Confessions of an adaptive strategist

 Leadership, Strategy  1 Response »
Jan 242012
 

Welcome to 2012.

It’s hard for me to believe it, but this blog has lain idle since January 2009. A couple of factors contributed to this *ahem* sojourn.

First, my daughter (Miss Sophie) entered my life and has managed to account for pretty much every spare minute of it since.

Second, there was a trajectory change career-wise. After almost 15 years of running my own management consulting business, I took a position as Head of Strategy at a technology consulting firm, tasked with designing and launching a new-to-market strategic advisory service offering.

What followed was an enjoyably challenging and successful two years, culminating in a lateral move to an even larger – this time global – technology consulting firm (ThoughtWorks, my current employer).

I’ve been with ThoughtWorks for a little over a year now. It is an interesting firm, with an interesting pedigree (more on that in a later post).

As a living, breathing embodiment of the Agile Manifesto and aligned software development philosophy, ThoughtWorks has presented me with my first true professional challenge in a long time: re-casting how I practice the management science and disciplines of strategy formulation and execution.

Few seasoned strategy practitioners would question that the field of strategy (and it’s cousin, strategic planning) has changed. We recognise that markets are more dynamic, competition is more intense, and the fundamental output of organisations has shifted from the predictable production of tangible things (products) to the less predictable delivery of intangibles (knowledge, services and experiences).

There are fewer ‘knowns’ and significantly more ‘unknowns’ (even though some might fall into the category of ‘known unknowns’).

Yet the development of strategy for many organisations remains a linear, heavily-structured, top-down process, often far-removed from the day-to-day realities of business.

My day-to-day focus at ThoughtWorks remains strategy formulation and execution. I help organisations re-imagine what is possible in their industry, and to then re-design their business model and product/service portfolio to meet the needs, wants and preferences of their customers in new ways that create unrivalled value propositions.

However, both directly and indirectly, my primary challenge is working with leaders and senior stakeholders to overcome their fear of letting go – of moving past the structured, controlled but value-destroying process of strategy development (and strategic planning) as it is practiced in most organisations today, and embracing a more adaptive (agile) approach that is less prescriptive, more inclusive of all levels of the organisation, and better able to respond to emerging market opportunities and challenges.

I look forward to sharing what I have learnt – and am learning – as I grapple with these new challenges.

The predominance of ‘No’

 Leadership  No Responses »
Feb 072008
 

One of the great disservices many companies do to themselves is to encourage the existence of a layer of managers/executives whose primary source of credibility/respect is being the first to say ‘No’ to an idea.

There are generally lots of ramifications for people who say ‘Yes’ to an idea that subsequently flops. Yet there is almost never any ramifications for people who say ‘No’ to an idea that subsequently turns out to be valid (usually demonstrated by a competitor).

In short, most organisations make it easier (and safer) to say ‘No’ than ‘Yes’ – and that spells almost certain disaster.

Who are the nay-sayers in your organisation? How do you highlight this ‘responsibility gap’? How do you invert this management practice?

Mimicking bacteria – strategy for success?

 Culture, innovation, Leadership, Strategy  1 Response »
Sep 062007
 

History tells us that it is rare indeed that a single individual will come up with a totally new idea that leads to innovation (even Newton is purported to have needed a bit of help in the form of an apple). Innovation is more likely to arise from the recombination of existing ideas in novel ways or in different contexts, such as applying ‘tried and true’ practices from one industry to another.

Recombination of this type is only possible if ‘innovation elements’ – ideas, people and organisations – are given an opportunity to interact with one another. Diversity of people, thoughts and interests are the lifeblood of the innovation process.

Ok, that all makes sense – but why bacteria?

It is the biological realm of bacteria that provides the best ‘entrepreneurial’ example of how to crank up the innovation process.

Bacteria breed – recombine – every 20 minutes. That’s three generations – three spins of the evolutionary wheel – per hour. But this amazing recombination rate doesn’t fully explain bacteria’s evolutionary resistance – or should that be persistence!

Bacteria is in a constant state of evolutionary flux. It achieves this by a process known as ‘lateral gene transfer’, which is a really technical way of saying that your typical, garden-variety bacteria is an evolutionary kleptomaniac.

Bacteria excel at stealing useful genes from other organisms. How they do this provides a ready reckoner for entrepreneurs looking to obtain ideas from other industries to provide an innovation breakthrough.

Bacteria can ‘acquire’ gene sequences through:

- Conjugation (that is, physical contact with the host of the soon to be acquired cells),

- Transformation (picking up DNA that has been abandoned by another organism)

- Transduction (where the bacteria replicates itself inside the other organism, bringing with it random DNA fragments).

The business equivalent of conjugation is getting out an mingling with people who are “different” to you – who work in different industries, have different interests, hobbies and perspectives. Transformation, of course, can happen when we study business history, learning how other companies, markets or industries grew and flourished. Finally, there is transduction, which is the equivalent of bringing an “outsider” into your company for a new perspective.

What strategies do you have in place to mimic bacteria?

Short-sighted view of the growing importance of digital channels

 3rd Horizon, Culture, Leadership, Strategy  No Responses »
Aug 272007
 

I noticed an interesting job advertisement in the papers over the weekend. The job title – Online Communications Manager – caught my eye, as I had recently been wondering when we will see organisations  invest the same levels of resources into managing their relationships and interactions with customers over digital channels as they do, say, in-store.

I read the advert expecting to catch a glimpse of a ‘weak signal’ indicator of maturation in organisational stewardship of digital channels. Instead, I was rather appalled by what I read.

The advert, placed by a “Top 10 ASX” financial services company, describes the position and role criteria in these terms:

[Y]ou will be responsible for developing and implementing the overall online strategic framework and business rules around our front line customer websites. Acting as business consultant around web usage and measurement, you will be considered the online expect. The ability to manage key stakeholder relationships, facilitate web-based enhancements and ensure all content is succinct, thereby increasing audience cut through, is what makes you outstanding.…To be considered you will have a demonstrated background in managing websites and an online channel with a good grasp of html coding.

The organisation clearly believes their online channel is important (they speak of it requiring a ‘strategic framework’), and their sites would appear to play a role affecting several ‘key stakeholders’ in the business. Yet, the primary criteria for the role seems to be technical, rather than strategic or commercial.

Let’s recast this example into a retail context. Imagine a major retailer advertising the role of manager of a department store. This person would be responsible for ‘implementing the overall strategic framework and business rules around our front line customer sales’. S/he would act ‘as a business consultant around floor space usage and sales measurement’ and have responsibility for managing ‘key stakeholder relationships’. The person would be considered the ‘retail expert’.

Do you think the role criteria would read: ‘To be considered you will have a demonstrated background in managing a sales counter with a good grasp of retail displays’?

Not likely.

Most companies still do not believe that their digital channels warrant significant senior management oversight or leadership. Implicit in job advertisements such as this is the view that digital channels are an addendum rather than a core aspect of business operations.

Far too many CEOs still speak of developing a ‘digital business strategy’. This is a telling misnomer.

Learning from PepsiCo: Changing the Game

 3rd Horizon, entrepreneurs, innovation, investment, Leadership  1 Response »
Jul 092007
 

In 2006, for the first time in 108 years of head-to-head competition, PepsiCo was worth more (in market cap terms) than The Coca-Cola Company, even though Coke still outsells Pepsi almost 2-to-1.

In 1998, Coca-Cola’s market cap was $US220 billion and the company’s stock price was trading in the high-$80s. Fast forward to 2006, and Coca-Cola’s stock price had plummeted to near the $40 mark. Worse yet, in December 2005, Coke’s market cap for the first time in history fell below that of PepsiCo’s (see note below).

Where did Coke go wrong?

Coke failed to recognise that consumers’ emerging preference for other soft beverages – water, teas, and sports drinks – would fracture demand. Instead, they ridiculed initiatives by rivals to expand into non-carbonated drinks.

As a result, Pepsi’s Aquafina became the No. 1 water brand, with Coke’s Dasani trailing; in sports drinks, Pepsi’s Gatorade owns 80 percent of the market while Coke’s Powerade has 15 percent.

Importantly, Pepsi took an even broader view than other competitors of its core market, expanding into non-beverage markets through the acquisition of Frito-Lay Snacks and Quaker Foods; the former now controls 60 percent of the U.S. snack-food market.

In short, Pepsi didn’t out-compete Coke. It changed the game.

At some point, the Boards of both Coke and Pepsi faced the same question: How much money and attention should be focused on a new, but growing, operation that is far less profitable than the core business?

Both Coke and Pepsi’s business systems were geared to selling soda, which generated enviable margins for more than a century. The profit margins on selling other drinks paled in comparison. Pepsi made the move in response to obvious shifts in consumer demand, and reaped the rewards.

In this case, it wasn’t a technological innovation (i.e. better, fizzier soft drinks) that broad-sided Coke. It was a business model innovation (becoming a “total beverage company”).

There are some important lessons here from which any company can learn. Specifically, established companies are at risk of falling into

the same “competency trap” that Coke did – continuing to invest in their traditional core competency to such a degree that they become unresponsive to the wider market play.

(Note: As at the time of writing, the market cap imbalance appears to have been rectified – PepsiCo’s M/C was $US107.87B compared to Coca-Cola’s $US121.50B. However, this is a little misleading. PepsiCo’s shares closed at $US66.22, compared to Coke’s $US52.60, and PepsiCo had a P/E of 19.50 and Earnings Per Share of $3.40, which is much healthier than Coca-Cola’s, at 23.51 P/E and EPS of $US2.24)

 

Should Yahoo! quit the search business?

 Interactive, Leadership, Media  No Responses »
Jun 212007
 

Reports that News Corp has made overtures to Yahoo! about swapping MySpace for a 25% equity stake has led the New York Times to speculate about whether Yahoo! should exit the search business and, instead, contract Google to provide search capabilities (ironically, this would have the company performing a full-loop, as it was Google’s contract with Yahoo to provide search functionality that gave Google its initial fillip).

The article quotes Jim Breyer, a Silicon Valley VC who invested in Facebook, as saying: ”They should take a hard look at the search business, and it may well be the right time to stop trying to out-Google Google”.

He’s completely right, but probably not for the reasons advocated in the article.

The primary distinction between Google and Yahoo! – which now seems firmly entrenched in their respective corporate cultures – is that Google is an engineering-led company, whereas Yahoo! is a media-led company.

While Yahoo!’s founders David Filo and Jerry Yang were PhD candidates in electrical engineering, and thus every bit as ‘techy’ as Google’s founders, Larry Page and Sergey Brin, who were graduate computer science students, both sets of founders made very different choices about the CEOs appointed to grow their businesses.

Page and Brin recruited (Dr) Eric Schmidt from Novell, a technology company with deep engineering roots. Filo and Yang, on the other hand, recruited Terry Semel, a media industry executive who was co-CEO of Warner Bros (and who admitted he was no Internet or technology expert).

Their choices of CEO reflected the founders’ visions for their companies – Google saw itself as a “pure” search company, whereas Yahoo! (aggressively pursuing its portal strategy) saw itself as a media company.

Yahoo! won’t be able to “out-Google Google” because they are very different companies, designed to serve very different market needs.

Search is very individualistic, egocentric and task-oriented. Media, on the other hand, is implicitly social. Consumers approach each service with different expectations, and, accordingly, expect a different experience.

The business of search is all about optimising algorithms, and Google has hired some of the best brains in the business to focus on precisely that. The business of media, however, is not about algorithms (although they do play a role in making the media experience ‘smarter’). Media is about intangible, mushy concepts like emotions, relationships, connectedness, ‘tribalism’ and  other socio-cultural drivers.

Where Yahoo! has come unstuck is that while it professes to be a media services company, it hasn’t adequately managed cultural change to facilitate that vision.

It still has an engineering core, onto which it has bolted some media divisions and executives. The end result is a business environment that is not aligned with, or capable of delivering, the services and experiences its consumers expect. Nor has it been capable of creating revenue models and advertising offerings that better integrate with its products, audience and (importantly) audience behavioural patterns.

Consequently it has not been able to make significant in-roads into the gap between Google’s ability to ‘monetise’ traffic (analysts report that Google is able to extract twice as much revenue per page of content served than Yahoo!).

Yahoo! should certainly stop trying to out-Google Google, because it isn’t in the same market.

Effective Leadership (Australian Anthill)

 Australian Anthill, Leadership  No Responses »
May 152007
 

This is an excerpt of a regular column I write – <strong>Neely Ready</strong> – which appears in Australian Anthill.

—8<—

While it may be heretical to some, I believe great leaders are made, not born.

Undoubtedly there are those among us who inherited certain traits that naturally lead them to leadership roles. But any individual with the right character, willpower and discipline can become a great leader.

Leadership is important in all areas of life, but given the array of challenges faced by start-ups, including the need to marshal and sustain a team’s enthusiasm and drive in the face of set-backs, the calibre of leadership is one of the most significant determinants of success or failure.

For the most part, companies large and small are over-managed but under-led, so it is important to distinguish between leadership and management. Management is concerned with planning and organisation (the ‘how’). Leadership, on the other hand, is about direction (the ‘why’).

Continue reading »