What is the Kernel of Strategy? (Part IV – Coherent Action)

This post is related to and completes the conversation started in the following posts:

Why not stop at Guiding Policy?

“Without action, the world would still be an idea.”  General Georges F. Doriot

Richard Rumelt (Good Strategy Bad Strategy) rightly points out that many equate strategy with guiding policy.  And thus the work of strategy and the strategist stops there.  He says that this is a mistake.  Why?  Because strategy is about action not ideas/concepts/theories.  Only action has an impact on the situation at hand: influences, shapes, alters that which is.  Here is what Rumelt says:

“Strategy is about action, about doing something.  The kernel of strategy must contain action.  It does not need to point to all the actions that will be taken as events unfold, but there must be enough clarity about action to bring the concepts down to earth. “

Whilst Rumelt does not mention this, I can see another advantage of moving beyond guiding policy and grappling with action.  Grappling with action allows me to grapple with feasibility and thus answer the question “Is this a bridge too far?” And thus I find that I am that much more likely to come up with a strategy that occurs as ‘doable’ as opposed to one that shows up us ‘pie in the sky’ for the people who have to enact the strategy.  A strategy that is not enacted is worthless.  A strategy that is badly enacted is not just worthless it is costly in terms of time, effort, money and depletes faith in management and strategy.

Coherent Action: action that delivers punch

Will any kind of action do?  No, serious thought is required.  Why?  Because the whole can be so much more powerful, pack more punch, than the sum of the parts.  Here is what Rumelt says:

“The actions within the kernel of strategy should be coherent.  That is the resource deployments, policies and maneuvers that are undertaken should be consistent and coordinated.  The coordination of action provides the basic source of leverage or advantage available in strategy……… The idea that coordination, by itself, can be a source of advantage is a very deep principle.

Just in case this is not clear Rumelt spells it out more bluntly:

“To have punch, actions should coordinate and build upon one another, focusing organisational energy..”

When Rumelt speaks coordination what is he referring to?  He is not talking about the commonly accepted way of thinking about coördination:  “continuing mutual adjustments among agents”.  So what is he talking about, pointing at?

“Strategic coordination, or coherence, is not ad hoc mutual adjustment.  It is coherence imposed on a system by policy and design.  More specifically, design is the engineering fit among parts, specifying how actions and resources will be combined.”

Why is coherence so powerful

Whilst this sounds easy, I can say from experience that this is one of the hardest feats to accomplish.  Whilst the talk suggest that we dealing with one/unity (one team, one organisation, one society..) the reality is that we are permeated by decentralisation/fragmentation/silos.  What does Rumelt have to say on this?

“Strategy is visible as coordinated action imposed on a system.  When I say strategy is “imposed”, I mean just that.  It is an exercise in centralised power, used to overcome the natural workings of a system.  This coordination is unnatural in the sense that it would not occur without the hand of strategy.”

Hold on, is Rumelt questioning the free market and decentralisation?  Here is what he says on the matter:

“…decentralised decision making cannot do everything. In particular, it may fail when either the costs or benefits of actions are not borne by the decentralised actors.  The split between costs and benefits may occur across organisational units or between the present and the future.  And decentralised coordination is difficult when benefits accrue only if decisions are properly coordinated.”

If you are working on customer based strategy or customer experience you should be at the edge of your seat.   Isn’t one of the key challenges that focussing on the customer does mean taking a hit now (giving up bad profits) in order to win in the longer term through generating ‘good profits’.  Isn’t another challenge that the customer orientation requires diverting funds and status from the marketing & sales functions towards the folks that come up with products and the Customer Services function?   And how is that going to happen if we leave the product guys to pursue their agenda, the marketing girls to make the numbers that matter to marketing, the sales guys to do whatever it takes to make the numbers and collect commission and we are busy swapping human beings for technology to cut customer service costs?  I do hope that you get what I am getting at.

And finally I leave you with some more wise words

“.. strategy is primarily about deciding what is truly important and focusing resources and action on that objective.  It is a hard discipline because focusing on one thing slights another….. In many situations, the main impediment to action is the forlorn hope that certain painful choices or actions can be avoided – that the long list of hoped-for “priorities” can all be achieved.  It is the handcraft of strategy to decide which priority shall take precedence.  Only then can action be taken.  And, interestingly, there is no greater tool for sharpening strategic ideas than the necessity to act.” 

As your read these words I draw your attention to the failure of the customer-centric orientation to take root and flower. And the failure of governments to do what needs to be done when it comes to banking, financial services, deficits and the structure of western economies…..

What is the Kernal of a Strategy? (Part III, Guiding Policy)

This post is related to and carries on the conversation started in the following posts:

Good Strategy and Bad Strategy: What is the kernel of a strategy? (Part I)

Good Strategy Bad Strategy: What is the Kernel of a Strategy (Part II – Diagnosis)

What is a guiding policy?

Let’s start with what it is not.  A guiding policy is not concerned with ambition – the desired outcome, the end state, what you wish to accomplish. Arguably it is easy to create a picture of the kind of customer experience you want your organisation to generate say in 12 months.  Figuring out which course of action is most likely to get you there is a very different exercise and requires a different type of thinking.   Here is how Rumelt puts it in his book Good Strategy/Bad Strategy:

“The guiding policy outlines an overall approach for overcoming the obstacles highlighted by the diagnosis.  It is “guiding” because it channels action in certain directions without defining exactly what shall be done.…Like the guard rails on a highway, the guiding policy directs and constrains action without fully defining its content.”

I once consulted with a financial services company that had aggressive revenue and profit growth targets. Yet its growth – customer base, revenues, profits – had stagnated after a great start.   How to generate that growth?  Which guiding policy to pursue?  The options on the table included: attracting new customers for existing products; coming up with more products e.g. pension plans; moving into new geographical markets; selling more financial products to existing customer base….

The diagnosis showed that on the whole each existing customer held only one financial product.  The guiding policy chosen was that of x-selling the existing portfolio of products to the existing customer base.  Why?  Because: the company had a sizeable customer base; the customers were satisfied and loyal; and research suggested that many of these customers were not aware of the full range of products that the company offered.

A good policy seeks to create/exploit advantage

This brings me to issue of advantage – how a good guiding policy seeks to create/exploit advantage.  This is how Rumelt puts it:

“A good guiding policy tackles the obstacles identified in the diagnosis by creating and drawing upon sources of advantage.  Indeed, the heart of the matter in strategy is usually advantage.  Just as a lever uses mechanical advantage to multiply force, strategic advantage multiplies the effectiveness of resources  and/or actions.”

What guiding policy did Howard Schultz put in place to turnaround Starbucks when growth had stalled and the Starbucks brand had lost its former magic?  The first part of his guiding policy, as I understand it, was to stop the bleeding: to close stores that were unprofitable and unlikely to be profitable.  The second part of his guiding policy (once the first part had been executed) was to focus on getting back to the kind of customer experience that Starbucks generated and to be the ‘third place’ again.

Why did he go down this route?  Because many of the people in Starbucks had noticed how the original passion for coffee, the customer, the customer experience had gone out of Starbucks and were up for, even crying out for, bringing it back into Starbucks so that it could be the soul of the brand once more.  Put differently, Schultz exploited the passion of his people for the Starbucks and what it stood; when you are instigating change there is no advantage like tapping into the hearts of the people in your organisation.

A good guiding policy itself can be a source of advantage

How?  Let’s take a look at Gerstner and his turnaround of IBM.  Gerstner came up with the guiding policy of providing customer solutions instead of selling products.  This made great sense because it met customer needs and played to IBM strengths – its breadth and depth of expertise in almost all areas of IT.  Yet the policy itself “provide customer solutions” created advantage because it replaced ambiguity/uncertainty with clarity about what to do and how to do it.  It was the stimulus that got IBM going on the journey of coordinating and concentrating IBM’s vast resources on a specific challenge “provide customer solutions”.

I want to end this post with the words of Richard Rumelt:

  • “A guiding policy creates advantage by anticipating the actions and reactions of others,
  • by reducing the complexity and ambiguity in the situation,
  • by exploiting the leverage inherent in concentrating effort on a pivotal or decisive aspect of the situation, and
  • by creating policies and actions that are coherent, each building on the other rather than canceling one another out.”

If you have any interest in strategy then I recommend buying Good Strategy Bad Strategy.  Alternatively you might want to watch this speech/presentation:

Good Strategy Bad Strategy: What is the Kernel of a Strategy (Part II – Diagnosis)

In this post I continue the conversation I started in the last post on the kernel of a ‘good strategy’.  Why?  Because if you are talking about a ‘customer strategy’, a ‘customer experience strategy’, or any other strategy you should know what you are talking about when you talk ‘strategy’.  And because you should know the difference between what passes for strategy (‘bad strategy’) and real strategy (‘good strategy’).

As the following diagram shows the kernel is composed of three strands: Diagnosis; Guiding Policy; and a Set of Coherent Actions.  In this post I want to explore the first strand – Diagnosis – and stress its criticality to generating a ‘good strategy’.

Diagnosis is concerned with the question “What is going on here?”

In my consulting work(as a strategist) a great deal of my time is spent in the following: creating a ‘map of the territory'; and coming up with a diagnosis.   Being an outsider I have to ‘create a map of the territory’ as it is essential to being able to come up with a diagnosis.  So I conduct high level research on the company (history, key players, organisational structure, products, markets, distribution channels, financial performance..), its industry, its competitors etc.

Once I have an adequate (usually high level) ‘map of the territory’ to orient myself I concern myself with the task of Diagnosis.  The diagnosis is always linked to the ‘strategic issue’ that requires a strategy. What might that strategic issue be?  Examples include: Why are we signing up less and less customers through our website?  Why is it that so many customers are leaving us and going to our competitors?  Why is it that our sales folks are so much less effective in selling to our business customers?  Or why is it that there is crisis around the Euro?

Lets make this discussion real through a personal example.  During August holidays my young daughter told us (her parents) that her left wrist was hurting.  It continued to hurt for several days and we could not figure out why it was hurting.  So my wife took her to a doctor.  The doctor asked various questions: when did it start; what were you doing, where does it hurt, what kinds of actions cause it to hurt…. And then he examined her arm: pressing here, pressing there, and observing her reactions.  At the end of this his answer to the question “What is going on here?” was that my daughter was most likely to have as a small fracture in her wrist.  This was later confirmed by the x-rays.

Diagnosis: insight, genuine insight, is of the utmost significance

According to Richard Rumelt in Good Strategy/Bad Strategy:

“An especially insightful diagnosis can transform one’s view of the situation, bringing a radically different perspective to bear.  When a diagnosis classifies the situation as a certain type, it opens access to knowledge about how analogous situations were handled in the past…”

What does an insightful diagnosis look like?  Allow me to share a personal example, again.  My eldest was being disruptive and obnoxious at home but only at home. So I was grappling with the question “What is going on here?”.  I came up with various answers: he eats too much junk food and that is affecting his mood/behaviour; he is bored; we are not being strong/consistent enough in enforcing discipline ……  When I discussed this with my wife she replied: “What is missing is a relationship between you and him!”  It immediately struck me that this was a game changing diagnosis: it opened up avenues that had simply not been present.  And it struck me that it was an accurate and insightful diagnosis: most poor/disruptive behaviour is a result of poor relationships. As a result I ended up with a completely different guiding policy and this triggered a radically different set of coherent actions.

Do you want examples of especially insightful diagnosis that transformed a view of the situation at hand?  You will find them (Apple, IBM) towards/at the end of this post.

Diagnosis: what constitutes a good diagnosis?

It is not always possible to come up with an insightful, game changing, diagnosis.  Sometimes we just have to settle for a good diagnosis. What constitutes a good diagnosis?  A good diagnosis according to Rumelt:

  • links facts into a pattern and at a minimum names/classifies the situation into a certain type;
  • replaces the overwhelming complexity of reality with a simpler story, a story that calls attention to its crucial aspects and thus enables/encourages more attention to be paid to some issues/feature and less to others;
  • “does more than explain a situation, it also defines a domain of action” that is to say it is actionable, it identifies one or more levers that can be pulled; and
  • is explicit and thus permits an independent person to evaluate the strategy (diagnosis, guiding policy, set of coherent actions).

Diagnosis: both a hypothesis and a decision of utmost significance

The real world is complex there are so many actors/variables that interact and are interdependent.  Put differently, challenges that really matter and which face companies/organisations/governments are ill-structured.  That is to say it is not obvious how to define the problem (the situation at hand) nor is there an obvious/sound list of guiding policies or actions.  And the linkage between actions and outcomes are not clear.  This means any diagnosis and every diagnosis in an ill-structured situation is an educated guess.

It also means the a diagnosis is a decision – a decision of substantial importance. Why?  Because the diagnosis shapes the future: the guiding policy, the set of coherent actions, and the outcomes that result.   As Rumelt says:

“In business, most deep strategic changes are brought about by a change in diagnosis – a change in the definition of a company’s situation.”

Are you wondering what he is talking about and pointing out?  Then I draw your attention to:

  • Steve Jobs who changed the diagnosis and thus did the opposite of what the experts advised – sell Apple, license the software – when he took the helm at the almost bankrupt Apple;
  • Lou Gerstner who changed the diagnosed and how he did the opposite of what experts were advising – break IBM up into seperate/distinct businesses; and
  • Stepen Eloph who has shifted Nokia from independence to being reliant on Microsoft and its operating software for smartphones.

I will continue the conversation in the next post and explore the second element within the kernel of a strategy: the Guiding Policy.

Good Strategy and Bad Strategy: What is the kernel of a strategy? (Part I)

Vision and/or “fluff” masquerading as strategy?

I have been getting ready for my next strategy assignment thus grappling with strategy.  And I also happened to be reading Outside In by Harley Manning and Kerry Bodine.  All was well until I got to Table 4-1 which spells out the 6 disciplines that ‘mature customer experience organisations’ excel at: strategy practices; customer understanding practices; design practices; measurement practices; governance practices; and culture practices.

I don’t have an issue with these practices, they occur to me as valuable.  Yet, I stopped in my tracks.  What stopped me in my tracks?  Take a look at what the authors write regarding strategy practices:

“STRATEGY PRACTICES

  • Define a customer experience strategy that describes the intended customer experience.
  • Align the strategy with the overall company strategy.
  • Align the strategy with the organisation’s brand attributes.
  • Share the strategy with all employees (e.g., distribute documentation, conduct training sessions).”

Do you see the issue?   No.  Ok, let me rewrite what Harley/Kerry have written by substituting ‘vision’ for ‘strategy':

“STRATEGY PRACTICES

  • Define a customer experience vision that describes the intended customer experience.
  • Align the vision with the overall company strategy.
  • Align the vision with the organisation’s brand attributes.
  • Share the vision with all employees (e.g., distribute documentation, conduct training sessions).”

So what is it that the authors are pointing at?  It could be ‘vision’, it could be ‘strategy’.  Does it matter?  Yes.  Why?  As I have written before vision, objectives, strategy are distinct according to Richard Rumelt, I agree with him.

Now lets go a step further and just strip out the terms ‘customer experience strategy’ and ‘strategy’ (shorthand for customer experience strategy) and replace them with ‘intended customer experience’.  If I do this then we end up with:

“STRATEGY PRACTICES

  • Define the intended customer experience.
  • Align the intended customer experience with the company strategy.
  • Align the intended customer experience with the organisation’s brand attributes.
  • Share the intended customer experience with all the employees (e.g., distribute documentation, conduct training sessions”

Do you notice that by rewriting it this way nothing has been lost?  If anything there is greater clarity.  If that is actually the case, and I say it is, then ‘customer experience strategy’, as used by the authors, is fluff.  If you are wondering what I am talking about, when I talk “fluff”, then you will benefit from reading this post.

Yet a customer experience strategy is necessary

Does that mean your organisation does not need to craft a customer experience strategy?  No.  Your organisation does need a customer experience strategy.  Why?  Because crafting and communicating your intended customer experience is not enough.  You have to bring about a ‘state of affairs within your organisation’ such that this state of affairs generates/delivers the intended customer experience as a natural expression of your organisation.    Bringing about this ‘state of affairs’ may involve bringing in changes in the leadership team, hiring more staff, refitting your stores, redesigning your website, develop a smartphone app, changing performance measures…….

So what should your customer experience strategy contain?  What should be the contents?  For that matter, what should be the contents of any strategy for it to count as a strategy?

The kernel of a strategy, any strategy, is made up of three parts

If we strip away all the difference (frameworks, methods, processes) from strategy are we left with a meaningful/useful core that can help you and I develop a strategy, any strategy?  Richard Rumelt says we are and he calls this ‘the kernel of a strategy': the core content that constitutes the hard nut inside the concept of strategy.   What is this core content?  This is what Rumelt says in his book Good Strategy Bad Strategy:

“The core content of a strategy is a diagnosis of the situation at hand, the creation or identification of a guiding policy for dealing with the critical difficulties, and a set of coherent actions.”

I will dive into, explore, each of these three components in follow up posts.  Whilst you may think that the most difficult part is the formulation of the guiding policy, my experience suggests that it is the diagnosis that matters the most and is the most painful.  So the next post will deal with diagnosis.

Do you know the difference between a good strategy and a bad strategy? (Part IV – Objectives)

This is the fourth in the series of posts on strategy making using Richard Rumelt’s masterpiece: Good Strategy Bad Strategy.  If you have not already done so then you may get value out of the reading the first three posts:

Do you know the difference between good strategy and bad strategy?  (Part I)

Do you know the difference between good strategy and bad strategy?  (Part II – Fluff)

Do you know the difference between good strategy and bad strategy?  (Part I – Failing to face the problem)

What passes for strategy and strategy is so often simply muddled thinking or why so many websites generate a poor user experience

One thing that I have noticed is that so many websites are poor – from the users perspective.  Why is that?  I have my point of view which I pleased to see validated by Mark Adams of PortalTech Reply in the May edition of Internet Retailing:

“If your strategy, for example, is to use mobile to generate significant revenues the key considerations, technology choices and approach are going to be very different from setting out to use mobile as brand engagement channel…….. Often the strategy is to accommodate selling, loyalty, brand engagement, in-store integration, social marketing, payments and so on with no clear path on how each of these areas are going to be addressed and at what point.”

Sounds like a ‘dog’s dinner’ of aims/objectives masquerading as strategy to me.  That got me thinking that it is worth sharing what Richard Rumelt has to say on the matter of aims, objectives and strategy.

What does Richard Rumelt say about aims, objectives and strategy?

Richard Rumelt says that strategic objectives are one domain that differentiates good strategy from bad strategy:

One of the challenges of being a leader is mastering this shift from having others define your goals to being the architect of the organisation’s purpose and objectives.  To help clarify this distinction it is helpful to use the word “goal” to express overall values and desires and to use the word “objective” to denote specific operational targets……. Good strategy works by focusing energy and resources on one, or very few, pivotal objectives whose accomplishment will lead to a cascade of favourable outcomes.

In his book,  Rumelt identifies two pitfalls in the areas of objectives: ‘dog’s dinner objectives'; and ‘blue sky objectives’.  Let’s take a look at each in turn.

Dog’s dinner objectives

This is what Rumelt says (keep in mind my earlier comment on poor websites and the quote on mobile):

A long list of “things to do”, often mislabeled as “strategies” or “objectives”, is not a strategy.  It is just a list of things to do. Such lists usually grow out of planning meetings in which a wide variety of stakeholders make suggestions as to things they would like to see done.  Rather than focus on a few important items, the group sweeps the whole day’s collection into a “strategic plan”.  Then, in recognition that it is a dog’s dinner, the label “long term” is added so that none of them need be done today.

I absolutely love this paragraph, it strikes as pointing at the ‘truth’ in a similar way to the Dilbert cartoons and leaves me saying “How true!”.  How does it strike you?

Blue sky objectives

Back to Mr Rumelt and his wisdom on strategy:

“The second form of bad strategic objectives is one that is “blue sky”.  A good strategy defines the critical challenge.  What is more, it builds a bridge between that challenge and action, between desire and immediate objectives that lie within grasp.  Thus, the objectives a good strategy sets should stand a good chance of being accomplished, given existing resources and competence.……  By contrast, a blue-sky objective is usually a simple restatement of the desired state of affairs or of the challenge.  It skips over the annoying fact that no one has a clue as to how to get there.

The purpose of a good strategy is to offer a potentially achievable way of surmounting  a key challenge.  If the leader’s strategic objectives are just as difficult to accomplish as the original challenge, there has been little value added by the strategy.”

Lets revisit 1997 and Steve Jobs return to the helm of Apple

Back in 1997 Apple was burning through its cash and was expected to become bankrupt in months.  The imperative was survival – increasing the cash pile and cutting costs to buy time to focus on product renewal.  What did Steve Jobs do?  The very first thing, the most thing, he did was to persuade Microsoft, the arch enemy, to invest in Apple.  By doing so he was able get his hands on $150 million (in return for non-voting shares).  This dismayed the Apple faithful, left them stunned and led to heckling and booing.  Something that Jobs had not experienced before.  Nonetheless it was a masterstroke as it bought him time to:

  • Cut the number of products from 15 to 4;
  • Streamline distribution by selling  through an exclusive national dealer as opposed to many retailers;
  • Focus marketing on a single message “Think Different”;
  • Terminate licensing deals that enabled other manufacturers to undercut Apple with Mac clones.

Result: operating expenses were cut nearly in half. Within months, Apple was back in the black and could focus on developing and bringing to market ‘killer products’ worthy of the Apple brand as personified by Jobs.

It occurs to me that Steve Jobs was more than creative or a showman (like Richard Branson).  He was a master strategist he focussed relentlessly on the essence.  How different to so many others who call themselves strategist and claim to put forth strategies.  What do you say?

Do you know the difference between good strategy and bad strategy? (Part III – failing to face the problem)

Hallmark of a bad strategy: failing to face the problem

This post follows on from the previous two posts.  In the first post (of this series) I listed the 4 hallmarks of a bad strategy.  In the second post I expanded out one of these hallmarks – fluff.  This third post deals with the second hall mark of bad strategy: failure to face the core problem/s – what I call the ‘elephant in the room’.

What does Richard Rumelt say about strategy?

In his book Good Strategy Bad Strategy, Richard Rumelt (“RR”) writes:

“A strategy is a way through a difficulty, an approach to overcoming an obstacle, a response to a challenge.  If the challenge is not defined, it is difficult or impossible to assess the quality of the strategy.  And if you cannot assess a strategy’s quality, you cannot reject a bad strategy or improve a good one.”

International Harvester: a great example of bad strategy

According to RR, International Harvester was once the 4th largest corporation in the USA.  In 1977 the board brought in a new CEO (Archie McCardell) to turn around the sleepy company.  With the help of his team of financial and strategic planners (including consulting companies), by 1979,  Archie had put together a “Corporate Strategic Plan”.

This plan was simply a lumping together of 5 separate strategic plans – one for each of the operating divisions (agricultural equipment, truck making, industrial equipment, gas turbines, components).   The “strategy” was to increase market share in each market and cut costs in each of the divisions thus grow revenues and profits.

The Corporate Strategic Plan was full of detail.  RR says “Looking within the agricultural equipment group, for example, there was information and discussion about each segment.  The overall intent was to strengthen the dealer/distributor network, and to reduce manufacturing costs…”  Despite this detail, this thinking, the plan was classic bad strategy.   Why?

RR writes, “The problem with all this was that it ignored the elephant in the elevator.”  What was that elephant? The elephant was Harvester’s “grossly inefficient work organisation”.   And this was not a problem that was going to be fixed by pushing managers to grow market share nor by buying equipment.  Why?  Because the inefficiency lay in the ‘work rules’ – how work was organised and done.  Furthermore, Harvester had the worst labour relations in American history.

What do you have if you fail to identify and address the key business problem/s?

According to RR, “If you fail to identify and analyse the obstacles, you don’t have a strategy.  Instead, you have either a stretch goal, a budget, or a list of thing you wish would happen.”

So how did thing turn out at Harvester?  Profits improved for a year or two simply through cutting admin overhead.  Then the company went through a six month strike.  After the strike ended Harvester began to collapse.  According to RR, “During the whole 1979 – 85 period, it lost more than $3 billion, closed 35 of its 42 plants, and shed 85,000 workers…….The company sold off its various businesses…..It is, today, a leading maker of heavy trucks and engines.”

What does this have to do with customer-centricity, customer experience, customer loyalty?

Everything.   Let’s just talk a look at one big challenge.

Imagine that you are major bank, or mobile operator or gas/electricity supplier what is one of your biggest challenges in making the transition to being customer-centric?  What if I said, the biggest challenge is there is really nothing to differentiate the players (from one another) in these industries and so they rely on “Bad Profits” to hit their revenue and profit numbers.

Frederick Reichheld (“the loyalty guru”) coined the terms “Good Profits” and “Bad Profits”.  If you take a look at any business you can break down the profits into “Good Profits” and “Bad Profit”.  When you create genuine value for a customer (through the eyes of the customer) then your reward is in the form of Good Profits and you do not have to devise loyalty programs and worry about customer retention and loyalty.  An outstanding example is Apple.  Other examples include SouthWest Airlines, Starbucks, USAA, Zane’s Cycles and Zappos.  In the UK, John Lewis, Waitrose and Richer Sounds spring to my mind.

When you make profits at the expense of your customers these profits are called Bad Profits.  How do you make Bad Profits? Generally, you have access to information, expertise and resources that the customer does not have and you use those to ‘manipulate’ the customer to benefit you at his/her expense.   Specific practices associated with “Bad Profits” include but are not limited to: deliberately difficult for customers to pick the right product; websites adding in extra items that the customer has not selected and forcing the customer to delete these from the shopping basket; disguising the true cost (to the customer) through underhand charges that are not visible to the customer; making it hard for the customer to know and manage his plan so that she is hit with unexpected charges; selling worthless products eg. PPI;  making it hard for the customer to cancel – make them go through lots of hoops etc.

The point to get is that banks, telecoms operators and utilities have collectively spent a fortune on CRM systems and other Customer initiatives over the last ten years and they really have little to show for it.  How has the customer service needle moved?  What about customer loyalty – genuine customer loyalty?     I’d assert that, looking at the situation through the customer’s eyes, very little has changed which makes customers love the players in these industries more than they used to.  Why?  Because the core business challenge of overhauling the business model (and associated practices) has not been addressed.  Does that sound like the Harvester example?  Buy in new equipment (CRM systems), extend the distribution network (website, mobile, social media..), reduce costs (call-centre outsourcing / offshoring, replace humans with self-service, hide contact numbers…).  Please note that I am only using banks, telcos and utilities as examples – they are not the only ones that engage in practices that deliver Bad Profits and get in the way of authentic customer-centricity.

Another big challenge: the whole field of CRM, customer service, customer experience, customer-centricity, data driven marketing is blind to the difference that makes a difference.  As such this key challenge is not even recognised and it is then the psychological mechanisms of denial, suppression and repression make sure that there is no permission to point out this elephant in the room.  What is this elephant that I am talking about?  I invite you to have a go at figuring it out.  For my part, I will share this with you in a follow up post.   I thank you for listening to my speaking.

Do you know the difference between a good strategy and a bad strategy? (Part I)

“All too much of what is put forward as strategy is not.  The basic problem is confusion between strategy and strategic goals.” Richard Rumelt

So much talk about strategy and so little understanding of what it is, what it involves, and the difference between a good strategy and a bad strategy.  You can call me a little touchy (or a lot touchy) when it comes to strategy and strategy making.  I encountered strategy only after being heavily involved in the operational stuff – getting my hands dirty making the ‘trains run on time’.  Being new to strategy I made the time and put in the effort (lots of it) to study  strategy and strategy making.  I do wish more people would do the same then we would not have tons of rubbish being written on strategy by people.  Yes, this paragraph is a rant.  Now lets move forward and doing something constructive: learn the difference between good strategy and bad strategy.  If you don’t care then I suggest you stop reading right now.

What Paul Hagen of Forrester says on strategy

As you might have noticed (if you follow me on Twitter) I make time to keep up with the domains that impact the Customer.  During the course of this process I came across a post on the 1to1 Blog by Paul Hagen (“principal analyst, Forrester Research, serving Customer Experience professionals”). Step 2 – Define key of a strategy – got my interest, here it is:

2) Define key elements of a strategy. There are many different kinds of experiences that companies can deliver…all of which are valid. Witness USAA and Costco, both of which score high marks on Forrester’s Customer Experience Index. A strategy should provide a vision for the kind of experience to deliver, derived from a core value proposition inherent in a company strategy and key attributes of the brand promise that are most meaningful to customers. This “intended experience” should provide guidance about the kinds of activities the company can start (and stop) doing to achieve the end-state. The strategy also needs to articulate the company’s aim for how good the experience should be…does the firm seek to be the best in its own industry or across all industries, or is it merely trying to maintain parity with other firms? This will guide the kind of resources that the firm may need to dedicate to reaching this objective.

Design the Customer Experience to be in alignment with the Value Proposition

I am in total agreement with the first sentence of Paul’s statement.  What he is saying is that there is no such thing as a homogenous customer experience.  The customer experience that you design and deliver has to be in alignment with the value proposition that you have communicated to your customers. This is why, in the model below which I developed and use, the Value Proposition feeds into the Customer Experience; the third pillar is Customer Insight – it feeds the creation/refinement of the Value Proposition and the Customer Experience. 

The sequence goes like this.  Generate insight into customers (Customer Insight).  Use this insight to craft a Value Proposition that a customer/market segment finds attractive enough to sign-up for.  And deliver a Customer Experience that is in alignment with the promise (implicit, explicit) made through the Value Proposition.  Do that and you have happy, even delighted, customers – which is why both USAA and CostCo can score high marks even though the Value Propositions and associated Customer Experience is radically different.

So far Paul and I are in agreement.

Does anyone understand what a real strategy is?

Then he goes on and ruins it for me:

He writes “A strategy should provide a vision for the kind of experience to deliver, derived from a core value proposition inherent in a company strategy and key attributes of the brand promise that are most meaningful to customers……”  Hello, anyone at home?  A vision is a vision – it is picture of the ‘future’ that you want to bring about.  So, I might have a vision of living in Rio and spending my days surrounded by Brazilian beauties, soaking up the sunshine, waited hand and foot, swimming in clear blue waters…. A vision is not a strategy and a strategy does not include a vision.

He continues with “The strategy also needs to articulate the company’s aim for how good the experience should be…does the firm seek to be the best in its own industry or across all industries, or is it merely trying to maintain parity with other firms? This will guide the kind of resources that the firm may need to dedicate to reaching this objective.”  Now that sounds awfully like objective setting to me.  Maybe I am a little simple and being simple, in my world objectives are objectives and they in turn drive the formulation of the strategy.  Continuing with my analogy, if my objective is to be waited hand and foot on the beautiful beaches of Rio, all my needs catered for, then I have to formulate a strategy that allows me to get hold of the money/power that I need to realise my objective.  Notice that the objective comes first.

Continuing with my Brazilian (Rio) analogy, let me ask the question: “Why do I need a strategy?” Perhaps the challenge is that I live in the UK, I am penniless and I do not have a passport.  Now if that is so then I need a strategy that addresses these challenges – the challenges that prevent me from being in Rio surrounded by Brazilian beauties and being waited on hand and foot.  Let’s continue and explore this further.

What are we talking about when we talk about strategy?

The issue at hand is that ‘strategy’ has becoming a meaningless phrase bandied about by all of us (including myself) to mean anything that we want it to mean.  In my simplest way of thinking, one needs a strategy in order to outwit intelligent opponents and/or address an important challenge which if not faced ‘promises’ an exit from the game of business.  Does that sound like Kodak to you?  Which is why monopolists who control valuable resources, that people cannot easily do without, do not need to formulate a strategy: they just have to make sure that they continue to be the monopoly supplier.

The components that feed into and drive the strategy making process include: Challenge (the pain that requires a strategy to be developed); Vision (the future state that you wish to create / bring about); Objectives (the specific, measurable, outcomes that you want); Resources (what resources are ready at hand); and Constraints (these can take many forms political, legal, technological, values that cannot be sacrificed….).  If you want a deeper understanding of strategy and strategy making then read this post.

What are the hallmarks of a bad strategy?

Richard Rumelt has written one of the best books (Good Strategy Bad Strategy) I have read on strategy (and I have ready many of them).  He says that there are 4 hallmarks that we can look out for when detect a bad strategy.  Can you guess what they are? Here are the 4 the hallmarks:

Fluff/  Fluff is gibberish that masquerades as strategic concepts and arguments .  It uses “Sunday” words  (words that are abstruse / inflated)  and esoteric (I call them ambiguous, unnecessarily complex) concepts that create the illusion of high-level thinking.

Failure to face the challenge. Bad strategy fails to recognise and clearly set-out the challenge.  Richard points out that if you fail to clearly set-out the challenge (in concrete terms) one cannot evaluate a strategy or improve it.

Mistaking goals for strategy.  Richard says that many strategies are just statements of desire (the vision) rather than plans for overcoming obstacles and addressing the challenge.

Bad strategic objectives.  Strategic objectives are bad when they fail to address critical issues or when they are impracticable.

I will go into these in more detail in forthcoming posts.  In the meantime I wish to leave you with the following statement by Richard Rumelt which, in my view, goes to the heart of the matter:  “All too much of what is put forward as strategy is not.  The basic problem is confusion between strategy and strategic goals.” Do you think Paul Hagen has fallen into the same trap?