At ASP, Raynor on managing uncertainty, plus some highlights of lessons from practice

Citation

Abraham, S. (2007), "At ASP, Raynor on managing uncertainty, plus some highlights of lessons from practice", Strategy & Leadership, Vol. 35 No. 5. https://doi.org/10.1108/sl.2007.26135eac.001

At ASP, Raynor on managing uncertainty, plus some highlights of lessons from practice

At ASP, Raynor on managing uncertainty, plus some highlights of lessons from practice

At the Sixth Annual Conference of the Association of Strategic Planning at Long Beach, California the subject was Strategic Planning: Lessons from Practice. Some 40 presentations addressed the topic in concurrent sessions divided into six themes:

• •

  What is strategic planning – practical perspectives.

• •

  Leveraging the competitive landscape.

• •

  Executing strategy.

• •

  Strategy in action – case studies.

• •

  Harnessing people power.

• •

  Empowering strategic planning – tools, talent, technologies.

Here are some highlights. For more on the presentations go to the ASP website: www.strategyplus.org

The new strategic imperative – manage uncertainty

The conference keynoter was Michael E. Raynor, author of The Strategy Paradox: Why Committing to Success Leads to Failure (Currency Doubleday, 2007) and Distinguished Fellow with Deloitte Research (Deloitte Consulting LLP). He told his audience of “traditional” strategic planners and consultants that a number of the tools they had been taught years ago and that are now in widespread use were really passé and could even be counterproductive. Raynor mentioned three concepts specifically: Jim Collins’ notion of vision based on a BHAG (big, hairy, audacious goal)[1], Michael Porter’s finding that a commitment to competitive strategy is the single most important ingredient of any plan[2], and C.K. Prahalad’s and Gary Hamel’s revelation of the power of a core competence[3]. Raynor identified the key weakness of these tools with three questions: “Vision of what? Commitment to what? And what core competence?” These are, in fact, powerful management tools if one can predict a future discontinuity with some certainty, but no one can. The commitment it takes in financial resources and organizational adaptation to follow a vision, implement a strategy, or develop a core competence is so significant and time consuming that, when the world inevitably changes, the typical organization cannot adapt. The very strategies that at one time were responsible for a company’s success will then seed its destruction. That is Raynor’s strategy paradox[4]. The solution, according to Raynor, is not to focus on the strategy, but to manage uncertainty so that, whichever way the world changes, you can adapt, survive, and prosper.

Raynor illustrated what happens when a company focused on its well-constructed strategy and failed to heed external changes and manage uncertainty, with the ill-fated story of the failure of the Betamax. In 1977, Sony had a choice of competing or collaborating with Matsushita, which produced the VHS recorder. Sony had a 60 percent share of the market and its Betamax was the best product for recording a TV show and replaying it at a later time (“TV shift”). Then Fox Studios put 50 of its films on both Beta and VHS for people to watch at home. Watching a movie at home required a simple cheap playback device, not the complexity of a TV-shift device that could also record. But Sony didn’t adapt. By 1985, VHS had become the new standard and Betamax had less than a 10 percent market share, which continued to decline. In 1988, Sony pulled the plug on Betamax, a good product with an initially sound marketing plan, but with no strategy for rapid adaptation to market shifts.

As one of the best examples of a strategic adaptor, Microsoft creates a portfolio of products and businesses that cover the possibilities of how the computing and media markets will develop[5]. The very act of their creation implies an understanding of the key strategic uncertainties that the company faces. Neither their leadership nor any outside experts know what the “next big thing” will be. So Microsoft creates a myriad strategic options, which it can then exercise (develop and quickly to try to become the leader) or abandon as appropriate. Call it hedging one’s bets if you will, but Raynor calls it managing uncertainty.

Raynor’s research produced another surprising result. Looking back on how successful firms implemented Michael Porter’s concept of generic strategies – low-cost leadership, differentiation, and focus–Raynor found that both low-cost leadership and differentiation strategies, because of the commitment required to gain the above-average industry profits they promise, are in fact “high-risk” strategies (see Exhibit 1). And companies derided in the past for being “stuck in the middle” – being neither low-cost nor differentiated – in fact survive with lower risk. (He used examples of Wal-Mart for low-cost leadership, Nordstrom for differentiation, and Sears for “stuck in the middle.”)

Exhibit 1 Relative risk of generic strategies

How, then, is this uncertainty managed, and who should do it? Here, Raynor leaned on the pioneering work done by Elliott Jacques, developer of the “requisite organization” concept. Jacques investigated why people’s pay at different organizational levels differed, and what was considered “fair pay.” His research showed that people who had to make decisions based on a longer time horizon were appropriately perceived as deserving higher pay. Thus, for this reason alone, people at higher levels in an organization were paid more than people at lower levels. Raynor piggybacked on this research and developed a model of “requisite uncertainty.” Exhibit 2 summarizes the key levels in an organization and the time horizon over which they tend to make decisions. Raynor is not concerned with compensation. Instead, the exhibit shows that the decisions made with long time horizons (about 20 years) in mind address the most profound questions and involve strategic uncertainty. And the Board of Directors should be responsible for making them. The next level, corporate management (five- to ten-year horizon), explores new markets, technologies, and business models; their job is not to decide how to succeed, but rather that the company be positioned to succeed regardless of what the future holds. They do not choose a competitive strategy – that is the purview of SBU or operating-division management (two- to five-year horizon), which should be in charge of formulating strategies and planning how they should be implemented. Finally, line and functional managers (with a time horizon restricted in range to less than one year) focus on implementation of strategies already decided on. Notice that from top to bottom of the exhibit, the management imperative shifts from “uncertainty” to “commitment.” A company must not only implement strategies already in play but, by managing uncertainty, always keep itself in position to change to another strategy should changing circumstances warrant.

Exhibit 2 Raynor’s model of requisite uncertainty

Selected concurrent presentations

What is strategic planning? Practical perspectives. Most presentations on this theme dealt with improving aspects of strategic planning, from assessing the process and managing the tension between strategies and tactics to avoiding strategic-planning failure. Helen Mitchell, President, Strategic Management Resources, focused on having the kind of planning process that produced results and revitalized the culture of the company[6]. She used a case study of a small company to show how asking and answering the right questions helped turn it around, and ended with her list of the top seven strategic-planning mistakes.

Leveraging the competitive landscape. The presentations dealt with taking a longer-term view and with competitive intelligence. Eric Garland, President, Competitive Futures, Inc. posited that taking the long view would improve strategic planning, primarily by challenging assumptions, engaging in systems thinking, and using a quiver of tools such as evaluating forecasts, building scenarios, and talking about the future to skeptical colleagues[7]. Tony Ulwick, founder and CEO, Strategyn, believes that while getting customers to provide innovative ideas is a good thing, the input often has the opposite effect. When companies gather customer input, neither they nor their customers know what types of input need to be collected. Using Ulwick’s “outcome-driven method,” customers are asked about key metrics with which they are familiar when they use a product. Gathering data on these outcomes spurs innovation for the company and maximizes the information that customers give the company. Analyzing the feedback allows the company not only to discover real opportunities, but also to prioritize them[8].

Executing strategy. These presentations focused on aligning and executing strategy, and doing it quickly. How does one do and execute strategic planning while going from startup to hundreds of millions of dollars in sales and over 500 employees in 15 international markets in only three years? Justin Banner, VP Corporate Strategy, XanGo, described how his company got everyone simultaneously involved in strategic planning and execution while in the midst of that explosive growth[9]. Bill Barberg, President, Insightformation, Inc. described software called Strategy-Aligned Management that he has created to enhance use of the balanced scorecard (BSC) to streamline and improve organizational alignment and strategy execution[10]. Mike Kanazawa and Todd Keleher, CEO and Partner, respectively, Dissero Partners, offered an approach to achieving breakthrough results that includes a bias for speed and action to drive strategy, generating employee buy-in without their feeling they have sold out, and focusing on both goal achievement and leadership development[11].

Strategy in action – case studies. The presentations in this section described a variety of case studies and the role that strategic planning and execution played in their success. James Ayers, Principal, CGR Management Consultants, described the turnaround of Bombardier Transportation Services’ business in Europe. The process resulted in $40 million in new service revenue, a sharpened focus on the most profitable aftermarket segment, and higher employee morale and more attractive career paths[12]. Feyzi Fatehi, CEO, Corent Technology, Inc. and Michael Oliver, Chief Technology Officer, Alarius Systems, LLC, offered a fresh and practical framework for the creation and adoption of a new business model (for Corent Technologies). They also provided a provocative perspective on how a disruptive innovation in Enterprise Software Applications will move the software industry from “on-demand software” to “on-demand software, On Demand”[13]. Gaye Clemson, Senior Manager, Strategic Planning, Technical Services Global Business Operations Group, Cisco Systems, described the lessons learned by Cisco Systems’ highly matrixed Technical Services organization as it transitioned from a cost center to a profit center, how it developed its own strategic-planning process, and how it aligned its operational plans with broader organizational goals and strategies[14].

Harnessing people power. These presentations considered leadership, culture, values, and collaboration. Liz Wiseman, President, Mindshare Learning Systems, described her process of Fusion Learning for training leaders by immersing them in solving high-stakes strategic issues under the direction of a senior executive. She recounted how Oracle Corporation used Fusion Learning to develop a strategy for its $300 million education business and develop its leadership team in the process[15]. Ken Majer, CEO, MajerStrategies, Inc. believes that effective strategic planning cannot be done without first establishing core values (“who we are”) and the appropriate culture (“how we do things around here”). His process – values-driven strategic planning – addresses these two imperatives first before going on to “where are we going” and “how will we get there”[16]. Peter Flentov, Founder, 20/20 Innovation LLC, laid out five maturity levels that characterize the innovative capability of an organization (his “Innovation Maturity Model”):

1. 1.

   Ad-hoc: innovate by being at the right place at the right time.

2. 2.

   Repeatable: by throwing enough resources at innovation, a company probably will be able to innovate more than once.

3. 3.

   Defined: a company has a defined process for innovation; an environment for innovation promotes experimenting and lessons learned.

4. 4.

   Managed: focus on innovating in order to own specific spaces in the market. Methods to control and maximize innovation outcomes are used.

5. 5.

   Dispersed: disperse responsibility for innovation throughout the organization; involve everyone. Organizations manage innovation value chains that extend the innovation capability beyond the organization itself.

His experience shows that 70 percent of all organizations are at maturity levels 1 and 2, although they need to be at maturity levels 4 and 5 to succeed in the future[17]. Adrian Ott, President and Founder, Exponential Edge, Inc., made a strong case for forming collaborative relationships to spur innovation. Corporations treat most business relationships as separate operations: vendors (“buy from”), customers (“sell to”), partners (“sell through”), and alliances (primarily “sell with”). Corporations that break out of this process paradigm and approach corporate relationships holistically have realized new revenue streams and reached new customer segments[18].

Empowering strategic planning – tools, talent, technologies. Michael Phillips, Strategy Consultant, Open Options Corporation, focused on the use of game theory in strategic planning. This would be beneficial to use if the problem involves more than one group or company, if different people in the company have different views on what should be done, if the problem is driven by choices made by key players rather than uncontrollable external events, if you are trying to decide what to do to get to a desired end state, or if you fear that events might be driven by others if you don’t act[19]. Andy Pattantyus, President, Strategic Modularity, Inc. presented a format for jump-starting a strategic-planning process in one day. The process must be very tightly planned, structured, and facilitated, must sustain high interest for the entire day, will improve morale and enthusiasm, and get everyone on the same page for completing the planning process and making the strategic decisions in the ensuing weeks. The process is particularly useful for companies doing this for the first time or whose previous efforts have been operational and not strategic[20].

Notes

1. 1.

   Jim Collins, Good to Great: Why Some Companies Make the Leap … and Others Don’t, Collins, 2001.

2. 2.

   Michael E. Porter, Competitive Strategy, Free Press, 1982.

3. 3.

   C.K. Prahalad and Gary Hamel, Competing for the Future, Free Press, 1996.

4. 4.

   See also a recent review of Raynor’s book by Brian Leavy, “Managing the risks that go with high-impact strategies in uncertain markets,” Strategy & Leadership, Vol. 35 No. 4, 2007.

5. 5.

   In the annual COMDEX show as far back as 1988, Microsoft was developing four new products simultaneously (Raynor).

6. 6.

   Helen M. Mitchell, Strategic Management Resources, “Avoiding Strategic Planning Failure.”

7. 7.

   Eric Garland, Competitive Futures, Inc., “Now, Take the Long View: Incorporating Studies of the Future into Your Strategic Planning.”

8. 8.

   Tony Ulwick, Strategyn, “Beating the Competition through Predictable Innovation.” See also Anthony Ulwick, What Customers Want, McGraw-Hill, 2005.

9. 9.

   Justin Banner, XanGo, “Strategic Execution Amidst Hyper-Growth.”

10. 10.

    Bill Barberg, Insightformation, Inc., “Strategy-Aligned Management: Keys to Strategy Execution.”

11. 11.

    Mike Kanazawa, and Todd Keleher, Dissero Partners, “Breakthrough Results – Delivering on Strategy Execution.”

12. 12.

    James B. Ayers, CGR Management Consultants, “Strategy for Creating a High-profit Aftermarket Service Business.”

13. 13.

    Feyzi Fatehi, Corent Technology, Inc. and Michael Oliver, Chief Technology Officer, Alarius Systems, LLC, “On-demand Software ‘On Demand’ – the End of ‘Software Development’ As You Know It.”

14. 14.

    Gaye I. Clemson, Strategic Planning, Technical Services Global Business Operations Group, Cisco Systems, “Lessons Learned in Driving Effective Cross-Organizational Operational Planning.”

15. 15.

    Liz Wiseman, Mindshare Learning Systems, “Developing Your Leadership Capabilities to Execute Your Strategic Plan.”

16. 16.

    Kenneth Majer, MajerStrategies, Inc., “Values-driven Strategic Planning.”

17. 17.

    Peter Flentov, 20/20 Innovation, LLC, “Measuring Your Ability to Innovate.”

18. 18.

    Adrian Ott, Exponential Edge, Inc., “Strategies for Co-Innovation: Breaking Corporate Relationship Comfort Zones.”

19. 19.

    Michael Phillips, Open Options Corporation, “Game Theory Applied to Long-Term Strategic Planning – New Product Development.”

20. 20.

    Imre Andrew Pattantyus, Strategic Modularity, Inc., “A Strategic Plan in One Day.”

Stan AbrahamProfessor of strategy and entrepreneurship at Cal Poly Pomona and a Contributing Editor for Strategy & Leadership. He has reported on every Association of Strategic Planning annual conference since 2001 for S&L and this year was the recipient of ASP’s 2007 Distinguished Service Award. (scabraham@csupomona.edu)