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…..

Customer-Centricity: how to become customer-centric in one easy step

If you listen to the pundits then customer-centricity involves a complete transformation of your business

Reading the mountain of ink that has been written on all things Customer (strategy, insight, experience, service, CRM) one would be forgiven for concluding that it is a difficult if not impossible task for a large organisation to become customer centred.  You have to come up with a great strategy, to segment your customer base, to work out LTV, to build propensity models, to implement complex CRM systems, re-engineer processes, overhaul the call centre and employ an army of change specialists to get the culture change you want. But is it that hard?

What lies at the heart of the customer-centric orientation?

Jonathan Field spelled that out last year in one of his blog posts:

“…..you’ll solve most of your business problems by spending more energy figuring out how to best understand your customers’ lives, psyches and challenges, then working to solve your customers problems and deliver delight to their doorsteps.”

That is the philosophy behind customer-centricity. Don’t like the word philosophy then call it the guiding doctrine or the core guiding policy.  But can you short circuit this process (avoid all the time, effort and cost in understanding your customers) and get there quicker?  Yes you can, it is really easy to act now – today.

How to become customer-centric in one easy step

If you really want to become customer centric then simply give up self-serving category practices that exploit the customer rather than build goodwill with the customer. What do I mean?  Allow me to give you example of self-serving, exploitative, industry practices:

  • mobile network operators deliberately make their pricing plan complex so that it is difficult for customers to compare apples with apples and also because the operators make more money as customers typically end up on more expensive plans.
  • supermarkets who deliberately put the milk and eggs at the back of the store so as to force customers to walk past tempting goods and thus make impulse purchases that they never intended to make when they first came in the store.
  • financial services providers that deliberately make their plans/policies confusing using jargon that customers do not understand, putting in place all kinds of loopholes that they can use to avoid paying out and finally wrapping it all up in legal terminology that few of us will ever understand.
  • utilities that deliberately make their tariff complex and are swift increase price because wholesale prices go up but then take their time lowering prices when wholesale prices drop.
  • financial services providers that sell products that are worthless – the PPI scandal is a great example of an issue where the red flagged was raised back in 1998 and then it took another 13 years for the banks to concede but only when the courts ruled against them.
  • software companies that make all kinds of wonderful sounding claims (business and technical) some of which are a stretch of the creative imagination and many of which will be hard to turn into reality.
  • budget airlines force customers to ‘uncheck’ the insurance option twice.  Why?  Because it makes more money for the budget airlines.

You might think that I am picking on these industries.  I am not.  I am well aware that every industry has self-serving category practices (that are considered ‘business as usual’ by all the players in that industry) that at minimum make life hard for customers and at worst exploit the customers.  So what does it take to give up these category practices?  Nothing – really it takes nothing, you can stop right now.  Yet, in practice it takes consumer watchdogs, regulatory bodies and often the courts.  Let’s just take a look at the utilities industry as it is in the news.

British Gas says it will be simplifying tariffs

Ofgem – the gas and electricity regulatory in the UK – has recently been piling up the pressure on the industry players. After making more hushed noises Ofgem conducted a comprehensive review concluding that the energy companies are making excessive profits and that they have to change their ways starting with their tariffs – make them simpler to understand and compare.  Well Ofgem came out and said this, the industry players did not like it one little bit and accused Ofgem of getting its facts wrong – or of misinterpreting the data.  Looks like the Tops in British Gas have changed their minds.

I have been listening to Jeremy Paxman (“JP) interviewing Phil Bently (“PB”) the MD of British Gas and here are the highlights:

  • “There are too many tariffs – 544 tariffs to choose from from six or so big energy players” – PB;
  • “Consumer find it hard to compare tariff, chose tariffs and understand how to save money” – PB;
  • “As an industry we should put our hands up and say we should be doing more to help” – PB;
  • “We have not made it easy” – PB;
  • JP shows a graph that compares the consumer bill against wholesale prices and asserts that whilst wholesale prices have gone down bills have not;
  • PB makes the argument that wholesale prices are only one part of the cost base;
  • “the whole point is simplifying tariffs, giving customers choice, giving them transparency..” – PB

If you want to listen to the interview or read the article click here.

My take on this

It is easy to become customer-centric by ditching self-serving category practices that exploit customers.  Yet, it is not in the interest of the Tops nor of the system that they play in to do that.  Why?  Because it hits revenues and profits and the name of the game is to maximise revenues and profits by legal and sometime illegal means.

When industries are locked into certain structures it requires a powerful outsider to come in and disrupt the status quo.  That outsider can be a regulator like Ofgem, it can also be another business that is not invested in the status quo.  Apple comes to mind (music, phones), Virgin comes to mind, Salesforce.com comes to mind and so does Skype.

When Tops (and companies) who have been taking customers for a merry ride (and are only changing their ways because of the regulator) talk about transparency take this with a pinch of salt. Why?  Read one of my earlier posts that deals with transparency.

The first step in changing your ways is to be honest and say it like it really is – think Domino’s Pizza and their admission about the quality of their pizzas and what they were going to do about that.

Being “authentic about your inauthenticity” is an essential step and yet few of us have the courage to take that step especially if you are one of the Tops – Gerald Ratner and his fate may be stopping many.