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.

Advertisements

Innovation –from the inside out

Innovation, in principle, is one sure path to organic business growth.  At the least, innovation may buy your organization  market advantage.  At its best, depending on how successful and deeply your innovation initiative cuts into your organization,  a  new growth engine/platform  may emerge and propel you into a  market leadership post.

Most businesses and their executives recognize  the value proposition innovation presents and are equally wise to the risks and potential waste of resources that naturally occur with pursuing the unknown.  Perhaps the risks weigh more heavily than the promise and so  few organizations take on breakthrough innovation as a strategy to organic growth. In June, after reviewing in advance the closest thing we could find to insider perspectives on the topic (see What we Read below), a group of strategy minded professionals sat to understand why innovation is the road not taken.

Seeding Innovation

More than the idea, success through innovation, whether incremental or radical, signifies a progressive, learning culture and mindset.   Organizations capable of  realizing returns on innovation posess the leadership capacity to commit time and resources sufficient to the task.  An ability to generate ideas or brainstorm is often not the barrier to innovation, nor is  creativity absent within their culture.  The challenge that stops innovation is leadership’s ability to fully support  both   emergent ideas and the  process related resources to further develop, test and/or pilot the ideas across a range of opportunities.  Conscious dedication of resources to experimentation, managing intangibles, such as the ambiguous  requirements that foster creativity are unnatural for a firm whose play book focuses on the usual,  practical financial management imperatives.  In other words, flexibly allocated resources does little to diminish risk, but it can increase inefficiency.  Getting leadership to understand and accept innovation’s  promise of a greater payback may help offset added risk  perceptions; but, the allure of predictable, repeatable performance that comes from persisting in current process, service and production is very comforting.  A  leadership team  that relies on traditional up front proof and projections drawn from historical certainty and experience  often are less successful at achieving growth through innovation.

More to the point,  potential or proven rewards established  in one setting rarely survive transplant  into another setting and thus fail to get the green light, as the known risks of existing business as usual prove far more palatable.

Booz-Allen global health practice authors of The missing link,  look at several opportunities available to middle management to acquire experience in managing the unknown risks, a topic we happened to discuss last month.  (check out Management 2.0–new learning requirements and Top 50 innovation companies). Open innovation, these authors suggest, necessitates more than one problem solving approach; and preferably encourages contributions from multiple levels of the organization.  This works particularly well when executive leadership awards  middle management  opportunity to develop critical thinking skills.

Principals of Strategyn, an innovation firm, explain innovation in problem solving terms akin to “mapping the job a customer is trying to get done.” May 2008 article for HBR  Their eight step approach helps firms discover opportunities for breakthrough products and servicesThrough insights, firms discover  how to source, refine,  even test and improve upon an idea. In breaking down the steps, and creating a process for innovation the authors put innovation on a level playing field with any other initiative.  This further paves the way for management to create and support  a conducive orientation around execution.

The Fast Company profile of  McDonald’s Denis Weil offered the most realistic view of what makes innovation possible within a highly centralized efficient organization.  The story outlines the intensive prototyping and testing behind a longer term strategy effort now in its final phase..the restaurant redesign in the US.  Separating  Weil’s innovation unit from central management headquarters is consistent with  McDonald’s efficiency across all aspects of its management.  The rigor and systematic approach Weil follows in testing and experimentation of his concepts perfects and works out all the bumps in the process before rolling out changes across the organization.

Finally  Tony Schwartz, writing for HBR, offers  six prescriptives on the culture of innovation. This last article  rounds out innovation’s challenges and focuses on what an organization needs to realize innovation.

In all cases, organizations and their leadership must  clearly understand their strengths, capabilities and be honest about their reflection mirrored by  the marketplace.

Certainly time, freedom and resources are critical to realizing any change –all ideas echoed in one form or another in the readings.  More powerfully,  an organization’s culture  will either make or break their opportunity to realize the benefits of innovation.  In many examples and  across multiple sectors, few cultures have the comfort, confidence and or strengths to ride the waves of uncertainty that is at the core of successful innovation.

Barriers to overcome

The barriers that often prevent any change from succeeding in an organization, or a wonderful strategy from being realized, are the same things that impede innovation success. In short they include:

1.  Culture–There’s no escaping culture.  Those who find innovation most challenging are often top down, practical organizations  who are risk averse, and  demand high level  accountability  on standard financial performance metrics.

2. Leadership –Innovation doesn’t stand a chance where the decision-process values competency and cash flow , ROI principles and uniformity–e.g. the story of the Peacock whose colorful style, creative agenda  was ultimately forced to wear the Penguin suit.

3. Pressures that eradicate  creative tensions between organization and operations management means also result in  lost opportunities to champion new and lasting solutions to system problems that naturally re-emerge due to growth.

Takeaways by participants

Can an outside consultant or an internal manager tasked with introducing innovation persuade leadership to commit to changes, aspects  that need  refocus or redefinition of their culture?  In spite of the obvious struggle to compete and the opportunity that innovation provides, the practical challenges often prevent a CEO from taking on the task.

  • The simple prescriptive are far from realistic.  Like change, innovation is very challenging to plan let alone create a date certain for success.
  • In every organization, people capable of innovation exist, the challenge is to give them the space and funding.
  • Companies known for innovation are more fun because when your ideas are heard and there’s a general openness or receptivity there’s greater freedom to think, and that is fun!
  • Of course, the financial services industry had so much fun, that we are all still recovering from it.
  • The choice isn’t limited to whether to undertake innovation internally vs outsource, either way your culture may sabotage the advantages.  For example, the appetite for technology start-ups that Google, Microsoft Cisco and other technology firms created by their respective growth strategies  also show the seemingly insurmountable challenge to satisfy the markets expectations of financial performance.
  • Align innovation around lead-users will naturally embed the opportunity for innovation into the organization as long as HR governance and policies encourage it.
  • Sounds simple enough–  hire and change the Innovation quota (IQ), just be sure you don’t hire for yesterday’s company but for tomorrow…therein lies the challenge.
  • The more innovation  associated to your core business the better off you are to engage in the activity internally, as McDonald’s long-term efforts to overcome their branding issue, which was comprehensive and changes critical to the future of the business.
  • Skunk works always an option, the more independence and freedom they have from the traditional organization the more likely they are to succeed.
  • When it comes to vision formation and innovation, the question for leadership is not  “which way should I go? ”  but, “Where do we want to end up? ” If you don’t know it doesn’t matter.

By no means did we exhaust this topic and in preparing the blog post I found the  innovation practice map shown below.  The Economist also had a post on this topic that I’m sorry we missed earlier entitled: The innovation Machine   in which I hope might inspire a little more active commentary.  Don’t be shy, All comments and ideas are welcome

Skunk Works practice map
Thoughts on R & D see: http://valueshepherd.com/commentary/archaeology_skunk_works/archaeology_skunk_works.htm

What we Read

The missing link in innovative research

http://www.strategy-business.com/article/00077?pg=all

Customer Centered Innovation Map (HBR May 2008)

http://www.jey-associates.com/pr/Customer-CenteredInnovationMap_R0805Hp2.pdf

Making over McDonald’s  (FastCompany  August 2010)

http://www.fastcompany.com/magazine/149/super-style-me.html

Six Secrets to Creating a Culture of Innovation, August 10, 2010—HBR Blog by Tony Schwartz,  http://s.hbr.org/cocWIA

Management 2.0–can you shift? Top 50 Overall Rank Company Innovation

In 2011, among 673 companies from 32 countries, Apple topped the list as most admired and respected by both industry peers and overall.  CNN’s Money magazine  survey used several criteria to compute an overall ranking and then shared on a single criterion those companies who made the top ten spots.  A composite summary appears below.  Surprisingly, no company ranked consistently across all criteria –not even Apple who ranked #1 only on innovation.

Top 50 Overall Rank Company Innovation Global Competi-tiveness People management Mangement Quality Long Term Invest-ment Quality of Products/Services Financial Soundness Social Res-ponsibility

25

Goldman Sachs Group

1

1

Apple

2

7

10

4

2

14

Walt Disney

6

3

3

7

10

3

2

Google

9

2

4

1

2

1

24

Nike

2

4

5

9

9

6

31

Nestle

3

3

7

8

9

7

8

7

Amazon. com

4

8

6

4

1

3

10

McDonald’s

1

1

2

12

IBM

8

49

Accenture

9

9

9

5

Procter & Gamble

9

15

3M

6

3

Berkshire Hathaway

4

Southwest Airlines

6

Coca-Cola

8

FedEx

9

Microsoft
N.A. Royal Dutch Shell

6

Nike, Google,Walt Disney and Amazon have similar rock star status.  But the failure of many of  the remaining companies to even make the top ten on other categories, or the inconsistency of the company rankings  is a bit confusing.

If analysts and directors evaluate companies using different criteria , which criteria should management prioritize?

The best case for management 2.0.

Imperfect an instrument as surveys of  directors, industry peers and analyst rankings of companies may be, the disconnects between perception and management is unsettling.

Perhaps, the problem is complexity itself. Siloed, hierarchical , central, command-control decision-making  styled organizations struggle to keep up.  As the world moves faster, successful business outcomes require simultaneous attention to multiple interdependent factors. Consistency in your approach across your markets may prove disastrous.

In compiling the chart above, I initially focused on three indicators:  people management aka Talent; overall management quality; and innovation.  The diversity of companies across these criteria rankings lend credence to the rallying cry to change existing talent and management approaches.  Traditional, internal organizational frameworks or operating design warrant alignment on more than these three factors.   Gary Hamel, long down this path, wrote The Future of management in 2007; and often describes traditional management practices as obsolete, calling for revolution within the ranks. More pertinent, values alignment do not seem to be a priority.  After all why would any organization undergo a major cultural transformation for the sake of upping this score?

Remember Total Quality Management, or the movement to adopt Six sigma cultures?   Though well-intentioned, both turned out to be somewhat of a passing fad, the impetus for effective and efficient operations did  lower bottom line costs, but the residual streamline approach undercut the very capability for resilience necessary to succeed in the current global, rapidly competitive environment.

More contemporary buzzwords rippling through the management literature continuously call for new adjustments, and a shift in style to accompany if not better accommodate technology changes. Simplifying access and transmission of multiple media, aka  web2.0. may indeed require a different management approach.  What  exactly are we describing?  Apart from branding , a series of  common threads unite the work of three thought leaders.

Ron Heifetz describes The Practice of Adaptive Leadership (2009), its associated risks, and why our attachment to authoritative leadership needs rebooting. Gary Hamel’s book, Leading the Revolution (2002) explored ways to reinvent business models in light of the dot-com technology bubble; his more recent title is The Future of Management (2007).  The monthly strategy discussion readings (links at the bottom of this post) also included the insights of Bob Thomas, author of Crucibles of Leadership (2008), from  Accenture’s Institute of High Performing Leadership.

All of these thought leaders describe  embracing unconventional thinking, full transparency, initiative, experimentation, learning from experience or basically creating adaptive cultures. Sounds a little like innovation doesn’t it?

What about the social media factor?

Coincident on the day the monthly strategy discussion met to review these authors theses on management,  the Chicago Booth Annual Management Conference keynote panel focused on the most visible evidence of these shifts– “The economics of Social Media.”  In 2011, it’s impossible to be in business and not be inundated with headlines about Linked In’s public offering,  Facebook’s 600 million and counting users, or Twitter’s 200 million strong.  Of course these are just a few of the applications business must evaluate, not so much to buy, but to watch, listen and learn to respond to many stakeholders associated with their enterprise.

The shift  of control over your brand and business between stakeholders and business leaders and managers is close to parity.  If web2.0, or social media is the people’s network where they can transact, share, express and discover–Business has to be present, flexible and responsive 24/7.  if you had doubts, now you know why Management 2.0 is critical to an organization’s survival.

Social media’s ubiquity challenges the most traditional organizations and their decision-making hierarchy.  Customer facing roles increase risk, especially if  individuals are scripted or their flexibility to act and access to information is  limited by the system.  The parameters around interaction, once  engineered to reduce costs and maximize returns, need adjusting and consider  indirect factors. Typically, an organization expects customer service to buffer or clean up  “messy” or “problem” concerns from the public.  The focus measure is efficiency–avg handle time and the number of calls/hour.  Management did not track the quality or effectiveness of the interaction in the unit performance report. The push for further labor savings resulted in outsourcing and offshoring these units, adoption of automated voice response systems or encouraging online users to check out the FAQ section of a website before contacting support.  Sure, customer satisfaction and customer relationship systems are  important, but the breadth of possible outbound responses remain tightly controlled.  In the same manner that marketing and PR  manage the company message and often write the release printed by limited media outlets.

Integrating Web2.0 and the interaction tracking within the operation exemplify internal innovations or managerial adaptation, right? Management learned to take advantage of technology to lower its delivery costs and use CRM systems to learn about the customer and track transaction behavior.  All signs of adaptation. But do they go far enough?

Back to the Future

Facebook launched in 2004 and quickly spread to all university campuses and entered some corporations, opening to any user in 2006 and quickly became the 7th most trafficked website.

In 2007, social media is not even mentioned in what   Businessweek described as attributes of the worlds most innovative companies:

The leaders of companies on this year’s BusinessWeek-BCG list of the World’s Most Innovative Companies recognize that developing breakthrough products, revamping operational processes, and coming up with new business models doesn’t happen overnight. Instead of relying on gimmicks or incremental line extensions, they’re working to build organizations that are capable of sustained innovation. They understand that requires taking risks and investing for the long-term. And they focus on the things that really matter, such as hiring the most talented employees and providing them with the environment they need to thrive.

…Getting people to step out of their comfort zones can do a lot to spark new ideas. But if they’re not paired with more fundamental changes, all those efforts will go nowhere. Fortunately, some companies have been waking up to that fact…. the proper care and feeding of employees in creative cultures takes much more than training. …best companies seem to be managing a balance of a few high-profile programs aimed at getting employees to think differently and more fundamental processes that make sure the work actually gets done.

Of the top 10 companies (Apple, Google, Toyota, GE, Microsoft, P&G, 3M, Walt Disney Co., IBM and Sony) 3M had dropped to 7 from 3rd in 2006, while Walt Disney had catapulted from 43 in 2006 to #8.  Surprised?

We compared these messages and found them to  echo some of the authors’ admonishment of the management 2.0 revolution.

Marching orders for Management 2.0 Advocates

Note: The original article citations are found below.

Gary  Hamel talks about inspiring and changing the environment, aggregating human capabilities toward the collective and mentions three big organizational challenges:

  1. Adaptability–how to build self-transforming organizations
  2. Innovation–mobilizing imagination
  3. Engagement–on both the emotional and intellectual so people bring all of their capabilities to their work.

Ron Heifetz talks about adaptive leadership means changing the way people do business in many places in the organization.  In other words, innovation isn’t just for marketing.  Leadership has to orchestrate the connections between the possible, or the abstract strategic imperative and the tactical or working level.  The question is not merely whether to  establish accountability; but how to  help all levels of the organization challenge and push the frontier of their current constructed environment and create room for experimentation, where people are free to make mistakes and learn.

Finally, Bob Thomas suggests that experience has to be turned into leadership capabilities and focus on the ability to learn lessons.  Provide the  imperative around durable processes in three facets of learning:

  1. Prepare — how do/could we frame the problem, understand how we learn and focus on accelerating the possibility to learn
  2. Deploy–activate our sense-making skills, emotional IQ, story telling, practice with  multiple decision-making and leadership styles to close the gap between theory and practice.  (Heifetz expresses the gap as the difference between knowing and abstraction).
  3. Renew–Points of view are teachable as well as adaptive.  Managers should build and exercise their own advice networks.

Sounds easy right? The 2007 article profiled GE, Disney, IBM and Boeing.  By 2011,  the companies rated by their industry peers and then overall only identified Google, Apple and only the Walt Disney company made the top 10 list.

Articles featured in the monthly Discussion

Ron Heifetz

1. Adaptive Leadership

 2. The Interview Adaptive Leadership

Gary Hamel

Can’t Innovate? It’s Management’s Fault (Really!)

Inventing Management 2.0

Bob Thomas

Turning Experience into Leadership

Management 2.0–new learning requirements

Learning – requirement or a pre-requisite?

Yes, this is the right place. The notes from the May discussion on  Management 2.0  are indeed here. In my work as an independent strategy consultant, my first rule is to listen and observe.  I need to transform what I’m being told and reconcile it with what I’m observing.  The norms or environmental conditions within an organization often give the first clues about what holds them back.  It’s rare that I meet people within the organization who haven’t figured out what’s wrong, or maybe even what needs to be done.  Often the monthly strategy discussions take o the same paradox.  The articles are sensible or seem to suggest the obvious but doing is much harder than it looks.

The process of writing up the notes from the monthly strategy discussion struck me as a classic exercise in management 1.0. The summary of what happened, the points discussed, conclusions reached and the infamous next steps are generally recorded and distributed. The minutes function primarily to keep everyone’s focus on the same play book, and put into wider distribution clear summaries of collective thinking. Given the strategic management practices and issues group discussion’s intention, I’m skeptical that collective thinking is the sensible approach.  

As the frequent facilitator of the discussion, I seek to elicit deeper connections to the articles.  Volunteering to  simultaneously take and write-up the discussion is an interesting challenge. So I’ve opted to skip the  loyal regurgitation of the bulk or the gist of the ideas that flow. Besides, it’s  impossible to capture the real flow of ideas, as they filter though my own thoughts and conceptions of the material and equally impossible to note comment and the questioning , outrage, delight or even surety of a comment’s inflection. In blogging, the scribbled notes come to life but also unconsciously reconnect the circling back conversation in a different sequence. For example, when the conversation on one sub topic takes a twist only to later come back to that sub topic, I naturally try to connect the book-ended remarks and extract the distraction.

 Why does all this process talk matter? It relates to how we, as humans naturally work.  Reflection, when actively invoked, naturally evokes new thoughts and new learning. These blog posts try to share the self-reported learning captured in my notes, but they also do something else. They are my attempt to capture the continued learning on the topic that happens in my ongoing interactions. In these posts I take the opportunity to try to share my new understanding of the topic, or insights into a given position’s advocacy.  For example, this past month I wonder why a group, primarily comprising mid to late-career Chicago trained MBAs, find solace in the verity of finance while the idea of management 2.0 remains a bit fuzzy?

Thoughts on Management 2.0

That said, time to share the discussion notes that I have indeed struggled to bring alive. (Find additional learning  in the next post  entitled Management 2.0–can you shift)
Notes or recorded observations and reactions from discussion participants to the articles and topic entitled Management 2.0.

Adaptable , innovation style cultures, aka management 2.0 have long been advocated and these principles characterized by three key academics who study Leadership*. Largely prescriptive,  discussion participants had no question that managers should follow this advice. The paradox however lies in reconciling a culture bent on innovation with obligations to support the existing business model—, the one generating returns and is the source, if not majority basis of compensation. In a lean environment, it becomes more challenging to find the time and energy to innovate. Cost cutting for many firms in the recent downturn led to the innovation group being sacked and outsourced. In some cases, operating strategy groups followed the same route.

Regardless of whether the firm chooses situational strategy or an adaptive strategy, an inherent conflict in the self-preservation of the organization naturally ensues. The management philosophy and tone of the CEO generally dictates the culture but does not necessarily lead to pervasive behavior. After all if the average lifespan of a CEO is a few years, it’s hard for the organization to have fully integrated a particular CEO’s philosophy within their culture.

Effectively communicating  financial goals makes it easier to balance the respective balcony and dance floor perspectives. Numbers make things tangible, and connect actions to overall changes in the balance sheet. Connecting people, their responsibilities as well as opportunities, to the components that deliver EBITDA the better chance at achieving overall performance

Adaptive management means adapting your customers too, helping them to understand the changes being tried and the positive impact on them. In a manufacturing firm, making changes that tweak the system or fine tune the results are easier than in a service firm where the resources are primarily labor

Management 2.0 conceptually still a little fuzzy. Sounds like and may even look a little like an innovation culture, but is it? Can one create a culture that values innovation and risk-taking that doesn’t cost you your career?

Easy to understand preponderance of management 2.0 in small start-up companies. Being nimble, fewer layers of management also mean fewer chances to mix-up signals. Turnaround specialists typically find that small companies have a larger disconnect with finance.. letting ideas get ahead of prudent financial management.   All investments need to generate payback and understanding the firm’s cash flow parameters is critical.

Finance often has a second role, facilitating a strategy’s execution.  If day-to-day operations and management face the disconnect between ideas and cashflow, where can they get the clear support needed?  Is it only executive management’s responsibility to reconcile the balcony perspectives and incentives around a culture of innovation and the realities of the positions of dance floor management or dancer  struggling to meet a variety of standards and goals? Understanding the timing and relationship of unbounded customer service handle times with future customer receipts due to customer satisfaction is challenging for everyone. In a small business, there’s more transparency, as in everyone knows the good customers by name.
Measured latitude is the language used by 3M’s historic approach that requires everyone to spend and account for a small proportion of their time to learn something new. Rather than hiring clones, even in the face of the current environment where fewer resources do more, adaptive organizations  hire alternative experiences to broaden their internal learning. Innovation, when under-financed, can bring a well-managed company to its knees; EBITDA is real and important contributor to your business survival.

Inspiration doesn’t happen predictably on a timeline ; but the culture 3M instilled ties innovation to compensation.  Don’t underestimate the power of a good story to inspire and in grain experimental cultures.. The failed glue  gave rise to the Post-It Note encourages people to experiment,  and learn from failures. It also helps get everyone from top to bottom in an organization to pull the same way.

Getting the commitment from the top down, in larger organizations differentiate successful transmission of this innovation or looser adaptive culture that works well in smaller organizations. A CEO’s daily voice mail is inspiring, but a collaborative commitment in which staff concerns and worries are both heard and effort concerted  to work them through goes that much farther. . This is the suggestion that Ron Heifetz describes in adaptive leadership.

Alternatively, an organization can step their way up to change by giving staff assignments outside their normal duty. Having the tools and putting out the thinking is not the same as the heavy workout of the issues or obstacles. How much do client comments impact an employee’s compensation? When training, the indirect rewards are insufficient, the short-term pressures means it may delay getting long-term results.In the end, management still has to be serious, committed and clearly express what results they want and when.
An organization’s culture bred on innovation are willing to experiment, routinely challenge norms, share knowledge and use measurement and scorecards to track progress.

The existence of an innovation culture, not clear evidence of management 2.0?

More learnings will follow, and I invite all readers to challenge those listed or add their own.  This is a great place to test and try out ideas.  I hope you will continue the conversation.

*If you are looking for the articles and references that were the basis of the May discussion see the next post for a complete listing and links.

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.