Crowdsourcing your strategy may sound crazy. But a few pioneering companies are starting to do just that, boosting organizational alignment in the process. Should you join them?

In 2009, Wikimedia1 launched a special wiki—one dedicated to the organization’s own strategy. Over the next two years, more than 1,000 volunteers generated some 900 proposals for the company’s future direction and then categorized, rationalized, and formed task forces to elaborate on them. The result was a coherent strategic plan detailing a set of beliefs, priorities, and related commitments that together engendered among participants a deep sense of dedication to Wikimedia’s future. Through the launch of several special projects and the continued work of self-organizing teams dedicated to specific proposals, the vision laid out in the strategic plan is now unfolding.

Wikimedia’s effort to crowdsource its strategy probably sounds like an outlier—after all, the company’s very existence rests on collaborative content creation. Yet over the past few years, a growing number of organizations have begun experimenting with opening up their strategy processes to constituents who were previously frozen out of strategic direction setting. Examples include 3M, Dutch insurer AEGON, global IT services provider HCL Technologies, Red Hat (the leading provider of Linux software), and defense contractor Rite-Solutions.

While such efforts are at different stages, executives at organizations that are experimenting with more participatory modes of strategy development cite two major benefits. One is improving the quality of strategy by pulling in diverse and detailed frontline perspectives that are typically overlooked but can make the resulting plans more insightful and actionable. The second is building enthusiasm and alignment behind a company’s strategic direction—a critical component of long-term organizational health, effective execution, and strong financial performance that is all too rare, according to research we and our colleagues in McKinsey’s organization practice have conducted.

Our objective in this article isn’t to present a definitive road map for opening up the strategy process; it’s simply too early for one to exist. We’d also be the first to acknowledge that for most organizations, “social” strategy setting represents a significant departure from the status quo and should be experimented with carefully—whether that means trying it out in a few areas or creating meaningful opportunities for participation in the context of a more traditional strategy process. (For more on intelligent experimentation, see sidebar, “Collaborative strategic planning: Three observations.”) Nonetheless, we hope that by sketching a picture of some management innovations under way, we will stir the thinking of senior executives eager to benefit from experimenting with such approaches. If you’ve ever wondered how to inject more diversity and expertise into your strategy process, to get leaders closer to the operational implications of their decisions, or to avoid the experience-based biases and orthodoxies that inevitably creep into small groups at the top, it may be time to try shaking things up.

Lessons from the fringe
The best way to describe the possibilities of community-based strategy approaches is to show them in action. Two examples demonstrate the lengths to which some companies have already gone in broadening their strategy processes, as well as the degree to which the executives who participated are convinced of the benefits.

Rethinking planning at HCL Technologies
HCL Technologies, the Indian IT services and software-development company, had enjoyed rapid growth since its founding, in 1998. With growth, however, the company’s business-planning process had become unwieldy. Vineet Nayar, HCL’s chairman and CEO, along with his top team, were providing input to hundreds of business unit–level plans each year. Nayar realized that he and his team had neither the expertise nor the time to deliver all the detailed feedback that each business plan deserved, so he challenged his colleagues to use three key principles to revamp the planning process: make peer review a core component of strategy evaluation, create radical transparency across units, and open up the conversation to large cross-sections of the company.

The solution was to turn the company’s existing business-planning process—a live meeting called Blueprint, which involved a few hundred top executives—into an online platform open to thousands of people. The new process, dubbed My Blueprint, was launched in 2009, with 300 HCL managers posting their business plans, each coupled with an audio presentation. More than 8,000 employees (including several members of the teams that had submitted plans) were then invited to review and provide input on the individual blueprints. A surge of advice followed. The inclusive nature of the process helped identify specific ideas for cross-unit collaboration and gave business leaders a chance to obtain detailed and actionable feedback from interested individuals across the company.

This exercise quickly began yielding business results. One HCL executive we spoke with credited the new process with a fivefold increase in sales to an important client over two years. The key, the executive explained, was the detailed comments—from more than 25 colleagues, ranging from junior finance professionals to software engineers—that together highlighted the need to reframe the business plan away from an emphasis on commoditized application support and toward a handful of new services where HCL had the edge over larger competitors. The employees provided more than good ideas: several even helped assemble the materials the executive needed to deliver the successful proposal.

The high degree of transparency increased the quality of insights, not just their volume. As Nayar notes, “Because the managers knew that the plans would be reviewed by a large number of people, including their own teams, the depth of their business analysis and the quality of their planned strategy improved. They were more honest in their assessment of current challenges and opportunities. They talked less about what they hoped to accomplish and more about the actions they intended to take to achieve specific results.” At the conclusion of the inaugural My Blueprint process, there was broad consensus that participatory business planning had been far more valuable than the traditional top-down review process.2

Red Hat’s new road map
Red Hat is the leading provider of open-source software. In 2008, its leadership team began taking a new approach to strategy development. After defining an initial set of priorities for exploration, Red Hat’s leaders formed teams devoted to each priority. To boost the odds they would stretch toward new solutions, the company ensured that the team leaders—all members of the company’s C-suite—were far removed from their areas of responsibility. The company’s chief people officer, for example, was tasked with analyzing its financial model, while the CFO explored potential operational enhancements.

The teams used wikis and other online tools to generate and organize ideas and made these “open” so that any Red Hat employee could respond with comments or suggestions. The idea generation phase lasted five months and included company-wide updates and online chats with the CEO. Over that period, the best ideas coalesced into nine strategic priorities.

To ensure accountability for developing the priorities further and for making them actionable, the company tasked a new group of executives to lead teams exploring each of the nine areas. These leaders were senior functional ones whose responsibilities put them a level or two below the C-suite. Each of their teams fleshed out one or two of the most important strategic initiatives and was empowered to execute the plans for them without further approvals.

This effort has reshaped the way Red Hat conducts strategic planning. Instead of refreshing strategy yearly on a fixed calendar, the company now updates and evaluates strategy on an ongoing basis. Initiative leaders use customized mailing lists and other tools to receive input continuously from employees and communicate back to them via town hall–style meetings, Internet chat sessions, and frequent blog posts. The company maintains its annual budget process, which is informed by the evolving funding needs of the initiatives.

The fresh perspectives generated by the new planning process have been instrumental in spurring value-creating shifts in the company’s direction. For example, a respected Red Hat engineer used the new process to make the case for a significant change in the way the company offers virtualization services for enterprise data centers and desktop computer applications. The changes led to the acquisition of an external technology provider—a move that would have been unlikely in the days when the company used its old, less inclusive planning process.

Red Hat’s vice president of strategy and corporate marketing, Jackie Yeaney, cites three key benefits of the company’s new approach: first, the process generated “more creativity, accountability, and commitment.” Second, “By not bubbling every decision up to the senior-executive level, we avoided the typical 50,000-foot oversimplification” of issues. And third, “We improved the flexibility and adaptability of the strategy.” With the responsibility for planning and execution now in the hands of the same people doing the work, responsiveness to new opportunities or shifts in the market has increased dramatically.

Closer to home
Some leaders may wonder about borrowing approaches from Red Hat, Wikimedia, or other companies that consider crowdsourcing a part of their institutional DNA (and for which confidentiality issues may be less pressing than they are for many organizations). For these executives, we would note the experiments of more traditional companies, such as 3M, AEGON, and Rite-Solutions. A look at how these organizations are introducing a social side to strategy can help senior executives determine how much further they want to go in their own companies.

Market-based strategy at Rite-Solutions
One way of experimenting with more open strategic direction setting is to create internal markets where legacy programs and new perspectives compete on an equal footing for talent and cash. Rite-Solutions, a Rhode Island–based software provider for the US Navy, defense contractors, and first responders (such as fire departments), is pioneering a game-based strategy process whose foundation is an internal stock exchange it calls Mutual Fun.

Would-be entrepreneurs at Rite-Solutions can launch “IPOs” by preparing an Expect-Us (rather than a prospectus)—a document that outlines the value creation potential of the new idea—as well as a Budge-It list that articulates the short-term steps needed to move the idea forward. Each new stock debuts at $10, and every employee gets $10,000 in play money to invest in the virtual idea market and thereby establish a personal intellectual portfolio. The money flows to ideas that are attracting volunteer effort and moving steadily from germination toward commercialization. A value algorithm revalues each stock, based on the number of Budge-It items completed, inflows and outflows of employee money, and opinions about the stocks expressed in an online discussion board. When an IPO gains momentum and breaks into the company’s Top 20, the initiative is funded with seed money; more is awarded depending on the ability to meet various stage gate milestones. What’s more, when ideas help Rite-Solutions make or save money, those who have invested intellectual capital and contributed to the idea’s realization receive a share of the benefits through bonuses or real stock options.

The internal market for ideas has bolstered the company’s pipeline of new products, and the 15 ideas the company has thus far launched as a result now account for one-fifth of Rite-Solutions’ revenues. Some of the blockbusters were generated in unexpected places—including Win/Play/Learn, a Web-based educational tool licensed by toy maker Hasbro. The source of the idea: an administrative assistant.

Improving market analysis at 3M
In April 2009, 3M decided to reinvigorate its Markets of the Future process—a critical input to the company’s strategic planning. Previously, says Barry Dayton, the company’s knowledge-management strategist, this process had “consisted of a small group of analysts doing research [about] megatrends and resulting markets of the future.” The company invited all of its sales, marketing, and R&D employees to a Web-based forum called InnovationLive, which over a two-week period attracted more than 1,200 participants from over 40 countries and generated more than 700 ideas. The end result was the identification of nine new future markets with an aggregate revenue potential in the tens of billions of dollars. Since then, 3M has held several additional InnovationLive events, and more are on the way.

The alignment advantage
Spend a few minutes talking with the senior executives involved in any of the initiatives described earlier, and it’s immediately apparent how powerful it is when thousands of people are deeply engaged with a company’s strategy. Those employees not only understand the strategy better but are also more motivated to help execute it effectively and more likely to spot emerging opportunities or threats that require quick adjustments.

Reviewing the data
Research we’ve conducted using McKinsey’s organizational-health index database suggests that none of this should be surprising. That database, which contains the results of surveys collected over more than a decade from upward of 765,000 employees at some 600 companies, facilitates analysis of the nature of organizational health, the factors contributing to it, and its relationship with financial performance. One thing we and our colleagues have seen over and over again through our work is that many organizations struggle with strategic alignment: even at the healthiest companies, about 25 percent of employees are unclear about their company’s direction. That figure rises to nearly 60 percent for companies with poor organizational-health scores.

Similarly, we’ve found that the actions companies can take that are most helpful in aligning individuals with the organization’s direction are moves like “making the vision meaningful to employees at a personal level” and “soliciting employee involvement in setting the company’s direction.” If that’s right, it suggests that making more employees part of the strategy process should be a powerful means of aligning them more closely with the company’s overall direction. The payoff for such cohesion is significant: companies with a top-quartile score in directional alignment are twice as likely as others to have above-median financial performance.

Mobilizing middle management
Of course, adopting social-strategy tools doesn’t automatically create alignment. Companies must create it actively, particularly among middle managers, who as the guardians of everyday operations bear the brunt of making any company’s strategy work.

One airline saw its efforts to mobilize the workforce impaired by the silent noncooperation of middle management in several departments. Closer inspection revealed that middle managers didn’t disagree with the discussion that was under way but felt they deserved a bigger voice in it—and should have been included earlier. They also felt uneasy with the level of transparency in a dialogue involving some 2,000 people, accustomed as they were to managing on a need-to-know basis.

The Dutch insurer AEGON sidestepped problems such as these by breaking its strategy discussion into manageable topics related to everyday operational practices. That allowed middle managers to assume responsibility for the discussion and contribute their expertise. In the words of Marco Keim, CEO of AEGON The Netherlands, “We started a digital-networking platform called AEGON Square and got the conversation going. People gathered in communities of practice and started sharing ideas on how to make the new strategy work. Dialogue really helped in fostering organization-wide alignment.”

Ultimately, middle managers were among the effort’s most enthusiastic supporters—both as contributors themselves and as active recruiters of participants. (In the end, 3,000 employees, 85 percent of the total, participated over 12 months.) Keim acknowledged, though, that building this alignment required a significant cultural change toward more openness, which took time to take hold and required regular reaffirmation by senior executives.

The evolution of strategic leadership
It takes courage to bring more people and ideas into strategic direction setting. Senior executives who launch such initiatives are essentially using their positional authority to distribute power. They’re also embracing the underlying principles—transparency, radical inclusion, egalitarianism, and peer review—of the Web-based social technologies that make it possible to open up direction setting.

Taking these principles to their logical conclusion suggests a shift in the strategic-leadership role of the CEO and other members of the C-suite: from “all-knowing decision makers,” who are expected to know everything and tell others what to do, to “social architects,” who spend a lot of time thinking about how to create the processes and incentives that unearth the best thinking and unleash the full potential of all who work at a company. Making this shift doesn’t imply an abdication of strategic leadership. The CEO and other top executives still have the right—indeed, the responsibility—to step in if things go awry, and of course they continue to be responsible for making the difficult trade-offs that are the essence of good strategy.

But it also may be increasingly important for strategists to lead in different ways. For example, to convey the message that the contribution of employees is of vital importance, top executives should constantly confirm that it is and set the example themselves. This approach requires a more direct, personal, and empathetic exchange than a traditional town hall meeting allows. For a mass digital dialogue to succeed, people need to express themselves openly, which may leave some participants feeling exposed. Leaders can help by demonstrating vulnerability as well—peeling off the layers of formal composure.

Another important element of social-strategy leadership is honestly assessing the readiness of the organization to open up and, in light of that, determining the best way to stimulate engagement. This sounds simple, but overlooking it can be costly. As part of a new strategy dialogue, the leaders of one mutual insurance company enthusiastically called upon its workforce to share reflections on an innovative, soon-to-be-launched life insurance product. Despite the leaders’ expectation that the open call would generate a torrent of endorsements, it was met with a deafening silence. Closer inspection revealed that people were acutely aware of the strategic importance that senior management attached to this innovation. And nobody wanted to wreck the party by openly sharing the prevailing doubts, which were widespread. The doubts proved well founded: within a few months of being launched, the new product was declared a failure and shelved.

This cautionary tale points to a final element of strategic leadership: figuring out ways to encourage dissenting voices. Enabling employees to communicate through ambient signals instead of relying on words and elaborated opinions is an effective way to lower the threshold and still catch the prevailing mood. Familiar examples of ambient dialogue include polls, “liking,”8 and voting—simple functions that allow participants to express an opinion without being exposed. More powerful and sophisticated forms of ambient dialogue include prediction markets (small-scale electronic markets that tie payoffs to measurable future events) and swarming (the visually aggregated representation of the emergent mood or motion within an organization).

Consider how a prediction market might have helped the mutual insurer. The opening market quotation for the new life insurance product would probably have taken a steep dive, revealing the negative assessment of the internal market. This would have immediately alerted managers to potential weaknesses, without exposing the employees who had the courage to reveal the problems.

While these are still early days for social strategy, its potential to enhance the quality of dialogue, improve decision making, and boost organizational alignment is alluring. Realizing that potential will require strategic leaders to flex new muscles and display real courage.

Source: McKinsey Quaterly,
Authors: Arne Gast and Michele Zanini (Arne Gast is a principal in McKinsey’s Amsterdam office; Michele Zanini is a consultant in the Boston office and cofounder of the Management Innovation eXchange (MIX), a Web-based open-innovation project dedicated to reinventing management. McKinsey is a knowledge partner of the MIX)
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As the marketing power of social media grows, it no longer makes sense to treat it as an experiment. Here’s how senior leaders can harness social media to shape consumer decision making in predictable ways.

Executives certainly know what social media is. After all, if Facebook users constituted a country, it would be the world’s third largest, behind China and India. Executives can even claim to know what makes social media so potent: its ability to amplify word-of-mouth effects. Yet the vast majority of executives have no idea how to harness social media’s power. Companies diligently establish Twitter feeds and branded Facebook pages, but few have a deep understanding of exactly how social media interacts with consumers to expand product and brand recognition, drive sales and profitability, and engender loyalty.

We believe there are two interrelated reasons why social media remains an enigma wrapped in a riddle for many executives, particularly nonmarketers. The first is its seemingly nebulous nature. It’s no secret that consumers increasingly go online to discuss products and brands, seek advice, and offer guidance. Yet it’s often difficult to see where and how to influence these conversations, which take place across an ever-growing variety of platforms, among diverse and dispersed communities, and may occur either with lightning speed or over the course of months. Second, there’s no single measure of social media’s financial impact, and many companies find that it’s difficult to justify devoting significant resources—financial or human—to an activity whose precise effect remains unclear.

What we hope to do here is to demystify social media. We have identified its four primary functions—to monitor, respond, amplify, and lead consumer behavior—and linked them to the journey consumers undertake when making purchasing decisions. Being able to identify exactly how, when, and where social media influences consumers helps executives to craft marketing strategies that take advantage of social media’s unique ability to engage with customers. It should also help leaders develop, launch, and demonstrate the financial impact of social-media campaigns (for insight into the world’s biggest social-media market, see “Understanding social media in China”).

In short, today’s chief executive can no longer treat social media as a side activity run solely by managers in marketing or public relations. It’s much more than simply another form of paid marketing, and it demands more too: a clear framework to help CEOs and other top executives evaluate investments in it, a plan for building support infrastructure, and performance-management systems to help leaders smartly scale their social presence. Companies that have these three elements in place can create critical new brand assets (such as content from customers or insights from their feedback), open up new channels for interactions (Twitter-based customer service, Facebook news feeds), and completely reposition a brand through the way its employees interact with customers or other parties.

The social consumer decision journey
Companies have quickly learned that social media works: 39 percent of companies we’ve surveyed already use social-media services as their primary digital tool to reach customers, and that percentage is expected to rise to 47 percent within the next four years.1 Fueling this growth is a growing list of success stories from mainstream companies:

Creating buzz
Eighteen months before Ford reentered the US subcompact-car market with its Fiesta model, it began a broad marketing campaign called the Fiesta Movement. A major element involved giving 100 social-media influencers a European model of the car, having them complete “missions,” and asking them to document their experiences on various social channels. Videos related to the Fiesta campaign generated 6.5 million views on YouTube, and Ford received 50,000 requests for information about the vehicle, primarily from non-Ford drivers. When it finally became available to the public, in late 2010, some 10,000 cars sold in the first six days.

Learning from customers
PepsiCo has used social networks to gather customer insights via its DEWmocracy promotions, which have led to the creation of new varieties of its Mountain Dew brand. Since 2008, the company has sold more than 36 million cases of them.

Targeting customers
Levi Strauss has used social media to offer location-specific deals. In one instance, direct interactions with just 400 consumers led 1,600 people to turn up at the company’s stores— an example of social media’s word-of-mouth effect.

Yet countless others have failed to match these successes: knowing that something works and understanding how it works are very different things. As the number of companies with Facebook pages, Twitter feeds, or online communities continues to grow, we think it’s time for leaders to remind themselves how social media connects with an organization’s broader marketing mission.

Marketing’s primary goal is to reach consumers at the moments, or touch points, that influence their purchasing behavior. Almost three years ago, our colleagues proposed a framework—the “consumer decision journey”—for understanding how consumers interact with companies during purchase decisions.2 Expressing consumer behavior as a winding journey with multiple feedback loops, this new framework was different from the traditional description of consumer purchasing behavior as a linear march through a funnel. Social media is a unique component of the consumer decision journey: it’s the only form of marketing that can touch consumers at each and every stage, from when they’re pondering brands and products right through the period after a purchase, as their experience influences the brands they prefer and their potential advocacy influences others.

A social journey
For more on social media’s relationship to the consumer decision journey, explore this interactive exhibit narrated by coauthor David Edelman.

The fact that social media can influence customers at every stage of the journey doesn’t mean that it should. Depending on the company and industry, some touch points are more important to competitive advantage than others.3 What’s more, our work with dozens of companies adapting to the new marketing environment strongly suggests that the most powerful social-media strategies focus on a limited number of marketing responses closely related to individual touch points along the consumer decision journey. The ten most important responses, range from providing customer service to fostering online communities. One of those ten—monitoring what people say about your brand—is so important that we see it as a core function of social media, relevant across the entire consumer decision journey. The remaining nine responses, organized in three clusters in the exhibit, underpin efforts to use social media to respond to consumer comments, to amplify positive sentiment and activity, and to lead changes in the behavior and mind-sets of consumers.

1. Monitor
Gatorade, a sports drink manufactured by PepsiCo, has been diligently working toward its goal of becoming the “largest participatory brand in the world.”4 It has created a Chicago-based “war room” within its marketing department to monitor the brand in real time across social media. There are seats where team members can track custom-built data visualizations and dashboards (including terms related to the brand, sponsored athletes, and competitors) and run sentiment analyses around product and campaign launches. Every day, all of this feedback is integrated into products and marketing—for example, by helping to optimize the landing page on the company’s Web site. Since the war room’s creation, the average traffic to Gatorade’s online properties, the length of visitor interactions, and viral sharing from campaigns have all more than doubled.

Such brand monitoring—simply knowing what’s said online about your products and services—should be a default social-media function, taking place constantly. Even without engaging consumers directly, companies can glean insights from an effective monitoring program that informs everything from product design to marketing and provides advance warning of potentially negative publicity. It’s also critical to communicate such feedback within the business quickly: whoever is charged with brand monitoring must ensure that information reaches relevant functions, such as communications, design, marketing, public relations, or risk.

2. Respond
Valuable though it is to learn how you are doing and what to improve, broad and passive monitoring is only a start. Pinpointing conversations for responding at a personal level is another form of social-media engagement. This kind of response can certainly be positive if it’s done to provide customer service or to uncover sales leads. Most often, though, responding is a part of crisis management.

Last year, for example, a hoax photograph posted online claimed that McDonald’s was charging African-Americans an additional service fee. The hoax first appeared on Twitter, where the image rapidly went viral just before the weekend as was retweeted with the hashtag #seriouslymcdonalds. It turned out to be a working weekend for the McDonald’s social-media team. On Saturday, the company’s director of social media released a statement through Twitter declaring the photograph to be a hoax and asking key influencers to “please let your followers know.” The company continued to reinforce that message throughout the weekend, even responding personally to concerned Tweeters. By Sunday, the number of people who believed the image to be authentic had dwindled, and McDonald’s stock price rose 5 percent the following day.

Responding in order to counter negative comments and reinforce positive ones will only increase in importance. The responsibility for taking action may fall on functions outside marketing, and the message will differ depending on the situation. No response can be quick enough, and the ability to act rapidly requires the constant, proactive monitoring of social media—on weekends too. By responding rapidly, transparently, and honestly, companies can positively influence consumer sentiment and behavior.

3. Amplify
“Amplification” involves designing your marketing activities to have an inherently social motivator that spurs broader engagement and sharing. This approach means more than merely reaching the end of planning a marketing campaign and then thinking that “we should do something social”—say, uploading a television commercial to YouTube. It means that the core concepts for campaigns must invite customers into an experience that they can choose to extend by joining a conversation with the brand, product, fellow users, and other enthusiasts. It means having ongoing programs that share new content with customers and provide opportunities for sharing back. It means offering experiences that customers will feel great about sharing, because they gain a badge of honor by publicizing content that piques the interest of others.

In the initial phases of the consumer decision journey, when consumers sift through brands and products to determine their preferred options, referrals and recommendations are powerful social-media tools. A simple example is the way online deal sites such as Groupon and Gilt Groupe provide consumers with credit for each first-time purchaser they refer. Our research shows that such direct recommendations from peers generate engagement rates some 30 times higher than traditional online advertising does.

Once a consumer has decided which product to buy and makes a purchase, companies can use social media to amplify their engagement and foster loyalty. When Starbucks wanted to increase awareness of its brand, for example, it launched a competition challenging users to be the first to tweet a photograph of one of the new advertising posters that the company had placed in six major US cities, providing winners with a $20 gift card. This social-media brand advocacy effort delivered a marketing punch that significantly outweighed its budget. Starbucks said that the effort was “the difference between launching with millions of dollars versus millions of fans.”5

Marketers also can foster communities around their brands and products, both to reinforce the belief of consumers that they made a smart decision and to provide guidance for getting the most from a purchase. Software company Intuit, for example, launched customer service forums for its Quicken and QuickBooks personal-finance software so users could help one another with product issues. The result? Users rather than Intuit employees answer about 80 percent of the questions, and the company has employed user comments to make dozens of significant changes to its software.

4. Lead
Social media can be used most proactively to lead consumers toward long-term behavioral changes. In the early stages of the consumer decision journey, this may involve boosting brand awareness by driving Web traffic to content about existing products and services. When grooming-products group Old Spice introduced its Old Spice Man character to viewers, during the US National Football League’s 2010 Super Bowl, for example, the company’s ambition was to increase its reach and relevance to both men and women. The commercial became a phenomenon: starring former player Isaiah Mustafa, it got more than 19 million hits across all platforms, and year-on-year sales for the company’s products jumped by 27 percent within six months.

Marketers also can use social media to generate buzz through product launches, as Ford did in launching its Fiesta vehicle in the United States. For example, social media played an integral role in the success of “Small Business Saturday,” the US shopping promotion created by American Express for the weekend immediately following Thanksgiving (for American Express CMO John Hayes’s perspective on that launch, see “How we see it: Three senior executives on the future of marketing,” on mckinseyquarterly.com). In addition, when consumers are ready to buy, companies can promote time-sensitive targeted deals and offers through social media to generate traffic and sales. Online menswear company Bonobos, for example, provided an incentive for its Twitter followers by unlocking a discount code after its messages were resent a certain number of times. As a result of this effort, almost 100 consumers bought products from the site for the first time. The campaign delivered a 1,200 percent return on investment in just 24 hours.

Finally, social media can solicit consumer input after the purchase. This ability to gain product-development insights from customers in a relatively inexpensive way is emerging as one of social media’s most significant advantages. Intuit, for example, has its community forums. Starbucks uses MyStarbucksIdea.com to collect its customers’ views about improving the company’s products and services and then aggregates submitted ideas and prominently displays them on a dedicated Web site. That site groups ideas by product, experience, and involvement; ranks user participation; and shows ideas actively under consideration by the company and those that have been implemented.

Converting knowledge to action
Despite offering numerous opportunities to influence consumers, social media still accounts for less than 1 percent of an average marketing budget, in our experience. Many chief marketing officers say that they want to increase that share to 5 percent. One problem is that a lot of senior executives know little about social media. But the main obstacle is the perception that the return on investment (ROI) from such initiatives is uncertain.

Without a clear sense of the value social media creates, it’s perhaps not surprising that so many CEOs and other senior executives don’t feel comfortable when their companies go beyond mere “experiments” with social-media strategy. Yet we can measure the impact of social media well beyond straight volume and consumer-sentiment metrics; in fact, we can precisely determine the buzz surrounding a product or brand and then calculate how social media drives purchasing behavior. To do so—and then ensure that social media complements broader marketing strategies—companies must obviously coordinate data, tools, technology, and talent across multiple functions. In many cases, senior business leaders must open up their agendas and recognize the importance of supporting and even undertaking initiatives that may traditionally have been left to the chief marketing officer. As our colleagues noted last year, “we’re all marketers now.”6

Consider the experience of a telecommunications company that proactively adopted social media but had no idea if its efforts were working. The company had launched Twitter-based customer service capabilities, several promotional campaigns built around social contests, a fan page with discounts and tech tips, and an active response program to engage with people speaking about the brand. In social-media terms, the investment was relatively large, and the company’s senior executives wanted more than anecdotal evidence that the strategy was paying off. As a starting point, to ensure that the company was doing a quality job designing and executing its social presence, it benchmarked its efforts against approaches used by other companies known to be successful in social media. It then advanced the following hypotheses:

• If all of these social-media activities improve general service perceptions about the brand, that improvement should be reflected in a higher volume of positive online posts.7
• If social sharing is effective, added clicks and traffic should result in higher search placements.
• If both of these assumptions hold true, social-media activity should help drive sales—ideally, at a rate even higher than the company could achieve with its average gross rating point (GRP) of advertising expenditures.8
The company then tested its options. At various times, it spent less money on conventional advertising, especially as social-media activity ramped up, and it modeled the rising positive sentiment and higher search positions just as it would using traditional metrics. The company concluded that social-media activity not only boosted sales but also had higher ROIs than traditional marketing did. Thus, while the company took a risk by shifting emphasis toward social-media efforts before it had data confirming that this was the correct course, the bet paid off. What’s more, the analytic baseline now in place has given the company confidence to continue exploring a growing role for social media.

In other cases, social media may have a more specific role, such as helping to launch a new product or to mitigate negative word of mouth. Similar types of analyses can focus on mixing the impact of buzz, search, and traffic; correlating that with sales or renewals (or whatever the key metric may be); and then gauging the result against total costs. This approach can give executives the confidence and focus they need to invest more money, time, and resources in social media.

As these social-media activities gain scale, the challenges center less around justifying funding and more around organizational issues such as developing the right processes and governance structure, identifying clear roles—for all involved in social-media strategy, from marketing to customer service to product development—and bolstering the talent base, and improving performance standards. New capabilities abound, and social-media best practices are barely starting to emerge. We do know this: because social-media influences every element of the consumer decision journey, communication must take place between as well as within functions. That complicates lines of reporting and decision-making authority.

If insights from monitoring social media are relevant to nonmarketing functions such as product development, for instance, how will you identify and disseminate that information efficiently and effectively—and then ensure that it gets used? If you spot an opportunity to have a meaningful conversation with a key influencer, how will you quickly engage the right senior executive to follow through? If you recognize a fast-moving service concern, how will you respond rapidly and openly—and when should you do so outside the traditional service organization? Senior executives across the company must recognize and begin to answer such questions.

Social media is extending the disruptive impact of the digital era across a broad range of functions. Meanwhile, the perceived lack of metrics, the fear, and the limited sense of what’s possible are eroding. Executives can identify the functions, touch points, and goals of social-media activities, as well as craft approaches to measure their impact and manage their risks. The time is ripe for executive-suite discussions on how to lead and to learn from people within your company, marketers outside it, and, most of all, your customers.

Source: McKinsey Quaterly, Roxine Divol, Hugo Sarrazin and David Edelman, 2 May 2012
Read the full article here
About the Author
Roxane Divol is a principal in McKinsey’s San Francisco office, David Edelman is a principal in the Boston office, and Hugo Sarrazin is a director in the Silicon Valley office.

Inom ramen för mitt arbete med Executive Coaching och ledningsgruppsutveckling talar jag ofta om de allt större utmaningarna i att allt snabbare ställa om sin organisation (Change Management) och att implementera sina strategiska beslut allt mer tids- och kostnadseffektivt (Strategiimplementering). Ett par av de bidragen orsakerna till att detta blir allt viktigare är den allt snabbare teknikutvecklingen och de allt vanliga “branschgildningarna” (brancher som tidigare inte ens berörde varandra glider ihop och blir plötsliga konkurrenter). Vem på Nokia hade för fem år sedan trott att man skulle konkurrera med Google i försäljning av mobiltelefoner?

För att förankra rätt inställning i sin organisation (du vet väl om din organisation har rätt inställning? Annars, läs mer här) bör man hela tiden lyfta fram konkreta exempel på vad som händer i andra branscher.
Här följer ett riktigt bra exempel:

Möbeljättens nya TV-satsning utmanar de redan pressade elektronikkedjorna. “Ikea är en fantastisk säljmaskin, det ska man ha respekt för”, säger Anders Dahsltröm, vd på Audio Video-kedjan, till IT24.

Prylar Ikea står för veckans prylchock i och med lanseringen av nya hemmabioprodukten Uppleva. Den nya möbeln har inbyggd tv och hemmabiosystem och börjar säljas i juni 2012 av Ikea.
Långt in på onsdagen ekar smällen efter Ikeas prylbomb i hemelektronikbranschen.

Jessica Wallin, kommunikatinsansvarig på Elgiganten, säger till IT24 att det handlar om ett nytt koncept och att det därför är svårt att bedöma hur det påverkar hemelektronikmarknaden.
“De kanske tilltalar en kundgrupp som vi inte har träffat med vårt erbjudande”, säger hon.

Tolga Öncu, försäljningschef på Ikea Sverige, är märkbart stolt.
“Det känns fantastiskt att vi nu också kan har en helhetslösning för vardagsrummet. Med denna integrerade bild- och ljudmöbel kan vi erbjuda snygga, sladdfria och prisvärda lösningar till de många människorna. Uppleva är ett innovativt steg in på en ny marknad för Ikea”, sade han i ett pressmeddelande i går.

Anders Dahsltröm på Audio Video är något tveksam till produkten men säger samtidigt till IT24 att man ska akta sig att döma ut Ikea, som är kända för sitt grundlig förarbete. Han trodde inte att möbeljätten skulle lyckas med vitvaror heller – något han senare fått äta upp.

Det ryktas om att den Kinatillverkade tv:n kommer att kunna fås i storlekar från 20 tum och uppåt. Tv:n har enligt tidningen M3 full HD-upplösning, inbyggd internetuppkoppling och spelare för bluray, cd och dvd. I möbeln finns inbyggda högtalare.

Uppleva tv från Ikea kostar från ca 6.500 kronor.

Tidningen M3:s krönikör Andreas Ivarsson kallar Ikeas satsning “smart och modig”.
” Jag kommer också att tänka på ett annat företag som gjorde en modig satsning för några år sedan i en bransch man inte varit inne i tidigare. Jag tänker på Apple och Iphone. Många var skeptiska i början och den första versionen kunde inte ens skicka mms, resten är historia”, skriver han men passar dock på att lägga in en brasklapp:

“Ikea kommer knappast revolutionera på Applemanér, men företaget gör det man är bäst på: tillverka produkter som håller tillräcklig kvalitet för ett pris som gör att en stor massa köper det.”

Källa: Dagensps.se, 19 april 2012
Läs hela artikel här

Most companies allocate the same resources to the same business units year after year. That makes it difficult to realize strategic goals and undermines performance. Here’s how to overcome inertia.

Picture two global companies, each operating a range of different businesses. Company A allocates capital, talent, and research dollars consistently every year, making small changes but always following the same broad investment pattern. Company B continually evaluates the performance of business units, acquires and divests assets, and adjusts resource allocations based on each division’s relative market opportunities. Over time, which company will be worth more?

If you guessed company B, you’re right. In fact, our research suggests that after 15 years, it will be worth an average of 40 percent more than company A. We also found, though, that the vast majority of companies resemble company A. Therein lies a major disconnect between the aspirations of many corporate strategists to boldly jettison unattractive businesses or double down on exciting new opportunities, and the reality of how they invest capital, talent, and other scarce resources.

For the past two years, we’ve been systematically looking at corporate resource allocation patterns, their relationship to performance, and the implications for strategy. We found that while inertia reigns at most companies, in those where capital and other resources flow more readily from one business opportunity to another, returns to shareholders are higher and the risk of falling into bankruptcy or the hands of an acquirer lower.

We’ve also reviewed the causes of inertia (such as cognitive biases and politics) and identified a number of steps companies can take to overcome them. These include introducing new decision rules and processes to ensure that the allocation of resources is a top-of-mind issue for executives, and remaking the corporate center so it can provide more independent counsel to the CEO and other key decision makers.

We’re not suggesting that executives act as investment portfolio managers. That implies a search for stand-alone returns at any cost rather than purposeful decisions that enhance a corporation’s long-term value and strategic coherence. But given the prevalence of stasis today, most organizations are a long way from the head-long pursuit of disconnected opportunities. Rather, many leaders face a stark choice: shift resources among their businesses to realize strategic goals or run the risk that the market will do it for them. Which would you prefer?

Weighing the evidence
Every year for the past quarter century, US capital markets have issued about $85 billion of equity and $536 billion in associated corporate debt. During the same period, the amount of capital allocated or reallocated within multibusiness companies was approximately $640 billion annually—more than equity and corporate debt combined.1 While most perceive markets as the primary means of directing capital and recycling assets across industries, companies with multiple businesses actually play a bigger role in allocating capital and other resources across a spectrum of economic opportunities.

To understand how effectively corporations are moving their resources, we reviewed the performance of more than 1,600 US companies between 1990 and 2005.2 The results were striking. For one-third of the businesses in our sample, the amount of capital received in a given year was almost exactly that received the year before—the mean correlation was 0.99. For the economy as a whole, the mean correlation across all industries was 0.91.

In other words, the enormous amount of strategic planning in corporations seems to result, on the whole, in only modest resource shifts. Whether the relevant resource is capital expenditures, operating expenditures, or human capital, this finding is consistent across industries as diverse as mining and consumer packaged goods. Given the performance edge associated with higher levels of reallocation, such static behavior is almost certainly not sensible. Our research showed the following:

• Companies that reallocated more resources—the top third of our sample, shifting an average of 56 percent of capital across business units over the entire 15-year period—earned, on average, 30 percent higher total returns to shareholders (TRS) annually than companies in the bottom third of the sample. This result was surprisingly consistent across all sectors of the economy. It seems that when companies disproportionately invest in value-creating businesses, they generate a mutually reinforcing cycle of growth and further investment options (Exhibit 2).
• Consistent and incremental reallocation levels diminished the variance of returns over the long term.
• A company in the top third of reallocators was, on average, 13 percent more likely to avoid acquisition or bankruptcy than low reallocators.
• Over an average six-year tenure, chief executives who reallocated less than their peers did in the first three years on the job were significantly more likely than their more active peers to be removed in years four through six. To paraphrase the philosopher Thomas Hobbes, tenure for static CEOs is likely to be nasty, brutish, and, above all, short.

We should note the importance of a long-term view: over time spans of less than three years, companies that reallocated higher levels of resources delivered lower shareholder returns than their more stable peers did. One explanation for this pattern could be risk aversion on the part of investors, who are initially cautious about major corporate capital shifts and then recognize value only once the results become visible. Another factor could be the deep interconnection of resource allocation choices with corporate strategy. The goal isn’t to make dramatic changes every year but to reallocate resources consistently over the medium to long term in service of a clear corporate strategy. That provides the time necessary for new investments to flourish, for established businesses to maximize their potential, and for capital from declining investments to be redeployed effectively. Given the richness and complexity of the issues at play here, differences in the relationship between short- and long-term resource shifts and financial performance is likely to be a fruitful area for further research.

Why companies get stuck
Why do so many companies undermine their strategic direction by allocating the same levels of resources to business units year after year? The reasons vary widely, from the very bad—companies operating on autopilot—to the more sensible. After all, sometimes it’s wise to persist with previously chosen resource allocations, especially if there are no viable reallocation opportunities or if switching costs are too high. And companies in capital-intensive sectors, for example, often have to commit resources more than five years ahead of time to long-term programs, leaving less discretionary capital to play with.

For the most part, however, the failure to pursue a more active allocation agenda is a result of organizational inertia that has multiple causes. We’ll focus here on cognitive biases and corporate politics, but regardless of source, inertia’s gravitational pull is strong—and overcoming it is critical to creating an effective corporate strategy. As author and Kleiner Perkins Caufield & Byers partner Randy Komisar told us, “If corporations don’t approach rebalancing as fiduciaries for long-term corporate value, their life span will decline as creative destruction gets the better of them.”

Cognitive biases
Biases such as anchoring and loss aversion, which are deeply rooted in the workings of the human brain and have been much studied by behavioral economists, are major contributors to the inertia that prevents more active reallocation.3 Anchoring refers to the tendency to use any number, even an irrelevant one, as an anchor for future choices. Judges asked to roll a pair of dice before making a simulated sentencing decision, for example, are influenced by the result of that roll, even though they deny they are.

Within a company, last year’s budget allocation often serves as a ready, salient, and justifiable anchor during the planning process. We know this to be true in practice, and it’s been reinforced for us recently as we’ve played a business game with several groups of senior executives. The game asked participants to allocate a capital budget across a fictitious company’s businesses and provided players with identical growth and return projections for the relevant markets. Half of the group also received details of the previous year’s capital allocation. Those without last year’s capital budget all allocated resources in a range that optimized for the expected outlook in market growth and returns. The other half aligned capital far more closely with last year’s pattern, which had little to do with the potential for future returns. And this was a game where the company was fictitious and no one’s career was at risk!

In reality, anchoring is reinforced by loss aversion: losses typically hurt us at least twice as much as equivalent gains give us pleasure. That reduces the appetite for taking risks and makes it painful for managers to give up resources.

Corporate politics
A second major source of inertia is political. There’s often a tight alignment between the interests of senior executives and those of their divisions or business units, whose ability to attract capital can significantly influence the personal credibility of a leader. Indeed, because executives are competing for resources, anyone who wins less than he or she did last year is invariably seen as weak. At the extreme, leaders of business units and divisions see themselves as playing for their own “teams” rather than for the corporation as a whole, making it challenging to reallocate resources significantly. Even if a reduction in resources to their division benefits the company as a whole, ambitious leaders are unlikely to agree without a fight. As one CEO told us: “If you’re asking me to play Robin Hood, that’s not going to work.”

Overcoming inertia
Tempting as it is to believe that one’s own company avoids these traps, our research suggests that’s unlikely. Our experience also suggests, though, that taking steps such as those described below can materially improve a company’s resource allocation and its connection to strategic priorities. These imperatives apply not just to capital but also to other scarce resources, such as talent, R&D dollars, and marketing expenditures. All of these also are subject to the forces of inertia, which can undermine an organization’s ability to achieve its strategic goals. Consider one company we know that prioritized expanding in China. It set an ambitious sales growth target for the country and planned to meet it by supplementing organic growth with a series of acquisitions. Yet it identified just three people to spearhead this strategic imperative— a small fraction of the number required, which is typical of the problems that arise when the link between corporate strategy and resource allocation is weak. Here are four ideas for doing better.

1. Have a target corporate portfolio.
There’s a quote attributed to author Lewis Carroll: “If you don’t know where you are going, any road will take you there.” When it comes to developing an allocation agenda, it’s helpful to have a target portfolio in mind. Most companies resist this, for understandable reasons: it requires a lot of conviction to describe planned portfolio changes in anything but the vaguest terms, and the right answers may change if the broader business environment turns out to be different from the expected one.

In our experience, though, a target portfolio need not be slavish or mechanistic and can be a powerful forcing device to move beyond generic strategy statements, such as “strengthen in Asian markets” or “continue to migrate from products to services.” Identifying business opportunities where your company wants to increase its exposure can create a foundation for scrutinizing how it allocates capital, talent, and other resources.

Setting targets is just a starting point; companies also need mechanisms for revisiting and adjusting them over time. For example, Google holds a quarterly review process that examines the performance of all core product and engineering areas against three measures: what each area did in the previous 90 days and forecasts for the next 90 days, its medium-term financial trajectory, and its strategic positioning. And the company has ensured that it can allocate resources in an agile way by not having business units, which diminishes the impact of corporate politics.4

Evaluating reallocation performance relative to peers also can help companies set targets. From 1990 to 2009, for example, Honeywell reallocated about 25 percent of its capital as it shifted away from some existing business areas toward aerospace, air conditioning, and controls (for more on Honeywell’s approach to resource allocation, see our interview with Andreas C. Kramvis, president and CEO of Honeywell Performance Materials and Technologies, in “Breaking strategic inertia: Tips from two leaders”). Honeywell’s competitor Danaher, which was in similar businesses in 1990, moved 66 percent of its capital into new ones during the same period. Both companies achieved returns above the industry average in these years—TRS for Honeywell was 14 percent and for Danaher 25 percent. We’re not suggesting that companies adopt a mind-set of “more is better, and if my competitor is making big moves, I should too.” But differences in allocation levels among peer companies can serve as valuable clues about contrasting business approaches—clues that prompt questions yielding strategic insights.

2. Use all available resource reallocation tools.
Talking about resource allocation in broad terms oversimplifies the choices facing senior executives. In reality, allocation comprises four fundamental activities: seeding, nurturing, pruning, and harvesting. Seeding is entering new business areas, whether through an acquisition or an organic start-up investment. Nurturing involves building up an existing business through follow-on investments, including bolt-on acquisitions. Pruning takes resources away from an existing business, either by giving some of its annual capital allocation to others or by putting a portion of the business up for sale. Finally, harvesting is selling whole businesses that no longer fit a company’s portfolio or undertaking equity spin-offs.

Our research found that there’s little overall difference between the seeding and harvesting behavior of low and high reallocators. This should come as little surprise: seeding involves giving money to new business opportunities—something that’s rarely resisted. And while harvesting is difficult, it most often occurs as a result of a business unit’s sustained underperformance, which is difficult to ignore.

However, we found a 170 percent difference in activity levels between high and low reallocators when it came to the combination of nurturing and pruning existing businesses. Together, these two represent half of all corporate reallocation activity. Both are difficult because they often involve taking resources from one business unit and giving them to another. What’s more, the better a company is at encouraging seeding, the more important nurturing and pruning become—nurturing to ensure the success of new initiatives and pruning to eliminate flowers that won’t ever bloom.

Consider, for example, the efforts of Google CEO Larry Page, over the past 12 months, to cope with the flowering of ideas brought forth by the company’s well-known “20 percent rule,” which allows engineers to spend at least one-fifth of their time on personal projects and has resulted in products such as AdSense, Gmail, and Google News. These successes notwithstanding, the 20 percent rule also has yielded many peripheral projects, which Page has recently been pruning.5

3. Adopt simple rules to break the status quo.
Simple decision rules can help minimize political infighting because they change the burden of proof from the typical default allocation (“what we did last year”) to one that makes it impossible to maintain the status quo. For example, a simple harvesting rule might involve putting a certain percentage of an organization’s portfolio up for sale each year to maintain vibrancy and to cull dead wood.

When Lee Raymond was CEO of Exxon Mobil, he required the corporate-planning team to identify 3 to 5 percent of the company’s assets for potential disposal every year. Exxon Mobil’s divisions were allowed to retain assets placed in this group only if they could demonstrate a tangible and compelling turnaround program. In essence, the burden on the business units was to prove that an asset should be retained, rather than the other way around. The net effect was accelerated portfolio upgrading and healthy turnover in the face of executives’ natural desire to hang on to underperforming assets. Another approach we’ve observed involves placing existing businesses into different categories—such as “grow,” “maintain,” and “dispose”— and then following clearly differentiated resource-investment rules for each. The purpose of having clear investment rules for each category of business is to remove as much politics as possible from the resource allocation process.

Sometimes, the CEO may want a way to shift resources directly, in parallel with regular corporate processes. One natural-resources company, for example, gave its CEO sole discretion to allocate 5 percent of the company’s capital outside of the traditional bottom-up annual capital allocation process. This provided an opportunity to move the organization more quickly toward what the CEO believed were exciting growth opportunities, without first having to go through a “pruning” fight with the company’s executive-leadership committee.

Of course, the CEO and other senior leaders will need to reinforce discipline around such simple allocation rules; it’s not easy to hold the line in the face of special pleading from less-favored businesses. Developing that level of clarity—not to mention the courage to fight tough battles that arise as a result—often requires support in the form of a strong corporate center or a strategic-planning group that’s independent of competing business interests and can provide objective information (for more on the importance of the corporate center to resource reallocation, see “The power of an independent corporate center”).

4. Implement processes to mitigate inertia.
Systematic processes can strengthen allocation activities. One approach, explored in detail by our colleagues Sven Smit and Patrick Viguerie, is to create planning and management processes that generate a granular view of product and market opportunities.6 The overwhelming tendency is for corporate leaders to allocate resources at a level that is too high—namely, by division or business unit. When senior management doesn’t have a granular view, division leaders can use their information advantage to average out allocations within their domains.

Another approach is to revisit a company’s businesses periodically and engage in a process similar to the due diligence conducted for investments. Executives at one energy conglomerate annually ask whether they would choose to invest in a business if they didn’t already own it. If the answer is no, a discussion about whether and how to exit the business begins.

Executives can further strengthen allocation decisions by creating objectivity through re-anchoring—that is, giving the allocation an objective basis that is independent of both the numbers the business units provide and the previous year’s allocation. There are numerous ways to create such independent, fact-based anchors, including deriving targets from market growth and market share data or leveraging benchmarking analysis of competitors. The goal is to create an objective way to ask business leaders this tough question: “If we were to triangulate between these different approaches, we would expect your investments and returns to lie within the following range. Why are your estimates so much higher (or lower)?” (For more on re-anchoring, see “Re-anchor your next budget meeting” on the Harvard Business Review Web site.)

Finally, it’s worth noting that technology is enabling strategy process innovations that stir the pot through internal discussions and “crowdsourcing.” For example, Rite-Solutions, a Rhode Island–based company that builds advanced software for the US Navy, defense contractors, and first responders, derives 20 percent of its revenue from businesses identified through a “stock exchange” where employees can propose and invest in new ideas (for more on this, see “The social side of strategy,” forthcoming on mckinseyquarterly.com).

Much of our advice for overcoming inertia within multibusiness companies assumes that a corporation’s interests are not the same as the cumulative resource demands of the underlying divisions and businesses. As they say, turkeys do not vote for Christmas. Putting in place some combination of the targets, rules, and processes proposed here may require rethinking the role and inner workings of a company’s strategic- and financial-planning teams. Although we recognize that this is not a trivial endeavor, the rewards make the effort worthwhile. A primary performance imperative for corporate-level executives should be to escape the tyranny of inertia and create more dynamic portfolios.

Source: Stephen Hall and Reinier Musters, McKinsey Quaterly, March 2012
Link

Vi lever i en värld där allt förändras snabbare än någonsin tidigare. Det skapar helt nya möjligheter för alla oss konsumenter. Men det innebär också helt andra marknads- och konkurrensmässiga förutsättningar för alla företag och organisationer.

Detta skapar ett flertal både strategiska och operativa konsekvenser som alla till större eller mindre del påverkar dels möjligheterna till framgång, dels det operativa ledarskapet. Gårdagens ledare, som lett och utvecklat företaget framgångsrikt, är inte i många fall inte längre rätt personer att leda företaget under de kommande tio åren.

Men stämmer det verkligen? Är förändringarna verkligen så stora och sker de så snabbt? Frågan är högst berättigas. Och den bör adresseras ”faktabaserat”. Inom ramen för vårt arbete (www.3s.se) att utveckla våra uppdragsgivares sätt att öka sin framgång med hjälp av Fact Based Management (läs mer här) gör vi en årlig ”StrategiBarometer™ där vi frågar chefer i ledande befattning (ledningsgruppsmedlemmar) hur man ser på företagets strategiarbete och dess förutsättningar och framgång. Den senaste StrategiBarometern(TM) visar att 93% av alla chefer håller med om att ”marknads- och konkurrensförutsättningarna förändras allt snabbare”.

En följd av detta är att företagen måste bli duktigare, ja t.o.m. mycket duktigare, på att ”gå från ord till handling” mycket snabbare än tidigare. Man kan idag köpa tre olika IPhone 5-kopior i Shanghai redan innan Apple släppt releasedatumet!

Följden blir initialt att strategiarbetet måste utvecklas. Inom ramen för mina Executive Coaching-uppdrag (läs mer här) diskuterar jag ofta med VDar om hur det ska gå till.

För tjugo år sedan handlade framgångsrikt strategiarbete i första hand om ”smartness” i att designa en strategi där man skulle sticka ut och skilja sig åt mot konkurrenterna. Det är idag allt svårare! Det finns så många bra aktörer, med kvalitativa och kompletta produkter och erbjudanden, att det blir allt svårare att verkligen skilja sig åt. I alla fall om du frågor kunderna. Och de är ju trots allt (och trots att allt förändras allt snabbare och så mycket) kunderna som fattar köpbesluten!
Visst! Det ger fortfarande att skilja sig åt. Men det blir allt svårare. Och framförallt blir det man gör kopierat snabbare än tidigare. Det innebär att vi måste utveckla vårt sätt att arbeta strategiskt framgångsrikt mot ett allt större fokus på genomförandet / implementeringen.

I den senaste StrategiBarometern™ ansåg merparten av cheferna att man inte lägger tillräckligt med tid på implementeringen av sina avgörande strategier och i det totala strategiarbetet (analys, beslut, genomförande och uppföljning) anser en majoritet att det är inom området ”genomförandet” man ser den absolut största förbättringspotentialen.

Om just genomförandet / implementeringen då är så viktigt, mäter man framgången?
Nej, det visar sig att endast 26% av företagen mäter och målsätter implementeringen av sina strategier. Detta trots att alla företagsledningar jag möter säger att ”det är direkt avgörande för vår framgång”!

På temat ”strategiförankring” kan du gärna läsa mer om det under området Executive Coaching, Fact Based Management eller i följande artikel:

Keys to Strategic Planning Implementation Success

These are the keys to effective strategic planning implementation for your business.
• Full and active executive support,
• Effective communication,
• Employee involvement,
• Thorough organizational planning and competitive analysis, and
• Widespread perceived need for the strategic planning.

If you are implementing your strategic planning in an organizational environment that is already employee-oriented, with a high level of trust, you start the strategic planning implementation with a huge plus. An additional plus is an organization that already thinks strategically.

Unfortunately, the implementation of strategic planning most frequently occurs as an organization moves from being traditionally reactionary to strategic. So, often, learning to think strategically is part of the strategic planning implementation learning curve.

Full and Active Executive Support for Successful Strategic Planning
Successful strategic planning implementation requires a large commitment from executives and senior managers, whether the strategic planning is occurring in a department or in a complete organization. Executives must lead, support, follow-up, and live the results of the strategic planning implementation process. Or, the strategic planning implementation process will fail. It’s as simple as that.

Without the full commitment of the organization’s senior executives, don’t even start strategic planning. Participants will feel fooled and misled. A vision statement and a mission statement, along with this year’s goals, filed, unimplemented in a cabinet or computer, is a serious source of negativity and poor employee morale.

Senior leaders can do the following to create a successful strategic planning implementation process.
Establish a clear vision for the strategic planning implementation process.
Paint a picture of where the organization will end up and the anticipated outcomes. Make certain the picture is one of reality and not what people “wish” would occur. Make sure key employees know “why” the organization is changing.

Appoint an executive champion or leader who “owns” the strategic planning implementation process and makes certain other senior managers, as well as other appropriate people in the organization, are involved.

Source. about.com, March 2012

We live in a world where everything is changing faster than ever before. It creates new opportunities for all of us consumers. But it also means a completely different and more challenging market and competitive conditions for all businesses and organizations.

This creates a number of strategic and operational implications that to a greater or lesser extent affects the chances of success as well as the operational leadership. Yesterday’s leader, who has led and developed the company successfully, is in many cases no longer the right person to lead the company over the next ten years to come.

But is it really so? Is change really that big and are they occurring so quickly? The question is more than justified. And it should be addressed “Fact Based”.
As part of our work (www.3s.se) to develop our clients ways to increase their success with the help of Fact Based Management (read more here), we make an annual Strategy Barometer ™, where we ask managers in leading positions (management team members) how they look at the company’s strategy and its prerequisites and success. The latest Strategy Barometer™ shows that 93% of managers agree that the “market and competitive conditions change faster than ever before”.

A consequence of this is that the management and must be more skilled in “moving from words to action” much faster than before. You can already buy three different IPhone 5-copies in Shanghai even before Apple released the release date!

As a result, initially the overall strategy process must be developed. As part of my Executive Coaching assignments (read more here), I discuss frequently with CEOs on how to make that happened.

Twenty years ago a successful strategy was mainly about “smartness” in designing a strategy that would stand out and be different to its competitors. Today that is increasingly difficult! There are so many great players, with qualitative and complete products and offers, making it increasingly difficult to really differ. At least if you ask the customers. And they are, after all (and despite the fact that everything is changing faster and faster) the customers who make the buying decisions!
Sure! It still differs. But it becomes increasingly difficult. And above all your successful products and way of acting will be copied faster than ever before. This means that we must develop our strategic processes with an increased focus on implementation.

The latest Strategy Barometer ™ we found that the majority of the managers saying that they don´t invest enough time on the implementation of its key strategies and in the overall strategy process (analysis, decision, implementation and follow-up), a majority says that it is within the “implementation” they find the biggest potential for improvement.

If the right execution / implementation is so important, do you measure success?
No, it turns out that only 26% of companies measure and set goals on how quick and successful they implement their strategies (internally as well as externally). This despite the fact that all business leaders I meet say that “it is crucial to our success!”

On the theme of “strategy implementation” you can feel free to read more about it in the field of Executive Coaching, Fact Based Management or in the following article:

Keys to Strategic Planning Implementation Success

These are the keys to effective strategic planning implementation for your business.
• Full and active executive support,
• Effective communication,
• Employee involvement,
• Thorough organizational planning and competitive analysis, and
•Widespread perceived need for the strategic planning.

If you are implementing your strategic planning in an organizational environment that is already employee-oriented, with a high level of trust, you start the strategic planning implementation with a huge plus. An additional plus is an organization that already thinks strategically.

Unfortunately, the implementation of strategic planning most frequently occurs as an organization moves from being traditionally reactionary to strategic. So, often, learning to think strategically is part of the strategic planning implementation learning curve.

Full and Active Executive Support for Successful Strategic Planning

Successful strategic planning implementation requires a large commitment from executives and senior managers, whether the strategic planning is occurring in a department or in a complete organization. Executives must lead, support, follow-up, and live the results of the strategic planning implementation process. Or, the strategic planning implementation process will fail. It’s as simple as that.

Without the full commitment of the organization’s senior executives, don’t even start strategic planning. Participants will feel fooled and misled. A vision statement and a mission statement, along with this year’s goals, filed, unimplemented in a cabinet or computer, is a serious source of negativity and poor employee morale.

Senior leaders can do the following to create a successful strategic planning implementation process.
Establish a clear vision for the strategic planning implementation process.
Paint a picture of where the organization will end up and the anticipated outcomes. Make certain the picture is one of reality and not what people “wish” would occur. Make sure key employees know “why” the organization is changing.

Appoint an executive champion or leader who “owns” the strategic planning implementation process and makes certain other senior managers, as well as other appropriate people in the organization, are involved.

Source. about.com, March 2012

Befinner mig just nu i Bangkok. Har haft en halvdags möte med en potentiell uppdragsgivare. En del av vår halvdag handlade om hur den allt snabbare förändrade marknads- och konkurrenssituationen förändrar kundernas sätt att göra affärer, välja produkter och tjänster samt väljer sina leverantörer och / eller samarbetspartners utifrån andra kriterier än tidigare.
Det är samma situation överallt, oavsett om det handlar om B2B eller konsumentprodukter, kundernas köpbeteenden förändras snabbare än någonsin tidigare. Och vinnarna är de företag som fullt förstår hur detta påverkar deras framgång, både kort- och långsiktigt. Och precis som hemma i Sverige, handlar det i första hand om att verkligen förstå detta! Och precis samma diskussion hade jag förra veckan i Atlanta, USA, med ett företag med en ledande position i Nordamerika.
Se till att Du tillhör kategorin av företag som “får saker att hända” genom att ligga i framkant vad gäller att både förstå vad som händer med kundernas köpbeslut och vad som krävs i form av ett förändrat beteende i interaktionen med kunderna. Att implementera denna förståelse är en nyckel för framgång!
Min fortsatt dialog med den potentiella uppdragsgivaren här i Thailand handlar om hur vi tillsammans skall kunna mäta framgången i strategiimplementeringen både internt (via en utvecklad form av medarbetarkartläggningar) och externt (via strategiska kundkartläggningar). Slutprodukten blir ett system som möjliggör:
- målsättningar av nyckelbeteenden för framgång
- nyckeltal som ger en tydlig och mätbar indikation om framtida framgång
- möjlighet att styra på framtida nyckelmått (och inte som idag, enbart mäta framgången i form av historiska resultat (vinst, omsättning, marknadsandelstillväxt m.m.)).
- individuella mål för nyckelchefer
- möjlighet att styra ersättningssystemet mor vad som ger långsiktig framgång
Läs gärna mer om hur vi (www.3s.se) stöder uppdragsgivare i mer än 70 länder att mäta framgången i sin strategiimplementering här.

Läs mer om hur kundernas köpbeteenden förändras i nedanstående artikel från JaJaMag:

Smartmobiler har skapat nya researchmönster inför köp. Det vanligaste beteendet är att använda smartmobilen för att researcha och sedan genomföra köpet i en fysisk butik, enligt undersökningen 2011 Post-Holiday Recap från Google.
Hela 76 procent av de amerikanska konsumenterna researchade på nätet inför köp under julhandeln, enligt rapporten 2011 Post-Holiday Recap. Nätet var utan konkurrens den viktigaste informationskällan inför julshoppingen.

Allt fler använde smartmobilen under julhandeln.
- 12 procent av trafiken till detaljhandlares webbsidor kom från smartmobiler
- 9 procent av onlineköpen skedde från smartmobiler

Att handla direkt från smartmobilen är inte det vanligaste sättet att använda mobilen vid inköp för smartmobilägare.
– 47 procent researchade med mobilen, men genomförde sedan köpen i en fysisk butik
– 41 procent genomför köp från mobilen
– 37 procent researchar på mobilen och genomför köpen från en vanlig dator

Källa: JaJaMag, 15 februari 2012
Länk

Uncertainty and rising levels of risk make it impossible for companies to determine the future. But a portfolio-of-initiatives approach to strategy can help ensure that companies take full advantage of their best opportunities without taking unnecessary risks.

The classic approach to corporate strategy starts with a presumption: that with sufficient analytical rigor and an adequate assessment of the probabilities, strategists can pave a predictable path to the future from the matter of the past. In this world, they make reasonable assumptions about the evolution of product markets, capital markets, technology, and government regulation and, in effect, “assume away” most risk. Chief executive officers articulate strategy every few years, often in the context of a change in top management.

Such traditional strategy formulation often pays lip service to the perspectives of the capital markets, to changing industry structures, and to the forces at work in the environment. But in reality, a “visionary” corporate strategy is often an internally driven reflection of what the company wants the world to look like.

But suppose we no longer believe that the future is foreseeable. What if defining and achieving an enduring competitive advantage is really just a conceit that must be abandoned? What if the outstanding fact of business, as John Maynard Keynes once described it, is the “extreme precariousness of the basis of knowledge”? What if it is no longer possible to block out the “noise” of the world’s messy reality in order to rationalize a plan to achieve predetermined outcomes?

In fact, this is the confusing, complex, and uncertain environment that corporate leaders now face. Globalization and technology are sweeping away the market and industry structures that have historically defined the nature of competition. Although the pace of change continues to accelerate, the fundamental transformations under way in the global economy have only just started.1 The variables that can profoundly influence success and failure are too numerous to count. That makes it impossible to predict, with any confidence, which markets a company will be serving or how its industry will be structured—even a few years hence.

The result is an economic environment that is rich in opportunity but also marked by a substantial increase in awareness of risk and aversion to it— a phenomenon reflected in the rise of risk premiums throughout the world even while the risk-free cost of capital remains low.

A new approach
Strategy today has to align itself to the fluid nature of this external environment. It must be flexible enough to change constantly and to adapt to outside and internal conditions even as the aspiration to deliver favorable outcomes for shareholders remains constant.

An analogy may help. Consider the management problem of moving supplies and ships across the Pacific Ocean during World War II. The starting point for the strategist was to recognize that controlling the environment—the weather in the Pacific—was beyond anyone’s power but that risks could be minimized and schedules roughly set through the study of weather patterns and the use of navigational aids. But the real challenge was to consider factors beyond natural forces—factors such as enemy submarines, other enemy ships, and air attacks, analogous to corporate competitors with unknown capabilities and plans.

The strategist’s answer was to deploy whole convoys with a mix of aircraft carriers, battleships, destroyers, escort ships, troop ships, and supply ships. Convoys improved the ability of each ship to cross the ocean and, crucially, helped to ensure, through “portfolio effects,” that sufficient supplies made it across the ocean even when some ships didn’t. The strategist couldn’t know where battles might occur or which ships would be lost to enemy action. Yet the probability of success for individual vessels and the mission as a whole could be increased.

Likewise, a CEO can think about corporate strategy not as a “portfolio of businesses” but as a “portfolio of initiatives” aimed at achieving favorable outcomes for the entire enterprise. Usually, these initiatives will be organized around themes—”convoys” if you please—focused on achieving particular aspirations, such as increasing the global reach of the enterprise, entering a new but related industry, or achieving the industry’s lowest marginal cost of production. Portfolio effects increase the likelihood that some of these aspirations will be achieved even if many others fail.

Like a more traditional strategy, such an effort is best led by the corporate center and an activist CEO, making use of his or her command over talent and resources. Beyond that, however, most executives will find this approach more deductive, adaptive, and fluid than any they have used before.

Familiarity breeds opportunity
An approach that enables a corporation to mobilize convoys of initiatives now offers extraordinary payoffs. In the post-September 11 business environment, risk premiums have risen for all manner of investments. Consider the rise of risk premiums in the bond markets: in early 2002, for example, US Treasury bonds commanded nothing less than an 8 to 9 percent premium over B-rated corporate debt, compared with a spread of only 4 percent just ten years ago.

Risk premiums rise not only because the absolute level of risk increases but also because lenders require higher rates of return when they are unsure about how companies will perform—that is, when they lack deep famili-arity with the specific risks individual companies face. An investor who can acquire distinctive knowledge about particular B-rated credits and discern where the risk premiums are “too high” can create a bond portfolio with superior returns relative to the risks taken. Strategy thus becomes increasingly about gaining competitive advantage through deep familiarity (in other words, distinctive knowledge), which can transform the rise in risk premiums into increased rewards.

Consider another analogy. Of two runners, one is faster than the other and can be expected to win on a level track no matter how many times the race is run. But what if the race were held at night on a path strewn with rocks and fallen trees? Suppose that the slower runner practiced both in daylight and at night, while the faster one didn’t bother to see the course in advance. The runner with the superior knowledge—the greater familiarity—would probably win even if the other were intrinsically faster. If the prize money were to rise, the value of familiarity would rise as well.

In today’s increasingly global economic environment, confusion about risk is like the obstacles in this analogy. Familiarity makes them less dangerous. As the global economy evolves, and as geographic markets and industry structures aggregate, par-ticipants will enjoy a variety of advantages from familiarity and a variety of disadvantages from unfamiliarity. The strategic idea is constantly to adapt the corporation to this fluid environment and to take risks primarily where it enjoys the former, while shedding the latter.

Statisticians call this approach a search for “asymmetric” risk. Oddsmakers might call it “loading the dice,” and it is the opportunity to capture this effect that makes a portfolio-of-initiatives approach so appealing today. If companies scanning the range of new opportunities choose to compete only where they have significant advantages of familiarity, and if they can build a portfolio of such initiatives, they make it highly probable that they can prosper even amid a high level of complexity and uncertainty.

A portfolio in action
Consider the hypothetical case of a financial company. Bank Multistate, a multiregional institution with $250 billion in assets and $2 billion in profits, was formed from a series of regional bank mergers. Its strengths lie in lending to small and midsize businesses, branch-based retail banking, credit cards, and mortgage banking. It also has special strengths in commercial finance and leasing.

Bank Multistate enjoys a number of familiarity advantages in many of its core businesses and geographic locations. It is particularly familiar with the use of technology to improve the productivity and underwriting results of lending to small businesses. The bank wants to explore whether it could use this skill to become an “outsourcing” intermediary for other banks. To load the dice in this initiative, Bank Multistate might begin by making a small bet ($1 million to $2 million) to assess the opportunity and design a value proposition. Its objective would be, first, to acquire distinctive knowledge by exploring market acceptance of its proposed offering and by “reverse-engineering” possible competing offerings. It would also work to acquire skills such as hiring experienced talent. During this exploratory phase, a full-time team of one senior manager and three or four junior managers and analysts would probably be deployed for four to six months.

Diagnosis and design can take a company only so far, however. Much of the needed familiarity can come only through experimentation, which in this case might include testing the new value proposition. At this point, Bank Multistate might need to make a medium-bet investment of $20 million to $30 million to undertake a pilot with two or three customers.

If the customer pilots proved successful, Bank Multistate might then be willing to make a large bet of $200 million or more so that the company could leapfrog potential competition. In any case, the decision on whether or not to scale up the business would be made “just in time,” when further information had been gained from the pilots. By staging the investments, Bank Multistate would be using the passage of time to acquire deep familiarity and the option to expand, while still limiting its downside risk until the value proposition became clearer.

The hallmark of this approach is a willingness to change direction contin-ually as more and more distinctive knowledge is acquired. The approach implies an expectation that major midcourse corrections will be required, not that everything will go according to plan. It calls for a willingness to shut down initiatives if it becomes clear that they are headed nowhere.

Certain companies already use this approach in at least some of their strategic decision-making processes. The pharmaceutical industry has long used such disciplined processes to develop new drugs and medical devices, and so have venture capital firms, with their portfolios of companies. But most businesses are much less disciplined: far too often, large-scale decisions to build new businesses, to acquire or divest others, and even to adapt core businesses to changing conditions are made under extreme time pressure. In turn, these big, spur-of-the-moment decisions often come about because the company squandered its available lead time.

In particular, most companies put too little energy into adapting core businesses to changing markets. Indeed, they often unintentionally harvest their core businesses by pushing for short-term performance while neglecting the investments needed to stay ahead of the game. Often, companies move only when competitors start investing aggressively. When these companies do act, they usually make insufficient small-bet investments in diagnosis and design and skip the medium-bet prototyping and piloting steps entirely because they are trying to play catch-up. As a result, these initiatives are often exposed to entirely avoidable risks in execution, or, even worse, sometimes businesses panic and make bet-the-company investments based upon leaps of faith.

In a portfolio-of-initiatives approach, every major strategic action is subject to a disciplined process. Bank Multistate might, for example, have 10 to 20 such initiatives, at various stages of exploration, in order to build new businesses, to adapt its core businesses, and to acquire or divest businesses. The bank might have pursued some of these initiatives in the ordinary course of events. What makes a portfolio-of-initiatives approach different is the quantity of initiatives explored, the rigor of the analysis behind them, the discipline of the process, the willingness to make midcourse corrections, the staging of investments, the high degree of hands-on involvement by executives, the open discussion of issues, and the care taken before deciding whether to forge ahead.

Rigorous monitoring is crucial. The group for reviewing initiatives could consist of a strategy oversight team of the company’s 20 or so top managers, chaired by the CEO, which would review initiatives perhaps monthly. Each initiative might well be reviewed several times before the final large-scale decision is made.

Increasing the visibility and transparency of these processes helps ensure that the best decisions are made and raises the stakes so that managers don’t approach the group’s work in a halfhearted way. The intent, of course, is to improve performance. In Bank Multistate’s case, a favorable outcome for the shareholders might be financing five or six big-bet initiatives annually. In all, these might provide an extra 5 percent a year of growth in earnings and an extra 3 percent increase in the bank’s return on equity—without involving big risks.

Three distinct elements are central to a portfolio-of-initiatives approach. First, it entails a disciplined search, based on familiarity, to discover and create initiatives that provide disproportionately high rewards for the risks taken. Second, it involves a dynamic, continuous effort to manage the portfolio of initiatives resulting from this search process and the use of time-management and portfolio theory to overcome unavoidable risks due to complexity and uncertainty. Finally, it calls for a flexible and evolutionary approach that lets “natural selection” rather than vision determine where, how, and when to compete. It may be useful to examine each of these elements in greater detail.

A disciplined search
CEOs might find it difficult to believe that there can be an abundance of “no-regrets” and “low-regrets” opportunities in these uncertain times. Yet the same global forces that create confusion, complexity, and uncertainty also create opportunities for companies to innovate in their core businesses. The world’s markets and industry structures are in flux because the global forces at work are lowering the barriers to interaction.2 As interaction costs fall around the world, new economies of specialization, scale, and scope are being created—economies that can provide innovative companies with an abundance of opportunities to earn high rewards for the risks taken. Some companies, for example, are discovering that they can save up to a third of their labor costs in overhead or customer service functions by moving them to, say, Scotland or India.

Most large incumbents have dozens of high-potential opportunities to use their familiarity advantages to adapt their core businesses or to build closely related ones that could capture the new economies of scale, scope, or specialization. Many of these seemingly mundane opportunities will prove upon close examination to have higher returns, relative to the risks taken, than some other activities on which the company may already be investing its focus, talent, and discretionary spending. A daylong brainstorming session can usually generate dozens of ideas about potential opportunities.

The challenge is to convert these raw ideas into real investment opportunities. A company must organize a disciplined search to identify, enhance, and nurture its best ideas—and deploy some of its most talented people to pursue them—if it wants to create real opportunities to earn high returns relative to the risks taken. One of the hallmarks of a portfolio-of-initiatives approach is the overinvestment of scarce resources, such as discretionary spending, talent, and focus, on acquiring advantages of familiarity. No less important, senior management must “just say no” to making big bets in situations in which it lacks familiarity or is exposed to uncertain outcomes, even when competitors are making big strategic moves. As a rule of thumb, a company is familiar with opportunities when it doesn’t have to take any large leaps of faith to understand where it expects to make returns from its investments.

Managing a portfolio of initiatives
Corporate-level involvement is essential because hard decisions must be made about allocating scarce resources to nurture the initiatives. Only the company’s top-management team can balance the risks, rewards, and timing of each of the initiatives and make decisions about which to start, scale up, or terminate.

The challenge for a chief executive and the top-management team is to create enough initiatives to be reasonably sure that the company will be able to outperform the market’s expectations. While it is essential always to have opportunities with large current returns, numerous small-bet initiatives can hold out the promise of large potential future returns once familiarity has been achieved. Much of the challenge of undertaking a portfolio-of-initiatives approach to strategy is the need to keep many balls in the air at the same time.

Executives employing a portfolio-of-initiatives approach should make the passage of time an ally. Checkpoint reviews, milestones, and staged investments enable managers to make maximum progress while minimizing risk. Pilot programs build familiarity before investments are scaled up. Risks arising from complexity and uncertainty fade as time passes, because the range of outcomes is reduced. Competitive advantage comes in the form of the progress a company makes while its competitors, paralyzed by confusion, complexity, and uncertainty, sit on the sidelines. The key is to be ready to act as soon as it becomes possible to estimate, in a reasonable way, the risks and rewards of an investment. The advantage lies not with the first mover but with the first mover that can scale up activities once the way forward has become clear and it is possible to see returns from larger bets.

A flexible and evolutionary approach
A successful portfolio-of-initiatives strategy involves creating enough initiatives offering high returns relative to the risks taken to enable a company to meet its aspirations and outperform the expectations of the capital markets. The process requires the CEO and the management team to keep an open mind about where the company might be headed. Inherent in this approach is the understanding that future decisions and future outcomes are likely to vary enormously from initial hypotheses. The whole process resembles art more than science. Most of the critical decisions involve subjective judgments that, unlike those generated by more deterministic strategies, will be informed by not just the highest-quality staff work but also the knowledge gained as time passes.

There is, of course, no substitute for the talent of a top-management team. But the advantage of the portfolio-of-initiatives approach is that it is far better at getting the most out of a company’s top talent than are traditional approaches to strategy.

Although the world is increasingly complex, confusing, and uncertain, serendipity doesn’t have to be more important than skill in the crafting and implementing of corporate strategy. Traditional deterministic approaches to strategy aren’t likely to be up to the task of helping companies negotiate these dangerous waters, but executives need not put the fate of their businesses entirely in the hands of chance. As the global environment continually changes and risk levels rise, a portfolio-of-initiatives approach holds out the opportunity for corporations to be as flexible and adaptive as the markets themselves.

Source: KcKinsey Quatrly, January 2011
Author: Lowell Bryan
Read the article on Internet here
More information about McKinsey Quaterly here

Bad strategy abounds, says UCLA management professor Richard Rumelt. Senior executives who can spot it stand a much better chance of creating good strategies.

Horatio Nelson had a problem. The British admiral’s fleet was outnumbered at Trafalgar by an armada of French and Spanish ships that Napoleon had ordered to disrupt Britain’s commerce and prepare for a cross-channel invasion. The prevailing tactics in 1805 were for the two opposing fleets to stay in line, firing broadsides at each other. But Nelson had a strategic insight into how to deal with being outnumbered. He broke the British fleet into two columns and drove them at the Franco-Spanish fleet, hitting its line perpendicularly. The lead British ships took a great risk, but Nelson judged that the less-trained Franco-Spanish gunners would not be able to compensate for the heavy swell that day and that the enemy fleet, with its coherence lost, would be no match for the more experienced British captains and gunners in the ensuing melee. He was proved right: the French and Spanish lost 22 ships, two-thirds of their fleet. The British lost none.1

Nelson’s victory is a classic example of good strategy, which almost always looks this simple and obvious in retrospect. It does not pop out of some strategic-management tool, matrix, triangle, or fill-in-the-blanks scheme. Instead, a talented leader has identified the one or two critical issues in a situation—the pivot points that can multiply the effectiveness of effort—and then focused and concentrated action and resources on them. A good strategy does more than urge us forward toward a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them.

Too many organizational leaders say they have a strategy when they do not. Instead, they espouse what I call “bad strategy.” Bad strategy ignores the power of choice and focus, trying instead to accommodate a multitude of conflicting demands and interests. Like a quarterback whose only advice to his teammates is “let’s win,” bad strategy covers up its failure to guide by embracing the language of broad goals, ambition, vision, and values. Each of these elements is, of course, an important part of human life. But, by themselves, they are not substitutes for the hard work of strategy.

In this article, I try to lay out the attributes of bad strategy and explain why it is so prevalent. Make no mistake: the creeping spread of bad strategy affects us all. Heavy with goals and slogans, governments have become less and less able to solve problems. Corporate boards sign off on strategic plans that are little more than wishful thinking. The US education system is rich with targets and standards but poor at comprehending and countering the sources of underperformance. The only remedy is for us to demand more from those who lead. More than charisma and vision, we must demand good strategy.

The hallmarks of bad strategy
I coined the term bad strategy in 2007 at a Washington, DC, seminar on national-security strategy. My role was to provide a business and corporate-strategy perspective. The participants expected, I think, that my remarks would detail the seriousness and growing competence with which business strategy was created. Using words and slides, I told the group that many businesses did have powerful, effective strategies. But in my personal experiences with corporate practice, I saw a growing profusion of bad strategy.

In the years since that seminar, I have had the opportunity to discuss the bad-strategy concept with a number of senior executives. In the process, I have condensed my list of its key hallmarks to four points: the failure to face the challenge, mistaking goals for strategy, bad strategic objectives, and fluff.

Failure to face the problem
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 that, you cannot reject a bad strategy or improve a good one.

International Harvester learned about this element of bad strategy the hard way. In July 1979, the company’s strategic and financial planners produced a thick sheaf of paper titled “Corporate Strategic Plan: International Harvester.” It was an amalgam of five separate strategic plans, each created by one of the operating divisions.

The strategic plan did not lack for texture and detail. Looking, for example, within the agricultural-equipment group—International Harvester’s core, dating back to the McCormick reaper, which was a foundation of the company—there is information and discussion about each segment. The overall intent was to strengthen the dealer/distributor network and to reduce manufacturing costs. Market share in agricultural equipment was also projected to increase, from 16 percent to 20 percent.

That was typical of the overall strategy, which was to increase the company’s share in each market, cut costs in each business, and thereby ramp up revenue and profit. A summary graph, showing past and forecast profit, forms an almost perfect hockey stick, with an immediate recovery from decline followed by a steady rise.

The problem with all this was that the plan didn’t even mention Harvester’s grossly inefficient production facilities, especially in its agricultural-equipment business, or the fact that Harvester had the worst labor relations in US industry. As a result, the company’s profit margin had been about one-half of its competitors’ for a long time. As a corporation, International Harvester’s main problem was its inefficient work organization—a problem that would not be solved by investing in new equipment or pressing managers to increase market share.

By cutting administrative overhead, Harvester boosted reported profits for a year or two. But following a disastrous six-month strike, the company quickly began to collapse. It sold off various businesses—including its agricultural-equipment business, to Tenneco. The truck division, renamed Navistar, is today a leading maker of heavy trucks and engines.

To summarize: if you fail to identify and analyze the obstacles, you don’t have a strategy. Instead, you have a stretch goal or a budget or a list of things you wish would happen.

Mistaking goals for strategy
A few years ago, a CEO I’ll call Chad Logan asked me to work with the management team of his graphic-arts company on “strategic thinking.” Logan explained that his overall goal was simple—he called it the “20/20 plan.” Revenues were to grow at 20 percent a year, and the profit margin was to be 20 percent or higher.

“This 20/20 plan is a very aggressive financial goal,” I said. “What has to happen for it to be realized?” Logan tapped the plan with a blunt forefinger. “The thing I learned as a football player is that winning requires strength and skill, but more than anything it requires the will to win—the drive to succeed. . . . Sure, 20/20 is a stretch, but the secret of success is setting your sights high. We are going to keep pushing until we get there.”

I tried again: “Chad, when a company makes the kind of jump in performance your plan envisions, there is usually a key strength you are building on or a change in the industry that opens up new opportunities. Can you clarify what the point of leverage might be here, in your company?”

Logan frowned and pressed his lips together, expressing frustration that I didn’t understand him. He pulled a sheet of paper out of his briefcase and ran a finger under the highlighted text. “This is what Jack Welch says,” he told me. The text read: “We have found that by reaching for what appears to be the impossible, we often actually do the impossible.” (Logan’s reading of Welch was, of course, highly selective. Yes, Welch believed in stretch goals. But he also said, “If you don’t have a competitive advantage, don’t compete.”)

The reference to “pushing until we get there” triggered in my mind an association with the great pushes of 1915–17 during World War I, which led to the deaths of a generation of European youths. Maybe that’s why motivational speakers are not the staple on the European management-lecture circuit that they are in the United States. For the slaughtered troops did not suffer from a lack of motivation. They suffered from a lack of competent strategic leadership. A leader may justly ask for “one last push,” but the leader’s job is more than that. The job of the leader—the strategist—is also to create the conditions that will make the push effective, to have a strategy worthy of the effort called upon.

Bad strategic objectives
Another sign of bad strategy is fuzzy strategic objectives. One form this problem can take is a scrambled mess of things to accomplish—a dog’s dinner of goals. 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 suggest things they would like to see accomplished. Rather than focus on a few important items, the group sweeps the whole day’s collection into the strategic plan. Then, in recognition that it is a dog’s dinner, the label “long term” is added, implying that none of these things need be done today. As a vivid example, I recently had the chance to discuss strategy with the mayor of a small city in the Pacific Northwest. His planning committee’s strategic plan contained 47 strategies and 178 action items. Action item number 122 was “create a strategic plan.”

A second type of weak strategic objective is one that is “blue sky”—typically 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. A leader may successfully identify the key challenge and propose an overall approach to dealing with the challenge. But if the consequent strategic objectives are just as difficult to meet as the original challenge, the strategy has added little value.

Good strategy, in contrast, works by focusing energy and resources on one, or a very few, pivotal objectives whose accomplishment will lead to a cascade of favorable outcomes. It also builds a bridge between the critical challenge at the heart of the strategy and action—between desire and immediate objectives that lie within grasp. Thus, the objectives that a good strategy sets stand a good chance of being accomplished, given existing resources and competencies.

Fluff
A final hallmark of mediocrity and bad strategy is superficial abstraction—a flurry of fluff—designed to mask the absence of thought. Fluff is a restatement of the obvious, combined with a generous sprinkling of buzzwords that masquerade as expertise. Here is a quote from a major retail bank’s internal strategy memoranda: “Our fundamental strategy is one of customer-centric intermediation.” Intermediation means that the company accepts deposits and then lends out the money. In other words, it is a bank. The buzzphrase “customer centric” could mean that the bank competes by offering better terms and service, but an examination of its policies does not reveal any distinction in this regard. The phrase “customer-centric intermediation” is pure fluff. Remove the fluff and you learn that the bank’s fundamental strategy is being a bank.

Why so much bad strategy?
Bad strategy has many roots, but I’ll focus on two here: the inability to choose and template-style planning—filling in the blanks with “vision, mission, values, strategies.”

The inability to choose
Strategy involves focus and, therefore, choice. And choice means setting aside some goals in favor of others. When this hard work is not done, weak strategy is the result. In 1992, I sat in on a strategy discussion among senior executives at Digital Equipment Corporation (DEC). A leader of the minicomputer revolution of the 1960s and 1970s, DEC had been losing ground for several years to the newer 32-bit personal computers. There were serious doubts that the company could survive for long without dramatic changes.

To simplify matters, I will pretend that only three executives were present. “Alec” argued that DEC had always been a computer company and should continue integrating hardware and software into usable systems. “Beverly” felt that the only distinctive resource DEC had to build on was its customer relationships. Hence, she derided Alec’s “Boxes” strategy and argued in favor of a “Solutions” strategy that solved customer problems. “Craig” held that the heart of the computer industry was semiconductor technology and that the company should focus its resources on designing and building better “Chips.”

Choice was necessary: both the Chips and Solutions strategies represented dramatic transformations of the firm, and each would require wholly new skills and work practices. One wouldn’t choose either risky alternative unless the status quo Boxes strategy was likely to fail. And one wouldn’t choose to do both Chips and Solutions at the same time, because there was little common ground between them. It is not feasible to do two separate, deep transformations of a company’s core at once.

With equally powerful executives arguing for each of the three conflicting strategies, the meeting was intense. DEC’s chief executive, Ken Olsen, had made the mistake of asking the group to reach a consensus. It was unable to do that, because a majority preferred Solutions to Boxes, a majority preferred Boxes to Chips, and a majority also preferred Chips to Solutions. No matter which of the three paths was chosen, a majority preferred something else. This dilemma wasn’t unique to the stand-off at DEC. The French philosopher Nicolas de Condorcet achieved immortality by first pointing out the possibility of such a paradox arising, and economist Kenneth Arrow won a Nobel Prize for showing that “Condorcet’s paradox” cannot be resolved through cleverer voting schemes.

Not surprisingly, the group compromised on a statement: “DEC is committed to providing high-quality products and services and being a leader in data processing.” This fluffy, amorphous statement was, of course, not a strategy. It was a political outcome reached by individuals who, forced to reach a consensus, could not agree on which interests and concepts to forego.

Ken Olsen was replaced, in June 1992, by Robert Palmer, who had headed the company’s semiconductor engineering. Palmer made it clear that the strategy would be Chips. One point of view had finally won. But by then it was five years too late. Palmer stopped the losses for a while but could not stem the tide of ever more powerful personal computers that were overtaking the firm. In 1998, DEC was acquired by Compaq, which, in turn, was acquired by Hewlett-Packard three years later.

Template-style strategy
The Jack Welch quote about “reaching for what appears to be the impossible” is fairly standard motivational fare, available from literally hundreds of motivational speakers, books, calendars, memo pads, and Web sites. This fascination with positive thinking has helped inspire ideas about charismatic leadership and the power of a shared vision, reducing them to something of a formula. The general outline goes like this: the transformational leader (1) develops or has a vision, (2) inspires people to sacrifice (change) for the good of the organization, and (3) empowers people to accomplish the vision.

By the early 2000s, the juxtaposition of vision-led leadership and strategy work had produced a template-style system of strategic planning. (Type “vision mission strategy” into a search engine and you’ll find thousands of examples of this kind of template for sale and in use.) The template looks like this:

The Vision.
Fill in your vision of what the school/business/nation will be like in the future. Currently popular visions are to be the best or the leading or the best known.

The Mission.
Fill in a high-sounding, politically correct statement of the purpose of the school/business/nation. Innovation, human progress, and sustainable solutions are popular elements of a mission statement.

The Values.
Fill in a statement that describes the company’s values. Make sure they are noncontroversial. Key words include “integrity,” “respect,” and “excellence.”

The Strategies.
Fill in some aspirations/goals but call them strategies. For example, “to invest in a portfolio of performance businesses that create value for our shareholders and growth for our customers.”

This template-style planning has been enthusiastically adopted by corporations, school boards, university presidents, and government agencies. Scan through such documents and you will find pious statements of the obvious presented as if they were decisive insights. The enormous problem all this creates is that someone who actually wishes to conceive and implement an effective strategy is surrounded by empty rhetoric and bad examples.

The kernel of good strategy
By now, I hope you are fully awake to the dramatic differences between good and bad strategy. Let me close by trying to give you a leg up in crafting good strategies, which have a basic underlying structure:

1. A diagnosis: an explanation of the nature of the challenge. A good diagnosis simplifies the often overwhelming complexity of reality by identifying certain aspects of the situation as being the critical ones.

2. A guiding policy: an overall approach chosen to cope with or overcome the obstacles identified in the diagnosis.

3. Coherent actions: steps that are coordinated with one another to support the accomplishment of the guiding policy.

I’ll illustrate by describing Nvidia’s journey from troubled start-up to market leader for 3-D graphics chips. Nvidia’s first product, a PC add-in board for video, audio, and 3-D graphics, was a commercial failure. In 1995, rival start-up 3Dfx Interactive took the lead in serving the burgeoning demand of gamers for fast 3-D graphics chips. Furthermore, there were rumors that industry giant Intel was thinking about introducing its own 3-D graphics chip. The diagnosis: “We are losing the performance race.”

Nvidia CEO Jen-Hsun Huang’s key insight was that given the rapid state of advance in 3-D graphics, releasing a new chip every 6 months— instead of at the industry-standard rate of every 18 months—would make a critical difference. The guiding policy, in short, was to “release a faster, better chip three times faster than the industry norm.”

To accomplish this fast-release cycle, the company emphasized several coherent actions: it formed three development teams, which worked on overlapping schedules; it invested in massive simulation and emulation facilities to avoid delays in the fabrication of chips and in the development of software drivers; and, over time, it regained control of driver development from the branded add-in board makers.

Over the next decade, the strategy worked brilliantly. Intel introduced its 3-D graphics chip in 1998 but did not keep up the pace, exiting the business of discrete 3-D graphics chips a year later. In 2000, creditors of 3Dfx initiated bankruptcy proceedings against the company, which was struggling to keep up with Nvidia. In 2007, Forbes named Nvidia “Company of the Year.”2

Despite the roar of voices equating strategy with ambition, leadership, vision, or planning, strategy is none of these. Rather, it is coherent action backed by an argument. And the core of the strategist’s work is always the same: discover the crucial factors in a situation and design a way to coordinate and focus actions to deal with them.

Source: McKinsey Quarterly, June 2011

I often talk with my clients about what category of business they want to belong in the future:
1. Those who make things happen
2. The ones who see things happen
3. Those who wonder what happened!

In today’s increasingly competitive market situation, the difference between these three types of organizations are increasingly clear.
In the ambition to fully anchor the right engagement internally, it is sometimes useful to refer to what had happened to others, former successful business.

Here is a classic example:
————————————————————-
It’s amazing to me that Eastman Kodak (EK) has lasted as long as it has. In the 1980s, I did consulting work for the maker of the Brownie and saw it heading unstoppably for its end decades ago — but it took longer than I had anticipated.

When Kodak was founded in 1888, quality was its “fighting argument.” It gladly gave away cameras in exchange for getting people hooked on paying to have their photos developed — yielding Kodak a nice annuity in the form of 80% of the market for the chemicals and paper used to develop and print those photos.

Inside Kodak, this was known as the “silver halide” strategy — named after the chemical compounds in its film. Kodak had a fantastic success formula that keyed off of international distribution, mass production to lower unit costs, R&D investment to introduce better products, and extensive advertising to make sure consumers knew about Kodak’s superior quality.

Unfortunately, competition came along and introduced ugly splotches all over this beautiful picture. Here are three examples:

Instant photography
A few days prior to Thanksgiving in 1948, a Massachusetts-based inventor, Edwin Land, offered consumers an instant camera that developed photos in 60 seconds. Instant photography threatened Kodak’s profits from chemicals and film. Kodak responded by introducing its own instant photography products. Polaroid sued — alleging that between 1976 and 1986 Kodak stole its technology – asking for $12 billion in damages. In 1990, Polaroid won a mere $909 million and ultimately filed for bankruptcy in October 2001.
Cut rate film from Japan
In the 1980s, Japan’s Fuji started to sell rolls of film at a price way below the one that Kodak had been accustomed to charging. Fuji’s willingness to cut prices was quite popular with the rapidly growing mass merchandisers like Wal-Mart (WMT) that preferred to deal with suppliers who were willing to sell high volumes at ever-lower prices. And Fuji helped make consumers aware of its value by sponsoring big events — such as the 1984 Los Angeles Olympics. By 1999, Fuji’s market share gains were so great that Kodak took a $1.2 billion charge along with 19,900 layoffs. Such layoffs persisted, for example in January 2009, Kodak took a $350 million charge to nuke 3,500 people on a 24% revenue plunge.

Digital photography
Digital photography offered consumers a better value but one that wiped out a decent way for Kodak to make money. After all, digital film — flash memory — was a low margin proposition even if you had the huge fabs needed to produce it. And even though Kodak was number two in digital cameras by 1999, it lost $60 on each one it sold. In one of many bids to replicate its Silver Halide business model in digital photography, Kodak offered a Photo CD film-based digital imaging product – but since it was priced at $500 per player and $20 per disc it did not attract many customers.
I had a personal encounter with another one of Kodak’s strategic blunders. In January 1988, I was standing next to a fax machine on the executive floor of Kodak’s Rochester, New York headquarters. I watched in astonishment at a scrolling fax of a contract for Kodak to acquire Sterling Drug for $5.1 billion.

Kodak thought this was a wise investment for two reasons: drugs had high margins and Kodak made chemicals. Unfortunately, those two facts were not sufficient to make this deal pay off for Kodak shareholders.

To do that, Kodak would have needed capabilities that it lacked — such as the ability to come up with new, valuable, patented drugs or to make generic drugs at a rock-bottom cost. It only took six years for Kodak to realize that Sterling Drug was not a good fit for Kodak and sell it off in pieces.

One hope for returning to a decent business model might have been producing high quality personal printers for those digital images. Selling inkjet cartridges and papers might have yielded a nice profit stream for Kodak. But regrettably for Kodak, many other competitors — most notably Hewlett Packard (HPQ), had gotten there first.

Since peaking in February 1999 at about $80 a share, Kodak shares have suffered a steady tumble that wiped out 99% of their value — to 78 cents a share as of Sept. 30. At the end of June, Kodak’s liabilities exceeded its assets by $1.4 billion. It then owed $1.4 billion and had $957 million in cash, down $847 million from the end of 2010.

Its latest CEO (since 2005), former HP printer exec, Tony Perez, has been unable to revive Kodak. Last week, it pulled $160 million from its credit line and hired restructuring advisor, Jones Day on Friday even as Kodak denied that it was on the verge of filing for bankruptcy.

It’s taken decades for Kodak’s final picture to develop — but the corporate skull and crossbones it depicts is the result of too much success leading to a slow and painful inability to adapt to a changing competitive landscape.

Source: Forbes, October 2011
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