Is your strategy impeding or promoting adaptive change?

State Bank now Walgreen'sChange, it’s what most business executives recognize as a constant threat. Unfortunately, many find themselves between a rock and a hard place. How might managers ably meet tomorrow’s change in environmental conditions?

Rather than react, plans that consider structure and processes matter. So too does understanding their organization as an integrated and dynamic whole.

Factors that create efficiency and make an organization and its team effective today appear less stable all too quickly.  The growing connectivity and access to information affects the pace and scale of  technology developments, consumer expectations and competition.

An organization’s survival depends on its ability to adapt and respond to external changes in its environment as well as introduce changes internally.

The connections between strategy, structure and processes not only prove defining for many organizations but also the source of pain or promise to its survival.

Participants in the Strategy discussion took a look in July 2017 at a few articles (posted at the end)  that focused on decision-making challenges that make organizations struggle to adapt.  Here’s some of what we discussed.

Choosing when and what to Change

People adapt to expected change by planning. A strategy clarifies expectations making both planning and adapting to change easier. Strategy when well communicated and understood articulates the underlying purpose that drives an organizations’ leadership to make a change. Strategy in this sense, is a choice of action affects the quality and effectiveness of changes and degree the changes stick.

Management theory differs from strategy, though it too creates expectations that make planning and adapting to change possible.  Management theory determines the organizations’ structure and processes.

Not every change that occurs is expected, and not every expectation gets realized. Both situations require adaptation but few organizations prove capable consistently of decision-making that continuously holds their competitive advantage.

Why one business proves more resilient, and/or adaptive than others continues to elude the best managers and leaders. Cause and effects are complicated to identify let alone sort out.

Nearly fifty years ago,Raymond Miles, Charles Snow, Anal Meyer and Henry J. Coleman, Jr –four management academics set out to understand the process business use to adapt. They looked for patterns in order to prescribe how existing managers might successfully meet tomorrow’s or different environmental conditions.  Their framework remains relevant and informative because it encourages management to see their organization as integrated and dynamic wholes.

For a small, or start-up business this perspective mirrors the intensity of collective singular focus on survival. Once secured, the collective focus naturally diffuses. Accommodating growth each functional role establishes separate priorities that over time compete rather than integrate their resources.

In 1978, existing descriptions of organizations’ ability to adapt were lacking. The authors of Organizational, Strategy structure and process  used their Organizational Behavior and Industrial Relations backgrounds to inform and then describe three categories of processes: entrepreneurial, engineering and administrative.

Miles et al break down basic decision making for managers into three categories: administrative, engineering and entrepreneurial. Organizations’ top management limits their choices of adaptive behavior to those they believe allow them effective direction and control of human resources. They observed that whatever theory of management executives endorsed factor significantly in their subsequent analysis of organizations’ ability to adapt to changes in the environment.

Their preliminary research uncovered a series of patterns relating management theory and organizational strategy and structure.  Fifty years later, these relationships remain evident though more patterns and interpretations and management theories have emerged. Note, this article predates the work of Michael Porter’s industrial economics inspired descriptive five forces theory of Competitive Strategy.

The evolution of expectations between managers and employees are three components of the patterns based on

  1.  a set of assumptions about human attitudes and behaviors,
  2. managerial policies and actions consistent with these assumptions, and
  3. expectations about employee performance if these policies and actions are implemented.

In light of the attention currently paid to organizational culture, their observations prove interesting, especially as nowhere in this article does the word even appear. That’s not to say they overlooked this concept. The authors merely draw the attention of management to individual behaviors and expectations with a prescriptive suggestion for their evolution from a traditional model to a human relations and a human resources model.

Perhaps culture issues playing out in many organizations reflect challenging dynamic patterns these authors identify as: Defenders, Analyzers, Prospectors and Reactors.

Here’s my crude descriptive summary

Defenders Analyzers Prospectors Reactors
Innovation Low Moderate High Low
Efficiency High moderate low low
Centralized Decision-making High Low
P&L autonomy Low High

As you can see, instead of finding a direct alignment between patterns of decision making associated with different management theories and the ability to adapt, the authors  found a mix of assumptions, policies and expectations.

Holding together a dominant coalition with mixed views concerning strategy and structure is not an easy task.

Miles et al found managers engaged in new product or service development struggled to function within planning, control and reward systems established for more stable operations.  Analyzer organizations must be successfully differentiated into its stable and changing areas and managed accordingly.  ….Numerous organizations either led or forced into a mixed strategy (multinational companies, certain forms of conglomerates, many organizations in high technology industries) and their struggles may well produce a new organizational type and demands for a supporting theory of management.

To meet tomorrow’s  environmental conditions successfully, manager’s must ably understand organizations as integrated and dynamic wholes.

A balance sheet view

I reached out to Shep Pryor, a Chicago Booth grad, co-author of The Private Equity Edge and faculty professor. I hoped his  fluency with company financial statements could  help reveal the presence of similar strategic choices about structure and process that Miles, et al described.
I asked him about examples in which the statements might reveal the effectiveness of a decision to enter a market or offer new products, and if they depends less on environmental conditions and more on strategic choices of internal structure and process?  At least that’s what my initial take on the prescriptive in the article.

Here’s Shep’s very cogent reply:

Whether a financial statement analysis, or perhaps a broader 10K, which adds additional content to the financial statements would enlighten the analyst on where the reporting company is in the spectrum described in the article.

First a comment on the article, and then maybe I can shed some light on an answer:

The article categorizes the adaptive capacity of companies more or less as follows:

Low Flexibility High Flexibility
High Stability Defender Analyzer
Low Stability Reactor Prospector

It goes further into its definition by stating that each company must bring some balance to bear on three main problems: entrepreneurial, engineering, and administrative. Finally, the authors point out that managerial theories (and their associated practices) held in high esteem by top management will enhance or confound the company’s ability to adapt.

The main points I [Shep] get from the article are:

  1. Each of the first three types of adaptive behavior may lead to business success but only if the management team’s theories and practices enable them to keep the three fundamental problems (entrepreneurial, engineering, administrative) under control.
  2. Being a Reactor is a default position for companies that lose their capability to maintain strength as one of the other types. Avoiding the position is crucial.
  3. Changing from one box of the matrix to another is a perilous enterprise.

What their commentary brings to mind as good examples:

  1. Ford motor is a Defender, but it is moving toward being a analyzer, as its market is invaded by different technology by such firms as Tesla.
  2. Sears was a defender with no hope of transforming, so it has become a reactor, and will soon become a memory.
  3. United was a Defender when Southwest was a Prospector. As the environment changed to favor Prospectors, Southwest gained dominance.
  4. Kodak Defended its vanishing market to the death, that is, to its own death.

What can you learn from a 10K?

  1. Defenders are likely to be company with higher levels of fixed assets. The more capital intensive a company is within its industry, the more operating leverage it has, and thus the more dependent it is on growth and stability. High sales can lead to colossal margins, while sales below breakeven cannibalize net worth. In the same industry, a company that is less capital intensive, will be able to maintain its margins despite variations in sales.
  2. If the MD&A of the 10k dwells on a variety of new product introductions and a lot of small acquisitions, the company is probably a Prospector.
  3. While companies are notorious for cloaking their true sectors in the 10k sector analysis, if there are disparate businesses highlighted in the sector analysis or the other commentary, it will be clear that the company is at least trying to be an Analyzer. For example, a successful company that makes truck axles and also sells ceremonial tea sets through a party plan is an Analyzer, while an unsuccessful company that does the same is a Reactor.

A little financial forensics can go a long way.

The Articles

Alignment of Strategies

http://smallbusiness.chron.com/alignment-strategies-4649.html

Organizational strategy, structure and process
The Academy of Management Review, July 1978

http://www.wiggo.com/mgmt8510/Readings/Readings5/miles1978amr.pdf


How aligned is your organization

https://hbr.org/2017/02/how-aligned-is-your-organization


OPTIONAL

If you need a focal point to think about the question, consider the activist investor LOEB’s stake in Nestle

Nestle: Third Point Daniel Loeb Activist Investor

https://nyti.ms/2tbczyS

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What’s Up with Retail: Invention easier than Transformation

 

170422153016-store-closing-signage-780x439The business headlines have been full of news about store closings.  Multiple chains are closing 100s of stores.  This once flourishing sector employed thousands, and now flounders. What strategic lessons can be learned from US retailers mistakes? The question and the learning opportunities for other sectors became the basis of the April 21, strategy roundtable’s diverse group of attendees.  A few articles  offered some summary context of the state of the sector, a little history about Macy’s and a series of growth related insights from disruptive innovation strategy firm , published in MIT Sloan Review offered by Fahrenheit212.

Surprisingly, after posting the articles in late March, a flood of store closings and their back stories continue to appear, leaving many to wonder what’s up for several of the biggest brand names in retail.  In the short horizon that  Macy’s lost $10billion in value, Amazon rose $300bil to reach its current six year low of $6bn, considerably off its peak of $24bn in 2006, Amazon’s current valuation just north of $370bn continues to accumulate market share.

The US Big Box Retailer’s current state isn’t just bad luck and it turns out to be less than easy to pinpoint. As Macy’s and other retailers struggle to maintain a fresh look, their poor performance ripples across the sector as one domino topples over another. No excuse for Management to become such terrible shop keepers, no matter how much online competitors divert their attention.  A poorly appealing store worsens its merchandise and thin staffing ratios erode service combine to turn off customers too.

Sears posted year on year decline over 9 percent, and 1.5x losses for its mobile application as it’ digital transformation efforts prove insufficient.

Cost cutting may help a business survive, but won’t deliver growth that makes it thrive. The creative fuel behind the early growth of Sears, Macy’s and the general merchandisers also expanded their market and showed their competitive capabilities. Amazon isn’t a new disruption and the blanket of doom seems to spread uniformly across the sector.

The Data vs. the Narrative

Did you know from 1990 to 2014, US retail employment grew by 2.3 million, of which the vast majority was among non-store retailers?  The total sector grew by 17 percent, while non-store employment grew 27 percent. In this same period, a combination of productivity gains and drops in labor compensation reduced the sector’s unit costs.

These reversals in historic trends pointed out by  Chicago Booth faculty Chad Syverson and Ali Hortaçsu in their recent review of US retail, should help large retailer’s right? More part-time workers, more automation and lower wages do improve operating margins, but doesn’t mean growth will follow.

The bigger strategic problem is timing and the ability to compete. The efficiency gains across the sector appear just as retail’s share of total US economic activity continues to shrink, and correspondingly its share of total US employment diminishes too.

Syverson and Hortacsu found ample research that relates technology, management, variety and productivity with shaping the success and survival of some retailers.  Surprise, greater productivity may or may not result from any one of these factors, and growth from greater productivity seems less causal too. Physical operations, however do prove important to both e-commerce and store based retailers. In other words, the formula for growth has grown more complex. Hold these thoughts.

Many explanations of changes in the sector, they say, “ …build on two, powerful and not fully consistent narratives, a prediction that retail sales will migrate online and physical retail will be virtually extinguished, and a prediction that future shoppers will almost all be heading to giant physical stores like warehouse clubs and supercenters.”

Their extensive data review also makes clear that the data does not support these narratives.  Online retail supremacy has not yet arrived, and likewise the scale and influence of the supercenter/Warehouse merchandisers continue to grow.

“Between 2000 and 2014, the fraction of all retail sales accounted for by e-commerce has risen steadily from 0.9 to 6.4 percent…The increasing share reflects an 11-fold increase in nominal annual e-commerce sales, in contrast to a 55 percent increase in nominal retail sales as a whole.”

The latest (4Q2016) US Census reports total retail sales of goods and services at $1,235.5Billion and estimates ecommerce at $102.7Billion (8.3 percent of total). Year over Year growth rates of 4.1 overall were considerably lower than ecommerce, which grew by 14.3 percent. Both grew only 1.9 percent over 3Q2016.

The analysis by category over time and projection of the trend lines summarized below makes the story more interesting.

Syverson and Hortacu’s                                                 Projected year that product’s 

 Table I: Product-specific E-commerce                        share expected (purple achieved):  as a Share of Product Total Sales

US census retail sales ecommerce table

The summary resembles an 80/20 analysis.  The categories with the biggest ecommerce sales represent the smallest category of total sales.

A Theory We tested

A recent edition of MIT Sloan Review published three “new” growth-related truths, and framed our discussion. The truths as you see, resonate with many of the common precepts around innovation focused strategy not just those of its authors from Fahrenheit212, part of Deloitte.

  1. Analysis won’t reveal your way to the future, you must invent it.
  2. Competition is not linear, it’s exponential and disruptive.
  3. Success depends on internal capabilities to catalyze an organization into action, and make something new happen.

First, analysis has broadened in many ways, but its purpose and practice still largely  determined by Leadership and its management priorities.

Limiting the scope of Analysis to tactical issues, confirms what works, or drives larger strategic projections as in what’s possible. Today, analysis and analysts review data in every function across the entire enterprise. Organization benefit from analysis when they also  commit to standards of consistency and integration, that also assure their results don’t confuse but reveal factors important to business growth.

Successful analysis also relies on the availability of data and analysts capable of its interpretation. Today’s connected world offers ever increasing opportunities to collect, store and process more data cheaply, and Enterprise Resource Planning Software systems greatly simplify and automate the reporting of standard views of activities in every function.

Planning and Process Improvements both suffer from a shortage of analysts capable of integration and interpretation of big data within a business context. The standards for business reporting reinforce old habits, rely on established metrics and existing interpretations, and thus miss cross-functional opportunities to share findings and develop new insights.

Is perspective and Interpretation hard to come by, or just hard to hear?

For example, to reach $150 million in annual sales, took Walmart 12 years and 78 stores. From its inception in 1994, Amazon took only three years. Further, Bezos reported 1998 net income remained close to zero as he his continuous focus on growth tirelessly plowed cash back into business development.  Not only did Amazon’s sales success patterns defy conventions of growth metrics, their unconventional use of data, analysis supports their creative capabilities and discoveries to understand what was contributing to their growth and working for their customers too.

In 1999, Forrester Research reported annual web retail sales as a whole jumped from $700 million to $20 billion, though it remained less than 1% of total retail sales. Growth was anything but linear—but the base too small to catch the eye of established, experienced retailers.

In 2001, Border’s CEO Greg Josefowicz was a very experienced and sophisticated retailer and no stranger to Ecommerce having come from Peapod. The fractional contribution of the chain’s online sales however led him to outsource the channel to Amazon. This was the same year, that Apple released the iPod. Unless you were closer to online data, and keenly understood its opportunity to track customer journeys and gain behavioral insights, chances are you too would have overlooked the value of further investment.

Image result for online vs in store customer journey

source: https://www.altocloud.com/blog/online-buyer-behavior.-what-we-can-learn-from-traditional-buyer-behavior

A 2016 interview with Michael Edwards, interim CEO Borders from January 2010 through its bankruptcy and liquidation in July 2011 revealed something else. Edwards buys into Fahrenheit212 philosophy that little can prepare you for wholesale disruption.  2010 was a period of widespread economic growth and US retailers sales were growing, but not uniformly; and not if you were in the book and electronics industry (aka ESMOH)—again hold that thought.

“The pivotal moment for me is when Apple launched the iPad,” Edwards said. “That foundationally changed the (book) industry forever.”Essentially, the iPad was a Borders in your hand. It had books, music and video. And people had access to millions of books.”

These hindsight claims made me wonder why Border’s didn’t feel any sales fallout from the iPod or Apple earlier, or when and why they misread Borders’ customers  change in shopping patterns?

Is your analysis reporting monitoring activity or action oriented?

What analysis and shared insights did Borders leadership encourage? Were traditional metrics misdirecting their strategic priorities and explain how their widespread physical presence was suddenly without value?

Remember the dominant narrative that Syerson and Horascu found?

Put that thought together with the analysts’ tunnel vision driven by elaborate ERP systems that accurately report established growth metrics. Monitoring Same Store Sales, Sales by channel or category breakdowns do reveal changes in shopping patterns, but are they actionable?  Even the Ecommerce reports from outsource vendor Amazon likely to include detail level data and helpful comparisons.

Different stories and trends emerge when analysis incorporates outside reference points. Benchmarking internal data to publicly available government statistics, for example, not just aggregate retail sales vs ecommerce but within their category might have raised alarm bells early.  Time pressures and priorities don’t have to stop anyone from creating a look similar to  Syerson and Horascu cumulative look.

What are you using to define your market and meet the needs of your customer?

Rethinking how to deal with consumers is more than a marketing plan it’s a strategic imperative.

At least that’s what Mike Edwards realized when he stepped up from the role of Chief Marketing Officer to help turnaround Border’s in 2010.

Conventional analysis techniques and formats don’t address deeper questions that test the validity of your strategy, or draw attention to important indicators affecting your results.

If you are a big retailer, and you moved online, you have big data. Macy’s and Sears both moved somewhat early to create an online presence before 2001. Maybe they saw online as an efficiency improvement to catalog sales, they still kept them independent of ongoing business activities.

Perhaps their experience relied too heavily on mass-market demographic information that large vendors like IRI made easy to digest.  Capabilities to analyze the flood of big data and the detail byte size moves of website visitors exceeded the capabilities of the most nimble and agile of digitally born players.

In 1998, the year Google was released, Wired reported the evolving capability of a website to gain intimate knowledge of their visitors. Excite, the leading search engine at the time, collected 40 Gigabytes of data daily in its log files based on 28 million daily Page Views. They only tracked directional patterns, though “for the first time, the continuously updated empirical evidence needed to assess relationships and deliver better experiences was available.”

A gap emerged between traditional marketing training and opportunities the web’s detail user journey tracking revealed. Do you appeal to demographic and assembled personas, OR are you responding directly to individual users’ needs?  This gap mirrored the unfolding of a larger competitive divide across all businesses and  further segregate online activities into separate operating units.

Bigger organizations’ centrally controlled decision making contrasted sharply with the emergent capabilities of online technologies and few recognized the important tasks required to rethink how to deal with evolving learning by their consumers and suppliers.  No problem for Excite, the leading search engine in 2001 and Amazon.   “Any active data we get, [Joe Kraus, VP of Excite explained] we put to instant use on the page…simulating personalization such as zip-code based weather forecasts.” Amazon without knowing any personal information, began to pass on simple recommendations based on the cookie data.

Cookies track specific behavioral data online, that was difficult to connect to purchase and profits, but still offered considerable strategic insights to anyone who took the time to look. Ironically, only a handful of advertisers possessed the technical and marketing experience with this growing data, which meant the playing field for ably using the information to optimize profits was wide open. Instead of investing and experimenting, many continued to apply the store sales success criteria to online sales.

Narrative Backstories: Perspective colors perception

I’m no retailer, but I did learn a few things from my father who created a handful of custom drapery stores that flourished in the 50s and 60s only to succumb to changing demographics in the 70s.

  • Purchasing frequency and customer loyalty aren’t accidental. Relationships build on more than serendipity.
  • Knowing your customer earns trust, most evident when your recommendations produce sales. Note, this approach doesn’t depend on markdowns or price drops to attract interest or make a sale.
  • Convenience is a perception not the reason passers-by cross the threshold (or click through).
  • Locations with heavy traffic create greater opportunity, sure, creative storefront displays (content) arouse interest or curiosity, and sales follow when entering visitors rewarded positively.
  • Invention matters but delivers greater value when balanced with conventional, basic goods and service options.

Drawing customers in, attractive presentation of merchandise has always helped successful merchants move what had to be moved. It’s been true for sellers regardless of their circumstance and environment.

Three longer term trends

Every trend has an origination point, successful analysts recognize the significance early because they often understand change as relative.  It’s easy to see the internet as a significant force today, but in the mid-1990s, analysis shown earlier documents  the case’s weaknesses and risks.

In 1995, Grace Mirabella, former editor of Vogue  broadens the context in her memoir In and Out of Vogue.  She describes dramatic shifts in the minds of consumers about department stores’ relevance compared to their hey day in the post-war period. 22 years later, her words don’t sound the least bit out of date.

“[B]efore malls and discount outlets and chain stores…[department stores] were the great halls of merchandise, and they provided an enormous variety of goods at much more varied prices than the present.  …each store aimed for a certain style, a certain specialty market, and a certain clientele, and you knew the minute that you walked into any one store, and smelled the perfume and saw the flowers and doormen or bargain tables, precisely where you were. “

Each family owned store’s attitudes and sensibilities she explains, accompanied the details that clued in customers, established unique contracts with manufacturers and made evident by the difference in merchandise they carried.  In the 1970s, Mirabella remarked on two major shifts:

  • Designers became all-powerful, cutting deals that promoted their name, and reducing retailers into commodity distributors who all carried the same things.
  • Consolidation by conglomerates followed.

“[The named department stores] started to take on the feel of the real estate ventures that they had become.  They lost their sense of purpose, of conviction.”[p. 45]

In 1994, Jeff Bezos, left his job as hedge fund manager for DE Shaw. Interviews reveal he spotted opportunity in the expanding internet, which led him to start the company he later names Amazon. His analysis skills suggest he was deeply familiar with another trend that began in the 1970s, one, that Mirabella in her backward look from her publishing perch misses–the evolution of Electronic Digital Interfaces (EDI) streamlining procurement.

In his first 1997 letter to shareholders, Bezos lays out his vision and writes:

“Today, online commerce saves customers money and precious time.  Tomorrow, through personalization, online commerce will accelerate the very process of discovery.  Amazon.com uses the Internet to create real value for its customers and, by doing so, hopes to create an enduring franchise, even in established and large markets.”

Personalization historically differentiated the high end of the market. Sales persons kept coveted black books that contained intimate notations about their customers ranging from size, color and style preferences to  special occasion dates and family details. Amazon wasn’t the first to collect user data, and was by no means able to mine it and yet they produced “personal recommendations” beginning in 1998 without investing in developing complex analysis capabilities. That came considerably later.

They took a shortcut that other websites  noticed satisfied customers. Chris Bayer writing about personalization for Wired in June 1998 explains it this way:

“The trick is to use technology to achieve the same economies that you have in a mass-marketing model, while delivering some personalized messages to the consumer,” says Rex Briggs of Millward Brown Interactive. A less visionary goal than one-to-one, surely, but far more realistic. It’s called mass customization, and if you can get past the oxymoronic bounce, you can see that its possibilities are not lost on the consumer-products retailers who have carved out a market for themselves on the World Wide Web.”

In 1999, Academics Joe Pine and James Gilmore publish The Experience Economy continues to shape many retailers strategic perceptions.  Their thesis builds on the retailer narrative and emotions Mirabella evokes, and connects to my own Dad’s experiences as a lifelong retailer.  Experience, they explain is now the metaphor of choice.  What else summarizes the combination of factors that attract and convert a visitor into a loyal, frequent customer and/or influencer?  Keeping  experiences relevant and meaningful amidst the backdrop of rapidly changing forces that impact every aspect of your business model demands rethinking of the employee not just the customer experience.

Direct learning

Unlike the leading CEO retailers failing, Bezos shares more in common with the great merchandisers of the past.  His digitally born and situated store front owes its business growth to continuous, bold experimentation as well as deep analysis. I don’t know what metrics are commonplace at Amazon, but their investments in data analysis capabilities and machine learning are self-evident by the efficiency and sideline cloud business they produced.

The speed in which consumers change their behaviors prove challenging for every retailer, non-store or store.  The online e-tailers’ unique environment, fully equipped to capture detailed user journey references and history can use the same mechanics to deliver immediate responses ranging from mass personalization to levels of deeper customization.

Amazon’s strategy embraces the principles of continuous learning at its core to control every aspect of the buyer’s experience. Similarly Apple, another company with astronomical market valuations entered the retail market in order to control and enhance the buyer’s experience.  Today, both have physical presence that emphasizes service and consumer education.

Retailers who miss the ability to construct a holistic strategy, increasingly are dying in the evolution of  responses or deeper customized, delivering valuable feedback enabling the business to continually improve its offerings and willingly take risks associated with invention. Amazon learned quickly how to draw customers online, present the merchandise attractively and yes move what had to be moved.  He didn’t have to balance the demands of managing existing outlets, nor accept established practices associated with large scale distribution networks, instead he invented his future.

In 20 years of online commerce, only a few companies strategy match Chris Bayer’s  observation that “”serious” companies are rethinking the ways they deal with consumers, and the idea of  mass customization ….using the trick of technology to deliver a personalized message that isn’t really personal at all.”

ARTICLES

Reframing Growth Strategy, Sloan MIT Review

http://sloanreview.mit.edu/article/reframing-growth-strategy-in-a-digital-economy/


Contrast in transition: Sears and Macy’s

https://centricdigital.com/blog/digital-strategy/how-sears-and-macys-are-transitioning-into-an-improved-digital-strategy/
Macy’s relationship trouble with Luxury brands

https://www.bloomberg.com/gadfly/articles/2016-08-11/macy-s-earnings-relationship-trouble-with-luxury-brands


Five Trends driving traditional retail towards extinction

https://www.forbes.com/sites/jjcolao/2012/12/13/five-trends-driving-traditional-retail-towards-extinction/#11487bd51efd

 

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.

How Old Metrics may strand you strategically

Ever stIMG_0267op to consider how the ever present changes going on around you make your own transformation easier?

John Hagel relatively recent blog post describes the opposite.

In a world of accelerating change, one of our greatest imperatives is to “unlearn” – to challenge and ultimately abandon some of our most basic beliefs about how the world works and what is required for success.

Accenture a few years ago noticed that many different companies had shifted their approach to strategy. Perhaps, the availability of cheap, powerful computing capacity and Big Data are responsible for driving changes in strategy development as more organizations using technology find it easier to build consideration of the future into their present planning.   Hagel, a long time fan of scenario planning would applaud these efforts too.

With the rise of automated business processes, analytics too get incorporated automatically to enhance decision making and may be simultaneously compromising management capabilities to internalize all of these changes or understand the underlying dynamics traditional measures mask. Several articles provided case studies in different industries provided the basis of discussion around transformation (see the bottom of the post for specific article links).

how to lie with staticsSuccessful organizations rely on their strategy to put forward action plans, realize new ideas while averting risk. Statesmen and management alike find themselves in precarious places when they assume a trend will continue without change. Many statistical methods and decision-makers use of data remain unchanged from 1954 when Daniel Huff first published How to Lie with Statistics. His timeless book describes very simply the perils of improper use of methods that were designed to capture and explain if not contextualize the significance of singular observations, or data.   The current transformations enabled by technology have done more to alter behavior than organizations seem to recognize. That’s the path our discussion took.

The capability for insight

Prospective vs retrospective cohort analysis  and data mining techniques are far from new. Though the volume and speed of available data to digest and process with ever The increasingly sophisticated tools and the ease with which volume and speed of available can be processed may help as well as hinder their digestion. Sure the time to test alternative scenarios may be faster, but how do you choose the model?

Do you begin with the intended outcome? The scientific method and numerous models from multiple disciplines make it possible to isolate factors, determine their significance, and estimate alternative scenarios and assess how these variations produce changes in impact.

Similarly, the cross pollination of data modeling from one discipline into multiple industries and use cases continue to shift management beliefs regarding the importance of specific factors and interactions in their processes. The perennial blind spot denies many organizations and their leadership the insight necessary to transform both their internal strategic thinking process and business operating models. Last month’s discussion of McDonald’s and Coca-Cola illustrated how easily leadership misinterpreted fluctuating performance as temporal issues versus recognizing structural factors. It’s one thing to balance efficiency and effectiveness, quality and satisfaction and another to manage awareness of change and insights necessary to your continued survival.

What else thinking

“…both the digital world and the physical one are indispensable parts of life and of business. The real transformation taking place today isn’t the replacement of the one by the other, it’s the marriage of the two into combinations that create wholly new sources of value.  “

The sudden availability of online data tracking provided many organizations with the proper capability to understand user behavior differently. A whole new industry arose to focus on interpretation while creating of new measures while also introducing new thinking about effectiveness in sales, customer service, training etc.  Metrics, once created to prove out a strategy or an idea, now leave many organizations vulnerable until they build up the capacity to understand this new thinking let alone make corresponding operational changes necessary to sustain their business.

This is not the story of companies who fail to adapt such as Kodak who invented digital cameras only to retain their focus on film; but maybe it is.

http://www.cognoise.com/index.php?topic=17598.0Computerized reporting dashboards summarize specific indicators or activity associated with managing process or business relevant factors. The time and reporting cost savings that result from the automatic generation and ready access to information by managers and executives reinforce existing thinking and leave little room for understanding wider changes that may be impacting their business. It wasn’t long ago that analysts, and teams of them, spent their entire day pulling data and then calculating critical statistics detailing the effectiveness and efficiency of organizational activities to create reports for senior management. These efforts also made them accountable by insuring the data was clean, verifying whether outliers were real or indicative of a model failing to fully capture the wider dynamics. I was once one of those managers.  Today, automated reporting has eliminated many of the people capable of deeper data exploration and who chose what data, which statistics and the context necessary to understand the situation. The second problem is that data shared graphically or in tables never tell the whole story, though infographics do try.

A good analyst is taught to review the data and results, double-check whether the model or calculated results makes sense. Sure managers and executives may be quicker to detect aberrations and then raise questions but , how many of them have the time, patience or skills to test their ideas or intuitions? I imagine very few if any. Where are these available resources and how widely known are they to questioning executives?   How might the dashboard provide additional information to help frame the results executives see as they too seek to understand or make sense of the results?

Outside in thinking

Established data flow processes and automated reporting do deliver great advantages but they may also explain why outsiders find it easier than insiders to create new business models.   Where’s the out of the box thinking? And how can different data help?

Sure, it’s easy to blame regulatory requirements or compensation structures incentivized to focus on effectiveness and efficiency that leave little latitude to notice opportunity. For example, in the airline industry route fares were once set by regulations. The minimum fares were intended to cover airlines operating expenses that both insured passenger safety and access to air travel in more locations where market forces may lead airlines to cut corners. Deregulation may have given airlines additional freedom but many manage their business using the same metrics that they report to the Department of Transportation. Likewise in Healthcare, the imposition of new regulatory requirements came with new metrics that forced hospitals to focus on patient outcomes not just their costs.

When executives bottom line focus limits their thinking as an exercise in how making corrections in operation may maximize that number they overlook other contexts. Data quality issues should surface quickly in most organizations, but what if another factor created the data issue? A misplaced data point, or inconsistent treatment of the content of a data field rarely explain all aberrations in the results.   Weather, for example exemplifies a ubiquitous, exogenous variable. Observable data fluctuations may be directly or indirectly responsible by affecting other more directly connected factors, such as a snowstorms that change people’s activity plans. I’m not familiar with any automated reporting system that will automatically create a footnote to the data point associated with the arrival of a snowstorm. The reviewer is forced to remember or manually if possible add the footnote for others.

Bigger transformations to come

Bain believes there are significant implications for every organization that result from this digital and physical combination of innovations , they call Digical. It’s not easy to keep up with the corresponding behavioral shifts that result from these rapidly changing technological capabilities.

Focusing exclusively on efficiency and cost data helped management measure impact in the old era, though still necessary today they may no longer suffice. Do you know how social behaviors of your customers impact your bottom line? The technologies to support your business, such as your website or your cash register misses out on the social behaviors evident on sites like Facebook, Twitter, Yelp or even their bank. Mapping the ecosystem and then aligning the digital tracking data can now be supplemented with sensor data that may be anonymous to specific customers but can inform movement and actions relevant to your engagement.http://intronetworks.com/making-amazing-connections-siggraph-asia/

Naturally, as mentioned earlier bias plays a role in our inability to notice the significance of new data. The more we automate and configure systems to measure what we always knew mattered, the less likely we are to be able to recognize new data and its significance. What should you the analyst and you the executive do to counteract these factors?

Takeaways

Monitor the activity of smaller companies as they experiment to learn what’s most relevant.

Don’t make assumptions, exercise strategic intentions to become more open receptive and curious about anomalies and be more creativity and persistent in identifying the drivers or possible factors.

Historically, metrics were an output designed to assess the validity of your strategy –did it work and/or deliver value. Not it’s time for strategic thinking to view metrics as an input. The use of statistics enabling analysis tools partnered with business knowledge and acumen must be part of communicating to higher levels in the business.

Often we measure the wrong things because the incentives are misaligned. Am I paid based on my proven ability to produce widgets at specific levels , or to produce effective, sustainable results for the business, not just my business unit?

Computers are useless they can only give you answers. For strategy, validating the questions may be important but so too is taking the time and effort needed to determine even better questions.

ARTICLES

Alternative case examples

Bain’s study and understanding of the state of “digical” transformation:
http://www.bain.com/publications/articles/leading-a-digical-transformation.aspx#sidebar
Fast Food
http://www.qsrmagazine.com/reports/drive-thru-performance-study-2014
Wireless
http://www.rcrwireless.com/20140812/opinion/reality-check-new-metrics-for-a-changing-industry-tag10
Television
http://fortune.com/2014/10/23/adobe-nielsen-tv-ratings-system/
Gaming
http://www.gamesindustry.biz/articles/2014-03-10-social-currency-has-real-value

Taking Aim at Corporate Leadership–

Jamie Dimon, Hugh McCall were just a few exemplary CEOs that were discussed this morning in our discussion around Leadership.  Their ability to deliver, tough minded interactions with their boards, zero tolerance for non-performers and vision for their organization suggested that we seem to recognize good leadership when we see it.  Characteristics or the actual qualities that define leadership, however prove more difficult to understand, identify or measure for impact.

lessons-from-ducks If you invoke the simple rule of followship, then you may end up in a precarious position.  Ducklings naturally follow their mothers and the mother duck in this example shields her offspring from danger but does she really lead?

Our perceptions of leaders and the realities of effective leadership are not always in synch. Robin Hood the hero captures our attention and appears to have attracted quite a following or at least that’s the legend as it’s often told.  Reality illustrates that he was far more enabling and was probably an amazingly talented lieutenant under King John who really had the skills and experiences to inspire and train and command a team. (See Suggested articles at the bottom of this post).

Likewise today’s army does an astonishing effective job of command and control style leadership by focusing on developing people by instilling the philosophy of Be Know and Do.  The trust within a unit and the capabilities of individual members are as critical as the leaders’ vision.  The clarity of rules for succession to command are both important and immediately visible.  Every individual is responsible for every one else on your team.  Effective units require individuals to be both emotionally committed to the task as well as each other.  The army exemplifies meritocracy and demonstrates what it means to instill the construct of success from the imperative that failure is just not an option. Which means every soldier needs to help the other soldiers excel.

How exactly does the US military achieve this level of functionality and effective leadership capability?  They also use scenario planning, simulation and constantly are challenging the relationship and perception of leadership.  But does it effectively translate into business settings, or other situations where the consequences from failure are not life threatening?

One take suggests that leadership gets people to do things they wouldn’t do under their own volition.  Leadership in this frame, inspires providing mutual psychic rewards to those leading as well as those being tasked to perform. In the context of the military it’s easier to imagine how the threat and danger elements are put to effective use, but the problem is translating them into everyday work situations.

Vision obviously matters and mercurial leaders like Steve Jobs or Richard Branson who changed the rules when they entered the business are rare. For those organizations that inherit leaders, or for whom a board replaces the leaders the embedded base may prove difficult if not impossible to move or motivate.  What are the basis or selection criteria that a board uses to choose its next leader?

Alan Mulally was brought into Ford and made big bets with expectations of long-term payoffs.  Not every leadership situation fits every leader.  Situations also change over time as is illustrated by Dov Charney who may have been great at building, growing and even scaling American Apparel until his behavior no longer suited a bigger organization.

In other words, context alone isn’t the only consideration, but boards misjudge the situation or their market or their issues ore than 80% of the time.  Which explains why the failure rate of placed leaders is so high.

when does situational vs. industry competency matter?  Not clear that many people posses capabilities in both.  The ability to adapt, flexibility and even the awareness of the rate or pace of change in an industry can be difficult to assess.  This is why succession planning and preparing your team with the discipline and transparency the military uses may prove invaluable, both as a motivator as well.

Take Aways:

Leadership to be effective must be situational:

  • offensive vs. Defensive
  • Political vs. independent
  • Short term vs. Long Term
  • Intrinsic rewards vs. monetary rewards.

The Be, Kind and Do paradigm useful and instills a discipline of Respect, Flexibility, collaboration, knowledge and courage.

We tell too many war stories that may or may not be enough on point. In Business, the importance of boards hiring, managing and changing leadership process increasingly critical.  Question is how effective are they at choosing the criteria that fits the situation the company faces?

Leadership traits are also complicated and thus vary by context, industry, “charter” etc, this variety of dimensions make it difficult to codify into one description.  This is why there are so many books on the topic!

Leadership–we need to change the paradigm, understand its situational dependence and clearly evident when they plant trees!

Situation specific, leaders good in one may not transfer/translate well in another.  Parameters worth considering include:  the business life cycle, rate of change in the industry, customers, type of business (e.g. retail, government contractor etc), growth or mature or crisis?

Under different conditions, different attributes matter.  need to assess the situation accurately in order to effectively make the call of what type is needed.

Never one set of attributes that make a leader, the context really matters!

Suggested Articles

The following links to articles were merely suggested as background reading to inspire participants thinking:

US Military’s leadership development strategy

Mobile Strategy–an imperative for your future

Note to readers: The graphic to the left was found After the  October 18, 2013 discussion, inspired by articles listed at the bottom of this post.   

Does your near term performance hinge on your understanding of mobile  technology, and if so, how critical a role does it play?

Infographic-2013-Mobile-Growth-Statistics-MediumToday mobile platform adoption rates outpace the technology’s downward pricing.  The dual benefits of convenience and constant connectivity offer irresistible value and overwhelm the initial cost bumps associated with implementation.  It’s not merely the anytime anywhere connectivity with your social network that makes mobile valuable. Mobile technologies offers direct access to increasing varieties of information at the tip of your finger anytime and every where (if there’s wifi).

Questions that used to leave us uncertain, can be easily answered.  For example:  How soon until the next bus arrives?  What’s the best route to any intended destination?  What can I make for dinner? Who has the best price? What’s the name of this song playing right now?

Short message services–SMS, Geo Positioning software – GPS, Google search, untold numbers of product and service applications and internet browser capability are now built into multiple mobile devices.  They allow everyone to travel lighter and access the information needed at the right time.

For business, if you don’t have a mobile strategy yet,  best make it a priority.  At least that’s what the discussion participants concluded.  Skeptical of consumers ability to fully integrate many of these technology opportunities into their daily routine or modify their existing habits and behavior,  companies who have yet to play in this space will find it harder and harder to catch up.

The strategic opportunities continue to evolve in tandem with the spreading  uses for assistive mobile technologies.  For example, a prudent strategy  in consumer marketing might be to incorporate  the technologies to enhance the user experience—especially as no clear killer sales application that deploys these technologies exist.

·         Amazon with all its technology savvy and leadership in the online sales market leveraging its platform hasn’t found a way to fully leverage mobile capabilities to increase sales.  Mobile assistive technologies, like Google maps represent a hybrid.

·         Twitter, hot off its successful IPO has yet to grow actual sales for any business.

·         Facebook’s use of GPS allows business to learn more identifiable information about the consumers as they become proximate to their store,  but have yet to prove predictable in driving retail sales.

Advantage

What advantage then can mobile technologies really deliver?

There seems no limit to the additional utility Search Engines provide.  Mobile technologies allow roving users access to  public, private or personal sources that the engines verify and validate boost both their value and help build loyalty incentive programs.  Increasing numbers of gamification applications also exemplify how mobile technologies drive growth opportunities  by enabling repeat sales through mutual identification of merchants and existing customers.

More interesting,  mobile technologies helping to optimize each stage in the sales cycle sequence.  Applications that make use of two way transmission—driving traffic both by or to customers is just the beginning.  Efforts that allow discovery and exploit more stages in the cycle help determine when, where and how the transmission proves itself  more efficient and effective.  Should your business deploy mobile to simplify checkout? Or simplify merchandise location and availability?

In the ongoing evolution of technology, strategy that focuses on deploying tools for competitive advantage or advancement isn’t enough.  Strategy needs to consider how the new technology influences your revenue flow.

Possessing mobile technology isn’t merely a lower cost play. Strategic opportunities increase when it’s used intentionally to offer stakeholders learning opportunities.  Can you give your sales people the most up to date information on the customer’s past purchases, or your customers’ suggestions for product use, installation or enrichment?   Present technology capabilities and big data offer business opportunity to accumulate metadata and create richer customer profiles.  Mobile brings them together by putting the specific customer into the present transaction equation.

15 years ago, business wondered how, what and when E-Commerce would change their reality.  Today, forward planning organizations recognize mobile technologies as a similar force of permanent change.  Advantage will flow to those organizations who get out to test and experience for themselves the many features mobile technologies offer them directly.  These options offer unique understandings and help them translate mobile technologies’ anytime, anywhere access options into business value.

Strategy that activates customer and supplier value goes beyond capturing attention and offering incentives to drive traffic.  The strategy must consider the fuller customer experience and increase the odds of success by investing in developing future capabilities such as cross training staff and directing resources that  effect cross-promotion , understanding  both crowdsourcing and influence peddling opportunities.

Walmart’s recent experience demonstrates the shifting control customers now possess.  A computer glitch with  the Federal WIC program’s system communications prevented enforcement of  purchase limits at Walmart’s Point of Sale.  A customer tweet  flooded Walmart with these customers who exploited the system failure to their advantage and  Walmart received the short term benefits.

Summary of take aways

  1.  Confirmation that organizations must be actively trying to understand the technology, otherwise they may never get the benefits.  For now, obvious value is limited to facilitating adaptions to  marketing .  Eventually both seller and buyer will reach the same understanding but the advantage will continue to flow to those who worked hard out front and made it easier for their customers to both benefit and settle in as they who to trust and where to be.  Switching costs are always serious and so it pays to be out front.
  2.  Best to think through how you deploy these technologies carefully.  What opportunities will make things easier for you consumers, and then work to simplify the individual steps and actual transactions.  For example, Millenials view mobile as an essential service and continue to need and expect universal Wifi and battery charging wherever they go.  Are you helping them?  If not, your access to this key demographic will be limited.
  3. Balance the cost/benefit of information and investment.  Mobile is a work in progress like any technology, don’t put all your eggs in one basket.
  4. Opening up of information transmission in more places and with more transactions suggests that additional paths to capitalize on this phenomenon.  Your strategy should seek to know and learn, as in where you can produce added convenience, respond and simplify steps in your own or your customers’ process, find out more about customer behavior and your ability to learn with  them  in order to  gain strategic advantage.
  5.  Continue to seek out pockets of advantage—customer  loyalty is easy, instant access, centralize connections for your customer to one place is another.
  6. Transparency too is key. Mobile comes with real time imperatives and be sure your back up plans work.  Open Table app for example failed to deliver real time answers or reservations, which diminished its value and its opportunity to build customer loyalty.

ARTICLES:

Mobile Now—Strategy +Business June 2013

http://www.strategy-business.com/media/file/00196_Mobile_Now.pdf

The 6 Biggest Mistakes Made on Enterprise Mobile Strategy

Posted by Adam Bookman in Wired on August 5, 2013 at 10:30am

 http://insights.wired.com/profiles/blogs/6-biggest-mistakes-mobile-strategy#ixzz2glZMCXXu

 Global mobile statistics 2013 Home

http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats

And, an Optional  case Illustration.

A look At Quiri- Retail Intelligence using mobile crowd workers

http://techcrunch.com/2013/10/02/quri-a-retail-intelligence-platform-using-mobile-crowdworkers-scores-10-million-from-matrix-others/

Sports analogies for business – how effectively do their impact and influence extend beyond the game ?

George Toma Readies Superbowl 48 Giants Stadium Field.
Superbowl XLVIII, Giants Stadium NJ readied by George Toma, official groundskeeper for all 47 preceding superbowls and his crew.

On the day of  Super Bowl XLVIII, it’s impossible to ignore the power of sports to captivate the attention of the world. Few events compare historically to viewership levels and  calls for  the all-consuming air time devoted by the media to a singular recurring event. Think about it, other than religious or national holidays, only acts of pure terror or wonder attract this much attention.

Irrespective of the team match ups, the pinnacle represented by the Super Bowl offers several compelling lessons to further Business Strategy, though we will overlook the obvious promotional marketing option.

Successful business strategy defines itself as a quest for clear advantage.  Sports stories typify this quest and that’s why we wondered about the value of the analogies, given their abundance and frequent invocation.  Do they help business leverage competency, inspire confidence and deliver positive outcomes?  As usual, participants reviewed in advance a few selected articles (linked at the bottom of this post). These thought starters warmed up participants reflective abilities and helped us frame the conversation as follows:

  • A battle of objectives-Winning vs. Value Creation
  • Numbering Success
  • Beyond the action of “the game”
  • Game Changers

The topic was not intended to prove conclusive, and we offer the following post-discussion elaboration of hasty notes for those of you who missed out.  Do feel free to add your thoughts and share the responses with others.

Winning Objectives

Undeniably there is a cross-relevance between many sports philosophies and business. Competition and Sports go hand in hand. Opposition, rivalry and contest make up the elements necessary to motivate both players and observers. The experiences of playing or watching sports evoke great passion and focus, behaviors which naturally pervade our lives and make the contests universally appealing. No wonder, sport stories succeed as shorthand references connecting experiences across a series of interpersonal activities including business.

How and do sports’ stories help or hurt business strategy? The context of a game doesn’t exactly mirror the ongoing demands of business.  A specific sport’s rules, frequency of play and consistency of  playing conditions (e.g. the field, the season, the equipment, ethics etc) make sport’s winners easy to name and likewise test the merits of a particular set of plays or strategy.  Business by contrast strives to eliminate ambiguity and standardize its rules and apply them consistently.  The result is the frequent restatement of results which makes the parallels to sport that much more divergent.

The context of game doesn’t exactly mirror the ongoing demands of business.  For example, is the business of business to win, or create value?  Does strategy offer greater value when it focuses on generating general or more specific outcomes?

The delimiters present in sports—the field,the game, the season –all make possible two fundamental self-sustaining attributes:

  • Emotional fervor, and sheer adrenaline fuels high performance  in individuals, teams and fans but is impossible to sustain naturally.
  • Measurable relationships easily established between actions and rewards—both tangible and intangible .

Business strategy in contrast struggles with these issues and looks to sports for inspiration while persistently under playing the value and resists imposing similar clear and consistent delimiters.

For example, the value of  a win, though always significant accumulates in sports but often dissipates in business.  To get the points, make the down or win the game rarely engages and rewards  employees directly as  it does  players.  To deliver success, employees need more sustainable incentives.

How a business measures or tracks a win or a loss differs dramatically from sports.  It also differs within industries or within an organization based on the business unit.  Are forecasters held accountable for their targets in manners equal to sales professionals?  What about wins in customer service versus IT?

Clear outcomes generate stories that rouse emotions to a degree that no numerical analysis of performance musters. Engagement in a given task or play and the survival lesson it produces can motivate both employees and players to focus, as well as extol the importance of each effort.  The analogy of surviving a skirmish makes clear connections between the single event’s outcome and its impact on the larger mission.

War analogies and larger battles such as the Super Bowl share common language but differ drastically in participant experience. Isolating a single event and elevating its importance can be an effective motivator, but in business performance goals need to be sustained and ever-increasing.

Sports analogies dominate conversation today may be due to the increasing prominence of the business of sports and the remoteness of common war experiences in many American’s lives.  To be successful understood, metaphors need to be familiar to your audience which increases its authenticity and your credibility.  These conditions make it easy to turn to sports for help.  In a single game, the event stakes don’t carry the same consequences as being a general or platoon leader in battle.

The idea of surviving the skirmish and larger battles may be proper in sports but many business problems are often ongoing.  To call for action, any insight the analogy inspires must ring true.

Beyond the action of “the game”

Before any game, a coach and the players generally agree on a strategy.

Coaches help their players gain the knowledge they need to be effective and win. Regular practice, drilled instruction and constant review raise the level of experience and consistency of individual performance.  These factors help coaches recognize the readiness of a player and affect whether to play them in a given game and situation. Since players once they possess the ball often have wide discretion for their actions, the coach’s decisions to play them matters.  In business there’s no overt practice, and few managers and leaders prove effective as coaches, though they remain accountable. In business proven performers get more freedom than in many team sports.  For example, players may blame their poor collective performance on  decisions made by others, as reported by Darin Gannt.

‘‘That was a changeup,’’ Brian Urlacher said, via the Chicago Sun-Times. ‘‘I don’t like coming out of the game. But he’s the head coach. So I do what he says.’’

Few people close to the details willingly write or disclose these facts and their reflections in a timely manner for fear of repercussions.  There’s greater value to silence and avoids becoming the subject of wider scrutiny.  Sure, there are some wonderful tell all stories even if they tend to be extreme– great failures and great successes.  It’s no wonder that everyone confuses tactics and strategy. the failure of planned plays in both business and sport always depend on both the player capabilities and circumstances.  The difference isn’t just whose calling the shots, or is it?

Admittedly different sports offer different learning opportunities for business, but in general business could benefit from more post-mortem reflections on the game and analysis of play.

Organizations that do demand routine project reflection, write and publish  them at least internally demonstrably outperform their peers.  Still the number of organizations who have embraced this practice exemplifies the larger ambiguities that are rampant in business.  Of course sports isn’t immune to the fall out that comes to their industry from these stories but not to the extreme  and speed with which the market punishes business.

Numbering Success

Numerous performance indicators exist in both business and sports.  In sports, wins and losses are the common denominator of success for both players and teams.  Regularly, new scorecards and metrics attempt to track and match up players within an organization or rank the organization in an industry.  The quest for more data and more metrics has led to the rise of numerous successful businesses.

Numbers try to provide great performance inspirations, but fail to rouse people at the level of a great story.  Using alternative statistics to recruit and balance a team ‘s capabilities and diversity of skills plays out in both arenas.  Michael Lewis and his compelling story Moneyball heralding the quants’ efforts  in baseball to change the dynamic of the game, proved to be an ineffective strategy.  Sports management quickly learned  that an over-reliance on more statistical data missed the things that trained scouts or observers of real behavior historically captured.  Situational competence, summarized in statistical measures still requires a great deal of domain knowledge to properly interpret and produce winning combinations. .  Either may be sufficient to generate a strategy, but both are necessary to create effective strategies.

These lessons, business sadly discovers slowly and fails to fully embrace even in the wake of the colossal market disruptions caused by internet and mortgage back investing bubbles. Moneyball profiled the underdogs and arguable changed the consciousness of average America about the power of data analysis, a welcome message to Chicago quants.

Another key lesson was the use of underutilized information to plea the case for alternative strategies.

The NY Times story that second guessed the NFL coaches we read illustrates the common decision-making tension data analysis presents to both sports and business leaders.  Data’s  wide  availability made it possible for the NY Times to create an accurate predictive model and demonstrate the value of punting  in the fourth quarter, an impulse Coaches rarely heed.  Response by Ditka in the comments that follow reminds modelers that the model fails to consider what people in the game may know about the particular event that may be missing from the analysis–may being the operative phrase and tension point.

Clearly quants have their place but good decisions always include some domain knowledge.  The access to information makes it easy for competitors to rely on the same information and in fact that’s part of why the law of averages continue to pan out.  Statistics are wonderful reference points but one still needs domain knowledge to recognize what made the outlier an outlier.

Important to understand boundaries or the difference between situational competence and domain Knowledge.  Sports metaphors can help more people think differently when used effectively.

Game changers

The business of sports creates value regularly, but what about sport itself?

George Steinbrenner

George Steinbrenner purchased the Yankees at the low point of their competitiveness in 1973 for $8.7 million. According to Forbes, the teams’ worth was $1.7 billion  in 2010, at the time of his death.  Steinbrenner was the first to grasp the handle of the free-agent market and he made it work for him. In effect he made the rules they all had to live by and he dominated the game.  He made offers to players they couldn’t refuse. Mike DeGiovanna writing for the LA Times explained that  lavish spending on free agents became investments that helped fuel five world Series Championships since 1996.  His willingness to pay the premium  for exceeding the league’s salary caps allowed them to keep a winning streak.  Under his tenure, the Yankees started a television network and built a new stadium.

“The bottom line is he put great players on the field, and he delivered championships,” Cashman said. “He built something the fans can be proud of, and that’s what a great owner does.” (see )

Discussion Takeaways

In business turnarounds, surely the numbers matter but they are often not the deciding factor.

Steinbrenner’s leadership style and strategies show how it’s possible for a single individual to usher in sweeping changes in an industry.

When it comes to Big Data, it’s important to differentiate situational vs. statistical know how.  The premium value attached to Baseball statistics could easily explain why Alex Rodriquez got kicked out, because his drug enhanced performance was screwing up the stats.

Business can learn a lot from Sports.  The ready availability of numerous statistics offers a baseline and yet one still needs to overlay good judgment.  Efforts to track results may bring you closer understanding the true nature of  a problem’s structure.  Numbers  balance your  intuition and know how. They  may clarify your findings, but in the end performance is a blend of art and science.

Steinbrenner’s decision to reward players so heavily for performance may have changed the game but it also made it more lucrative for players to juice.  Be careful what lesson you take.

Sports analogies can be intimidating, to those who don’t fully understand the sport or make the connections story tellers perceive as relevant.

Increasingly Sports has taken to applying business analogies to improve its own game, its own business performance.  None the less some of the greatest quotes come from sports players, e.g  yogi Berra. “I like the moment when I break a man’s ego.

Business is a long-term effort toward an ever elusive goal, while sports  and sports management operate in a much more limited, shorter term horizon. The lessons don’t offer much assistance or inspiration for sustaining success over  longer horizons.

Sports has its Black Monday, the day in Januaray when poor performing coaches often get cut.  No singular day of reckoning in business though the swift reaction after annual earnings may produce a similar response.

ARTICLES

Journalism second guessing NFL coaches

http://gigaom.com/2013/12/06/awesome-a-new-york-times-bot-is-second-guessing-nfl-coaches-on-twitter/

be sure to check out the comments and remark by Ditka.

NASCAR second guessing

http://sports.yahoo.com/news/tony-stewart-second-guessing-decision-following-ryan-newman-201900576.html

Adopting analytics

http://www.sportsbusinessdaily.com/Journal/Issues/2013/08/12/Opinion/Sutton-Impact.aspx

Think Tank: sport and business are not a good fit 

http://www.telegraph.co.uk/finance/businessclub/management-advice/9400111/Think-Tank-sport-and-business-are-not-a-good-fit.html

Communicating your strategy

http://gbr.pepperdine.edu/2010/08/communicating-your-strategy/

Optional:
Focus on Game Changer—short video for investors in sports

http://www.sloansportsconference.com/?p=11021