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18.01.2018

Strategy is often thought of as the exclusive preserve of top management, but organizational alignment is impossible without everyone’s participation.

“The purpose of an organization is to get ordinary people to do extraordinary things,” management guru Peter Drucker once wrote.

But that’s only part of the story. For these “extraordinary things” to enhance the organization’s competitive effectiveness they must directly support the organization’s strategic goals. If a strategy exists only at the top of an organization, it will have little effect. To produce unity of action, strategy must be translated to and acted on at every level within the organization. No one is exempt.

An apt metaphor is the teamwork that propels a rowing eight. Any rower who falls out of rhythm or reduces the team’s pulling power will impede the progress of the boat. Everyone must, quite literally, pull their weight. There is simply no room for passengers.

Yet most companies fail to achieve this level of strategic alignment. A survey by Right Management Consultants found that two-thirds of employees either do not know or do not understand their company’s strategy, and only one-third felt fully engaged with their jobs and their company.

There is a connection between these outcomes. Employees cannot engage with companies that cannot express a sense of purpose. The cost of this engagement deficit is heavy. A 2013 Gallup survey found that companies in the top quartile for employee engagement achieved 10 percent higher customer ratings and 22 percent greater profitability.

This challenge goes to the heart of what it takes to be a leader. We cannot think of strategy and leadership as separate domains. They are essential parts of each other. Every failure of strategy is a failure of leadership — either to set the right priorities or to mobilize the hearts and minds of employees. It is strategy and leadership working hand in hand that is the key to success.

For a strategy to be translated to every unit in an organization, there needs to be a shared understanding of the process by which this will be achieved. The graphic below describes a method I have found to be successful in numerous companies I have worked with.

to win at value, a deep connection between each unit and the business's overall strategy is vital

For strategy to lead to effective value creation, it must be translated throughout the organization.

Here is the logic: Strategy is about harnessing insight to make choices on where to compete and how to win the competition for value creation in an organization’s chosen markets. At the corporate level, the primary choices on those questions must be made. Then within each organizational unit, these primary choices need to be translated into derived choices in a process of systematic alignment.

Within each organizational unit the first order of business is to develop a clear line of sight to the corporation’s strategic goals and then to use this as the springboard and inspiration for this process of translation. In military parlance an operating unit must first understand the “commander’s intent” and then set priorities and commit resources accordingly.

Executives in staff functions sometimes ask why they need to have a strategy since they don’t generate revenue, and are therefore simply cost centers. My response is to counsel them not to think of themselves as cost centers but as value centers. With this change of mindset, their mission becomes clear: to generate greater value than the costs they incur. If they fail to do this, they will simply be reducing their company’s profits.

I often hear managers complain that their executives have not clarified the organization’s strategic goals. But we need to accept that leaders are not perfect, and do not always present this kind of clarity on a plate. Life is messy. The answer is not just to sit back and complain, or simply take shots in the dark. That is victimhood, not leadership. Effective managers take responsibility for finding clarity through dialogue with their leaders; they are able to lead both up and down. They know they owe this to their teams.

Organizations create their future through the strategies they pursue. In a dynamic world, this invariably involves change and uncertainty. As employees seek clarity of purpose, there are always three questions in their minds. At times of change, the need for clear answers is intensified:

  1. What are we aiming to achieve, and why should I care?
  2. Where does my department fit in, and what is expected of me?
  3. How will we measure success, and what’s in it for me?

The task of strategic leadership at every level is to ensure that these questions are answered honestly and clearly, and that everyone has the chance to contribute meaningfully to the end result. As Henry Kissinger once observed, “No strategy, no matter how ingenious, has any chance of succeeding if it is born in the minds of a few and carried in the hearts of none.”

a gearbox is an effective metaphor for the deep connection between all units necessary for effective strategy

© Andrew Walch | Flickr

In a seminar I ran for a major corporation one of the participants asked the CEO how he saw his role as the head of such a big enterprise. He walked up to a flip chart and drew a gearbox. Then he explained: “I see my responsibility as controlling the large wheel in a gearbox. The role of a gearbox is to transmit power. Every time I turn that large wheel just one notch, all the smaller wheels will spin progressively faster. Those smaller wheels are you and your teams. My most important job is to turn the big wheel on just the right issues so that all the energies of the company are driving the few things that matter most to our success.” He paused for a moment, and went on to make the clinching point: “All of you also have your hands on a large wheel, and you owe it to your teams to turn that wheel on just the right issues — those that line up with our corporate priorities.”

Whenever the challenge of strategic alignment comes up in that company, the executives remind themselves of “the parable of the gearbox.”

All too often top leaders believe that their key task is to “communicate” the strategy to the organization in a one-way process. But just telling people what to do produces compliance at best — and resentment at worst. It is a fact of life that people will support what they help to build. As the German philosopher Friedrich Nietzsche wrote, “people will do almost any what if you give them a good why.” 

True commitment comes from the dedication to a cause greater than ourselves combined with the knowledge that we can make a difference that matters. All motivational research points to one fundamental truth. Success resides in the gap between compliance and commitment.

Willie Pietersen is the faculty director of Columbia Business School’s Executive Education program Implementing Winning Strategies: The Breakthrough Strategic Learning Process.

 
 
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18.01.2018
So what is it that makes some big multinational corporations so successful? One answer can be found in their ability to control networks.

The latest round of quarterly results have recently come out and the likes of Apple and Boeing have announced bumper profits. Others such as Sainsbury’s and Samsung have not fared so well. So what is it that makes some big multinational corporations so successful? One answer can be found in their ability to control networks.

The global economy is made up of a series of networks that link customers with providers from all corners of the world. These networks consist of chains of linked corporations that bring these products to our doorsteps – from coffee growers in Columbia through logistics companies to the coffee burner at Nestle and the shop around the corner. Once companies have gained a strong position in these networks, they can then enhance and modify them to suit their business.

Companies that succeed position themselves at the centre of these networks and then manipulate their structure and foundations. Mostly, entrepreneurship rests on three forms of networking and network building: controlling the network they are part of, bridging it with others and creating new one.

Gaining control

Good entrepreneurs seek to occupy positions of control and power in the economic networks in which they operate. They do so by occupying the profitable “middleman” position between producers and customers in the networks that make up our global economy.

These middleman positions are very profitable, based on the control they can exert over the trade flows in their network. Companies can build and maintain this position through tactically acquiring competitors – this explains the numerous mergers and takeovers that have taken place over the past decade. Acquisition strategies by AppleFacebook and Google show how mergers and takeovers can also be used to pre-emptively counter the emergence of any potential competitor.

The importance of these middleman positions explains as well how companies exercise control over trade conditions in their own supply chain networks. Imposing strict costing on suppliers might cause exploitative work conditions in the plants in which many of the company’s products are produced. But this enables them to keep their costs to a minimum.

Retail giants such as Walmart, Amazon and Tesco are well known for exercising close control of their supply chains and for imposing trade conditions on their suppliers that allows them to operate at lower costs than their competitors. The same holds for Apple, which outsources the production of its devices to giant corporations such as Foxconn in China. This allows Apple to operate at much lower costs, increasing its profit margin.

Apple outsources its production, while maintaining control of the network. Steve Jurvetson/flickrCC BY

Finally, positioning your company in the networks through relationships with the right partners results in more control and power to affect the business environment. Historical entrepreneurs such as John D Rockefeller were masters of developing these strategies. Rockefeller built a controlling position in the oil market at the end of the 19th century by procuring competing oil producers in the US and to integrating them into his Standard Oil corporation.

Bridging networks

Successful companies are adept at bridging their network with others in the global economy by exploiting things they have in common. As Ronald Burt explained in his “structural holes” theory, people or companies that can connect across different groups can be more creative and innovative.

Son Apple is able to tie different products and activities into comprehensive packages of services to their customers. Instead of just producing a personal computer or its operating software, Apple pioneered a vision of delivering the whole package of hardware and software to its customers – with great care given to design too. Although in the 1980s and 1990s this strategy was less effective and Microsoft was the more successful company, Steve Jobs’s persistence in following his vision ultimately succeeded. Indeed, Apple’s vision has become the most successful in the 21st century, since this approach is anchored in the networked nature of our global economy.

Creating new networks

The most successful corporations are able to create new networks through an innovative vision that executes a business strategy that fits with the prevailing philosophy of life. Apple is again the most prominent example of this aspect of entrepreneurship since it sells a world view in which hardware devices are linked with providing content in a beautiful design. Apple gets us communicating with friends through social networks, listening to music, making and modifying photographs, playing games and “looking cool” in a single vision of what a successful 21st century person aspires to.

Apple created new economic networks through the introduction of iTunes, their App Store, iPods, iPhones and iPads, resulting in a world view that people bought into. The latest additions to these services are the iCloud storage service and Apple Watch, which can communicate information of one’s body and health status to other devices. Then there’s Apple Pay, which will enable customers to increasingly control their finances through their Apple devices.

Although proposed and pioneered by others, it is Apple’s total vision of what a successful 21st century life should be that enables them to reap the profits from their products and make us “addicted” to them.

It is the success of Apple in this third aspect of entrepreneurship in a network economy that sets the company apart from its competitors, and whose lead aspiring businesses should follow.

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18.01.2018
I recently wrote an article about why so many strategies fail. Today though, I want to focus on the flip-side of that coin. I want to share with you my personal top 5 picks for the best business strategies of all time. Enjoy and more importantly, add your own examples in the comments below! - Tom Wright

1. Airbnb Forget All About Scalability

I love the story of Airbnb. We know them today as one of the fastest growing tech companies, valued at over $10bn, who have changed the way we travel probably forever. But did you know that they started out about as low tech as you can get?

The first Airbnb rental that ever took place, was the renting out of 3 air mattresses on the floor of co-founders Brian and Joe’s apartment. They made $80 per guest. It seemed like a great idea for a startup, so they put up a website and started inviting other people to list their own mattresses for hire.

They got a few bookings here and there – but for the most part, things didn’t go well. So much so, that in 2008, they resorted to selling cereal to make some extra cash (you can still see the original page on their site).

They had plenty of listings on the site, and plenty of site traffic – but too few people were actually making bookings. They were frustrated about the lack of effort they perceived in the listings people were making. So they took matters into their own hands.

The co-founders grabbed their camera, and went to knock on the doors of each and every one of their NYC listings. When someone answered the door, they would persuade the owner to let them in, and then take a ton of photographs of the inside. They touched up the photos a bit and uploaded them to the website in place of the old photos the owners had taken. Within a month of starting this strategy – sales doubled. Then tripled. Then….well, the rest is history.

Best Business Strategies: Airbnb

 

What can we learn from Airbnb?

The thing I love the most about this story, is that it confounds one of the most commonly stated principles of building a tech startup – that you must make everything scalable. What Brian & Joe did was anything but scalable. But it got them enough traction to prove that their concept could work. Later, they did find a way to make this solution scalable, by hiring young photographers in major locations and paying them to take professional photos of owner’s listings (at no charge to the owner).

 

2. Toyota Proves that Humility can be the Best Business Strategy

In the year 1973, the ‘Big Three’ car makers in the USA had over 82% of the market share. Today they have less than 50%. The main reason for this, is the aggressive (and unexpected) entry of Japanese car makers, led by Toyota into the US market in the 1970’s.

Cars are big, heavy and expensive to move around. That’s one of the reasons why the US market was so surprised when Toyota started selling Japanese-made cars in the US, at prices far lower than they could match. The car industry was a huge contributor to the US economy, so one of the first reactions from the government was to implement protectionist taxes on all imports of cars – thus making Japanese cars as expensive as locally made cars.

But the tactic failed. Within a few years, Toyota (and by now others too) had managed to establish production plants on US soil, thus eliminating the need to pay any of the hefty new import taxes. At first, US car makers weren’t all that worried. Surely by having to move production to the US, the production costs for the Japanese car makers would rise up to be roughly the same as those of the local car makers. But that didn’t happen. Toyota continued to output cars (now made locally on US soil) for significantly cheaper than US companies could.

Their finely honed production processes were so efficient and lean that they were able to beat US car makers at their own game. You’ve probably heard of the notion of ‘continuous improvement‘. In the world of manufacturing, Toyota are pretty much the grandfather of exactly this.

Best Business Strategies: Toyota

What can we learn from Toyota?

Most business success stories that you read – especially in the western world, involve bold moves and against-all-odds tales of bravery. Which is what makes this particular story so unique. Toyota spent years studying the production lines of American car makers such as Ford. They knew that the US car industry was more advanced and more efficient than the Japanese one. So they waited. They studied their competitors and tried to copy what the Americans did so well. They blended these processes with the strengths of their own, and came up with something even better.

Toyota proved that knowing their own weaknesses can be the key to success – and be one of the best business strategies you can ever deploy.

Not just that. Can you name a single famous executive at Toyota? I can’t. And one of the reasons is that Toyota’s number one corporate value is humility. Not even the most senior plant executives have named car spaces of their own. The humility that helped them to crack the US market runs deep in the organization, from the executives to the assembly workers.

 

3. HubSpot Creates an Industry then Dominates it

HubSpot aren’t as famous as Airbnb or Toyota. But, they’re worth over $2bn, and more impressively, they’ve achieved that valuation in an industry that didn’t even exist before they invented it themselves. That industry is known as ‘inbound marketing’.

Most of the marketing that we experience is known as ‘interruption’ marketing. This is where adverts are pushed out to you whether you like it or not. Think tv adverts, billboards, Google Adwords, etc. In 2004, HubSpot created a software platform that aimed to turn this concept of marketing on its head. The HubSpot marketing platform helped companies to write blog posts, create eBooks and share their content on social media. The theory was that if you could produce enough good quality content to pull people to your website, then just enough of them might stick around to take a look at the product you’re actually selling (behind the blog).

This was a big deal. I can tell you from personal experience, that ‘interruption marketing’ is really really expensive. We pay Google around $10 each time someone clicks onto one of our AdWords adverts. Remember, that’s $10 per click not per sale. That adds up pretty fast. On the other hand, this blog receives approaching one million clicks per year – at a cost of zero. I’ve written before about how inbound marketing basically saved our business – so it’s fair to say that this example is pretty close to my heart!

They coined the term ‘inbound marketing’ – and long story short, they’re now one of the biggest SaaS companies in the world. But that’s not the interesting part of the story.

Best Business Strategies: HubSpot

What can we learn from HubSpot?

The interesting part of the story is this: HubSpot created a new type of marketing. They then used that type of marketing to market their own company, who’s sole purpose was to sell a platform that created that new type of marketing. Head hurting yet? Mine too.

In a nut-shell, HubSpot had an idea for a cool new way of marketing. Most companies would have taken that new way of marketing, and applied it to something that they were already selling. But instead, the HubSpot guys decided to monetize the marketing strategy itself. They took a whole bunch of concepts that already existed (blogging, eBooks, etc) and packaged them into a ‘new way of doing things’. Not only that, but they created an awesome narrative, and then proved how powerful this new way of marketing could be, by building a $2bn business from it. They smoked their own dope, and made themselves very very rich in the process.

 

4. Apple’s iPhone Launch Shows Tremendous Restraint

Ok I hear you – this is such an obvious inclusion for the ‘best business strategies’. But as one of the first people to adopt smartphones when they came out in the 1990’s this is something else that’s pretty close to my heart. I remember using Windows Mobile (the original version) on a touchscreen phone with a stylus – and it was horrible. I loved the fact that I had access to my email and my calendar on my phone. But I hated the fact that my phone was the size of a house, and required you to press the screen with ox-like strength before any kind of input would register.

Thankfully, a few years later, BlackBerry came along started released phones that were not only smart, but much more usable. Sony Ericsson, Nokia, HTC and a whole host of other manufacturers all came out with reasonably solid smartphones, all well before 2007 when Apple finally released the iPhone.

I remember arriving at the office one day and my boss had somehow gotten his hands on one of the first iPhones to be sold in the UK. I was shocked. Normally I was the early adopter. I was the one showing people what the future looked like. And yet, here was this guy in his mid 50’s, with his thick glasses, showing off a bit of technology that I’d never even seen before.

And that is the masterstroke that is the iPhone. The reason why every single smartphone I’d ever owned had sucked in comparison to the iPhone, is because there’s no real market in selling phones to geeks like me. We’re too few and far between – and either too poor or too stingy to drop any real cash on new tech. Apple could easily have created a phone much earlier than it did and sold it to me. But it didn’t. Instead it waited until the technology was mature enough to be able to sell to my boss. Someone who is far less tech savvy than me. But also far more financially equipped.

Best Business Strategies: Apple

What can we learn from Apple?

The big learning here is that first mover advantage is often not an advantage. A well executed ‘follower’ strategy will outperform a less well executed ‘first mover’ strategy every single time. One of the most common misconceptions in the startup world is the concept that it’s the ‘idea’ that matters the most. The truth is, the world’s most successful companies were rarely the first ones to innovate. I’m looking at you Nokia. At you Kodak. And at you too, Yahoo.

In fact, being first is probably a disadvantage more often than it’s an advantage. Why?

  • Your market isn’t well defined and doesn’t even know your product type exists
  • If you have a market, it’s probably the early adopters – by definition, that’s a niche market
  • The technology will hold you back rather than power you to success
  • Every single person that comes after you will have the advantage of learning from your mistakes

People, and especially tech companies, get carried away with being first. But you need to think very seriously about whether ‘first mover’ or ‘smart follower’ are the best business strategies for you.

 

5. PayPal Dared to Challenge the Status Quo

There are certain industries that you just don’t mess with. Industries like Aerospace, big Supermarkets, Semi Conductors, and Banking. Actually, banking is probably the hardest industry of all to try to disrupt, because the barriers to entry are huge. You need mountains of capital, a ton of regulatory approval, and years of building trust with your customers around their most important asset – their cash.

Banks are old. Their business models are largely unchanged in hundreds of years, and they make huge amounts of profit, without actually making a single thing. They’re insanely powerful and almost impossible to displace. But for some stupid crazy reason – PayPal didn’t seem to care. I can tell you from personal experience (I worked for a bank), that the name that strikes the most fear into the executives of the banks is PayPal. Here’s why:

  1. PayPal spends less money on technology than even a medium sized bank does. Yet its technology platform is far superior.
  2. Consumers trust PayPal as much if not more than they trust their bank. Even though PayPal has been around for a fraction of the time.
  3. When a customer buys with their PayPal account, the bank has no clue what the customer actually bought. The transaction appears on the bank statement as merely ‘PayPal’. That gives PayPal all the power when it comes to data mining.
  4. PayPal is quicker to market with just about any kind of payment innovation going.
  5. PayPal refuses to partner directly with banks – instead opting to partner with retailers directly.

In a very small space of time, PayPal has managed to insert itself as a whole new method of payment on the internet (and offline) – giving a very real alternative to your trusty debit or credit card. But how the heck did it manage to do it? Let’s take a look at why PayPal had one of the best business strategies ever.

Best Business Strategies: PayPal

What can we learn from PayPal?

There are two huge pillars of success to PayPal’s story. The first is simple – stone-cold balls. They got a fairly lucky break when they accidentally became the favored payment provider for eBay transactions. This was followed a few years later by their $1.5bn acquisition by eBay themselves. eBay were smart enough to mostly leave them alone, and their newfound sense of boldness saw them strike a series of deals with other online retailers to try and replicate the success they’d had with eBay.

This is where the second pillar of their success comes in. Partnerships. Banks had always been wary about forming partnerships directly with retailers – instead they relied on their scheme partners (Visa / MasterCard) to do that for them. They didn’t want the hassle of managing so many different relationships, and were extremely confident about the fact that credit and debit cards would always be at the heart of the financial payment system. But the problem was that MasterCard themselves were already working on a partnership with PayPal. Leaving the banks out in the cold. Today, PayPal commends an amazing 20% market share of online payments in the US – and 62.7% of the eWallet space. Almost all of that growth has come from their direct relationships with merchants large and small.

 

What are the Best Business Strategies You’ve Ever Seen?

Ok, so that’s my top 5. Now it’s your turn. Tell me about the best business strategies you’ve come across. The ones that made you smile and say ‘damn they were smart’. Add you own to the comments below, or share them with me via social media.

Over to you!

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1- Focus on Innovation: you must continuously innovate and evolve

2- Focus on Marketing: understand the benefits of your product and what your customers want

3- Find Your Differentiation: your business will stand out

4- Maintain Your Drive and your business commitment


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