Two hours with executives
Spent a great morning. Facilitating a discussion on the topic of strategy. Open discussion, good learning, excellent examples from high-performing managers, directors. Creating a sustainable competitive advantage = strategy.
Yes, we covered the basics
For those who know me, know my content, and my perspective:
Strategy is a set of activities, not one thing. Strategy takes a while (think 10-30 years), so it’s easy to get lost, mistake it for tactics, change your mind, change your boss, and lose focus. Enduring strategies give you a sustainable competitive advantage; you’re doing “better than others” for a long-period of time. This is not simple, this is involved. You want a basket full of advantages that build on themselves. Michael Porter’s (hat tip) example of Southwest’s virtuous cycle:
Southwest – 1 plane – compete against the car – all pilots can fly all planes – all mechanics can fix all planes – all parts fit all planes – consistency – focus on thrift – no meals – good punctuality – more time flying, not parked – higher utilization of fixed assets – lower cost per passenger – decision to keep price for profits, or lower price for market share – market share – 45 years of profitability (except 2020).
Strategy is cumulative, it’s a flywheel. Momentum helps the effort. Economies of scale, customer loyalty, higher switching costs (monetary or habitual), start up costs, network effects, something to make your customer stay with you. Something that dissuades new entrants (newbies) into your profitable neighborhood. NIMBY.
Strategy is different from planning. Both are important, and they are different. Planning is making your goals more achievable; driving accountability, budgets, headcounts, and metrics. Strategy is defining what “winning” is to your company, department, your own career and making it happen. Strategy and planning should be done separately; different parts of your brain. Pre-frontal cortex vs. parietal lobe?
Would you vision your retirement strategy (how much money, when, where, doing what) and your local vacation planning (which dates, what to pack, who should drive) in the same meeting?
Yes, best practices. AND strategy is different
Business is hard. Managing is hard. Any competitive environment demands your hard work just to “stay in the race.” Remember, most businesses fail. So those that are consistently making money, (MBA talk: beating their WACC weighted cost of capital) are doing something right. So – yes – we should be learning from others. What do smart people in our industry do about XYZ? How is the customer changing? How can GenAI dramatically cut out steps in our process?
Sure, best practices makes sense a lot of the time. If 50% of your friends use XYZ, and there’s an obvious benefit (and limited cost), uh, duh. Let’s do that too. However, best practices are often just fancy common practices. Once 50% of people are doing XYZ, is that really an edge advantage? No really. It’s commonplace.
Unfair advantage
Find out what’s unique (“uni” means 1) about your, your team, your company. What gives you an edge? What’s easy for your, difficult for others, and customers are willing to pay you for it? What gives you flow? What doesn’t seem like work? Maybe you are young in your career. . .perhaps you have 2 parts of the puzzle. You have 1 and 2. . . and now you need 3, 4, 5, in order to be so good they can’t ignore you.
Strategy is more like poker than chess
If you look up Google images for the word “strategy” you will likely see a chess piece. Annie Duke, world series of poker champion, and almost PhD of cognitive psychology, has written so many good books on making decisions. Thinking in Bets is my favorite here (affiliate link) She argues that strategy, business is more like poker than chess.
- In chess, you see the board, there is typically an optimal move, you start out with the same pieces.
- In poker, you can win with a worse hand, luck plays a bigger parts, multiple competitors, probabilities change as people leave the hand, you don’t have to play every hand. Luck matters more in poker. Whew, a lot.
Strategy is about winning. Winning at your own game
If you want to be “average” (e.g., distribution around a central tendency of the profitability within your industry), you don’t need much a strategy. Just follow along, and 20% work harder; that sound like 2nd or 3rd quartile performance. Doable.
Winning is not “beating” your competitor. . . that implies that you’re playing someone else’s game – same customers, same positioning, no differentiation. Zero-sum game. Sounds bad, boring, and bloody.
Winning is knowing what success looks like for you.
- Chick-Fil-A closed on Sundays?
- Patagonia stitching up your old clothes?
- Green Bay Packers being owned by its fans?
- Southwest only flying 1 kind of plane?
- 160+ billionaires giving away more than 50% of their wealth during their lifetime
And, I wish we had time to go through these Q&A
With strategy, there is so much to talk about. Here are 6 questions that came up. These deserve thoughtful responses, so I wrote them down. Feel free to email me your thoughts (jkstrategy AT consultantsmind.com). Tell me more. . .
1) Q: Will your strategy be correct in the long term?
Stoic answer: On some level you don’t know until later. So that’s a bummer. Play the hand you were dealt, enjoy the work.
Nerd answer: Strategy involves some calculated risks. Thinking with probabilities, what could happen? Likelihood? Potential good or bad? Decide. Map out some of the probabilities, likely, very likely?
Clarification: “Long term” is a bit vague of a time frame. Next 20 years? Until your next promotion? While you stay with the company? Until you retire? Until you gift the business to your daughter?
Clarification: “Correct” is a big vague. Correct for you? for your company? for your employees? for your sanity?
Actionable answer: Look for leading indicators – hints, signs, first smell of burn toast, that give you a sense of what the next trend will be. “I think this is going _______ because XYZ keeps going up.”
Be careful of hindsight bias (hat tip: Annie Duke). When you think of the future, you think of a large tree with multiple branches of potential futures. When you look back, you kick yourself and say, “I should have known the stock would go down.” When you look back, you (metaphorically cut off all the other branches that did not happen) only see the one trunk of the tree that falsely makes you think it was inevitable. Nope, there were many ways it could have gone. It was not inevitable that the client responded that way.
2) Q: How do you balance short-term and long-term goals?
Cynical refrain: Yes, isn’t that the biggest challenge for all of us?
Practical response: It depends on many factors which you need to arbitrate:
- What’s the mood? Are earnings up or down? Using Game of Thrones weather analogy, are we in the years of summer, or “Is Winter Coming?” Are you focusing on margin or market share? Where’s the customer’s wallet and attitude?
- What’s the timing? Is it end of the quarter, end of the year?
- What’s your position, amount of relational equity? Have you earned the rights to lead XYZ and takes some risk on behalf of the company? What’s the trade-off, do we have enough margin, resources, $$, time to give XYZ a chance?
- What’s your risk appetite? What’s your career able to handle? (hat tip: M) Are you in a position to “go for it?”
- What’s the bottleneck? Can we do both? Short-term X, while developing flexibility to do Y?
- Can we take something off our plate? Is short-term X really required? Isn’t department ABC already doing it?
- Delegation? Are you the person who should be doing this? No, really?
- Give to the machine. Can we get RPA (robotic process automation) and have an agent do this?
Clarification: Let’s make sure that whenever possible you can line up a) company b) your team c) your own goals. The more win-win we can make this, the less of a “trade-off” it feels like
Put another way: This is a trade off between strategy and tactics. Unfortunately, the answer is “yes”.
3) Q: What is the best way to keep a strategy simple yet effective?
Can you explain this to someone not from your business or industry? Write it down.
- How would you explain it to your cousin or a high schooler?
- How would you explain it to a smart peer in your industry?
- How would you explain it to your spouse or mom, who really wants you to get promoted?
- What are the trade-offs that you are explicitly, implicitly, or secretly making?
- What are the leading indicators that will tell you that you are winning?
- What does winning look like? How will you know?
- What are the biggest 3 “uh oh” obstacles that could come up? What will you do?
- Have you practiced answer these questions before? recorded your own voice answers?
4) Q: How to adapt your strategy to market changes?
I can only imagine this varies by the size of the organization, company, and endeavor. Adapting a county’s transportation system (e.g., 10,000 residents) is probably a lot faster, cheaper, and more nimble than the US federal transportation system (330,000,000 residents). Size of the company matters.
Reid Hoffman, founder of Linkedin, said he enjoyed being CEO of a 50 person, or even 500 person company. Didn’t enjoy running a 5,000 company. Enter Jeff Weiner, until 2000.
Confession. I have never run a Fortune 500 company with XXX,XXX employees, so who am I to say?
This a big leadership question because not Fortune 500 company has a strategic plan that tries to miss a market. Blockbuster, Yahoo, Cisco, GM, Intel, ToysRUs, Circuit City, Macy’s, General Electric, Daewoo.
Don’t risk so much (with any 1 hand) that you go out of business. Live to fight another day. (hat tip: Warren Buffett)
Think of your business as two engines (hat tip: Bain & Company) The first engine is your core business, drives revenues, profits, and headcount. It’s what got you here. Engine two is embroynic, or a teenager. Precocious, hopeful, and not making money yet. Yes, you need both. Yes, you need to “cut over” to the new revenue stream eventually. (US healthcare, think “fee for service” vs. “fee for value.”
A Deloitte partner described career flexibility as a consultant who swings from one project to another project “like Tarzan.” Go to the next project that has SOME overlap with what you just did well. Don’t be random. (hat tip: AG)
The bigger the change / pivot, the more cross-functional it will be. You will not be “changing everything by yourself”
Formula 1 / Nascar analogy: The pole-position of the cars change during the turns, not on the straight-aways.
5) Q: How do you gauge your company’s willingness to take risks in strategy?
Take risks on small things first. Tap the kettle to see if it’s hot, don’t just grab the thing with two hands. Earn the relational equity to take a little smart risk. Share your findings with your boss, cross-functional leads, and others. Make this a team and group activity; get their fingerprints on it.
Show your math, show your logic. Stress test you thinking. Get the smartest minds on this. Get free internal advice.
Leadership angle: It starts at the top. If we only reward people who have good results (output) and not the people who make good decisions (input); then I think it is a lower-risk culture. “values are what an organization is willing to enforce.”
6) Q: How to communicate strategy effectively to get buy-in.
For me (John), this is a democracy / dictator / democracy approach.
Phase 1 (democracy) In the early days of a project, or initiative, we want to open the problem lens widely and slowly. What is the breadth of potential resources, challenges, dependencies that we might not normally see. If we are crime detectives, look around. What evidence is there? What evidence is missing?
Brainstorm. Get feedback. Send out surveys. Frame the problem. Be inclusive. Let’s talk.
Phase 2 (dictator) The team knows what the plan is (think: commander’s intent). We have our parts. We trust each other – so we can work fast without offending each other. Divide up. Do your work. Ask for help, when needed. Don’t whine. Do your work. Get it done. Impress each other. Be a solid team mate. Be a leader. Build a reputation as an operator. Do.
Phase 3 (democracy) Let’s bring this work back together into a beautiful masterpiece, wedding, project deliverable, EBITDA savings, strategy implementation. Time to collectively OWN THIS THING and broadcast out to more people. Time to campaign so it gets done.