What Is The Achilles Heel of Strategy?
My colleague and I put our whole selves into our work talking with folks in the business, listening to customer conversations, reviewing research, looking at competitors and trends, looking at various approaches, evaluating these approaches and coming up with optimal course of action for our client and our client’s customers.
To our delight the strategy was accepted-approved by management. A month or so later we got busy on implementation planning. It was during the implementation planning when hard decisions had to be made that the commitment to the digital strategy unravelled. Our clients got the value of pursuing the digital strategy and they found themselves in a particular situation which called forth and drove a different set of choice and actions.
This is the Achilles Heel of strategy, every executive finds himself in a particular situation. And every situation has its own ‘logic’ and a momentum. As such it really it takes something to alter course and make any significant headway. It takes resolve – fierce resolve, the kind of resolve that grabs you and keeps hold of you. It is not the kind of resolve that is created through the intellect.
Why Don’t We Do What We Know We Should Do?
Have you wondered why your organisation sucks at being authentically customer-centric: practicing relationship marketing, client centred selling, pleasing customer service? Have you wondered why it is that your organisation sucks at calling forth the best from your people?
Now and then someone speaks and their speaking is wisdom. Today, I share with you the wisdom of David Maister as articulated in his great book ‘Strategy and the Fat Smoker‘:
“In business, strategic plans are also stuffed with familiar goals: build client relationships, act like team players, and provide fulfilling motivating careers. We want the benefits of these things. We know what to do, we know why we should do it, and we know how to do it. Yet most businesses and individuals don’t do what’s good for them….
The primary reason we do not work at behaviours which we know we need to improve is that the rewards … are in the future; the disruption, discomfort and discipline needed to get their are immediate…..
Our default pattern and why it doesn’t work
When it comes to improving performance at the individual, team or organisational level we tend to follow a self-defeating pattern. I have seen this pattern played out again and again over the last 10+ years as organisations have grappled with relationship marketing, CRM, customer experience, employee engagement, digital. Here’s what David Maister says:
We start self-improvement programs with good intentions, but if they don’t pay off immediately, or if a temptation to depart from the program arises, we abandon our efforts completely – until the next time we pretend to be on the program.
That’s our pattern. Try a little, succumb to temptation, and give up. Repeat until totally frustrated. Unfortunately, there is rarely, if ever, a benefit from dabbling or trying only a little. You can’t get half the benefits of a better marriage by cutting out half your affairs, cure half the problems of alcoholism by cutting out half the drinks or reduce the risks of lung cancer by cutting out half the cigarettes.
You can’t achieve competitive differentiation through things you do “reasonably well most of the time.” You not only cannot dabble, but you also cannot have short-term strategies ….. The pursuit of short-term goals is inherently anti-strategic and self-defeating.
You are either seriously on the program, really living what you have chosen, or you are wasting your time.
Why strategic analysis and listening to customers is not the answer
I worked in an organisation which expended considerably time-effort-cost in doing NPS quarterly. We had access to the voice of the customer. And the voice tended to speak the same tune quarter after quarter. Why? Because the people in the organisation were not willing to change behaviour in any significant way.
Is it possible that setting up VoC listening programs are a ruse? A way of saying to yourself and others that you are serious about improving the customer experience so that you hide your unwillingness to change your behaviour, the behaviour of your team, your organisation? What does David Maister say?
Improving the quality of the analysis is not where the problem lies. The necessary outcome of strategic planning is not analytical insight but resolve.
What are the essential questions of strategy?
If we know the why-what-how of employee engagement, meaningful customer relationships, and customer loyalty then what are the strategic question? Here’s what David Maister says:
The essential questions of strategy are these:
 Which of our habits are we really prepared to change, permanently and forever?
 Which lifestyle changes are we really prepared to make?
 What issues are we really ready to tackle?
Now that’s a different tone of conversation and discussion (and the reason that real debate is so often avoided).
What am I getting at here?
To come up with products that enrich the lives of customers requires resolve, analysis is insufficient. To create-deliver truly personalised-relevent marketing requires resolve, analysis and marketing technology are insufficient. To call forth the kind of service that generates gratitude from customers and makes them feel good about doing business with your organisation requires resolve, analysis-outsourcing-technology are insufficient. To orchestrate an end to end customer experience that calls forth customer loyalty requires formidable resolve, VoC and customer journey mapping are insufficient. Put different, dabbling won’t do; it occurs to me that most are merely dabbling.
I say, it is worth listening to David Maister once more:
There is no shame in aiming for competence if you are unwilling to pay the price for excellence. But don’t try to mislead clients, staff, colleagues or yourself with time-wasting, demoralising attempts to convince them that you are actually committed to pursuing the goal.
Relax, it’s ok to be just ok
As I get present to the world of business as it is and as it is not, I get present to the following and contradicts all the evangelising about customer focus, customer service, customer experience, customer relationships and customer-centricity:
1. Almost all businesses are unexceptional. They provide ok products (that do the job well enough). They provide OK digital real estate (websites, social media, apps, mobile). They provide OK stores. They hire OK people. They provide OK customer service – whether in stores or via the call-centres. And they generate an OK end to end customer experience, by default. As a result they do OK – they survive and make OK profits.
2. It is only against this background of OKness that the exceptional can and does show up. It is because almost all banks and insurance companies are ok that USAA glow so brig and htly. It is because most digital retailers are OK that Amazon shines brightly. It is because most high street retailers are OK that John Lewis and Waitrose (part of the John Lewis Partnership) shine brightly. It is because most organisations provide OK customer service that Zappos and Zane’s Cycles shine brightly.
Is purpose the vital access to performance and the starting point of strategy?
What explains the variability in performance – revenues, profits, share prices – across firms who compete in the same industry? Why, for example, does IKEA do so well in the furniture industry when many other players struggle or have to accept modest performance? Is the answer that IKEA is customer-centric and the other players are not? Is it that IKEA delivers a superior customer experience?
Cynthia Montgomery in her book The Strategist explores this question and shares her answer. She says:
Purpose is where performance differences start. Nothing else is more important to the survival and success of a firm than why it exists, and what otherwise unmet needs it intends to fill. It is the first and most important a strategist must answer. Every concept of strategy …… flows from purpose.
Will any kind of purpose do the job? Is the purpose of making mountains of profit and enriching shareholders enough? Is the purpose of letting the lean folks loose so that all the processes can be streamlined and any joy, the comes with being social human beings, driven out of existence, enough? Is it enough to simply be great at interacting with customers at the touchpoints that matter? No, according to Cynthia Montgomery.
We hunger for purpose that lifts us up from the harshness and banality of the dog-eat-dog world of competition. And this includes the Tops:
Many of them want to feel that what they do matters in some context larger than themselves and larger even than their companies….
So is an inspiring, uplifting, purpose enough? Not according to Cynthia Montgomery. She says that purpose needs to do much more than inspire.
1. A good purpose ennobles
You and I are are spiritual beings manifested in physical form. Whether we like it or not, in our quiet moments, we find ourselves called to answer questions concerned with meaning. What is life about? What is my life about? Am I leading a meaningful life? Is this organisation and its mission worthy of me and all that I have to contribute?
In an age where 80% of employees are disengaged at work you can see the value of a noble purpose. A noble purpose inspires people in the organisation, it literally elevates and energizes. Talking of IKEA, Cynthia Montgomery says:
The people at IKEA don’t believe they’re flogging cheap furniture. They believe they’re creating a “better everyday life” for the many people who can’t afford top-end furnishings.
Cynthia goes on to say that we should not overlook the vital role of purpose in calling forth and fostering the care and commitment that lead people to play full-out and generate good results.
I say that a good purpose ennobles more than the people inside your organisation. I say that a good purpose ennobles customers, ennobles distribution partners, ennobles suppliers, ennobles the community in which your organisation operates.
2. A good purpose forces choice and puts a stake in the ground
A good purpose forces choice: to stand for one set of values and not others; to do X and not Y; to be this and not be that. Choosing is painful because it means letting go of some options. Choice is also critical because it enables focus. Here is what Cynthia says:
If your purpose does not preclude you from undertaking certain kinds of work, then it’s not a good purpose. Purpose, like strategy, is about choice, and real choice contains …… both positive (“We do this”) and negative )”By implication, then, we don’t do something else”) elements.
3. A good purpose sets you apart; it makes you distinct
A good purpose is not generic, it does not lead you to say “We are a training company” or “We are a telecommunications company” or “We are a marketing agency”. A good purpose spells out the reasons for your existence, the people (customers) you have chosen to serve, the needs you have set out to meet, the contribution that you committed to making. It is in these specifics that the purpose comes alive. Cynthia shares how IKEA describes its difference:
From the beginning, IKEA has taken a different path ….. It’s not difficult to manufacture expensive furniture. Just spend the money and let customers pay. To manufacture beautiful, durable furniture at low prices is not easy. It requires a different approach. Finding simple solutions, scrimping and saving in every direction. Except on ideas.
There is a lot of talk about innovation and how rare it is in larger organisations. Yet, IKEA continues to innovate. What does Cynthia say:
IKEA’s experience illustrates a key advantage of a good purpose. A clear sense of what a company is striving to do can serve as a focal point or a core organising principle around which a whole set of innovations and distinctive features can coalesce.
4. A good purpose sets the stage for creating and capturing value
Whilst I can and do come across as an idealist, I am also a pragmatist. After all I qualified as a chartered accountant, as such I get the critical importance of profits and cash-flow. So does Cynthia, she writes:
Whatever your purpose, it must mean something to others in ways that produce good economic outcomes for you. What made IKEA’s purpose so powerful was not just that it was distinctive or well-defined, or that it made people feel part of something bigger and more important. It also drove IKEA’s superior performance in its industry.
The acid test, then of purpose is this: Will it give you a difference that matters in your industry? Not all differences are equal. You need a difference with real consequences….. Even a legitimate difference such as “best-in-class quality” is often rendered meaningless by companies that trumpet the words but don’t make the investments or tough trade-offs such a goal requires.
If you are doing “Customer Experience” stuff ask yourself this question “This stuff that we are doing will this give us a difference that matters with our customers and in our industry?” I say that much of what is showing up under the Customer Experience banner fails this test. And I have been wrong many times before.
If you have any interest in strategy, purpose, and organisational effectiveness then I throughly recommend getting hold of a copy of Cynthia Montgomery’s book The Strategist. It is both easy to read and it is a great read. I swear she is versed in existential philosophy as her book is imbued with existential tones: purpose, choice, courage, being and becoming….
Does strategy matter?
If you do not think that it matters then you are in good company. There are many who question the value of strategy. And I see many companies where there is no formal strategy; the informal strategy is to keep doing what has worked in the past or to chase what is fashionable today.
Strategy v Execution
When it comes to questioning strategy there are two schools that are particularly prominent. First, there is the school of execution. The execution school which says that strategy is waste of time. Why? Because strategies are generic-obvious and what matters is execution. The ability to turn strategy into the daily live of the organisation. Clearly, there is some truth in this school. Strategy which cannot be operationalised is waste of time-resource.
Strategy v Culture
Then there is the school that says “culture eats strategy for breakfast”. Yes, culture is powerful. Culture determines what gets done and how it gets done. A strategy that does not take into account the fit with culture will meet lots of resistance. Getting people to enact such a strategy will be like fighting a guerilla war with an enemy who is patient and cunning. What is forgotten is that culture can be and is influenced-shaped-shifted through strategy.
To see strategy and culture as being separate and distinct is a gross misunderstanding. This misunderstanding arises due to our reductionist-analytical thinking. Strategy and culture are interlinked. Put differently, if you change strategy, you will take actions that will influence the culture. And if you change culture it will eventually influence the strategy.
HBOS: strategy shapes culture and leads to downfall?
If you still have doubts over the importance/significance of strategy then I say let’s consider the case of HBOS bank and the latest report on how this bank was brought to its knees. The HBOS bank was rescued, after significant arm twisting and sweeteners by the UK Govt, in 2008 by Lloyds bank. Why did a bank that was valued at £30bn when it was created in 2001 need to be rescued? Because it racked up £47bn of losses on bad loans.
Who were the architects of the HBOS downfall?
Three Tops have been singled out in the report published by the parliamentary commission:
The primary responsibility for the downfall of HBOS should rest with the Sir James Crosby, architect of the strategy that set the course for disaster, with Andy Hornby, who proved unable or unwilling to change course, and Lord Stevenson, who presided over the bank’s board from it’s birth to its death.
How was strategy responsible for the downfall of HBOS?
Here is what the parliamentary report says:
The strategy set by the Board from the creation of the new Group sowed the seeds of its destruction. HBOS set a strategy for aggressive, asset-led growth across divisions over a sustained period. This involved accepting more risk across all divisions of the Group. Although many of the strengths of the two brands within HBOS largely persisted at branch level, the strategy created a new culture in the higher echelons of the bank. This culture was brash, underpinned by a belief that the growing market share was due to a special set of skills which HBOS possessed and which its competitors lacked. The effects of the culture were all the more corrosive when coupled with a lack of corporate self-knowledge at the top of the organisation, enabling the bank’s leaders to persist in the belief, in some cases to this day, that HBOS was a conservative institution when in fact it was the very opposite. :
The growth of HBOS’s Corporate Division was not the result of superior performance but of its high-risk strategy. The nature of its activities did not alter after the creation of HBOS, although the pace of growth accelerated and the scale significantly increased. When the Division later incurred huge losses, these too were due to the particular nature of its business and resulted directly from its high-risk strategy. Its losses were on a larger proportionate scale than those incurred by any other major UK bank. This was caused specifically by its distinctive loan book, including concentration in commercial real estate and leveraged loans, high exposure to single names, a high proportion of non-investment grade or unrated credit and holdings of equity and junior debt instruments. The loan book was therefore significantly more exposed to the domestic downturn than that of any other large UK corporate banking businesses.
The acceleration in loan growth, in part caused by the Division’s neglect of the storm signals of 2007 and 2008, is likely to have exacerbated the scale of the subsequent losses. However, even without this acceleration, the Division would still have incurred disastrous losses. The roots of all these mistakes can be traced to a culture of perilously high risk lending. The picture that emerges is of a corporate bank that found it hard to say ‘no’.
In view of the reckless lending policies pursued by HBOS Corporate Division, we are extremely disappointed by the attempts of the most senior leaders of HBOS at the time to attribute the scale of the consequent losses principally, or in significant measure, to the temporary closure of wholesale markets. The lending approach of the Corporate Division would have been bad lending in any market. The crisis in financial markets was merely the catalyst to expose it. Losses in the Corporate Division did not prove temporary. Indeed, we estimate that the HBOS Corporate loan book has continued to incur significant impairments in every year since 2008, demonstrating that the losses were the result of incompetent lending and not caused solely by the events of 2008. Furthermore, HBOS’s Corporate Division was significantly more exposed than other banks to the downturn in the economy due to the nature of its loan book.
Recently, I came across this piece – Don’t Let Strategy Become Planning - from Roger Martin. I recommend reading it. If you do not wish to make the time then this post is for you.
Strategy is not planning, it is an integrated set of choices
Strategy is not planning – it is an integrated set of choices that collectively position the firm in its industry so as to create sustainable advantage relative to competition and deliver superior financial returns. Obviously you can’t execute a strategy without initiatives, investments, and budgeting. But what you need to get managers focused on before you start on these things is the strategy that will make these initiatives coherent.
Strategy is singular: there is only one strategy for a given business
..strategy is a singular thing; there is one strategy for a given business – not a set of strategies. It is one integrated set of choices: what is our winning aspiration; where will we play; how will we win; what capabilities need to be in place; and what management systems must be instituted?
What has this to do with being customer-centric or customer experience?
If we stand in this framework, then it occurs to me that the customer-centric orientation as put forth by Don Peppers and/or customer experience are relevant if and only if the answer to the question “How will we win?” is “through being customer-centric and/or delivering a great customer experience”.
Looking at what is so, it occurs to me that the majority of companies have a business strategy whose answer to the question “How will we win?” is “not by being customer-centric nor by crafting/delivering a great customer experience.”
What do you think?
This post is related to and completes 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 the Kernel of a Strategy (Part III – 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…..