Strategynut

September 17, 2008

The OODA Loop

Filed under: Strategy — Nicola Rowe @ 8:40 pm
Tags: ,

It sounds like a hip Japanese accessory, and in truth it is a way to accessorise your mind. OODA, or the OODA Loop, is a concept developed by USAF Colonel John Boyd to describe a set of states fighter pilots cycle through during combat. OODA stands for Observe, Orient, Decide and Act: the pilot must observe the situation around him (and, back when the theory was devised, it was invariably him, not her), orient to it, decide what to do and act on that decision. 

So far, so good: a nitty-gritty description of what most of us do unconsciously all day. So why is it worthwhile breaking an action down into its OODA components, and why should we schlep yet another military construct into the C-suite?

A company can gain competitive advantage through OODA in three ways: by speed of execution, by excellence in execution and by interfering with competitors’ own OODA cycles.

First, sheer speed of execution will create competitive advantage, as, for example, this decade’s literature on innovation to cash makes clear. Secondly, excellence in execution – perceiving the competitive landscape accurately, assimmilating and processing that information and  implementing decisions well – will serve the company: this is the stuff of the well-run firm. But it is the third form of advantage, advantage by interference with a competitor’s OODA loop, that offers the strategist most room to manoeuvre.

No company operates in isolation. As a firm goes through its OODA loops, its competitors are executing theirs. It is difficult to influence another firm’s execution directly, but there are two other ways to interfere with competitors’ OODA loops: by influencing speed of execution and by shaping the perceptions which govern a competitor’s own OODA process. 

First, a company can try to slow down others’ OODA cycling. Taking high (but calculated) risks will require competitors to hem and haw before they decide what to do, for example, and engaging in markets with high barriers to entry will slow the speed at which can competitor act. 

Secondly, a company can interfere with a competitor’s perception of its options at any of the OODA nodes. Most firms focus on influencing competitor action, which is the final OODA step. But the first three phases, which allow a much more differentiated approach to the manipulation of competitor behaviour, bear closer examination. 

Considering the first criterion, observation, we might think of Apple’s legendary secrecy, which makes it impossible for outsiders to observe anything at all. Or a company might dissimulate, luring its competitors into believing action – or a lack of action – is imminent. We need only look to any company’s internal decision-making for examples of interference with the orientation phase: it’s common for executives to snow their board with information, preventing directors from developing a reasoned stance on active issues and holding them hostage to the opinions executives provide. A company can lever the third OODA node by forcing its competitors to take decisions – bellwether pricing in commoditised industries is a cardinal example – and to re-visit those decisions, thus absorbing time and resources.

The Icelandic Saga: FDI in furthest-flung Scandinavia

Filed under: Uncategorized — Nicola Rowe @ 1:00 am
Tags:

Take 320,000 people. Put them on a volcanically active island half-way between mainland Europe and North America. Denude the island of trees and dunk it in darkness for several months of the year. Allow its inhabitants to develop a rural and fishing economy. Then put your cap in hand and try to attract foreign direct investment (FDI).

Amazingly, Iceland scores fourth in the world in attracting foreign direct investment, even outpacing Singapore and Ireland, two economies often cited as inward FDI success stories. Singapore and Ireland were able to take advantage of geographical proximity to position themselves as stepping-stones to Asia and the EU respectively. From Iceland, you can step only to Greenland. So how has Iceland managed its success?

First, Iceland’s infrastructure is good. At 15%, Iceland’s corporate tax rate is second only to Ireland’s as the most competitive in the EU. In 2006, Transparency International ranked it as the second-least corrupt country in the world. (Finland won out.) The Heritage Foundation ranks Iceland fourteenth in the world for economic freedom, giving it a stunning 94.5% rating for business freedom. Energy is cheap – the country runs off its renewable geothermal resources – and Iceland boasts well-educated citizens who speak English in addition to their own impenetrable tongue. Finally, and in sharp contrast to Ireland or Singapore, land for greenfield investment is cheap, and readily available.

But setting an inviting scene is only half the story. Iceland’s investment promotion agency, Investment Iceland, has been especially successful in pushing Iceland abroad as a target for foreign direct investment. Three counter-intuitive examples show how successful Investment Iceland has been.

First, Iceland can point to success in bits and bytes. Here, Investment Iceland manages to make a virtue of Iceland’s isolation, pointing to the island’s “remote and secure location” as a plus for data centres, one of its six areas of strategic focus. In the information age, geographical distance may be more psychological than real. It’s a barrier Iceland is striving to overcome: the country is connected to the world by two fibre-optic cables, and a third is planned.

Secondly, Iceland can point to continued success in creative industries – an unusual feat, since these tend to be driven by one-off events and charismatic individuals. While it’s not unusual for isolated countries to lure filmmakers with dramatic landscapes – witness New Zealand’s success with Peter Jackson’s Lord of the Rings series –Iceland has been successful by any standards. Eleven major English-language film productions were made at least partly in Iceland in the five years from 2001, including the blockbuster Lara Croft: Tomb Raider starring Angelina Jolie.

Finally, Iceland has capitalized on its unique genetic heritage – it has a homogenous gene pool, and genealogies can be traced back for centuries – to attract life science investment. Iceland has a population with genetic, disease and genealogical data sets, and companies have used this data to screen for genes linked to disease.

It’s unlikely that any other country can replicate Iceland’s genetic treasures. But certainly Iceland’s example teaches that geography, size and climate are no barrier to wealth creation. If three hundred thousand Icelanders can achieve the tenth-highest per-capita GDP in the world, anyone ought to be able to follow.

September 16, 2008

The T-Shaped Manager

Filed under: HR,Strategy — Nicola Rowe @ 4:23 am
Tags:

He sounds an uncomfortable man to be, the T-shaped manager, arms flung out in the embrace of knowledge, crucified uncomfortably for the sake of his firm. 

Coined by the British newspaper The Independent in 1991, the expression “T-shaped manager” refers to a man in a matrix, someone responsible both for a function – marketing, say, or operations – and for the dissemination of knowledge across functional boundaries. The key insight, as Bolko von Oetinger and Morten Hansen, two former BCG authors, make clear, is that knowledge diffuses, not through databases, but primarily through people.

The advantage of the T-shape is thus that it resolves one of the knottiest issues in knowledge management, the difficulty of making tacit knowledge explicit. By treating managers as live vectors for knowledge, the T-shape concept diverts energy from knowledge formalisation to knowledge transmission.

The T-shaped manager is an expert first and foremost: he or she has developed a body of knowledge and skills in a particular function. Functional expertise, the vertical line of the T, is developed first. Only then is it extended – the horizontal bar of the T – across functions in a process that both transmits knowledge from the function and receives information from the other functions with whose representatives the T-shaped manager interacts. 

How does a firm that develops T-shaped managers differ from one which promotes other organisational best practices such as learning circles? The decision to pursue the T-shape should be deliberate. It requires investment both in functional expertise – for no manager can be effective if he or she has nothing to disseminate – and in the skills required for knowledge transmission. These will be twofold: first, the manager will need to understand the wider context of the business beyond his or her function, in order to filter accumulated expertise selectively; secondly, he or she will need sufficient social and didactic skills to work with others and to pass on knowledge. The firm will also need to support knowledge diffusion structurally.

September 15, 2008

The War for Talent, ten years on

Filed under: HR,Strategy — Nicola Rowe @ 5:30 am
Tags: ,

The strategist is an etymological warrior, deriving his or her title from the Greek word for general, and indeed you can often tell a would-be strategist by the copy of Clausewitz or Sun-Tzu in a cubicle drawer. A decade ago this year, the consulting firm McKinsey sounded a different call to arms, heralding a “war for talent” that was to dominate business competition for the next two decades. A glance at the clock tells us we should be right in the thick of it.

 “Attract good people. Keep them.” This is the nub of the war for talent, the battle for what a McKinsey director told Fast Company ten years ago, would be a more important source of competitive advantage than “capital, strategy, or R&D”. That’s a bold claim. Capital was more accessible in 1998 than it is a decade on. Strategy, McKinsey thought gamely, could just be copied. And the half-life of technology was said to be getting shorter all the time. What did this leave? Human resources.

(Note that strategy evidently can’t be copied all that easily. Fortune magazine estimates that McKinsey pulled in over $1 billion in revenues last year. And, as this blog’s last post notes, many biotech applications are still long-lived.)

So is today’s competitive landscape pitted by the war for talent? Sure, companies are looking for top people. Recruiting has been professionalised: assessment centres, whatever you may think of them, are used twice as often now as they were twenty years ago. But even before McKinsey’s placet, CEOs had been proclaiming for years that “our people are our greatest resource”. Whats new under the sun?

The genuine insight in the war for talent – and, as far as this author can tell, it belongs not to McKinsey but to McKinsey’s main competitor – is that top-tier talent isn’t just slightly better than the next tier down. It’s several times better, although no one seems prepared to quantify just how much. A first-class manager has many times the productivity of a merely competent one. And the Street believes this, as you’ll discover if you ask why celebrity CEOs earn hundreds of times the salary of their peons.

Ten years on, McKinsey looks like a Menshevik, a white-hat revolutionary chasing an illusion. This is no longer the roaring economy of the late 1990s. An economic downturn signals a war, not for talent, but for jobs: where talent is concerned, it’s a buyer’s market. As we coast into recession, talent will be hanging on by its fingernails.

September 11, 2008

Your biotech investment: leave home without it

Filed under: Strategy — Nicola Rowe @ 6:10 am
Tags:

Green biotechnology, which is biotechnology applied to plants, holds out hope for the bottom billion. As the United Nation Economic Commission for Africa points out, “Rapid developments in science allow […] scientists to modify the very building blocks of life—the genes themselves.” So urgent is the situation in Africa that the potential upside can be measured, not just in dollars, but in human lives. Closer to home, plant tissue culture, plant genetic engineering and plant molecular marker assisted breeding offer higher yields for first-world farmers. And you’re probably already eating hybrid tomatoes.

 

But while you may feel the difference in your wallet at the grocery store, what does it mean for your portfolio? Should you invest directly in a green technology venture?

 

First, the time from idea to market realisation is about the same time for green biotechnology applications as for red biotechnology products: fifteen to twenty years. So you’re looking at a long-term return on investment – if you can obtain any return at all: uncertainties increase as your time horizon extends. But the higher return you’ll want compensate for that risk may not eventuate. A survey of applications made for regulatory approval in one English-speaking country showed that most were for variants on existing lines of fruit and root vegetables. This means that the likelihood of the product succeeding is greater – it is easier to adapt than to create – but it also means that the target product will be competing in the same market space as the crop it replaces. You’ll want to ask yourself how likely it is that a new variant of, say, potato can create additional demand, and how much of the existing potato market it’s likely to cannibalise. Often, the answer will be: not much.

 

Even if you do manage, a decade and a half out, to hit on a winning potato brand, you’ll still have to manage product stigma. How genetic modification will be viewed in fifteen years is anyone’s guess. Wizard’s blessing or devil’s curse? Right now, the odds look even.

 

If you don’t mind a roulette wheel with a low-chip load and a twenty-year spin cycle, green biotech may be for you. Otherwise, let others reap, and seed your own funds elsewhere.

September 5, 2008

Chief Ethics Officer – can we take the post seriously?

Filed under: Organisation design — Nicola Rowe @ 8:39 am
Tags:

In the wake of its contracting scandals, Boeing hired one. HP had one all along, but that didn’t stop chairwoman Patricia Dunn from spying on her fellow board members. Can we take the post of chief ethics officer seriously?

Having a vice-president for ethics helps a corporation to avoid the appearance of impropriety and be seen to be doing the right thing. That’s not just a nice-to-have: Forbes magazine points out that federal sentencing guidelines provide for preferential treatment in white-collar crime prosecutions if companies have “effective compliance and ethics programmes” in place.

What does it say about a company that it needs to appoint a head of ethics? Some worry that creating the post signals to the world at large that the company has ethical problems to address. Others argue that creating a special post for ethics is unnecessary, since ethics is everyone’s business: in this view, ethics should be part of the DNA of the organisation, lived by everyone from the CEO on down to the newest shop-floor assistant. 

Yet a chief ethics officer can be an appropriate point-person for a variety of reasons. While a would-be whistleblower who sees a company breaching the law can go to the chief legal officer, it’s not so clear where he or she should turn to air conduct that seems dubious, but might not breach the law.  Chief ethics officers can raise their voices in the C-suite to highlight technically correct conduct that’s inconsistent with the company’s vision and values. And, for those who tend to be cynical about company values statements, the appointment of a C-level ethics officer is a powerful statement from on high that the company takes its values seriously. 

The Role of the Chief Strategy Officer (CSO)

Corporate strategy is a beast of uncertain provenance, in theory falling within the bailiwick of the board and in practice within the purview of the CEO. Against this background, the chief strategy officer (CSO) – a particularly 21st century role – cuts a curious figure.  Certainly the CSO is a respected figure – General Motors has one, as do Sun, Cadbury and Morgan Stanley – but it is less clear what the CSO actually does. An article that appeared in the McKinsey Quarterly this May concluded that the job was poorly defined. But essentially three roles are possible: the CSO may be responsible for the  generation, the facilitation or the execution of strategy.

The CSO responsible for generating strategy is in the weakest position. Strategy is the core preserve of the CEO and the board, and no effective CEO will abdicate her responsibility for formulating it to another C-level officer. A CSO responsible for originating strategy is thus in a delicate dance with the CEO: part counsellor, part idea generator, he or she provides the CEO with strategic options and recommendations, but leaves the ultimate course up to the CEO. Functionally, the originating CSO competes with outsiders – McKinsey, Bain and so on – for the provision of strategic advice. Operationally, this kind of CSO is responsible for the corporate strategy department, but may be weakened in practice, since he or she presides over a staff function (and usually a relatively small staff function at that) without P&L responsibility, and is thus fully dependent on the CEO for support in order to be effective.

The CSO responsible for facilitating strategy is deeply involved in, and usually oversees, the strategic planning process.  This role is transactional, rather than content-driven: the job of the facilitating CSO is, at least in large part, to ensure that the strategic plan is delivered. His or her role may extend only to ensuring the process proceeds smoothly. Ideally, however, the facilitating CSO will challenge the assumptions made by the organisation’s departments so that the plan finally presented for board discussion is as rigorous and stable as possible. Here, too, the CSO relies on the strong and public support of the CEO in order to be effective, since it will be difficult in practice for someone without his or her own corporate fiefdom to challenge the plans developed by business unit heads

The role of the CSO responsible for executing strategy centres on implementation.  Part of the role lies in communicating the strategy to the organisation: here, since execution requires the understanding and cooperation of both employees and managers, the CSO will liaise closely both with corporate communications and with line managers. The CSO responsible for executing strategy is also a controller, verifying that milestones have been reached and implementation is on track.

As an originator or facilitator of strategy, or where responsible for strategy execution, the chief strategy officer can add value to the corporation in a variety of ways. Since the role lacks a common definition, it is clear that, in order for the CSO to be effective, the demonstrative support of the chief executive officer is a sine qua non.

Seven tips for building trust with your consulting clients

Filed under: Consulting — Nicola Rowe @ 12:55 am
Tags: ,

First off, admit what you don’t know. The client hired you for your expertise, not your omniscience. Telling the client when you don’t know something has two benefits. First, it gives you the opportunity to make and keep a micro-promise (“I’ll find out for you”).  Secondly, it makes the client feel wise: they’ve thought of something you haven’t.

Find common ground. It’s about what you and your client share, not what you exchange: the relationship between the two of you is more important for generating long-term business than the actual work you’ve contracted to do. So don’t focus on the work without the frills: establish a relationship with your client. Invite her out to dinner. Take him to a baseball game.  If clients enjoy working with you, they’ll bring their business back.

Make micro-promises.  Every time you keep a promise, your trustworthiness inches up. So make promises wherever possible. You don’t have to promise the earth – it’s enough to say “I’ve got an article that might interest you – I’ll pass it on,” or “I’ll get you the name of our translating service”. Note that this tactic will backfire if you don’t keep every one of your promises. Nothing erodes your integrity faster than saying you’ll do something you then leave undone. 

Don’t be disrespectful of your competition. If you’re working for McDonald’s, don’t slam Burger King. Even if your client badmouths your competitors, don’t get in on the act. Showing respect for your competition raises your own worth in the eyes of others, who will wonder how you’ll speak of them if you don’t get their business.  

Speak your client’s language. If he calls a pack of presentation slides a deck, call it a deck. If she calls weekly meetings jours fixes, adopt the French expression. The more you use the client’s vocabulary, the less foreign you seem.

 If you ever expect to do business again – and, as the German saying has it, you always meet twice in this life – then look to the medium term, even when doing so isn’t in your immediate interest. Turn down work if you’re not best qualified to do it or don’t have the capacity to do it well. Doing so has two advantages. First, you’ll astonish your client and cement your reputation for integrity: when more work comes up in the medium term, you’ll be the one she thinks of first. Secondly, turning down work gives you the opportunity to refer business on. Especially if the work you’re turning down isn’t in your sweet spot, recommending someone else means he or she will owe you a favour – one that’s likely to turn up in the form of work for you further down the track. 

Go out of your way to maintain your relationship after the assignment ends. That goes well beyond Christmas cards or birthday wishes. Search out articles that might be of use to them, and clip and send them on.  Read their trade magazines, and call them about new developments in their industry. (You can set up a news watch on their company via Google Finance, if they’re publicly listed.) If you keep calling when you have something to offer, they’ll take your call when they have something you want. 

At the end of the day, while there’s no relationship without high-quality content, there won’t be much more content coming your way in future if your relationship with your client doesn’t flourish.

 

September 4, 2008

Where’s the best place to practise strategy in industry?

Filed under: Strategy — Nicola Rowe @ 6:41 am
Tags: ,

Thinking that strategists are the right-hand men (and, rarely, women) to captains of industry, you might want to head for the strategy department of a multinational – BP, say, or Roche. And you’d find others there who thought the same: alumni of McKinsey, Bain and BCG. But here’s the secret: they’re clamouring to get out.

 

How can this be? The truth is that a strategy department is a staff function. It has no profit and loss responsibility, and, despite its massive PowerPoint output, it has no decision-making power, either, so no one – especially not the managers it exists to serve – takes it seriously. Decisions are taken by line managers, and strategic decisions are taken a long way up the line. A strategy department may provide high-quality advice, but there’s the frustration of waiting months to see it grind into implementation, if implementation ever happens. (The recommendations made by a consulting firm aren’t always implemented, either, but this is less frustrating for the individual consultant because he or she has moved on before the client shelves the slides.)

 

If the strategists’ advice is implemented, one of two things can happen. It can be handed over to the change management team, or the strategy department itself can be tasked with implementation. Moving across the strategy spectrum towards implementation has been the mantra of the big consulting groups for the past half-decade, but consultants hate implementation, seeing it as boring and trivial. And it can be trivial: I once watched a consultant colleague write an implementation workplan that contained such highlights as “24 April: Attach nameplates to doors”. In a strategy department, working to the ponderous timelines of industry, you’ll grind your teeth out before the 24th of April rolls around.

Career-wise, once you’re in a strategy department, there’s nowhere to go. You can head sideways into change management – a horror all its own, of which more later. But, if you want to change into a line function, you have to beg your way in. It’s hard to be an egghead, but it’s harder still to have your egg poached by marketing or sales.

 

So where does the aspiring strategist go? That’s a topic all its own. But only the foolhardy or the brave – or the terminally exhausted – should offer themselves as grist for the corporate strategy mill 

The art of the recruiting interview: the S-A-O-L rule

Filed under: HR — Nicola Rowe @ 6:39 am
Tags:

Want to know how potential employees will perform in a new job? Apply the SAO L formula: Situation – Action – Outcome – Learnings to mine their past behaviour and predict how well they will perform with your company.

 

The first step is to think of a situation you expect the new employee to encounter at your company and match it with a situation in your applicant’s past. Choose one where it’s crucial that your new hire will excel. For example, you might be filling a position involving dealing with dissatisfied customers. That’s your starting situation. Now, look for a similar situation in your interviewee’s past. Using concrete questions, probe to see whether your interviewee has dealt with angry customers in the past. Ask, “Can you describe a situation where…” or “Tell me about a time when you….”. Note that it’s important not to ask hypothetical questions. Never ask “How would you react if…” That doesn’t tell you anything about what the applicant has done in the past: it only tells you how creative his or her imagination is.

 

Once you’ve lined up a situation to explore, you’ll need to understand what your applicant did. Press the applicant to be as concrete as possible, using phrases like “Tell me specifically what you did”, or “What exactly did you do”. Question the applicant politely but closely until you understand exactly what steps he or she took in the past. What exactly did the applicant do to handle irate customers? You want to finish this step with concrete examples of what happened.

 

Next, you want to know how effective the applicant was, so you need to make sure you understand what the outcome was. If your applicant tells you that he or she dealt with angry customers by explaining that the fine print on the warranty meant that the company couldn’t provide product support, you’ll want to know whether that was effective. Was the applicant able to meet the challenge? Applicants who were unsuccessful in meeting common challenges in the past are unlikely to be successful in future.

 

Finally, you want to understand what the applicant learned from his or her experience. For example, your applicant might say, “Initially, I carefully explained the conditions of our warranty to customers and made clear why we couldn’t support products beyond twelve months. But then I realised that satisfied customers often more than made up for the cost of that support in extra business and referrals, so I started to waive that time limit if they were only one or two months past the expiry date.” Establishing what the employee has learned tells you two things. First, it tells you that the employee was able to adapt and meet the challenge successfully. Secondly, it tells you that the applicant is able to take on and respond to feedback – a characteristic which will make him or her a successful employee in your own workplace.

 

In sum, the rule to remember is this: Past behaviour predicts future behaviour. To know how applicants will perform at your firm, first define a situation that they are likely to encounter, then probe for a similar situation in their past. Next, find out what they did when that situation occurred. Thirdly, discover how effective they were – once you know what they did, ask what happened next. Finally, ask them what they learned from the situation. 

Next Page »

Create a free website or blog at WordPress.com.