Quick takes

Citation

Gorrell, C. (2010), "Quick takes", Strategy & Leadership, Vol. 38 No. 3. https://doi.org/10.1108/sl.2010.26138cae.002

Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 38, Issue 3

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

MasterclassDesign thinking – a new mental model of value innovationBrian Leavy

Many blue-chip organizations continue to struggle with the challenge of how to raise their innovation games for the new competitive landscape, and most have long since reached the limits of trying to drive further growth through incremental refinements. CEOs are seeking strategy Innovation and management innovation to jumpstart value creation and gain competitive lead-time advantage. This is the type reflected in such recent game-changing perspectives as disruptive innovation, Blue Ocean strategy, market-busting strategy, value co-creation with customers, design-driven innovation and management innovation.

Alongside this development, and complimentary to it, is a growing recognition that “design thinking,” or the creative principles long associated with the design function, may now have something very significant to offer when applied more broadly to business management and strategy development. This is the central argument of Roger Martin’s new book, The Design of Business: Why Design Thinking is the Next Competitive Advantage.

Three key ideas

The Design of Business introduces a set of concepts that are not familiar to most managers: the knowledge funnel, the distinction between reliability and validity, and abductive reasoning. The case of founder Ray Kroc’s successful innovations that became the McDonald’s iconic fast food chain illustrates the concepts.

But “why are many companies unable to replicate Kroc’s path to success, and why do companies that have been successful in doing it once find it so difficult to repeat?” An answer: most companies limit themselves to either the process of “exploration” (a search for new knowledge), and/or “exploitation” of existing knowledge (see box, “Exploration/exploitation”). Martin offers the concept of “design thinking” as a “third form,” capable of helping a company “both hone and refine within the existing knowledge stage and generate the leap from stage to stage” on a continuous basis.

The premises of design-thinking are viewed in the practices at IDEO, P&G (renewal), Apple, and Google – where one half functions like an accounting firm and the other collaborates like a design shop,” and how they have learned how to live with it.

The design-school advocates like Martin and others, using new mental models like the “knowledge tunnel,” offer insights into how and why even the best performers of yesteryear eventually come to find themselves at a loss for leaps of value creating innovation, and how they can go about embracing the power of design-thinking to help them start a new innovation cycle.

How successful organizations strategically manage their analytic talentJeanne Harris, Elizabeth Craig and Henry Egan

Analytics – the use of quantitative and technological capabilities – are increasingly becoming a key source of competitive advantage. What distinguishes talent-powered analytical organizations isn’t just the quality of their analytical talent: it’s their ability to unleash their analysts’ talents to maximize and continually expand the company’s analytical capabilities. Here are four “best practices” to create your own talent-powered analytical organization.

#1 – Define your analytical talent needs: what types of analytical talent will you require?

• •

  There are four types of analytical people: champions, professionals, semi-professionals, and amateurs. (The authors define each role and offer a brief job description).

• •

  As you start manage analytical talent more strategically, the focus should be on the ranks of the pros and semi-pros. These scarce and highly specialized workers are critical to maintain your company’s analytical capabilities, but are the most challenging to attract, develop, engage, and retain. You will require a differentiated, strategic, enterprise-wide approach to managing these two types of analytical talent.

#2 – Discover sources of analytical talent: where do you find top analysts?

• •

  First look inside to find the analysts already there, embedded in functions and business units doing quantitative work; they may be widely dispersed across all operational areas. Second, check outside sources (grad schools) and evaluate the option of outsourcing some of the analytical work.

#3 – Develop analytical talent potential: what skills do analysts need and how do you foster them?

• •

  Analytical work requires specialized skills, and the skill requirements change rapidly as new analytical tools and techniques emerge. You must keep your analysts’ technical skills up to date. But you must also invest in developing the people skills and business savvy analysts need to succeed.

#4 – Deploy analytical talent: match analytical talent and business demands.

By building the above four talent management capabilities, organizations can maximize the strategic impact of their analytical talent and continually expand the organization’s collective analytical capabilities. That is, they can build a talent-powered analytical organization.

Drucker’s strategic thinking process: three key techniquesDale E. Zand

Peter Drucker earned the acclaim of corporate leaders for his wisdom and prophetic vision. But it was Drucker’s meta-thinking – that is, his pattern of thinking – that offers executives especially valuable insights for improving the process of strategic analysis. Built into his pattern of thinking are three techniques that he used to consider almost every problem.

Technique #1: Ask penetrating questions to generate creative optionsIn the illustrative case of General Electric, Drucker – thinking strategically – cut through the analytic quagmire and cultural morass miring GE management in the status quo. He focused on the essence of the situation by framing the issue with two questions that made immediate sense and liberated management’s thinking:

1. 1.

   What business should we not be in?

2. 2.

   Knowing what we know, would we enter this business now?

Technique #2: Reframe and simplify to enable review and adjustmentDrucker masterfully used a combination of reframing and stating the essence of an issue simply to increase management’s understanding, insight and clarity of strategic thinking. For example, Drucker’s concept – “knowledge work” reformulated the view of white-collar jobs.

Technique # 3: Consider alternative assumptions and probe implicationsTo think strategically about the firm’s future, Drucker insisted that organizations learn to cultivate dissent and manage it constructively. To facilitate this, he practiced a technique of probing that evokes differences, sometimes sharp ones.

For example, often the premise underlying day-to-day operations is: “We sell what we make.” Management’s strategic thinking often continues this premise and asks: “In the future, how do we continue selling what we make?” Although a useful question, the danger is it limits management to an inside view of the outside – that is, a managerial view that “customers exist to buy what we make.” Drucker’s strategic thinking tells us to probe and question this core premise; in this case, he proposed a simple but radically different premise: “The customer defines the business.” An IBM case study is presented as an illustration.

LessonsDrucker’s lessons in strategic thinking are a model for all who practice strategic management or advise others on how to do so. He was a master at getting to the essence of the situation through common sense techniques – revealing questions, reframing prevailing views, probing examination and rethinking current assumptions. When Drucker’s approach to solving mega problems is employed by senior managers, it can establish the foundation for all the strategic decisions that follow.

InterviewKiechel’s history of corporate strategyRobert J. Allio and Robert M. Randall

Strategy & Leadership asked publisher Walter Kiechel about his new Harvard Business Press book – The Lords of Strategy: The Secret Intellectual History of the New Corporate World. His engrossing history posits that:

• •

  The development of strategic thinking has caused a genuine revolution in the way business is done.

• •

  Strategy is now the dominant framework by which companies understand what they are doing and want to do.

The interview asked about the lessons the current generation of business leaders can take from this book’s history of the founding of corporate strategy.

Q: Key lessons? A: Let’s start with a handy half dozen:

1. 1.

   Managers need a clear fix on costs, customers, and competition, with data unclouded by what a division head or unit manager may be trying to sell them by way of next year’s budget.

2. 2.

   Continuous cost reduction – systematic, predictable, year in year out, everybody knows it’s expected of them – should be built in to how business is done.

3. 3.

   You’re probably in too many businesses; concentrate on those where you have a true competitive advantage, and winnow out the rest.

4. 4.

   Any competitive advantage won’t last long these days, so plan to innovate to sustain existing advantages or create new ones.

5. 5.

   If you launch an initiative or contemplate an acquisition, make sure it’s in keeping with your corporate DNA – a.k.a your core competencies or corporate capabilities.

6. 6.

   Focus on cash, not the numbers you’re reporting for financial statements (and track costs down to the SKU level).

Q: What were some of the lasting accomplishments of the consultants you call the Lords of Strategy? A: To instill a sense that empiricism, as in digging for all the facts, was vital to competing. Also that concept, a.k.a. recognizable patterns for interpreting the data, could help you figure out what to do.

Q: Why do corporations often fail in the implementation of the strategy suggested by consultants? A: The biggest oversight was not thinking clearly enough about how to integrate “people” – the talents, hopes, dreams, fears and ambitions of the individuals who would be charged with carrying out strategy – into its creation at the outset.

IBM 2000 to 2010: continuously transforming the corporation while delivering performanceJim Bramante, Ron Frank and Jim Dolan

The issues facing many mature companies include stiffer cost competition, commoditization of products and slower growth in their traditional markets. The current economic and business environment makes addressing these issues increasingly urgent. Agile companies, however, will likely persevere and – in the end – use this economic cycle to their advantage.

IBM’s successful transformation is presented to provide guidance on where to focus change and how to accomplish it successfully across the enterprise while delivering consistent and differentiated performance.

The transformation journey on which IBM embarked nearly a decade ago offers an operating model for adapting while delivering performance. Their model was to execute toward four strategic goals. The authors offer a detailed description on each.

1. 1.

   Capture higher value: Migrate to more attractive customer segments as well as higher-value products and service offerings.

2. 2.

   Invest for growth: Take advantage of the global footprint to benefit from global growth, as well as invest in new market offerings.

3. 3.

   Shift the operating model to drive productivity: Improve operating performance by globally integrating, while pushing decisions further down into the organization.

4. 4.

   Apply shared values and performance management: Drive change throughout the organization based on a common set of values and an aligned performance management system.

By focusing on these goals, IBM resurrected itself after the dot.com era, the decline of its mainframe business and the commoditization of the firm’s personal computer market. The steps IBM took required pursuing higher margins, globalizing their operations, and changing and reducing their cost structures. To do so, the enterprise had to brake down internal barriers to drive integration and help ensure the company and its global workforce and culture kept transforming and moving in the right direction.

IBM now has the capability to understand and balance not only what is needed to perform today, but also to meet the needs of the future.

Hotel industry caseHow to dodge the differentiation proliferation trapRichard D’Aveni

Product and service differentiation is not just a matter of value innovation, but sustainability. Across industries, the pattern is the same: one company’s successful creation of distinctiveness is followed by competitor duplication, which is followed by commoditization. As rivals produce products that overlap with each other, brands blur and competition intensifies. Consequently competitors must reduce price to hold onto market share, or lose market share to hold onto their price. When differentiation ends up as commoditization, the result is the “proliferation trap.” The risk of a company falling into the proliferation trap increases when several or all segments of the market are crowded with competitors seeking differentiation.

This situation currently grips the hotel industry. It has become a fierce battleground, with a proliferation of new brands and business models, with different approaches to segmentation of the market. A case study of the hotel chain Holiday Inn is presented to illustrate the proliferation process.

Strategies for responding to brand proliferationClearly proliferation can undermine positions as new competitive positions threaten existing ones, eroding margins. The way to counter this proliferation is to manage the threats.

As illustrated by the hotel industry example, there are three primary ways that companies manage threats:

1. 1.

   Escape the trap by selecting threats, as Choice and Starwood did in focusing on low-end and upper-end hotels, respectively.

2. 2.

   Attack the trap by overwhelming the threats, choosing to fight on many fronts, as Hilton did with brand extensions and creating a full-line portfolio.

3. 3.

   Search for new customer value to outflank rivals by opening new positions (as with the lifestyle, high-end niche and extended-stay brands) or at the extremes of the expected price line.

Reinserting the genieOnce the genie of differentiation proliferation is out of the bottle, there is often no putting back the cork. Gone are the simple days when competitive positions are as distinctive as was Holiday Inn’s great sign shining by the roadside. In launching its new boutique chain, Marriott Chairman and CEO J.W. Marriott commented, “We expect the brand to set the standard for decades to come.” This would be an unlikely outcome. Even if a new position that helps the company escape from one proliferation trap, it will not be long before some rival will follow or attempt to set its own new standard.

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