Possibility, are you asking how or what?

Polarity, the idea of opposites, turns thoughts and possibilities around like  a pendulum  always moving from one extreme to the other. That is until the thought runs out of energy or momentum and stops. It rests until some force displaces it.

Recently, a client asked for help explaining the difference between planning for a transition and planning a transformation. Since Transformation seems to be one of the buzz words of the moment, I began to wonder what made the two thinking processes different, and what did they really mean. My polarity thinking friend suggested that transitions plan for certainty, or near certainty and transformation plan for uncertainty.  I disagreed.

I think of a transition as the pause between takes, what happens between two clearly defined states.  It’s when we assess, evaluate or figure out our position, how close or far. Transformation, that’s the feeling we have on arrival, we made it so now what.

In other words, if the client has a clear objective as in to take a specific distant hill, then transition plans incorporate the certainty that elevations will be changing on route and insures the team’s prepared for the journey. When it knows  what changes to expect along the way, then it’s transition ready. Transformation focuses on arrival, different conditions and challenges it doesn’t know, but can imagine arrival makes possible.  After all, isn’t that why the objective was to take the hill?  Wasn’t it about the advantage that being on top offers?

Put another way, imagine what you want to do is known, like traveling to another location.  Transitions focus on the journey, how long will it take, buying tickets or planning the route. Transformation planning asks how the change in location affects your current activities.  Transitions are more whole body time shifts, where as transformation puts your head in the future while the rest of your physical body remains grounded in the present.

November’s topic for the monthly strategy discussion focused on Transformation Readiness. Before I managed to summarize the conversation and post notes,news about the sale of Mariano’s to Kroger caught my eye. and then I also spotted  an interview with CEO, Bob Mariano on the Chicago Booth website.

If you are not familiar with Chicago, then let me explain that Mariano’s was a new entry into the grocery store business. By coincident, just as they had opened a few stores one of Chicago’s main competitors –Safeway decided to close all of its Dominick’s stores. This meant Mariano’s acquired 10 of the closed stores and their debt fueled expansion took off.  That’s when Kroger came calling.

Since I had already been thinking about  transformation questions , as in how do you get transformation ready, I thought it worth sharing these responses.  Take a peek, and let me know what you think, are the example transitions or evidence of transformation readiness?

Scenario A: I think that Mariano’s namesake, CEO and founder, Bob nailed it when he said:

“At Mariano’s, we tried to push further. We continue to push.  What I mean by push is to expose the customer to different and unique things and allow them the opportunity to tell you, ‘No, I don’t like that,’ or ‘Yes, I like that.’”

Scenario B: Or maybe you prefer the spin by CEO of Shazam when asked about the increasing gap between growth in the amount of information and its utilization. ” …How do you improve data intelligence?”

“That’s definitely the case [that there is a data knowledge gap] and for years we have been talking about data warehousing, or capturing that data, but turning information into data intelligence is a new journey for many companies…”

Or, how about the Gambling industry insiders view who characterizes difference between digitizing or converting your industry to the reality post conversion this way:

Advancements in technology has brought about a rapid digitization of gambling and almost every other industry. Some have managed to exploit these developments more than others and I think that the gambling industry is at the forefront of how well technology can be applied to a domain.

As an industry we must be open to change and pro-actively look at how we can exploit such technologies to provide a better and more entertaining experience to our customers. For example, the progress in Touch ID has enabled us to allow LeoVegas iPhone app customers to log in to the casino using only their fingerprint.

Are you wondering why distinguishing between transitions and transformations matter? Or, even better, how your business can take greater advantage of the widespread availability, access and flexibility that a fully digitized world creates?

Great, now you are thinking strategically.

Prof Zangwill offers QUICK THOUGHTS ON UNCERTAINTY IN DECISION MAKING

A guest post by:   Willard Zangwill, Ph.D., Professor, University of Chicago, Booth School of Business

Rachel Kaberon, in preparation for the Strategy Management Practices Issues Group discussion of the Chicago Booth Alumni Club, asked me to put together a page or two of thoughts about uncertainty in decision making.  Since she had helped me with software I have developed to assist in complex decision making, this was my chance to return the favor.  Hence, here are some thoughts that strongly influenced my thinking about uncertainty and how I have tried to suggest how people might better predict the future and make better decisions.

 UNCERTAINTY IS RAMPANT.

First is that uncertainty is remarkably uncertain, and our efforts to predict it are likely worse than we often assume.   Overconfidence bias is indeed strong.   What demonstrated this to me was the outstanding work of Philip Tetlock[i]. He studied how accurate were the predictions of experts and pundits in the political or economic  areas. These people were similar to the prognosticators we see on television or other experts discussing what might happen to events in the future.  Tetlock examined such predictions for years and studied tens of thousands of them, which was a huge undertaking.

What Tetlock discovered was how bad the predictions were.   They were only slightly better than chance.  Not the result one might expect, but worse.  Too many events seem to unexpectedly occur in the future.

Interestingly, the prognosticators that were most confident and sure of themselves, were wrong more than the more cautious forecasters who hedged and added conditional statements.    The confident experts tended to gain more support and attention, as their confidence convinced others, but that did not make them more right.

How could predictions be so faulty?  By and large, we tend to think we predict better than we do because if we are wrong, we give ourselves excuses.  We suggest that no one could forecast what really happened, or that events no one could have foreseen occurred. That process absolves us of blame and provides exoneration.   The net result, however, is that the future is harder to predict than most of us are likely to believe.

 WHAT HELPS

Given this conundrum that we have to predict events, but are probably not that good at it, what can be done.  Here are a couple of experiments that I have found useful to try to build upon.

As Gary Klein[ii] has noted, Research conducted in 1989 by Deborah J. Mitchell, of the Wharton School; Jay Russo, of Cornell; and Nancy Pennington, of the University of Colorado, found that prospective hindsight—imagining that an event has already occurred—increases the ability to correctly identify reasons for future outcomes by 30%.

The concept  is illustrated by the following.  Consider some upcoming event, say a presidential election.  Then think of reasons why a particular candidate might win.

Now do the following.  Assume it is now after the election. And assume it has just been announced that candidate has won by a solid margin.   Now think of reasons that triumph occurred.   You will likely think of  more reasons.  In essence, assuming an outcome and carefully imagining it, helps you think of reasons why that outcome might occur.   Perceiving those additional reasons then helps as you proceed to analyze the situation.

A much different approach in a study by Armstrong and Green[iii], was also quite helpful for forecasting the future.  In brief, they had subjects predict the outcome of past situations that were unknown to the subjects.    Since these were past situations, the actual outcome was known, although the subjects did not know those outcomes.  After the subjects made their predictions about the outcome of these situations, the accuracy of the predictions were then determined.

At this juncture, the experimenters then changed the situation.  They required that the subjects first consider several situations analogous to the one they had to predict; these were analogous situations where the subjects knew the outcomes.   Once they considered those several analogous situations, now the subjects were told to predict the situation in question.  The success rate went up substantially.  In fact, when a group of subjects were involved and they carefully compared analogous situations, the accuracy of the prediction roughly doubled.

The message seems to be this.  When we forecast an event, we tend to do that by thinking of some similar event that we know.  That similar event we know, gives us ideas about the outcome of the event we are trying to predict.  Now take this one step further.  If you consider several events roughly similar to the one you are trying to predict, it is like increasing the sample size. The accuracy of your prediction should rise.    Moreover, just examining how several situations similar to the one you are considering turned out, is illuminating, and by exposing the complexities of the situation,  provides useful insights.

 BREAKTHROUGH THINKING

Given the difficulty of predicting the future and the challenges thereof, it might help to broaden our decision-making framework and, in particular, to do more breakthrough thinking as that might provide us with an advantage.  Considering breakthrough thinking, as least for most people, good breakthrough ideas seem to occur almost randomly, as we tend to think about an issue and the exciting idea somehow jumps into our minds.    But there do seem to be procedures that help them occur more frequently and more when needed.   The key insight is to look and examine where the breakthrough idea is more likely to occur.

To illustrate, suppose you cannot find your car keys and have searched all over the house.  In frustration, you ask your spouse.   He/she replies that they are on your dresser.  Despite the mess on your dresser ( not necessarily yours, but certainly mine) you dash over to your dresser and with only a little rummaging, quickly find your keys.

As another example, when they search for oil, they do not put the exploratory well anywhere. But they first conduct detailed geological and seismologic examinations to locate where the oil find is more probable.

The concept for breakthrough ideas is the same.  Suppose you have one million possible ideas to search through in order to discover your breakthrough idea.  Finding that breakthrough idea from among the million possibilities,  is not likely to be easy.  This explains why getting breakthrough ideas is usually a challenge, as it required a quite large search to uncover it.

On the other hand, now suppose you obtain some clues as to where that exciting idea might be found that narrows your search down to ten possibilities.   You can easily search the ten and, in all likelihood, uncover the breakthrough idea.

The insight is to examine where the breakthrough idea is likely.   It is like drilling where the oil is likely, and you will more easily find it.   One of the concepts behind the software for decision making I developed takes advantage of this and seeks to suggest where the breakthroughs will be more likely, helping you to more easily discover it.

 CONCLUSIONS

The uncertainty of the future is probably far greater than most of us assume. Here I have tried to suggest some means that might help reduce that uncertainty and improve decision-making.  There are other ways as well, and they should help as you proceed to make difficult decisions for the future.

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[i] Philip Tetlock, “Expert Political Judgment: How Good Is It? How Can We Know?” (Princeton)

[ii] Klein, Gary, “Performing a Project Premortem,”  Harvard Business Review, Sept.2007

[iii] Kesten C. Green and J. Scott Armstrong   “Structured analogies in forecasting”, University of Pennsylvania, 9-10-2004

Seeing the Iceberg, Strategic responses to Business Disruptors

By the time we see the iceberg, is it always too late to change our course? Business model disruptions often blind  fast growing companies– shareholder  darlings, and result in their precipitous decline.  The impact of the hit is rarely limited, as the wake of the disruption ripples across the globe creating uncertainty in the capital markets.

Last week, Janurary 18  Borders Group Inc appeared as the latest casualty.   Borders Hires Restructuring Lawyers  story reported by the WSJ, corporate management’s decision to suspend book order payments and hire restructuring lawyers.  Top c-suite executives resignations soon followed.  At this point, it appears collapse is their only alternative.   But a year ago, on the 27th of January, their CEO resigned. The interim CEO announced in April a turnaround plan, that in retrospect  failed to keep them afloat.

Is the Border’s case a failure of strategy, leadership or execution?  A full analysis isn’t necessary to realize the price paid by delaying responses to industry disruptors .

I wouldn’t have paid much attention to this story, or been that drawn into the analysis had I not sat with Chicago Booth alumni last Friday and focused exclusively on this issue of business model disruptors.  The Border’s story was coincidental, and though none of us had direct facts or details, we recognized that the leadership team could not have merely been asleep or unaware that trouble was looming.

McKinsey recently published a survey on the value of corporate strategy. Their findings were not surprising and merely confirmed the Booth and Kellogg  discussion participants experiences.

Strategy is hard

Defining the nature of your business proves to be challenging. Borders first and foremost was a bookseller. Their mega-store concept, in  itself an industry disruptor, enjoyed great success until a competitor introduced further industry disruptors. Why were they incapable of applying lessons of their own mega-store disruptive history?  Why couldn’t they switch-up to an online platform and seize the opportunity for more same site sales and avoid square footage overhead?  I leave the case write-up to others.

I wonder whether disruption is inevitable and if so, what if anything can a company facing similar game-changing disruptions do?

It was precisely this question that the monthly discussion of Chicago Booth Alumni considered last Friday.  To frame the short conversation, attendees reviewed in advance three articles with strategic advice and  listed at the end of this post.

Unlike the predictability and regularity of a ticking mechanical clock, the future rarely repeats or duplicates the past.  Our circumstances are always shifting. Some subtly, occurring  as imperceptibly  as the orbital passage of the earth around the sun.  Business disruptors succeed because they are rarely taken seriously by industry insiders early enough.

A single customer may wander; but consumers rarely act en mass abruptly taking their business to an emergent competitor. In reality, the best customers stay loyal  and provide an ongoing revenue stream. This renders the company blind to the departure and slowly increasing exodus of marginal customers who strengthen competitors into a massive menacing iceberg. The small top , poses no visible threat and is thus dismissed as inconsequential.

Most successful business leaders  monitor and report business metrics which they also review with interested stakeholders , e.g. senior management, share-holders,  boards of directors. Rarely do these metrics display the full organization’s capabilities and/or its resilience to withstand disruptive threats.

Clayton Christensen studies corporations facing change  and found management rarely focused on changes in demand as they occur in their marketplace. Resilient companies insure existing resources can successfully meet the evolving needs of their customers.  Their review process is not retrospective, but focuses on the future by assessing what steps in their process and values will  propel, not impede their ability to  innovate.  This choice compromises their ability to win.  In a race with a motorboat, paddling faster, or cutting dead weight won’t help you win; but an innovation in your paddle or changing the contours of the boat might.

Strategic suggestions

Disruptions in your market and Business model are rarely welcomed or predictable.  Several tactical strategies make it possible to bounce back or even advance your market position.We discussed three.

1. James Ogilvy, writing for Strategy +Business, offered metaphors from philosophy to illustrate how easily management and leadership miss critical cues. He suggests that to avert disaster, create a culture of resiliency, one in which  emboldened employees both speak and act early.  No one predicts the future but present operating decision processes can prepare an organization to be more responsive, helping lay plans for changes no one yet understands, measures or foresees.

2. Constantinos C. Markides and Daniel Oyon writing for MIT Sloan raised five key questions from reviewing ideas presented by Clayton Christenson, Michael Porter and others who have studied the challenges  that impede innovation.  Management  who asks themselves these questions will be in a better place to both assess the potential damage caused by a disruption to its business or industry;and correspondingly, respond to the new competitive threat.

The questions don’t produce the plan of next actions. Instead they form the basis to revisit strategy, which is especially helpful to companies who recognize their current products, services or basic business model is time limited.  The process requires great strength to create something new while managing existing revenue opportunities. Pursuing both tasks simultaneously is fraught with challenges and incongruities;  and thus often proves successful when there is a restructuring of the organization that is equally focused on committing to the new change.

3. A third set of insights appeared in another article from Strategy and Business (How to Win). Authors Leinwand and Mainardi posit that companies who possess execution skills and formulate strategy based on existing capabilities are more successful game changers.  These companies are always outward facing and their strategic focus starts and ends with their customers.  This article written  in 2008 before Facebook and other social media tools proved themselves relevant, prophesized why inexpensive interaction with customers remains a great prescription.  In theory, a prudent strategic approach builds a coherent portfolio of ideas, skills and competencies that mutually reinforce the organization’s overall capabilities.  It’s a theory becasue it proves very challenging to execute.  [note, an older article by Christenson and Ovendov in HBR 2000, outline how to assess and find your core capabilities.]

Closing discussion take-aways

Discussion participants summarized their thoughts at closing as follows:

• Where are the lessons on how to create culture transformations?  The prescription needs more meaningful or effective details.
• Organizations and their leadership are not as dumb as they seem; rather blaming inertia, or more specifically its absence, inevitably rolls up into a leadership problem.
• If you can stop the bleeding, act sooner and change the management team it may help, but critically it is management that needs to change what it does and  navigate a better course.
• “Viewing your death”, an Ogilve tip, is only as helpful as your perceptions of future and the significance posed by outside possibilities when painted into a future scenario.
• Remember who your ultimate customers are, not your board, not your leadership. Instead, any change or redirection in your business should be based on the shifting nature of your customers .
• Keep track of your fundamentals, the organization capabilities.
• Be wary of the situational leadership conundrum…their path to the top shaped how they read the signposts and drive the organization forward.
• Best to take a long-term look, overcome the protective instincts that may ultimately undermine your ability to move the product along a more realistic and vibrant future.
• CEOs are ultimately responsible for strategy and any changes have to come from the top.

The best insurance an organization can carry is regular consideration of outsider’s perspectives,  reality checks on their planning.  In theory, a board of directors consists of people whose own context and operating environment is in sharp contrast to your industry and culture.  The more divergent their views of the future, the greater the value of their contribution to your survival and success.

Source Readings

These  articles  were the basis of the Chicago Booth Alumni Discussion January 21, 2011

What Strategists Can Learn from Sartre
http://www.strategy-business.com/article/03405
By James Ogilvy, Strategy +Business, Winter 2003
Strategic thinking can benefit from philosophy. In this reflective piece, the author explained why in an uncertain world where competitive advantage is insecure, setting strategy must become an existential exercise.

How to Win by Changing the Game
http://www.strategy-business.com/article/08401
By Cesare Mainardi, Paul Leinwand, and Steffen Lauster,
Strategy +Business, Winter 2008
This was the magazine’s first major piece on capabilities-driven strategy, laying the groundwork for Leinwand and Mainardi’s book The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010).

What to Do Against Disruptive Business Models (When and How to Play Two Games at Once)
http://sloanreview.mit.edu/the-magazine/articles/2010/summer/51413/what-to-do-against-disruptive-business-models/
By Constantinos C. Markides and Daniel Oyon,  June 26, 2010
Fighting against a disruptive business model by rolling out a second business model is one option for companies to consider. But to make that work, you need to avoid the trap of getting stuck in the middle.