Brands and Politics, can the mix lead to healthy business growth?

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Successful brands have always found influencers and celebrities helpful in selling their product. Sometimes brands embed messages hoping to ride the waves of cultural change all the way to the bank.  But when the winds change suddenly, how a brand navigates the wave impacts its survival.  Continue reading Brands and Politics, can the mix lead to healthy business growth?

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Strategic Bets–beyond clear, measurable goals

Is it possible to pursue a strategy amidst the markets’ current obsession with  performance metrics like ROI?   Obsessive focus on near term performance has upped the realization, if not fear, among many management teams that no matter how innovative or successful their current product and/or services are today, tomorrow they could become indistinguishable, just another commodity. This obvious paradox was the focus of the March monthly Chicago Booth strategic management practices discussion.  Participants took the opportunity to explore the issue by considering articles describing the strategic bet made by Dow Chemical’s acquisition of Rohm Haas, Paul Krugman’s perspective on how this time is different (see notes and article links at the bottom of the post).

Leadership and vision seem to have taken a back seat to Business intelligence. Thanks to the rise of technical analysis, external pressures and other forces affecting commodity prices, increasingly compromise the best of intentional strategic moves.

In the case of Andrew Liveris, Strategy and Business recent article Strategic Bets suggested that an executive committed to a game-changing move ” can expect to face a series of harsh tests that might stretch over several years.”  For Dow and Liveris,  success was not the result from merely pulling off the deal amidst some significant setbacks. Ram Charan and Michael Sisk explain that the deal was nothing short of transformational for Dow, and an important shift in the level of strategic thinking necessary to Dow’s long-term survival.  For Liveris and his team, they  understood that the global environment was rapidly changing their industry; and to stay ahead they might be forced to put their entire enterprise at risk. Sketching out  a few alternative realities on paper alone would not  help them  figure out how to move quickly to a new business model before other competitors came to similar conclusions.

Charan and Sisk argue that it’s no longer possible to view these kinds of strategic bets as choices.  Incremental improvement seem less viable, or reliable an alternative strategy. Rather,  the fluidity, fickle and abundant nature of capital has compromised the value of these approaches. Today, the growing uncertainty about the future has made the capital markets overemphasize short-term results.  Companies are under great pressure  to deliver ROI within a reasonable time frame, impeding efforts committed to longer term performance results thus a value paradox.  A strategic bet requires management to both stake out  a future vision and attract investment towards the future potential of the company. The bet’s success depends as much on an ability to place or fund it, as  an ability to manage the incentives within and across the organization to pull off the strategic vision.

Basic Economics and dealing with market uncertainties

In any moment uncertainty is present, but most of the time our focus or action steps make the fear of the unknown irrelevant. The leading headlines in WSJ and NYTimes (as of March 19) report  analysts scurrying to find the significance or impact of increases in commodity prices.  Is this news, following a long period of stable pricing,  the first in a series of tests to operating assumptions on the strength and sustained health of the economy? Oil prices and the pressures on the energy sector are often leading indicators signaling the need for businesses to adjust  assumptions in their budget or profit forecast.

Mark Zandi, senior economist at Moody’s has remarked that the general inability of the best economist to forecast the speed (when) and height of future oil prices, contributes to the uncertainty in the wider market, This is what happened in the spring and early summer of 2008, when oil prices ramped up quickly and hit a record high of $150/barrel. Today, natural gas  prices, which historically follow oil as it did in 2008 have not been following that trend line .  In part,  because of the apparent glut.

So how should rising commodity prices be interpreted?   Julian Simon- Paul Ehrlich famous bet of 1980 pitted one theory about the market reaction to conditions of natural resource scarcity against another. They wagered that the inflation-adjusted prices of five base metals would either increase (Ehrlich, of course, based on his Malthusian theory of increasing scarcity), or decrease (Simon, based on his theory about human ingenuity and unlimited resources in the long run). Simon’s win in 1990 draws attention to other underlying forces that occur over time in the market, substitution and innovation.  In the short run, neither will impact demand and may account for the capital markets continuing obsession with short-term performance and further constrain executives seeking to make long-term strategic bets.

Basic economics and fundamentals of analysis do work.  The larger challenge for business strategy is to keep in mind the inevitable drive, or motives that fuel demand for substitutes. Good strategic planning,  accounts for  naturally occurring variances, such as daily weather fluctuations, while also tuning in to larger shifts, such as changing climate trends. An advance plan and preparations for changes in the environment  may help you withstand the rare disaster and not wipe you out. Strategists should  focus on the long-term  and leave managers to heed the short-term. Infrequently longer trends in commodity pricing, when hedged using forward pricing are often considered too risky for managers who fail to incorporate them into their planning.  Southwest airlines however made that bet and avoided the financial hits that the other large carriers experienced in the summer of 2008.

Sticking to one vision in the face of obvious signs of shifting environmental conditions is a delicate balancing gaming that often pits analytic trends against much softer gut instincts. Technically, every time is different and operationally it’s hard to make a big bet when your hard assets still may continue to deliver value.

Leaders  continually should ask themselves “For what do you want to be known?”  Daily, corporations make bets, that’s the fun of business, especially fast-moving business. Juxtaposing the commoditizing forces working against you by continuing to invest in the fundamental elements that define your business might be a useful cue. For example, Southwest consistently plays off the defining vision of themselves as the lowest cost airline to send clear signals of their strategy and inform every decision they make. In light of the recent issue of the added wear and tear on the planes from more frequent takeoffs and landings, it will be interesting to hear the next chapter in this resilient business success story.

It’s more hyperbole , than reality to believe it possible to buy innovation; but leaders  who see  a different future sooner, and act on it, have clear advantage. That future, or innovation’s investment price, particularly if recognized by a leader  sooner than the market, will take into account risk adjusted returns. CISCO  in  following this acquisition strategy  has successfully continued a fast growth streak , leverage its capacity to integrate, scale and deliver the new technologies and stay at the front of the pack in their industry.

“Increasing customer satisfaction” is too general. Identify a specific, quantifiable goal (ie: improving customer retention by 5 percent) and regularly measure your relative progress. The ongoing monitoring, seeing that retention inched up, or down, reinforces your strategy and helps you stay on track.   Or maybe it’s what hinders you from stretching. Evaluating success of a strategy should not rely on the same measures  set up to track relative progress toward  specific business goals. Strategy is broader, and keeping your eye on the information that impacts the measures will insure that they don’t sink you.  Inside the engine room and on the bridge, the Titanic was in fine shape, but  fog and the nature of icebergs made it possible to hide the factors of their undoing in plain sight.  Likewise, keeping your eye on the speedometer or the tachometer  may give you a good feel for performance but it’s a really bad strategy for successfully driving a car.

Note: The Strategic bets article  Most of the Friday morning participants  found the title apt. In business, the CEO needs to make  strategic bets regularly; and the greatest leadership test is how persuasively they sell their vision to the necessary stakeholders.

Strategic Responses to Globalization and Cost Pressures

The fallout from recent events in the Middle East will almost certainly include rising commodity prices and uncertain profit margins for many global firms. This month’s readings suggest new strategic approaches for international business leaders in an increasingly volatile world:

Strategic Bets  appeared in Strategy and Business (February 2011).
Ram Charan and Michael Sisk
http://www.strategy-business.com/article/00063

Commodities: This Time is Different
Paul Krugman
http://krugman.blogs.nytimes.com/2011/01/29/commodities-this-time-is-different/?scp=7&sq=prices%20&st=Search

Seeing the Iceberg, Strategic responses to Business Disruptors

Titanic image

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.