| There is an important distinction between time-periods and instants in time. A previous briefing emphasised that ‘performance depends on resources’, but if performance is reported over a period and resources are reported at points in time, we risk comparing apples with oranges! | |
| Most of what companies report about their performance concerns how well they have done during a certain period, the latest month or a financial year for example – how high their sales rate has been, how much profit they have generated and so on. Many companies, however, also track and report how much of certain things they have got at a point in time, such as the number of customers they have. Some even declare such numbers publicly at the end of each reporting period, such as subscribers for cable TV or cellphone companies.We need to be careful about this distinction… Continue reading » | |
Nov 172010
Oct 082010
This ‘Perspectives‘ paper makes a strong case for how firms can move from costly experimentation, e.g. for new products, to simulation of new opportunities and other business changes. It’s at a more operational level than simulation of overall strategy or major strategic initiatives, but the examples offered make clear just how powerful the approach can be.
Aug 212010
Whether a skeptic or not, any CEO should check their strategy is OK if global warming does turn out to be real. Who, doing business in Pakistan, assessed the business risk from once-a-century flooding? ? Who, serving the Russian agriculture sector, checked the consequences from unprecedented temperatures and wild-fires? Who, planning utilities’ strategies in Europe, was ready for recent wild swings in temperature and rainfall? Unfortunately, the response of many businesses to endless ill-informed cost-pressure has left them more exposed to risk, rather than more resilient.
The impact in many cases concerns infrastructure, but preparedness is nevertheless a strategic issue, best understood by distinguishing 3 dimensions – damage, resilience and recovery:
- Cutting the fraction of infrastructure assets damaged by a disruption. A power company might reduce exposure to storm damage by putting cable underground, or more cheaply by using A-frame pylons.
- Reducing the fraction of the system that is damaged by a disruption. Two cities, each served by a single main cable is less resilient than if served by a ring – the same damage (a break a cable) still leaves both cities with power.
- Speeding the recovery from any damage – perhaps by holding strategic spares, or simply by having a few more trained staff in place.
Such preparedness is a strategic issue, since it implies careful, detailed assessment and sustained investments of effort and money – the return for which should be significantly lower risk.
Aug 182010
We’ve seen a few gung-ho CEOs mess up, especially but not exclusively in banking, but ‘Boards of Prevention‘ in strategy+business asks what the heck the supervisory Board is doing to let such nonsense happen. If they are not warning about risk, they are just overhead. Though the article largely focuses on risk in banking, some simple principles seem more generally useful [let's call them 'threats' to generalise beyond banking]:
- Give the Board an explicit threat manifesto – how to assess and respond to threats to the business strategy and performance.
- Give small executive teams responsibility to scan for and evaluate known and possible threats.
- Reach out more widely, to external communities [investors, academics, customers, employees ...] to widen the scanning for threats.
I am reminded of a comment from a wise and successful CEO who told me “For any strategic initiative we might make, we always ask what is the worst that could go wrong – if that’s not too bad, or we can cope with the consequences, we go ahead; otherwise we drop it“.
Shocking to hear from a former strategy advisor to the UK Prime Minister that neither current nor future Governments are likely to do anything serious about climate change because most MPs ‘don’t believe’ in it. I’m reminded of an observation by Dennis Meadows – that the public have a long-term interest, but no resources to drive change, and politicians have the resources to act, but only a short-term focus on the next election. Only the business community has both the long-term concern and the resources to do something, and many are already doing so, in spite of positively obstructive government policies.
[ Incidentally, do not be surprised to see me comment on climate change as if it is proven beyond reasonable doubt, extremely serious, and needs to be acted upon hard - which makes it a major issue for corporate strategy. (See other posts on sustainability, notably from MIT's SLoan management Review.) Whilst politicians are happy to express strong views on issues they don't understand, I only express views on issues I do understand sufficiently to comment. Most MPs lack even the basic scientific skill to have an informed opinion on climate change - and the same is likely true of most politicians in other countries. I accept entirely that some who have taken the trouble to investigate and understand the mechanisms at work may come to a different view, but the vast majority of people sufficiently competent to have an opinion are in clear agreement. ]
This blog post from HBS starts well, but ends in the wrong place, saying we shouldn’t try to quantify intangible issues. We do know how to deal quantitatively with such factors. We can handle both tangible qualities that differ between people, such as differing customer sales rates, and also intangible states-of-mind. A bank tracks ‘miserable moments’ their customers experience and knows well how recent history of those problems affects the likelihood of customers leaving. Call center companies know how workload pressures affect staff morale, productivity and turnover, and so on. Applying ‘artistry’ to the issue, as argued in this article, is not the answer. It is right, though, that you can’t do this with spreadsheet analysis – it can’t handle the interdependencies. The basics are explained in summaries from my book on attributes and state-of-mind intangibles. I can also recommend How to Measure Anything by Douglas Hubbard.
More at www.strategydynamics.com and strategy dynamics on LinkedIn.
Jan 022010
Strategy is not solely of concern to firms of course, but to public services, voluntary organisations and others [though you would hardly know it to read the strategy textbooks and journals, which largely ignore these vast sections of the modern economy]. The collapse of Dubai is a spectacular case of strategic incompetence, but also throws up an issue of wider importance.
Two solid pieces on strategy implications from sustainability. The Business of Sustainability report from BCG reviews the impact the issue is having on companies and how it is affecting their strategic management. Most now see it as far more than just the latest fad and potentially a big factor in their future success – or failure. Sloan Mgmt Review summarises this report, 5 mini-cases on Nike, Rio Tinto, GE, Better Place and Wal-Mart, and articles on implications for competitive conditions and for talent-management.
Great video with Adam Werbach, author of Strategy for Sustainability: A Business Manifesto, shares an adaptation from his book and talks with the McKinsey Quarterly about trading in green fashion for more enduring business solutions. Practial and commercial.
Jun 132009
Some useful tips in this article from BCG, some simple, some complex [and some over-complicated by trying to force them into a 'evolution' analogy]. Especially good to see its focus on exploiting opportunity, and good not to see some of the bad or dangerous ideas I have mentioned previously.
Do take care, though – few are universally applicable, so you will need to assess how appropriate each is to your specific situation.
