Quick takes

Citation

Gorrell, C. (2012), "Quick takes", Strategy & Leadership, Vol. 40 No. 5. https://doi.org/10.1108/sl.2012.26140eaa.003

Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 40, Issue 5

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

Reverse innovation: a global growth strategy that could pre-empt disruption at homeVijay Govindarajan and Chris Trimble

Historically, multinationals innovated in rich countries and sold these products in poor countries. Reverse innovation is doing the opposite with the potential for far reaching impact: very low price-point innovations originating in the developing world could appeal to a niche market in the richer economies and perhaps develop into a disruptive offering.

Key points

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  There are huge opportunities in the developing world.

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  Developing nations are different because of five needs gaps that innovators must explore.

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  Innovators will win; exporters will lose.

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  To fail at reverse innovation is not just to lose out on an opportunity abroad, but it can lead to an even bigger loss at home.

Why are the stakes so high?Because, although reverse innovations are adopted first in the developing world, there is the potential for reverse innovations to become attractive to the rich world through either a “marginalized market” sooner or a mainstream market later. For example, the microcredit banking model – begun in India – has spread to over one hundred countries. Today, it has even gained a foothold in a marginalized banking market in the United States – poor neighborhoods in New York City.

Another example is the car market. Developed country exporters offer stripped down versions of their cars to the poorest buyers in developing countries. This may seem like a sensible approach to executive with rich-world blinders on. But the low end of the market is a gold mine, if your vantage point is Delhi instead of Detroit. By some estimates, The $2,000 Nano by Tata Motors will make car ownership possible for 65 percent more Indians of the middle class, all of them eager for a safer alternative to motorbikes. This huge business growth opportunity was overlooked by all the rich-world automakers. But these automakers have also put themselves at risk close to home. Tata plans to scale up the Nano platform and launch it in Europe and the United States, and it now seems just a matter of time before Tata becomes a significant new competitor at the low end of the market, challenging traditional industry giants like Honda and Ford.

The global economy is richly interconnected. Reverse innovations can migrate from poor countries to rich ones over time, and then – with further development – may become attractive to more and more customers and eventually disrupt established rivals everywhere.

InterviewGary Hamel: managing while under the influence of innovationStephen Denning

In this interview, the renowned strategist Gary Hamel, whose newest book is What Matters Now: How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation, offers a new narrative to explain how management is evolving.

In a world of relentless change and ferocious competition, innovation is the foundation for economic value changes. As managers, we owe our jobs, our prosperity, our happiness, and our future to product and process innovation. Innovation isn’t a fad – it’s the only deal. In this environment, the only way a company can protect itself is through innovation.

Yet most firms are not good at innovation. Less than one company out of a hundred has made innovation part of every employee’s job or trained every employee to be an innovator. And in those companies that are innovative, such as Apple and Whirlpool, they aren’t yet sure that they have found the secret to innovation management.

What is the leadership to do?We don’t yet have a complete model of management 2.0. There is no compendium of best practices that we can just apply in an organization. Just the opposite: we will see a revolution in management over the next decade. It’s being driven by a variety of new challenges – such as intensifying competition, accelerating change and increasing demand for social accountability – that are forcing us to think very differently and risk many experiments.

Key points

1. 1.

   Increasingly we live in an experience economy where more and more of the value is being created at the intersection between the employees and the customers. We need employees’ passions to be aligned with customers’ passions, and to recognize that the creativity for innovation is born out of passion. So, leaders should strive to build an organization that deserves and merits such passion every day.

2. 2.

   You can’t really have the freedoms that are implied in capitalism without a very strong ethical foundation. To repair the current hole in the soul of business, we have to act on three levels:

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     The individual level. Everyone has to bear his or her share of the moral accountability.

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     Strategy. Businesses must accept their responsibility to apply their resources to help solve society’s problems.

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     Institutions. It’s hard to build a high-performing and socially-accountable organization if it is not founded around noble values or for a noble cause. Ideals have inspired the greatest human accomplishments.

3. 3.

   There’s still a lot of thinking required to achieve fundamental innovation of the management model. Remember how Toyota figured out how to get low cost and high quality at the same time in auto manufacturing? Company-wide management innovation will require a similar revolution as well. Begin now to put attention on values and on revolutionizing your management for innovation.

Transformative scenario planning: changing the future by exploring alternativesAdam Kahane

Sometimes people find themselves in situations that are unacceptable or unstable or unsustainable. In such situations, they need an approach not simply for anticipating and adapting to but also for influencing or transforming the future.

Transformative scenario planning

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  It is a way for people with conflicting agendas to work together cooperatively and creatively to change the future.

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  It is a creative process in that “what can and must be done” can only be discovered on the way.

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  It centers on constructing scenarios of possible futures for a situation to not only to understand the future but – unlike adaptive scenario planning – also to influence it.

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  And it involves planning, not in the sense of writing down and following a plan, but of engaging in a disciplined process of thinking ahead together and then altering actions accordingly.

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  Transformative scenario planning is NOT a way for actors to adapt to a situation, nor to force its transformation, nor to implement an already-formulated proposal, nor to negotiate between several already-formulated proposals. It is a way for actors to work cooperatively and creatively to get unstuck and to move forward.

How it worksIn a transformative scenario planning process, actors transform their problematic situation through transforming themselves, in four ways:

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  First, they transform their understandings of their situation and their own roles in their situation. In a polarized or confused or stuck context, such new, clear, shared understandings enable forward movement.

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  Second, the actors transform their relationships: their empathy for and trust in other actors in the team and across the system, and their ability and willingness to work together.

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  Third, the actors transform their intentions.

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  Fourth, the actors’ alteration of their understandings, relationships, and intentions enable them to transform their actions and thereby to transform their situation.

The five steps are described. These include creating a whole-system team, following a rigorous process to construct a set of relevant, challenging, plausible, and clear stories about what could happen – not about what will happen (a forecast) or about what should happen (a wish or proposal) – and then acting on what has been learned from this construction.

Bottom-line: Transformative scenario planning has proven to provide a reliable methodology for confronting some of most important and difficult challenges of our time.

Strategic dashboards: designing and deploying them to improve implementationMichael K. Allio

In recent years, more corporations and non-profits are using a “dashboard” to track key performance indicators for improved business and corporate strategy implementation, often with unsatisfying results. But to achieve the true potential of dashboards, corporate leaders need to champion a process that changes how they are designed, positioned and deployed across the organization.

GuidelinesHere are six guidelines to improve dashboard performance. A quick checklist to consider is presented in Exhibit 4.

1 Clarify the actual strategy the dashboard monitorsSurprisingly, many dashboards suffer not from poor indicators, but from poor linkage with actual strategy.

2 Include management teams in the design of balanced, multidimensional metrics and targets to boost accountabilityMany dashboard initiatives are thwarted by managers who resist them because the performance indicators were dictated to them, without an opportunity for input or dialogue.

3 Use simple metrics and insist that less is moreThe goal of making dashboards simple does not mean choosing simplistic indicators. A set of indicators should address critical links across the value chain.

4 Maximize the context for both the metrics and the dashboard overallBetter-designed dashboard indicator – as illustrated in Exhibit 2 – injects both judgment and some sharp observations about the causes and implications of the performance data. And while content is king, the dashboard medium is also critical: an uncluttered, immediately accessible dashboard design promotes understanding and dialogue, both key to better decision making. Does the dashboard anticipate the “So what?” and “Now what?” questions?

5 Commit to building a performance management and measurement cultureNo tool or process can add value if the organization has not created a culture that reinforces their utility. Is the dashboard being used merely as a reporting tool, or rather to further strategic insight beyond “How did we do?” to “Why?” and “What’s next?”

6 Make the dashboard practical and expect it to change, evolve and matureGood dashboards, like good managers, stay attuned to environmental changes.

Bottom-line: Careful attention to dashboard content, form, process and politics will pay mighty dividends to those leaders intent on using them to strategically manage performance.

A model for strategy implementation and conflict resolution in the franchise businessPaul J. Davis

Franchising is the partnering of an innovator offering a successful business model with entrepreneurs who are willing to execute the model in various locations. The success of this partnering is tied to how well they bridge the fact that there are inherently different aspirations and objectives held by franchisor and the franchisees. This is most evident when business strategy (design and execution) are center stage.

Core challenges for the partnership to addressFranchisees are in the uniquely unenviable position of being business owners who largely do not get to decide what their business strategy will be. Perhaps more frustrating, having been told what the strategy will be, the franchisees must often work out themselves how to implement it practically in their businesses. In most sizeable franchised businesses, strategy formulation for the company is the domain of the corporate head office, sometimes being dictated by decision makers have never owned and operated a small business.

Best practicesBut franchise strategy does not have to be constructed this way. Taking a more organic and inclusive approach to strategy formulation, implementation and execution would serve all interests in franchise organizations well:

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  The best approach to strategy formulation and implementation is one where the franchisor does not try to control or dictate to the franchisee but works cooperatively with them.

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  Cooperative approaches to strategy lead to a more trusting, productive and longer-lasting relationship between the franchisor and franchisee.

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  Cooperative approaches to strategy formulation can cut costs and increase profits.

The seven Cs of strategy reconciliationThe 7 Cs approach to strategy development in franchise companies provides a way to reconcile the franchisor’s strategic objectives and the local, on-site operational considerations of franchisees who realize strategy on a daily basis:

1. 1.

   Communication – encouraging dialogue, through multiple channels.

2. 2.

   Cooperation – engaging franchisees to contribute to strategy formulations.

3. 3.

   Consultation – always before decisions are made.

4. 4.

   Collaboration – four ways franchisors and franchisees can partner on strategy.

5. 5.

   Coordination – building flexibility into major campaigns.

6. 6.

   Concession – keeping promises and sharing helpful information.

7. 7.

   Competence – training and ongoing professional development.

Dynamic models for managing big decisionsHanjo Arms, Mathias Wiecher, David Uhlenbrock, Sebastian Reinartz, Christian Loy

A new approach to analyzing critical resource investment plans is called the Dynamic Decision Making (DDM) process. It is designed to add value and cut risk for capital projects, and has proven exceptionally useful with clients making large “bet the company” strategic moves. A case study is used to illustrate DDM.

Five benefits of the DDM approach

1. 1.

   Formal, but narrowly focused, future modeling. The goal is to model the “big decision” and its downstream consequences over time, given a changing and perhaps discontinuous environment.

2. 2.

   Improve the understanding and evaluation of risk. Too often managers ignore unexpected risks by mapping decision outcomes with a simplistic set of scenarios – good, bad and most likely. Probalistic modeling uses multiple runs of a model to understand how the risk profiles of the different variability interact and affect the overall outcome.

3. 3.

   Design a dynamic strategy. A key concept in decision management is the idea of understanding a strategy or a capital investment decision as a series of choices. These changes in “state” over time lay out a series of potentially dependent and independents decisions rather than a plan that offers one unalterable path no matter how the world changes. Each step in the DDM decision-making process reveals contingencies and opportunities to react to a competitor, a policy, or an environmental change – and to modify the initial plan as a result. This “Flex Value” can be calculated for each scenario when using the DDM approach.

4. 4.

   Calculate “Total Value” of dynamic strategies and according probability distribution. The Total Value derived from DDM is driven by three main components: Net Present Value; Risk Value (a strategy’s potential range of value resulting from a probabilistic analysis); and Flex Value (the value created by having options to adapt in an uncertain business environment.)

5. 5.

   Formalize the decision making process. By having the rules in place, companies are able to make decisions much faster and to rapidly react to risks or evolving opportunities or problems, even if the projected chain of events shifts in an unanticipated or more extreme way. Managers who have thought about managing in a variety of futures and who have been empowered to think flexibility about more adaptive and flexible strategies are likely to adjust to “black swan events” more quickly and more successfully.

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