Debates over corporate scope–synergies v. focus–have become staples of the business pages. Activist investors keep turning up, demanding greater business focus and less sprawl across industries and activities. Management teams either acquiesce (Xerox, HP, DuPont-Dow) or resist, following their passion for synergy-seeking (Agrium, Siemens, Yahoo). Now we have an interesting meta-case of a university seeking greater synergy in business education, as Cornell’s top management group–president, provost, and board of trustees–forces a merger of the School of Hotel Administration, the Dyson School of Applied Economics and Management, and the Johnson School of Business into a new and improved College of Business.
An overview article in the Wall Street Journal about President Obama’s foreign policy, apparently fueled by White House image-polishing sources (such as noted foreign policy expert David Axelrod), brings to mind what Richard Rumelt called “bad strategy” in his opus Good Strategy/Bad Strategy. (I would have preferred to call it “anti-strategy” or “pseudo-strategy” to distinguish it from actual strategies that are bad, but we go to war with the terminology we have.) For anyone with a passing acquaintance with today’s world, the lead of the WSJ story tells the tale:
President Barack Obama gathered his foreign policy team in the White House Situation Room several weeks after his 2012 re-election for a meeting to set his second-term agenda.
Now that he was free from the politics of another presidential campaign, Mr. Obama told the group, he wanted a “blue skies” assessment of all policies worth considering, according to participants. Nothing was off the table.
What emerged was a sweeping and fundamental re-orientation of U.S. foreign policy, highlighted by four initiatives: conclude a nuclear deal with Iran; renew diplomatic relations with Cuba; elevate climate change to a national-security issue; and complete a free-trade deal with Asia.
This set of four disconnected initiatives, whatever their individual merit (my personal scoring vector: -10, -1, -2, 5) does not add up to anything like a coherent foreign policy or national security strategy. Not surprisingly, the WSJ article goes on in great detail to describe how the actual imperatives of the United States’s foreign environment–aggression and irredentism from Russia, China, and Islamic State, as well as the continuing battle with militant Islamic supremacists globally–impinged on and “crowded out” much of Obama’s agenda.
This dog’s breakfast of random objectives, even if achieved, would do little or nothing to make the U.S. stronger or safer or to advance American ideals. It is not attached to a serious diagnosis of threats and opportunities, strengths and weaknesses, or adversary and allied incentives. None of the four objectives materially reinforces another, nor do they work together to accomplish a coherent foreign-policy goal. While I could put on a debater’s hat and cobble together a diagnosis and guiding policy to which these objectives could be attached to form Rumelt’s kernel, that is not a debating position I’d expect to be able to defend effectively. Good luck, for example, trying to reconcile the elevation of climate-change objectives–which can only be accomplished by preventing emerging economies from developing along the same lines as the OECD nations–with a devotion to free-trade principles. A best-case scenario deal with Iran would inhibit that country’s use of nuclear power, a precedent that would also hinder the climate-change objective. Recognizing Cuba without preconditions sends a signal to the Iranian government that they can get what they want with minimal concessions, making a deal harder to close and ratify. And those are just the internal contradictions. The lack of contact, for the most part, between these initiatives and the actual pressing problems facing the United States is glaring.
What comes through clearly from this and other articles, as well as memoirs from Administration insiders and foreign counterparts, is how much of what passes for “big picture” thinking in the White House is purely reactionary–not to events in the world but to what are perceived as the sins and errors of past American policy. Anything smacking of the “Cold War,” whether it be opposition to Russian expansionism or to Cuban human rights violations, is automatically downgraded. Anything smacking of the “Bush Doctrine,” even such no-brainer moves as cashing in the hard-fought (and blunder-filled) victory in Iraq with a Status of Forces Agreement permitting a permanent contingent of U.S. troops to stabilize Iraq, is treated with negligence bordering on contempt. The problem, of course, is that even though the Cold War is indeed over (and even if you were lukewarm about it at the time) and even if Bush’s war in Iraq was a blunder, that has little or no bearing on the current situation facing the U.S.
The ironic thing is that in moving away from Bush’s counterinsurgency approach (population security, hearts and minds, build up indigenous state institutions) toward a pure counterterrorism strategy (assassinate enemy leaders) the Obama administration ended up doubling down on many of Bush’s legal and tactical innovations, such as broad surveillance of Americans and drone strikes. But that shouldn’t mask the fundamentally reactionary nature of the new approach. Unfortunately, countries cannot succeed with a George Costanza approach of simply doing the opposite of what they have attempted previously.
NJ Governor Chris Christie has banned Tesla’s direct sales model in NJ. Now, I understand completely why an auto manufacturer would want to use franchise dealerships rather than tying up all that capital themselves — they can focus on what they do best. I have absolutely no idea, however, how one could argue that the decision to sell directly is anti-competitive. Selling electric cars is extremely complicated — it takes way more effort and education than selling traditional vehicles. There’s plenty of evidence that salespeople at traditional dealerships are not equipped to (nor interested in) investing the extra effort it takes to pitch electric cars. (Imagine your car salesman explaining how you get a city permit to install a 220 volt charger in your garage and you start to get the idea…) Thus there’s a strong case for Tesla deciding to run the dealerships themselves. They want to make the experience smooth, slick, and iPhone like. And when someone goes into a Tesla dealership, it’s not because they were hoping the salesperson would compare the Tesla’s benefits with those of the Volt or Leaf, so where is the harm to competition?
Christie, what gives? Did NJ ban GM Saturn dealerships in the 1990s? Strange move for a Republican…
New Jersey To Tesla: You’re Outta Here
The New Jersey Motor Vehicle Commission voted Tuesday to ban the direct sale of vehicles in the state, becoming the third state in the nation to prevent Tesla from selling to consumers. That would force Tesla, founded by billionaire Elon Musk, to sell its cars through dealers.
Instead, Tesla will stop selling cars in New Jersey on April 1, according to Dow Jones. That means the auto company won’t have access to one of the nation’s most lucrative markets for luxury vehicles, while well-heeled New Jerseyites will have to pick up their Teslas somewhere else.
The commission’s vote followed month of discussions between Tesla and members of Gov. Chris Christie’s administration, according to a post on Tesla’s blog. The auto company said it thought that the commission and the administration were working to help it in the face of opposition from the New Jersey Coalition of Automotive Retailers.
Like many other dealer groups across the country, New Jersey dealers did not want Tesla to be able to sell cars directly to customers. On Monday, Tesla said it learned that “Governor Christie’s administration has gone back on its word to delay a proposed anti-Tesla regulation so that the matter could be handled through a fair process in the Legislature.”
Tesla said it had already been issued two licenses to open dealerships in New Jersey. “This is an issue that affects not just Tesla customers, but also New Jersey citizens at large, because Tesla would be unable to create new jobs or participate in New Jersey’s economic revival,” the Tesla blog said.
Meanwhile, a spokesman for Gov. Christie said Tesla officials would need to convince the state legislature to reverse the New Jersey ban on direct sales.
Christie spokesman Kevin Roberts said, “Since Tesla first began operating in New Jersey one year ago, it was made clear that the company would need to engage the Legislature on a bill to establish their new direct-sales operations under New Jersey law. This administration does not find it appropriate to unilaterally change the way cars are sold in New Jersey without legislation, and Tesla has been aware of this position since the beginning.”
The other two states to have banned Tesla from direct sales are Arizona and Texas. Coincidentally, both states are on Tesla’s consideration list for its massive battery factory. The other states in the running are New Mexico and Nevada.
Texas’ auto dealers have said they would still fight to keep the company from being able to sell directly to customers, even though the $5 billion plant is considered one of the biggest industrial prizes ever.
The New Jersey action comes after the Tesla Model S was named the top car for 2014 by Consumer Reports magazine.
Over at Reason.com they have interesting text and video on the sad tale of 38Studios, New England baseball hero Curt Schillng’s collapsed videogame venture that attracted nary an independent private investor but sucked up $100 million from Rhode Island taxpayers. Some takeaways from the story:
1) When inexperienced and undermanaged quasi-public economic development corporations go chasing glamour ventures to try to cover up their state’s abysmal business climate, bad things are likely to happen.
2) When the glamour venture is headed by a star athlete with zero experience or expertise in his chosen field, and appears to have no experienced management at all, the odds go down.
3) When a venture making a totally conventional product, such as a massive multiplayer game, can’t get any private investors, there’s probably no conceivable public policy justification for a subsidy.
4) People like Schilling who claim to be against big government but then reach their hands into the taxpayers’ pockets to fund their own dreams are, at best, intellectually stunted.
5) Schillings’s pro-Bush political views may helped save the taxpayers of Massachusetts, because Democratic governor Deval Patrick turned Schilling down flat even though the pitcher is an immensely popular legend among Boston Red Sox fans.
Apparently the University of California system decided it needed to update its image, so they cooked up this. Here are the old and the new side by side:
When I see the old logo, I think of quaint values like learning and truth. When I see the new logo, I imagine little enzymes acting like keys to unlock the stains in my laundry.
UPDATE: The UC bureaucracy folds up like a tent a mere five days after this was posted. Maybe the new logo should say vox populi somewhere. (H/t David Hoopes in the comments.)
NBA Commissioner David Stern recently fined the San Antonio Spurs $250,000 and severely chastised them for the decision by Gregg Popovich, their near-legendary coach, to rest his aging stars at home rather than fly them to Miami for a meaningless (but nationally televised) tilt with the defending-champion Miami Heat. Is Stern losing his grip? Does he need an intervention and/or a forced retirement as he reaches his managerial dotage? While I haven’t heard of Commissioner Queeg–whoops, Stern–clicking steel balls in his hand or searching for the keys to the strawberries, a Caine Mutiny scenario may be approaching if he continues to deteriorate. Other firms with long-term, successful “emperor” CEOs have found their later years to be problematic. See Eisner, Michael (Disney) or Olson, Kenneth (Digital Equipment Corporation) or maybe Cizik, Robert (Cooper Industries).
Ever teach one of those classes where you’re off a beat, forget points you want to make, and ramble a little bit? Maybe your preparation wasn’t up to its usual standard. Fortunately, there isn’t an opponent in the room compounding the problem by trying to make you look bad. Barack Obama did not have that luxury tonight.
I had fun watching the president’s discomfiture, but I sure wish Romney had a better five points on the economy and that he would explain why cutting the growth of entitlements is not an optional choice. (Although his Spain remark wasn’t bad.)
I am visiting Lund University this week – and they have conclusively shown that the Resource Based View indeed is useful. Useful for what? As a door stop to their conference room. (I also sent the proof/picture to Jay, one of the originators of the theory.)
An article recently posted in Slate reviews research showing that a significant portion of the variation in IQ tests is attributable to motivation rather than ability. In one striking study researchers measured the children’s IQ and split them into High, Average, and Low groups. They reran the test offering the low group an M&M for every correct answer. As a result of this simple incentive, the low group’s score went from 79 to 97 – on par with the average group.
Ok, so incentives work. Perhaps not a big surprise on many levels.
On the other hand, there is a large OB/HRM literature invested in the conclusion that performance increases are associated with hiring employees with a higher IQ. The assumption there is that IQ measures ability as opposed to motivation.
This raises a critical question for strategy scholars. Is motivation an immutable attribute of human capital Read the rest of this entry »
Entertaining story of how the Applebee’s restaurant chain is trying to improve asset utilization by adding late-night karaoke and G-rated cut-loose partying to its traditional family-friendly but competitively besieged regular-hours dining experience. The impetus for this innovation appears to have been franchisees who went to their privately-held franchisor and asked for permission to experiment, which was enthusiastically granted.
My favorite part of this story is the superhero-like switch from regular-hours Applebee’s to creature of the night “bee’s” with the “Apple” part of the electric sign turned off, the lights switched from green to white, and the space cleared for dancing and DJs. My second-favorite part is the image of some naive soul coming in for a snack after 10:00PM–“oh, look honey, Applebee’s is still open; let’s get some pie”–and being confronted with hard-partying suburbanites belting out Foreigner tunes and dancing drunkenly. They’re going to have some delicate marketing and branding issues going forward, but it’s hard not to cheer for the entrepreneurial spirit displayed. After all, there are suburban archipelagoes of shopping centers where the only late-night place to go out will be “bee’s.”
Nicolai’s post at O&M made me aware of a new journal, Journal of Organization Design. I definitely think org design deserves to experience a renaissance/comeback, so I welcome a journal dedicated to the topic. (Though, I do think we have far too many journals in strategy/management – many of them are of suspect quality.)
I just now checked out the web site of the journal and they have some killer features, including short videos of the authors describing their papers:
- Here’s John Mathews talking about his paper, Design of Industrial and Supra-Firm Architectures.
- Timothy Carroll on Designing Organizations for Exploration and Exploitation.
- Raymond Miles on Designing the Firm to Fit the Future.
- And, here’s a longer video of Raymond Levitt discussing virtual design teams.
I like the video feature. Nice.
There is now a large stream of scholarly literature on “platforms” – loosely, third-party services designed to bring transacting parties together. Amazon.com and eBay are obvious examples. Broadly interpreted, so are services like online dating sites (see the work by Hanna Halaburda and colleagues).
With this in mind, I came across the following article: Ghostery: A Web tracking blocker that actually helps the ad industry | VentureBeat. Ghostery is an app offered by the advertising technology company Evidon. The app is used by privacy-conscious web surfers to block web tracking services. When a new tracker attempts to install a tracking cookie on a browser sporting Ghostery, the tracker is blocked and Ghostery sends the tracker information back to Evidon to be added to the company's database of web trackers, which improves the quality of the app.
The interesting twist in the business model is that Evidon then turns around and licenses its tracker database to the very ad networks its app is designed to block. In fact, says Evidon CEO Scott Meyer, “When a new web tracker comes on the scene, they often want to be listed in Ghostery. It’s proof that they’ve arrived and have influence.”
So, what do we call a service that helps side A avoid side B while helping side B pursue side A? Seems as if this phenomenon should have its own, suitably clever-yet-scholarly term.
I must admit that Andrew Hacker has been a byword for fatuousness to me for quite some time. His latest, however, is especially meretricious because it plays directly into what so many people desperately want to believe–that ignorance of algebra is AOK, so we shouldn’t bother trying to teach it. Apparently, algebra drives people to drop out of high school and fail competency tests, and these are Bad Things we can avoid by no longer teaching or testing it. (Next up–placing the thermometer in an ice bucket to cure your fever.)
Hacker’s most superficially compelling argument is that almost no workers use algebra in their day-to-day work, including a large number of people working in technical fields. (In a parody of Deweyism, he does want students to learn “citizen statistics” and “quantitative literacy” so they can understand how the Consumer Price Index is put together, although how you can understand a weighted average without understanding algebra is beyond me.) In case someone brings this job-relevance argument up at a party, here are some quick responses:
1. Jobs don’t require algebra largely because there aren’t very many people who are good at it. If no one could read, jobs wouldn’t require literacy, either, but there would be a significant productivity loss in many cases.
2. In the novel and movie The Caine Mutiny, the intellectual (though evil) character points out that in the Navy “everything was designed by geniuses to be run by idiots.” We could equally say that in the modern world everything is designed by people who know algebra to be used by people who don’t. The fewer people who know algebra, the more unnecessarily elitist that world will be.
a) It’s almost impossible to understand financial relationships without being able to manipulate algebraic formulae. You can plug and chug different numerical values into a calculator or spreadsheet formula, but you’ll have no idea about the sensitivity of results nor will you be able to check or modify the formulae.
b) Probability and statistics are doable, in a very limited and rote way, using prepared templates, for people who don’t know algebra. Anything beyond that, though, is impossible to figure out if you can’t manipulate the symbols properly. Would you trust someone to run a regression or interpret its results if they didn’t know in their bones what a coefficient represented, much less a log-linear relationship?
c) Some functional relationships can be grasped by drawing graphs without algebraic manipulation. If you need more than two dimensions or want to prove which way the curves have to move when you change assumptions, though, you’re going to have to be able to do some algebra.
d) Lots of non-STEM jobs involve spreadsheet formulas of various kinds. Media planning, job-cost estimation, tax planning, budgeting, etc. are common sorts of work for “office” employees. The people who use these spreadsheets probably could get by without algebra, but anyone who wants to write one is going to be at a big disadvantage without it.
3. It indeed would be a lot easier for people to learn algebra if it were contextualized better by being tied to applied topics in other subjects. But that approach would result in algebra becoming a more important step along the way to passing science, economics, and other courses rather than a less important part. Moreover, some of it requires rote memorization just as does learning the multiplication tables or irregular verbs in a foreign language. It will not always be fun, but some necessary things just aren’t fun.
4. Last I checked, very few jobs require writing or reading Elizabethan English, knowing about Reconstruction, drawing or painting, worrying about environmental issues, knowing the parts of a frog or flower, or understanding why potassium burns when placed in water. I bet I could reduce dropouts and improve test performance by removing those topics from the curriculum and who’d know the difference? Voc-ed uber alles!
5. Hacker’s earlier work questioned the cost/benefit ratio of college. If my hypothesis about the higher education market is correct, then Hacker’s suggestion to stop teaching algebra in high school would fuel the very phenomenon he decries.
(Note 1: Anyone who will be offended by light-hearted discussions of the Dark Knight Rises in light of the shootings at the Aurora premier should skip to another part of the Internet. I have no intention of giving murderous attention-seekers the power to hijack all media, but I am aware that not all will agree.)
(Note 2: MINOR SPOILER ALERT)
I’ve just seen the Dark Knight Rises, which was a pretty good movie–not as good as the previous film in the trilogy, unsurprisingly, but exciting and even moving at times, with lots of little moments for each minor character to reveal his true nature and seem like a unique individual.
One minor problem: Batman is supposed to be a master strategist and tactician. He’s chosen to go underground to pursue and confront his enemy, Bane, about whom he has considerable intelligence, including Bane’s background, training, experience, and physical prowess (including his main point of weakness–a mask over his mouth that keeps Bane from suffering intense pain). He can see Bane standing in front of him, a very large individual of obvious strength and questionable agility. Batman is wearing a utility belt filled with grenades, throwing blades, sleep darts, cable launchers, and bolas. He is standing in a large cavern and is capable of operating vertically by shooting lines up to the ceiling and using built-in powered winches. In short, he is in a perfect position to remain outside Bane’s striking distance while hitting him with a variety of entangling, injuring, and even killing weapons.
Out of this cornucopia of options, what does Batman choose? Of course, a head-on bull rush, followed by a slugfest and wrestling contest. That’s the combat equivalent of Neiman-Marcus starting a price war with Wal-Mart. Macho is one thing, unbelievably stupid is another. (It’s true that in the real world, people make stupid mistakes, but in fiction we want Aristotelian probability, not literalness. And if someone does go the literal route, the character’s stupidity should at least be noted by others in the story.)
The fundamental writing problem here was actually reflected way back in the Knightfall comic book series that introduced Bane–his supposed awesomeness as a combatant simply doesn’t match his capabilities. (At least in the comic book, they gave him a device that injected a super-steroid called Venom straight into his head when he needed to pump himself up for extra fighting fury. It still wasn’t enough to make him seem that tough for any foe with speed, agility, and distance weapons, but it made for a striking visual when his veins would bulge out in expansion mode.) So the Nolans gave themselves a tough writing challenge the moment they decided to use the Bane character–another example of a particular strategy causing tough execution problems.
We’re excited to have Sheen Levine join us here at StratetgyProfs.net. Sheen is currently a faculty member at the Institute for Social and Economic Research and Policy at Columbia University. His research focuses on social networks, institutions and markets. You can learn more about his research etc here. You can also follow Sheen on twitter @sslevine.
And a quick plug: if you are going to the Academy of Management in Boston (Aug 3-7), be sure to check out Sheen’s (co-organized with Shayne Gary) cool Behavioral Strategy 3.0 workshop (learn more here). It promises to be a great session with lots of interdisciplinary interaction.
Great to have you here Sheen! We look forward to your posts.
When Laura d’Andrea Tyson was the Dean of London Business School – some years ago – she put together a committee to examine and reformulate the School’s strategy. Several professors sat on that committee. When I once asked her, having a drink at her home, why none of them were Strategy professors, she looked at me for about 5 seconds baffled. Eventually, she stammered, “yes, perhaps we could consider that in the future….”.
It was clear to me, from her stunned silence (and she wasn’t easily lost for words), that she had never even considered the thought before.
I, in contrast, thought it wasn’t such an alien idea; putting some strategy professors on the School’s strategy-making committee. We had – and still have – people in our Strategy department (e.g. Costas Markides, Sumantra Ghoshal) who not only had dozens of top academic publications behind their names but who also had an eager ear amongst strategy practitioners, through their Harvard Business Review publications and hundreds of thousands of business books sold (not to mention their fairly astronomical consulting fees).
Today, our current Dean – Sir Andrew Likierman – is working with a group of people on a huge strategic growth decision for the School, namely the acquisition of a nearby building from the local government that would increase our capacity overnight with about 70 percent. Once more, strategy professors have no closer role in the process than others; their voice is as lost in the quackmire as anyone else’s.
If Sir Andrew had been an executive MBA student in my elective (“Strategies for Growth”) writing an essay about the situation, I would ask him for a justification of the need for growth given the characteristics of the market; I’d ask him about the various options for growth (geographic expansion, e.g. a campus abroad; related diversification, e.g. on-line space, etc.), and how an analysis of the organisation’s resources and capabilities is linked to these various options, and so on. But a systematic analysis based on what we teach in our own classrooms and publish in our books and journals has, it seems, not even be considered.
And I genuinely wonder why that is? Because it is not only strategy professors and it is not only deans. Whenever the topic of the School’s brand name comes up, no-one seems inclined to pay more attention to our Marketing professors (some of whom are heavyweights in the field branding) than to the layman’s remarks of Economics or Strategy folk. When the School’s culture and values are being assessed, Organizational Behaviour professors are conspicuously absent from the organising committee (ironically it was run by a Marketing guy); likewise for Economics and OB professors when we are discussing incentives and remuneration. So why is that?
Is it that deep down we don’t actually believe what we teach? Or is it that we just don’t believe what any of our colleagues in other departments teach…? And that it could be somehow relevant to practice – including our own? Why do we charge companies and students small – and not so small – fortunes to take our guidance on how to make strategy, brands, and remuneration systems only to see that when our own organisation is dealing with them it all goes out the door?
I guess I simply don’t understand the psychology behind this. Wait… perhaps I should go ask my Organizational Behaviour professors down the corridor!
Since writing the piece below – perhaps not surprisingly; although it took me a bit by surprise (I didn’t think anyone actually read that stuff) – Sir Andrew contacted me. One could say that he took the oral exam following his essay on the School’s growth plans and passed it (with a distinction!).
In all seriousness, in hindsight, I think I was unfair to him – perhaps even presumptuous. I wrote “a systematic analysis based on what we teach in our own classrooms and publish in our books and journals has, it seems, not even be considered” and, now, I think I should not have written this. That I haven’t been involved in the process much and therefore have not seen the analysis of course does not mean it was never conducted. And it is a bit unfair, from the sidelines, to throw in a comment like that when someone has put in so much careful work. I apologise!
In fact, although Sir Andrew never lost his British cool, charme and good sense of humour, I realise it must actually have been “ever so slightly annoying” for him to read that comment, especially from a colleague, and he doesn’t deserve that. So: regarding the specifics of this example: forget it! ban it from your minds, memory, bookmarks and favourites (how would this Vermeulen guy know?! he wasn’t even there!)!
That you should pay more attention to Marketing professors when considering your school’s brandname, more attention to your OB professors when considering your incentive systems and values, more attention to Finance professors when managing your endownment and, God forbid, sometimes even to some strategy professors when considering your school’s strategy, I feel, does stand – so don’t throw out the baby with the bathwater just yet. But, yes, do get rid of that stinky bathwater.
[H/T to several folks on Facebook talking about this: Nicolai Foss, Russ Coff, Marcel Bogers etc.]
We’ve talked about the extensive fraud of Diederik Stapel before, but apparently there have been retractions even closer to home: the journal Strategic Organization retracted an article. And, over at the blog Retraction Watch there is an active discussion about Dirk Smeesters’ retractions and recent resignation. A bit more in a short Wired magazine piece. A Nature journal interview with Uri Simonsohn who discovered the Smeesters fraud.
Stevie Spring, who recently stepped down after a successful stint as CEO of Future plc, the specialty magazine publisher, once told me, “I am not really the company’s CEO; what I really am is its Chief Story Teller.”
What she meant is that she believed that telling a story was her most important task as a CEO. Actually, she insisted, her job was to tell the same story over and over again. And when she said ‘a story’, she meant that her job was to tell her representation of the company’s strategy: the direction she wanted to take the business and how that was going to make it prosper and survive. She felt that a good CEO should tell that kind of story repeatedly, to all employees, shareholders, fund managers and analysts. For, indeed, a good strategy does tell a story.
All successful CEOs whom I have seen were great storytellers. Not necessarily because of their oratorical skills, but because the characteristics of the strategy they had put together lent themselves to being told like a story — and a good one too! The most important thing for a CEO to do is to provide a coherent, compelling strategic direction for the company, one that is understood by everyone who has to contribute to its achievement. For that, a story must be told.
When I say this, I am not implying that CEOs need to engage in fiction, nor do they need to be overly dramatic. In my view, a good business strategy story has three characteristics.
First, the story must provide clear choices.
Stevie Spring’s choices were as clear as her forthright language: “We provide specialty magazines, for young males, in British.” Hence, it was clear what was out; there were to be no magazines on, say, ‘music’ (that is too broad), no magazines in German (although that could be a perfectly profitable business for someone else) and no magazines on pottery or vegetable gardens (unless that has recently seen a surge in popularity among young males in the UK without my knowing it). A good strategy story has to contain such a set of genuine choices.
Moreover, it has to be clear how the choices made by the company’s leaders hang together. For example, Frank Martin, who as a CEO orchestrated the revival of the British model-train maker, Hornby, by turning it from a toy company into a hobby company, put his strategy story in just 15 words. “We make perfect scale models for adult collectors, which appeal to some sense of nostalgia.” He decided to focus on making perfect scale models because that is what collectors look for. Moreover, people would usually specifically collect the Hornby brand because it reminded them of their childhood, and with it a nostalgic, foregone era. Frank Martin’s choices were not just a bunch of disconnected strategic decisions; they hung together, and, combined, made for a logical story.
Second, the story must tie to the company’s resources.
Importantly, the set of choices has to be clearly linked to the company’s unique resources, those that can give them a competitive advantage in an attractive segment of the market. Although Hornby had been hovering on the brink of bankruptcy for a decade, it still had some valuable resources. First of all, it possessed a valuable brand that was very well-known and appreciated by people who had owned a Hornby train as children.
Additionally, the company had a great design capability in its hometown of Margate. However, these resources weren’t worth much when competing with the cheaper Chinese toy makers. The children who wanted a toy train for their birthday didn’t know (and could care less) about the Hornby brand. The precision modelling skills of the engineers in Margate weren’t of much value in the toy segment, where things mostly had to be robust and durable. However, these two resources — an iconic brand and a design capability — were of considerable value when making ‘perfect scale models for adult collectors’. It was a perfect match of existing resources to strategy.
I observed a similar thing at the Sadler’s Wells theatre. Ten years ago, before the current CEO Alistair Spalding took over, the theatre put on all sorts of grand shows in various performing arts. Yet, the company was in dire straits, losing money evening-on-evening and by the bucket. Then, Spalding took over and highlighted his leadership with a clear story. He started telling everyone that the theatre was destined ‘to be the centre of innovation in dance’.
He did this because the company was blessed with two valuable resources: (1) an historic reputation for dance (although it had diversified outside dance in the preceding years) and (2) a theatre once designed specifically with dance in mind. Spalding understood that, with these unique resources, he needed to focus the theatre on dance again. Beyond that, he made it the spider in the web, a place where various innovative people and dance forms came together to create new art, a place where stars were formed.
Third, the story must explain a competitive advantage.
The story must not only provide choices that are linked to resources, it must also explain how these choices and resources are going to give the company a competitive advantage in an attractive market, one that others can’t easily emulate. For example, Hornby’s resources enabled it to make perfect scale models for adult collectors better than anyone else, but those adult collectors also happened to form a very affluent and growing segment, one in which margins were much better than in the super-competitive toy market. It isn’t much good to have a competitive advantage in a dying market; you want to be able to do something better than anyone else in a market that will make you grow and prosper.
Thus, it has to be clear from your strategy story why the market is attractive and how the resources are going to enable you to capture the value in that market better than anyone else. The story of the CEO of Fremantle Media, Tony Cohen, for example, was that his company was going to make television productions that were replicable in other countries, with spillovers into other media. Because of their worldwide presence, Fremantle Media were better than their national competitors at rolling out productions such as the X-factor, Pop Idols, game shows and sitcoms. While their local competitors could also develop attractive and innovative shows, Fremantle’s multinational’s presence enabled it to reap more value from them. Therefore, that’s what they focused upon: shows that they could replicate across the globe. It was their competitive advantage, and they built their story around it.
Of course, a good story alone is not enough. A leader still needs good products, people, marketing, finance and so on. But, without a good story, a leader will find it impossible to combine people and resources into a forceful strategic thrust. A good story is a necessary — although, alone, not sufficient — condition for success.
My message for leaders: if you get your story right, it can be a very powerful management tool indeed. It works to convince analysts, shareholders and the public that where you are taking the company is worth everyone’s time, energy and investment.
Perhaps even more importantly, it can provide inspiration to the people who will have to work with and implement the strategy. If employees understand the logic behind a company’s strategic choices and see how it might give the company a sustainable advantage over its competitors, they will soon believe in it. They will soon embrace it. And they will soon execute it. Collective belief is a strong precursor of success. Thus, a good story can spur a company forward and eventually make the story come true.
We’re excited to welcome Melissa Schilling to StrategyProfs.net! Melissa is a Professor of Management and Organizations at the Stern School of Business, NYU. Her research focuses on strategy, innovation, and technology. You can learn more about her work here.
We look forward to Melissa’s posts!