Quick takes

Citation

Gorrell, C. (2007), "Quick takes", Strategy & Leadership, Vol. 35 No. 1. https://doi.org/10.1108/sl.2007.26135aae.002

Quick takes

Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (mcgorrell@sbcglobal.net) and a contributing editor of Strategy & Leadership.

These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.

Connecting strategy and intelligence: Refocusing intelligence to produce critical strategy inputsLiam Fahey

How would you rate your company’s ability to link marketplace intelligence to the crafting of potent business strategies? At the heart of the strategy-intelligence linkage is the need for senior executives to guide and drive their dialogue with their firm’s intelligence professionals by posing specific issues and questions to be addressed by the intelligence team. It also requires that intelligence professionals create intelligence outputs that become significant strategy inputs. The criterion for measuring “significance” should be: do executives and managers throughout the organization find the intelligence inputs relevant to strategy development and execution?

Key Components

There are several key components to develop a competitive intelligence function with a strategic focus.

1. 1.

   Executives need to have intelligence framed in a way to allow them to answer the three core strategy-relevant questions:

2. 2.
   • •

     Whether (and how) our current strategy should be changed?

   • •

     How can our strategy be better executed?

   • •

     What should our future strategy be?

3. 3.

   To provide input for answers, intelligence professionals need to:

4. 4.
   • •

     Know and understand the firm’s current strategy.

   • •

     Be familiar with future strategy possibilities.

   • •

     Be comfortable in the language and conversations associated with strategy.

   • •

     Perform strategy analysis and intelligence work as if they were one and the same thing.

5. 5.

   Intelligence needs to link to strategic questions.

There are five strategy inputs for the intelligence team’s focus: marketplace opportunities, competitor threats, competitive risks, key vulnerabilities and core assumptions. Each type of intelligence input requires considerable judgment and value-adding on the part of intelligence professionals. Each input enables all members of the management team to engage in more informed dialogue around the three strategy questions listed above. It transforms the “what…so” of the five inputs into the “so…what” of their meaning for strategy.

Generating intelligence of value to strategy makers

The intelligence function needs to emphasize strategy inputs, alert management as early as possible to the presence and relevance of each input, and, perhaps most importantly of all, engage with members of the management team around the data and reasoning associated with each strategy input. A commitment to following these prescriptions will cause a significant shift in the intelligence modus operandi in most companies that will pay off in generating real strategy value.

Intelligence teamsLiam Fahey and Jan Herring

Every business confronts some set of crucial business issues and strategic decisions – a unique combination of specific competitive changes that needs to be explored and specific choices that must be made. Each business issue or strategic decision must be supported by vital, forward-looking intelligence. Managing the intelligence challenge is thus central to informed strategy making.

To answer how to manage the intelligence challenges, many companies have created intelligence teams (IT). Presented in the supporting exhibits are specific criteria for creating an IT, a framework for team analytics, and IT applications.

What is an intelligence team?

An intelligence team is a group of individuals who work together to develop a deep understanding of a specific business issue with the intent of developing strategy-relevant insights, action possibilities, and recommendations.

Intelligence teams help ensure that intelligence about external realities is not only insightful but relevant and useful to strategy making. They enable learning that takes individuals out of the comfort zone of their specific positions and functional units. Increasingly, they are viewed as ideal platforms for individuals up and down the organization to develop analysis skills and substantive expertise that will be helpful to them as they rise in the organizational hierarchy.

How does an IT operate?

Some key points to note are:

• •

  Intelligence teams almost always consist of both core and transient members.

• •

  Intelligence teams are not required for all facets of a firm’s intelligence work. Firms will create intelligence teams to address the “big” intelligence challenges.

• •

  Breadth of data inputs, diversity of perspectives and range of analytical skills are three of the criteria used to design the team.

• •

  Establishing the team’s context will amplify their success, shape the strategy stakes, clearly express the intelligence challenge, and create the platform to work with the decision makers.

• •

  Communicating is best if guidelines are set for collecting and transforming data into fast, insightful outputs.

How does an IT contribute to strategy making?

• •

  Teams reach insights faster when they establish the following operating norm as a core feature of analysis process: draw inferences early in data gathering and test them with fellow team members.

• •

  Central to the rationale and process of intelligence teams is the ability to generate and integrate alternative frames of reference or “views” into the analysis process. Alternative perspectives serve as the antidote to group think, the scourge of analysis in all organizations.

How strategic innovation really gets startedRobert Chapman Wood

There are two schools of thought about how a company can repeatedly achieve successful strategic innovations. The first is conventional wisdom: it holds that senior management needs to have a vision and a clear plan for a specific innovation goal and then guide the program to make it a reality. The second purports that the process of starting strategic innovation is a messy business that is more likely to succeed if it is not preplanned in detail. As the innovation program evolves, management’s chief function is to promote continual adaptation—both of goals and processes–and extensive learning.

A study of Monsanto, GE Capital and NIPSCO (all successful innovating organizations) and three large firms that repeatedly failed, supports the latter approach as better: instead of trying to plan exactly how innovation should develop, start with a big, general goal, improvise some steps toward it, and maximize the learning from what’s been improvised. This process permits the emergence of new routines and methods that are crucial to repeated, strategic innovation.

Improvisation

Leaders need to understand the difference between improvisational change and planned change. Improvisation means figuring out how to do something as you do it. It is the opposite of planning and then doing. If a team meets and decides who will do each task in a project and the members then go off and perform those tasks, that is a planned project. If members arrive at work one morning, learn of a crisis – such as a rival’s new product introduction, or a technology innovation – and work together on a coherent plan, that’s improvisation.

Letting people explore a big, vague goal at the beginning of the effort to innovate can open the door to good ideas that might otherwise be killed and also prevent an organization from marching in lock step to develop innovations that will not succeed.

Five leadership steps that support repeated success

Offered in an exhibit is the five-step process of starting continual strategic innovation, viewed from the point of view of both schools of thought.

Two best practices

1. 1.

   Recognize that efforts to achieve strategic innovation are likely to succeed only when the organization perceives it is in a crisis. Without a general awareness that a crisis exists, each effort to produce a distinctive new offering may create useful learning, but it is not likely to be “The Big Leap” that produces the new techniques required for continuous, successful strategic innovation.

2. 2.

   When the crisis is apparent, effective strategic innovation is most likely to emerge when leaders create a big goal and rally their organization to start improvising their way toward it.

Finally, a strategic way to cut unnecessary SKUsBob Byrne

The SKU proliferation problem began with the goal of getting close to the consumer (target marketing to their every need) and is now resulting in retail shelves filled with a plethora of choices. The choices seldom result in more sales and tend to reduce customer satisfaction by making shopping more stressful. And of course, all the SKUs clog distribution channels and cost companies more in marketing, inventory, and management dollars.

Most companies respond by using Pareto charts to zap the “tail” of low-volume SKUs. This is necessary, but it is not strategic. No real savings is achieved; no significant changes are achieved. Factories remain open, production lines continue to sputter along, changeovers go on disrupting, and physical distribution is still a maze. When managers see the problem in terms of SKUs that account for just 2 to 5 percent of sales volume, their opportunity to create transformational change is limited, if not impossible.

What to do?

Reverse your thinking. Decide which SKUs are necessary rather than which are not. Then, using research on consumer preferences and switching behavior, design an optimal product portfolio based on what the consumer really wants, not one built around what you can most efficiently make. A.T. Kearney calls this a “ConsumerFirst” approach. Identify and eliminate redundant mid-size SKUs – those that neither meet a true consumer nor trade need. If different retail channels need additional unique SKUs, add them back in to the portfolio, but do so sparingly. The result will be fewer, but bigger, mid-range SKUs. This will enhance your brand image, and there will be more room for growth because there is less shelf clutter, fewer out-of-stocks and more time to focus on true innovation.

In a ConsumerFirst approach, the goal is to identify SKUs that are genuinely valuable and eliminate the rest. The challenge is in gauging which SKUs customers value most. Manufacturers already have this information; they used it to develop and launch these SKUs in the first place. By modeling consumer switching behavior, identify SKUs that have the minimum impact on consumers’ probability to buy a competing product.

And to further reduce the risk of customers migrating to competitor products, institute a “failed-product elimination process” which is the exact opposite of what happens most often now. There must be consumer incentives for switching to remaining SKUs. The trade must be sold on new shelf sets. Put as much effort and discipline into eliminating SKUs as you put into launching them.

Be bold, and strategic. You will create what marketing managers need to be more successful – room to grow, room on the shelf for more power SKUs, room in your marketing budget to generate more demand.

Case studyReaping value from intellectual property:DuPont’s strategic approach achieves global growthJohn Sterling and Charles Murray

All companies with significant R&D budgets and intellectual property portfolios can reap greater value from a strategic approach to intellectual property (IP) management. The way to begin is by applying the best practices of industry leaders like DuPont.

The DuPont case underscores three critical success factors: a winning IP strategy is centrally defined and facilitated, locally supported and executed.

1. 1.

   Driving value from intellectual assets requires a decisive, corporate level strategy; it is not likely to happen fortuitously, nor merely from ad hoc initiatives at the business unit level.

2. 2.

   It requires that a company ensures that its SBUs have the needed capabilities and resources and are held accountable for capturing the royalty revenues created from licensing. An “Intellectual Assets and Licensing” unit in a large, diversified, global company would:

3. 3.
   • •

     source product (process technologies, patent licenses) in collaboration with operational business units;

   • •

     structure deals (negotiations, legal terms, and market research) on behalf of the technology owners within the company or business unit;

   • •

     assist in the execution of the resulting licensing arrangements (project implementation, technical services, royalty collection).

4. 4.

   The organizational “owners” or custodians of the intellectual assets, whether at the SBU or central R&D level, need to be explicitly motivated to monetize those assets or the strategy will fall short in implementation. This is especially true in organizations where intellectual assets are controlled primarily at the operating business level and will have difficulty competing with other activities for a share of managerial attention.

DuPont’s best practices show the three activities critical to implementation:

1. 1.

   Active outbound marketing and inbound screening to ensure a continuing pipeline of licensing opportunities. Essentially, a company has to create a global “catchment network” that encourages third parties to bring opportunities and ideas to it.

2. 2.

   Vetting licensing candidates to ensure their capabilities and objectives align well with the relative maturity of the technology to be licensed. Best practice is to take a flexible approach to deals, based both on the developmental stage of the technology and on the needs and capabilities of the licensee.

3. 3.

   Structuring licensing arrangements to be “win-win” deal.

Preparing for China’s next great leapOrit Gadiesh, Paul di Paola, Luca Caruso and Oi Chung Leung

At a stunning pace, China is absorbing foreign direct investment, creating a large middle class, and learning to adapt Western technologies in a modern “great leap” toward economic prominence. China sees itself as an incubator for top companies rather than simply as a low-cost manufacturing base.

How far and how fast will Chinese companies leap? Looking back at how Japanese and Korean companies became global leaders, a trajectory emerges with three distinct phases: “build,” “borrow,” and “buy.” Japanese and Korean companies built local manufacturing, often in order to provide low-cost sourcing to multinational companies (MNCs). They borrowed capabilities through technology licensing and joint ventures to improve quality and processes and begin exporting. Finally they bought assets and brands abroad to secure their global positions.

Chinese companies are traveling the same path – but are on track to equal their neighbors’ trajectories in 10 to 15 years compared with the average 25 years it took Japanese and Korean firms to become global leaders. How? Chinese manufacturers are folding “borrow” into “build” and even “buy.”

Comparisons

The microeconomics of China’s progress are illustrated by comparing the histories of two sets of Japanese, Korean and Chinese companies. In all cases, companies move through phases of building, borrowing and buying assets - but with China’s leading corporations, it’s happening all at once.

Needed responses of MNCs

Whether China’s ascendancy comes sooner or later, MNCs need to prepare now. How can today’s global leaders meet the challenge?

• •

  Exploit China’s current weaknesses. Beyond undercapitalized banks and a moribund stock market, Chinese companies struggle with “soft” issues, like understanding customers, building brands, innovating, and developing human resources and organizations.

• •

  Act with the same determination as the Chinese.

• •

  Relearn vital engineering and sourcing skills in order to compete on cost, and the strengthening of customer franchises.

• •

  Develop Chinese toehold operations into self-standing and profitable units.

• •

  Protect the value segments in your core markets.

• •

  Treat human resource management as a strategic global function.

• •

  Accelerate and globalize R&D.

• •

  Ensure that each business is delivering what it promises to core customers. In an increasingly “flat world” of commerce, knowing and serving core customers can create the most effective barrier to low-cost competition.

Where will China’s next economic leap take its companies? Onto foreign shores. The question is will Chinese firms land on their feet when they arrive or will they stumble? The answer to that depends largely on what MNCs do now.