Willie’s Blog Posts

Five Time-Tested Ideas for Success

In turbulent times, concentrate on what’s important – not what’s new

As a CEO for 20 years and a professor of strategy for over 20 years now, my mind turned to this question: among the constant stream of business prescriptions over time, what are the most powerful ideas I have come across – those that have made the biggest difference in practice?

My reflections produced answers that surprised me: none of the best ideas is new. Indeed, some are centuries old. But more than any others, they have deepened our understanding of how to thrive in today’s dynamic world.

Our only sustainable competitive advantage is our ability to learn faster than our competitors.

In his 1997 article, “The Living Company” Arie de Geuss asserted that sustainable competitive advantage cannot be achieved through particular products or strategies. These are soon overtaken by fast-moving events. Instead, he argued, an organization’s survival depends on its ability to build an adaptive enterprise – one that constantly learns and renews its strategies as the environment changes.

The Darwinian logic of this idea is inescapable. Learning must be imbued in the culture of every organization for it to sustain itself as a “living company.”

Organizational learning, however, does not happen by itself. It must be ignited, sustained and directed through a deliberate company-wide process. There is no greater leadership responsibility than this.

To contend with today’s dynamic world, this must be a dynamic process – a learning cycle that guides organizations continuously from the discovery of fresh insights to the implementation of innovative actions. This requires an essential shift of gear from strategy as planning to strategy as learning.

Consider the US military’s technique of action-learning. After every engagement it applies its famed “After Action Review” to examine what worked and what didn’t, to ensure that every subsequent engagement will be an improvement over the prior one. This makes a huge difference to its prospects of winning. 

Success means putting the customer at the center of business decisions  

As a young brand manager at Unilever, I became fixated on emphasizing the distinctive product attributes of my brand and presented my strategy to my boss accordingly. He gave me a chilly reception. “Your thinking is back to front,” he said. “Customers don’t buy attributes. They are looking for solutions to their needs. You must learn to think outside-in, not inside-out.” With that, he handed me Theodore Levitt’s 1960 masterpiece, “Marketing Myopia.” Levitt’s ideas have influenced my thinking ever since.

Products, Levitt argues, are a means to an end, not an end in themselves. Their job is to satisfy customer needs. As a result, a product-centered, rather than a customer-driven, orientation can destroy a company’s ability to survive change. The railroads failed, according to Levitt, “because they assumed themselves to be in the railroad business rather than in the transportation business.”

Levitt’s underlying idea is that companies don’t sell products. They sell benefits. Competition expresses itself through the provision of benefits that transcend the product itself.

Take Hallmark Cards’ statement of purpose: “We help people connect with one another and give voice to their feelings.” The cards themselves are simply a vehicle. Human connection is the value they provide.

This means there is no such thing as a commodity. There are human beings at either end of any transaction and the service model – the way the transaction is conducted – is the key benefit.

In the burgeoning “tech revolution” we see dangerous signs that product centricity is beginning to eclipse customer centricity. Customers are too often offered acronyms or buzzwords – Al, IoT, Cloud Computing, Big Data – rather than the benefits they confer. To compete successfully, claims Levitt, companies must build “a customer-satisfying process, not a goods-producing process.”

Strategy is about achieving differentiation by making choices 

Strategy is plagued by greater confusion than any other business discipline. Ask five companies to explain their strategy and you will get five very different notions of what a strategy looks like.

Strategy was born in the military, then co-opted by business. Businesses, however, court failure by neglecting to apply the key concepts of this essential leadership domain.

Michael Porter, in a 1996 article titled “What is Strategy?” and in a subsequent interview with Fast Company magazine, defines strategy’s essentials as follows:

1) Strategy is a process of making choices on where to compete, what to offer, and how to differentiate your business by creating greater value for customers than competing alternatives.

2) Such choice-making requires balancing trade-offs. The essence of strategy is deciding what not to do.

3) Operational effectiveness is not a strategy. It is necessary, but not sufficient.

There is a dangerous notion that in a world of rapid change, strategy is no longer necessary. This, Porter calls “ridiculous” and “a deeply flawed view of competition.” While strategies may need to be updated more frequently, without a clear direction, no company can succeed for long.

Customers have choices. To succeed, companies must have what I call a “winning proposition”, a compelling reason why customers should choose their offering over their competitors.

Amazon provides a striking example: “We make it easy for people to buy things by offering a wide range of products at great prices with fast delivery.” This statement not only explains the benefit to the customer, it tells employees what (and what not) to concentrate on every hour of every day to enhance that benefit.

Leaders must be able to simplify a complex world  

In the mid-90s the United States Army War College introduced a new acronym to describe the confusing world order left behind in the wake of the Cold War: VUCA. Today the business world, no less than the military one, is beset by the same forces of Volatility, Uncertainty, Complexity and Ambiguity.

It is the responsibility of leaders to create clarity from a bewildering world. Effective leadership is impossible without the ability to distill an organization’s challenges and its strategic focus.

Simplicity is not a short cut: it is hard, messy work. Blaise Pascal, the seventeenth-century French mathematician and philosopher, captured this aptly when he said: “I am sorry to write you this long letter, but I didn’t have time to write you a short one.” 

No organization’s strategy should be longer than 10 pages. Boiling it down in this way is in itself an exercise in clarity of thought which can then be shared by the entire organization.

Sam Palmisano, the former CEO of IBM, insisted on this clarity of thought, requiring that every executive in IBM be able to answer these 4 questions in a concise and compelling way:

1)  Why should customers choose to do business with us?

2)  Why should investors choose to give us their money?

3)  Why should employees choose to work for us?

4)  Why should communities welcome us in their midst?

By laying out these simple, yet profound questions, Palmisano forced his executives to address the needs of all the company’s key stakeholders and to understand how they fit together.

To move people at the deepest level, you need compelling stories 

The final deliverable of a strategy is not simply a document.

People don’t follow documents, they follow leaders and ideas. Of course, it is important to record your strategy for easy reference, but that is only where the main task begins. The ultimate aim of leadership is to win the hearts and minds of your employees in support of your strategy.

Howard Gardner, the developmental psychologist, in an interview in Strategy + Business, emphasized the importance of story-telling as a way to engage and motivate employees. “People have a real thirst for stories that give them a better sense of how they belong” he said. He emphasized that effective leadership involves the creation of powerful narratives, and that the greater the change you aim to make, the more important the story becomes.

3M has embraced this concept by transforming business planning from a list of bullet points into a narrative that not only tells everyone what the goals are, but also how to reach them.

The crucial task is to translate the strategy document into a compelling leadership message, then to convey that message repeatedly with impact and sincerity. Leaders must return to one of our oldest human traditions, that of story-telling. As the poet Muriel Rukeyeser observed, “the universe is made of stories, not atoms.”

What are the elements of an effective story? I suggest they contain the following essentials:

–  They simplify complexity

–  They engage people emotionally through vivid metaphors and examples and pictures

–  They raise – and resolve – an important issue

–  They clearly frame a “call to action”

–  They are embodied by their tellers

Stories arise from our universal search for causes and effects, for purposes and ideals. Stories create meaning. Increasingly, this desire for meaning and authenticity is being subjugated to the deadening dominance of PowerPoint presentations.

These five ideas convey an overriding truth. In our world of escalating change, the core principles of strategy have not only remained the same; they are now more important than ever for creating enduring success.

Posted by Willie Pietersen at 12:43 PM | 0 Comments

New Year’s Resolution: Escape the Calendar

In a world of rapid change, static methods of strategic planning won’t work. 

When the year ends, it is a popular ritual to define our new resolutions for the year ahead. We see this as an opportunity for a fresh start. Companies, also, typically have a “season” for thinking ahead, usually in the fall when they hatch their plans.

But is this once-a-year approach effective?

In a changing world, survival requires continuous adaptation, as Charles Darwin explained more than a century ago. Successful change is a response to evolving external conditions, not some arbitrary date on the calendar. Some transitions are linear, requiring incremental adjustments; others are discontinuous, and demand transformational change. This is true at the personal, organizational, and national levels.

A metaphor to explain successful transitions in turbulent conditions is the picture of high jump records over the past 100 years.  

High Jump Records

This is not just a portrayal of high jump records, but a description of how progress happens in any field of human endeavor. Progress is discontinuous. There are periods of relative stability, during which the winners are those who excel with continuous improvements of existing products and services. These periods of incrementalism are inevitably disrupted by step-changes – new business models that change the rules of success.

The winners are those who succeed in making the leap to the new game, and those who cannot adapt to the new conditions face the risk of extinction. As Peter Drucker warned, “The greatest danger in times of turbulence is not the turbulence, it is to act with yesterday’s logic.”

The record shows that this accelerating disruption has significantly affected the life expectation of established firms. The average lifespan of companies has declined from 60 years in the 1950s to less than 20 years today, according to Credit Suisse. I believe there are two reasons why established firms have fared so poorly.

  1. A failure to understand the different kinds of disruptions and the distinctions between them.
  2. A widening mismatch between our world of discontinuous change and the strategic response companies are deploying to deal with it.

The four types of innovation 

Disruption shows up through innovation. There are four distinct types of innovation: cost innovation, product innovation, service innovation and channel innovation. For entrepreneurs, these are the fertile grounds of opportunity. For incumbents, these usually represent threats that must be turned into opportunities. To compete effectively, each must be analyzed, understood and addressed on its own terms.

Types of Innovation: It’s Not Just Products

As an example, the graphic below shows how the auto industry has evolved through product and service innovations and is now facing a totally different set of competitive challenges. 

Automobiles (Product/Service Innovation)

  

“Intelligent,” semi-autonomous cars now possess situational awareness with the ability to intervene when danger arises. This is the biggest safety improvement since seat belts were introduced. To thrive in this new environment, car companies must shift from the assembly of hardware to the creation of effective combinations of software, sensors, cameras, lasers, etc.  This requires major shifts in capability and introduces potential transfers of profits from those who assemble cars to the owners of intelligent inputs.

The era of semi-autonomous cars (that also serve as mobile entertainment centers) is a stepping stone to the next innovation which is already being tested and honed – fully autonomous cars. This will usher in opportunities to provide totally new customer benefits.  Reports show that the average utilization of cars is only about 10%. We can now foresee a future of ride sharing and a transformation from individual car ownership to the acquisition of mobility as a service. This would include renting electric scooters and bicycles in large cities, as is already occurring. How the established auto companies contend with this new competitive landscape will ultimately determine their survival.

The need for a new strategic response

 What is clear is that in a world of rapid change, the old static methods of strategic planning no longer work. Changes – fueled by technological advances such as artificial intelligence, the “internet of things”, cloud computing and big data – are challenging traditional business models in most industries.

The big mind shift is this: in today’s volatile world, our only sustainable competitive advantage is the organizational capability to be adaptive through a process of ongoing learning and renewal.

Recognizing this imperative, I have devised a practical process called Strategic Learning which has proven to be effective at enabling organizations to create winning strategies and to continuously adapt those strategies as the environment changes. The process represents a crucial shift of gear from strategy as planning to strategy as learning.

The Strategic Learning process involves four steps that move in a cycle:

–  LEARN through a Situation Analysis to create insights into the external environment, needs of customers and your own realities

–  FOCUS by using these insights to define your Strategic Choices: where you will compete, how you will win, and your key priorities

–  ALIGN by mobilizing all the elements of your business system and motivating your people in support of your Strategic Choices

–  EXECUTE better and faster than your competitors and do lots of experiments

This loops you back to the LEARN step, thus creating a cycle of ongoing learning and adaptation. 

Leading Through Strategic Learning

The military emphasizes that in volatile conditions such as warfare, strategy is a process of continuous assessment and re-assessment. The same is true in the business world. If the external environment keeps changing, we dare not stop learning – even after we make our New Year’s resolutions or corporate plans.

There are times in a corporate calendar when the strategy should be recorded in a formal document to serve as a reference. This typically happens once a year. But having done that, we can’t just “turn the lights out” on strategic thinking and simply concentrate on implementation. The key to success is to learn 365 days a year, by constantly deploying small teams to analyze external trends and shifting needs of customers, and to respond accordingly. 

The disruptive environment impacts us on a personal level as well. We must constantly master new skills to thrive in the modern economy. Those who cannot develop basic IT capabilities, for example, will be left behind. More than ever it is a game of lifelong learning and renewal, not just a matter of sporadic new starts based on the arbitrary whims of the calendar.

In the words of Albert Einstein: “Life is like riding a bicycle. You either move forward, or you fall off.”

Posted by Willie Pietersen at 3:04 PM | 0 Comments