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January 31, 2006

Strategy doesn't win; Value-delivery wins

Scenario planning, which is really deep thinking about the future, is vital to good strategy.

Now, we don't want to blame the victim, but if you're Ford Motor Company or GM, getting crushed by Toyota in their home field has to be categorized as "foreseeable" (sp?), and Ford (as well as GM) simply fantasized dodging the hammer. Toyota is extremely effective, and Ford and GM are extremely ineffective.

Given how much money Ford and GM spend marketing their "strategy" on TV, this makes their management look pretty dumb. They've spent 20 years obsessing about "competitiveness", and are close to losing the home market (if not the whole company) because they didn't get the value right. They chronically solve the wrong problem.

Failed strategies at Ford or GM are now case study stuff for aficionados of the History of the Future. We don't doubt that the two companies were furiously busy going after things the way they figured made sense -- but now we have to wonder why they thought things made sense the way they pursued them.

Granted, the management "formula" that predicts effectiveness is, as always, somewhat illusory if not fantastical. As scholars and analysts always tell us, it's not worth much if people don't want to use it. If the people who came up with the formula are the ones who don't want to use it, that pretty much explains why the formula, despite its logic, finally doesn't make sense. The people not at the top who are trying to use it won't get much out of it.

Despite lipservice to the consultant's mantra, companies are rarely flexible, adaptive, responsive, and innovative at the same time. These four things don't matter if they are not integrated with each other -- and profit schemes and politics typically short-circuit the extended discipline required to integrate them.

For that integration, very few organizations have the necessary risk tolerance built into their profit schemes and politics. As a result, they don't really develop their business architecture and business infrastructure properly. Thus, Culture trumps Planning. (Presumably, both governance and "best practices" are going to help solve this conflict -- but not if executives are still told that they don't have to make "long-term value" Priority #1.)

The company's management formula for "effectiveness" has to string these three tricks together:

1. At a really high level, a company should understand whether it's current top need is to be in recovery mode, health maintenance mode, or growth mode. (Confusion about how to determine the top need is the ill-effect of the shortcuts I mentioned above. Any doubt? Consider the life-span and life-cycle of a CEO's tenure.) This shouldn't be fantasized; it should be based on what the environment is like.

2. Then, it needs to align to the mode. It needs to figure out things such as whether the necessary responsiveness for that mode requires innovation, and whether the necessary flexibility requires adaptation.

3. Finally, it has to figure out where to get the capability to do what is necessary to meet the requirement.

Absolutely nothing will affect that alignment as much as the decision about who the company is primarily working for. That decision provides the world-view that the company needs, and the company must then work on its "fitness" in that world, so it can compete there.

For example: if the company is working primarily to funnel money to investors, then it behaves one way.
If instead it works primarily to funnel capabilities to customers, then it behaves another way.
It might actually work primarily to funnel benefits to its community, which makes it behave yet another way.

Punchline: If it doesn't know what it is primarily trying to do, then
- it doesn't have a logical framework within which to do deep thinking about the future, and...
- it probably spends a huge amount of time trying to solve the wrong problem.

Posted by Malcolm Ryder at January 31, 2006 5:14 PM

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