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David Maister: Are We In This Together? The Preconditions For Strategy

Managers build their plans and strategies on the assumption that people in their firm are ready and willing to be team players, acting collectively to create or achieve something in the future.

The truth, however, is that these attitudes cannot be assumed to exist. In fact, they may even be relatively scarce. In many firms — perhaps even most — these preconditions for strategy may not exist.

It is hard to identify and create buy-in for what “we” (i.e., the firm) should do if there is no strong sense of “we” — a mutual commitment and sense of group loyalty and cohesiveness. Similarly, it can be meaningless if the members of the firm are not committed to go on a journey together into the future.

This was brought home to me when I was facilitating a strategy discussion in an industry that has a long tradition of hiring, celebrating and rewarding stars — individualistic, solo operators. As we discussed the investments and initiatives necessary to pull off the strategy identified by management, one of the ‘players’ in the room asked: “Why would I want to do this. What’s in it for me?”

It must be immediately recognized that having this thought is normal. The industry I was working with is only unusual in the (refreshing?) willingness of people in this business to actually say things like this out loud.

In other industries and professions, they just think it all the time, without actually saying it!

As we worked through the issues, it became increasingly clear that there were major differences among the people in the room, the key players in the company, whose participation and collaboration would be essential to pull off ANY strategy.

The issue was not the specifics of the proposed strategy. What came through clearly was that no commitment to each other — or to their joint future — existed.

The differences among them were based on what seemed to be some inherent personality characteristics, or at least some strongly-held preferences, on two key dimensions — their desire to be engaged in a joint, mutually-dependent enterprise (collaboration) and the time frame they wanted to apply to their decision-making (future-orientation).

On the first dimension, there were people who actively wanted to be part of a team, with joint accountabilities, responsibilities, and rewards. They wanted to be part of something.

However, not everyone in the room fit this category. Many others freely admitted that they were most comfortable (and would seek out) situations where they could be independent — judged on their own individual merits and accomplishments, without being tied to the performance of others.

The second dimension we explored was time-frame. Some people had an appetite for high-investment, future-oriented strategies. They were willing to defer (if necessary) some immediate gratification in order to invest — to get the chance to reap higher rewards in the future. Others are reluctant to invest, even in their own future. They prefer to focus on “winning today,” letting tomorrow take care of itself.

Combining these two dimensions led to the identification of four kinds of preferences that individuals (and companies) have.

• Type 1 is the solo operator who values independence, wants to make little investment in the future, but is willing to bet on his (or her) ability to catch fresh meat each and every day. I call this the Mountain Lion approach. “Pay me for what I do today (or this year.)”
• Type 2 is the individual who prefers to act in coordination with others, but doesn’t like to invest (or defer gratification) too much. I call these people (collectively) the Wolf-Pack. “If we act together we can kill bigger animals, but it had better pay off soon or I’m joining another Pack!”

Types 1 and 2 may be unwilling to invest or “bet on the future” for a variety of reasons, including risk aversion.

• Type 3 is the individual who wants to be independent, but is interested in building for the future by investing time and resources to get somewhere new. Such people remind me of Beavers building dams to provide a home for their (own) family.
• Type 4 are individuals who want to be part of something bigger than they can accomplish alone, and have the patience, the ambition and the will to help the collective organization invest in that future.

I call this group “The Human Race” since one of the rare things about Homo Sapiens that differentiates it (at least in scale) from other species is its ability to act collectively to build and develop. (It’s called civilization.)

Note, however, that Type 4 could also be a description of an Ant Community or Beehive, where individuals slave for the benefit of the community, suppressing and subsuming their own identity within the whole. (This interpretation is most likely to be applied, naturally, by those who do not place themselves in this category.)

I don’t have a precise metric to measure the differing orientations described here, but I have found two proxy questions to be useful.

On the issue of independence versus team-play, I ask people whether, in general, they would prefer rewards in their organization to be based (compared to the current arrangements) a little more on individual performance or a little more on joint rewards for joint performance.

I then ask whether, compared to the current arrangements, people would like their firm to invest more in its future, even if this meant they would have to accept less current income in the form of salaries and current bonuses.

These two (imprecise) questions tend to cause people to reflect on their true preferences. The underlying issue is not really about pay schemes, but phrasing the questions this way tends to crystallize the issues for many people.

In exploring these orientations, I frequently use secret voting machines which allow people to express their views while remaining anonymous.

I ask people in the group which of these four preferences best described their own, personal desired way of behaving. (At this point you may wish to pause and guess what percent of all your colleagues would place themselves, by preference, in each category.)

In this particular company where I first explored the model, all four groups were well represented, although only 10 to 20 percent put themselves in the “I want to be part of something bigger than me that is working to build for the future.”

Thirty to forty percent put themselves in the “solo-short-term” (Mountain Lion) category, with approximately twenty to thirty percent each of the “team-play short term” (Wolf Pack) and “solo builder” (Beaver) categories.

I don’t know if the fact that only 10 to 20 percent of key players wanting to be “team-play builders” strikes you as low, or matches your experience, but it leads to an interesting question: what do you think the chances are of melding people that describe themselves that way into an institution that has a differentiated reputation?

My own conclusion, then and now, is clear. An organization that had these proportions might succeed through individual, entrepreneurial activities, but it would be quite literally incapable of having a company strategy. For example, no common reputation or differentiation could be achieved in the competition either for clients or talent. Firm leaders that tried to develop and implement company strategies would be wasting their time.

In applying this model and conducting these votes numerous times in other firms, it has been revealing how much diversity is exposed among people who had previously thought of themselves of members of, and loyal to, their firm.

They may indeed, be loyal, but their desires and preferences differ so much on the key dimensions that, in many cases, no strategy can accommodate the diversity of preferences among the members of the group.

The mixture of preferences may place very severe limits on what an organization can achieve. While there may be some logic and merit in like-minded people banding together, (whether they be Mountain Lions, Wolves, Beavers or Humans) an organization made up of an unmanaged mix of such types is unlikely to function well.

If a majority of the key people really DON’T want to act collectively in building for the future, it is meaningless to develop plans as if they did.

In spite of this, very few people or organizations have frank and open discussions about this kind of thing. The preconditions for strategy are rarely surfaced and examined, possibly because the implications of discovering a disparity of preferences can be very scary and disruptive.

It is important to note that it is not required that a majority choose the “team-play building” preference.

A group of people who all identify themselves as preferring to operate as “independent short-term” players can succeed in many businesses. (See for example, the discussion of “Hunters and Farmers” in my 1993 book Managing the Professional Service Firm.) Many businesses can be, and are, constructed around “star players” rewarded for their short-term results.

Similarly, a Wolf Pack can achieve something that is called “strategy” and can align its recruiting, systems, rewards around a strategy of collaborative short-term actions, if that’s what everyone wants.

However, without a majority of key players committed to collaboration and investment in the future, it is unlikely that most of what is usually considered to be firm-level strategy can really be accomplished. Before discussing their plans, firms need to uncover whether their people really want to go on a journey — any journey — together.

Dealing with Diversity

If you were to conduct this poll in your organization (asking people either to place themselves in one of the four categories, or to estimate what percentage of their colleagues they would place in each group), what choices would you have if you found that you had a broad diversity of preferences?

I can think of the following (theoretical) options.

Option One: Try to Accommodate Differences

Is it possible to find different roles for people, so that individualists and short-term players can be accommodated by playing specific roles in the organization without compromising the commitment and determination of the majority?

This would clearly be very desirable if it were to prove practical. It would require the least disruption to the status quo.

Manufacturing corporations have different activities (such as sales, production, or finance) which may require different attributes, so the question arises as to whether other organizations, such as professional service firms, can also accommodate different orientations?

I believe that this may be possible, but not by allowing people of different orientations to play the same role in the organization. There may be differences between the desirable characteristics of those in sales and those in production, but I doubt that much variety can be acceptable within one of these groups.

If one sales person (or team) is taking a collaborative, building approach, is it acceptable for another to act in an independent, short-term fashion? If the answer is yes, it would be hard to see what is meant by saying the organization has a strategy!

The only way I’ve really seen “biodiversity” work in the real world is if different species are kept away from each other and do not compete for the same resources.

That means the wolf-pack is a completely separate department (preferably in a separate building) than the mountain lions who have their own “deal” (privileges, responsibilities, metrics). It is necessary to keep one group away from the others if they are to co-exist!

On my blog Passion, People & Principles, Brit Stickney wondered whether short-term individualists can be convinced to join the group effort. He asked:

How can we articulate to our colleagues that the team approach is in their individual best interest?

Even, or especially, if only, 10 to 20% of individuals want to be part of “something bigger” to build for the future, it is critical to be able to articulate to each team member why their role within the will help them individually. It may be possible to be persuasive that by relying on and working with others, they will be able to achieve their personal goals.

Personally, I’m not sure I share Brit’s hope in this area. Is it really possible to get short-term individualists to “do the right thing” for the company’s long-term bests interests either through persuasion, systems, or setting individual goals that further corporate goals?

I am increasingly skeptical that this traditional “managerial systems” approach can be made to work.

In my experience, the whole thing falls apart when we try to mush them all together and pretend that everyone is measured and rewarded on the same things, that everyone has the same performance standards and everyone plays the same role.

Ultimately, the hope that (too much) biodiversity can be accommodated may be impossible to achieve. I doubt that you can have a random, equal mixture of all types and make it work well.

Option Two: Work To Change People’s Orientation

The second choice for dealing with biodiversity is to try and affect people’s orientations. One way that MAY be possible to accomplish this is to craft a sufficiently compelling vision for the future, so that even those who do not start off with an initial preference for team play or investment are willing to “sign on.”

The potential success of this option will turn on one critical question. Are people’s orientations relatively fixed, based on underlying personalities and preferences? Or can they either change with time, or be made dependent upon specific circumstances?

The answer is important. If people’s orientation toward teamwork and time-horizon is context-specific (i.e., dependent upon the particular team and strategies being proposed), then there is hope that some process of building commitment to a strategy can successfully forge collective action even from those initially unwilling.

However, if there is a relatively sizable fixed component in people’s attitudes, then no strategic planning process can be successful. The choices will either be to abandon strategy, or to separate from those who do not wish to enter upon the journey together.

My own hypothesis is that the fixed component in many people’s personalities is relatively high. People really do differ as to how they want to live their lives. Solo operators rarely develop a preference for team play, and people who want immediate gratification rarely develop the patience to sacrifice even a portion of today for an uncertain future — especially if they have to make that investment in conjunction with (and be dependent on) others.

In this view, it is not the clarity or the glamor of the vision that affects people’s lack of buy-in to collective, future-oriented strategy, but their willingness to participate in strategy at all.

Another hypothesis that emerges from this is that it will be hard, if not impossible, to reconcile differences through pay schemes: it will be hard to change working behaviors based on deep personal preferences through the clever construction of incentive schemes.

If this is correct, people who do not match the basic orientation of the company should either be in or be out of your organization depending upon what it wants to accomplish. Companies, according to this point of view, must achieve a consistent philosophy by being careful about the kind of people they bring into their organization.

This alternative was phrased well by Brit Stickney:

First we must define what our “Super Bowl” is — what we wish to accomplish. Second, we should define what wins and losses are. And finally we should find the players that can help us (and want to) win games and reach the Super Bowl.

I think this way of framing the challenge is closer to the real problem that organizations face. But notice, Brit’s proposition suggests that organizations must “find the players that can help us (and want to) win games and reach the Super Bowl.” This suggests a degree of selectivity that many organizations fail to reach.

It is not easy, but it can be done. It is very encouraging, I have found, to discover how many people will, in fact, choose to accept a well-articulated philosophy, even if it is not the ideal one they might have chosen for themselves.

In spite of what I have argued above, the relatively “fixed” component of people’s collaborative and future-orientation is not COMPLETELY determinative.

If the firm is prepared to bring the issues of collaboration and future-orientation to the surface, and (through some open process) ask participants to commit themselves explicitly to a joint, building future, then significant degrees of buy-in can be obtained.

Options Three and Four: Split Up or Cover Up

The consensus-building approach does not always work. As Antoine Henry de Frahan asked on my blog:

How would you manage a situation when the firm has been in existence for a long time and is finding it impossible to define a coherent strategy because there is no consensus on the partnership model in the first place? I see two options: business as usual (which actually means inertia) or split. Is there any third way?

If people truly differ in their orientations and objectives, it may become necessary to ask those who are not prepared to commit collaboratively to the joint venture to separate from the organization.

This is the strategy advocated by Jim Collins in his book Good to Great, where he asserts that one of the primary keys to success is “getting the right people on and off the bus,” a conclusion that I share.

This sounds tough, brutal, scary and risky, and it is all of those things. Notice, the argument is NOT that doing this is unconditionally necessary. Rather, the argument is that it must be done if an organization is going to be capable of having a strategy — any strategy.

The fourth alternative is, by far, the most common: avoidance of the issue, papering over the differences, ignoring the problem, or (worse and most common), complaining all the time that everybody wants different things, and nothing gets done.

This does not necessarily lead to disaster (particularly since it is so common). However, it will almost certainly prevent the organization from making any strategic shifts.

It is commonly observed that the biggest problem with developing strategy is implementation. It may be the case that the problem is more profound — that the members of the organization have insufficient commitment to each other — or their mutual future — to pull off ANY strategy.

In a world in which many organizations have been put together with mergers, acquisitions and extensive use of lateral hires, the underlying problem may grow in importance, rather than diminish.

Add comment March 5th, 2007 at 04:35am David Maister

A.G. Lafley and Jeffrey Immelt on Innovation

How do you deliver and sustain profitable growth?

That’s the key challenge shared by Procter & Gamble’s A.G. Lafley and GE’s Jeffrey Immelt.

Writes Fortune’s Geoff Colvin:

“To meet P&G’s growth targets, Lafley has to find about $7 billion of new revenue this year, equivalent to a company the size of Barry Diller’s IAC/Interactive. At GE, Immelt has to find about $15 billion of new revenue, equal to the size of Nike. And if they succeed, of course, they’ll have to turn around and find even more next year.”

So what’s the secret formula?

Both CEOs have “reformatted their companies’ fundamental approaches to cultivating change and innovation.”

Colvin finds out more in this insightful interview:

Immelt: “The initiative we’re driving now is organic growth. If that’s your initiative, it doesn’t make sense to be training people exactly the same way you trained them in the past. So we identified about 15 companies that had grown at three times the rate of GDP, and asked what they had in common. It was five things: external focus, decisiveness, inclusiveness, risk taking and domain expertise. So we reoriented the way we evaluate and train along those lines. We just recently added leadership, innovation and growth, which is basically oriented around teams. This is the first team training we’ve done in ten or 15 years.”

Lafley: “We made innovations in two areas. First was in the leadership training we felt we would need for the 21st century. We have an inspirational leadership program that is highly individualized for handpicked managers. They’re nominated by business leaders or functional leaders, and I pick them. A big chunk of it is about personal development. We also have a general-manager program, right before or right after you become a general manager. And then we have an executive-leadership program for individuals headed to be a president or a group president. It’s pretty intense.

“The other thing we pushed at - and Jeff and I talked about this - is, How do we get a global leadership team. Some 55 percent of our business today is outside the U.S., so my top leadership team for the first time in our history is now up to half non-Americans. We pushed really hard to get there. It makes for a very different discussion when we get together for our quarterly or semester meetings. I think we’re a lot more challenging of each other.”

Other insights:

Immelt on China: “China - we just got a big order from the Ministry of Rail. I got it on a Sunday - the whole ministry is working all day on a Sunday. I believe in quality of worklife and all that stuff, but that’s the competition.”

Lafley on Globalization: “Lafley: One of the challenges for the business community broadly is to articulate in a simple way the benefits of globalization and then face head-on the fact that there will be some disruption. When a company like GE or P&G has plants to shut down, we have a pretty enlightened program for handling retraining and early retirements, so employees have the best chance to have a good income and a good life. We do need to be a little more creative in that area because there are a lot of instances that doesn’t happen. But I don’t think it’s for lack of funding or because there aren’t opportunities somewhere in the economy. Our employment rate is still the envy of the world.”

Read the interview >>

Add comment February 20th, 2007 at 02:50pm Christian Sarkar

Marshall Goldsmith: The Best Advice I Ever Received

Like many young Ph.D. students, while I studied at UCLA, I was deeply impressed with my own intelligence, wisdom and profound insights into the human condition. I consistently amazed myself with my ability to judge others and see what they were doing wrong.

Dr. Fred Case was both my dissertation adviser and boss. My dissertation was connected with a consulting project with that involved the city government of Los Angeles. At the time, Case was not only a professor at UCLA, but also head of the Los Angeles City Planning Commission. At this point in my career, he was clearly the most important person in my professional life. He had done amazing work to help the city become a better place, and also was doing a lot to help me.

Although he was generally upbeat, one day Case seemed annoyed. “Marshall, what is the problem with you?” he growled. “I’m getting feedback from some people at City Hall that you are coming across as negative, angry and judgmental. What’s going on?”

“You can’t believe how inefficient the city government is,” I ranted. I then gave several examples of how taxpayers’ money was not being used in the way I thought it should. I was convinced that the city could be a much better place if the leaders would just listen to me.

“What a stunning breakthrough,” Case sarcastically remarked. “You, Marshall Goldsmith, have discovered that our city government is inefficient. I hate to tell you this, Marshall, but my barber down on the corner figured this out several years ago. What else is bothering you?”

Undeterred by this temporary setback, I angrily proceeded to point out several minor examples of behavior that could be classified as favoritism toward rich political benefactors.

Case was now laughing. “Stunning breakthrough number two,” he said. “Your profound investigative skills have led to the discovery that politicians may give more attention to their major campaign contributors than to people who support their opponents. I’m sorry to report that my barber has also known this for years. I’m afraid that we can’t give you a Ph.D. for this level of insight.”

As he looked at me, his face showed the wisdom that can only come from years of experience. “I know that you think that I may be old and behind the times,” he said, “but I’ve been working down there at City Hall for years. Did it ever dawn on you that even though I may be slow, perhaps even I have figured some of this stuff out?”

Then he delivered the advice I will never forget: “Marshall, you are becoming a pain in the butt. You are not helping the people who are supposed to be your clients. You are not helping me, and you are not helping yourself. I am going to give you two options: Option A: Continue to be angry, negative and judgmental. If you chose this option, you will be fired, you probably will never graduate, and you may have wasted the last four years of your life. Option B: Start having some fun. Keep trying to make a constructive difference, but do it in a way that is positive for you and the people around you.

“My advice is this: You are young. Life is short. Start having fun. What option are you going to choose, son?”

I finally laughed and replied, “Dr. Case, I think it is time for me to start having some fun!”

He smiled knowingly and said, “You are a wise young man.”

Most of my life is spent working with leaders in huge organizations. It doesn’t take a genius to figure out that things are not always as efficient as they could be. Almost every employee has made this discovery. It also doesn’t take a genius to learn that people are occasionally more interested in their own advancement than the welfare of the company. Most employees have already figured this out as well.

I learned a great lesson from Case. Real leaders are not people who can point out what is wrong. Almost anyone can do that. Real leaders are people who can make things better.

Case’s coaching didn’t just help me get a Ph.D. and become a better consultant. He helped me have a better life, and his advice can help you too. First, think about your own behavior at work. Are you communicating a sense of joy and enthusiasm to the people around you, or are you spending too much time in the role of angry, judgmental critic? Second, do you have any co-workers who are acting like I did? Are you just getting annoyed with them, or are you trying to help them in same way that Case helped me? If you haven’t been trying to help them, why not give it a shot? Perhaps they’ll write a story about you someday.

Editor’s note: Marshall Goldsmith’s latest book has been the #1 business bestseller over the past month, as tracked by the New York Times, Wall Street Journal, and USA Today.

1 comment February 18th, 2007 at 05:53pm Marshall Goldsmith

The Coming Disruption of the Auto-Market

One Billion New Automobiles!

Bill Jackson and Vikas Sehgal from Booz Allen Hamilton warn executives in the ailing auto industry about emerging trends which will change their future:

1) Social mobility: for the first time residents of remote villages in India and China will be able to reach urban centers in a half-day’s travel

2) Environmental Impact: Manufacturers in India and China will likely develop indigenous technologies at lower cost, making the cars more affordable but still meeting emission norms (they will lag behind Western emission standards by a couple of years, but this will be a competitive advantage!).

3) The Expanding Lower-End Market: The requirements in China and India are far different from the West. Take the $4,500 Maruti Alto, for example.

4) The Learning Model in Emerging Markets: The basic vehicle model of the emerging economies could be adapted for other nations, offering fuel efficiency and unprecedented low prices, with a few extra tweaks like the additional safety features that established markets require. China and India are honing their products in the Middle East, Africa, and Eastern Europe.

Jackson and Sehgal warn:

“Recent history suggests that many Western automakers will fail to respond effectively. U.S. manufacturers have focused on large cars and trucks, and European car companies have focused on performance. Both groups have thus missed opportunities to develop economical cars with high fuel efficiency and the selling point of reducing dependence on foreign oil.

“If all the current automotive trends accelerate, many companies will see their value chains overhauled, not just in the auto industry but in every sector. Nations around the world will suffer the consequences of increased pollution and greater global competition for fuel. And the automobile as a product will be transformed. Those manufacturers and suppliers that start planning now for a new wave of upstart competition will be the most likely to thrive in the next automotive environment.”

What will Ford and Chrysler do?

Download the article here >>

For those of you who think this is simply an issue for the auto industry, think again. The $100 PC is here, Dell.

1 comment February 16th, 2007 at 04:07pm Christian Sarkar

Doug Smith: Putting Shareholders First? Wrong!

Joe Nocera of the The NY Times recently visited the annual Corporate Social Responsibility conference and came away dazzled by the paradoxes. The contradictions would have been hard to miss. For example, what must Joe have wondered as he spoke to Exxon Mobil’s and Chevron’s corporate social responsibility representative the week following the Stern Report catalogue of the catastrophic risks of continuing to treat environmental damage as an externality. Ditto for Pfizer’s ‘do-gooder’ who, as a person undoubtedly seeks to better human kind and cannot be held individually accountable for his company’s maniacal focus on bottom line practices such as kick-back like rewards for doctors who push Pfizer products, research and development trials conducted without objective oversight, campaign funding to politicians who support extending legalized monopoly, product development efforts aimed at minor improvements over fundamental innovation, and marketing campaigns that draw attention away from health risks while misleading consumers about the actual costs of new drugs.

Ditto for Ford Motor Company — whose advertising mantras for years and years (e.g. “No Boundaries”) use the imagery of pristine environmental experiences to push gas guzzling SUVs. Or, how about General Electric? Having fouled the Hudson River for decades, GE poured tens millions of dollars into delaying court-ordered cleanup and miselading the public about it’s actions because, from a shareholder point of view, the costs incurred in delay outweighed the costs of the clean up. McDonalds? The same week it’s representative chatted about the company’s sense of social responsibilty at the NY City confab, McDonalds was also funding the effort to fight a NY City ordinance banning transfats.

The list could go on. Joe could not avoid the paradoxes. When, for example, the McDonald’s rep claimed corporate social responsibility is “core to the way we do business”, Joe noted: “You could wonder about that.”

Nocera picked up this theme again in his conclusion. Having ceaselessly breathed in paradox and contradiction, Joe opined that for companies to become substantively responsible — as opposed to PR-oriented “responsible” — would demand all responsible values become core to those companies’ business models.

Hurrah for Joe! He is dead on correct. Now, Joe, go back, re-read and re-think this declarative statement you make earlier in the article:

“Do shareholders come first — above other stakeholders (another favorite buzzword at the conference… encompassing customers, employees, activists and so on)? Of course.”

Joe, Joe, Joe. There can never — never — be fundamental change to the core business models if shareholders come first and their concerns are the trump card of any discussion. Never.

But, Joe, listen up carefully. This last comment does not reflect today’s either/or orthodoxy. The orthodoxy embedded in your all-too-facile “of course”. The orthodoxy that insists that either the shareholder comes first. Or the shareholder comes last.

No. The shareholder cannot come last. We saw a long run of the poor consequences from the 1950s through the 1980s of what happens when the shareholder came last. We must pursue shareholder value. We must celebrate shareholder value.

But we must not make shareholder value the trump card of all human affairs conducted by business — especially if we, as I think we should, choose capitalism as an essential philosophy for the well being of the planet.

Joe, if you are to help us change the core business models then you’ve got to erase your robocall “Of course” about the primacy of shareholder value. You’ve got to think again and somehow, some way discover the more profound declaration that the shareholder, like other core constituencies, must abide in equivalency of importance. The shareholder does not come first. Nor does the customer come first. Nor does the employee come first.

The shareholder does not come last. Nor does the customer come last. Nor does the employee come last.

Sustainable and ethical corporations must shift their core business models to this formulation: “Shareholders provide opportunities to the people of the enterprise and their partners to deliver both value and values to customers who generate returns to shareholders who provide opportunities to the people of the enterprise and their partners to deliver both value and values to customers who generate returns to shareholders who….. and on and on.”

That is an ethical and sustainable scorecard. And it reflects this unprecedented and undeniable fact of the 21st century human condition: we live in a world of markets, networks, organizations, friends and families in which our organizations are the new communities that determine the fate of our planet. Our primary ethical challenge can only be met when organizations reintegrate our legitimate concern for value with our equally legitimate concern for other values. Failing this, our most dominant organizations — for-profit enterprises — will continue putting value first and, thereby, continue propelling our global society toward social, environmental, political and economic disasters.

Joe, consider only this illogical aspect of your all-too-easy-and-orthodox “of course”: Who are these shareholders who come first? I’m imagining you are a shareholder. But, let me ask this, are you a customer? Are you an employee?

Put differently, does Joe Nocera the human being come first? Or, do your concerns only matter to the extent that you happen to own stock in one more enterprises?

Should we put one of our dominant shared roles (investor) above the other dominant shared roles of our new age of human kind (employee, customer, family member, friend)? And where does that leave the extraordinary number of folks on this planet who are not investors?

Joe, if we wish to take your constructive insight about changing core business models as an essential condition to the fate of this planet, then we must move beyond either/or-ism to both/and. We must not elevate any role to trump card status while also avoiding subordinating any role as a last concern.

We must learn to practice the new golden rule: “As employees do unto others as customers, investors, family members and friends what we would have them do as employees to us as customers, investors, family members and friends.”

When the employees and executives of Chevron, Exxon Mobil, Pfizer, Ford, General Electric and McDonalds begin practicing this golden rule in earnest, we’ll all witness social responsibility (as well as environmental, medical, legal, political, technical, family, spiritual and economic responsibility) blended into the daily lives of those who make, sell, distribute and service the many good things we depend on for leading our lives.

We will experience and have good things to have that are truly ‘good’.

1 comment February 14th, 2007 at 03:14pm Doug Smith

John Hagel: Internet Strategy - Red Ocean or Blue Ocean?

Add comment February 2nd, 2007 at 08:26pm John Hagel

Marshall Goldsmith’s Book Hits #1

StrategyWorld.org is proud to announce that Marshall Goldsmith’s latest book, What Got You Here Won’t Get You There: How Successful People Become Even More Successful, is the #1 best selling business book in the United States (as ranked by both the Wall Street Journal and USA Today).

Congratulations, Marshall! We’re going to have some excerpts from the book here shortly, so stay tuned.

Add comment January 31st, 2007 at 03:57pm Christian Sarkar

William Dunk: Free Association

Back in 1999, Peter Drucker wrote about “The Real Meaning of the Merger Boom.” In a punchy essay for the Conference Board’s Annual Report, the guru for all gurus proclaimed, “there is no merger boom today.” End of story.

In fact, he made clear that “in total dollar volume,” it was a zero sum game. De-mergers, unnoticed, were equal to the mergers. Moreover, “the majority of today’s mergers are defensive, the majority of yesterday’s were offensive.” If anything, this has simply become more the case in 2006 and 2007. For example, the major auto companies, so enamored of mergers for a while, have now taken to joint ventures. Many, many mergers today are consolidation plays, tactical efforts to hang on in dying businesses, pulling together wounded enterprises that think they can afford heart surgery when they are large enough to pay the bill.

Drucker could have gone on to point out that history is littered with mergers that subtracted value for shareholders and society. Even the wave of industry consolidations that have taken place from 2000-2007 may in the end prove strategically short-sighted –investments in dying industries without regard to tomorrow.

“The truly important developments in corporate and economic structure today are not the mergers and de-mergers. They are, largely unnoticed or at least unreported, new and different ways of corporate structure, corporate growth, and corporate strategy….the real boom has been in alliances of all kinds, such as partnerships, a big business buying a minority stake in a small one, cooperative agreements in research or marketing, joint ventures, and, often, ‘handshake agreements’ with few formal and legally binding controls behind them.”

Drucker spotted the real boom – alliances. But an utter fascination with the doings of Wall Street, even in our highest political councils, has distracted all of us, riveting us on merger headlines and concealing from us this deep enduring trend of our time.

The most adroit of a new breed of global chief executive gets it. Such is Carlos Ghosn who turned around Japan’s Nissan Auto, peeling away layers of fat instead of adding extraneous divisions. He went from massive losses to $7 billion in profits and wiped out $23 billion of debt. Nissan’s 11% operating profit margin has made it the most profitable of the world’s big automakers (See Economist, February 26, 2005, p. 66). Now to head Renault as well, Ghosn has said that the power of the alliance between them lies “in its respect for the identities of the two companies, and on the other, in the necessity of developing synergies.” If Nissan had been fused with Renault, failure would have followed.

We ourselves are very aware of the negatives that crop up with mergers. It was only a short time after Allegheny Airlines absorbed PSA and Piedmont Airlines (both better companies than it incidentally) that the combined market value of the three added up to less than the value of each of the components prior to their homogenization. This unhappy trinity, once known as Agony Airlines to wags in the Northeast, has since become the teetering bankrupt U.S. Airways, affectionately called UseLess Airways by its passengers. After many false re-starts, it is hoped that America West’s management, which took over U.S. Air, can run the new combined airline to better effect.

As well, one can not overestimate the size of the merger friction costs imposed by investment bankers, lawyers, and accountants who created and distorted this and other stillborn combinations. Reduced friction costs for continuing operations have traditionally been the excuse for bloated business combinations and expensive asset bases, but this does not at all account for the absolutely horrendous sunk costs imposed by middlemen in the merger/de-merger process. In fact, the mechanics of mergering themselves often distort the shape of the resulting enterprise, creating a lumbering creature nobody envisioned. But the financial and strategic costs that lard the merger process are well obscured by the middlemen and their sales people who make such a good living off of such transactions.

There are broad conceptual reasons as well why a collaborative model free of hierarchy and legalistic strictures is productive of much more economic value. With increasing amounts of the work to be done by corporations in advanced economies consisting of knowledge and professional services chores involving far different workflows, the fuel for business activity consists of pockets of intelligence that are broadly distributed throughout the world, often outside the corporation. One cannot accumulate the human resources one needs to play on a global scale within one’s walls. Organizations need to tap into a multitude of other organizations. And they need to avail themselves of workers strewn about the globe—some in outsourcing companies and others entirely on their own.

Charles Handy finds that “many organizations have more people working outside them than they have inside them.” Furthermore, “only about half the working population is working inside an organization.” The successful company, with perhaps only 20% of its workforce on its own payrolls, has to learn to virtually coordinate companies and independent workers who are bound to it by no more than a handshake. Handy chats about this brave new world in “The Future of Work in a Changing World” in an interview with Aurora Online.

For the past 10 years the goal of our own staff has been to divine the rules of the road for the still emerging collaborative enterprise. In every way, they fly in the face of all the dogmas we laid out for the corporation in the 20^th century. For this reason, the postulates of collaboration are usually counter-intuitive. Consider here just two examples:

Rule 1: At best the chief executive should be a fish out of water. Take a look at Nissan. Carlos Ghosn was born in Brazil in a Lebanese immigrant family, then had a French education first in Lebanon and later at the Ecole Polytechnique where he studied engineering. For openers he turned around Michelin, the tire company, in Brazil to begin with, then in America. He went on to become a cost-cutter at Renault. Louis Schweitzer, the very original business mind who headed up Renault, posted him to Nissan with little in-France business experience and not even a smidgeon of Japanese grounding in his system. But he was effective because he could bring a pan-global outsider’s objectivity to Nissan. He succeeded in part because he was an alien from outer space. He was the stranger who could see what makes the natives tick and who had no sentimental ties to sever as he cleaned house.

Rule 2: The best alliances are very, very unlikely. For instance, Kirin Beer, once the IBM of the Japanese beer business, came to George Rathmann of Amgen as he was getting ready to ramp up production of Epogen. It contributed its fermentation production techniques to the biotech company, as well as a slug of capital. Rathmann has since acknowledged that its role was central to the growth of Amgen into a multi-billion dollar company. Most likely, a start up will find that the process knowledge it really needs lies 10,000 miles away in a dramatically different industry and in a vastly different culture. But, of course, the Japanese bring special skills and excellence to manufacturing which is why, as we used to say, that the American dream got interrupted by the Japanese clock radio.

Alliances are best, then, if they overcome all the inbreeding tendencies of conventional businessmen. The dynamics of mergerdom tend to preclude such unlikely alliances.

What’s at issue here is how to devise an organizational model that encourages rapid, insistent global learning by an organization. As we have said elsewhere in “Better Learning Networks,” (see item #187) researchers at the Santa Fe Institute have come to understand that there is an optimal coupling within an organization that encourages learning. It is simply too hard for knowledge to interpenetrate an organization where the bonds are made of steel rather than nervous tissue.

Those who think about software systems have come up with the same insight in respect to information systems. Ubiquity interviewed us about collaboration a while back. There we reference an article by John Seely Brown and John Hagel called “The Joy of Flex” in which they said, “”Loose coupling makes it easier to improvise without worrying about disruptions elsewhere in the system.” While hardwired systems afford short-term cost advantages, they are costly in the end, since they cannot accommodate the disruptions imposed by global realities. Likewise, we would contend, merged companies achieve a rigidity that is antagonistic to agile behavior.

If alliances are the fluid organizational form that should dominate our business activity, many head-in-the-sand executives don’t know it. Squabblers debate about the value of strategic alliances and how to make them work. This is all rather academic. Alliances are very much a fact of life in our lean business society, and so the only option for the business generalissimo is to saddle up the horse and see if he can ride this new kind of stallion.

Well, the future is always a bit uncomfortable until it is past.

1 comment January 29th, 2007 at 05:33am William Dunk

Laurence Haughton: Where Nardelli Went Wrong

Now that Bob Nardelli is out at the Home Depot the armchair quarterbacks and hindsight pundits are full of theories about “the fatal flaws” and the “mental errors” that caused his sour (albeit lucrative) exit.I think they all (so far) have missed the most significant factor. It wasn’t primarily that Nardelli’s “political” skills were lacking or that his strategy was wrong ( or even the curse of Six Sigma). In fact at the root of his predicament was something that most people would call a strength not a weakness. (And it’s a strength you, Bob, and I probably share).

The big reason Nardelli was, from the beginning, never going to win at Home Depot was that he recognizes the need for change very quickly and acts on it.

I know that seems contradictory so let me explain.

In the late 1990s I spent almost five years writing and researching the reasons that companies move too slow. One of the biggest obstacles I had to address was the powerful urge to hold on to the status quo and the incredible unwillingness among many people to let go.

As a result I, along with a lot of other executives, worked on strategies to open up when hearing new ideas and to embrace change more quickly. From what I’ve read Nardelli had done much the same during his tenure at GE.

But as the experts explain, “good things often have unintended (negative) consequences.”

What unintended consequence comes from learning to recognize the need for change quickly and act without delay? It’s often a huge blind spot.

Many early adapters and fast acting managers have a hard time imagining that others do not see what they see and they therefore radically misinterpret or underestimate what it will take to get the majority of their associates to buy-in.

From the beginning there were signs that Nardelli didn’t have enough buy-in at the Home Depot. People in the stores were whispering, “Nardelli has no retail background” and “The board is paying him too much money.” “He doesn’t get it,” senior executives grumbled, “Everything he’s doing is counter-culture.” Even Wall Street didn’t buy-in. “The market’s getting saturated,” one expert wrote. “I wouldn’t be in a rush to buy it [Home Depot’s stock].” (This was at a time that Nardelli’s turnaround efforts were barely off the drawing board.)

Now as someone who embraced change and acted quickly in the past Nardelli saw these people sitting on their hands and making negative comments and decided that was proof positive that they were the wrong people for the new situation.

And he was partly right. About 20 percent of the average company won’t ever pitch in and try new ideas or innovations.

But that leaves a large group of people who may be right for the job but who stay on the fence longer that the leaders expect. They look like immovable resisters, but they’re not. They are simply more average folks, people who need to see that the change is safe and likely to succeed before they will give a strategy their buy-in.

This is the critical lesson I’ve learned in the last three years as I’ve been researching the art of execution. Not enough buy-in one of the four big reasons why half of all the best laid plans fail. But it’s not callousness or stupidity that causes executives to underestimate the challenge and assume the worst. It’s that many of us have the eyes of the early adapter. We’ve opened our minds to what we see as an obvious need for change. And we assume that resistance is irrational (or sinister). We lose good people and take a big step back. In the end that causes us to miss our announced milestones and disappoint our stakeholders.

So now we have an opportunity to learn from the mistakes of another (a great way to gain experience for cheap). Here’s the lesson: Every well thought out strategy need an equally well thought out plan to get enough buy-in. That plan starts with realizing that everyone isn’t like us. Many are slower to buy-in. But if they see the path is safe and likely to succeed they will (also) follow through.

Add comment January 8th, 2007 at 02:25am Laurence Haughton

Vijay Govindarajan: Strategy as Transformation

Senior executives need simple, but very powerful frameworks that help them to think strategically, and to align people in the organization through the use of a common strategic language.

The three box thinking model is an example of a framework that I use to facilitate strategic thinking and alignment.

Actions companies take belong in one of three boxes:

Box 1 — manage the present;
Box 2 — selectively abandon the past; and
Box 3 — create the future.

Box 1 is about improving current businesses. Box 2 and Box 3 are about breakout performance and growth.

Many organizations restrict their strategic thinking to Box 1. This tendency has been particularly acute in the past two to three years, as most leaders have emphasized reducing costs and improving margins in their current businesses.

But strategy cannot be just about what an organization needs to do to secure profits for the next year. Strategy must encompass Box 2 and Box 3. It must be about what a company needs to do to sustain leadership for the next ten years. In fact, the central task of an organization’s leaders is to balance managing the present with creating the future. Examples of successful Box 2 and Box 3 initiatives include: Dell’s direct model in the PC industry, Wal-Mart’s transformation of the discount retailing industry, Apple’s introduction of iPod, and Southwest Airlines’ revolution in the airline industry.

Organizations that operate within a short timeframe base their actions on the assumption that their industry is stable and static. But it takes years for large organizations to change directions. If you take this into account, change is rapid and nonlinear. For instance, nanotechnology and genetic engineering are revolutionizing the pharmaceutical and semiconductor industries. Globalization is opening doors to emerging economies, such as India and China, and billions of customers with vast unmet needs. Once-distinct industries, such as mass-media entertainment, telephony, and computing, are converging. Rapidly escalating concerns about security and the environment are creating unforeseen markets. And other, more subtle changes are important as well, such as the trend toward more empowered customers, the aging population in the developed world, and the rising middle class in the developing world.

As a result of these forces, companies find their strategies need almost constant reinvention because the old assumptions are no longer valid, or the previous strategy has been imitated and commoditized by competitors, or changes in the industry environment offer unanticipated opportunities. The only way to stay ahead is to innovate.

Part of the job of executives is to make money with the current strategy. That is the challenge in Box 1. Part of their job is to make up for the decay and commoditization of strategy. That is the challenge in Box 2 and Box 3.

Too many companies ignore these two boxes until it is too late.

Add comment January 4th, 2007 at 04:00am Vijay Govindarajan