Business Book Review

Thursday, November 02, 2006


Reading Suggestions & CONTENTS
About the Author

“Thinking hard about the five killer competencies and honestly measuring your company’s current capabilities against them can be a valuable starting point for assessing your organization’s strengths and weaknesses.”
“Positioning is sacrifice. … Trying to be all things to all people is recipe for failure. Instead, pick a place to play where you have a shot at being the best, where it’s possible to know your customers and the market superlatively well.”
“When the culture is counterproductive because it conflicts with the company’s strategy … the company then faces … the need to change an ingrained corporate culture in response to a changed strategy.”
“By continually experimenting, producing ‘mutant strains’ of new products, processes, methods, and strategies, the [adaptive] organization maximizes its chances of developing new businesses that are capable of responding to the next change in the environment.”
Although the specifics of what an enterprise must do to win and go on winning vary from company to company and industry to industry, there are five fundamental competencies that all successful adaptive businesses absolutely must master. First and foremost, every company needs insight—the superior ability to make sense of the changing environment. Second, insights must be translated into an intense focus on the right things. An enterprise must make the most intelligent strategic choices about where and how to deploy its scarce resources in support of its plan for winning. The third and fourth requirements are the ability to align every element of the entire organization behind the company’s strategic focus and to implement strategy quickly. Speed expands the gap between a company and its closest competitors and, at the same time, improves the ability to take advantage of the next environmental shift. However, speed of execution is impossible unless insight, focus, and alignment are in place. The fifth competency—the ability to repeat insight, focus, alignment, and execution ad infinitum—is not aimed at producing specific outputs, but at creating an ongoing cycle of renewal.

These “killer” competencies are the crucial skills needed for mobilizing the collective intelligence and creativity of an organization’s individuals and for forging an integrated system of strategy and leadership. Nonetheless, just as companies need to employ systematic research and development to generate technical innovation, they also need a systematic process to drive strategic innovation. Pietersen believes that his Strategic Learning cycle represents this kind of practical process. It links learning (i.e., the development of a set of superior insights), focus, alignment, and execution so that they build on one another and repeat themselves in a continuous cycle of learning and renewal. The first two steps form the basis of a firm’s strategy creation, and the last two form the foundations of strategy implementation. Thus, strategy creation and implementation are integrated into a mutually reinforcing process.

Because an organization needs a systematic way to develop a set of superior insights to use as a foundation for its strategic choices (experience shows that every business breakthrough starts with a unique insight), the Strategic Learning process always begins with a situation analysis that asks and answers penetrating questions about customers, competitors, the firm’s own realities, industry dynamics, and the broader environment. Unlike typical strategic planning, which involves ritualized analyses that tend to reinforce existing mental models, the situation analysis is deliberately designed to employ divergent learning. It begins with the assumption that discontinuous change is the norm, and that a conscious effort to recognize, understand, and respond to this kind of change is a vital precursor to the creation of strategy. Thus, the situation analysis combines market research, analysis, critical thinking, and creative brainstorming in order to provide insights that can be crystallized into concise diagnostic statements, readily understood by everyone in the organization.

Pietersen also notes that there are three “golden rules” for doing an effective situation analysis: (1) Rather than produce a useless survey that burdens the organization with a glut of information, produce a diagnosis that allows one to go beyond the superficial symptoms of a problem and discover root causes and ultimate consequences. (2) Produce a trend rather than a snapshot. “We’re losing millions of dollars” is a snapshot statement that provides only a superficial understanding of the business. However, when trends are mapped, the underlying drivers of the million-dollar loss are revealed. (3) Keep it simple. In a complex world, simplicity is crucial; however, do not confuse simplicity with superficiality. Simplicity is by no means a shortcut—reducing an insight into a clear, concise, and meaningful statement is an extremely difficult task.

The situation analysis is designed to ensure that the most intelligent choices are made (strategy is about making choices), based on superior insights rather than on guesswork, assumptions, or a vision that does not relate to reality. Thus, the second step in the Strategic Learning cycle (defining focus) involves translating these insights into the key strategic choices of the enterprise and into the vision that emerges from these insights. This is a process of convergent learning (as opposed to the divergent learning inherent in the learning phase of the Strategic Learning cycle).

Note that Pietersen recommends making strategic choices before creating a vision. Vision is not something separate, but is best viewed as an extension of a firm’s winning proposition—the aspirational statement of where the winning strategy can take the company in the future. However, winning does not mean being the biggest and the most profitable (there can only be one number one in any industry). Winning means creating greater value for the customer, and superior profits for the company, in the specific area chosen as the target market.

Effectively making choices and defining a winning strategy is a “bridging” process that starts with insights, analyzes the issues they raise, and involves the following elements: (1) consolidating the main points culled from the situation analysis into a single list of the most important findings, (2) listing the major threats and opportunities that these insights uncover, (3) identifying strategic alternatives, and (4) considering the pros and cons of each alternative as the basis for making final choices.

The strategic choices the company finally makes should address three fundamental elements—the customer focus, the winning proposition, and five key priorities. Customer focus defines which customers a firm will and will not serve. It identifies the hierarchy of needs of these customers. And, it defines what products/services the firm will offer. The winning proposition is the core of a company’s strategy and defines what it will do differently or better than the competition to achieve greater value for customers and shareholders. Finally, by defining the most important things the firm will do to achieve its winning proposition, the five key priorities ensure that the company’s key resources are focused on supporting the strategy (any more than five dilutes the message and compromises its effectiveness). Note that focus is the emphasis in all three elements, simply because, every time a company fails to choose, it is indeed choosing to spend a portion of its scarce resources on the wrong things. Thus, the one crucial test of a good strategy is that it indicates what a company will not do, as well as what it will do, to succeed.

The second element of the focus phase involves the formulation of a compelling vision statement—simple, motivating, realistic, and transformative (compelling or motivating incrementalism is not the objective). Like Martin Luther King Jr.’s “I Have a Dream” speech, and President Kennedy’s mandate to land a man on the moon and return him safely to earth, an effective vision describes an aspiration and provides a clear direction to follow.

Defining the winning proposition and the key priorities leads to the third step in the Strategic Learning process—creating alignment behind the new strategy. Essentially, this is about getting the organization to do what it must do, which can be a major challenge for large, complex enterprises with ongoing businesses and complex processes, especially if the strategy requires a major shift in mind-set, skills and practices. Thus, Pietersen offers a highly effective process that involves: (1) developing a clear overarching focus, (2) identifying systemwide gaps and accountabilities proceeding from this focus, (3) aligning the key levers of the business system so that they drive the new strategy, and (4) creating an action plan to overcome resistance to change and inspire individuals to achieve exceptional performance.

The author warns that one of the major sources of failure in strategy implementation is the natural bias of executives toward taking action before having a crystal clear focus that is fully understood by the entire organization. Once this is accomplished, the next big challenge involves operationalizing the strategic priorities so that they can be rapidly translated into results, which is accomplished by looking at each priority and asking, “What performance gaps must be closed in order to achieve this priority?” The answer should be a series of gap statements that define the difference between the current reality and the desired future state for each priority. Thus, the task is to employ effective project management—to apply the right disciplines, measurements, and accountabilities—in order to close the identified gaps.

Nonetheless, without comprehensive alignment, no amount of project management can carry the organization to success. Measures and rewards, structure and process, culture, and people—the key supporting elements of a company’s business system—must directly support the new strategy and directly support each other. Selective interventions, what Pietersen calls the trap of Managing Things in Isolation (MTI), hardly ever work; instead, the key to success lies in orchestrating the right interrelated actions. It is an orchestration that can be effectively carried out using a four-step process that entails: (1) describing each element of the present business system so that its current status is clearly and realistically understood, (2) recapping the new winning proposition and strategic priorities to ensure that each system’s alignment is single-mindedly dedicated to making the strategy work, (3) employing reverse visioning to define each business system needed to support the new strategy, and (4) defining the early actions and next steps to be taken to reach this step successfully.

Of the four levers that must be aligned, culture and people tend to be the most challenging. According to Pietersen, “Culture is a means to an end, a way of solving the problems your organization faces. To serve this purpose effectively, your culture must be in sync with your strategy. … when your strategy changes, your culture needs to change as well.” Nonetheless, attempts to change corporate culture end in failure approximately 80 percent of the time, generally because of six basic assumptions: (1) Culture is vague and mysterious. (2) Culture and strategy are separate and distinct things. (3) Defining values should be the first step in transforming culture. (4) Culture cannot be measured and rewarded. (5) Leaders must communicate what the culture is. (6) Culture is the one constant that never changes.

These assumptions are, however, false. Culture expresses itself through specific, observable everyday behaviors that are as tangible as a company’s cash flow and, thus, must be measured and rewarded. “The golden rule is: What gets measured gets done; what gets rewarded gets done repeatedly.” In addition, the performance of a business organization and the specifics of its culture are interdependent. However, to align culture with performance successfully, a new culture cannot be created in advance of a new strategy. Companies must be clear about how they will win before they can effectively define the values and behaviors that will make winning possible. And, though leaders must consciously and deliberately transmit these values and behaviors to their employees, it is not so much about communicating them as it is about living them. If leaders do not behave in accordance with the culture they profess, it does not matter what they say.

Pietersen believes that demolishing these myths, so that the drivers of success can be harnessed, requires the right starting point. Values must be simple, specific, and directly support strategic priorities, they should be described as behaviors, and should be arrived at through a process of enrollment (i.e., a process of commitment rather than compliance). These behaviors (which the author identifies as characterizing the adaptive organization) include teamwork, risk taking and experimentation, continuous learning, knowledge sharing, and candor and trust. However, without a sustaining process that ensures that the new culture takes root throughout the entire organization, and is continuously enforced, the initiative is not likely to last a week. Thus, it is necessary to align the culture with all the other key levers of the business system and measure and reward the desired behaviors. In addition, the leader must unfailingly set the example by his or her actions.

The creation of an adaptive organization requires that strategy and leadership interact seamlessly. And, great leadership is not only about offering an inspiring vision of the future, and a practical method for getting there, but also the ability to help people overcome their natural opposition to change. Thus, managing large-scale change calls for highly effective people skills. One of the greatest challenges leaders must face is finding ways of motivating people to embrace change at times when the need for change is not apparent—when circumstances naturally seem to call for pride, self-satisfaction, and complacency. In fact, Pietersen has found that, while most companies do well at managing the organizational aspects of change, they usually fail to manage the people aspects of transformation properly. This failure is due to their miscalculation of the amount of resistance they will encounter; the time they will need to shape, sell, and execute change; the resources, support, and sponsorship required; their need to model the change personally; and the fear, uncertainty, and doubt (the FUD factor) that change naturally elicits.

Thus, the author advocates that leaders view change as a simple equation, whose components are: dissatisfaction with the current state (D), a clear vision for change (V), a process for getting it done (P), and the psychological costs (C). In other words, D x V x P > C, which means that dissatisfaction, multiplied by vision, multiplied by process, must be greater than cost. If any one of the multiplicands is zero, the change effort will be unsuccessful, because the product of all three will equal zero. To prevent this, Pietersen offers six “golden rules” for successful change leadership: (1) Create a simple, compelling statement of the case for change. (2) Communicate constantly and honestly throughout the process. (3) Maximize participation. (4) If all else fails, remove those who resist. (5) Generate short-term wins. (6) Set a shining example.

Implementation and experimentation form the final stage of the Strategic Learning cycle and the first step into the next iteration of the process. (As a company repeatedly works its way around the learning cycle, it continues to update its insights, to learn, and to adapt to new conditions.) Implementation of strategy will only be as effective as the effectiveness of the firm’s insight, focus, and alignment. Thus, implementation is part of the continuum of the Strategic Learning cycle, representing both its successful culmination and its source of learning for the next situation analysis.

Agreeing with Paul Saffo (Institute of the Future), who believes today’s discontinuous environment requires a “Ready, fire, steer” approach, Pietersen suggests that experimentation is the most crucial activity involved in implementation. The organization’s strategic direction is developed, implemented, and then repeatedly and continuously modified in response to changes in the environment and in the firm’s own circumstances, and experimentation allows companies to make these adjustments successfully. “The situation analysis is an intellectual voyage of discovery. Experimentation adds to this the dimension of action learning.” Thus, the adaptive organization is ready to experiment, to learn from results, and to adjust its strategy accordingly. It is an approach that liberates thinking so that it does not attach to a fixed set of mental models. It also aids in stamping out the complacent “if-it-ain’t-broke-don’t-fix-it” attitudes that tend to exist in most organizations.

Because the entire objective of experimentation is for the organization to learn its way to success through failure, a mistake-friendly, knowledge-sharing culture is required. However, successful organizations are, by definition, organizations that do things right and, in the process, avoid uncertainty and error in favor of what has worked in the past. Many companies undertake new-business venturing and innovation through acquisition as a means of circumventing this natural tendency and fostering cultures in which constant experimentation is generated. But, Pietersen believes that one of the most powerful techniques for harnessing the power of experiential learning comes from the U.S. Army’s after-action review (AAR).

The AAR is a learning review, conducted immediately after a military engagement (simulated or real), in order to articulate the lessons learned and to identify the Army’s strengths and weaknesses. Thus, as the basis for continuous improvement, the AAR typically focuses on four questions: (1) What was the intent of the engagement? (2) What actually happened? (3) Why did it happen? (4) How can we do better? This highly structured process, designed to ferret out crucial insights from battlefield experiences, can also be a powerful tool in the context of business. Any significant event (e.g., a major new-product launch or market test; the opening of a new manufacturing facility, retail outlet, or website; a corporate reorganization, merger, or spin-off; and/or any crisis [external/internal] or turning point) can potentially produce valuable learning and is, thus, suitable for an AAR exercise.

Lastly, Pietersen notes that Strategic Learning is a 365-days-a-year process, and he warns that in order for organizations to enjoy its full benefits, they cannot let the process lie dormant between “planning seasons.” Instead, they must take deliberate actions to make the method a permanent and active part of the business culture so that the cycle of learning, focus, alignment, and execution, constantly operates to help the business adapt to its ever-changing environment. Thus, if companies wish to make the most of the innovative potential of Strategic Learning, they must: Commit to the lifelong learning of employees and develop their international experiences. Refresh work teams through job rotation. Build heterogeneity into the organization. Institutionalize time for reflection. Benchmark the company against noncompetitors. Turn company conferences into opportunities for learning. And, create a climate of open communication.


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