Strategynut

September 17, 2008

The OODA Loop

Filed under: Strategy — Nicola Rowe @ 8:40 pm
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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.

September 16, 2008

The T-Shaped Manager

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

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.

September 4, 2008

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

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

Checking for strategic fit in a strategic alliance

Filed under: Strategy — Nicola Rowe @ 6:38 am
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Before you enter into a strategic alliance, you need to make sure you and your partner are a good fit for each other. You should check three kinds of fit: strategic fit, capability fit, and organizational fit. Let’s look at each of these in turn.

 

First, you want to make sure there’s a strategic fit between you and your partner. The first question to ask is whether the alliance is equally important to both of you. If it’s more significant to one party than the other, that’s a sign of a power imbalance – and potential trouble – down the road. Conduct a further check for strategic fit by comparing your strategic agendas. What does each of you hope to gain from the alliance? If you‘re seeking to learn about your partner’s technology while they want to leverage your distribution networks, your strategies will complement each other nicely. But be clear on whether you and your partner will be extracting complementary value from the alliance – a good sign – or whether you’ll be competing for value. If it’s the latter, stop and think twice before proceeding.

 

Secondly, you want to check for capability fit. Here, you need to ask what resources are needed to fulfil the objectives of the alliance. Next, and crucially, you need to check whether you or your partner can supply them. Does your promotion policy require door-to-door sales representatives? If you can’t supply them, can you be sure your partner is able to? Search specifically for the resources that are lacking. You need to nail down upfront who will supply these and how they will be paid for.

 

Thirdly, there needs to be organizational fit between you and your partner. Often overlooked as the “soft stuff”, a lack of organizational fit (sometimes called “cultural fit”) is actually the most common reason alliances fail. You’ll want to check five things. First, how decentralized is decision-making in each organization? If your managers are expected to show initiative while your partner’s employees are rewarded for following specific instructions from on high, you’ll run into trouble when your first joint project gets going. On that note, you’ll also want to look at how closely rules are documented – are they broad guidelines that leave lots of room for interpretation, or are there detailed policies and procedures? Either way, you’ll need to ensure you write the rules for your project at a level both of you are comfortable with. Finally, another important part of organisational fit is matching your reporting and controlling systems with your partner’s. You’ll need to agree on the metrics that will measure how your venture is progressing, and you won’t be able to do that unless you and your partner both have reporting systems that can spit out figures in the form they’re needed.

 

In sum, then, an alliance can enrich your business, taking your expertise, your geographic representation or your product base to the next level and beyond. Keeping a watch for strategic fit, capability fit and organisational fit when you’re designing your alliance will ensure you don’t run afoul of the most common traps. 

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