Willie’s Blog Posts

Strategy Creation vs. Implementation: Avoiding the Trap

We frequently hear the argument that business success is largely a matter of effective implementation. When results are lagging, many CEOs are likely to crack the whip and demand that their organizations implement more vigorously. “Getting it done”, they will claim, is the missing factor. “We all know that implementation is the hard part.”

Is this diagnosis true, or is it a cop-out? To stimulate a discussion about this widespread assumption, I like to pose this question in my seminars: “Which is more important, strategy creation or strategy implementation?” What follows is often an animated conversation that treats these factors as binary alternatives. Of course this is a trick question. But trick questions can play a useful role; they help us identify false choices. The real answer is that strategy creation and implementation are mutually interdependent. Therefore the more important element is the one that’s missing, because it destroys the other one.

So much for a conceptual understanding of this issue. Let’s look at some hard evidence.

  • When IBM suffered a near death experience in the 1990s, was their problem bad strategy or poor execution? Clearly it was a bad strategy. Contrary to the needs of their customers they were aiming to sell different parts of the IT infrastructure in isolation from each other. Lou Gerstner came to their rescue by introducing the idea of integrated solutions, which was the basis of IBM’s turnaround.
  • When General Motors descended into bankruptcy in a 30 year march to the bottom, was this bad strategy or poor execution? Again, the answer is clear. Bad strategy. They were simply not building the cars their customers wanted and their product line up was cluttered and confusing. These strategy deficiencies allowed Toyota to eat their lunch.
  • Were the travails of Nokia and Blackberry simply a matter of poor execution? Hardly. Apple outsmarted them with a superior customer offering.
  • A compelling example comes from the military sphere. In the initial stages of the American revolutionary war against the vastly superior British army, the American forces under George Washington were close to defeat. They were huddled together in the north of Manhattan wet, cold, dispirited and seemingly out of options. Their prospects looked bleak. Over and over they asked themselves the question, “How will we win”? In the give and take of this existential debate, the right answer came to Washington. “Winning is the wrong objective. Our task is not to lose”. With this simple switch in strategy, they harried the British forces with sporadic raids followed by swift withdrawals to avoid taking losses. It worked. They outlasted the British and eventually prevailed with the help of the French.

There is no doubt we can also find examples where poor execution was the problem. It is probably true that Kodak’s failure to prevail with digital cameras was such an example, as is the New York Times’ inability (thus far) to create a truly profitable  digital newspaper business or Kellogg’s failure to create a sustainable success with their Kashi acquisition.

Peter Drucker offered this assessment. “Most business issues are not the result of things being done poorly. Businesses fail because the assumptions on which the organization has been built and is being run no longer fit reality. These assumptions involve markets, customers, competitors, technology, and a company’s own strengths and weaknesses”.

Supporting this viewpoint is a survey of 336 organizations by Right Management Consultants which showed that 2/3 of employees do not know or understand their company’s strategy.

It is futile to argue whether Drucker was right or wrong in his assertion that most business failures are the result of poor strategy. The main point is that we will inevitably encounter failures on both sides of the strategy divide. It is therefore dangerous to make the unexamined assumption that implementation is automatically the problem when we run into difficulties. There needs to be a deeper diagnosis of root causes.

Here is a set of questions I find useful in diagnosing a performance problem:

1) Do we have a clear understanding of our customers’ most important needs, and the nature of the external environment in which we must compete for advantage?

2) Do we have a Winning Proposition that offers our customers a compelling reason to choose us?

3) Have we defined the 3-5 Key Priorities necessary to achieve our Winning Proposition?

4) Have we articulated our Winning Proposition and Key Priorities in a simple and compelling leadership message that lives in the hearts and minds of our employees?

Clear answers to the above questions are the necessary preconditions for effective implementation.  These answers are by no means easy or obvious.  They require the kind of intense mental engagement demonstrated by George Washington in his hour of crisis. But when this hard work is done and clear answers are in place, we find that implementation inevitably becomes easier.

We come back to the point that strategy creation and implementation are mutually interdependent. We need to get away from the false choice between the two. The real challenge is making them work together.

“Our plans miscarry because they have no aim. When a man does not know what harbor he is making for, no wind is the right wind”.

       – Seneca


Posted by Willie Pietersen at 10:20 AM

Outside-In Thinking: Crucial but Unnatural

Recently John Chambers, CEO of Cisco, said something that caught my eye: “We have moved from selling boxes to partnering with customers on their outcomes.” What got my attention was the word outcomes. Outcomes are what customers get, not what we sell. Defining these requires outside-in, not inside-out thinking. John Chambers is not alone. The CEOs of both General Motors and IBM are repeatedly stressing the same imperative – to become a customer-focused company or fail. In a company I worked with recently, the CEO implored me, “Please help us transform ourselves from an inside-out to and outside-in company.”

The amazing thing about these recent calls for an outside-in approach is that this is age-old thinking. Legendary Harvard Marketing professor Theodore Levitt laid out the compelling logic for this in a trailblazing article in 1960 called Marketing Myopia.  And in 1999 Stephan Haeckel in his excellent book, Adaptive Enterprise, summed up the challenge by saying that to compete successfully companies must shift their mentality from “make and sell” to “sense and respond.”

All this is dead simple, right? I can’t find anyone who disagrees that outside-in thinking is a key to success, particularly in today’s turbulent competitive environment. And yet most organizations lament that they are not good at it. Why is it so hard to pull off?

I think there are 4 reasons for this gap between aspiration and reality:  human psychology, misleading advice, organizational barriers, and confusion about the relationship between strategy and planning.

1) Human Psychology

The psychological factor is intriguing. Research shows that during informal conversations where there is no agenda, most discussions lapse naturally into internal thinking. Hence conversations in the company cafeteria are most likely to be about the internal workings of the organization, gossip about its people, rumors of reorganization or downsizing, fears of a takeover, and so on.  A favorite topic: “My boss is worse than your boss.” Rarely will we hear a meaningful exchange of ideas about the key trends in the competitive environment or the hierarchy of customer needs.

Based on my 20 years as a CEO, I can testify that this inside-out mindset is pervasive. It is the natural default condition. This is where we find comfort and security in a world we know and enjoy the titillation afforded by gossip. The truth of the matter is that outside-in thinking is an unnatural act. Without a forcing mechanism, it hardly ever happens.

2) Misleading Advice

This is a sorry tale. A number of concepts and analytical frameworks promoted by outside “experts” have pulled companies in exactly the wrong direction. Over many years, executives have been fed a steady diet of inside-out thinking by some influential consulting firms and strategy gurus. These have served to entrench inward-looking mindsets which then become what Howard Gardner called “engravings on the brain.” The list of popular frameworks is a long one. Among them: SWOT Analysis; the Product Matrix of cash users, stars, cash cows and dogs; the Core Competency philosophy; Values Workshops; Management by Objectives; the Balanced Scorecard.

What’s wrong with these, you might ask? Nothing intrinsically. They can all be useful if applied in the right sequence. But they all start in the wrong place – inside. The element that informs the best answers is missing: insights about the external environment as the first order of business.

A few years ago, Anthony Mayo and Nitin Nohria from Harvard Business School tackled a big question: What will be the most important competency for sustaining competitive advantage in the 21st century? Their research identified a survival imperative they called “Contextual Intelligence,” defined as “an enterprise’s ability to make sense of the forces shaping the business environment and seize on the resulting opportunities.”

The truth of this became all too real for me recently when I was invited to advise a study group which had been asked to reexamine an out-of-date aspect of industrial policy and recommend changes. For 3 months they had toiled away and then, in their own words they “hit a wall.” It quickly became apparent to me that their problem was that they were asking themselves the wrong question: “What should we do?”  (This is a variant of Management By Objectives). The harsh reality is that the world does not care what we do; people care only about the value they receive. So we turned the process around and asked a set of outside-in questions starting with an analysis of the interests of the beneficiaries this policy was designed to serve.

In rapid order the group came up with four “value gaps”, ie. the gaps between what the beneficiaries valued most and what the current policy was offering them. These value gaps represented the roadmap to a new policy, and the recommendations were unanimously approved by the policy makers. The pivotal factor was simply turning the question from inside-out to outside-in. Organizations asking inside-out questions will invariably “hit a wall” or end up pursuing misguided strategies.

The big challenge is to create a core process that will force systematic outside-in thinking in an organization. It won’t happen by simple exhortation or ad hoc exercises. Invoking Howard Gardner once again we need to employ “mental bulldozers” to clear away those stubborn engravings on the brain.

I suggest there are 4 questions a sound strategy process must answer for us, in this order:

  1. What are our customers’ needs and the key features of the market in which we must compete for advantage?
  2. What do we aim to achieve and what few things must we do outstandingly well to win the competition for value creation in this environment?
  3. How will we align our business system and inspire our people to achieve superior execution?
  4. How will we continue to learn and adapt as the environment changes?

Note that the process is outside-in. And also that there are actually three questions — the fourth question is the ability to refresh the answers to the first three.

Based on these governing principles, I have translated these four questions into a dynamic 4-step process called Strategic Learning: Learn, Focus, Align, Execute. The essential starting point of this process (the Learn step) is accomplished through what I call a Situation Analysis which is designed to create penetrating insights into the competitive environment and needs of customers. This first step is designed to cultivate the kind of contextual intelligence defined by Mayo and Nohrita. All else follows from there. (For further details about the Strategic Learning process, please visit my web site: williepietersen.com)

3) Organizational Barriers

The division of organizations into different functions is calculated to serve a useful purpose–to ensure that there are deep skills in the activities that matter. But this structure also carries the risk that these functions become hard-walled, inward looking silos. This happens all too often. What gets lost as a consequence is the ability of an organization to operate holistically, as one integrated system. To quote an ancient sage, “The parts of a chariot are useless unless they act in accordance with the whole.”

For an outside-in mindset to have any potency, it must be acted on by the total system acting in concert. Instead, we often hear one of two things; that this external perspective is the exclusive job of Marketing and Sales or that it is the preserve of senior management. In staff functions such as HR, Finance, Operations and R&D an understanding of the external environment is frequently undervalued or we simply hear the deadening phrase, “That’s not my job.”

I am not arguing that all staff functions should become experts at market research and environmental scanning techniques. But as Peter Drucker reminded us, success occurs outside the boundaries of a company; inside is where we mobilize the necessary resources and count the money. If corporate functions are to establish priorities with the ultimate customer in mind, then this requires at minimum a working knowledge of industry trends, the needs of customers and the actions of competitors.

Here is the process I recommend for staff functions as they go about their planning.

– First, establish a line of sight to the needs of the company’s customers and the realities of the external environment

– Second, clarify how the company is aiming to win the competition for value creation for the customers it seeks to serve

– Finally, establish a winning proposition and priorities in alignment with these corporate goals

It is common for staff functions to think of themselves as “cost centers.” This is a purely internal perspective. While efficiency is necessary, it is not sufficient. Instead, I urge staff functions to think of themselves as “value centers.” This clarifies the strategic mission for every function in an organization: to create greater value than the costs they incur. This will occur only if they operate with an outside-in approach and thereby contribute positively to the creation of competitive advantage for their organizations.

4) Confusion About the Relationship Between Strategy and Planning

A major source of confusion concerns the difference between strategy and planning. Many executives struggle to distinguish between the two. In fact there is a fundamental difference between the aims and outputs of strategy and those of planning, and confusing the two can compound the problem of inside-out thinking.

Let’s examine the differences.

Strategy is about doing the right things. It harnesses insight about the external environment to make the most intelligent choices about where to compete and how to win the competition for value creation. Its primary role is to create an intense focus on the few things that matter most for the achievement of competitive advantage. It is quintessentially outside-in.

Planning is about doing things right. It flows from the choices made in the strategy process and provides orderliness, discipline and logistical rigor. Its purpose is not to create breakthrough thinking, but to produce predictability through forecasts, blueprints and budgets. Its orientation is largely internal.

A good way to understand the difference between strategy and planning is to think about running a railroad company. Strategy defines where you will lay the railroad tracks. Planning ensures that the trains will run on time.

I am not arguing that planning is unimportant. Both strategy and planning are vital, but one is not a substitute for the other. Because their outputs are so different, it is a toxic mixture when we combine strategy and planning in one process (and then dodge the issue by calling it “Strategic Planning”). The evidence suggests that such a combination is likely to produce 90 percent planning and only 10 percent strategy. Planning then becomes a substitute for strategy, and over time such companies will lose the ability to think and act strategically.

To instill this crucial outside-in capability the golden rule is: strategy first, and planning afterwards.

Strategy as a concept was born in the military, and all its great precepts can be derived from military thinking. Over the years I have done a number of workshops at the Army War College in Carlisle, Pennsylvania. I have learned a great deal from these learning sessions. One of the paramount principles that is emphasized by the military is that “intelligence  precedes operations.” Quoting numerous examples, the military academy stresses that if superior intelligence is not completed prior to launching operations, “people will die.” Exactly. And so will companies. To avoid this fate we must learn the unnatural act of outside-in thinking.

“Tactics without strategy is the noise before defeat.”

– Sun Tzu

Posted by Willie Pietersen at 11:21 AM