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:

Leadership: does it start with ownership?

What constitutes leadership and makes a good leader?

Let me start by saying that I am no expert in ‘Leadership’.  Yes, I have read the theory – all kind of theory including ‘charisma’, ‘being decisive’, ‘situational leadership’, ‘leadership v management’, ‘servant leadership’ and so forth.  In my world most of it occurs as theory or put differently it occurs as ‘philosophers philosophising’.  I can think of ‘charismatic’ people who do not / did not make good leaders.  On the other hand I can think of humble souls with an indomitable will making a huge impact on the world like Gandhi.

Gerstner and Who Says Elephants Can’t Dance?

Reading (several years ago) Gerstner book ‘Who Says Elephants Can’t Dance?’ I was struck by something which surfaced again for me this week.  Gerstner did not have to take the helm at IBM: seemed to be poisoned chalice and many of the natural candidates (and favourites) declined.  Everybody had written IBM off (a dinosaur) and so no person in his/her right mind wanted to take the risk.  Yet Gerstner was different – he eventually took that hot seat even though he had grave doubts about his ability to save that dinosaur and give it wings – make it into a powerful flying dragon.

One other aspect got my attention when it came to leadership.  There he was, Gerstner, doing his best to get to grips with the situation and he would ask the ‘leaders’, the VPs, the SVPs, the Country Managers to look into various aspects and get back to him.  Many did not get back to him.  When Gerstner met with them to ask for the answers to the questions he had set, many of them had no answer to the question.  Their answer was that they had handed the task over to one of their subordinates.  Gerstner got irritated because he expected these Tops to wrap their hands, minds, hearts around the ‘problem/task’ and get their ‘hands dirty’ doing the investigative work of searching / digging for the answers.

Perhaps the defining act of leadership is taking ownership

Which brings me to the question of this post.  Is the essential existential act that constitutes ‘leadership’ that of taking ownership?  Take ownership with your heart, your mind, your hands, your feet?

My experience is that ownership is necessary yet not sufficient pillar of being a leader.  A leader (and thus leadership) stands for a Possibility (a vision of the future) that inspires him/her to take 100% ownership for being a stand for that Possibility, for that future.  Yet it is more than that.  By standing for that Possibility, the Possibility gives powerful being (courage, boldness, risk taking…) to the leader.  Think of it as mutual relationship – like to sides of a coin.  The leader invents a Possibility (an invented future, in Gerstner’s case an IBM that survives and is stronger than ever, in Jobs case an Apple that goes back to its heart – making great products) that moves, touches and inspires him/her to the level of soul and that Possibility shapes the leaders being and doing right here and now – again and again for years.  Sometimes it takes many years to bring about that invented future.  Think about Gandhi how long did it take for him to get the British to leave and for the Indians to be free to rule themselves?  Think of Nelson Mandela, how many years did he spend in prison?  Sometimes you can live from your Possibility and generate your desired future in 15 months like Jean-Dominique Bauby did as set out here.

When I look around I do not notice Tops (people who are thought of and called leaders) being ‘leaders’.  In good times these Tops make sure that everyone knows that it is they who have come up with the vison, the strategy and shaped the organisation to deliver the great results.  And they insist on being handsomely rewarded – tens even hundreds of millions in compensation.  In ‘bad’ times what happens?  Just take a look at the News International phone hacking scandal: none of the Tops takes ownership.  Look at prisoner and torture abuse at Abu Ghraib: none of the Tops took ownership.  Look at the MPs expenses scandal in the UK?  None of the Tops took ownership.  Look at the financial crisis, the recession and the impact on millions of lives: none of the Tops took ownership – not the politicians, not the regulators, not the Csuite at the banks and associated insurance companies.

Now you might be wondering what has this got to do with the Customer.  Here is my question: which CEO has the level of commitment to customer-centricity, the customer experience, that Gerstner showed or Jobs showed or Mandela showed or Gandhi showed?  And if the CEO does not have that level of ownership then why should anyone else in the organisation care – care deeply – about the customer, the customer experience, the customer-centric organisation.

Final thought

Standing for a Possibility (a vision of the future) that is larger than yourself and your selfishness is a key pillar of leadership.  It is necessary and yet it is not sufficient.  I will tackle the other two pillars in another post – coming soon.

What is your lived experience of leadership?  Please do not share the theory: you can take my word on it when I write that I have read it all!  I am looking forward to you sharing your experience of leadership and learning from your sharing.  So please do share.

Why companies are struggling (and will continue to struggle) in cultivating customer loyalty

Only 17% of companies scored ‘strong’ or ‘very strong’ on customer loyalty

I read the following post – ‘Customer loyalty – does anyone care? and that got me thinking.  The author is highlighting the research carried out by the Temkin Group that shows that only 17% (24) of the 143 companies surveyed scored a ‘strong’ or ‘very strong’ loyalty’ rating.

Many underestimate what it takes to be strong/very strong in customer loyalty

In my opinion a lot of people who write on customer experience, customer loyalty and customer-centricity simply do not get how hard it is for large established companies to deliver on this stuff.  For these companies becoming customer-centric, delivering a great experience and generating loyalty is as likely as goals in the average soccer match – a rare event. Why is that?

An old quote that sheds light on the matter

There is a really good quote that gets to the heart of the matter, let me share it with you:

” A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it”   Max Planck

What am I saying?  I am saying that a big change in the customer-centric direction is highly unlikely until there are changes in the following domains:  business models, business leaders, management mindset and organisational structure.

Plenty of companies are doing well without being customer centric or delivering great customer experience

The fact is that plenty of companies do well without being customer-centric.  I explored this topic in the following post: Who says you have to be customer-centric to thrive

You can do well because you have strategic assets and I gave an example here: Bewleys shows that an organisation with strategic assets can deliver a poor customer experience and get away with it.

Existing business models are a huge obstacle in generating customer loyalty

I explored the issue of business models and how they get in the way of any customer-centric initiatives in the following post: ‘Contrary to popular opinion it is easy to become customer centred’

The organisational climate – mindset, culture, structure – is another big obstacle

If you are a gardener you will know that you simply cannot throw seeds anywhere and expect them to sprout into healthy, tall plants.  It is the same with organisations.  The way that organisations are structured, led and managed has a big influence on what kind of initiatives flourish and which struggle to take root.  I explored this in the following posts:

Do the customer experience designers have what it takes to design experiences that generate loyalty?

And finally I took a look at the customer experience designers themselves and questioned whether they have what it takes to actually design customer experience that work for customers: The problem with Customer Experience is the designers

Conclusion: the heart of the challenge is  leadership and ‘change management’

The heart of the challenge in cultivating customer loyalty is one of leadership and change management.  Specifically, giving up the existing ways of thinking about, organising and doing business.

This challenge is a difficult one at the best of times.  It is especially difficult when the people who have to change are the people at the top of the organisation.  Yet there is good news:  Gerstner managed to bring about a transformation at IBM.  It helped that he really had nothing to lose as IBM was a basket case and headed for oblivion!