In turbulent times, concentrate on what’s important – not what’s new
After a year has passed it is customary to take stock. What were the major developments of the year? How should they guide our thinking on managing our businesses more effectively?
As a professor of strategy for nearly 20 years now, my mind turned to this question: what were the most powerful business ideas of 2017?
My reflections produced answers that surprised me: none of the best ideas are 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 distintive 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.