several options: first, continuously attack your competitors so they cannot develop the strength to attack you. You may provide superior value to your customer and forgo some short-term profits so that your customer will never leave you. You force your competitors to use tremendous amounts of energy to try to attack your position with the customer. This approach requires a CEO who is able to play the end game and avoid the temptation to keep high margins because of the company’s dominant position. The high margins will only invite someone to attack you. A second defensive move again requires a long-term view and is focused on protecting your main product line. To do this, you set up competing brands in areas where a competitor can enter the market and establish a toehold. The Swiss luxury watchmakers allowed the Japanese to enter the low end of the market – a move that almost killed the Swiss manufacturers. The Swiss could have prevented the Japanese from entering the market had they not arrogantly walked away from their own invention – the quartz watch. A third defensive movie is to aggressively counter-attack. When a competitor launches a new product, simply copy it. Use your inherent strength to drive him out quickly by superior technology or price cuts. See how long he lasts in the face of your attack. A fourth tactic is use a mobile defence. This must be based on a combination of a clear understanding of the Strategic Anchor ® of your business and superior strategic intelligence. From that intelligence you are able to quickly identify trends in technology, substitute products or changing customer tastes. You then reposition

108

your company by choosing another Strategic Anchor ® upon which to base your business, which allows you to take advantage of the trends in the market place All of these defensive moves are part of the strategic thinking that CEOs and their senior executives must do in order to continuously grow and prosper. And when you are the market leader, lift your head up from the day-to-day operations and see what is happening in the world around you so that you are not “crushed, squashed, or slaughtered”.

109

1. 2. 3. 4. 5. 6.

TAKE THE TIME TO GUARD YOUR PATCH Joining forces with competitors can bring great benefits – but only if the alliance is well planned.

As the shells and words flew across the Taiwan Strait between China and Taiwan years ago, it reminded me of some key basic principles of competitive strategy. First, if a competitor makes a move that threatens you, take action quickly and aggressively so he understands he’ll pay a heavy price if he continues in that direction. Second, a clear set of values and principles will enable you to know when you must act in order to maintain your strategic position if those principles are violated. The third principle is for one party to consider forming alliances. These alliances often enable organisations to overcome the competitive advantage of larger foes by acquiring capabilities they may not possess. It’s the thinking behind this principle that I’ll comment on. Collaborative adventures between businesses have gained in popularity. Although many call them strategic alliances, I share the view that in many cases they are simply competitor alliances. Yet businesses seek them out because they can provide distinct benefits, such as access to new markets, technologies and products. But, as in any marriage, there are pitfalls. A study of 880 joint arrangements found that only 45 per cent were found to be successful by all partners. Three out of five lasted for more than four years and only 14 per cent lasted more than 10. 110

To be successful, these ventures must have clear strategic objectives. The most common are: •

• • •

• • • •

Identify and access new technologies and competencies. Before investing in in-house capabilities, many large pharmaceutical companies invested in small bio-technology research and development firms to gain knowledge and expertise while minimising risk. Exploit new market opportunities quickly and effectively. Microsoft bought out the firm that invented Roush Point. Build market position rapidly. Fujitsu supplies IBM-compatible mainframes in the US through Amdahl but in Europe through Siemens. Survive by specialising. If you’re small, it’s difficult to compete against the AT&Ts of the world. But if you specialise and join forces with other small companies you can have the product range of a large company combined with the efficiencies of a small one. Re-establish critical mass. Even large companies must sometimes get larger to compete. Airbus Industries is an example of several large companies coming together to compete with the then industry leader, Boeing. Achieve cost leadership. If you can pinpoint activities where sharing or subcontracting can reduce unit costs, then a competitive advantage can be created. Withdraw from the market in an orderly fashion. To get out of a particular business line, some companies use a partial merger, which allows a phased disposal of a business over time, ultimately selling to a competitor that will remain in that product line.

Seeking competitive advantage through alliances requires careful planning. For example, don’t form an alliance with a company that is trying to overcome a major weakness while you’re also trying to overcome a weakness. You’ll just wind up with a bigger but weaker organisation. In successful alliances, each party brings a strength to the partnership. Mergers and alliances will continue to occur. When properly thought out, planned and executed, they can give you an edge in the marketplace.

111

112

REVOLUTIONARY RESULTS THROUGH EVOLUTIONARY CHANGE An indirect approach to product launching requires greater imagination, but it is often more effective.

Whether the economy is booming or in a downturn, you still have to sell your products or services. Bad times, however, have a way of coaxing the best strategic thinking out of an executive group, particularly if they are about to launch a new product. Advertising, at one time, was the key to a successful product launch, but it has lost its effectiveness because mass markets have fragmented, making it more complicated to target an audience through traditional advertising techniques. For example, in television and radio commercials, 50 per cent of commercials run for only 15 seconds, and in magazines and newspaper your print ad is competing with thousands of other advertisers. This “information clutter” works against a new product launch, which often must convey detailed information to convince buyers that the new product is better than the competitors’ existing products. So what do Nike, Perrier and Porsche have in common? They have all thought of different tactics to promote their products through avenues other than straight advertising. Hunter Hastings, then CEO of the Ryan Management Group, captured the thinking of these companies and identified four alternatives that are less costly and more effective than advertising. The first is brand-equity product introductions. A brand asset has meaning for a consumer. Coca-Cola is a global brand, as is Philips. They stress the appeal and value of a brand, not necessarily the particular features of an individual product. Similarly, Porsche has a brand image of advanced design, engineering, functionality and aesthetics, and extends that through licensing to the introduction of new products such as sunglasses, wrist watches and cigarette lighters. Weight Watchers advertises its diet clinics and educational courses, but uses its brand name to sell new products such as beverages and snacks. The lesson? A brand name alone can sell your new product. The second way to launch new products is through public relations. Motor oils such as Pennzoil or STP gas treatment were linked to car racing and gained name recognition in an otherwise crowded product field. Nike and Adidas sign contracts with star athletes and build a market base by launching products through endorsements. The personality, not the product, often drives up sales. But the downside is that a personality can lose favour quickly. A third way to market a new product is through promotion-driven introductions. Coupons, free samples and in-store displays are a major force in consumer marketing, effectively reducing the costs of general advertising. One company with limited finance sold its product (popcorn) primarily through product samples and created word-of-mouth recommendations. It became a $20 million brand and was then bought out by a leading food company. 113

A fourth way to introduce products, even in bad times, is through distribution-driven tactics. Consumers can develop a positive perception of a product simply because it is only available at a certain type of outlet. When Perrier was introduced it was only available at upmarket restaurants where trend-setters congregated. When trendfollowers observed them buying Perrier, a successful product was launched with little advertising. Broad acceptance followed when Perrier was eventually sold through supermarkets. Successful strategies require persistent execution. Revolutionary results are often produced through evolutionary change. When youâ&#x20AC;&#x2122;re implementing your strategic direction by launching a new product or service, think creatively about how you will get people to buy and use your product. Simply advertising in the conventional way may not produce the best results.

114

115

WHEN DEFENCE MAY BE THE BEST FORM OF ATTACK A business strategy is not always offensive. There are times when a company must take steps to protect its position. Remember the years when Japanese business seemed to be unstoppable on their march to global domination in many industries? At one time in its history, in six short years, the Xerox Corporation went from 82 per cent to 42 per cent market share in copiers, attacked aggressively by Japanese competitors such as Canon. Harley Davidson had 90 per cent of the US market share in motorcycle manufacturing, yet in six short years crashed to 15 per cent. Again, the result of aggressive attacks by competitors such as Kawasaki and Honda. Successful organisations have a clear end position in mind and aggressively pursue it. Strategy is principally offensive in nature, moving companies towards something they need to achieve. It focuses on winning the war. Yet successful companies must also be able to defend existing critical products, customers and markets. Holding on to these defensive positions is essential to avoid losing the war. There are two basic defensive principles that organisations follow in order to survive a vigorous attack by a competitor. The first is to narrow down your target list of current and future competitors to those you believe can kill you. These are the competitors that will aggressively attempt to take market share from you by targeting your existing products, customers or markets that form the base of your offensive strategy. If you lose those strategic positions you’ll be in deep trouble. Although you may believe you have many competitors, it is only those that can seriously hurt your strategic product, customer and market positions that you must worry about. These attackers can be either new competitors entering your industry or existing competitors attempting to reposition themselves at your expense. The second principle of defensive strategy is to anticipate your attackers’ move against you and then act quickly. Once you understand a competitor is thinking about attacking one of your products, customers or market positions, you must stop him early. The longer you wait, the more established he becomes and the more aggressive he becomes as your competitor. Successful defensive strategy begins with deterrence, convincing a competitor he should not launch an attack. Generally, there are three types of tactics. First, don’t invite a competitor to attack you. If you are the industry leader, reduce your profit targets so your industry does not appear to be overly profitable and therefore tempting for a competitor to enter. You can hold back new product models or nextgeneration products but leak their existence to the newspaper. This discourages customers from switching to a new company’s product because they’re anticipating the later launch of your “superior” product. Intel has been accused of doing this.

116

Another deterrent tactic is to enter into long-term contracts with key component suppliers, thereby locking them into your system. Then you publicise this fact so any potential competitor is aware that your “own” the supply system. The second type of defensive tactic is retaliation. In this case, you let the potential attacker know you’ll severely retaliate if he attempts to take market share from you. Always attack or retaliate against the strength or key position of your competitor. Let him know that if he attacks you, he will pay a heavy price. The third type of defensive tactic raises barriers to entry into the marketplace. There are several actions you can take: • • •

Clog a distribution channel by establishing exclusivity agreements with distributors Expand your product line to include various sizes and forms of your products so you capture shelf or warehouse space Make it more difficult for your buyer to leave you by creating an excellent information system that is only useful with your products, not a new competitor’s

Strategic thinking is the key responsibility of a CEO and the executive team. It enables companies to succeed by simultaneously pursuing offensive strategic positions while avoiding losing the war by being blindsided by a competitor.

117

SUSTAIN How Will We Manage Our Response To Inevitable Change? We are what we repeatedly do. Excellence, then, is not an act, but a habit. Aristotle Guiding you on your journey, and getting close… some final questions for your direct reports: •

As we execute our strategy, what lessons are we learning about innovative techniques that could be transferred to the rest of the organisation?

•

How will we monitor progress on strategy execution and understand what is working and what is not working?

•

How will we communicate strategy execution progress and reward success?

•

What is our plan to make the necessary changes to improve our performance and transfer that knowledge to all units?

•

Has everything happened that we wanted to happen? What did we learn?

•

How will we apply those lessons to our next phase of improving our performance?

118

Step 7. Make performance a habit. Someone once observed: “We become what we measure.” To illustrate this point, put a small black dot on the lower left-hand corner of a blank piece of paper and ask someone what they see. Most will ignore the large white space and tell you they see a small black dot in the bottom left, proving the lesson that what you choose to see is what you pay attention to, measure, and ultimately act upon. If our sense of observation is focused simply on the black dot (what we are doing today), we will miss the white space, the opportunities of tomorrow – future opportunities that will be relentlessly pursued by our competitors. Successful organisations therefore use a strategic intelligence system to look at the “white space” and answer questions about future customers and competitors: • • • • •

119

120

HOW TO GAIN AN EDGE An accurate map of the industry is crucial to guide your company on the path to profits. Strategic thinking is always focused on gaining competitive advantage. Yet gaining this advantage depends on knowing, or most likely judging, the impact that a range of variables will have on your business. Some are external, over which you either have no control or limited influence. Deregulation is one example. Others are internal, over which you do have control. These include areas such as your distribution system and the tactics you use to promote your product or service. External and internal variables, taken together, become the arena within which you compete. And the more you know about those variables, the more you are able to steer your organisation in the direction you charted. One area of critical importance is the make-up of the industry within which you choose to compete. Understanding that structure will enable you to use it to your advantage, and anticipate the moves your current and future competitors may make industry structure. As described by Michael Porter, this involves several areas that influence your ability to be a profitable company within the industry. Think about these areas and assess your own industry: How difficult is it for someone to establish a company and compete with you? If the barriers to entry are high, you can claim higher margins since competition is limited. It is very high in the pharmaceutical industry, which is why we pay a premium for the drugs we purchase. Companies that have established a strong position in an industry will protect that position by, for example, aggressively attacking a new player, restricting distribution channels, blocking access to technology and building strong brand loyalty. How difficult is it for you to leave current products/services or customers? Insurance companies have a legacy of customers who are entitled to benefits in the future, and therefore itâ&#x20AC;&#x2122;s very difficult for the company to ever leave the industry. When making strategic decisions to enter a particular industry, you must consider factors such as the level of investment you must make in specialised equipment, and whether the government will allow you to leave the industry should you ever decide to change course. How competitive is your industry: cut-throat on gentlemanly? One of the key factors influencing profitability is the degree of rivalry among competitors. In some industries rivals treat each other very politely â&#x20AC;&#x201D; no price wars, no poaching staff, no bad words about each other. The Big Four accounting firms come to mind. Other industries are highly competitive and take no prisoners. The deregulated airline industry is an example.

121

How powerful are the buyers of your product or service in influencing your business? In Japan, as in the US, the major car manufacturers greatly control the prices of their component suppliers. If you are competing in an industry where your buyer has a wide range of providers other than you, and accounts for a large percentage of your revenue, be careful. He may set your strategy despite your intentions. How powerful are your suppliers in influencing your business decisions? Suppliers can also exert great influence over you. If they provide a unique or proprietary input to your product, they can exert tremendous control over your costs, prices and consequently you. Is anyone concerned about Microsoft’s control over our access to the Internet? Can your product or service be easily substituted by another that meets similar needs? If your product can be substituted by another product from another industry (e.g. steel being replaced by aluminium, which in turn is replaced by plastic), you run the risk of being blindsided by competitors you never thought about. If the cost of switching to a substitute is low and the producers chase your customers, you can find yourself in a very vulnerable position. Does the government help or hurt your industry? Although many in the business world believe that the words “government” and “help” are mutually exclusive, governments can help your company’s profitability. Clear and consistent policies with respect to foreign ownership, capital movement and customs duties can greatly aid an industry and the players within it. A strategic direction is a combination of imagination and judgment supported by analysis and thought. A thorough understanding of your industry allows you to turn the rules to your advantage.

122

STAY ON THE LOOKOUT Staying focused on your target is crucial, but it is equally important to keep track of changes in the market. In a museum at one of the world’s greatest universities is a toy from pre-Columbian civilisation. It’s a pull toy complete with wheels – this from a society without carts and wagons. One can only wonder why they didn’t extend they know how to objects other than toys; objects that could have made their lives easier. Scholars have concluded that the people simply never thought of it. The craftsmen were focused on amusement. Other opportunities to use this knowledge were not considered. Being focused, like those ancient craftsmen, is an admirable characteristic of successful companies. In a sea of change, a focus becomes a Strategic Anchor ® – a sense of purpose that guides the organisation year after year. An ostrich is also focused. It sticks its head in a hole, ignoring danger. Unfortunately, it leaves a rather large target above ground that is susceptible to a competitor’s attack. As most CEOs understand, long-term success lies in both focus and observation: focusing on a core idea while observing and anticipating changes in the environment that may challenge it. But while doing that, what in the business environment should you monitor? Where does opportunity come from? Where should your search begin? Which changes are important to you? Peter Drucker suggests there are key areas that should be systematically monitored. These areas become the basis of strategic intelligence and are an integral input to your strategic thinking. Some of the areas to monitor are internal to your organisation and are understood by those in your organisation or industry. Examples of these include: •

Unexpected success or failure, and external events 123

• •

Process bottlenecks Changes in industry structure

Other areas involve change outside your organisation or industry, for example: • • •

Population changes Changes in perception New knowledge

These are often better observed by those outside your organisation. In our work with clients, these areas become key to identifying and managing change, and the basis upon which a strategy can be formulated or modified. Reviewing examples in several of these areas demonstrates how other companies have exploited opportunities created by change. They were able to exploit those changes because they systematically monitored those areas and used change as a catalyst to innovative thinking. Think about your own organisation and answer the following questions. Compare your thinking to that of other successful CEOs. What has been an unexpected success in your industry or organisation? The computer was originally viewed as a strictly scientific product. But when businesses started buying it for common purposes such as payroll (an “unexpected success”), IBM jumped at the new market opportunity while other manufacturers dismissed it as a low-class use of a scientific product. Thus began IBM’s march to world domination. What has been an unexpected external event that affected your organisation? When television was first introduced, everyone thought book sales would plummet. The “unexpected event” was that book sales have increased. The ones who took advantage of this opportunity were not traditional bookstores but mass retailers who established “supermarket” bookstores. They knew nothing about books, but they knew everything about mass merchandising of a popular product. What processes in your organisation lead to bottlenecks and inefficiencies? McDonald’s determined that the things customers “value” are quality, predictability of product, speed of service, cleanliness and friendliness. They then redesigned the entire process of making a hamburger so that customers received what they wanted. Bottlenecks were removed and the results are seen when you walk into a McDonald’s. Now look outside your organisation and answer these questions: What changes are occurring in the demographics of your customer base? A New York-based fashion company built its business on the trend of increasing disposable income for college-age students (18-23). Anchoring its business to this customer group, it then produced a wide range of other home items such as furniture and accessories. Tracking the migration of this affluent group, it has now established a new category of stores and products for young adults, aged between 25 and 32. 124

What new knowledge has been introduced that might have an impact on your organisation? It usually takes 25 to 35 years for new knowledge to be applicable and acceptable to the market. Products that are common today, such as laser scanners at checkout counters, were developed more than 40 years ago. The video cassette took some 20 years to reach the mass market. What is out there that you should know about? You can continue to ask the other questions that might affect your organisation: • • •

What changes are occurring in your industry structures? What changes are occurring in the perceptions of your customers? What unexpected failure has occurred from which you can learn?

Remember the craftsmen and the toy with wheels. What would have happened to that society had they looked up from their work, saw the world around them and asked a few key questions?

125

MARKET SHARE There is an assumption that market share equals high profits. Although dominating markets is one viable strategic objective, the way that you get there is critically important for the long-term advantage of the organisation. Pursuing marketshare objectives without an underlying understanding of the skills and knowledge a company must possess to achieve those objectives will lead to a dilution of resources. James Brian Quinn, in his book The Intelligent Enterprise, suggests that companies should also seek dominance in the share of “activities” or skills that lead to customer satisfaction. This, when done in a way that is consistent with your Strategic Anchor ®, enables you to sustain your strategy over time. To do this, focus your resources on core skills rather than trying to develop knowledge and skills in a broad range of categories. For example, Nike (product Strategic Anchor ®) concentrates on the design of the shoe and the promotion of it (Michael Jordan, Tiger Woods). They subcontract the rest of the value chain (e.g., production, distribution, etc.) to others who have the skills in those areas. Although Honda (technology Strategic Anchor ®) it does not have a relatively high industry market share, it nonetheless has competencies in small-engine design and intermediate-scale manufacturing. Coupled with fast design-cycle capabilities, these skills allow Honda to be a very profitable company because it meets defined customer needs and wants in engine performance across a wide spectrum of industries. These companies illustrate the fact that knowledge-based organisations will have a competitive advantage as markets become more complex, fuelled by sophisticated and demanding customers. Competitive advantage lies in doing the “right” things effectively, not in doing the “wrong” things efficiently. However, knowing what the right things are in terms of customer perception is central to strategic thinking. For example, years ago Xerox (product Strategic Anchor®) focused its efforts on getting a copier from its plant to a customer faster than its competitors. However, when Xerox analyzed customer needs, it found that its customers were more interested in knowing exactly when the copier would arrive, having it installed and working on schedule, and being billed accurately. This required Xerox to rethink its whole operation and to concentrate on the procedures that had the most impact on those customer needs. Xerox then built the knowledge base essential to carry out those activities that led directly to customer satisfaction. Nissan (product Strategic Anchor ®) decided that it could gain a competitive advantage by concentrating on superior dealer service. As such, it developed the most intensive training programme in the industry. It involved everyone from salespeople to the receptionists, who were trained in identifying and meeting customer needs. They dedicated their knowledge base at the distribution and marketing points to the provision of superior customer service.

126

These cases illustrate that organisations must have a way of developing and managing knowledge as an essential part of their competitive advantage and as the fuel to keep their strategy alive and relevant. But what knowledge should a company focus on? And how does one go about developing and using this knowledge? Intellectual capital is packaged and useful knowledge, according to Thomas A. Stewart (Intellectual Capital – The New Wealth of Organizations). Knowledge assets, like money or equipment, exist and are worth cultivating. However, they can only be cultivated within the context of a clear strategy. The first step, therefore, in building a knowledge-based organisation, (or as Mr. Quinn calls it, an Intelligent Enterprise), is to have a process through which you formulate a clear strategic direction for your organisation. This strategy, and its core element, the Strategic Anchor®, becomes both a “magnet” and a “filter” – a magnet in terms of pulling relevant information into the organisation, and a filter in terms of converting that information into applicable competitive knowledge. When organisations complain about having an information overload, it’s usually a symptom of the lack of a clear strategy. In the cases of Xerox, Nissan, Nike and others, the strategy allows them to convert information into strategic knowledge, and strategic knowledge into tactical competitive advantage. Once you have established your strategy as the magnet and filter of information, there must be a process through which your organisation is able to create and apply knowledge. To do this, all of the people in an organisation must understand what information drives the company, who has that information, and to whom that information is most worthwhile. Essentially you need a systematic process that captures the flow of knowledge in the organisation. This enables them to make knowledgeable choices about the proper activities that lead to customer satisfaction. In turn, this drives their ability to be excellent competitors. Knowledge is the “mind” of an organisation; tactics the “hands”. Competitive advantage combines them, becoming a matter of “Common Sense, Uncommonly Applied”®.

127

THE IMPORTANCE OF GATHERING ACCURATE DATA ABOUT RIVALS AND SHIFTING WINDS APPLIES AS MUCH TO BUSINESS AS TO BATTLE Wellington, when outnumbered 10 to one by Napoleon’s experienced French troops led by some of the greatest generals of the time, wrote: “All the business of war, and indeed all the business of life, is to endeavour to find out what you don’t know…”. He was a leader who knew the strategic value of intelligence and how it can be applied in the pursuit of competitive advantages. In contrast to the overwhelming advantages the French enjoyed in terms of equipment and men, Wellington’s secret weapons were his superior intelligence network and his innovative use of what were called “exploring officers”. These were experienced regimental officers who rode in full uniform around, across and even through the French armies. These audacious officers brought back up-todate information on the location, strengths and likely intentions of the French. As a result, Wellington never lost a battle, and ultimately forced Napoleon and his “superior” forces to admit defeat. As Wellington taught us, strategic intelligence is the systematic monitoring of that competitive environment to gather knowledge on which to base future action. The principle behind my work with CEOs is that an organisation’s long-term success lies in focusing on a core idea while observing and anticipating changes in the environment that might challenge that idea. What is out there that you should know about? Will you be blindsided or will you seize those opportunities? Knowledge gives advantage. So who are the “exploring officers” in your company who provide the intelligence necessary to answer the following questions: 7. Where do the opportunities lie in meeting changing customer needs? What should we look for? What changes are important? Companies that successfully anticipate change in the business environment systemically monitor a number of signals that herald opportunities. For example, Sharp was able to exploit and commercially apply the flat-screen technology developed by Westinghouse. 8. What do we want to be as a company? What should the core idea of our business be, and how will it give us competitive advantages? Which of our strategic positions must we achieve? Which ones will come under attack? Having identified the environment in which in which we will operate, have we developed a strategy to deal with the opportunities and risks? In his book The Road Ahead, Bill Gates of Microsoft describes the future and his company’s role in it.

128

9. How will the competition react to changes in customer preferences? Since we do not exist in isolation, what will our competitors do to create opportunities for themselves? How do we accurately predict their future actions? What are their capabilities, their intentions; where do they have strength and where are they exposed? In World War II, General George Patton knew his enemy inside and out because he read what they read, listened to the same music, and ultimately thought as they thought. Patton’s defeat of the enemy’s divisions was born out of anticipating their moves. 10. Who are tomorrow’s competitors? New competitors will emerge, but these may not always come from the sources you are used to looking at. People find new opportunities in areas other people have overlooked or ignored, so CEOs need to anticipate unlikely competitors. For example: the Internet and cable TV companies now compete with telephone companies. 11. Where should we attack? Where are the vulnerabilities in our competitors’ products and customers? Intelligence about the excellent opportunities that lie in product and customer areas currently controlled by a competitor allows you to focus your attack. In Cable TV, for example, CNBC moved against ABN, which in turn was exploiting a weakness of CNN. 12. How do we protect ourselves? Your strategic information, knowledge and insights are vital to competing in future markets. However, these need to be protected because their acquisition by your competitor can be fatal to your business. When Xerox lost its patent advantage, Canon seized the opportunity. Japanese companies now aggressively protect their products using a tactic called “patent flooding”. The key issue for the CEO is to develop an effective intelligence and counterintelligence capability. In the end, it is the capability that shapes the company’s competitive advantage. It is the capability of the CEO and senior executives to think strategically that will ensure success: a capability based on accurate, timely, actionable intelligence. Knowledge, when applied, becomes your sustainable competitive edge.

129

PART III LIVING TOWARDS THE FUTURE ─ LESSONS FOR A FUTURE CEO Ordinary mortals know what’s happening now. The gods know what the future holds Because they alone are totally enlightened. Wise men are aware of future things Just about to happen. - from C. P. Cavafy, But the Wise Perceive Things about to Happen, a poem based on lines by Philostratos So how do we become successful CEOs who can anticipate and manage changes? How do we manage in the future tense? When oil baron Paul Getty was asked the secret of his success he replied: “Some people find oil, others don’t!” These days, charting the future may seem just as hit-or-miss as exploring for oil. First one fixed star and then another disappears with each morning’s news bulletin. But living in and towards the future is the first of many thought exercises you must undertake if you want to win the war for your organisation on the battlegrounds that you, not your enemy, choose. The way you look at the future, rather than the past, will determine today’s decisions. Today’s decision will determine your future results. The bookshelves, universities and executive seminars already offer a bewildering array of maps and manuals on strategy – from Michael Porter to C.K. Prahalad to Richard Branson. They seem designed for everyone from the novice to the experienced CEO. Plus a lot more that seem designed for academic consumption only. As Dilbert, our beloved cartoon employee, tells us, “These days it seems that any idiot with a laptop computer can turn out a business book and make a few bucks”. Firstly, I hope he’s right! But secondly, there are available, in fact, excellent commentaries and insights to good strategic management practice. The more relevant are the ones focused on the practice of strategy, the central role of a CEO. But now that you are setting out on your own strategic march into the future of your company, you should keep many of these maps and manuals under review. There are three good reasons: First, they alert us to the widest possible range of options for our organisation. They help our peripheral vision, a key strength of successful companies. Second, they encourage us to think in terms of new processes and paradigms and to let go of some of the comfortable habits we use to make sense of the world. Third, they force us to think in terms of competing values, theories and ideas.

130

Sifting the evidence As we look into our own future and the future of business, we need to remember that the future’ is not some single puzzle waiting to be solved and predicted. It’s more a complex set of possibilities that we need to bring together to pave a broad way forward. As Yogi Berra of the New York Yankees said, “The future ain’t what it used to be!” Nostradamus, the 17th-century French futurologist, offered his public a vast number of rhyming prophecies and predictions that were remarkably vague, obscure and unsystematic. Nostradamus’ shotgun approach appealed to the gullible. Sooner or later, one of his riddles could be made to match up with some major event or other, and so Nostradamus advanced his reputation. His secret was simplicity itself. By contrast, a responsible futurologist usually starts off with a central theme and worries away at it, exploring all the implications. The very best kind of futurologist – the one that you must become if you are to develop profitable directions for your company – does not predict the future; he defines and delimits it. He sifts the evidence around him in order to choose the most plausible of all possible worlds as his target. As he does this he is also implicitly rejecting differently imagined futures and resolving conflicts between them. Each theory of the future tends to generate its opposite. Some of this may be due merely to academic fashion – the compulsion to pick holes and uncover weaknesses in every theory. But the habit of considering the opposed view is an excellent one to get into, and can often help you see the road more clearly on a dark night. For example, people who predict that the Internet will kill books might also like to recall a parallel prediction from fiction. In The Hunchback of Notre Dame, the scholarly Archdeacon Frollo throws up his hands in horror when he thinks of the effect of the printing press: “Ceci tuera cela” (“This will kill that!”), he claims. He adds: “Books will kill the church!” How wrong you can be when, like Frollo, you are afraid of change and refuse to explore new possibilities. Thinking strategically about the future and then boiling your insights down into specific close tactics is not an intellectual exercise: it is instead as I have written before, “Common Sense, Uncommonly Applied”®. I am not going to offer an elaborate commentary on the notion of “common sense”. There may be a few difficulties with it, as with most notions, but most people in most cultures have a good general understanding of it. In general, what I mean by common sense is the ability to consider an idea or a strategy in the light of nonacademic, non-specialised experience. Therefore, future scenarios pull together key themes put forward by late-20 th-century futurologists and business people like you. These issues are what I believe will shape our three alternative futures:

• a possible future (what could happen); 131

• a preferable future (what we want to happen), and • a probable future (what most likely will happen). They will also explain why we will live and manage in a world where everything is new (novelty), everything is different (diversity), and all our relations (with people, places and ideas) are short-lived (transience)… the three factors whose convergence, according to Alvin Toffler in his book Further Shock, could lead to the breakdown of our economic, social and political institutions. We will survive and grow only if we adapt to this rapid rate of change by developing skills that many individuals and organisations do not possess at the present time. We must learn them. Strategy as a Kaleidoscope From our experience we’ve identified several key themes that we believe will help explain some of the issues confronting CEOs. These lessons can illustrate what your strategy must ultimately deal with, and how strategic thinking can be applied in a practical business situation. These themes essentially reflect many of the issues that even today we as CEOs are wrestling with. They represent the context of strategic thinking. First, let me tell you what those lessons are. Second, I will paint a picture of how those lessons, or themes, though distinct, are best understood when blended together and seen as a kaleidoscope of creation; changing constantly, forcing us to continually adjust our perspective – a never-ending story over which you must exert control. As you analyze these lessons that influence your strategy, you should be asking whether their foundation is in “common sense”; ask whether you can apply that common sense to shape the strategic future of your company. These themes, or rather perspectives of strategy, may help you make sense of the world and the changes that are carving and shaping the competitive landscape of your future. First, what are the key themes and lessons? Lesson 1: Strategy absorbs the shocks of radical change by creating new skills for the organisation of the future. Lesson 2: Strategy helps us build and rebuild the adaptive organisation of the future. Lesson 3: Strategy must drive family-owned businesses. Lesson 4: Strategy helps us understand changes in the “rules” by which we will play. Lesson 5: Strategy considers which technologies will most shape your future and create opportunities for your business. Lesson 6: Strategy manages knowledge. Lesson 7: Strategy expands boundaries. Lesson 8: Strategy lives with contradiction. Lesson 9: Strategy changes as circumstances change. You’ll notice how all these themes appear and re-appear in different shapes and forms in various commentaries on the application of strategic thinking in business. These themes about strategy were illustrated, in one form or another, in the various

132

essays in this book and, in fact, helped us to create a vision of a possible future world. They all reflect knowledge that exists today. These themes emerge because we, as CEOs, are being confronted by a number of competing and often conflicting issues about the future world in which we will compete. Each issue reflects a different dimension of strategy and illustrates why a broad strategy is needed to guide our business through turbulent times. In their totality, the themes underscore that strategy is not always “pure and simple”, as someone once wrote, but rather is often “impure” and “complex”. It’s messy. It requires strategic thinking – seeing the world from different, often conflicting viewpoints. It requires imagination. LESSON 1: STRATEGY ABSORBS THE SHOCK OF RADICAL CHANGE BY CREATING NEW SKILLS FOR THE ORGANISATION OF THE FUTURE The organisation of the future that you are now leading, or will lead, has only one certain source of competitive advantage – knowledge. Knowledge will inevitably replace land, labour and capital as the primary force behind production. But knowledge needs a purpose, an application, and that is strategy. It is only through the execution of strategy that knowledge becomes power. Each organisation will build its success by converting raw information into organised knowledge, which creates new knowledge. It needs skills and a process that gives this organised knowledge the chance to work like yeast through the whole enterprise, lightening it up and letting in air. It will convert this knowledge into practical, common-sense technologies, products and services. It will exploit and innovate. It will make money. Tomorrow’s organisations will in the main be highly specialised. The successful organisations of the future will need to draw on deeper and deeper pools of specialised in-house knowledge while managing the acquisition of external knowledge. Not any knowledge, but knowledge for a purpose. As I wrote previously, Alvin Toffler tells us the organisation of the future and its individual stakeholders must, therefore, possess three critical skills essential for survival and growth. These three skills are at the heart of strategic thinking. They can and must be learned. First, We Must Learn How to Learn Of all the many theories of learning, the simplest is that we learn by observation and experience. From an early age, we follow an elaborate but largely unconscious process, watching what others do and don’t do. Little by little we learn to match their successes with our own. Success doesn’t always come the first time – this type of learning often involves trialand-error learning, using an open-minded, hands-on experiential approach. Yet trial133

and-error learning has a convenient way of turning failure into success – and it is a large part of how we grow up and develop as individuals and as organisations. Trialand-error learning is a common-sense working strategy that, deep down, shows that most of us are remarkably expert psychologists and sociologists. The best theory is the one we derive from our own actions and behaviours. “Common Sense, Uncommonly Applied” ® simply asks us to bring this gift for forming sound, workable theories out into the open. It asks us to use this gift to the full by encouraging experimentation – tolerating small failures in order to achieve great successes. It asks us to observe ourselves systematically, and how we can adapt to changes in our business environment. It asks us to embrace failure as a critical source of learning. Second, We Must Learn To Relate Relating is the ability to see and make connections between apparently dissociated, even random, things, people, places and events. Let’s concentrate for a moment on people, because the way we relate with our people is crucial to our ability to lead. Why, then, do some people choose to follow leaders and what can we learn that applies to business leadership? In a scholarly study of leadership, American historian James MacGregor Burns identifies two types of leaders, each based on the premise that a leader’s role is to make conscious what lies unconscious among followers, and to understand what needs and wants are valid and durable rather than false and transient. To do this, one can be either a transactional leader or a transformational leader. Transactional leaders represent the most commonly expressed form of leadership. The underlying issue between the leader and the follower is a transaction. The examples in politics abound: Give me your vote, and I will give you something in return. It is always a quid pro quo situation. Yet leadership also involves getting ordinary people to do extraordinary things, and that is what transformational leadership is all about. It is a more complex type of leadership and appeals to the higher needs and aspirations of women and men, tapping into the unconscious desire in all of us to achieve things we never dared dream. A transformational relationship is not content with “what is”. Instead it seeks out “what could be”. It feeds on new connections. It integrates diversity and interdependence. It demands that we go beyond the present to face the future. It demands that we see the consequences of our decisions not just for the here and now but for unseen communities and unknown stakeholders – people in a future space and time. It is about the so called “White Space” that Hamel and Prahalad discuss in their book, Competing For The Future.

134

But knowing the unknown (the future) and seeing the unseen (our strategy) does not mean that we have to lead rashly – if our thinking is strategic we will be able to move out confidently into a world that we have systematically studied and analyzed. The leader – the transformational leader – is the one who helps others to be less afraid of the future, who looks at something common and sees the uncommon. These are the strategic thinkers. Third, We Must Learn To Choose The final survival skill the organisation of the future will need to buffer “future shock” is choosing. We must learn processes through which we can make effective decisions. At its very simplest, choosing means that we all need first to survey the new world of “overchoice” and then consciously select from it a lifestyle, a set of beliefs and a plan of action from what is on display. If we are unable to make choices, we will find ourselves blown about from one sub-cult or one fad to another. Choosing in this way, searching for comfort zones, or shelters where we can escape “future shock”, is a strategy for escape rather than conquest. Unfortunately, seeking comfort rather than conquests is the best that some CEOs ever hope for. But a little higher up the scale, other CEOs learn to apply their common sense, not just to choose a comfort zone, but to choose a new, sometimes uncomfortable, vantage point. From here we can survey the specific resources at our disposal and the lie of the land. If the CEO sees himself already as the lord of the “castle on the hill”, he can draw or “call” his troops towards him rather than simply pushing or driving them forward. As such, he is in much better shape than the CEO who struggles to survive in his comfort zone – on the plain along with all his competitors. To really make a difference, the CEO must learn and apply the art and craft of strategic thinking, asking and answering key strategic questions. If he has mastered strategy he will make prudent decisions that systematically cover the entire territory – taking him forward into the thick of the action and bringing him out a winner on the other side of the battlefield. Finally, decision-making is often a very lonely task. As Dwight Eisenhower, one of America’s greatest generals, wrote in the dark hours of the war in 1943, “Subordinates can advise, urge, help and pray, but only one man, in his own mind and heart, can decide ‘Do we or do we not?’.” LESSON 2: STRATEGY HELPS US BUILD (AND REBUILD) THE ADAPTIVE ORGANISATION OF THE FUTURE Surviving future shock will not mean that society and its organisations must stop changing; rather, it must adopt a different kind of change. First of all, each individual must recognise consciously what effects change has on him and thus assess his own life pace. He may then begin to influence it – speeding it up, slowing it down, first in respect to small things and then progressively larger ones. Managing change, not suppressing it, becomes the objective. Our organisations will become “future 135

shock absorbers” allowing individuals to adapt to rapid change. Thus, there will be a first step in controlling the overall change that society will experience. Education will play a role within those organisations to increase the individual’s “cope-ability”, the speed and the economy with which he can adapt to continual change. The future will therefore stress the need for new skills for individuals and, by extension, organisations, in the three crucial areas I mentioned: learning, relating and choosing. Education, particularly in the workplace, must be future-oriented. These skills are central to strategy and strategic thinking. Although they appear like very soft skills, they are essential to an individual’s and an organisation’s success. To illustrate this point, let me refer to a book many of you have read, In Search of Excellence, by Tom Peters and Robert Waterman. In it they unveil eight characteristics of successful companies. When you marry these seemingly unrelated characteristics to Toffler’s three main survival skills for the future, you create a profile of a successful company driven by skills in decision-making, learning and relating: an organisation that can deflect or absorb “shock” or radical changes. Competencies of Successful Organisations First, Learning to Decide Organisations are able to choose in order to sort through “overchoice”: too many opportunities from which to choose. 1. 2. 3.

They decide. They act. They encourage autonomy and entrepreneurial decision-making at all levels. They decide not to get involved with businesses they don’t understand. Second, Learning How to Learn

Organisations learn how to learn; to cope with “everything is new”, by reinventing themselves over and over during the life of the organisation. 4. 5.

They believe that productivity is achieved through “knowledge” people. They stick closely to a few clear key values, but they allow their people to be innovative in the way they stick to the same values. Third, Learning to Relate

Organisations learn how to build (and break) relationships constantly in order to cope with constant change. 6. 7.

They stay close to the customer, anticipating change and responding quickly to those changes. They have simple organisational structures and lean staff, and frequently adapt the structure. 136

They have hands-on managers whose task is to promote and shape values that anchor the organisations buffeted by change.

These are themselves excellent precepts, but the very first one is already difficult for many would-be CEO reformers. We want to act, they say, but what action is called for and how can I get my team to agree? Unless we have a strategic thinking process to sort that out, we will not be able to absorb the shock of radical change by creating and using a set of critical skills. Let’s now look at those skills in more detail as they will help build your organisation of the future. The organisation of the future that you are now leading, or will lead, has only one certain source of competitive advantage: knowledge. Knowledge will inevitably replace land, labour and capital as the primary force behind production. But knowledge needs a purpose, and that is strategy. Each organisation will build its success by converting raw information into organised knowledge, which creates new knowledge. Having processes which the organisation will give this organised knowledge the chance to work like yeast through the whole enterprise, lightening it up and letting in air. It will convert this knowledge into practical, common-sense technologies, products and services. It will exploit and innovate. It will help create wealth. These processes will be so thorough-going and rapid that your organisation must be ready to throw overboard the dead weight of everything it does in advance of new and profitable directions. Your organisation will need to create a total succession plan. Drucker (1993) says: “[O]rganisations increasingly will have to plan abandonment – something that so far only a few large …companies have faced up to.” Or as Schumpeter calls it, “The creative destruction of the status quo”. As they plan abandonment and create change, these decentralised, fast-moving organisations will disrupt, challenge and even unnerve society. Although many leaders would like to believe that their organisations uphold community and social values, this is very far from their first responsibility. Their first responsibility is to grow through superior economic performance. But in the long term, the strong economic performance of enterprises encourages and sustains strong community and social values. As Ayn Rand reminds us in Atlas Shrugged, “Do not make the mistake…of thinking that a worker is a slave and that he holds his job by his employer’s permission. He does not hold it by permission but by contract, that is by a voluntary mutual agreement. A worker can quit his job; a slave cannot.” Tomorrow’s organisations will in the main be highly specialised. They must learn to attract and encourage an increasing number of new specialists within that specialty, because they will be competing for society’s most crucial resource-alert, well educated, talented, qualified people. The successful organisations of the future will need to draw on deeper and deeper pools of in-house knowledge and manage the acquisition of external knowledge. LESSON 3: STRATEGY MUST DRIVE FAMILY-OWNED BUSINESSES

137

As we understand from future scenarios, we will find that family-owned businesses will still be prevalent throughout the world, accounting for 80 to 90 per cent of all businesses. They are, and will be, the dominant form of private enterprise and create the vast majority of the wealth generated worldwide. Each family business can teach us much about surviving and growing in the future. Each will need a strategy. Although many believe family businesses are most likely to exist in emerging markets, they are prevalent in developed economies as well. For example, in the United States they account for 70 per cent of all businesses, 50 per cent of gross domestic product and 50 per cent of the labour force. Perhaps most surprisingly, 35 per cent of the Fortune 500 companies are family-owned. Therefore, many lessons in strategic thinking can be derived from understanding how such businesses operate. Kelin E Gersick, in Generation to Generation: Life Cycles of The Family Business, discusses a number of issues critically important to the successful management of family businesses of the future. Family-owned businesses are special, according to Gersick, because they have unique characteristics. For example, they are valuedriven by a family dream. There is someone in that family who has created a clear business concept he or she wants to see fulfilled. These people have distant horizons, always looking to the long term. The members also have a high degree of trust and commitment because they fully understand what they are trying to create. Family-owned businesses are also more complex systems because they involve many different types of interest groups, each attempting to influence the direction the business takes but often without regard for economic consequences. Such companies often have a set of conflicting norms, which must be reconciled in order to have continued success. They understand the contradictions Charles Handy writes about in The Age Of Paradox. For example, they are always trying to reconcile tradition and change; the legacy they want to establish versus the need for continued entrepreneurship; the values they want to have endure versus the need for performance; and finally, the intimacy family-owned businesses seek versus the need for a public view of their operations. Successful family-owned businesses are facing a host of new changes. For example, they see themselves as part of a global economy confronted by competitors with more sophisticated management support systems; and the next generation, who are beginning to take over the operations, have matured and developed with an international perspective. These businesses also find themselves caught up by the changes in the role of women in the family, who are now well educated and capable of managing the enterprise. This change is often at odds with old perceptions of the role of women. The family is also being confronted with the politics of private ownership and the new inheritance laws being implemented. Gersick does not believe the assumption that there is an incompatibility between family control and professional management. However, he believes the next generation of leaders must anticipate and manage family dynamics in all aspects of the system in which they are involved.

138

What then are the issues that are important to ensure the future success of a familyowned business? Gersick approaches this from three different viewpoints: ownership of the business, the business operations and the family. From the ownership side of the business, there must be clear transfer plans that allow the business title to be transferred to a new generation of owners. There must also be clear succession plans, which allow the continuation of the leadership function and contingency plans to deal with unforeseen ownership issuers. From the business operations point of view, the family must have a clear strategy that describes the business it is trying to create. This strategy must be consistent with the family values and consistent with the realities of the marketplace. There must also be career development plans for key executives who are not family members. From a family perspective, Gersick recommends the establishment of a family council, which does not replace the role of outsider directors but supplements their efforts with a mechanism through which family needs can be met. This council deals with issues such as the articulation and transfer across generations of family values; entry and exit policies for family members; liquidity needs and benefits; security and educational needs, and philanthropy. Gersick’s research on family-owned businesses has been supported by studies such as the one conducted by Robert Kleiman. For example, from 1976 to March 1996, the stocks of the 209 largest family businesses in the US had an average annual return of 16.6 per cent a year, compared with 14 per cent for the companies in the Standard and Poor’s 500. Kleiman believes this success is derived from the longterm perspective these businesses take and the fact their owner/managers have much of their own net worth tied up in the company. However, if you intend to invest in these businesses, make certain the directors of the company comprise at least 50 per cent of people outside the family, and ensure that these companies have a clear plan of succession. These studies have supported our own experience in working with family businesses. These are successful business because they are able to manage the normal complexities of a family business while managing the complexities of a business operating in a modern global economy. They are, and will be, the dominant business form of the 21st century. They will be the “shock absorbers” of our society. LESSON 4: STRATEGY HELPS US UNDERSTAND CHANGES IN THE “RULES” BY WHICH WE WILL PLAY. Strategic thinking is a dialogue with your business environment. It is a listening and responding process through which a CEO learns, acts on the learning and learns once again. It is a cycle, a dynamic that never ceases. From that learning he or she uses informed judgment to chart the direction of the company.

139

Yet it is sometimes surprising that some CEOs are unaware of some of the major changes that are occurring in the world and how these changes are becoming the “rules” of the game by which business leaders will play. These changing “rules”, when fully explored, will help a CEO to create various scenarios for his or her business that enable the proper assessment of strategic options. In an insightful analysis of these changing rules, Clem Sumter (The New Century: Quest For The High Road) identified several areas that will greatly impact the decisions we will make about the future of our business. Although each of us may respond differently to each area, we must nonetheless take them into account to understand the variables that may influence the crafting of our strategy. These areas include: •

Population,

•

Values, and

•

Winning and losing nations

When you assess each area, ask yourself the question: “What are the implications for my business?” Rule # 1. In which part of the world are you making your products and in which part are you selling them? The first rule change involves population: the rich old millions vs. the poor young billions. Western Europe, Japan and North America earn 70% of the world’s income and their average per capita income is 15 times higher than the rest of the world. The richest fifth of the world’s people consume 86% of all goods and services while the poorest fifth consume just 1.3%. Indeed, the richest fifth consume 45% of all meat and fish, 58% of all energy used and 84% of all paper, have 74% of all telephone lines and own 87% of all vehicles. Americans spend $8 billion dollars a year on cosmetics – $2 billion more than the estimated annual total needed to provide basic education for everyone in the world. The world’s 225 richest individuals, of whom 60 are Americans, with total assets of $311 billion, have a combined wealth of over $1 trillion – equal to the annual income of the poorest 47% of the entire world’s population. The three richest people in the world have assets that exceed the combined gross domestic product of the 48 leastdeveloped countries. These countries are rich but they are old. The richer you get the fewer children you have, and consequently the older the population gets. In Japan, the number of children per family is about 1.5. The markets for the future in these three geographic areas (the economic triad) will be focused on “rich” old people. These are the rich old millions. There are not a lot of them and their populations are growing slowly. But there are also the poor young billions, the other part of the world where population growth is rapid and the economies struggle to grow at a rate faster than 140

the population. Each year, India gives birth to numbers equal to the population of Australia. Two thirds of India’s 90 million lowest-income households live below the poverty line – but more than 50% of these impoverished people own wristwatches, 41% own bicycles, 31% own radios and 13% own fans. It took three million years to create the first billion people. Estimates now tell us that between the year 2000 and 2012 we will also create another billion people bringing our total population to seven billion people. In the year 2005, 90% of the world’s 15 year olds lived in the developing countries. By 2050, eight billion of the world’s projected 9.5 billion people – up from about six billion today – will be living in developing countries. Will they be the poor young billions? If developing economies are unable to grow, the divide between the rich and poor nations will increase, with all the accompanying social and political tensions. How could this affect you and your strategy? Who are your customers? Where are they? What products or services do they need or want? What is your business strategy for this brave new world? Rule # 2. What are your company’s values, and how do they contribute to productive work? The second rule of the game involves values. The way we think changes society. There are many competing values (e.g. nationalistic beliefs vs. religious fervour) and they must be accommodated in a civil way. Looking around the world, what many seem to yearn for is the development of systems that work, and that allow them to exercise their values in relative peace and prosperity. Life is balance and many countries today struggle to balance economic development, with environmental health and a quality of life. Not an easy task. But can an organisation in the 21st century have strong moral beliefs and values and still make a profit? The question was asked of me as I was giving a presentation to a group of senior executives in Los Angeles, about strategic thinking and the need for organisations to have a clear direction. The question centred on what role values play in strategic thinking. My response was that values will play a critical part in the success of many businesses, principally because they define ethical behaviour and, as a result, guide the organisation to long-term success. Although I recognise that in some cases, particularly in the short term, organisations that lack principles and values can claim success, my experience suggests that strong values hold successful organisations together for the long term. For example, it was Johnson & Johnson’s strong value system that guided it through the Tylenol crisis in the late 1970s. Before my presentation, Anita Roddick, the founding entrepreneur of the successful Body Shop organisation, gave an excellent presentation about the success of her company over the past several decades. As she spoke about her organisation as one that is based on strong principles and beliefs, she reminded me of many other CEOs that I have known who live life with a passion and a dream, and who fully

141

believe not only in pursuing the financial goals of their organisation but also in seeing that their organisation fulfilled a much broader purpose. In Ms Roddick’s case, she made the point that passion inspires commitment, and in setting up her cosmetics firm she has tried to establish self-esteem as a root to social revolution. In creating the Body Shop, she created an organisation that encourages people to join her world, “where imagination is the source of value”. For it is from a clear, well thought-out, deeply held set of beliefs that you can create in people a passion for what they are doing. And from that passion comes a wellspring of imagination. Imagination, in turn, helps to create a successful organisation. Ms Roddick also spoke about her belief that life is choice, and that a good organisation can make several choices: it can choose to be first, it can choose to be bold, it can choose to lead, it can choose to act, it can choose to protest, and it can choose ultimately to win. All of these beliefs fundamentally nurture the ability of The Body Shop to be successful. As the world shrinks through global communication, we will see a growing number of value systems and belief systems confront each other. Individual companies will pursue global profitability by simultaneously collaborating and competing with other companies that have conflicting values. They will also operate within countries and economic regions whose cultures and governments have fundamentally opposing social, political and economic value systems. Often I observe the debate about which value system is better and where value systems fit into this economic world. But as the debate ensues, I know that in the end each of us as a leader must articulate and hold to his or her own beliefs no matter the short-term economic consequences… and that this ethical behaviour can produce profit over time. Rule #3. Is your company part of a winning or losing nation? The third rule of the game concerns winning and losing nations. As the world progresses, nations, in the foreseeable future, will still be the basic unit that creates an environment for success in business. Successful nations, therefore, must have the following characteristics: First, and most important, is that the most educated countries are the most successful. In the future, however, be careful if your country is producing more lawyers than engineers! The second characteristic is the work ethic. It’s not a surprise that to win you not only have to be smart, you also have to work hard. But this work ethic is also supported by low income tax, a sound family system and a clean, corruption-free government that does not interfere in the lives of its people. The third characteristic is a high saving rate, which allows you to invest in the future. A fourth condition is to develop a dual economy in which there are large businesses with high technology and financial resources working along side small businesses, which create jobs and give birth to the future.

142

A fifth condition is social harmony with a strong sense of social justice. And the last condition to be a winning nation is that you have to be a global player. Outward-looking economies grow three times faster than inward-looking ones. Which countries in the geographic scope of your strategy have those characteristics? In which country is your company based, and does it have the characteristics of a winning nation? In each of these areas (population, values, and winning and losing nations) the “rules” are changing. And these changing rules and shifting demographics will greatly influence businesses that are competing on a global basis. Does your current strategy recognise this? LESSON 5: STRATEGY CONSIDERS WHICH TECHNOLOGIES WILL MOST SHAPE YOUR FUTURE AND CREATE OPPORTUNITIES FOR YOUR BUSINESS The master said: “To learn something and then to put it into practice at the right time: is this not a joy?” The Analects of Confucius, 1.1 Each generation, according to Clem Sumter, has been shaped or influenced by a technological breakthrough such as electricity, the motor car, television or jet aircraft. Today it is microelectronics. Smaller computers, micro-cameras to see inside blood vessels and other products have become smarter, smaller and less expensive, and these products are changing society. First, microelectronics is individualising the production side of society, creating small clusters of highly skilled people. Half of all Americans work in businesses of fewer than 20 people, six out of seven Japanese work in small business, and 95% of the jobs being created in the world are in small businesses or the informal sector. One also has to remember from Lesson 3 that family ownership is the dominant form of these businesses, accounting for 80-90% of all businesses in the world. Our ability to universally access knowledge has empowered small organisations to compete successfully with large traditional enterprises. How big does your organisation want to become? Second, microelectronics is individualising the consumption side of society, enabling manufacturers to “mass customise” their products. In future years, technology will impact communication, transport and the environment. The cloning of Dolly, the sheep (may God rest her soul!), was only the beginning of a biology technology revolution that continues today. Ever since man made the first stone tool, the future has been shaped by technology. The question now is which specific technology or combination of technologies will most shape the coming century. It is almost certain to be one of the “new tools” explored by researcher Daniel Burrus – his predictions have a remarkable track record of coming true on time or better. Each of the following technologies will in 143

some way shape our future business arena, with new and currently unimaginable products, services, customers, and geographic markets. Which technologies will influence the success of your strategy? The following chart further illustrates the shape and timetable of things to come.

144

Here’s what scientific progress has in store for us in the coming centuries 1999 Male birth control pill or contraceptive injection become commonly available. 2000 Male birth control pills or contraceptive injections become commonly available. 2001 New advances in genetics enable doctors to combine gene therapy with immunotherapy to create more effective cancer treatments. 2002 Wall-mounted, 1-metre-long flat screens show television programmes or videos, and when not in use display works of art. 2003 Mobile phones with video cameras and screens enable people to watch films or play computer games from their home or office. 2005 Video vacation postcards, postcard-sized film screens that display 10 seconds of holiday sights and sounds, are introduced onto the market. 2005 The active contact lens, linked to the Internet, allows the wearer to read E-mail and surf the World Wide Web without even opening her eyes. 2006 Smart construction materials, with electronic sensors built into their molecular structures, detect excessive stress and warn of potential collapse. Clothes made from smart fabrics automatically warm up the wearer in cold weather and cool him or her down in hot weather. 2007 New cars are equipped with anticollision radar, thermal imaging systems to improve visibility, onboard computers that detect and warn drivers about imminent faults, and satellite-based automatic global positioning systems.

2010 Robotic pets, programmed to recognise their master’s voice and face, operate and control all the computerised functions of the household 2015 The genetic roots of all diseases are identified. 2016 The holographic telephone projects a life-size holographic image of the person being called. 2017 Human beings land on Mars. A permanent colony is established on the planet around 2044. 2020 Flying-wing aircraft are able to carry 1,000 passengers up to a distance of 9,000 kms at average speeds of 900 km/h. 2022 Foetuses conceived in vitro mature to term in extra-uterine incubators and are born without ever having been inside a human womb. 2025 Computers connected directly to the brain are able to recognise and respond to thoughts, obviating the need for the manual input of data and commands. 2030 Following on the development of artificial lungs, kidneys and livers, doctors can now create artificial legs and fully functional artificial eyes. 2030 Human hibernation is used for the first time in long-distance space travel. 2031 Nuclear fusion is harnessed to generate electricity. 2032 Microscopic robots capable of reproducing themselves are devised using nanotechnology. 2500 From an average of 78 years, human life-spans are extended to 140 years.

Sources: British Telecom’s Technology Calendar; Reality Check by Brad Wigners and David Pescovitz; The Next 500 Years by Adrian Berry; Philips’ Vision of the Future; Royal Automobile Club’s intelligent transport system project. Do you and your executive team track these and other technologies so that you can beat your competitors? When you beat them, “Is that not joy?”. LESSON 6: STRATEGY MANAGES KNOWLEDGE Peter Drucker’s broader theories of society and politics are matched by very precise recipes for action within organisations, as noted in his 1994 Harvard Business Review article, “The Theory of the Business”. 145

But at this point in our enquiry, what he says in his Post-Capitalist Society holds the most insights for us. In this book, Drucker suggests that the 250 years from the Industrial Revolution to the present are really a study in how knowledge has been differently defined and applied. The Industrial Revolution was born when knowledge was applied to tools, processes and products. A century later, the application of work to productivity began a trend that succeeded in increasing productivity fifty-fold in developed countries. We are now leaving capitalism behind and we are also leaving behind an era when most people made things or moved them. Today, what counts is the productivity of nonmanual workers. In terms of resources, knowledge has replaced the traditional factors of production – land, labour and capital – and it is this fact that is transforming society into a knowledge society and producing challenges that extend deep into education and government. The currency shock wave that swept the world in the 1990s demonstrated the effect that global information can have on our companies’ strategies. The task of transforming information into knowledge and of using that knowledge effectively is both a social and an individual task. As a social task it needs welldirected organisations with a clear sense of mission; as an individual task it needs educated leaders with a global outlook who are at ease in both the world of ideas and the world of people and work. Organisations today, says Drucker, must act as destabilisers, unlike the more traditional forms of organisation, which seek to conserve and to slow down change. They must manage for change through continuous improvement, innovation and exploitation of success into new applications. For Drucker, the future is already here yet our conservative tendencies, our comfort zones, lead us to still think in terms of issues and ideas that don’t fit what he elsewhere calls the “new realities”. Among these realities: •

Simple interest groups have been replaced by numerous apolitical power centres and coalitions. These include the increasingly influential non-profit organisations, centred on highly specific aims.

•

Since government intervention and control have failed the Socialist West and the Communist world, government activities should be temporary and short-term, with privatisation leading the way forward.

•

Government defence costs threaten economies and arms must be at the service of policy.

Drucker explains how management, not the industrial worker, is the decisive production factor. Classical economic theories not only focused heavily on productive labour; they also revered the sovereign nation. Such theories must now give way to theories that take the following into account: the national state, the region, transnational enterprises and global and local money, credit and investment flows. A CEO, in response, must learn how to manage knowledge within a whole new global world. Clem Sunter (Lesson #4) helped define that world. 146

LESSON 7: STRATEGY EXPANDS BOUNDARIES Many strategists believe, as does Kenichi Ohmae (The Borderless World), that a central thesis of our “new” business economics is that today’s global companies are serving the ends of an interlinked economy in which nationalism and closed cultures are becoming obsolete. They operate, instead, in what Ohmae calls the borderless world. This is a world that is very imperfectly described by established economic theories but was alluded to in many of our essays. This borderless world is based on a few straightforward premises: • • • •

Free flows of information are educating the consumers of all nations, and these flows cannot be dammed up by individuals or governments; Head-on competition is being replaced by originality and improved value for customers; There is no single solution to customer needs, any more than there is a single customer; Companies that look at the world with a “headquarters: mentality cannot remain competitive.

The borderless world is an interlinked economy made up of the United States, Europe and Japan (see Lesson #4) plus the much smaller but very aggressive economies of Hong Kong, Taiwan and Singapore. That stereo with the Englishsounding name or those garments with a barely pronounceable (to non-Italians!) Italian name may in fact be no more English or Italian than Mount Fuji or Lake Titicaca. One client of ours, for example, designs his products in Canada, manufacturers them in China and sells them in the United States. In addition, today’s products are so complex that no one company can hope to master all the different technologies involved. Partnership has become essential, as the Airbus Industries European consortium and the Microsoft and Intel “alliance” illustrate. Centres of production are as dispersed and varied as the markets that their products serve, complex as markets now are. As labour is driven out of production, automation has made manufacturing a fixedcost activity, along with very considerable R&D costs. Such costs must be spread over a much larger market base, which drives companies further towards globalisation. However, when they are properly structured, such strategic alliances will grow and prosper, despite conservative protectionist trends and the frequent fear that alliances will let competitors in. But if they are not based on mutual respect – if by contrast they are seen as a quick and dirty way to get hold of someone else’s technology or enter a foreign market, these alliances in time will fail. Ohmae’s thinking reminds us of many writers who lead us by the hand from a vanishing present into an emerging future. Their lateral, emergent thinking opens the way to an enlarged vision in other areas. In his case, a discussion of a borderless 147

world blends naturally and convincingly into a discussion of what we might call “borderless products”. Following the example of Konosuke Matsushita and his tora-warenai sunao-na kokoro concept – roughly translated “a mind that does not get stuck” – Ohmae cites the strategy that took Korean firm Brother from its declining market in sewing machines to booming sales in word processors and typewriters by using the shared concept of microelectronics to cross product borders, changing from a Product Strategic Anchor® to a Technology Strategic Anchor®. In Brother’s case, as with other companies, strategic thinking helped pull their strategy beyond traditional geographic and, most important, mental boundaries. How well will your executive team compete in this borderless world? LESSON 8: STRATEGY LIVES WITH CONTRADICTIONS “Go South to reach the North” is an apparent contradiction. Such contradictions drive us crazy, but we live with them every day of our lives. For example, at work we are asked to be an independent thinker, an “entrepreneur”… and a team player ! Charles Handy presented the business world with a relatively optimistic view of the future in his 1990 best-seller The Age of Unreason, and he is usually given high marks for his foresight. By 1994 however, in The Age of Paradox (entitled in Britain The Empty Raincoat), he was already positing a new age, which he charted “to make it easier for people to see a way through the confusions of our times”. The nine paradoxes at the heart of his book point the way towards a turbulent future, and by their very nature cannot be resolved. Yet we can learn to understand them and to manage them to our advantage. Consider just one of Handy’s paradoxes – the paradox of intelligence. Intelligence, he says, is a new form of property. The paradox of intelligence lies in the fact that, unlike all other forms of property, you can never give it away. Even if you share it with others you still get to keep it. Conversely, you can never own another’s intelligence, even if you happen to own the business where the other person applies it every day. How does this relate to the business decisions you will make today? What about the many different paradoxes contained in his paradox of organisations? Global but local, planned yet flexible, workers who value autonomy but who must be prepared to work in a team – you will be a very unusual CEO if at least one of these does not strike a familiar note. Handy’s nine paradoxes1 are a great tool for strategic thinking, because they ask us to weigh alternatives. But despite his insights and his style of thinking, he is not writing about you and your company. He is writing about a very broad future and the way through it. It is up to us to apply, through strategic thinking, what he teaches, to make it live for our organisations. 1

Intelligence, Work, Productivity, Time, Riches, Organisations, Ageing, Individual, Justice

148

LESSON 9: STRATEGY CHANGES AS CIRCUMSTANCES CHANGE We cannot wait for great visions from great people, for they are in short supply … it is up to us to light our own small fires in the darkness … we need to have faith in the future to make sense of the present. Charles Handy

Charles Handy, Gordon Lippitt and others use the familiar “S” curve that maps so many of life’s adventures to diagramme Handy’s method of handling paradoxes and managing strategic changes.

Handy suggests that each decision and direction we take, however positive and uplifting over its main course, will eventually follow a negative, downward trend. It will drag us down with it, unless we can spot the beginning of a new curve early on. For example, xxxxxxx. Notice carefully that this new curve also begins with a small negative trend at Point A. We need to devote extra resources and energy to ensure that we emerge from the shaded, paradoxical area on the way up. If we leave our decisions too late, until point B, the first curve will take us down with it.

149

Where do you place your company on a Handy curve? Nearer to A or nearer to B? For most of us, B is closer than we are prepared to admit. If we are always on the lookout for point A and the beginning of a new curve, we will cut a broad path through Handy’s paradoxes, and we will exhibit the characteristics of the wise men who “are aware of future things just about to happen”. Your test of leadership is at point A. Although things are still going well, you must not only see the need for drastic change but also have the conviction and vision to lead your senior team and the whole company on to the new curve. You will be simultaneously managing the old ways and the new ways. Knowing when to change is as important as knowing what the change should be. Too often, organisations have introduced major change efforts without considering the timing of the change or, in some cases, whether the change is necessary in the first place. As such, much disruption occurs, productivity is lost, and the people in the organisation become demoralised. But to survive and grow, an organisation must make several key changes during its life.

As Andy Grove stated, “There is at last one point in the history of a company when you have to change dramatically to rise to the next performance level. Miss the moment and you start to decline.” To understand those changes, their content and their timing, perhaps we can use the image of the “four seasons”, an image understood in many different cultures. “To every thing there is a season… A time to be born and a time to die.” This belief has its roots in the biological sciences. Nature’s process allows living systems to grow and change in a way that sustains life, much as we described using Handy’s charts. We know that our own life is guided by the progression of apparent “seasons” and that we go through cycles of birth, maturity, decline and, ultimately, death. Yet, we are also aware that we can influence that cycle. For example, we can prevent disease, make lifestyle changes, or choose a different career. The seasons of our life suggest change in an orderly fashion. They give the illusion, if not the reality, of predictability and order. The seasons change but the sun predictably rises each day. Although luck and circumstance play an important role in the progression of our lives, some believe that much of what happens to us is simply a matter of choice. Moreover, the belief that choice is central to managing an individual system may have interesting parallels in managing a business. Using the seasons as a way to describe change may be useful avenue through which you can view your own organisation’s progress and growth. As the world debates the validity of a global 150

economy and its inherent positive and negative consequences, and as Asia and Russia reflect on the turmoil of the late 1990s, perhaps we can observe these situations from the viewpoint of seasonal change. This can act as a useful framework for companies, industries and economies to sort out their future direction during a period of apparent chaos and uncertainty. However, do organisations, industries and economies go through predictable cycles? The answer is “yes”, according to many theorists such as Gordon Lippitt and Ian Morrison in addition to Handy. Theodore Modis, joining this group, has written an excellent book, Conquering Uncertainty, focusing on the “seasons” that organisations experience as they progress in the marketplace. In our work with clients, we have found that this seasonal metaphor helps the senior executive team to clarify its strategy and behaviour under changing circumstances. This enables the executive team to make choices about the behaviour of their organisation within the market place. Where others see chaos, these companies tend to anticipate and manage change to their advantage. Follow the “S” curve of your company and see which season your company is in. Winter, a time of death and a time of birth. Winter reflects both the beginning of something as well as its end or death. The winter of an organisation’s life means that it must simultaneously focus on its survival and its future viability. It is a period of time when an organisation must have innovation and creativity while overcoming the anxiety and confusion that results from the death of old ideas and ways of doing things. During winter, the organisation is going through a transition in which the development of new products and customers is essential for future survival. Profits are low while debates centre on how to develop new products and launch them into the marketplace. You will see organisations focused on a “back-to-basics” approach to management, and “entrepreneurship” will be come an essential characteristic. In winter, the organisation must fire its bureaucrats and those who are the maintainers of the status quo. The future belongs to those in the organisation who are best able to adapt and make the necessary changes both to survive and to plant seeds for future growth. In Asia in the late 1990s, Hong Kong’s economy entered its winter, while other countries such as Russia, Malaysia and Indonesia entered both their political and economic winter. Will Japan be able to continue to come out of its economic winter with a view on how to compete on a global basis with new ideas in the 21 st century? Companies, economies and industries that cannot adapt will not survive to springtime. Spring, a time for hope. In the spring, the seeds of “new” products begin to bear fruit. In the organisation, it is a time for excitement and enthusiasm. Rapid growth takes place both in existing products as well as through acquisitions of new products or companies. The organisation begins settling down and the chaotic periods of winter subside. Innovation is at its peak and the future seems limitless. The depression of winter yields to the elation of spring. Economies and organisations gain confidence once more. Investment becomes the buzzword. This scenario seems to fit many Asian companies in the late 1970s and 1980s, while the European Union also seems to be entering its springtime. Will Europe repeat some of the mistakes that Asia committed in its springtime, when enthusiasm seemed to override common sense?

151

Summer time, and the living is easy. The company or economy is now enjoying the fruits of its previous labour. Profits are very high and the organisation seems invincible. This confidence allows larger organisations to merge with others in order to dominate the market place. There is no tomorrow! Slowly, the bureaucrats begin to re-emerge as the organisation seeks stability as well as growth. It looks to the future as limitless opportunity. The war cry goes up: “We are invincible”. Expansion takes place and market share becomes the dominant way of thinking. Nothing will change and we will ride the wave of success into the future! Fall, a time of decline. In the fall, an organisation that has not renewed itself begins to decline. Products begin to age and lose profitability. Market share declines and mistakes in quality begin to emerge. The executives first deny that anything bad is happening and that it is most likely just an aberration. Then, they seek to blame others for the lack of growth in the company. Statements such as “It’s the government’s fault!” or “Our competitors are unfair!” begin to dominate the executive suite. Unless the executives are able to break out of that mindset, the organisation usually goes into a steep decline, ultimately leading to chaos and extinction. Thus begins a new “winter” of the organisation’s life. If an organisation is unable to renew itself, it will die in that next winter. Many Asian companies will suffer this end very shortly unless they awaken to the realities of a new marketplace. United States companies went through this stage in the 1970s and 1980s. Their re-emergence as global leaders was the result of much new thinking and action, and overcoming “denial”. There is a lesson here for Asian, Russian and Eastern European companies and economies. And then winter comes once again – a time of death, a time of rebirth. As expressed by John Gardner: Like people and plants, organizations have a life cycle. They have a green and supple youth, a time of flourishing strength, and a gnarled old age. An organization may go from youth to old age in two or three decades, or it may last for centuries.

152

DREAM. THINK. BECOME. As 21st-century economic and political events unfold in the world, judge at which point you are on the curve of your organisation’s life; which “season” do you believe that your organisation, industry and economy is in? For each season brings with it its own challenges and opportunities and, ultimately, its own way of managing. Strategic thinking is a process that allows organisations to adjust themselves to new realities. There is no better time in our history for organisations to embrace this type of thinking, take the path of innovation and embrace the world of risk. To laugh is to risk appearing a fool, to weep is to risk appearing too sentimental, to reach out for another is to risk involvement, and to expose feelings is to risk exposing one’s true self. To place your ideas and dreams before the crowd is to risk their loss, to love is to risk not being loved in return. To live is to risk dying, to hope is to risk despair, to try is to risk failure. But all risks must be taken because the greatest hazard in life is to risk nothing. The person who risks nothing also does nothing, has nothing, is nothing. If we avoid risk we may avoid suffering and sorrow, but we simply cannot learn, feel, change, grow, love or live. Leo Buscaglia

153