STRATEGY

A step-by-step approach to the development

and presentation of world class business strategy

Mark Daniell
 S TRATEGY
A step-by-step approach
to the development and
presentation of wor ld
class business strategy

Mark Daniell
© Mark Daniell 2004
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No paragraph of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency, 90
Tottenham Court Road, London W1T 4LP.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
The author has asserted his right to be identified
as the author of this work in accordance with the Copyright,
Designs and Patents Act 1988.
First published 2004 by
PALGRAVE MACMILLAN
Houndmills, Basingstoke, Hampshire RG21 6XS and
175 Fifth Avenue, New York, N.Y. 10010
Companies and representatives throughout the world
PALGRAVE MACMILLAN is the global academic imprint of the Palgrave
Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd.
Macmillan® is a registered trademark in the United States, United Kingdom
and other countries. Palgrave is a registered trademark in the European
Union and other countries.
ISBN 1–4039–4288–9
This book is printed on paper suitable for recycling and made from fully
managed and sustained forest sources.
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Daniell, Mark Haynes, 1955–
Strategy : a step by step approach to the development and presentation of world
class business strategy / Mark Haynes Daniell.
p. cm.
Includes bibliographical references and index.
ISBN 1–4039–4288–9 (cloth)
1. Strategic planning. 2. Business planning. I. Title.

HD30.28.D358 2004
658.4⬘012—dc22 2004051639

10 9 8 7 6 5 4 3 2 1
13 12 11 10 09 08 07 06 05 04
Printed in China
 To Dr Karin Sixl-Daniell
my wonderful wife and patient partner
in life and on this project
This page intentionally left blank
“All men can see the tactics
whereby I conquer,
but what none can see is
the strategy out of
which victory is evolved.”
Sun Tzu
This page intentionally left blank
CONTENTS

Acknowledgements xi
Statement of Purpose xiii
The Best of the Best xiii
What is Strategy? xiv
The Value of Strategy xvi
The Many Legacies of Andrew Carnegie xvii
STRATEGY Overview xviii
The Royal Richesse Example xix
The Power of Seven xx

Book One Recovering the Lost Art of Strategy 1

More of the Same No Longer Enough 1
A New Language of Strategy 5
Leadership and the “Soft Side” of Strategy 7
Unmet Expectations of Growth 10
Stamping Out Satisfactory Underperformance 11
The Discipline and Value of Clear Priorities 12
Gaps in Traditional Models of Strategy 13
Toward a Better Future 14

Chapter 1 The Evolution of Business Strategy 15

The 3C’s Model 16
The 5 Forces Model 20
The 7S’s Model 22
The 3S’s “Single Shot Strategy” 24
The 8 Strategic Laws of Gravity 26
The 9S’s Model 28
The 7C’s Model 29

Chapter 2 Principles of the New Paradigm 38

Globalization 39
Complexity 40
Dynamism 41
Turbulence 42
Acceleration 44

vii
viii Contents
Rationalization 45
Obsolescence and Reinvention 46
Connectivity 48
Convergence 49
Ephemeralization (Moving to the Virtual) 50
Consolidation 51
The Importance of a Systemic Perspective 56

Chapter 3 Setting Priorities, Rethinking Risk 58

The 80/20 Rule 59
Setting Priorities 59
Preparation—A Practical Approach 60
The Line of Demarcation 64
Risk and Opportunity 66
Risk Compounded 69
A Broader Scientific View 72

Chapter 4 Mastering the Growth Challenge 74

Bridging the Growth Gap 74
The 7C’s Growth Framework 75
Constant Attention to Opportunity and Creativity 79
Understanding and Exploiting Discontinuity 79

Chapter 5 Integrating Strategy and Responsibility 81

The Global Compact and Codes of Conduct 90
Alternative Code of Corporate Conduct 92
The Shining Star of Starbucks 93
How and What Business Leaders can Contribute 95
An Element of Core Strategy 101
A Clarion Call for Help 105

Chapter 6 An Alternative Model of Organization 107

A Network Model 107
The Task Force 109
Fast Track to Success 110
The Network Leader as Modern Renaissance Man (or Woman) 111
The Orpheus Process 112
Unspoken Harmony of Excellence 114
The Obsolete Narcissist 115
The “Even Harder” Stuff 115
Beliefs, Attitudes, Behaviors 117
Winners and Losers in the Search for Strategic Excellence 117
Four Organizational Characteristics of Winners and Losers 118
“Guilty on All Four Counts” 120
Creativity, Intuition, and Insight 121
A Continuous Culture of Creativity 125
A Balanced Approach 126
Organizational Creativity and Intellectual Capital 127
3M’s Ten Commandments of Creativity 128
Back to Basics 130
 Contents ix

Chapter 7 A New Approach to Leadership 132

Of Captains and Stewards 132
Principle 1. Empower the Vision and the STRATEGY 133
Principle 2. Live the Values—Demonstrate Character
Through Action 134
Principle 3. Engage and Motivate Individuals—Reach the Heart of
Your Organization 136
Principle 4. Go Beyond the Conventional—Set New
Standards of Excellence 137
Principle 5. Lead from the Front—Master the Visible
Aspect of Leadership 138
Principle 6. Lead from the Center—Manage Formal
and Informal Networks 140
Principle 7. Get the Job Done—Move Seamlessly from
Understanding to Execution 141
Search for a Higher Purpose 142
Recovering the Lost Art of Strategy 143

Book Two Developing Your Own World Class Strategy 145

Three Interrelated Phases 146
People at the Heart of Strategy 148
Focus and Brevity 148
New Elements of Strategy 149
The Seven Differentiating Characteristics of STRATEGY 150
STRATEGY and the Spirit of Transformation 157

Chapter 1 Shared Elements of World Class Strategy 159

The Rights of STRATEGY 159
The Winner’s Circle 160
The Model in Action 161
The Man from Del Monte 161
The Olam Story 166
Gucci—A Modern Italian Renaissance 168
The Cisco Rebound 171
Shared Lessons 173

Chapter 2 The Process of STRATEGY 174

Principle 1. Ensure an Effective Process 176
Principle 2. Ensure an Inclusive Process—Break Down the
Hierarchy 177
Principle 3. Set Long-term Objectives for Individuals and the Group 179
Principle 4. Test the Logic and the Process 180
Principle 5. Balance Strategic Planning with Strategic Flexibility 181
Principle 6. Search for Nonlinearity and Creative Breakthroughs 182
Principle 7. Embrace Risk, Action, and the Acceptance of Failure 183

Chapter 3 Content Phase I: Diagnosis 189

1.1. Point of Departure 191
x Contents
1.2. Portfolio Perspective 195
1.3. Profit Pool Perspective 202
1.4. Competitive Perspective 204
1.5. Business Dynamics 208
1.6. Organizational Assessment 217
1.7. Range of Options 221

Chapter 4 Content Phase II: Design 225

II.1. The Promise:Vision/Mission/Values 226
II.2. Levers on Performance and Value 234
II.3. Priorities and Resource Allocation 238
II.4. Strategic Option Selection 240
II.5. New Organizational Approach 245
II.6. Risk Management 251
II.7. Target Results 252

Chapter 5 Content Phase III: Implementation 257

III.1. Imperatives, Actions, Responsibilities 258
III.2. Tactics and Timetable 260
III.3. Implementation Team 264
III.4. Alignment and Integration 268
III.5. Program Control 271
III.6. Full Value Capture 274
III.7. Leadership and Motivation 277

Chapter 6 The Executive Summary 281

Long and Short Versions 281
In the Beginning is the End—Sometimes 282
Structure of the Summary 284

Chapter 7 Getting Started on Your Own STRATEGY 286

Downloading the Presentation Templates 286
Getting Started 287
Discretion the Better Part of Value 291
Best Wishes on Your Own STRATEGY Exercise 295

Index 296
ACKNOWLEDGEMENTS

In putting together this book after a quarter of a century in the business world,
I have been able to draw from a great accumulation of ideas, experiences, and
guidance received over many years in a wide variety of circumstances. I would
like to acknowledge and thank all of those who have shaped that business
experience and thus contributed to the content of this book.
In particular, while privileged to have spent time in more than one
professional firm and with many fascinating clients, I would like to highlight
the unique importance of my partners and colleagues at Bain & Company,
whose dedication to excellence in strategy and the creation of enduring value
with clients stands as a testament to what good strategy can do for almost any
large company.
Peter Drucker, CK Prahalad, Chris Zook, Fred Reichheld, Peter Senge and
Michael Porter deserve mention as those authors who have made the greatest
contributions to the literature on strategy which were relevant to the creation
of the approach developed in these pages. I would also like to thank John
Wiley & Sons, the publishers of my earlier book World of Risk: Next
Generation Strategy for a Volatile Era for their permission to draw selectively
from that work on societal challenges.
In addition, a number of teachers and professors at the The Phillips Exeter
Academy, Amherst College, Oxford University, and the graduate schools of
law and business of Harvard University have provided views which have pro-
foundly influenced the content and style of this book.
I am indebted to all of these great sources of ideas, examples, energy, and
inspiration.
Finally, I would like to thank the CEOs and business leaders mentioned in
these pages, for they have all contributed substantially to my understanding
and appreciation of strategy in action.

xi
This page intentionally left blank
STATEMENT OF PURPOSE

Creating, communicating, and implementing strategy is one of the most

important, exciting, and challenging activities you undertake as a leader and
participant in a business enterprise. STRATEGY, as the specific program recom-
mended here will be denoted, is designed to help you through the most criti-
cal stages of strategy on a step-by-step basis, drawing on the best proven
approach to strategy as practised at the highest levels of business around the
world. There are many weighty and worthy books on business strategy con-
taining thousands of pages of examples, hundreds of complex formulae, and
countless ideas both good and bad, but not one of these tomes to date has pro-
vided a comprehensive framework or practical approach which is of use to
most business professionals. STRATEGY, on the other hand, provides exactly
this practical guide to the development and presentation of strategy, describ-
ing in precise detail what you need to do to ensure that your business is on the
best possible pathway to future success and prosperity.
STRATEGY will set out in detail the process, structure, and content of
world class strategy. By taking you through a step-by-step approach to the
formulation and implementation of your own strategy, STRATEGY will
ensure that your own plans are complete and consistent with the highest stan-
dards in the art and science of world class business strategy.
By breaking down the strategic process into three interrelated steps of
diagnosis, design, and implementation, and clarifying the seven constituent
elements in each, the user of the STRATEGY approach will be able to build
his or her own strategy from the ground up, integrating best practice process
and content for the most powerful result.
The sole purpose of STRATEGY is to allow you to set, communicate, and
execute the most thoughtful and most effective strategy for your business.

The Best of the Best

The STRATEGY approach will take into account external and internal per-
spectives on your business, and will incorporate data and ideas on past,
present, and future events, trends, and influences. It will create an integrated
strategic architecture for your business plans which extends from a clear and

xiii
xiv Statement of Purpose
overarching vision to the details of timing and responsibilities for successful
implementation of your plans. It draws on the best of the best at the highest
levels of the international business world, where trial and error over many
years have allowed a clear framework of understanding and an effective
approach to strategy to emerge from amongst the different models being tried
and tested in different markets and businesses around the world.
In many businesses, strategy has become a lost art. The need to respond to
operating demands, the pressures to meet annual targets, the heavy overlay of
budgeting and control systems and, ironically, even well-worn approaches to
strategy itself can be costly obstacles to the setting and achievement of a practical
plan of action which will realize the best possible results for your business.
Part of the reason the strategic approach falls short of full potential in many
companies is due to internal factors related to inherent limitations in the com-
pany’s strategy programs. Yet another part of the problem of effective strategy
development and implementation can lie in the lack of a clear and simple
guide on how to do strategy—a lack of understanding on how to proceed on a
step-by-step basis to think about what is relevant and then act to benefit from
the insights generated. In addition, even where good strategies have been
crafted, their authors often struggle to present their plans in a form which can
be readily shared with their colleagues or approved by their bosses.
STRATEGY addresses both of these problems head on, providing an inte-
grated approach to the development and presentation of breakthrough strategies
in a clear, simple, and straightforward manner. Drawing on trillions of dollars of
accumulated experience, this approach has been well proven at the highest levels
of international business and is now available for your own direct application.
In this book you will find useful summaries of many past strategic models
and an opportunity to understand their value in the context of your own strate-
gies. You will find explanations of some of the major themes shaping the
world of strategy today. You will also find a clear and practical guide to help
you to set and achieve your own unique world class strategy.

What is Strategy?

There are many definitions of strategy which can be found in dictionaries,

encyclopediae and books on management. Having spent over twenty years in
one of the world’s leading strategic consulting firms and benefited from addi-
tional experience as a director of an international investment bank, as a start-
up entrepreneur, and as president of a publicly listed company, the most useful
definition of business strategy derived from that experience is quite simple:

Strategy is the art and science of informed action to achieve a specific vision, an
overarching objective or a higher purpose for a business enterprise.
 Statement of Purpose xv

Strategy is about creating sustainable and valuable differences for your

business in the real marketplace. Strategy, while always benefiting from the
discipline of formulating well-articulated strategic plans, is really all about
action and results, not about detailed documents and glossy presentations.
Strategy is about raising and allocating resources, setting priorities, directing
organizations, and demonstrating through decisive behavior what will be
done—and what will not—in the pursuit of a larger vision, goal, mission, or
high level set of objectives. Strategy is as much about leadership, communica-
tion, and implementation as it is about diagnosis and design of plans of action.
General Carl von Clausewitz, one of the greatest of military strategists,
described strategy as a process of planning and action to achieve a vision, or
the object, of an overall war. He defined strategy as “… the art of the employ-
ment of battles as a means to gain the object of war. In other words strategy
forms the plan of the war, maps out the proposed course of the different cam-
paigns which compose the war, and regulates the battles to be fought in each.”
As you set your own strategic plan and pursue it through action, it is impor-
tant to remember that a properly constituted strategy will define which battles
are to be fought and will set out a plan to win in those areas where you choose
to compete. That same strategy will also lead you to decide what not to do—
which areas of competition are beyond your reach or remote from the priori-
ties which will enable you to achieve your overall vision and win your own
corporate war. Informed by strategy, businesses must focus on a correct and
limited set of priorities. Many wars may have been lost by generals too eager
to do battle on too many fronts at the same time.
By pursuing your overall vision through an effective strategy, you will be
able to concentrate your resources where they will do the best for your busi-
ness, allowing you to achieve your vision and enabling you to reap the rewards
of success on the highly competitive battlegrounds of modern business.
Practitioners of the art and science of strategy thus need to be constantly
mindful of the imperative to be practical as well as thoughtful, realistic as well
as analytical, and effective as well as articulate in their diagnosis, design, and
implementation of strategy. Only effective action and better results—victories
in the battleground for profit and superior competitive performance—can
justify the effort demanded by a full strategic approach.
Theory, good intentions, and even well-thought-out strategic designs are
never enough. Ideas need to be implemented. As John Gardner stated:
In this era of complexity, great enterprises are designed and carried forward by the
kind of man who has a vision of what might be and a practical strategy for getting
there, a man with an idea in his head and a monkey wrench in his hand.

These words can provide a cogent summary of the spirit and value that can be
provided by adopting and implementing a STRATEGY program in your own
great enterprise.
xvi Statement of Purpose
The Value of Strategy

This STRATEGY approach will provide a valuable new model of strategy and
will set out a clear and simple approach to the diagnosis, design, and imple-
mentation of a unique business strategy for your own enterprise. This model
and approach are relevant for all owners, managers, and planners of modern
businesses operating in a competitive environment.
Based on a proven approach to strategy derived from the winning strategies
of some of the world’s most successful corporations, this new model of
STRATEGY can lead to far better operating results for your business and
many more tangible rewards for your stakeholders.
Better strategy can capture many more opportunities for improvement, can
help to achieve new excellence in operations, can help to reduce risk, and can
help to realize new and more aspirational visions for the future. Better strat-
egy today can also inspire your colleagues and strengthen your organization’s
capabilities to respond successfully to future challenges, as well as to focus
better on the present day issues and programs of change.
In the process of setting strategy, it is essential to extract and apply the les-
sons of the past, and of the future, in a systematic manner. While there always
has to be room for creative inspiration and unstructured conceptual break-
through thinking, the analysis, design, and execution phases of strategy need
to be pursued with the applied disciplines of science as well as the inspiration
of an artistic and creative element of unencumbered thought.
In this book, the approach described is very clear and sequential, allowing
you to start at the beginning of diagnosis and finish with the successful
implementation and full value capture of your own unique strategic plan.
Along the way there are unlimited possibilities to improve understanding,
renew your sense of purpose, create and pursue new opportunities, and reset
the direction and priorities of your business.
The whole of STRATEGY is worth much more than the sum of the parts
and, to get the maximum benefit from your endeavors, it is recommended that
you proceed systematically through all of the phases of STRATEGY to ensure
that your own effort is as focused, comprehensive, thoughtful, aligned, and
effective as possible.
There are common themes and useful frameworks that run through
STRATEGY which can be applied at multiple points along the way to create
the highest return on your investment in a STRATEGY program. The process
of prioritization, the 7C’s framework, an application of the principles of
dynamic systems and a more scientific understanding of risk and opportunity
are concepts that can lead to a more creative approach to your own business
challenges at many critical points in the STRATEGY process. You should feel
free to refer to these helpful constructs and any insights they generate at any
time as you work through this material.
 Statement of Purpose xvii

At each step in the overall process, you and your team will be able to
demonstrate a constant culture of excellence which will build on itself in the
most positive manner. By maximizing the quality of your input at each stage
of your own STRATEGY program, you will add to the compounding value of
a best practice approach to strategy. If you are able to improve your perform-
ance at each stage of the process, the overall impact will exert a powerful
uplifting effect on your whole strategy, multiplying the benefits as you move
with purpose from step to step as described in these pages.
There is an enormous benefit in the large changes which can result from a
STRATEGY program. There is also a great deal to be gained from the com-
pounding effect of many small improvements. As you work through the
STRATEGY material for your own business, it is essential to capture every
opportunity for advantage and to ensure that the culture of your business does
not let opportunities for improvement slip away. The value of your enterprise
may be as much enhanced by an accumulation of many small positive changes
as by a few large ones.
Observations on the Darwinian survival of species support the same conclu-
sion. Developed advantages such as an ability to stand upright for longer peri-
ods of time to spot potential enemies and locate alternative sources of
nourishment, or the ability to consume a slightly greater variety of food types
have been proven to contribute to a three to four percent greater likelihood of
survival for individuals within a defined species or social group.
That small advantage, allowing a slightly greater population birth and
survival rate, multiplied out over generations and compounding over time, has
determined the difference between survival and extinction of entire species in
the early periods of man’s development.
To use a simple example to illustrate the point, a company which improves
its cost position by 2 percent per year more than its leading competitor over a
10-year period will have, at the end of the period, an insurmountable cost
advantage of 18 percent. On the revenue side, a 3 percent per year increase
above competition would add up to a 34 percent advantage over the same
period. A combination of excellence in cost and revenue management can cre-
ate great rewards for those who master both elements of business profitability.

The Many Legacies of Andrew Carnegie

Many successful entrepreneurs have made great fortunes by exploiting this

cumulative approach to excellence in strategy and operations. Andrew
Carnegie, for example, was so far ahead of his rivals, technologically and as
an efficient steel process manager, that he was able quietly to haul away their
slag and process it into saleable steel for his own customers, thus adding
incrementally to his profitable revenues.
xviii Statement of Purpose
On the cost side, the canny Scotsman was famous for “… throwing around
nickels as if they were manhole covers.” The net effect of incremental revenue
enhancement at every turn and tight control of costs was the accumulation of
one of the greatest entrepreneurial fortunes in American history.
Despite his intensely commercial approach to business, Carnegie eventually
became one of the great heroes of corporate philanthropy as well, espousing the
value of contributing to the world community and acting on those values with
great generosity. The global network of free lending libraries bearing his name
and the Carnegie Endowment for International Peace are but two of the endur-
ing monuments to his commitment to caring values. As captured in the approach
to business set out in this book, Carnegie’s greater values were respected with-
out dilution of an iron-willed focus on the value of successful business strategy
and adherence to the virtues of continuous operating excellence.
An integrated approach which embraces the highest standards of excellence
in all aspects of strategy—competition, costs, revenues, and responsibility—
is presented in the model of STRATEGY which is set out here for your own
application.

STRATEGY Overview

The overall approach to strategy set out here is divided into two related sec-
tions. In Book One, seven chapters are presented for your review and contem-
plation. These particular chapters are chosen to reflect the range of ideas
which can influence your strategy, from organizational to ethical, and provide
examples of state of the art thinking in key areas of strategy formulation. From
each area may come useful thoughts, trenchant observations and current
insights which can form the basis of informed action. These ideas can help
you to draw out some of the deeper observations, insights, and implications
that can give you a fresh perspective on the true full potential of your business.
In these pages you will find examples of different approaches which may be
relevant to the immediate challenges facing all businesses. You may also find
in these pages the seeds of new and creative thinking about strategy which
arise only in relation to your own business enterprise.
The purpose of including these more general sections on a range of strate-
gic topics is to keep your thinking fresh and to avoid a mechanistic applica-
tion of formats and models in situations which could benefit from a new,
nontraditional approach. This objective of fresh and creative thinking could
also be advanced through the review or inclusion of other material not pre-
scribed by STRATEGY within your own process. By all means include in
your review and strategy any and all outside material you deem useful. Your
STRATEGY can only benefit from the additional contribution.
In Book Two, we will review the integrated nature of strategic process and
content, and set out a step-by-step approach to the development of a winning
 Statement of Purpose xix

strategy. The best proven approach to develop and implement world class
strategy is set out in detail, with a clear example provided throughout each stage
of that process. The three-stage approach—diagnosis, design, and implementa-
tion—and reference to a “7C’s plus” model has proven to be extremely valu-
able in defining strategy at the highest levels of global business. This
structured approach is now available to you as well to develop and apply in
your own business world.
In order to capture the full potential of your business, it is advised to read
through both the first and second books of STRATEGY before starting on
your own exercise. By mastering all of the elements addressed in the two
books, you will have in hand the tools you need to design and implement the
best strategy for your business. The comprehensive and professional presenta-
tion that emerges from Book Two can be used to inform an audience at any
level of your organization. By incorporating all of your thoughts and proposed
actions into one coherent strategic architecture, you too will be able to build
and communicate a business success story of extraordinary proportion.

The Royal Richesse Example

In order to provide greater clarity to the content of a STRATEGY program,

each step of the three phases is clearly illustrated by the use of a practical
example from the entirely fictitious Royal Richesse Watch Company of
Switzerland. This example has been chosen since the watch industry is one
with which most of us are familiar, and the problems facing the fictitious
Royal Richesse managers are common to many real companies operating in
similarly difficult and changing competitive environments.
Although the business challenges as presented are realistic, any resem-
blance in this example to any real company or individual, alive or dead, is
entirely coincidental.
There is no universal example which can illustrate all aspects of successful
strategy, and there are inherent limitations in any single example. In this case, it
is worth noting that the nature of the industry selected, the luxury watch market,
is less sensitive to relative manufacturing cost position than most other industries.
As a result, you may wish to increase the amount of material in your own
STRATEGY exercise dedicated to the analysis and management of costs.
Second, the example selected is a private company considering a primary equity
offering in the future. If your own business is already publicly quoted, you will
want to include a chart on share price, analysts’ comments, and other perspectives
which will shed light on the public market valuation of your business. Third, the
role of technology may be of less importance in the example selected than it is to
your own business. If so, extra material on the application of technology could be
very much on point. Finally, the luxury watch company example developed is of
xx Statement of Purpose
a company which is deficient in many areas of customer understanding.
Rectifying this weakness is one of the many challenges they face.
There may be other differences worth highlighting to your team as you set
out on your STRATEGY exercise to ensure that the material you select cap-
tures the elements necessary to address the full set of issues particular to your
own situation.

The Power of Seven

Each component part of the STRATEGY approach is broken down into a set
of easy-to-use lists of steps, elements, principles, practical checklists and
prompts. In order to provide consistency and a convenient format for commu-
nication, much of the conceptual content of this book is set out in lists of seven
items. There are seven sub-steps in each of the three phases of STRATEGY,
seven principles of leadership, seven testing questions on strategy, seven lead-
ing models of traditional strategy and a preferred 7C’s model (plus results)
provided as a framework for business definition, strategy setting, and genera-
tion of related growth initiatives.
The purpose of providing the insights of STRATEGY in such a consistent
set of seven-step formats is to reduce the complexity of competing constructs
and allow your strategic thinking to proceed and develop without the
distraction of too many differing formats and inconsistent charts, graphics,
formats, and frameworks.
It has been pointed out that there is significance in the number seven beyond
the simplicity of approach provided to the STRATEGY model. In addition to
Steven Covey’s famed sets of seven principles, seven has been seen to be a spe-
cial number for many centuries. In addition to the seven maritime seas, there
are seven notes in a musical scale, seven colors in a rainbow, seven deadly sins
(but also a seventh heaven and seven virtues), a dance of the seven veils, seven
wonders of the world (ancient and modern), seven primary chakras or energy
centers in the human body, and seven rays or energy planes in the occult sys-
tem of wisdom. In the Book of Revelations in the Christian Bible there are
seven seals, seven angels with seven trumpets, seven letters to the seven
churches of the East, seven spirits before the throne, and a myriad of other sev-
ens appearing.
I leave a determination of the greater significance of the number seven to
others far more knowledgeable than I in the areas set out above, and merely
state my hopes that the harmonization of formats and approaches throughout
this book can lead to the most beneficial of results for you in your business
endeavors.
 BOOK ONE
Recovering the Lost
Art of Strategy

It is time to take a new approach to strategy. The business environment and the
basic paradigm within which all businesses now operate have changed beyond
measure in almost every dimension. Old models and status quo methods no
longer work in a new world of constant turbulence, rapidly evolving global
orders of competition, and accelerating market change.
Customers have become more demanding. Suppliers and distributors consol-
idate and find new owners. New competitors emerge. Old competitors grow,
evolve, merge, or disappear. Information flows through new channels and new
media at the speed of light 24 hours a day, 7 days a week. Computers and the
systems that connect them rapidly redefine the way we work, purchase, com-
municate, and compete. Global markets open and trigger even more seismic
economic events. The old competitive order makes way for the new in a roiling
tidal wave of dramatic change, rapid evolution, and fundamental transformation.
With these vast changes taking place around us at an astonishing rate, the
economy and the businesses that compete in it are redefining the needs of
strategy at the most fundamental level. These changes are placing ever higher
demands on the individuals who are responsible for the strategies and opera-
tions of businesses in today’s dynamic markets.

More of the Same no Longer Enough

Many strategies have not kept up with the changing demands of this new para-
digm. Some celebrity CEOs, once the darlings of TV talk shows and highly
sought after speakers on the business conference circuit, are now struggling to

1
2 STRATEGY
keep their jobs, or else have already moved on from the thrones they once
occupied. Study after study confirms that the main source of the high leader-
ship turnover is failure to design and implement effective strategy, failure to
achieve the results that demanding markets and boards have grown to expect,
and failure to achieve the necessary return from assets employed in the
unceasing battles for profit and competitive advantage.
Businesses have always faced the classic challenges for performance, growth,
and excellence in a world which seemed each year to become more crowded,
more complex, and more competitive than ever before. At the same time, busi-
nesses are now subject to new pressures in adapting to a new set of massive
changes, trends, and dynamics affecting businesses from within and without.
Another reason to review the role of strategy today is the fact that so many
companies have failed to adapt fully to the new paradigm or implement
needed change in the face of a new order of competition. As a result, many are
underperforming significantly when compared to their true full potential. Not
only failing to achieve full potential, the vast majority of companies fail even
to achieve their own cost of capital year after year over a decade.
According to an acerbic analyst quoted in the Lex Column of London’s
Financial Times, even Federal Express, a widely praised business success
story, had not achieved an acceptable return on capital. According to the
respected column, “On CSFB’s estimates, Fedex’s return on invested capital
has not exceeded its cost of capital in living memory.”
Clearly, there is an opportunity to do better, to set and achieve more
ambitious targets for our businesses and for ourselves.
Following great changes in the business environment, the demands placed
on business strategy, and on business strategists, have only increased. Getting
the right strategy in place and executing it well continues to create advantage
and reward in every market around the world. Yet strategic thinking has often
lagged the pace of change, leaving behind many failed plans, many outdated
ideas, and many underperforming companies. In reviewing the causes and
symptoms of failed strategies, it is clear that there are seven missing elements
which have consistently weakened many past approaches.

Seven Missing Elements of Traditional

Strategy

Comprehensive nature
Flexibility
Creativity
Integration
Motivation
Responsibility
Effectiveness
 Book One: Recovering the Lost Art of Strategy 3

In order to respond properly to new challenges, it is necessary to identify

and address all seven missing elements of traditional strategy.
1. Comprehensive nature of change required for effective strategy. In this
dynamic new paradigm, pursuing a limited or outdated approach is no longer
enough. Strategies that merely replicate past results or attempt to recreate yes-
terday’s successes are bound to miss out on valuable opportunities in a changing
competitive landscape. They equally miss out on the chance to reduce new busi-
ness risks before they ripen into expensive and avoidable business catastrophes.
The complexity and pressure placed on businesses have now reshaped the
process and content of successful strategy. Priorities need to be more clearly
articulated in a world of seemingly unending choice. Real, tangible, and sus-
tainable differentiation is essential in an ever more crowded competitive arena.
“Me too” strategies are bound to fail in highly competitive markets which
prize creativity and value difference.
A new foundation framework of understanding needs to be built. Planning
and cycle response times need to be shorter. The organizations of tomorrow
may well have fewer, better people in a more technologically enabled para-
digm. Yet, at the same time, a broader set of individuals within the organiza-
tion, and perhaps even a broader set of organizations, may need to be involved
in setting and implementing strategy.
Clear and simple measures of success need to be established. The potential
for technology application and the business opportunities it presents need to be
thoroughly integrated into strategic diagnosis, design, and implementation.
New organizational models that cut across or break down established hierar-
chies need to be tested and adopted where appropriate to pursue a new vision
or respond to an unprecedented set of challenges and imperatives.
The approach to strategy set out here addresses all of the changing needs of
strategy in a modern business, addressing those elements which provide
the essential building blocks of a comprehensive strategy for your own enter-
prise. This approach has not ignored the lessons of the past. Each element
of the STRATEGY approach draws on the best of the past, yet adds a more
forward-thinking element to take into account the rules of the future as well.
2. Flexibility demanded by a rapidly changing environment. With rapid changes
in the environment becoming a constant, with an inexorable globalization of
economies and business systems, and with changing pressures on corporate
and individual capabilities, the demands placed on strategy now require far
greater flexibility at all stages of the process.
At the same time that it is important to pursue a path of high quality, struc-
tured analysis and inclusive procedures, it is also essential to avoid prescrib-
ing every detail of a strategy which will by necessity be played out over time.
Creativity, flexibility, and success often go hand in hand. There needs to be
room for creative evolution and adjustment in your strategy, to have enough
clear space in your approach to respond to unexpected external and internal
4 STRATEGY
events and actions. Strategies are like living things and need to be able to adapt
to survive and prosper. They also need to have enough flexibility and open
space to evolve, grow, and shift over time.
We need only to remind ourselves of a few recently discarded strategic “truths”
to see the velocity of change and competitive value of clear forward thinking and
rapid adaptive response. Y2K was going to cause global computer systems to
implode. The new economy would swallow up the old. Technology and telecom
stocks would dominate capital markets. The stand-alone Internet business model
would reign supreme. Diehard adherents to these rapidly outdated ideas and pass-
ing trends soon found themselves embracing the proverbial anchor when these
concepts drove business strategy and investment policies after their true value
was revealed.
The rise and fall of these concepts shows how fast we need to move to
respond to change, how difficult it is to manage in the unknown, and how often
we now must make important decisions in times of great uncertainty.
3. Creativity essential for maximum advantage. Creative breakthrough think-
ing needs to be encouraged throughout the strategy process. Leadership needs
to be more inspirational and leaders need to encourage individuals to give their
very best, even if that means challenging deeply held beliefs and changing
long-established practices. Visions need to be set and maintained, but space
also needs to be created for adaptation, evolution, and a constant rejuvenation
of supportive activities along the way. Initiatives need to be set and priorities
confirmed, but only in such a way as to allow for the inspirational and creative
processes to turbocharge performance when new risks or opportunities for
positive change arise.
As we face the challenge of setting and achieving more ambitious strategic
goals, we must not only master the lessons of the past, but we must also pick
up and learn to use new tools and weapons in the battle for competitive advan-
tage. From the lessons of the past we can shape and forge the tools of the
future—tools that will sharpen our thinking, refresh our creativity, and lead us
toward the definition of more exciting strategies and the achievement of more
satisfying results.
As we work through the stages of analysis, elaboration, and execution of
strategy, it is essential to challenge ourselves constantly with new thoughts, new
ways of seeing things, and new ways of pursuing our business visions. There is
no longer a single valid perspective on complex events, nor any single fixed
outcome in the search for more effective strategies and better corporate results.
No renaissance is built on a foundation of worn out ideas, nor succeeds
solely through the persistent application of long-standing approaches and atti-
tudes. True renaissance results can only be achieved with a whole new
approach to strategy and an open mind to the real potential for creative and
productive change in a constantly evolving business paradigm.
 Book One: Recovering the Lost Art of Strategy 5

A New Language of Strategy

One of the common reasons for the systematic underperformance of the

strategy process in attempting to set a business or corporation on a new path
is a legacy of old strategies and strategic approaches that hold back
the forces for needed change. It may even be worth reviewing the very lan-
guage that has been used as well as the approach adopted in the past. New lan-
guage can come from a new approach or from a richer set of concepts
underlying a better understanding of strategy. Such terms as “industry profit
pool” and “business process portfolio” reflect new and deeper concepts of
understanding. The creative titles adopted by business leaders and pioneers
today also reflect the value of fresh and creative conceptual thinking. Bill
Gates is now the Chairman and Chief Software Architect at Microsoft. His
counterpart at Infosys, Narayana Murthy, is Chairman and Chief Mentor.
Some changes in strategic language can be initiated by a desire to discard
outdated approaches that can blur issues requiring far greater clarity. Some
companies even deliberately avoid the use of the word profit, favoring the use
of internal terms such as “intermediate contribution” or “notional result” that
are never tied back to actual reported profits. This kind of confusing language
muddles the profit motive, scrambles the understanding of systemic econom-
ics and takes the eye of the group off the true sources of profitability.
Restoring the real edge of analysis, action and economic performance may
require the adoption of new and more meaningful terms and ratios which can
accurately measure a company’s true financial performance.
On the other hand, the creation of a new strategic vocabulary within an
organization can help to advance the strategic development of a business in
many ways. The management team in one large European company found that
its accounts had been inflated in the past by aggressive accounting policies
which, while legal, did not give the market an accurate reflection of current
business performance. As a result, suspicious investors marked the value of
the business down to a third of its actual value. In addition, the dedicated man-
agement team was constantly pushing the business beyond reasonable limits
to achieve expectations created by the accounting policies chosen many years
before. The result was an exhausted and stressed set of managers constantly
operating on the verge of burnout.
In order to fix the problem, the Chairman announced that he was “re-
basing” the accounts—an invented term employed in the situation which
removed the internal stigma from writing off any and all assets which were no
longer relevant for the pursuit of his new vision. He also set out a more rea-
sonable set of accounting procedures for the future, changing the company’s
financial year, restating the historic accounts and taking a large one-time write
down on the balance sheet. Within days of his announcement the market had
6 STRATEGY
begun to re-rate the business, with the shares rising 20 percent in less than a
week on renewed faith in the business and in the more transparent approach
adopted by the management team. The management team, no longer tied to
unrealistic goals, were able to turn their attention to the creation of future
value and contributed to a dramatic turnaround success story.

4. Necessary integration of process and content. Perhaps one of the most

important reasons that the traditional tools of strategy have lost their cutting
edge is that management too often severs process and content, allowing strate-
gies to be set through processes or using models and forms that have worn dull
over time. By reintegrating the two in a better approach to strategy, managers
will be able to overcome many of the limitations of the past. Discarding old,
static, or linear approaches can free our minds to see from different perspec-
tives—to understand the higher order flow of events better, to see trends and
risks we did not see before, and to anticipate change—and then to move faster,
smarter, and more profitably than our competitors to position ourselves for
tomorrow’s opportunities.
Given the long list of challenges management teams must overcome to
achieve excellence in strategy and performance today, it would be easy for
even the best-intentioned and most capable individuals to feel occasionally
overwhelmed. But good leaders will be able to ensure that a fully integrated
approach will surface all issues in a manner which can lead to their resolution.
The final output of STRATEGY leads to a full set of positive individual
actions, all aligned behind a single, shared vision and fully supporting an
agreed strategic plan. This outcome, only possible through an approach which
integrates process and content, can add enormously to the force and spirit for
profitable change across an entire business.

5. Missing motivation—the necessary human dimension to strategy. Another

element of weakness in past models of strategy and their application has been
insufficient attention paid to the human aspect of a business. As a result,
both process and content often failed to address the aspirational and motiva-
tional aspects of strategy. By neglecting the human emotions and personalities
that lie at the heart of every business, many strategies failed to create the
energy for change which could make all the difference in a world of intense
competition, in a world where all competitors need to seek out and exploit
every possible source of competitive advantage.
Given the need for expert and flexible application of strategy, the skills and
capabilities of the most talented individuals and organizations will move even
more visibly to the center stage of strategy. It has always been demeaning to
say “people are our greatest asset.” People are much more than that.
Only strategies that take into account a fuller human dimension of the
individuals making up an organization will be able to realize the full strategic
 Book One: Recovering the Lost Art of Strategy 7

potential of those individuals and of the whole enterprise. Investing to involve,

motivate, and instill a sense of purpose and accomplishment in each individ-
ual involved, and of the entire organization, are essential elements in STRAT-
EGY. Understanding the true beliefs, attitudes, aspirations and capabilities of
his or her colleagues, and responding properly, may be the most positive con-
tribution a leader can make to a business.
As we design our organizational structures, make staffing decisions, and
clarify necessary operating principles, we are making some of the most impor-
tant strategic decisions possible. Inextricably intertwined with the elements of
values, culture, compensation, and leadership style, these decisions can deter-
mine how successful your strategy can be—or will not be—independent of
how much you have invested in comprehensive diagnosis or thorough imple-
mentation planning.

Leadership and the “Soft Side” of Strategy

To cite the successful Asian entrepreneur and statesman Tony Chew Leong
Chee, “you don’t employ people any more, you need to engage them.” In a
world of easy availability of information, more educated staff and industry
colleagues, more demanding customers, more complex technology, more pub-
lic scrutiny, more global competition, and more critical investors, the role of
leadership is under constant pressure to evolve and adapt to the demands of
internal participants of an enterprise as well as the traditional external stake-
holders of the business.
Leadership has never been easy to dissect, explain, and prescribe. It is in
some ways as undefinable as it is important. Yet, a proper approach to strat-
egy, and a full and sensitive understanding of the element of leadership in
designing and executing strategy, can help to illuminate the pathway forward
to a leadership model to suit your business ambitions.
Perhaps the most difficult internal system to analyze and understand sur-
rounds the soft issues captured in the human area of organizational behavior
and capability. People issues—such as hiring and firing, retention, job speci-
fication, capability building, knowledge management, teamwork, culture,
skills development, organization, performance measurements, incentives,
motivation, recognition, and reward—are now clearly resident at the heart of
modern strategy.
As a business leader, you now need to address the integrated issues of strat-
egy, structure, style, capabilities, operating principles, incentives, and culture,
and all at the same time! In each organization an explicit approach needs to
assess and develop individual and team skills, address the quality of individu-
als, prepare individuals and teams to operate effectively together, and to inter-
act with other organizations. These organizations can now include customers,
8 STRATEGY
suppliers, regulators, and community leaders as well as colleagues, staff
members of acquired companies, partners in alliances and even competitors
seeking to create new win/win cooperations and combinations in selected
areas.
It is easy to aspire to the creation of a highly capable organization charac-
terized by widely acknowledged values, populated by outstanding people with
industry leading skills, and capable of rapid and effective decision-making.
Most companies, however, struggle with a diffuse organization which is inter-
nally focused, slow to adopt change, and led by a corporate center that often
adds little value to the independent business entities. A precise plan to address
these real and sensitive issues, and to achieve better performance, is a critical
element in STRATEGY.
Addressing the needs of staffing, structuring, training, developing, directing,
and running an organization effectively may be of the highest priority in strat-
egy, yet the tendency of too many senior managers is to gloss over the human
challenges of business. In so doing, they provide a major disservice to employ-
ees, customers, and shareholders. Only by addressing issues of organizational
weakness directly and as an integral part of your STRATEGY can your business
develop the full strength and commitment necessary to achieve ambitious goals.
Calling on deeper resources and drawing out greater creativity from an
organization is particularly challenging where an organization is worn out
from a long series of mergers, crises, or change programs. Whether due to the
exertions to achieve growth in the past, the efforts to respond to recessions
or the stresses related to mergers or downsizing, the employees of many com-
panies today are tired of the increasing demands placed on them, and their
families, by heavy business obligations.
Greater travel, later nights, less job security, shorter vacations, and ever
more projects seem to be the order of the day from Chairman and CEO down
through all levels of the organization in many companies. Any strategy that
requires greater commitment from this type of worn out organization will need
to take into account this fatigue factor and address all opportunities to increase
the energy and motivation available to support a new and more demanding
program of change.
Often, corporate fatigue results from excessive stress over an extended
period of time, not solely longer hours worked. It is useful to remember that
stress is most often caused by what we don’t do—the pressure of unfulfilled
obligations—and low job satisfaction rather than the greater commitment of
hours and energy required to achieve an ambitious, shared goal. In many
cases, a clarification of the purpose of strategy, a prioritization of activity, and
an open process of communication and recognition of achievement can help
to reduce organizational stress and fatigue. In defining and setting a proper
strategy, the leaders of a business enterprise will have the opportunity to
 Book One: Recovering the Lost Art of Strategy 9

re-energize their businesses and re-motivate the people whose individual best
efforts will be required to achieve the full potential of the collective enterprise.

6. Responsibility not integrated into core strategy. Failure to act in a responsi-

ble manner, or to think through the best approach to corporate social responsi-
bility and build it into a core strategy, can be a costly mistake. Unnecessary risks
can ripen into avoidable environmental, legal, or reputational catastrophes.
Failure to build a more responsible corporate brand and business system will
miss revenues which could have been attracted by a more esteemed brand and
enterprise reputation. A reputation as an uncaring company can repel some of
the most promising young employees and can increase the eventual costs of
penalties or rectification as adverse events unfold in the future.
Unfortunately, to date, most businessmen and commentators, with Milton
Friedman and his Chicago colleagues in the intellectual lead and backed by
writers at such highly regarded journals as The Economist, believe that the
business of business is to make a profit on behalf of shareholders. Nothing else.
Adherents to this school of thought believe that the laws and limitations
imposed by governments and other regulatory bodies comprise the full set of
the rules by which the game is played. There is no other obligation, engage-
ment, or contribution to be considered. By attempting to blend social and eco-
nomic roles, they maintain, companies would end up at being weak in both. By
focusing on what they know how to do, which is to make money, companies
adequately fulfill their role in the world and can leave other concerns to other
more expert players in civil society and the broader institutional landscape.
In another camp are those who believe that companies should maximize
profits on behalf of shareholders, with those shareholders distributing a
selected portion of corporate profits to worthy causes through intermediary
organizations. These intermediary organizations, such as NGOs and charitable
trusts, are specialized in the skills needed for social amelioration and can work
more effectively than a commercial business organization to reduce poverty,
eliminate disease, and achieve other worthy objectives. In this camp can be
found the likes of Ted Turner, George Soros, and Bill Gates, philanthropists
on a grand scale who have made a noticeable impact on the $200 billion a year
given to charitable causes by Americans.
STRATEGY argues for a third way, where companies like yours integrate
the concepts of responsibility with cutting edge competitive strategy, pressing
constantly to maximize profits and create competitive advantage while oper-
ating in a manner which is sensitive to the environment, the workplace, and
the communities in which businesses operate. This model embeds the values
and practices of a more engaged business model within the core strategies and
operating principles of a business. More enlightened managers will also be
aware that the notion of responsibility can extend to their full business system,
10 STRATEGY
encouraging suppliers, partners and even customers to operate in a manner
consistent with a more responsible and engaged approach to business.
STRATEGY is built on the belief that this middle way is in the best eco-
nomic interest of the company concerned and serves the broader interests of
the various communities in which those businesses operate. Massive invest-
ments by HSBC, Coca-Cola, Anglo-American and other companies to
broaden their engagement with such problems as AIDS, education, clean
drinking water, and disease control reflect the growing awareness that more
responsible business is better business in a world where the rules of the game,
and the penalties for losing, evolve by the day.

7. Unacceptable results from ineffective strategies. Finally, and most impor-

tantly, a rethink of strategy is needed because the application of an older gen-
eration of models has frequently not led to the creation of the results desired.
Far too often, the adoption and application of traditional strategy models have
failed to create differentiated performance in the real world. Implementation
may lag behind plans, and many plans written up were never truly capable of
being executed in the marketplace. The poor record of creating business
success stories may be enough, by itself, to question the foundations of many
historic approaches to strategy.
In the military sphere, the results of battle are usually not difficult to
ascertain. Winners and losers are clearly recorded in the history books.
While military victors are easy to identify in either battle or war, in the busi-
ness arena all too often the real results of strategy are lost from view. It is
ironic that in all of the famous business models propounded by strategy gurus,
business sages and professors, made up of the 9S’s, the 3C’s, and other com-
binations of catchy letters and numerals, the “R” word—Results—is rarely
mentioned.
Providing a lengthy and well-presented summary of a strategy that merely
gathers dust on the CEO’s desk (or even worse, on his or her untouched book-
shelves) is not a measure of success in any real sense of the word. Only by
ensuring that winning strategies are fully implemented and that tangible
results are achieved is the strategic process justified and the rewards of strate-
gic victory properly bestowed.

Unmet Expectations of Growth

Almost every business is competing in a cold climate when it comes to achiev-

ing growth targets. Analysis provided by Bain & Company showed that less than
10 percent of companies grow profitably at a sustainable rate over a ten year
period. Nearly 90 percent of companies fail to meet their own growth targets or
to meet market growth expectations on a consistent basis. Focusing on growth,
 Book One: Recovering the Lost Art of Strategy 11

rewarding growth and setting effective strategies for growth is an essential

element of differentiation in a world short of easy growth opportunities.
Every STRATEGY needs to provide the full set of insights and initiatives
that can maximize profitable growth. Customer segmentation, a key axis of the
product/market matrix, external trends, the 7C’s growth model, alliances,
acquisitions, and a host of other sources of profitable growth are embedded in
the STRATEGY approach. One of the greatest benefits of a comprehensive
approach to strategy is the surfacing and exploitation of multiple sources of
attractive growth opportunities.

Stamping Out Satisfactory Underperformance

Satisfactory underperformance is the notion that there are, in our businesses,

many results, standards, and levels of performance that are truly not accept-
able. However, over time, these unacceptable standards have become
accepted through a lack of challenge or plain old inertia.
While difficult to address at an industrial level, satisfactory underperfor-
mance can be easy to spot in an individual business if we are willing to look
afresh at what we do and how well we really do it. Strategic, financial, or
operating growth targets can be compared relative to competitors, to similar
companies, or to entire industry sectors. Absolute measures are also readily
available. Return on equity, return on assets, market share, product quality,
real unit costs, time variables, and other standard measures can be used to test
and record performance. More sophisticated multivariable measures are also
now available, such as single summary scores that weigh many factors of
performance and add them up to create a clear single-digit scorecard of
performance.
Yet satisfactory underperformance does not reside solely in hard measures
of performance overtime. Organizational and individual behaviors also can
contribute to an unsatisfactory overall state of affairs, and may even lie at the
heart of a problem of collective underperformance. Weakness in approach or
process, as well as in the result achieved, can be considered as a causal ele-
ment of a continuing state of satisfactory underperformance.
In understanding the sources and symptoms of those unacceptable internal
aspects of business, we can find the seeds of hope for a far more effective
alternative to an unsatisfactory status quo. By looking honestly at the current
state of our businesses we can begin to surface and eliminate the unsatisfac-
tory aspects of the past and move forward to a more profitable future.
The STRATEGY approach requires us constantly to reassess our
approaches, results, and achievements, and to set tangible goals we would be
proud to accomplish. The application of the STRATEGY approach will
uncover and eliminate satisfactory underperformance in all of its forms.
12 STRATEGY
The Discipline and Value of Clear Priorities

In a military context, fragmentation of resources and scattering of troops along

an excessively broad front creates a vulnerability to a more focused adversary
which concentrates troops and material in a strategically sound approach. The
same principles of engagement and focus apply in the business world as well.
Identifying and acting on an appropriately focused set of priorities can make
all the difference for a business. It is not too dramatic to say that the very sur-
vival of your enterprise, in the long term, will depend upon an appropriate
focus of effort and resource.
Good strategy is clear and unambiguous on the priorities and trade-offs that
need to be made. Resources are finite and enterprises cannot move in all direc-
tions at the same time. It has been said that strategy is as much about decid-
ing what not to do as it is about which areas of opportunity to pursue. By
evaluating and setting priorities on risks and opportunities, an organization
can be both efficient and effective, focusing resources on the highest value
opportunities at lowest possible cost. Establishing a disciplined focus on a
limited set of priorities is one of the sure signs of a winning company, and one
of the salient characteristics of the STRATEGY program.
All too often, in a failure of leadership, good ideas and essential activities
get jumbled up with the bad and the peripheral in complex, fast paced modern
businesses. Potentially high impact initiatives do not receive the full attention
and resource they deserve due to the unhappy fact that they are lost in a sea of
less important and less attractive initiatives. Scarce resources, human and
financial, can be scattered across a long list of programs, actions and ideas,
rather than focused on the few programs or initiatives that can really make a
difference.
Lack of priorities and excessively long lists of unfocused “strategic” initia-
tives can even create a costly distraction for managers and employees that
have demanding jobs to do getting products manufactured, services delivered,
and logistics managed.
Unfortunately, many businesses do not have a structured and reliable
process to set priorities. In a system where strategic process and content
have become severed, it may be very difficult to achieve an acceptable out-
come from an ungrounded program of identification and prioritization of ini-
tiatives. Adherence to a simple and effective approach to set and maintain
priorities, as here integrated into STRATEGY, can yield big dividends for
those participating in this more efffective process.
In every business today there is no shortage of opportunities, risks, and
potential actions to which an organization can turn its attention. Yet to be suc-
cessful, the leadership of an organization will need to identify the highest-
impact initiatives, and then pursue them on a clearly differentiated basis. This
means deciding how to focus the resources and energy of an organization, and
 Book One: Recovering the Lost Art of Strategy 13

communicating in an unambiguous way which activities are not priorities as

well as highlighting those which are.

Gaps in Traditional Models of Strategy

In looking for the best model to provide a framework for strategy, it is clear
that each past model will be lacking in one or more areas. As we shall see in
the following sections, none has risen to the challenge of providing a useable
framework or guide for setting out a comprehensive approach to determining
and implementing world-class strategy. Some are too simple. Others may be
valuable only in describing the past at a high level, but provide little in the way
of practical advice in setting out a strategically sound pathway for the future.
The older models tend to be simplistic and rigid, confining thought to a lim-
ited number of independent conceptual components. These constraints
inevitably lead to a more linear and constricted approach at a time when strat-
egy needs to be more systemic, more flexible, more open to discontinuity, and
better able to adapt to a fast-moving world.
Due to an exclusive focus on content and a resulting lack of attention to the
value of process, there is often little room for creativity built into a strategic
program which is likely to emerge from the rote application of old models.
How you organize your company, and how you organize the process of setting
strategy, can have a major impact on the amount of creativity and differenti-
ated performance resident in your strategic and corporate future.
Almost all static models are purely content-specific, and do not describe
how to go about setting or implementing strategy. None provide a compre-
hensive model to integrate the process and content of strategy. They thus leave
out a great and critical part of the knowledge available on how to determine
the best possible strategy to master your own business challenges.
Strategic exercises predicated upon merely filling out the content of static,
complex, and often poorly understood planning models do not encourage a
full and engaged involvement of all parties to the process. Multiple perspec-
tives are essential to understand the whole of a situation, especially when the
phenomena we observe on a daily business are often the result of multiple,
longer term patterns playing out in different dynamic situations. A full under-
standing of the underlying trends, patterns and systems of behavior can only
come from encouraging the incorporation of multiple sources of understand-
ing, insight and action.
Further, the sheer complexity of older models, and a long-standing lack of
precision in understanding the terminology related to their content, has often
resulted in confusion, and has even generated more than one entirely dis-
functional approach to strategy. In order to be effective, the strategy process
and the content model both need to reflect all seven characteristics of
14 STRATEGY
SMARTER goals: Simple, Meaningful, Actionable, Realistic, Total, Effective,
and Results-driven.

Toward a Better Future

It is clear that a new approach to strategy is needed. The unsatisfactory results

from past strategic approaches need dramatic improvement, and the game is
getting even more challenging as business and economic systems continue to
evolve and become ever more global, more complex, more consolidated, and
more dynamic with each passing year.
Although each of the historic models described later advanced our under-
standing of strategy in the business world at the time of promulgation, their
collective failure to generate consistently acceptable results in real world
application creates a need for us to question their efficiency. To turn the les-
sons of the past into a more comprehensive set of insights for the future, we
need a better approach to defining the process and content of strategy than
these models have provided. Most important, we need to extract more value,
generate better results, and create a more rewarding personal experience for
those involved in filling out the missing elements of strategy.
That new model of strategy needs to forge a seamless link between
strategic analysis, strategy formulation, implementation, and the creation of
tangible results. Addressing these gaps is exactly what the STRATEGY
approach is designed to accomplish.
CHAPTER 1

The Evolution of Business Strategy

Often, business strategies in the past have been based on rigid, structured mod-
els and approaches to strategic analysis and policy setting. Many corporate
strategies and strategic budgets today are still set and executed through an
approach that is essentially mechanical and uninspired. The past is extrapo-
lated into the future, with little change from the status quo expected or
planned. That traditional approach is frequently formulaic, occasionally repet-
itive, and usually tedious.
The major problem with the historic models most often used in strategy is
that they are too simplistic in content or application. They thus fail to address
the full set of dynamic challenges or opportunities facing an enterprise. Even
more critically, companies using these limited approaches rarely achieve any-
thing remotely approaching their true full potential.
Both process and content of traditional planning exercises are seldom
inspiring. As a result, they seldom engage the individuals who make up the
modern organization in a mission they feel is meaningful. Instead, historic
approaches to strategy often perpetuate only the continuing state of satisfac-
tory underperformance which preceded the strategy exercise.
Part of the blame lies with the overly structured models of strategy devel-
oped, packaged, and sold in the past to management teams with an insufficient
grounding in their origins or applications. The traditional linear models such
as the 3C’s, 5 Forces, 7S’s, and all the other odd- and even-numbered
approaches to the unbundling of strategy can serve as useful checklists
for review. They may even stimulate useful strategic thinking and generate
creative tactical ideas. But only rarely do most of them lead management
teams to satisfactory results, to say nothing of exceptional performance or
breakthrough strategy.
These foundation stones of traditional business strategy can provide useful
input or contribution in forming more valuable and more complete strategies.
But to unlock the full potential of your business, you need to go well beyond the
demonstrated limitations of these past approaches to the structure of strategy.

15
16 STRATEGY

Seven Leading Historical Models of Strategy

The 3C’s
The 5 Forces
The 7S’s
The 3S’s
The 8 Strategic Laws of Gravity
The 9S’s
The 7C’s

It is important to summarize and consider the content of each of the leading

traditional models to understand the lessons of the past. Each of them, con-
taining inherent strengths and weaknesses, represents a state of strategic
insight and modeling at a particular point in time. There is potential value to
be derived from an understanding of their sources, applications, intentions,
and purpose in a more modern approach to strategy. Their application may
even lead to powerful insights in some situations if properly applied. Most
importantly, an understanding of their strengths and weaknesses may provide
valuable knowledge to move forward with your own unique strategy.

The 3C’s Model

A simple model of business definition drove much strategic thinking in the 1970s
and early 1980s. Following the expansion of the 1960s, and in the wake of the
1973 oil shock, many companies needed to redefine their businesses, make bold
strategic decisions on their portfolios, cut costs, and restructure investments. As
a result, the strategy process needed to define more sharply the borders of busi-
nesses in order to make decisions for each separate strategic business unit on
strategy, investment, restructuring and competitive management.
The model generated to serve that purpose was the 3C’s model, designed to
shape understanding of the borders of independent strategic business units and
support portfolio restructuring, amongst other activities.

The 3C’s Model

Costs
Customers
Competitors

The first of the 3C’s is Costs, which reflect the nature and proportion of
economic activity within an organization.
 The Evolution of Business Strategy 17

The second C represents Customers, whose needs are served by the entire
business system of a company.
The third and final C stands for Competitors, the relevant set of companies
operating in the same space who are pursuing the same opportunities within a
defined geographic or product market.
Although the 3C’s model is relatively simple, the reasons for its derivation
are more complex. Capital became more expensive in the inflationary period
following the first oil shock, and the adverse operating conditions of the 1981
recession further stressed business performance. Deregulation and privatiza-
tion in Europe and the United States removed some of the artificial borders on
business definition and competing geographic ambitions. Globalization
opened the doors to new markets around the world. As a result, complex and
international businesses stepped quickly into an entirely new order of global,
industrial, and intercompany competition.
In this new order many businesses, especially diversified conglomerates,
discovered that their excessively broad business portfolios needed greater
focus, requiring an active program of restructuring and redirection. In some
countries, notably the United States, the competitive dynamic had further
intensified under pressure from a Japanese onslaught in steel, automobiles,
machine tools, construction equipment, farming equipment, and other core
industrial sectors. A more selective US market put pressure on suppliers for
improvements in prices and terms of delivery, applied technology, product
quality, service levels, design aesthetics, and customer management, which
had all been pushed to new levels by the invading Asians.

A Lost World

Many senior managers of large corporations saw the business world they knew
disappear entirely. The strategic ground under their feet had changed dramat-
ically and the clocks could not be turned back. Competitors were now global.
Old business practices, and historically acceptable cost and service perform-
ance, led to failure and bankruptcy. Faced with wider choices, customers
became more demanding. Comfortable relationships and established proce-
dures respected for decades between customer and supplier vanished forever.
Senior managers suddenly needed to clarify their understanding of the shift-
ing business borders in this new world in order to redefine their businesses,
reset strategies, adjust management objectives and clarify investment priori-
ties. Those who did not adapt to the new paradigm swiftly fell prey to more
agile traditional competitors and hungry new entrants from the domestic
market and foreign countries. Better understanding the shifting borders of
business—the art and science of business definition—was a starting point to
develop a response to seemingly endless performance pressures and demand
for comprehensive change.
18 STRATEGY
The approach most commonly used to define or redefine the borders of a
business was the 3C’s model, which captured the bulk of the economics and
operations of a business on an 80/20 basis. An analysis of these three elements
would properly define the borders of a business and identify the competitors
and customer groups central to strategy in a single business system. A high
degree of sharing in all three categories meant that apparently divergent busi-
nesses could be considered one strategic unit and managed accordingly.
A lack of sharing in all or many of the categories meant that the businesses
were essentially separate entities and probably could—and should—be man-
aged as separate strategic units. In many cases, the clarity provided by the
application of a 3C’s business definition exercise allowed large conglomerates
to reshape their portfolios, focus their activities, and strengthen a set of less
numerous but more successful business units.
Airlines, hotels, and car rental agencies, for example, are different busi-
nesses (different costs and competitors) despite a high sharing of customers.
The Allegis Corporation discovered this lack of sharing to its great cost many
years ago when it unsuccessfully tried to manage the three within one co-
ordinated group. With a better definition of their businesses, a new generation
of strategic managers was able to unbundle the unwieldy combination and
design separate strategies based on a clear understanding of the competitive
arena and the operative rules of the game in three very separate businesses.
Business definition sounds very basic, even slightly academic. But its applica-
tion can drive significant change in a business portfolio where the strategies of
separate businesses have been insufficiently differentiated. The lack of clear busi-
ness borders often arose in businesses where corporate development had been pri-
marily driven for too long by geography, by a founder’s personal capabilities, by
a particular set of customer relationships, or by a defined set of core skills. These
historical sources of business value had become, in many cases, no longer a suf-
ficiently strong rationale to bind together disparate businesses, or no longer valid
as a unifying consideration in portfolio strategy.
The proper exercise of 3C’s business definition should not be static. The
value created in application increases dramatically as the dynamic aspects of
business evolution are fully considered. Forward-looking business definitions
can identify emerging changes in the environment which may not have been
taken fully into account in operating business plans. The application of busi-
ness definition can provide greater clarity to business portfolios and can, if
applied with sufficient foresight, lead to more efficient allocations of staff,
capital, and other corporate resources for future advantage.

Painful Application

The application of a 3C’s model can have deep, painful and lasting conse-
quences. One major manufacturing business in Europe, for example, had
 The Evolution of Business Strategy 19

developed a long list of apparently related businesses built around historical

competences in metal forming, cutting, and molding. It had grouped together
all of the businesses with these characteristics into one large and fully consol-
idated manufacturing business. The business operated from a single site in the
English Midlands, employing over 8,000 people in one massive and imposing
Victorian facility. Over time, its once highly profitable business performance
eroded, turning the enterprise into a seemingly unending and intractable
stream of financial losses. The enormous red brick complex appeared to have
turned into a black hole for capital and management time, absorbing more and
more of each with less and less to show for the investment.
Upon applying the 3C’s model, it became apparent that this facility, once con-
sidered as a single business unit by its managers, actually housed 22 separate
businesses of varying sizes, strategic positions, and financial performance. A
small minority of businesses were competitive and profitable. All others were not.
After 22 separate strategic reviews, more than half the businesses were
closed, freeing capital and management to focus on and develop the more
promising units. Applying the 3C’s model had transformed an apparently
unmanageable cost and profit problem into a manageable portfolio challenge,
resulting in a dramatic refocusing of a troubled business group. Without the
insight of business definition, millions of dollars and years of painful and
expensive effort would have been wasted without any hope of achieving
meaningful order, focus, or profitability in the division undergoing the strate-
gic review.
Business definition, even in its most classic form, is a dynamic exercise.
Failure to understand the dynamic nature and relevant evolution of business
definition has led to disaster for many businesses—and for the careers of many
dedicated and hard-working managers.
Lucas Industries, for example, was once an independent, world-famous
engineering firm headquartered in the heart of the United Kingdom. For more
than a century it developed and manufactured leading products in lighting,
aviation controls, engine components, electronics, and other technology-
related engineering sectors. It operated this diverse portfolio under a single
corporate structure and board direction.
But not all changes had been well mastered. One senior manager, having
started as a shop floor apprentice and risen to divisional managing director over
a long and successful career, oversaw a business with nearly half a billion
pounds in annual sales. In a discussion on the use of business definition in deter-
mining strategy, he ruefully concluded that he had seen the definition of his busi-
ness change along all 3C’s in less than a decade. He succinctly summarized his
perspectives of accelerated change as a lesson in changing business definition.

When I took this job, we were a dominant British components business. After a
while, we were a middle-sized European supplier of components and subsystems.
By the end of the decade, we were a subscale global systems, subsystems, and
20 STRATEGY
components supplier. In the beginning, we were the leading, and often only, sup-
plier to successful British car manufacturers. By the end, we were supplying
European, Japanese, and American customers in a highly competitive market.
Our costs and quality levels, which were essentially component-driven in the early
days, became uncompetitive and absorbed into larger systems assemblies. The margin in
our business was increasingly taken over by the bigger systems designers and assemblers.
As the borders of our business changed, our returns dropped. So we went from
being a highly profitable British supplier of components to an unprofitable global sup-
plier of components and systems. To be honest, it took us too long to realize what was
happening, and by the time we did it was too late for some of our product groups.

Lucas Industries went on to streamline its operations, refocusing on sustain-

able businesses in a new and more competitive global order. It now continues to
produce many leading products and technologies as part of a global scale entity
bulked up by merger and alliances around the world.
What about the senior manager, unable to foresee the fundamental changes
taking place around him and unable to adapt quickly enough to the new world
of competition? Despite his admirable work ethic, his devotion to a company
that spanned 40 successful years in various operating units, and his detailed
knowledge of every product in his division, this dejected executive opted for
early retirement and left behind a diminished, but much wiser, set of colleagues
and operating business units.

The 5 Forces Model

In his best-selling book, Competitive Strategy, Michael Porter outlined the

5 Forces that drive competitive strategies within a properly defined industry,
domestic or international. An understanding of these forces, and an enlightened
management approach reflecting that understanding, was intended to lead to
superior competitive performance in the market. It could also lead to higher and
more sustainable financial returns to stakeholders in the enterprise. With its roots
in industrial economics, the 5 Forces model combined perspectives on structure
and content into a coordinated view on the rules of competition and the forces for
change in an industry. In applying this model, the effective strategist was also able
to draw out lessons which could inform strategic action in the defined market.

The 5 Forces Model

Entry of new competitors

Threat of substitutes
Bargaining power of buyers
Bargaining power of suppliers
Rivalry among existing competitors
 The Evolution of Business Strategy 21

The first of the five competitive forces is the entry of new competitors in an
industry. Destabilizing and costly, market entry of a powerful competitor usu-
ally requires a response that will absorb scarce resources and reduce overall
returns. A critical element in effective strategy is to dissuade competitors from
entry, so long as a cost-benefit calculation justifies the investment. The full costs
of competitive entry, over the long term, usually justify a significant investment
in competitor contra-strategy early on to preempt the potential entry.
The second force is the threat of substitutes. Pricing, and therefore prof-
itability, is influenced by both actual and potential substitutes. Buyers face a
range of choices and the cost-value balance, the other side of the threat of sub-
stitutes, has a significant impact on decisions. Competitive gaming will thus
be influenced by an understanding of the full set of products available to buy-
ers, not just an internal perspective on value delivery.
The third is the bargaining power of buyers. The ability of customers to
change supplier behavior, primarily through pricing and terms that change the
supplier’s cost base, has a big effect on the economics of all firms in an indus-
try. The relative power of supplier and buyer can make some industries more
attractive, and others far less interesting. Major differences can appear in the
same industry across geographies. In some industries, this force is clearly the
dominant driver of industry profitability and attractiveness.
The “balance of terror” between grocery retailers and suppliers, for example,
differs between Europe and the United States. In European countries such as
the United Kingdom, Germany, and the Netherlands, the top five retailers
dominate the grocery retail distribution market. Own-label sales are high.
Retailers set price and delivery terms, decide on new products and packages,
and also determine inventory requirements, delivery schedules, credit terms,
take-backs and other operating terms and policies. The dominance of a small
set of retailers is increasing, as retail chains develop whose relative power far
outweighs the strength of almost all of their more fragmented suppliers. Even
mighty Nestlé, Unilever, and other international food giants struggle in Europe
against Tesco, Aldi, and Carrefour, testing the limits of the bargaining power
of buyers against a set of smaller competing sellers. The same is true of a few
emerging US giants, such as Wal-Mart, now expanding to Europe and Asia
through active acquisition and investment initiatives.
In the United States, by contrast, suppliers in many sectors are more con-
solidated than distributors. Category management, the integrated management
of an entire section of the supermarket to maximize the profit per square foot,
is more heavily influenced by forward-thinking national scale suppliers than
by fragmented regional supermarket chains. As a result, future margins and
opportunities for most food companies are much brighter in the United States
than in Europe. The relative profitability and strategic future for many food
manufacturers in the US is now determined by an ability to understand
and exploit all sources of competitive advantage compared to their weaker
customers.
22 STRATEGY
Fourth is the bargaining power of suppliers. Just as buyers will use their
influence to drive supplier behavior, suppliers will do the same when and
where possible, exploiting the benefits of their own strengths and strategic
position. Microsoft, Intel, and other tough-minded suppliers can often dictate
individual terms and even influence the nature and evolution of an entire
industry. Differing concentrations of the supplier base, scarcity of supply, sub-
stitutability, and other factors can drive a competitive industrial dynamic to
very different outcomes.
The last of the 5 Forces is rivalry among existing competitors. This rivalry
will set the competitive rules which shape firm behavior, investment policies,
and return patterns across an industry. Investments in capacity, technology, new
product development, price reductions, capital plant, marketing, research
and development, and all other elements of the business value chain are directly
and profoundly influenced by the nature and intensity of competition among
firms in an industry.
These 5 Forces, which shape an industry’s economic performance and
attractiveness, can also shape firm strategic decisions within the defined bor-
ders of an industry. Originally seen as descriptive, or as primarily indicative of
industry potential to earn returns above the cost of capital, these 5 Forces can
also be understood and integrated into a winning strategy for a competitor
within an industry.
Although Professor Porter did not specifically link the 5 Forces to a prede-
termined set of firm strategies, he did map out three generic strategies for
successful competitive strategy: differentiation, cost-based leadership, and
focus. Differentiation is a strategy driven by superior value added to customers.
Cost-based strategies offer superior value to customers through low costs and
prices. Achieving business objectives through focus on a limited set of the ele-
ments of a business system also could create a superior business model.
According to Porter, being caught outside these three generic models traps a
business in a highly unsatisfactory no-man’s-land—“caught in the middle,” as
he described it—in a position very likely to generate substandard returns.

The 7S’s Model

The 7S’s model, associated primarily with the consulting company McKinsey
and Company, resulted from a fusion of insights that emerged from working
sessions between a group of strategic consultants and academics. Each mem-
ber brought experiences, ideas, and draft models to a joint brainstorming and
drafting session. The final 7S’s—Strategy, Structure, Systems, Staff, Skills,
Style, and Shared values—have been a staple of most strategic diets for a long
time, and still inform many approaches to organizational design and strategic
review.
 The Evolution of Business Strategy 23

The 7S’s Model

Strategy
Structure
Systems
Staff
Skills
Style
Shared values

The 7S’s are made up of the following elements:

Strategy—the coherent decisions and actions taken to create relative advantage

against competitors and improved relations with customers. Resource
allocation is a key part of this process.
Structure—the organizational structure and operating approach that clarify
tasks, responsibilities, and roles in the corporate hierarchy.
Systems—the procedures, processes, and flows of activity that allow an organ-
ization to operate daily. Some systems are common to all businesses,
including information systems, capital allocation procedures, control sys-
tems, compensation and promotional systems, and other ingredients in the
operating mix.
Staff—the people who make up the organization, individually and collectively.
Skills—the capacities and capabilities of an organization and its ability to get
things done.
Style—the behavior of the leadership, and therefore usually also of the body
of an organization. The decisions, priorities, behaviors, and symbolic
aspects of an organization’s culture frame the way a business acts under dif-
ferent circumstances.
Shared values—the mix of explicit and implied values and goals. Not confined
to mission or value statements, shared values are internalized in a business
and guide its behavior.

While providing the background for many discussions of strategy, the 7S’s
model is associated with many failed strategies at a high level. Perhaps
because of its general nature and broad conceptual coverage, the framework
has not been able to generate a consistently better set of competitive results for
many who have attempted to use it in the definition and implementation of a
winning strategic plan.
24 STRATEGY
The 3S’s “Single Shot Strategy”

In an attempt to improve popularity or to stand out from a crowded field, many

new ideas and conceptual models purport to capture the essence of strategy in
a single word, concept, or theme. This reductive approach, which characterizes
many popular strategy fads heralded by a growing crop of wannabe strategy
gurus, can be called “single shot strategy.” A single shot strategy is an overly
simplified approach which attempts to reduce the complex nature of strategy
to an artificially narrow concept. In the process, much value is lost, leaving an
inadequate approach to strategy with inevitably unacceptable long-term
results if taken as a sole source of strategic direction.

The 3S’s “Single Shot Strategy” Model

(examples)

Reengineering
Total quality management
Time to market
Target return on capital
Six Sigma

In fact, not all new ideas and single-shot prescriptions are as fresh as their pur-
ported creators would like us to think. Reengineering. Total Quality Management.
Time to market. Target Return on Capital. Six Sigma. Many of these buzzwords
and standards are, to some extent, old wine in a new bottle. They can describe
valuable initiatives and focus operating plans. They may contribute to significant
improvements in manufacturing quality and overall business performance. But
their application does not fulfill the full needs of a complete strategy.
Most single shot strategies are focused solely on changes in internal opera-
tions and do not address such essential strategic issues as competition or indus-
trial evolution, thereby missing out on key elements of business risk and
opportunity. Nor does their content link to other aspects of a complete strategy
program, such as visionary leadership for the organization. These focused
themes may be worth considering in some cases, but only as a part of a larger
and more complete strategic formulation.
There is also a great risk in pursuing these approaches with excessive ardor.
Too often, these internally focused tools or techniques can push real strategy
off the agenda. They inadvertently sacrifice long-term growth, ignore compet-
itive threats, and miss opportunities for industry structural optimization. They
do not take into account the relevant set of trends and influences that will drive
future business performance. The full development of organizational capabilities
 The Evolution of Business Strategy 25

can be lost in favor of an all-consuming short-term, internally focused set of

initiatives. In some cases, overzealous pursuit of a limited set of objectives can
even damage the fabric of an organization, discourage key staff, and put future
profits and growth at risk.

Risk of a Single ROC Sinking the Ship

One common error in unsophisticated businesses is the pursuit of a standard,

across-the-board, preset Return On Capital (“ROC”) for all units. A large
Asian conglomerate recently announced the appointment of a new CEO, who
fell into this trap rather publicly. Respected for its technical competence in
many fields, the company, whose leadership role the CEO had taken over, had
fallen to a low standard of financial performance for almost a decade. The new
CEO had a long history with the company, which had operations ranging from
finance to property to metal-forming and engineering subsidiaries. He
announced boldly that his new strategy was to achieve an 8 percent return on
capital in every business. Unfortunately, the portfolio was extraordinarily
diverse and complex, and the organization so unschooled in strategic manage-
ment, that the simple “strategy” proved disastrous.
Businesses in a dreadful competitive position that should have been
divested received investment capital to raise operating performance. New tar-
gets for cost reduction and revenue enhancement were set unrealistically to
justify new investment, funds which were immediately doomed to an eternally
low or even negative return. By contrast, some attractive businesses already
operating at a 12 to 15 percent return on capital, which could have increased
their return by a further 5 percent, were not pushed by a standard they had
already comfortably exceeded.
The drive to achieve the 8 percent target also obscured a deeper truth about
some parts of the portfolio. Some businesses that had been operating on an
integrated basis were in fact multiple businesses. In one engineering business,
for example, a major unit was actually comprised of two entirely separate
businesses. One was a capital-intensive, low-return manufacturing enterprise
and the other a high-growth, high-margin service business with diminishing
links to the core manufacturing operations. The combined goal of 8 percent
return on shareholder funds made it less likely that the divisional manager
would agree to spin off the attractive business, deferring and even reducing the
ultimate potential to create significant shareholder value.
This unsophisticated CEO chose a dangerously blunt instrument to try to
drive his organization to higher performance. By confusing an operating target
imposed on a top-down basis (and a rather unambitious one at that) with a truly
insightful strategy, he set his organization on a path to suboptimal shareholder
wealth creation and continuing financial and operating underperformance.
26 STRATEGY
The 8 Strategic Laws of Gravity

Reflecting the development of more sophisticated models of competitive eco-

nomics in complex international markets, the 8 Strategic Laws of Gravity also
traced its origins back to the diagnostic models and databases on corporate prof-
itability which evolved in the 1970s and 1980s. Driven by experience curves,
growth-share matrices, brand-portfolio analyses, relative market share/return on
sales frameworks, market share modeling, and other micro-economic analytical
templates, the 8 Strategic Laws of Gravity went further than predecessor models
in specifying the content of competitive strategy.

The 8 Strategic Laws of Gravity Model

Correct business definition

Market control and leadership
Incremental share to the leader
Relative competitive position, performance, and investment
Declining costs and prices
Discouraging competitor investment
Industry value chain and profit pool
Organization investment

Each of the 8 Laws contained both a descriptive and prescriptive element,

describing what needed to be considered and indicating the logical implications
of each Strategic Law.

Correct business definition—understanding the true borders of a business,

now and in the future, is critical in setting strategy. As business definition
evolves, strategy needs to follow or even lead the process of change.
Market control and leadership—when properly defined, a market-leading posi-
tion can drive shareholder value to the highest possible level. Niche or scale
leadership can each provide an avenue to superior financial performance.
The value of incremental share to the leader—the financial strength of the leader
builds on the advantages of leadership and drives the economics of followers.
Incremental share gain can be of great value, reinforcing leadership, adding
to profits, and building market power and influence. Given an industry-lead-
ing cost base and the potential to contribute to real differentiation, incremen-
tal market share has a particularly high value to market leaders.
Relative competitive position, performance, and investment—historical analyses
from the early PIMS database to more modern studies of industrial
 The Evolution of Business Strategy 27

economics show that, in aggregate, relative share of a market usually deter-

mines financial return. An absolute revenue share of 30 percent in a market
has enormously different strategic and financial characteristics if the
30 percent share creates a strong leadership position against a second
largest competitor with only 1 percent, or if a larger competitor has the
other 70 percent and the 30 percent reflects a weak trailing position.
Relative performance is also critical in investment and strategic initiatives.
Analytical models show strong correlations between relative market share
and return on sales or equity, and confirm the fundamental value and strate-
gic implications of this perspective.
Declining “experience curve” costs and prices—originally uncovered in the
analysis of input, cost and time efficiencies in the production of military
aircraft during the Second World War, the normative trend of a predictable
decline in real unit costs and prices with accumulated experience has
proven to be a universal micro-economic truth. From pencils to computing
power, this same phenomenon is consistently visible across industries, coun-
tries, and time. Although the roots of this insight are old, understanding and
managing it continue to be critical elements of modern strategy.
Discouraging competitor investment—through cost management, investment,
service excellence, brand and channel power, customer management, and
technological application, competitors may be dissuaded from costly
entry into a firm’s core markets and most profitable market segments. The
cost of dissuasion is usually far lower than the future cost to stakeholders of
intensified competition over the long term.
The industry value chain and profit pool—mapping out the industry profit
pool, the sum of profits across an industry or along a business value chain,
is a critical element in the determination of effective strategy. Originally set
out in a pair of articles in the Harvard Business Review by Bain & Company
Chairman Orit Gadiesh and James Gilbert, a director in the same firm, the
profit pool has already become a core concept in modern strategy.
Organizational investment—all of the preceding laws of gravity can best be
pursued to the advantage of each competitor through superior capabilities,
more effective organizational structures, and more efficient operating sys-
tems. Failure to invest in and compensate individuals and teams for profitable
growth, effective operation, and motivation of colleagues ensures underper-
formance in one of the most critical areas of potential strategic value.

More substantial and prescriptive than most strategic models, this approach
has allowed many leaders of companies to set out a successful strategy along
the axes presented, and to understand better where the shortfalls lie in their own
strategic efforts.
28 STRATEGY
The 9S’s Model

Two extensions to the 7S’s model, added by Japanese strategic consultant

Shintaro Hori, are Steering pattern and Syndication.

The 9S’s Model

Strategy
Structure
Systems
Style
Staff
Skills
Shared values
⫹
Steering pattern
Syndication

The Steering Pattern, the approach to management leadership and princi-

ples of direction that communicate how leadership can expect to achieve
results within a business, adds a new dimension to the systems and shared val-
ues of an organization. Derived from years of observation of failed multina-
tional strategies in Japan, Hori’s extra element reflects the universal need to
develop and to implement a consistent model of leadership and operating cul-
ture at all levels of an organization and across all locations.
The final new S, Syndication, captures a whole wave of change and the poten-
tial for creative alliances across old business borders. Syndication parcels out
risk to more than one company, redefining the value chain and creatively com-
bining and recombining business assets and processes. The principle of syndi-
cation reflects new shared competitive initiatives, as well as collaborative
associations in many areas. Complex cross-competitor alliances in the airline
and software sectors are now commonplace, as are more traditional cross-border
joint ventures, franchises, dual branding initiatives, outsourcing programs, and
other forms of sharing of costs, brands, assets, capital risks, and other essential
activities. Technology and channel evolution has brought businesses together in
creative horizontal and vertical syndications never considered before.
Modern companies are constantly searching for new avenues to create com-
petitive advantage, reduce costs, improve return on capital, and share risk burdens
where individual scale will not allow any one company to shoulder the entire
responsibility for a significant operation or investment. Adding syndication to the
classical 7S’s model captures this new area of shared initiatives, which did not
fit neatly into pre-existing categories of structure or systems.
 The Evolution of Business Strategy 29

The 7C’s Model

The 7C’s model of strategy is an enhanced version of the 3C’s model of business
definition. In addition to defining better the borders of an existing business, the
7C’s model expands the list of C elements to create a more precise definitional
model and to create a more useable set of strategic building blocks.
Although the 7C’s approach has been available for many years, it is only in
the context of STRATEGY that the full application and business value can be
extracted. The added elements to its 3C’s predecessor can help to identify crit-
ical trends and illuminate the defining characteristics of a business. The model
can provide a powerful framework to define and evaluate core strategic
options, and identify and prioritize adjacent growth opportunities. The broader
set of seven conceptual categories can also identify more potential opportuni-
ties for beneficial discontinuities which, if properly exploited, can provide
essential content for a winning breakthrough strategy.

The 7C’s ⫹ Results Model

Costs
Customers
Competitors
⫹
Context
Capabilities
Channels
Capital
⫹
Results

The first three C’s are described earlier in the 3C’s model and operate here
much as they do as described in that model.
The Context of a business describes the overall architecture of a market,
including regulatory structure, licensing regime, political influences, product/
market combinations, technological environment, trade and quota arrange-
ments, patent limitations, and other defining characteristics of the industrial
environment. Active management of these key elements is one of the biggest
challenges in the creation of transnational business success. In some of the
most dynamic and complex industries—such as telecommunications, financial
services and utilities—changes in the regulatory and other contextual ele-
ments are often a primary focus of senior management as they reshape the
competitive landscape. Capitalizing on that change ahead of competitors can
also be a major source of stakeholder value creation.
30 STRATEGY
The Capabilities of individuals and the organization are a critical source of
incremental revenue, profit, and competitive advantage in both manufacturing
and service businesses. Much of strategy is about identifying, improving and
employing as effectively as possible the human and competitive capabilities res-
ident in a business. In industry sector after industry sector, these capabilities are
being tested more than ever before.
The entire manufacturing sector has long been undergoing enormous disrup-
tion and change. Competition from China, Mexico, and other low-cost centers
has turned up the heat on the capabilities of western manufacturing organiza-
tions. This in turn has put pressure on all suppliers and supporting businesses to
these manufacturing entities. In the services sector, India rather than China has
emerged as the leading source country of serious competitors to Western serv-
ice providers, and as viable rivals to the internal service and IT departments of
businesses seeking to reduce cost and improve performance simultaneously.
Channels and their evolution increase in strategic significance as businesses
develop rapidly in new geographical areas, attack new customer segments,
create new e-commerce offerings, launch new retail formats, develop new
models of integrated logistics, and pursue other areas essential to successful
business development. The ability to access, share, dominate or own delivery
and distribution channels allows competitors both to control the customer and
restructure the value chain by reducing the time and cost involved in value
delivery. The ability to bypass intermediaries and go directly to the market,
shortening the distance between producer and customer, creates enormous
advantage over trailing competitors encumbered with older, less flexible
channel structures and systems. This is the source of the success of the Dell
direct delivery model. In addition, channels and customers are often tightly
linked, with new channels providing access to new customers, as well as
reducing costs and improving service to the existing client base.
Effective use of all sources of Capital advantage, including a restructuring of
the capital base and leveraging the balance sheet of an organization, is an often-
overlooked element of strategy. Too often, strategy is focused exclusively on the
operations, market, cash flow, and profit and loss account aspects of a business.
Even before the Asian crisis decapitalized many Asian corporations and set off
intense competition for scarce equity capital, the use of capital and the integration
of operating strategies with capital-market initiatives was a growing area of inter-
est for forward-looking CEO in that region and around the world. No longer seen
as merely a source of funds at market prices, the effective management of capital
has become a source of competitive advantage and creator of shareholder wealth.

Beyond the 7C’s

Other C’s that have cropped up for potential inclusion in the expanding ocean
of “C” concepts include Compensation, Core technologies, Communications,
Compassion and Cooperation, along with other variations on the theme that
 The Evolution of Business Strategy 31

could not be forced neatly into the “C” format. In order to get the best possi-
ble results, however, the extra C of Creativity does need to be applied at each
and every part of the model.
As indicated earlier, it is striking that none of the models developed over
decades of industrial development, evolution, and application is explicitly
anchored to the core notion of achieving tangible results. Elaborate structures
and extensions of the classic models were developed and proselytized by var-
ious gurus for years without explicitly linking strategy and results. In STRAT-
EGY, the adoption and application of the 7C’s ⫹ Results model addresses this
weakness and explicitly integrates the creation of results as a fundamental ele-
ment of the strategy model.

The STRATEGY 7C’s + Results Framework

Customers

Competitors Costs

Channels Capabilities

Context Capital

Results

In this 7C’s ⫹ Results model, there is an explicit linking of a strategy model

with results, causing strategists to be constantly mindful of practicality, the
need to implement ideas, and the value of a process to assure the effectiveness
of both the process and content of programs leading to strategic conclusions,
recommendations, and actions.
Especially in a world where Fortune magazine estimated that 70 percent of
CEOs who lost their jobs were seen to do so because of a failure to execute
strategy and get results, the inclusion of implementation in the core three-phase
approach to strategy, and the specific inclusion of the “R” word in the core
conceptual model, are important elements in strategic success, and perhaps
even in continuing employment!

Low Standards and Satisfactory Underperformance

In the decades when the traditional models were developed and applied with-
out a clear linkage and focus on results, the general track record of industry
leaves much to be desired.
32 STRATEGY
Taking a step back, and looking at the 10-year returns of U.S. companies
collectively, the picture gets more complex but no more positive. The average
company from a sample of Standard & Poor’s 500 companies had annual sales
growth of 5 percent and financial performance a full percentage point below
the fully loaded cost of capital. Objectively, these low profit growth and per-
formance patterns should be entirely unacceptable, but over time they have
become accepted as the prevailing norm.
Some of the largest business organizations in the world often achieve results
that reflect a return on capital that is consistently and predictably less than its
cost. The long-term consequences of this established underperformance call
into question the strategies, the systems of management and control, and the
strategic models which have led to these results.
Any new approach to strategy would need to move beyond the limitations
of this unsatisfactory past and address the legacy of underperforming strate-
gies with a clear and concise response visible in its results. The application of
the 7C’s ⫹ Results model in the context of a comprehensive STRATEGY pro-
gram will achieve exactly this objective.

Focused Application of the Supermodel

As we shall see in the section entitled The Winner’s Circle at the beginning of
Book Two, there are competitors who have applied virtually all elements of
the 7C’s ⫹ Results model successfully, while others have navigated their route
to strategic success by focusing tightly on one element only. These success
stories were created by bearing down selectively on a single breakthrough ele-
ment in the model in order to break out of the pack of “me too” or less
focussed competitors. These competitors have often broken new strategic
ground and reaped the benefits of their understanding, focus, and sustained
application of effort.
A few of these selected winning companies are now very large and very
well known. Others are equally successful but smaller in scale and less
renowned in their achievements. Each of the companies selected for profiling
shares the same secret of success, which is to pursue a clear, correct, and dif-
ferentiated strategy in the marketplace. The companies below all developed
very successful strategies which followed the structure and pursued the ele-
ments of a 7C’s ⫹ Results model.
Costs. Southwest Airlines, RyanAir and a new generation of value carriers
around the world have reset the bar on cost-efficient air travel. By pursuing
every opportunity to streamline operations, to harmonize fleet configura-
tions, and to minimize the cost of service, these new low-cost competitors
are the profitable victors in an industry where the total cumulative historical
 The Evolution of Business Strategy 33

profits of the entire industry, from the Wright brothers to the present day,
would add up to less than zero.
A second group of companies driven by cost arbitrage against entrenched
competitors are the new businesses arising in China and India. Great chunks
of the world’s manufacturing businesses are now passing into the hands of
successful Chinese manufacturing operations. High-cost Western companies
are also increasingly shifting to outsource expensive IT and other business
processes to lower cost Indian companies like Wipro, Scandent and Tata
Consultancy.
Customers. Few companies have as clearly differentiated a strategy with
regard to customer understanding as American Express and MBNA. The
clearly distinguished charge card tiers of green, gold, platinum, and black at
American Express have come to stand for customer segments adopted
as a hallmark in other industries. The plethora of Visa and Mastercard gold,
platinum, and black card competition only confirms how effective American
Express have been at defining their strategies, products, and services by their
customer segments. Imitation is indeed the highest form of flattery.
Creativity as well has played a key role in defining success for American
Express. Pioneering the Membership Rewards concept has created even
higher levels of customer loyalty, providing effective personal incentives for
customers to remain loyal to American Express, and to maximize spend on
their charge and credit cards of various hues. Customer knowledge and deliv-
ery of what the discerning customer wants in the way of products and services
has allowed American Express to lock in some of the world’s most valuable
customer franchises for many years to come.
Lesser known, but even more focused in some areas of credit card customer
differentiation is MBNA, once a small division of the Maryland National
Bank. MBNA, whose company vision is simply stated as “acquiring the right
customers and keeping them,” are masters of the science of micro-marketing.
Better than anyone, MBNA understand in fine detail how individuated seg-
ments of the card business behave and then act to profit from their knowledge.
Competitors. Perhaps no company more exemplifies the spirit of hard-nosed
competition than GE. Jack Welch’s famed dictat to “become number one,
number two or get out” encapsulates the culture of competition which perme-
ates one of the world’s most successful companies. Not only do GE executives
compete against external foes, they are exhorted to battle constantly against
internal inefficiency as well.
During the peak of the dot com era, Jack Welch reportedly sent out a memo
which urged his management team to brainstorm how the Internet revolution
would change their businesses. In an exercise internally labeled “destroy-
your-business-model-dot-com,” GE managers were asked to set out a plan of
how an Internet-enabled business competitor could take over GE’s leading
34 STRATEGY
business positions. Managers were then told to implement the model them-
selves in order not to fall prey to more forward-thinking competitors!
Another company which defines its strategy through competitive focus is
Komatsu, whose short vision statement “encircle Caterpillar” reflected a
desire to win out against the giant US competitor around the world.
Channels. Although fast-moving consumer goods companies have long
sought the advantage of dominating or owning distribution channels as an ele-
ment of a winning strategy, channel strategy is relevant to other sectors of the
economy as well. Along with brands, distribution is a key factor to success in
automobiles, soft drinks, food, beer, whiskey, and household products. Now
the central importance of channel strategy extends as well to book publishers,
computer manufacturers, media content providers, real estate developers, tour
companies and online education suppliers, to name but a few.
In today’s more global and more technologically advanced markets, new
approaches focused on channel strategy have arisen, creating a whole generation
of exciting new business models. Dell, for example, now dominates the direct-
to-consumer PC channel and has become the world’s leading PC company as a
result. Amazon.com is a strong leader in the online book channel, building a new
business model that has changed the way books are bought and sold. Ebay has
a dominant presence in most countries in the ascendant online auction channel.
Distribution control is often a key element of strategy, and business models
built on a strong leadership position in channel management are often well
positioned for long-term success.
Capital. Over recent decades, the providers of private capital—including buy-
out funds, hedge funds, intermediate capital providers and venture capital
firms—have added an extra edge to the capital efficiency of the industries in
which they compete, or even in which they are seen to be considering invest-
ment. KKR, The Carlyle Group, Investcorp, 3i, the Texas Pacific Group,
Blackstone, Bain Capital, and the private equity arms of such banks as Morgan
Stanley and Goldman Sachs have redefined the ownership and operating land-
scape of American, and even global business. In friendly and hostile transac-
tions alike, the high return expectations of the limited partner investors in
these private capital firms have driven many businesses into a more
efficient operating mode and to ever higher levels of return on equity.
It is interesting to note that The Carlyle Group, now operating on a global
basis from its headquarters in Washington DC, derive their company’s name
from a high-end hotel in New York which the early partners in the firm liked
to frequent. Given the world class caliber and membership of the Carlyle oper-
ating team and original Advisory Board, thoughts also run to the historian
Thomas Carlyle, whose world view was driven by the idea that the significant
events of history were driven by the appearance and actions of a few “heroes,”
or great men around whom history revolved.
 The Evolution of Business Strategy 35

In some ways the entire industrial landscape of the United States was
restructured by the appearance and actions of a few highly capable individu-
als at the top of a very few private equity houses and privately dominated busi-
nesses. With a constant focus on asset efficiency and pursuit of value arbitrage
opportunities, the private equity houses have shown that there are indeed pow-
erful lessons and great benefits to be harvested from a focus on the capital ele-
ment of strategy for all companies, private and public alike.

Capabilities. Not all successful companies are young, nor operate from major
centers of industrial or political power. The Liechtenstein Global Trust, better
known by its initials LGT, has operated quietly but extremely successfully
from the tiny Principality of Liechtenstein, located in the heart of Europe, for
nearly a century. LGT is owned entirely by the Prince of Liechtenstein
Foundation, an investment vehicle associated with the ruling family of the
country whose noble history stretches back over a thousand years.
The current LGT businesses are ably chaired by Prince Philipp von und zu
Liechtenstein himself. These businesses, and the Princely family, have built
carefully on a long established reputation of managing client funds, and the
Princely family’s own, with discretion, reliability, and continuously superior
performance. With family wealth now mounting into many billions of dollars,
the extraordinary wealth management expertise of this low-profile aristocratic
family has grown steadily across many generations, and now even spans many
centuries.
Although the success of the private banking business has been driven by a
well-proven capability to structure and manage client and family funds on a
discrete basis, a strong dedication to achieving the highest return for LGT’s
clients also contributes to the service capability of the organization.
When performance of a third-party portfolio manager fails to stand up to
rigorous and systematic scrutiny of total net return from a client’s perspective,
after an accurate determination of all associated operating fees and charges,
the experienced management team has not hesitated to terminate money man-
agement mandates. When falling short of benchmark performance, even some
of the world’s leading investment banks have lost fund management responsi-
bilities. The funds are then immediately placed with better performing fund
managers to raise overall portfolio performance. As a result of this rigorous
approach to money management, LGT funds outperformed the MSCI index
by nearly 30 percent over a recent 5-year period.
Now extending the successful business model from its traditional private
banking origins in Europe to include private capital funds and private client
wealth management in more markets around the world, LGT has shown that a
relentless long-term focus on a core set of capabilities can win out, even in
the rarified world of providing discrete financial services to the world’s
wealthiest individuals.
36 STRATEGY
Context. Although Olam International will be described in more detail later
as a fascinating new supply-chain manager with a differentiating approach in
almost every element of the 7C’s model, perhaps their greatest concentration
lies in exploiting changes in the context in which the company operates. While
focused on serving the logistical and product needs of modern multinational
food and industrial companies in the United States, Europe, and Asia, Olam
has successfully ridden a global wave of deregulation in the origin markets of
their key product areas. Following the decertification of commodity boards in
numerous origin markets, Olam was able to capitalize swiftly on the opportu-
nity created by the change of context. Managers were able to develop highly
profitable businesses and top global competitive positions in most of their
product areas, from a world number one position in cashews to top three posi-
tions in other agricultural and industrial product areas. By providing a low cost
and highly reliable supply-chain service “from farm gate to factory gate” in 39
jurisdictions with increasing value-added that provides margins double those
of most competitors, Olam has been able to convert a change in the public reg-
ulatory system into a great commercial success story in the private sector.

Results

In all of these cases, the companies selected consistently demonstrated a

desire to set and achieve the highest standards of performance. The successful
Results element of the model has been proven to be common to the strategies
of all of these companies, no matter how different their strategies, how varied
their origins, or how diverse the industrial sectors in which they compete. Dell
has become the acknowledged world leader in the highly competitive global
PC market. Southwest Airlines have been the most imitated of airlines.
American Express has become the model of service and customer focus on a
segmented basis for many competitors, and a valued corporate partner for
many of the world’s leading business enterprises.
GE has often topped the Fortune 100 list as America’s most valuable
company and is acknowledged as providing many of the world’s best man-
agers. Carlyle has achieved high double digit returns on capital for many years
and attracted some of the most powerful world leaders to their advisory board.
LGT has moved from strength to strength, with Tier I capital and earnings
momentum two to three times that of less successful competitors. The strength
of the LGT business was formally recognized recently as both Moody’s and
Standard & Poor’s awarded the bank a “double A” rating—their highest ratings
in the relevant category.
Olam, with sales in 2003 of nearly US$1.5 billion and profit margins twice
those of their most comparable competitor, have built a successful business
from startup to the present day purely on an organic basis, without the need for
a single acquisition.
 The Evolution of Business Strategy 37

In these consistently superior results, across a rich variety of business

sectors and environments, one can see the value of focus and the benefit to be
gained from strategies which created unambiguous differentiation where it
really mattered. By mastering all elements of strategy and focusing resources
on the most critical areas of differentiated competitive performance, these
winning companies stand as testament to the value of designing and imple-
menting thoughtful and effective strategies.
This STRATEGY package will take you through a process to set and imple-
ment a strategy which draws on the lessons from these winning companies and
allows you to create your own unique business success story.
 CHAPTER 2

Principles of the New Paradigm

One of the reasons why traditional models have failed to keep up with the pace
of change in the business world is that most are, in essence, static snapshots
of businesses and industries which are constantly in a flowing process of
change, redefinition and evolution. The old models simply do not work for
businesses which operate within a new and incessantly dynamic paradigm
which requires decisions and investments aimed at creating results in a future
which is different from both the past and the present.
Business and economic scholars are now becoming much more aware of the
fact that business systems are evolving more like flowing “biological” entities
with a dynamic interconnected nature than like static building blocks or com-
ponents of a rigid or isolated strategic architecture. Business systems are
neither static nor simple, and they can only be addressed on a more holistic
and “living” basis. Strategy, reflecting this realization, is also becoming
more flowing, more vital, and, in the end, far more capable of managing amid
complexity and constant change.
Modern authors use the language of a corporate “ecosystem,” where all
processes in a business are seen as interrelated in a coherent, dynamic, and liv-
ing system. Data flows, product or manufacturing chains, social systems and
cultures, value-added chains, and all other moving components of the modern
organization are similarly (and validly) described as independent dynamic
systems and as interdependent subsystems within an overall flow. Strategy
now needs to take these observations more fully into account, to understand
better the relevant patterns created, and to know in greater depth what they
will mean in the future for designing and executing strategies.
In order to understand better, and to profit from that improved understanding,
the principles of this new paradigm require deeper analysis and more informed
action. Many of the principles of the new paradigm share the universal char-
acteristics of dynamic systems and as such can be analyzed, predicted, and
managed. For each systemic characteristic described below, and for each
common pattern, there is a need to determine future direction and define
strategic imperatives to drive change to the benefit of the informed strategist.
38
 Principles of the New Paradigm 39

Principles of the New Paradigm

Globalization Obsolescence
Complexity and reinvention
Dynamism Connectivity
Turbulence Convergence
Acceleration Ephemeralization
Rationalization Consolidation

While not unique to the business world, there are 11 recurring patterns in
global, social, and economic systems that may provide useable input for a
more informed approach to business understanding and strategic action. Taken
together, these principles combine to create an entirely new business para-
digm. Mastering the elements of any new paradigm is an essential element in
developing a winning strategy in the markets of tomorrow and creating valu-
able sources of competitive advantage today.

Globalization

Globalization redefines many of the major sources of business risk and

opportunity today. It is no longer just business entities—suppliers, customers,
and competitors—that are “going global.” Voice messages, data and informa-
tion, products, people, capital, images, ideas, hazardous waste, pollution,
drugs, obsolete factories, vehicles, careers, families, friends, and almost any-
thing else you can think of can now be transported between the major centers
and remote corners of the world with increasing speed and efficiency. Ships,
aircraft, trains, automobiles, trucks, telephones, faxes, satellite relays, inter-
bank networks, express delivery companies, the Internet, and intranets provide
delivery, distribution and communication systems that efficiently span the
world. The new principle of globalization, perhaps the most commonly cited
element in the evolution of complex modern businesses and economic sys-
tems, constantly creates new management and human challenges.
Looking back, economic data shows that the world was actually more
global a hundred years ago, based upon trade and investment flows. Yet the
business world today has evolved in an entirely new and different global order
of competition and operation. Unlike periods in the past of high global inter-
connection, businesses and trading systems around the world now work
around the clock as well, seeking opportunities and managing risk in more
than 200 countries spanning 24 time zones, 24 hours a day, 7 days a week.
Global enterprises employ technology and modern business practices to
40 STRATEGY
overcome barriers of different histories, languages, cultures, communication
standards, regulatory systems, and economic structures. Money moves freely
and virtually instantly between destinations, seeking the highest available
return from the most attractive markets, wherever they may be. The micro-
economic laws of supply and demand, which once applied principally to local
geographic markets and set prices in independent currencies, now apply at a
global level as goods, services, money, people, jobs, and other elements of the
global business mix flow smoothly from one country or currency zone to
another with little interference, interdiction, or control.
With their highly visible signs, McDonald’s, Burger King, Domino’s Pizza,
and other fast-food franchises are transforming eating habits around the world.
Other brands are establishing new standards of global social status and
aspirations. The long-term growth in export sales of Rolex watches from
Switzerland, Mercedes-Benz cars from Germany, Louis Vuitton luggage from
France, Gucci handbags and shoes from Italy, and Ralph Lauren sports
apparel from the United States reflect the growing global nature of luxury
brands, high level consumer taste, and socially aspirational values.
Less visible companies such as Air Liquide and British Oxygen serve the
world’s industrial gas markets. International airlines have gone from operating
national hubs and spokes to creating vast networks of international routes,
sharing codes, establishing international alliances, and funding powerful,
computer-driven global reservation systems. Even in businesses once consid-
ered local, the world is opening as never before. Financial services businesses
such as Citigroup, HSBC, Goldman Sachs, and GE Capital, law firms, and
even once sleepy local utilities are spreading their wings in new models of
international expansion.
As with all other paradigm principles, each observation of dynamic systems
behavior can lead directly to insights which can inform business decisions, lead
to beneficial action, and contribute to profitable change. In this case, an under-
standing of the global nature of future competition can identify the scale or nature
of operations necessary to compete successfully, identify new opportunities, and
highlight the strategies, alliances, acquisitions and operating targets which can
lead to overall victory in competitions fought on a global battleground.

Complexity

Modern business is rapidly getting more complex. Companies are multi-

national and transnational. Product and service options proliferate. Logistics,
technologies, and manufacturing systems flex and evolve globally. Competitors,
suppliers, distributors, owners, and managers all operate amid perpetual
change and growing complexity.
 Principles of the New Paradigm 41

The challenge of this complexity is both practical and theoretical. The more
complex a system, the more opportunities there are for growth—and also for
systemic failure. The more numerous and dynamic the variables, the greater is
the chance for a catastrophe in both the mathematical and real-world senses of
the term. Catastrophes could appear as an unexpected event or a series of
related events, apparent discontinuities in the operating paradigm not antici-
pated by most participants in the market. The 1997 and 1998 emerging mar-
ket crises would fall into this category, as would the 1987 Black Tuesday,
Marlboro Friday, the “tech wreck” of April 2000, and other business, capital-
market and macro-economic headaches of recent years.
Complexity is not purely the province of capital market or global enterprises.
Internal or product complexity is also growing apace. Vehicle manufacturer
BMW famously suggested that there is now more computing power in its
7-Series automobile than in the rocket that put a man on the moon 35 years ear-
lier. Major German universal banks spent more than 1 billion euros a year on
information technology alone to support ever more complex and costly univer-
sal banking models.
The Internet can now link hundreds of millions of personal and mainframe
computers and users around the world. The Star Alliance, which links some of
the world’s leading airlines, now flies thousands of flights every day from
many of the world’s major cities. Its reservation system books seats for mil-
lions of passengers a year from more than 100 countries and cities with count-
less variations and special instructions. The number of countries in which
companies compete, the wide range of products and services they provide, and
the needs of managing a global network of suppliers, partners, and customers
inject complexity at all stages of the business system.
In dealing with complexity, perhaps the most important element of an effec-
tive response is to set a clear and compelling vision to guide the organization
and to pursue that simple vision through a limited set of highly effective pri-
ority actions. Constant focus, up to date information, effective communica-
tion, and uninterrupted effort of sufficient magnitude can bring about
constructive change in any complex dynamic system.

Dynamism

Constant development and change is the order of the day in finance, telecom-
munications, consumer goods, manufacturing enterprises, services, and every
other area of endeavor for modern enterprises. In some cases, the driver
of accelerated change has been a lifting of restraints on the natural evolution
of micro- and macro-economic systems. The removal of Regulation Y in the
US financial services business, for example, which previously capped
42 STRATEGY
passbook savings rates at an artificially low level, unleashed a dynamic storm
of competition, consolidation, and change. Removing this artificial constraint
on the development of financial systems led to the creation of money market
certificates, launched waves of new non-bank competitors in the financial
services market, and led to vastly more fluid capital markets. It triggered a
process of dynamic development and global consolidation still being played
out more than two decades after the regulation was abolished.
A similar impact was seen in the United Kingdom following the “Big Bang”
in the national financial services sector, ushered in by the revolutionary Financial
Services Act of 1986. Privatization and the removal of trade and capital barriers
also initiated major change as they too released pent-up forces which soon drove
many industries into entirely different competitive configurations.
A second dynamic driver is the impact of new enabling systems, often cre-
ated by advances in technology and telecommunications. A third driver is the
removal of conceptual inhibitions to business development, as new business
models from various sources opened the minds of executives to new possibili-
ties, and reset industry standards of excellence.
The key to managing a dynamic system is foresight based on an under-
standing of the basic trends and their implications, coupled with rapid and
effective response. There is more need for constant monitoring and setting of
pre-established trigger points to activate responses. Advanced scenario plan-
ning, shorter strategic planning cycles, greater planning flexibility, increased
investment in organizational capabilities, and real time strategy monitoring
can lead to effective responses to environmental change. Adhering to a com-
mon and enduring set of values can also be essential to guide an organization
steadily through periods of destabilization, dynamism, and change.

Turbulence

Turbulence creates or reflects greater than average discontinuity in a dynamic

system. It occurs where there is dramatic change in the external environment
or in the critical variables and functions of an internal system. It can occur
predictably, periodically, or irregularly in the evolution of any business.
Characterizing turbulence in business are rapid changes in the regulatory or
competitive order, fundamental changes in business definition, or dramatic
changes in the nature of products, services, or distribution systems. The
majority of the world’s industries now consider themselves in a period of
extended and redefining turbulence. Destabilizing turbulence has become the
new normal operating environment for modern businesses. The computer,
financial services, automotive, steel, retail, food, tobacco, alcohol, accounting,
defense, and airline industries, to name but a few, are all in a period of desta-
bilizing change and highly visible turbulent transition.
 Principles of the New Paradigm 43

New leadership in an organization can also create internal turbulence

in even the most stable of external environments. Recent analyses show that
the arrival of new leadership is often associated with the onset of a construc-
tive period of turbulence leading to significant change and visible increase in
value to shareholders in an enterprise. Turbulence creates deep opportunity—
and even perhaps the necessity—for positive redefining change. Necessary
changes can be made without the constraints of personal association with
old strategies, traditional solutions, or an ingrained predilection to accept
satisfactory underperformance as the accepted status quo.
According to a Bain & Company survey on turbulence spanning 8,000 com-
panies in 17 industry sectors over more than a decade, environmental or exter-
nal turbulence and catastrophe created significant competitive volatility and
opportunity for strategic change. New leaders emerged in two-thirds of the
sectors surveyed. The winners had returns to shareholders of more than
20 percent a year. Losers in the same sectors had returns of less than 5 percent
a year. Former leaders, saddled with the high operating costs of industry
leadership, but not the benefits, dropped to less than half the return levels
(measured in total shareholder return) of their replacements at the top of the
industry league.
What can we learn from this experience? The winning formula in turbu-
lence was found to be driven by four key factors, all organizational. First, the
winners were externally focused and able to track and respond swiftly to
changing events around them. Second, they were fast and flexible in response,
not slow and bureaucratic. Third, they were long term in outlook rather than
preoccupied with the immediate—navigating, as one winning executive
stated, by the horizon, not the headlines. And fourth, they were constantly dis-
satisfied with the status quo, constantly searching for opportunities to improve
future performance, no matter how successful they had been in the past.
Organizations need to measure themselves accurately against these four win-
ning characteristics and change how they operate when they fail to measure up
to requisite standards of excellence. New capabilities can and should be built to
profit from inevitable destabilization of the old order, but these new capabilities
can only be successfully deployed in an environment where the surrounding
organization supports, rather than hinders, their effective deployment.
Turbulence primarily occurs around significantly changed circumstances,
major events, and at critical points where different business systems come into
contact. The strategic management imperative is thus to predict and respond
to the causes and effects of turbulence promptly, preferably well ahead of
competitors, and certainly well in advance of catastrophe! For a predictable
period of turbulence, a counterbalancing organizational capability can be well
prepared in advance and quickly deployed to manage or benefit from the onset
of inevitable change, even if the precise timing, content, and nature of the
future challenge are not yet known.
44 STRATEGY
Acceleration

Not only is change now constant, the pace of change is accelerating in almost
every dimension. The unprecedented pace of technological change and its
spreading influence only accelerate overall change in an already rapidly evolving
set of global economic systems. Even Moore’s Law, which forecast a doubling
of processor power every 18 months, is already long out of date. Each dou-
bling of power has now accelerated to a rate exceeding a 100 percent increase
in capability every 12 months.
In some cases, great investments in business and in military projects are
made deliberately to speed the pace of change to develop new products, new
channels, new weapons systems, and new delivery capabilities ahead of com-
petition. This accelerating pace of change shows no sign of relenting.
In business, time is increasingly a key success factor in competition. Toyota
Motors recently announced that it could make a car in 5 days from the time
of order to delivery, a dramatic reduction from the previous average of 30 to
60 days. The pace of product development, logistics chains, and other ele-
ments of competition are now driven by competitors and technologies invest-
ing to accelerate change in order to create competitive advantage. In many
cases, globally accessible technology and adoption of global best practices
from all available sources are key factors in this acceleration.
A fast-moving cyber-world of interconnected networks of individuals,
content providers, distributors, and manufacturers is another reflection, and
source, of acceleration in the rate of change. The rapid rise of the Internet and
its real-time responses to ever-more-demanding customers is only one of the
rapidly evolving sources of technologically driven change. There are many
views of the future of the Internet, but all of them share the expectation that
the system will change radically and quickly, and in ways that will stretch the
capabilities of even the most seasoned and intelligent systems experts.
John Chambers, Cisco’s fast-talking CEO, admitted years ago: “[the
technology] industry is moving so fast that it is almost impossible to keep up
with it.”
Going back in time, the early study of factory worker time and motion
spawned the efficiency consulting industry, whose genesis lay in accelerating
task execution. Reducing task time on a fixed cost base created lower unit costs,
greater profits, and relative competitive advantage. The Second World War pro-
duction example cited above confirmed that the efficiency of producing aircraft
was accelerating and that each accumulated unit of experience produced a
predictable decline in the time and cost required to assemble an aircraft.
The experience curve was born, setting out a predictable trend of declining unit
cost as an organization gained scale, accumulated experience, and built its inter-
nal knowledge base. As individual and organizational knowledge rose up the
 Principles of the New Paradigm 45

learning curve, costs and time to produce slid down the experience curve at a
parallel rate.
More recently, the competitive value of superior time management has been
rediscovered, and accelerating the “time to market” has joined reducing the
“time to produce” as a critical success factor in the modern business world.
For some, the winning strategy in an environment of accelerating change
may be to accelerate change even faster, leaving less capable competitors wal-
lowing in the leader’s wake. In the words of Intel’s former CEO Andy Grove,
strategies in the technology sector should be mindful of an exhortation to
“accelerate the pace of change and amplify the magnitude of your impact.”
These words underscore his powerful view that the combined mastery of
speed and impact is a critical strategic tool in the fast-paced new economy.

Rationalization

The objective of every business enterprise is to achieve the most efficient

means to the desired ends. Customer needs should be met at lowest cost and
maximum extraction of available revenue. Managers use information, tech-
nology, experience, and judgment to allocate capital, staff, and other assets to
produce the highest available return consistent with the creation of substantial
competitive advantage and long-term shareholder value. The result: a system
in constant evolution toward a desired end on the most efficient and effective
basis possible. It is an essential aspect of management and STRATEGY to
ensure that both the end goal, the vision of an enterprise, and the pursuit of
that goal are in full alignment. Confusion, contradictory effort, or resistance
can only absorb scarce resource without positive effect.
Over time, economic systems tend toward a more efficient relation of means
to ends, as do other dynamic systems. Forces will seek paths of least resistance.
Energy-efficient behavior consistent with achieving a prescribed objective at
lowest cost will be visible, with human behavior no exception. One critical
aspect of systems management is to understand and, if necessary, redefine the
end goal that drives the rational behavior of the overall system and its individ-
ual elements. That goal is the end point that determines all supporting decisions
and determines actions within the whole system. The goal of an enterprise—
cash flow, earnings performance, shareholder value, profitable growth, social
impact, or other—will determine how an organization defines success and to
which end its decisions and actions should rationally be aligned.
A key element of success in guiding systemic behavior is to assure that the
perceived end for each person within the system is in fact the same end as for
the whole group. Multiple agendae and dissimilar objectives can create dis-
cordant behavior due to a conflict of objectives, and therefore a conflicting set
46 STRATEGY
of “rational” behaviors. Aligning strategies to pursue identical objectives in
the most rational manner, for both individual and collective effort, is a key ele-
ment in the mastery of this paradigm principle. Acting on a consistent and
clear set of priorities is a key step in making your operation as rational as pos-
sible, achieving the desired ends of your business with the relevant means
deployed as efficiently and effectively as possible.

Obsolescence and Reinvention

Systems change over time. Understanding historical rules and rates of change
is thus necessary for taking effective action, but may no longer be sufficient as
a knowledge base for strategy. New paradigms have redefined competition and
reset challenges for modern managers by demonstrating “discontinuous
change,” presenting an entirely new state of the market and generating
responses to action within it in a manner not predicted by straight-line inter-
polations of the past. Some changes are so profound that they do not just shift
a business incrementally. They require discarding old models entirely, rethink-
ing the business and adopting an entirely new approach for the future.
Perhaps the most famous characterization of a misguided adherence to out-
dated perceptions and strategies is the military adage that “today’s generals are
always fully prepared to fight and win yesterday’s wars.” The same is true of
many failed strategies in the business world. Computerization, the Internet,
genetically modified organisms, and other life science breakthroughs are just
a few of the most visible changes rendering old models obsolete and new
approaches necessary.
Nowhere is this paradigm principle clearer than in the music retailing busi-
ness. Once dominated by small record shops, the business of retailing records,
eight tracks, cassettes and now CDs, VCDs, and DVDs has gone through very
public waves of obsolescence and reinvention. The small shop gave way to
medium size chains like Tower Records, Musicland, and HMV. These medium
size chains, once enormously valuable, are now shrinking, closing or chang-
ing hands for relatively paltry sums of money. Large chains like Wal-Mart,
coupled with the powerful new business model at Amazon and other on-line
distributors, have changed the face of music distribution. But even as these
giants were emerging, the on-line community of Napster rose and fell, leaving
in its wake the seeds for new models of legal on-line music file downloads pre-
sented by iTunes and Soundbuzz. Obsolescence of the old, successful innova-
tion of the new, and necessary reinvention to profit from future change
continue to flicker past in this industry at great velocity.
Companies that fail to adapt to new standards and paradigms are often
condemned to highly visible failures. Long ago, IBM missed the opportunity to
dominate the emerging market shift to personal computers, eventually losing
billions of dollars trying to catch up. The obsolete approach of overreliance on
 Principles of the New Paradigm 47

a mainframe product base, no matter how strong that base, locked IBM out of
a highly profitable market segment for many years. It should be noted that
IBM’s successful turnaround and reemergence as a world leading services
provider has proven that even once obsolete approaches can be reinvented on
a profitable basis.
American carmakers, pursuing outdated concepts valuing extravagant
design and size, were decimated in the 1970s by Japanese competitors more
in tune with a new need for smaller, cheaper, and more efficient vehicles of
higher quality and greater reliability.
Ironically, much of the success of Japanese penetration in the US market
with superior products and product quality was underpinned by their
adherence to the quality concepts of American statistician W. Edwards
Deming. His integrated understanding of manufacturing, quality, cost, and
statistical control created a new paradigm that enabled a whole new genera-
tion of automotive and industrial leaders, many of them Japanese, to rise from
the ashes of the Second World War and reinvent themselves as leaders in some
of the world’s largest industries.
Unbundling formerly integrated value chains in the airline business also led
to a new and more focused model of competition for the leading airlines of the
world. The sale of non-core catering operations and ground handling units, the
outsourcing of jet engine and airframe maintenance, and the sharing of costs
of expensive reservations systems allowed the more advanced airlines to focus
scarce resources on differentiating characteristics in cost, customer service
and network management. The once successful fully integrated business
model was proven obsolete over time and left behind by more thoughtful, and
more profitable, operators.
Successful companies adopted a whole new approach to airline competition
and to their own business systems. The best have now reinvented themselves
as lean, focused players with extremely low operating costs, an ultra efficient
route structure, a harmonized fleet configuration and as little asset exposure
as possible. Airline industry consolidation, driven by sequential waves of
mergers, acquisitions, and alliances, has and will continue to contribute to
redefining that industry for many years to come.
Where a system is constantly changing and redefining its content and its
boundaries, the strategic imperative is to develop a capability to anticipate
change and reinvent a business model as appropriate. Constant monitoring
and interpretation of factors triggering obsolescence are required. This in
turn places a high value on breakthrough strategies that take advantage of,
or even create, positive change in the basic model. Creativity and capability
are at a constant premium. Attracting, retaining, and motivating the right
people who can master discontinuity and reinvention become more than ever
differentiating factors and key success factors, in a sea of change. Without the
benefit of high quality managers and fresh thinking, companies and leaders
48 STRATEGY
playing by yesterday’s rules, or clinging to obsolete models, may find them-
selves leading businesses to make wrong decisions that will cost them dearly
in tomorrow’s markets.

Connectivity

The new state of interconnectedness of the business and personal worlds

has been neatly summarized by one of the leading experts and more eloquent
spokesmen on the evolution of technology:

We’re talking about connecting everything in the world to everything else. That
means that every artifact that we make will be embedded with some chip, some lit-
tle sliver of dim intelligence, maybe only as smart as a bee or an ant. But all of
those pieces, some of them moving around and some stationary, will be connected,
and will be communicating with each other. So, the graph of the number of things
that we make, and the graph of the numbers of things that are connected, will in the
near future converge and meet, and everything we make will be connected to every-
thing else. And that is the network. That is the Net, in the large sense that we talk
about.

Connectivity and interconnectivity are not just about computerization and the
global Net. It is a phenomenon of the weather, trading systems, the global
energy grid, cultural norms, and behavior in old and new dynamic systems.
With the push of technological advance, the interconnected world is becom-
ing more visible and links more subject to deliberate understanding and man-
agement. Even the remote Himalayan Buddhist Kingdom of Bhutan is now
wired to the Internet and receives satellite television after centuries of isola-
tion and near absolute cultural independence.
New value-managed relationships, which integrate supplier and customer
economics in new win–win combinations, break down barriers between for-
merly separate stages of the value chain and connect previously competitive
enterprises through coordinated logistics and formal alliances.
Cisco’s early view of the development of the Internet still captures the flows
guiding the future of that brave new world. The Cisco view of the future of
technology was broken down into seven related stages, capturing a vision of
consolidation, connection, and convergence of activities in a leading edge
technology-driven industry:

1. Consolidation of data networking companies.

2. All-in-one data-voice-video networks.
3. Consolidation of phone companies.
 Principles of the New Paradigm 49

4. Availability of free voice services over data networks.

5. Consolidation of data and voice companies.
6. Optical internetworking, with broadband available everywhere for the cost
of POTS (plain old telephone service).
7. Ultimate interconnection of systems—getting everything connected is
everything.

A corollary to connectivity and interconnectedness is interdependence. As all

things become more visibly interconnected, they will depend more on each
other. The holistic nature of individual systems and the “system of systems” is
an inevitable construct that emerges from an understanding of accelerated and
universal connectivity.
From a commercial standpoint, realization of this more interconnected
nature of the business world raises a whole new set of challenges. It is more
essential than ever to understand and react to external trends and influences,
developing future-oriented strategies which take into account the full con-
sequences, internal and external, of present and future changes affecting a com-
mercial enterprise. All of the principles of the new paradigm are interrelated
and the most relevant results of this new paradigm will need to be incorporated
into a comprehensive and thoughtful approach to strategy.

Convergence

Convergence occurs when two or more different systems move toward a

common end point or pattern without merging or fully consolidating into one
single entity. Parts of their systems, but not all, will blend, integrate, and mir-
ror each other. There will be more points of contact. Converging businesses,
for example, will look more alike and act more similarly over time. The bor-
ders between systems will further break down over time as incentives and
influences drive systems with similar objectives and technologies toward a
similar set of operating characteristics.
This paradigm principle is, as one wag put it, “as clear as the Palm in your
hand.” With mobile telephones integrating organizer functions and cameras,
PDAs adding telephony capability, and portable e-mail devices like Blackberry
integrating both, the world of handheld devices reflects an underlying trend of
technological and functional convergence. Although business systems can
diverge or collide as well as converge, the majority of systems relevant to the
leaders of businesses today are more likely to be on some converging paths
toward a greater sharing of characteristics in a more interconnected future.
50 STRATEGY
The trend toward greater convergence can be seen clearly in the institu-
tional evolution of financial services. Banks, insurance companies, stock
brokers, investment banks, private banks, financial planners, and private
wealth managers are converging with competitive service offers to capture
the profit pool available in serving high-net-worth individuals. All of these
competing businesses are offering to take over lucrative wealth management
functions that can last for a customer’s lifetime, or even beyond. The manu-
facture and distribution of asset management products is a convergent
hunting ground for all these players, with bewildered customers facing a
dizzying world of choice that deregulation and globalization have recently
thrust upon them.
In another example of convergent global customer behavior, the consump-
tion of beer, wine, and spirits in countries with differing traditions has now
evolved toward a common global pattern. Over the past 60 years such wine-
drinking countries as France and Italy have demonstrated a long-term decline
in the liters of pure alcohol consumed in wine, while relative beer and spirits
consumption has increased. Traditional beer-drinking countries, such as
Germany and Austria, have been consuming less beer and more wine and spir-
its. Similarly, spirits-led countries are heading toward higher consumption of
the softer alcoholic beverages of wine and beer. Eventually, there could well
be a roughly even mix of drinks in most countries, as measured by liters of
pure alcohol, unless taxes or other artificial interventions disrupt the natural
convergence of the industry.
As patterns and systems converge, the critical factor for management
success is to develop a strategic response to profit from the end-state toward
which the systems are converging and to benefit from opportunities created
by the movement to convergence along the way. If that end-state carries with
it high costs or risks to an existing business model, the model needs to
change—and well before it becomes obsolete.

Ephemeralization (Moving to the Virtual)

Awareness of the phenomenon of increasing ephemeralization, or the process

of becoming less physical and more virtual in manifestation, is one of the
many fascinating legacies left by R. Buckminster Fuller almost half a century
ago. In his view, many systems and connected networks were becoming less
present, even as their functionality increased. The tracked becomes trackless.
The wired becomes wireless. The fixed becomes mobile. The drawn out
becomes instant. The large becomes small. The assisted becomes independent.
The present becomes remote. The visible becomes invisible. The physical
 Principles of the New Paradigm 51

becomes virtual. Systems, services, and products seem to vanish into a virtual
background over time. Ephemeralization is an unending process in multiple
dimensions.
Expounded by Fuller in the 1960s, this paradigm principle can be seen in
system after system in the modern business world, years after its prescient
identification. This set of systems characterized by ephemeralization would
notably include modern telecommunications (with small, mobile, wireless
handsets operating virtually instantaneously on an unassisted basis), finance
(who goes into a branch for assisted cash withdrawal transactions any more),
retail (with online shopping), computers (ever more portable, smaller and
more powerful), and other technologically transformed systems.
One expert described the development of the computer-based cyber-world
as one that was progressively “dissolving into the environment” as intelligence
becomes embedded invisibly in everything from appliances to clothing. One
leading researcher talked of software/hardware combinations in the computer
world becoming so miniaturized that the future would see the development of
“smart dust,” which could be placed invisibly almost anywhere in a working
environment. The rapid growth of nano-technology is another proof of this
pattern in the shrinking world of robots, sensors, and actuators.
In this ephemeral world, it is essential to see how this trend will affect prod-
ucts, services, and organizations ahead of competition. It is essential to antic-
ipate change, seeing future trends, and investing to stay ahead of required
adaptation and transformation in a manner which creates the maximum com-
petitive advantage.

Consolidation

In many businesses today there is a visible trend toward consolidation of

formerly independent suppliers, competitors, and customers into larger unified
blocks. This can be seen within countries and at a global level as mergers and
acquisitions combine ever-larger players into single units.
The end of the twentieth century saw the first $100 billion merger and the
proposed combination of three banks in Japan to create the first $1 trillion (in
assets) financial institution. In the beginning of 2004, with the acquisition of
Banc One by J.P. Morgan for $58 billion, America’s second trillion-dollar
bank was formed. The scale of these institutions, and the transactions which
created them, were both unimaginable only a few short years ago.
While the scale of the current wave of consolidation is unprecedented in
financial terms, the phenomenon itself is nothing new. A hundred years ago,
a similar wave of mergers and acquisitions in the United States consolidated
52 STRATEGY
small city, state, and regional players into national enterprises for the first time.
Now we are seeing the same phenomenon at a global level as smaller national
or regional players in telecoms, banking, airlines, pharmaceuticals, energy,
chemicals, automotive components, software services, and other sectors
are gobbled up in a race for synergy, global scale operation, and sustainable
economic advantage.
Where industrial consolidation is not fast enough for some national leaders,
the pace has been deliberately accelerated. Malaysia’s announcement in 1999
of the proposed consolidation of 21 commercial banks, 25 finance companies,
and 12 merchant banks into 10 large anchor banking groups reflected the gov-
ernment’s sense of urgency and the importance of consolidating fragmented
financial services players into fewer, stronger, and larger entities in that ambi-
tious Asian economy.
The implications in most industries are clear—to set and implement strate-
gies which take into account the full implications of this paradigm principle
as it plays out in a specific industry. This trend may profoundly affect com-
petitors, customers, or suppliers. You may have to consider participating in
industry-defining mergers and acquisitions yourself, or face the prospect of a
competitive future contending constantly against bigger and more powerful
rivals who participated more actively in an era of consolidation.
The organizational implications are also significant. In order to effect a
successful merger or acquisition, and thereby become one of the happy few in
the minority of transactions that actually add shareholder value, your team
will need to develop the skill of acquiring and integrating other corporate enti-
ties and organizations. This integration skill has been proven to be even more
important in transaction success than evaluating or negotiating the financial
details of a merger or acquisition.
Because of its significance for many strategists today, it is worth expanding
on this broad consolidation phenomenon a bit further to see in greater detail
how it is unfolding, and to understand better how it can best be managed.

Consolidation Across the Business World

Virtually every month a major merger or acquisition redefines the financial

services landscape, further consolidating the sector and creating ever larger
enterprises. Although it now seems like ancient history, only recently Citicorp
and Travelers, each with a market capitalization of around $80 billion,
merged as a step toward the creation of a financial juggernaut capable of
reaching a stated goal of serving a billion customers worldwide. On announc-
ing their merger, the value of their combined shares rose $30 billion, creating
shareholder value equal to the then full equity market capitalization of
 Principles of the New Paradigm 53

Merrill Lynch. In Europe, following years of growth through merger and

acquisition, the top five banks each now exceeds $400 billion in assets.
Consolidation is not confined to recent events, nor to the financial services
industry. When Henry Ford launched his automotive enterprise in Detroit,
there were more than 100 independent automobile manufacturers in
America. Many of these were new businesses started to take advantage of the
coming wave of horseless transportation. Floundering on the increasing costs
of competition, challenged by the increasing demands of technological evolu-
tion, or unable to survive the passing of the founding entrepreneurs, many
small companies gradually consolidated to become a few (and today increas-
ingly fewer) large ones. Technology, opportunity, cyclicality, globalization,
complexity, and a host of other factors drove a pattern of consolidation from
entrepreneurial fragmentation to world-scale concentration and massive
efficient scale.
The British automobile industry, once a pillar of the global industry, has no
more independent global scale vehicle manufacturers. The Rolls Royce and
Bentley marques are in the hands of BMW and Volkswagen. Jaguar and Aston
Martin are now part of Ford. British Leyland, itself an agglomeration of great
motoring names, was once swallowed, with some indigestion, by BMW.
Outside the United Kingdom, Saab and Volvo have seen part of their busi-
nesses absorbed by GM and Ford. Daimler-Benz, the parent corporation of
Mercedes-Benz, has merged with Chrysler and tried to integrate, albeit unsuc-
cessfully, with Mitsubishi. Renault and Nissan came together with a creative
and enormously successful approach to create more value from Nissan’s
troubled assets. Ferrari is part of Fiat, which in turn may one day be swal-
lowed up by GM, its large American shareholder. The long list of recent con-
solidations goes on at an accelerating pace, despite the difficulties with many
individual transactions.
The same trend toward consolidation is true for suppliers of automotive
components. The old approach to fragmented supply has long been rejected in
favor of larger and more consolidated supply systems. No longer do compa-
nies supply individual pieces of fabric for automotive interiors or ship seat
upholstery directly to giant automotive companies like Ford, Fiat, BMW, or
Mercedes-Benz. Now, suppliers contribute to a highly specified integrated
interior system, delivered to the customer for last-minute assembly as a single
package. The same is true for headlights and lighting systems, electronic and
electrical systems, shock absorbers and suspension systems.
The impact on the automotive suppliers of giant, consolidated vehicle
manufacturers has been striking. One Ford vice president summarized it when
he said, “We used to deal with 1,500 suppliers. Now we deal with 200. In the
future, we are aiming at 50 key suppliers only. Those companies which cannot
keep pace with these changing demands will not survive.”
54 STRATEGY
Different Visions, Same Result

There are different reasons for consolidation initiatives in different industrial

sectors, but the result is the same. Domestic consolidation of retail banks, for
example, accelerating through the 1970s and beyond, has been one major fac-
tor triggering the consolidation of global financial services today. Seventy per-
cent of banking acquisitions over $1 billion through most of the 1990s were
retail banks acquiring other retail banks. Half these transactions were in
the United States. Interestingly, all the cross-border deals over this time frame
were driven by non-US competitors attempting to create access to global
scale, something only American institutions can do on their own turf.
The reasons for consolidation have consistently been to reduce fixed
costs, increase distribution scale, eliminate duplication, increase cross-selling
opportunities (primarily in the retail and commercial sectors), provide a
larger customer base to amortize brand investment, and reap the benefits
of technology spending. The last two points will be even more important to
mid-size companies aspiring to a scale of operation where their investments
can be spread across a sufficiently large base to compete with the leaders
in their industry, leaders who may already surpass the trillion dollar asset
threshold.
Competing at this level will not come cheap. The information technology
spending of the top five banks over the last decade has reached nearly $20 billion.
Brand development is also expensive. Four US branded retail businesses
alone—American Express, Visa, Citicorp, and JP Morgan Chase—spend a
combined total exceeding $500 million a year just on advertising. It has been
estimated by industry experts that any retail mutual fund in the United States
needs to spend $50 million a year or more on media to make a meaningful
impact on the national market. The scale of operation necessary to compete at
this level is increasing all the time.

No End in Sight

Neither of the two major acquisition trends highlighted earlier, domestic

consolidation driven by the potential for cost reduction and the revenue-driven
combination of manufacturing and distribution assets, contain a natural
limitation on application.
Cost-driven consolidations are unlikely to stop at national borders. Next-
door markets and high-value customer segments will lure acquirers across
borders when the marginal return on attacking an adjacent market is higher
than the return on investment in further deals in the home market.
Eventually, regulators will limit acquisition-led growth within the
boundaries of a defined market for competitive reasons. This will push
 Principles of the New Paradigm 55

consolidating companies with a growth imperative into adjacent or remote

markets, and contribute to the accelerating pace of consolidation in those
markets as well.
The unrelenting waves of consolidation are particularly striking since, on
average, a merger or acquisition fails to create value for shareholders. The
acquisitions of Snapple by Quaker and NCR by AT&T were spectacular fail-
ures that cost shareholders billions of dollars. BMW and Daimler-Benz soon
ran into trouble with their overseas mergers, alliances and acquisitions with
British Leyland, Chrysler and Mitsubishi. Although there is a proven approach
to effective mergers and acquisitions, most companies, particularly those unfa-
miliar with the skills necessary to make mergers or acquisitions work, fail to
learn or apply best practices. The result is a destruction of shareholder value
in the majority of transactions and a very large group of disgruntled investors.
During 2002, according to Bloomberg News, the cost to shareholders of
failed transactions, as reflected in adjustments to the balance sheets of acquir-
ing companies, was $750 billion. This was the amount required to be written
off by changes in accounting rules in order to bring balance sheet values in
line with real market values following acquisition. As Bloomberg noted at the
time, this amount of write-off exceeded the GDP of the entire country of
Canada by 10 percent. An additional $200 billion may need to be written off
at a later date, bringing the balance sheet impact of failed American acquisi-
tions to nearly $1 trillion.
Shareholders are not the only group to be disappointed with the results of
merger and acquisition activity. In one study, 91 percent of CEOs who
had recently acquired a business were disappointed by the first year’s
results. Despite this dismal record, the consolidation wave rolls on, with
each year bringing ever-larger mergers creating ever-larger multinational and
domestic corporations.
Since there will be no apparent end in our business lifetime to the waves of
merger, acquisition and alliance which will continue to consolidate most of the
world’s industries, it is incumbent upon management teams to learn how to go
about joining the small elite who have established a successful track record in
this high-risk set of activities.
The successful “serial acquirers” like GE, the private equity companies like
Carlyle, KKR, Investcorp, and the Texas Pacific Group, the Hutchinson group
in Hong Kong, Diageo in the United Kingdom and Novartis in Switzerland
have built business empires on the back of successful transactions. Not all of
their transactions work out, but an informed approach which takes into account
the lessons they have learned and the approach they practice—including effec-
tive negotiation, pre-transaction organizational planning, swift and efficient
integration, rapid realization of synergy and operating benefits, a focus on
operations, and the pursuit of beneficial cultural change—will guide a less
experienced team to a successful result from their consolidation strategy.
56 STRATEGY
The Importance of a Systemic Perspective

Identifying and mastering all 11 of these paradigm principles creates a major

opportunity to create long term sustainable competitive advantage and
commensurate financial returns for a business.
All of these principles of the new paradigm are, at some level, observations
of repetitive and predictable patterns in dynamic systems. In order to under-
stand and benefit from insights in this area, it is essential to adopt a more
systemic view of our business world and build a greater capability to act effec-
tively on that view.
The value of a systemic perspective to drive to new levels of creative under-
standing and informed action provided the foundation for Peter Senge’s
famous Fifth Discipline. That discipline, of developing a learning organization
capable of effective systemic understanding and action, underpinned a new
and higher level approach to management and organizational behavior.
Organizations and individuals that have mastered the challenge of under-
standing and mastering complex systems have a real ability to influence the
content, direction, and momentum of those systems to their enduring advan-
tage. Systemic knowledge, according to Senge, requires different thought
processes, new paradigms of conceptualization (called “mental models”) and
new behaviors.
Like other intellectual disciplines, systemic mastery can be learned and
applied. The resulting mastery of complex systems and paradigm principles
can create enormous relative and absolute advantage for the knowledge-effec-
tive corporation.
In applying ourselves to this new model of systemic understanding, it may
be essential to open our minds further, even to rely on intuition and experience
without being able to explain each and every step in the process by which we
arrive at our thoughts and conclusions.
Some of the more advanced software packages now available attempt to
model out complex interconnectedness and simulate “soft factors” in complex
social and human behavioral systems, but none can capture the full range of
observation, assimilation, insight and implications for action like the human
brain. The holistic capabilities of the human mind may be better than any of its
inventions to master complex challenges. Our 100 billion cerebral neurons,
each one connected to hundreds of others in shifting patterns of interconnect-
edness, can sense, process, understand, feel, and generate thoughts and strate-
gies like no machine ever invented by man.
The implications for strategy of these 11 paradigm principles, and a more
systemic perspective, are extremely important and are built into the
STRATEGY program from the first diagnostic stage onward. Understanding
and managing these patterns as they are reflected in trends, influences, and
 Principles of the New Paradigm 57

dynamic events better than competitors will be a key success factor in the mar-
ketplace. It is through a deep understanding of the characteristics and conse-
quences of these dynamic principles, trends, systems, and influences that we
can best see what the future will look like. By developing an ability to act
today to anticipate the shape and nature of the markets of tommorrow, a busi-
ness can both see the future with greater clarity and understand the risks and
opportunities that are yet to come. That understanding, coupled with a mas-
tery of the required management capabilities, can contribute enormously to
capture insights and turn them into valuable actions in the implementation
phase of your own STRATEGY.
 CHAPTER 3

Setting Priorities, Rethinking Risk

In the process of setting and implementing STRATEGY, there is no discipline

more important than paying full attention to priorities. In the complex flows of
events and change that make up the new paradigm in which all businesses now
operate, it is absolutely essential to identify those select actions and invest-
ments that can truly differentiate your business from competitors, and focus
on those priorities with great energy. This will require a visibly greater focus
of resources of all kinds on a more limited set of goals and activities. This will
also mean cutting out non-priority activities entirely and reducing investment,
human and financial, in others.
The value of priorities is well captured by an unattributed story circulating
on the Internet. Adapted for the purposes of highlighting its application here,
the story goes as follows:

A business school Professor stood before his class. When the class began, word-
lessly he picked up a large empty jar and proceeded to fill it with pieces of rock.
He then asked the students if the jar was full. They agreed that it was.
Then the professor picked up a box of sand and poured it into the jar. Naturally,
the sand went into whatever spaces that had remained between the rocks and filled
them up.
“Now,” said the professor, “I want you to visualize this jar as a way to think
about your business priorities. The rocks are the really important things, those pri-
orities that can make a big difference in the future of your business. The sand is all
the little stuff that can get in the way, taking away space and opportunity for the
more important priorities.
If you only make room for the sand—small items which fill the space but do not
make the biggest impact on your overall goals—then there is no room for the bigger
items you really need to focus on. If you start your professional day with the small stuff,
you may end up by filling up your day with sand and never have room for the truly
important ideas and actions that can really create a big difference.”

58
 Setting Priorities, Rethinking Risk 59

It is essential to think through the relative impact of the choices you face and to
allocate resources only where they will have the greatest impact on results and
value. Strategy, in many ways, is simply the science and art of resource alloca-
tion between contending claims on scarce resources. Conscious decisions to set
priorities, reduce business risk, or capture business opportunity are taken on a
daily basis. The allocation of resources to specific initiatives on a clearly
differentiated basis is the implementation of priorities in action.

The 80/20 Rule

One of the best-known rules of microeconomic efficiency is the 80/20 rule.

This rule of Pareto efficiency states that 20 percent of any set of customers,
businesses, actions, products, or services will generate 80 percent of the bene-
fit. This rule is proven in virtually every industry and company around the
world. Most useful may be the observation that 20 percent of customers repre-
sent 80 percent of the profit of any enterprise. The value in understanding
customer profitability by segment, and in acting on that knowledge to attract
and retain more of the most profitable business, is enormous. In some cases
the ratio may be 30 : 70, or even 10 : 200, in which case 10 per cent of cus-
tomers make up 200 percent of profit, and many customers make negative con-
tributions to the overall result. In all cases, the rule of disproportionate
contribution holds true and can be acted upon to great competitive and financial
advantage.
By understanding the greatest sources of current and future profit, and
understanding how best to apply the levers of your business to address those
high priority areas, scarce resources can be deployed to yield the greatest
return for all stakeholders in the enterprise. By focusing those scarce corpo-
rate resources on the areas of investment which can yield disproportionately
high returns, you will be able to focus your entire business system on those
select initiatives which can make the greatest economic difference.

Setting Priorities

Like strategy itself, setting priorities is both a science and an art form, draw-
ing on all relevant sources of data, experience, intuition, and creativity to
decide what must be done to achieve the full potential of an enterprise.
A detailed description of a process of prioritization is set out below, with
appropriate forms and examples. A simple version of the final prioritization
matrix shows that the approach is fundamentally quite simple and merely
requires potential priorities to be arrayed on a 2 ⫻ 2 matrix which compares
the value of each initiative with the degree of difficulty, risk-adjusted,
expected in the implementation of that initiative.
60 STRATEGY
This matrix provides a simple visual summary of the relative value of a full
set of initiatives and allows a management team to see all potential actions at
the same time in a single value-added framework:

Prioritization 2x2 Matrix

High
implementation
Ease of

Low

Low High
Value of initiative

In essence, the relative value of each priority can be seen as a function of

the potential value of an initiative, adjusted by the degree of difficulty in exe-
cuting the initiative. A highly valuable initiative which is nearly impossible to
implement may be of less real value than an alternative of slightly less poten-
tial value which is far easier to implement. The first step in the process of
effective prioritization lies in valuing, as accurately as possible, each item on
a full list of potential initiatives. A second lies in assessing the ease of imple-
mentation of each initiative. By accurately assessing both, you will be able to
array for discussion with your group the risk adjusted value of each initiative,
and begin to make more informed resource allocation decisions between con-
tending options and claims on scarce strategic resources.

Preparation—A Practical Approach

One of the most effective exercises conducted in a STRATEGY program can

be a group approach to the review and setting of priorities. Following the
determination of a corporate vision and preparation by all attendees of their
own proposed set of initiatives which could contribute to the realization of the
vision, placement of an agreed set of priorities on the indicated 2 ⫻ 2 priori-
tization matrix in a group setting is an engaging, instructive, and often highly
motivating exercise.
As for all steps in the STRATEGY program, a simple approach is often the
best. Two flip charts, a thick black board marker and a pack of yellow 3M
Post-Its (or their equivalent) are all that are needed.
 Setting Priorities, Rethinking Risk 61

One large flip chart is prepared in advance with headings to capture pro-
posed initiatives written along the top of the columns. These column headings
should correspond to the highest value levers on profitability, performance,
and value for the business and can include cost reduction, organic growth,
mergers, acquisitions, divestitives, and organizational change programs. The
group can work together under the leadership of a single animateur or discus-
sion leader whose role it is to ensure that each initiative over a certain value is
raised, properly described in a few words on a Post-It and attached to the flip
chart under the appropriate heading. It is worth highlighting that the identifi-
cation and briefing of the best possible animateur, who may come from inside
or outside the company, is an important part of the preparation phase.
The other large flip chart is prepared in advance to set out a large empty
version of the above 2 ⫻ 2 matrix. This blank matrix can be stood in front of
the group next to the chart containing the longer list of initiatives.
Following the completion of the relevant list of initiatives and attachment
under the appropriate headings, the animateur must be prepared to take the
initiative Post-Its off the columns one by one and reattach them, guided by
group input, to the appropriate place on the 2 ⫻ 2 matrix. In advising on the
placement of each Post-It, the group should bear in mind all elements of value
and all issues relevant to implementation.
It is essential that participants are reminded that discussions at all times are
open, honest, and transparent. It should be noted that these sessions, which lead
to the allocation of resources, may become quite heated. The implications of
the prioritization exercise can be extremely important for individual careers and
corporate direction. Priority-setting sessions are always very lively, to say the
least. Some very big business decisions have been reached by a senior group’s
real-time determination of the appropriate location on the priority matrix of
small yellow Post-Its.
The full seven step process unfolds as follows:

Seven Steps of Effective Prioritization

Set the vision

List potential actions
Complete the matrix
Select priorities
Allocate resources
Clarify the choices
Implement the strategy
62 STRATEGY
Step 1: Set the Vision

Before setting out the list of potential strategic actions for a business, it is
necessary to agree what vision is being pursued. Without a clearly stated larger
goal, it is impossible to be sure that strategic priorities are going to align all
aspects of a business in the correct direction. To ensure that rational choices
are made, the ultimate end goal of the enterprise needs to be understood by all
participants in the priority-setting stage.

Step 2: List Potential Actions

Before imposing the discipline of a framework to identify the priorities in

a list of potential actions, it is useful to ensure that you have in fact listed all
of the ideas, actions, or potential opportunities which you wish to prioritize.
Although everyone should come prepared with his or her preferred list, setting
out a long list is best done in a group setting, with one idea or comment build-
ing upon another. The interaction between group members, facilitated by an
effective moderator, can draw out ideas from the individual and collective
experiences of the group, can stimulate more creative thinking, and can con-
tribute to the overall motivation and esprit de corps of a team.
In this discussion, there should be a non-critical atmosphere. One expert
moderator describes this as a “no such thing as a bad idea” forum. Evaluating,
criticizing, and eliminating the lower priority items can come later.
It may be useful to have a minimum threshold on the value of suggested
initiatives. The actual cutoff level will depend upon the size and nature of the
organization. The cutoff may be on initiatives which have a minimum poten-
tial annual impact on profit, NPV or market capitalization. The actual amount
will vary by business, and a cutoff could be $10 thousand, $10 million, or even
more. What matters is that you identify and act in a focused manner on the
most valuable initiatives which can lift your business to its highest possible
operating and strategic performance.
There are many frameworks which can lead to a comprehensive listing of
potential priorities. The 7C’s model is one such framework, allowing
your team to think through initiatives related to each element of the model.
A second is to elicit lists of ideas by department, geographic region, or
headquarters staff group. A third is to set out lists of potential initiatives
under the headings of the most powerful levers on profit and value or imper-
atives to create competitive advantage as described in Book Two. This is
the approach selected for inclusion in the basic model of STRATEGY.
The example below is selected from the full strategic presentation developed
 Setting Priorities, Rethinking Risk 63

in Book Two:

Priorities and Resource Allocation

Long list
Customer
Key Relative Brand Distribution Portfolio Cost
Levers: segmen-
market share values presence focus reduction
tation

Restore New ad Grow points Market Sell Perso Reduce

Potential
growth in campaign to of sale to 700 research to Leather overheads by
Action
core reinforce in third party identify key Goods 20% by year
Add sports brand retail customers Exit all end
range or Redesign/ Add 39 new Interactive property Outsource
Acquire evolve classic owned relationship holdings non critical
Sportius Richesse outlets program with Add service admin-
models customers and istrative
Relaunch Build
New restoration functions
ladies' range presence in Focus sales
approach to India effort division Merge plants
values / Consider C and D
Richesse
responsibility finance and
Collection roll
Repackage out insurance
product B (for watches
only)

Step 3: Complete the Matrix

Following the generation of the full list, individual items can be placed on the
2 ⫻ 2 matrix to reflect the relative attractiveness of each idea. The matrix cap-
tures the value of each initiative, measured in either annual profit or longer
term impact, along the bottom axis. This requires the group to have a rough
sense of the benefit and cost of each idea. The second axis, the vertical, esti-
mates how difficult it will be to implement each of the initiatives described.
The final matrix will both help to decide upon priorities and to make strate-
gic decisions which are based on a more scientific understanding of relative
risk-adjusted value of each proposed action, and a consideration of the appro-
priate strategic imperative for each quadrant in the matrix:

Priority Framework
Implied Imperatives
Low Hanging Fruit Key Initiatives

Low Value High Value

Easy to Implement Easy to Implement
High = =
Essential to pursue
Implementation

Be Selective
Ease of

Avoid Long Term

Low Value High Value

Low Hard to Implement Hard to Implement
= =
Avoid Be Selective

Low High
Value of Initiative
64 STRATEGY
Step 4: Select Priorities

Once the full list of potential priorities has been placed in the appropriate
positions on the matrix, there will in all likelihood be an excessively long list
of potential actions and investments. The final phase of setting priorities
requires you to decide how many of the proposed items you can pursue well,
and which items are better deferred or cancelled altogether.
The selection process will require the group to assess the limiting factors on
action. Funds for investment may be limited, or the organization may have only a
limited capacity for new programs due to the demands of running the daily oper-
ations of the business. Requirements or policies imposed by a parent company
may inhibit the actions possible. These elements of limitation need to be
considered individually and together to decide where to draw the line (literally)
on the priority matrix.
Usually, all high-value/easy to implement initiatives should be pursued as
the highest priority items. All low-value/difficult to implement items should be
avoided. The crunch quadrants are those which have high-value/difficult
to implement items and low-value/easy to implement items. In these two
quadrants, selection criteria need to be applied most sharply. Further analysis
and discussion may be necessary to decide on the finer differences in value to
make trade-offs between initiatives. In all cases the priorities selected must be
fully aligned with the overall vision and internally coherent as a set of actions.

The Line of Demarcation

A final priority matrix would look like the example below, which has also been
brought forward from the full STRATEGY example developed in Book Two.

Priorities and Resource Allocation

Selection Matrix

Low Hanging Fruit Key Initiatives

Sell Perso
Fix/grow
High Responsibility program
core business
Implementation

Launch ladies' range

Cut overhead
Ease of

IPO Launch sports range Status Quo

Avoid Long Term

Establish service Focus
Build in India Buy Sportius division
Low
Repackage product B Grow in emerging markets
Fix Perso Merge plants C and D Breakthrough

Low High
Value of Initiative
 Setting Priorities, Rethinking Risk 65

The line separating priorities and non-priorities has been drawn based upon
the overall strategic option selected, which is informed by all relevant factors
on available resources. Drawing this line is a mix of art and science, with input
from a range of sources, including finance and HR. These lines, technically
known as indifference curves, reflect an equal value for each initiative which falls
on the line itself. The further to the right and the higher up on the matrix, the
more valuable the item. All items above and to the right of an option line would
be selected for inclusion in the strategy if the indicated option is chosen.

Step 5: Allocate Resources

Acting differentially upon priorities and allocating resources in line with

the agreed priority list are essential parts of the process of realizing full value
from a STRATEGY exercise. Having completed the matrix of priorities, man-
agers can allocate resources as appropriate between those selected initiatives
which are high priorities, and can avoid funding activities which are low yield,
and should perhaps even be discontinued. Even within the selected list of pri-
orities there may need to be further analysis of resources required, based upon
a comparison of the needs and benefits of each item.

Step 6: Clarify the Choices

Failure to differentiate in action between selected priorities and non-priority

items will significantly reduce the impact of your investments and the value of
your overall strategic effort.
Perhaps the best way to lock in the value of your thinking is to set out very
specifically on a separate three-column chart those actions, programs or
initiatives which your organization will start, those which should be stopped,
and those which should be continued. A chart of this type, which can be com-
municated throughout a business, is included in the example provided in Book
Two.

Step 7: Implement the Strategy

This focus on priorities will enable you to exert the maximum force on the
must powerful levels of change, avoid a diffusion of effort and maximize the
impact of your choices on business profit and value. But only by fully imple-
menting a plan of action to realise the value identified, based on the selected
priorities, can you create satisfactory results and realise your overall vision.
66 STRATEGY
All aspects of STRATEGY, including the process of priority setting, need
to lead to full implementation and the creation of measurable results in order
to justify the effort invested.

Risk and Opportunity

In some cases, the high-level approach to priorities set out above will require
even greater rigor in selecting between contending claims on resources. In par-
ticular, there may be specific risks and opportunities which would benefit from
deeper analysis and understanding for review before setting out a final list of
priorities leading to action.
In this case, it is essential to clarify further the individual elements of risk
and opportunity to achieve full clarity on overall priorities. These definitions
can provide insights to guide the allocation of resources to the correct set of
priorities. The unbundling of the concepts of risk and opportunity into four
specific elements that can be weighed and analyzed gives us the ability to
make a more scientific, and hence more informed, choice between dissimilar
initiatives. This could help to clarify tradeoffs between such different choices
as launching a new product family, shoring up a distribution system against a
new competitive threat, or investing in a new technology. There is a definite
utilitarian flavor to this application of a more quantified approach to the
assessment of business priorities, and that practical approach can improve the
quality of overall decision-making enormously.

Rethinking the Elements of Risk and Opportunity

It is essential for good strategy, and certainly for breakthrough strategy, to

capture and process the content of high level systemic thinking and the detailed
content of the constituent elements of risk and opportunity. Both require an
ability to clarify the essence of what is going on, and employ that knowledge
to the development of better strategic thinking and more informed action.
A more refined approach to risk management should not be seen to be the
province solely of large corporations. All businesses, regardless of size, need
to consider risk management as an essential part of strategy.
In addition to clarifying priorities, full risk analysis—environmental, strate-
gic, and financial—can identify even further areas for immediate beneficial
action.

The Net Risk Calculus

The quantification of any type of risk can be described as a function of four

interrelated variables. The quantum of actual total risk can most simply and
 Setting Priorities, Rethinking Risk 67

accurately be described in a single formula:

The Net Risk Calculus

The scale of the potential harm adjusted by

The likelihood of that harm occurring net of
The capability to respond adjusted by
The probability of that response being deployed
effectively

The result of the application of the two halves of the equation—risk and
response—will yield a net risk calculus that can be used to evaluate business
risk and set priorities on a more informed basis.

Scale of potential harm. The scale of potential harm can range from the over-
whelming to the negligible. At the upper end of the scale are true cataclysms
and tragedies: deep global economic recessions, bankruptcies or loss of key
suppliers or customers, theft of essential business property, major staff defec-
tions, ethical or stock market regulatory violations, industrial accidents or
environmental problems of a major scale related to the operations, past or
present, of a business. At the lower end of the scale of potential harm are
events of less negative impact. Examples would include lower economic
growth, single staff member resignations, delay in product launch, loss of a
limited number of customers, or events with a lesser impact on operating
results or firm value.

Likelihood of occurrence. This scale of potential harm will need to be

adjusted for the likelihood of that risk actually occurring to lead to an accurate
risk calculus. Where precise risk analysis is available, likelihood of occurrence
can be expressed as a percentage, and sometimes even to a decimal fraction of
a percentage. In the financial world, for example, components of risk proba-
bilities in some derivative instruments are very carefully disaggregated, ana-
lyzed, weighted, and then reintegrated into a single risk coefficient that
captures issuer risk, interest-rate risk, market risk, currency risk, counterparty
risk, and other risk elements. In the absence of such refined (and expensive)
analysis, cruder scales of probability, with broad categories of high, medium,
and low, can act as reasonable surrogates for quantitative analysis of the like-
lihood of certain events transpiring.
The probability of harm occurring may be difficult to pinpoint in areas
where there is no easy reference table or formula to set an accurate percentage
on the probability of occurrence of a particular event or series of events.
68 STRATEGY
History and a detailed analysis of past and present data trends, which could
influence the realization of the risk event, are often useful proxies for a
more precise predictor. The combination of the two elements, scale of
potential harm and likelihood of occurrence, will yield a result that is signifi-
cant in its own right and can also serve as a key input to comparative risk
analysis.
It is obvious that an event of potentially great harm with a high likelihood of
occurrence poses a greater threat than an event of little potential harm with a
low likelihood of occurrence. Similarly, it is obviously easier to make compar-
isons within a single system or between similar systems than across dissimilar
systems. For example, the potential harm, risk-adjusted, of a major natural dis-
aster or client bankruptcy is difficult to assess relative to the risk of a new prod-
uct failure. While more difficult to analyze than a comparison of two client
credit risks, it is important to value and respond to both on an informed basis.
Cross-category comparative risk equations are complex and may well be
less than perfect, but they can provide a broad guideline for assessment of pri-
orities and can guide decisions on preventive investment or responsive action
where appropriate.

Capability to respond. The second half of the risk calculus is the capability to
respond to business risk once realized, adjusted by the probability of that
capability being deployed. Response can be defined as actions taken to con-
fine or limit the damage caused to business value, or as a capability to repair
the full financial damage caused by a realized risk event once it transpires.
The calculation of capability to respond to risk is most accurate where there
is a proven and documented track record of success or failure in responding to
different events. Tests or drills performed in the real world are second best.
Intelligent computer simulations may also be valuable. Rough assessments of
capability are of the lowest precision, but may be the only available input on
response capabilities. In some cases, a range of outcomes based on different
assumptions may be the only realistic product of the diagnostic effort.
Response capability may need to be specified by stage in the unfolding of a
particular risk event. For example, the consolidation of competitors through
mergers can trigger a sequenced program with differing responses along the
way. It is possible, for example, that the best response to a competitive merger
is to attack the customers of the combined enterprise with better product and
service offers while the two businesses are preoccupied with the merger, and
client concerns are not fully addressed. Simultaneously, you may hire an exec-
utive search expert to surface the star performers in either company who are
likely to move for one reason or another, and open discussions with selected
individuals. At a later date, you may even want to launch your own merger
or acquisition initiative, even including the newly merged entity as and
when it (probably) encounters difficulties in its own integration and
 Setting Priorities, Rethinking Risk 69

development programs. Each of these responses requires a different capability

and thus reflects a different probability of success.

Probability of capability being effectively deployed. The probability of the

response capability being deployed effectively, and on a timely basis, is the
fourth and final element in the net risk calculation. Powerful fire engines and
sophisticated firehoses are of little value if trucks remain parked in the station
house or cut off from a supply of water. Excessive delay in deploying
resources can also reduce the impact and results of response initiatives.
Delayed deployment may be equally as damaging as non-deployment of
resources in a time-sensitive situation. If corporate firemen are delayed at the
start or on their way to a fire scene, they may only find a smoldering ruin upon
arrival. This would be true of delayed response to a competitor’s new product
launch, pricing change, advertising blitz, acquisition bid or other similar
urgent demand.
The total response capability is thus a combination of two main elements:
the actual capability to respond to the realized risk event and the probability
of effective deployment of that capability.

Net risk assessment. By combining all four of these elements, a calculation of

real net risk can be assessed. Net risk assessments in different business situa-
tions will vary as a result of different inputs on scale of potential harm, prob-
ability of that harm occurring, ability to respond, and probability of effective
deployment of that capability. A more quantified understanding of risk will be
critical for decisions on strategic resource allocation, deployment planning,
and on other investments related to risk management.

Risk Compounded

One new and particularly troubling risk in the new paradigm is the risk of
a compounded effect at the points of intersection and interaction of interde-
pendent systems. This could increase the potential for damage on an exponen-
tial basis. An example of this compounding of risk is the interconnection of the
computer web with business operations and the global capital system. A catas-
trophe in one area can now easily spill over directly and immediately into
another. A virus or a catastrophic computer failure could have a major impact
on the capital markets or on vulnerable business operating and control systems.
Just as old-fashioned power shortages would have a direct negative impact
on dependent factory operations or hospital operating theaters, a computer
virus can now attack the central nervous system of factories, hospitals, and
emergency mobile dispatch systems. A single virus can trigger catastrophes
at thousands of new points of contact and intersection. The relevance of
70 STRATEGY
catastrophe and chaos theory is plain to see, since the complex dynamic nature
of any one system can mean that a small change elsewhere in just one element
can trigger a catastrophe and cause dramatic change elsewhere on an appar-
ently discontinuous basis.
Management and reduction of the potential for these compounding risks to
have a major impact on your business needs to be considered. Physical, data,
and commercial assets need to be reviewed for vulnerability to these kinds of
compounded risks. A more complex view of risk, and the need to identify pri-
ority opportunities for risk reduction, cannot be forgotten in the search for the
most effective STRATEGY.
The output of a more sophisticated analysis of risk and opportunity will
help to set priorities and will supply content for the risk management step in
your STRATEGY program set out in Book Two.

The Opportunity Calculus

A full understanding of business opportunity starts by unbundling and evaluat-

ing the constituent elements in a business opportunity in a parallel fashion to
the understanding of risk set out above. The actual content of an opportunity
can also be divided into four interdependent parts. The first two—value of the
opportunity and likelihood of it arising—make up the content and potential
scale of the opportunity. The last two—capability to capture the opportunity and
probability of effective deployment of that capability—operate to assess how
likely it is that the potential opportunity can be realized. The combination of
the two yields a net opportunity calculus which defines precisely the value of
a potential opportunity and allows it to be compared to other opportunities
(and to net risk assessments).
The net opportunity calculus thus emerges from an assessment of four
variables similar in structure to a risk assessment. Net opportunity can be
calculated as:

The Net Opportunity Calculus

The value of the opportunity adjusted by

The likelihood of that opportunity arising net of
The capability to capture the opportunity adjusted by
The probability of that capability being deployed
effectively

Value of opportunity. The value of the opportunity captures the full value of
the potential business opportunity, regardless of the likelihood of occurrence.
 Setting Priorities, Rethinking Risk 71

Opportunity may be presented through external developments, such as the

emergence of a new technology, or created by deliberate action, such as estab-
lishing a direct sales force. Some opportunities are straightforward positive ini-
tiatives, for example acquiring a profitable customer, developing a new
strategic alliance, or rolling out a new business model. These will have a spe-
cific quantifiable value. Other types of opportunities can be categorized as
offsets to risk, such as efforts to retain valuable customers or increase invest-
ment in programs of corporate social responsibility. Other opportunities may
allow individuals or organizations to build capabilities to respond to risk or
to capture opportunity. To each a specific value can be attached.

Likelihood of opportunity arising. As for risk, the value of the full opportunity
needs to be adjusted for the likelihood of the potential opportunity actually
arising. The adjusted real value of the opportunity may change the perceived
value quite dramatically. A highly attractive opportunity with a low likelihood
of occurrence may be less valuable than a lesser opportunity with a higher
likelihood of occurrence. Winning the national lottery may be, in the end, a
less valuable (probability adjusted) opportunity than a lesser, but more likely,
prize.
A combination of scale and likelihood yields an initial assessment of the
adjusted value of the opportunity. But that value cannot exist in a vacuum. The
adjusted value of the opportunity on a stand-alone basis needs to be further
clarified by assessing the capability to seize the opportunity and the probabil-
ity of that capability actually being deployed.

Capability to capture opportunity. Many opportunities of apparently high

value have, in the real world, a nil value due to an individual’s or an organi-
zation’s inability to convert the potential opportunity into actual results. A gap
in the market is of no value to a company without the marketing or distribu-
tion skills to fill it. Synergies between two companies may never be realized
if neither has the funds nor the management resources to make the acquisition
or integrate the two businesses effectively. Major investment opportunities
or other initiatives may not be captured if an organization lacks resources or
other requisite capabilities to capture the available opportunity.
Many shortfalls in capability can be addressed directly. Investments in
capability building are always a key part of successful strategy in a more
people- and capability-dependent world. These investments in capability
enhancement can be best targeted through the use of a more detailed defini-
tion of risk, opportunity, and the capability element in both.

Probability of capability being deployed. Even the most capable of organiza-

tions and individuals will not be able to capture opportunities if the capability
72 STRATEGY
is, voluntarily or involuntarily, not deployed. For reasons of prioritization,
regulation, distraction, or limitation, attractive business opportunities may be
entirely passed over due to constraint or inertia. The entire net opportunity cal-
culus, and the real value of the opportunity to your business, is then reduced
to zero and the opportunity not worth pursuing.
This overall zero value inevitably results if there is a zero at any one of the
four elements of either risk or opportunity.

Net opportunity calculus. The four elements of opportunity combine to

create a single net opportunity assessment that sums up the fully
adjusted value of the opportunity. Based on this calculus, relative values
and priorities can be set among opportunities contending for the allocation
of scarce financial and human resources in your business. In addition, com-
parative values can be set on fully analyzed net risks and net opportunities to
target investment polices and programs on the elements of each.
This calculation can play a critical role in setting priorities. By understanding
better the value of opportunities, a management team will be for more capa-
ble of placing initiatives accurately on the priority matrix, and far more likely
to select those of highest value and impact for implementation.

A Broader Scientific View

It is not only a more scientific definition and calculation of risk and opportu-
nity that can give greater precision to strategy. The principles of dynamic sys-
tems also underlie a more evolved approach to the development and
implementation of the most insightful strategy. If change is desired to be made
across a large organization characterized more by inertia or misaligned efforts
than momentum in the right direction, managers must take into account the
amount of energy required to get the whole system moving in the right direc-
tion at the right speed. Similarly, if a business is way off track, its leaders will
need to invest a sufficiently large quantum of energy—human, financial, and
operational—for a sufficient period of time to get the business back on the cor-
rect pathway and moving forward at an acceptable rate.
Newtonian principles which require a pre-determined amount of energy to
be applied in a particular direction to move a dynamic system from its current
position or trajectory need to be understood and applied. Organizational resist-
ance needs to be reduced to maximize efficiency. The amount of effort and
energy required for any meaningful change may be enormous, and any resist-
ance will make systemic change even more difficult and costly to achieve.
Scientific principles also apply in business relating to the value of focus, the
need to prioritize, and the need to make sufficient investment to overcome a
 Setting Priorities, Rethinking Risk 73

particular obstacle or achieve a certain objective. The implications for busi-

ness management to reduce resistance, focus forces, and avoid scattered,
contrary, or misaligned efforts are clear.
It is essential, in a world of scarce supply and infinite demand for critical
resources, that resource allocation decisions be made on the basis of clear
priorities. By allowing priorities to determine resource allocation, the impact
of investment and action should be as rational, as effective, and as efficient
as possible.
 CHAPTER 4

Mastering the Growth Challenge

In today’s markets, mastering the growth challenge is one of the highest

priority elements in most strategies. Quarterly reports of publicly listed com-
panies are monitored and scrutinized in minute detail by equity analysts and
investors alike to ascertain growth data and attach the appropriate growth (or
ex-growth) multiple to current and forecast earnings. Small deviations from
expected growth targets, even if substantially above past performance, can
have a catastrophic impact on share price and the careers of those involved in
the companies falling short of expectation.
Although the pressures on business leaders to achieve profitable growth targets
may be more acutely felt today than in the past, the underlying issues are not new.
In fact, the challenge of sustaining a profitable growth track has been an
extremely difficult task for many decades. The companies which have achieved
a long and consistent level of growth and profitability are few and far between.
A recent spate of books and papers in learned journals have well docu-
mented the difficulty in achieving profitable growth, or even in just sustaining
profitability, on a continuing basis. Adrian Slywotzky, author of How To Grow
When Markets Don’t, points out that only 7 percent of US public companies
achieved eight or more years of growth in revenue and operating profits in
excess of 10 percent.
Chris Zook, in a book entitled Profit from the Core, cites a similarly grim
set of relevant findings. He concludes that less than one in five public compa-
nies was able to increase both revenue and profits at an average real rate
exceeding 5.5 percent.

Bridging the Growth Gap

These two intelligent authors have set out specific prescriptions to bridge the
growth gap, which are clearer and more proven in application than most other
prior strategic monographs. Many of the better known academics and man-
agement gurus have identified the same issue, but have discussed an approach

74
 Mastering the Growth Challenge 75

to growth strategy in such a way that their growth prescriptions may be

difficult to understand, and even more difficult to translate into effective action
in a real marketplace. This is particularly true where the company seeking
growth is small to medium in size.
In order to provide a simple but useful framework for growth, it is essential
to review the foundation elements of corporate operation and business defini-
tion. It is then possible to transform that understanding into a solid platform
for growth. There is no alchemy involved. The approach is very simply driven
by developing a firm understanding of all elements of your business model,
and then using that understanding to identify growth opportunities which can
reasonably be built on that existing foundation.
Perhaps the best model for the generation of growth opportunities in a sys-
tematic and rational manner is the 7C’s model of business definition and
strategic analysis. In its first incarnation, the 7C’s model enabled managers to
understand better what businesses they were in, assess the prospects for each,
and pursue strategic excellence in selected areas of the model’s application. In
this second incarnation, as a framework for growth, the 7C’s model can pro-
vide a valuable checklist of areas related to your current business system to
consider for growth on a priority basis.
Growth initiatives are always risky, but by anchoring each new initiative to an
existing element of your business, the risk is reduced considerably. By staying
close to your existing business, not only are you more likely to be operating in
an area of shared costs or known capabilities, the requisite intellectual capital to
grow in the area should be, at least in part, already resident in your organization.

The 7C’s Growth Framework

The 7C’s + Creativity Framework

Customers
External sources Internal sources
of growth of growth

Competitors Costs

Channels Capabilities

Context Capital

Creativity
76 STRATEGY
The well-established 7C’s model is here augmented by a reminder that all
growth initiatives cannot ignore the fundamental value of creativity as applied
to all other elements of the model. A creative attitude and approach must be
encouraged at all phases of the effort. Results continue to be important, as is
a process of prioritization of growth ideas generated. But managers seeking
growth should remind their colleagues of the importance of unfettered cre-
ativity as well as disciplined analysis. This understanding has led to Creativity
being added as an eighth element that, like customers, spans both internal and
external sources of growth opportunities.
It is essential to remind ourselves as well that growth strategy cannot just
be pursued formulaically. Frameworks and checklists are tools to stimulate
thought, capture the benefit of past knowledge, and focus the discussions on
the creation of a better future. Yet none of these mechanical approaches, by
itself, will lead to the real breakthrough insights you need to distance your
organization from its competitors.
For truly great strategies to emerge, you must apply the element of creativity
to each of the other elements of the growth framework and allow a full array
of thoughts to be presented in the discussions. Confining your efforts solely to
the prescribed framework would place an artificial limitation on the free
thought process, which can only reduce the value of your efforts.
Some observations on the 7C’s growth framework point out how each
element can provide a source of ideas and act as a stimulus for growth.
Customers. Academic research confirms that over 80 percent of organiza-
tional learning takes place at the customer interface. Understanding fully what
customers want and need, now and in the future, is a great source of growth
initiatives. By definition, your current customers already represent opportuni-
ties to share a high proportion of your existing business system’s costs, chan-
nels, capabilities, and capital use. As such, they represent the best source of
low risk and profitable growth to your business. Starting with a fully under-
stood model of sales by segment, coupled with an analysis of profitability by
customer and by customer segment, is the most effective initial approach to
growth for most companies.
Segmentation of the customer base into actionable groupings is often the
key step in developing a successful organic growth strategy. By dividing cus-
tomers into definably different groups with different wants, needs, and pur-
chasing behaviors, you can set out a differentiated program of products and
services—and combinations of the two—to serve them better. By looking
beyond established definitions and traditions, and taking a segment-specific
customer perspective, you may well surface large opportunities in which to
sell more products and services both new and old. The airline business, with
its evolving variations on economy, business and first-class accommodation
on the same aircraft is but one industry where segment-specific strategies to
drive growth and profitability are clear for all to see.
 Mastering the Growth Challenge 77

Other academic and professional research has indicated that existing

customers are more likely to buy another product or service from an existing
supplier than a cold-called non-customer who may well be fully satisfied with
his or her existing arrangements. In fact, according to experience in the finan-
cial services sector, your best current customer is your best potential customer.
Analysis of a leading UK bank’s customers showed that those customers who
had purchased more than seven products or services from the bank had a
75 percent chance of purchasing further products and services—four times the
likelihood of less penetrated customers in the same bank.
Retaining and building on valuable customer relations as a source of growth
is a logical first step in seeking the most promising growth opportunities for
your enterprise.

Costs. Finding opportunities to build on existing investments and cost bases is

one of the highest yield areas for growth initiatives. The greater the degree of
cost sharing between an existing product or service and the proposed growth
initiative, the greater the chances of achieving profitability in the area. The rel-
evant knowledge base and organizational capability are already present to some
degree, and expensive new experimental efforts in these areas can be avoided.
Incremental costs to research, design, manufacture, distribute and market prod-
ucts and services are all lower, and carry less risk cost as well. It is obvious that
the pursuit of the women’s razor market is far more likely to succeed for a
men’s razor manufacturer than a diversification into ethical pharmaceuticals or
other foreign product category for that same company.

Channels. Particularly for the media sector, automotive companies, fast-

moving consumer goods, financial services, and other businesses where the
product or service provider may not own or control the distribution channel,
the role of distribution and access to customers through effective channels is
a key element in strategy. It also presents a key opportunity for growth.
Related in part to cost sharing, the ability to build upon expertise, presence,
and relationships across various channels, traditional and new, can be a criti-
cal factor in any growth strategy.
For high-volume transactional businesses, such as consumer banking, chan-
nel strategies can offer opportunities to improve service, promote growth, and
reduce costs. The rapid change in bank infrastructure to include ATMs, kiosks,
on-line banking services, premium banking facilities, banks in stores, alliance
ventures, points and membership rewards program partnerships, international
networks, credit and charge cards with increasing functionality, and dedicated
personal banking representatives and services all reflect the value of differen-
tiated channel strategies in attracting, keeping, and penetrating selected cus-
tomer segments better than competitors.
For a large capital goods manufacturer, the delivery or distribution channel
may be less important than the ability to sell effectively, work on site or deliver
78 STRATEGY
on time and to specification, but for many businesses the channel is king in
getting to target customers on a timely and cost-effective basis.
Often, certain channels are associated with different customer segments and
will have radically different volume and profit characteristics. In generating a
list of potential areas for growth investment, channels and customer segments
may go hand in hand to provide exciting growth opportunities for your business.
Capabilities. In an era where people lie more and more at the heart of strategy,
especially in the service sector, the abilities of a team or group within a business
may provide unexplored and unexploited growth opportunities. An expert trader
in coffee may have a team capable of trading cocoa or sugar as well. The same
team may be able to spot opportunities to participate more directly in the value-
added chain and fill gaps left open by other, less insightful competitors in the
commodities arena. A manufacturer of oil rigs may be able to move into rig
operating leases and platform repair. Sports shoe companies long ago spotted
the opportunities that were available in the adjacent sports and casual apparel
market and made billions of dollars of sales around the world as a result.
Competitors. By examining what your competitors have done and will do to
exploit their own growth opportunities may provide valuable insight into
opportunities for your own growth initiatives and in-market strategy. No one
company has a lock on creativity and effective strategy. By extracting the ben-
efits of your competitors’ intellectual capital, you may well be able to avoid
their mistakes and profit from their successes. Each company is different, and
the insights on competitor actions and intentions always need to be filtered
through an understanding of your own business model, but a thorough watch
on competitor activity may yield surprising dividends.
Context. In some businesses a license, patent regime, special relationship,
regulatory regime, or unique role in an industry may contribute to the genera-
tion of profitable growth opportunities. Microsoft is the master at developing
additional products and services to add on to its strength in operating systems
in the PC world. In many emerging markets, access to decision-makers and an
ability to obtain operating licenses may open doors to similar opportunities in
diverse sectors.
Capital. In some cases, your balance sheet or capital structure can create
opportunities for profitable income growth. GE has built a successful financial
operation from its original business in financing the white goods purchases of
its customers. Originally profiting from the difference between the corpora-
tion’s lower cost of capital and the high market rate for consumer finance, GE
Capital now reaches into credit card operations on a global scale and embraces
debt portfolios acquired in many attractive markets.
For some car manufacturing companies, 100 percent, or even more, of the
value in the sale of an automobile may be made in the service agreement or
 Mastering the Growth Challenge 79

finance package for the vehicle purchased. Opportunities such as these to

build on a strong balance sheet may be a creative way to stimulate profitable
growth in your own business.

Constant Attention to Opportunity and Creativity

For many companies, growth planning is an annual event. Yet markets, cus-
tomers and competitors are acting and evolving every day of the year. By
building a culture which is constantly attuned to receiving and acting upon
signals of growth opportunity, your business will be able to generate ideas
ahead of competitors, act more swiftly to deliver more value to customers,
motivate teams through a shared pride in superior performance, and capture
the benefits of that capability for your stakeholders.
Seeking out and exploiting growth opportunities between planning cycles is
one of the most important areas of competitive advantage, and an important
element of winning strategy for a fast and flexible company.

Understanding and Exploiting Discontinuity

Much of success in an unpredictable situation revolves around reacting faster

than competitors to exploit or adapt to changes in the environment. New tech-
nologies, new channels, and new regulations all create commercial opportuni-
ties for the fleet of foot. Yet for the truly gifted forward-thinking company, the
apparently unpredictable event or environmental change may in fact be
entirely predictable and subject to informed action even before the disconti-
nuity or nonlinear change emerges. One expert claims that major “unex-
pected” nonlinear changes are often predicted by better infomed competitors
by for as much as 5 years in advance of the change actually occurring!
What may appear to be a discontinuity from a two-dimensional or other
simplified perspective may in fact be an entirely predictable and understand-
able event or set of changes when viewed from a more complex, and more
accurate, perspective. A more comprehensive view can give a three-dimen-
sional (or even more) view of the behavior of a defined business system and
its interacting variables. This ability to predict upcoming changes in the busi-
ness or its environment is one of the reasons why the diagnostic phase of STRAT-
EGY addresses the same business from so many different perspectives.
Understanding the nature of apparently unpredictable discontinuities may be
best pursued through the application of catastrophe theory. Although the most
advanced versions of the theory are complex and obtuse for most senior execu-
tives, the basics are simple and can serve to describe why the apparently unex-
plainable may be far more easily predicted and acted upon than one might think.
80 STRATEGY
The theory works as follows to describe why there are large and abrupt
changes in a given system. When we look at a moving point as it moves
through space from a three-dimensional perspective, the moving point estab-
lishes a line that moves understandably in three dimensions, as if following the
contours of a piece of rumpled or folded cloth. The line moves up, down,
under, over and along the surface shapes created by the three-dimensional
folds of a piece of cloth. However, when viewed only from a top-down per-
spective in two dimensions, the line “disappears” as it moves into a fold in the
cloth or along the underside of a piece of the fabric and then “reappears”
somewhere else in an apparently random pattern of movement. This appar-
ently unpredictable shift in the pattern of seemingly stable events is known as
a nonlinear, discontinuous or “catastrophic” event.
While not predictable and discontinuous from a limited top-down perspec-
tive, the real complete flow of the line—which can represent the evolution of
a customer segment as seen from a multiple-variable perspective, or the devel-
opment of a new technology or delivery channel—can be easily understood in
its full complexity, and its moves clearly forecast, if a multi-dimensional per-
spective is taken. This more perceptive and comprehensive view can inform
and trigger action well ahead of less intellectually agile competitors.
Adding dimensions of time, speed, and future influences on direction can
indeed prepare you to move in anticipation of what were once unpredictable
changes, and are now clear opportunities to create competitive advantage and
superior business results.
By taking a fuller view of your business, STRATEGY allows you to see
how it is developing from multiple perspectives. By combining the separate
perspectives into an integrated view, you may well be able to spot upcoming
changes of a very fundamental nature—and profit enormously from your
insight.
CHAPTER 5

Integrating Strategy and

Responsibility

A pure focus on profit, looking forward, will no longer be enough to satisfy

the demands of the wider range of constituencies already affecting businesses.
A rising trend of scrutiny of non-financial performance will provide both risk
and opportunity and will need to be firmly embedded in your STRATEGY
approach. A broader notion of what a corporation is and a thoughtful program
to pursue its broader objectives could respond to the need to address issues of
social concern, broaden the definition of success, and protect and grow the
economic value of your firm.
Corporate governance, improved communication, and a more active role in
the area of corporate social responsibility need addressing thoughtfully and on
a timely basis if the full value of a business is not to be reduced. For many
years, business has been losing its position as a respected and admired mem-
ber in most communities, global and local alike. In a 2004 survey, business-
men were ranked in respect by the general public in the bottom quartile of
professions, just one percentage point above used car salesmen.
Corporate scandals, corruption, mismanagement, wave after wave of layoffs,
job insecurity, massive salary and bonus packages for executives, a growing
gap between the compensation packages of senior executives and factory floor
workers, an increasing awareness of business-associated product risk, envi-
ronmental damage, and a lack of customer care by ever larger consolidated
entities have all contributed to the sharp drop in esteem for business and busi-
nessmen. Failing to understand or to act on that understanding can only
deepen the impact of the costly catastrophe that may result from prolonged
ignorance or indifference to this problem.
Preserving and growing corporate value will require an approach which
continues to pursue profit and competitive advantage, but which also sets and
measures performance against other indicators as well. In fact, there is noth-
ing inherent in a broader notion of corporate responsibility which requires a
business to reduce its profit targets or to sacrifice practices which can sharpen
the edge of its commercial capabilities.

81
82 STRATEGY
Companies with a more enlightened approach to overall purpose and vision
may actually improve their profitability and value through strengthened
brands, a better community reputation, a more motivated business organiza-
tion and an ability to attract and keep better people. All of these benefits can
add to a company’s bottom line while improving its comportment in the areas
of engagement and responsibility.
By adopting a more enlightened attitude toward corporate responsibility, and
by seeing it as a core element of strategy rather than as an isolated set of public
relations activities, forward-thinking leaders can create opportunities to motivate
staff, give a greater purpose to the enterprise, and create a new network of bene-
ficial relationships outside the walls of the corporation as once defined. Since the
era of truly responsible strategy is just dawning, there is much room still to inno-
vate, to experiment and to create something new and special for the future.
John G. Ruggie—once a political scientist at Columbia University, later
United Nations assistant secretary general and chief advisor for strategic plan-
ning to Kofi Annan—once investigated the historical reasons for the end of
past periods of great prosperity to extract the lessons for the current economic
era. His conclusions were surprising. The current system, he maintains, is
“unsustainable,” and for capitalist prosperity to survive, “it must be embedded
in broader social concerns.” Failure to address issues in a broader context may
lead to difficulties at a macro level, but can also create significant risk for an
individual enterprise as well.
Although recent textbooks on corporate governance, responsibility, and
values list many more subcategories within the overall notion of responsibil-
ity, a common list of seven areas for consideration covers most of the areas of
concern which need to be addressed by a management team.

Seven Core Elements of Corporate

Responsibility

Workplace
Business system
Reporting
Governance
Customer rights
Environment
Community

The individual elements of greater corporate responsibility can be developed

separately, but ultimately all rest on a common platform of corporate values and
initiatives. Both should be explicitly included in your STRATEGY. These areas
of responsibility are both internal (workplace, business system, reporting and
 Integrating Strategy and Responsibility 83

governance) and external (customers, environment and community). Both inter-

nal and external areas of responsibility need to be addressed in order to ensure
that your strategy has fully and properly dealt with one of the most significant,
and growing, areas requiring top-level management attention.
Workplace. Ensuring that a company has as a clean, safe, and fair working
environment for employees is one of the most basic aspects of corporate
responsibility. Safety, diversity, lack of sexual, religious, or racial discrimina-
tion, and other programs that will ensure a proper workplace are all necessary
elements of a thoroughly designed strategy.
Business system. In a world where business processes are increasingly
outsourced and relations between different organizations becoming deeper
and more complex, the notion of responsibility is being extended to all of
those businesses which directly touch another. Partners, franchisees, suppliers,
and other participants in a business system in breach of acceptable standards
of responsibility can call into question the ethics and standards of all compa-
nies using their products or services.
Even customers of private banks must now be scrutinized in great detail
by the bank staff to ensure that they do not bring to the bank any funds
from criminal, money laundering, or terrorist activities. Suppliers as well as
customers are subject to scrutiny as the responsibility of the buyer of their
goods or services is now seen to extend back up the value chain. It is no longer
acceptable to claim that a cosmetic product has not been tested on animals if
suppliers to the ultimate manufacturer have been engaging in just such prac-
tices. Similarly, shoe companies cannot credibly claim that their shoes are
made without enforced or child labor if their suppliers are breaking the rules
the main company is claiming to uphold.
Reporting. Many of the recent corporate scandals dragging down the reputation
of business as a whole are related to deceptive reporting, poor reporting pro-
cedures and lack of oversight. Both the quality of reports and their content are
increasingly being called into question. Worldcom, Global Crossing, ENRON,
Tyco, Parmalat, Cirio, Shell, Ahold, and others have all fallen short in the
quality and value of their reported accounts. While FASB and similar global
accounting standards bodies will continue to evolve the general standards and
policies to be applied to corporate accounts, the quality of the data presented
needs to be consistently accurate in each individual case.
Extended definitions of what should be reported, such as the triple bottom
line initiative requiring companies to report on their financial results and their
environmental and community record, will continue to stretch the capabilities
of accounting and control departments for some time to come.
Governance. Major policy recommendations by the Cadbury Committee in
the United Kingdom and the Sarbanes–Oxley Act in the United States have
84 STRATEGY
called into question the most appropriate structure for senior management and
the constitution of boards of directors. Transparency, distributed power, and
independence from inappropriate influence are all issues which have come up
regularly, and will continue to be topical as business leaders design and pop-
ulate board and committee memberships, outline board and committee proce-
dures, and establish the quality of overall information flows. High quality
standards also apply to set out an acceptable approach to Chairmanship, the
CEO role, succession planning, and all other elements of good governance.
Customer rights. Numerous consumer advocacy groups and sympathetic leg-
islators have been slowly turning up the heat on the disclosure and service lev-
els required by product and service providers. Information on product
contents, packaging standards, return policies, product safety, and other ele-
ments of burgeoning consumer rights all need to be fully understood and built
into strategic plans as both risks and opportunities.
Already, greater corporate responsibility for the long-term effects of product
use is emerging, even in product areas where sales are primarily to informed
adult customers. This movement is led by actions against pharmaceutical com-
panies, arms manufacturers, tobacco companies and alcoholic beverage
providers. The movement to attach legal liability to business activities is now
proposed to be extended by American trial lawyers and mass tort litigators to
include restaurant chains and purveyors of food products relatively high in fat,
carbonation, sugar, or caffeine. These providers, and other participants in indus-
tries seen to be contributing to an unhealthy lifestyle or dangerous activities, will
increasingly attract the attention and incur the costs of litigation from consumer
advocacy groups capable of inflicting great economic or reputational damage on
an individual company, or even an entire industry.
Environment. In no other area of business responsibility is there more attention
being paid than to the various aspects of environmental regulation. It is abun-
dantly clear that there are a number of areas such as global warming, toxic
waste management, industrial effluent treatment, pollution of air, water, and
land, deforestation leading to land quality erosion and river silting, fish and
mammal population depletion, loss of rain forest cover and a whole host of
other environmental concerns which are increasingly focused on the business
community. Taking into account those areas of environmental responsibility
which impact most directly on your business, and responding properly, has to
be a key piece of any strategic plan.
In some areas, such as the response to global warming, the business commu-
nity is already far more involved than governments have mandated, underscor-
ing how important these societal issues are to the long-term interests of the
broader business community.
Community. Contribution to and participation within the communities in
which businesses operate have always been good business. The United Way
in the United States, and the many activities which MNCs have supported in
 Integrating Strategy and Responsibility 85

local communities internationally, reflect the acknowledged benefit of being a

good corporate citizen.
As corporate reporting standards broaden to include community
involvement, being more precise and more rational about the overall approach
to community involvement can pay dividends in many ways. Benefits range
from brand enhancement to attracting better quality applicants, enjoying the
staff benefits of better local educational programs, and improving relations
with regulators, suppliers and local authorities.
Although not as essential as the seven highlighted elements, participation
in the business community may be an attractive avenue for your business to join
with others to pursue the areas listed above. While not an end in itself, partici-
pation in a Rotary Club initiative, an industry environmental forum, or a global
organization like the International Chamber of Commerce can open doors to
actions which are more powerful and effective than a lone initiative in any one
of the areas listed above. In the matrix of responsibility provided in STRAT-
EGY, participation as a member of the larger business community is added as a
final element as a reminder that initiatives here could be very appropriate for
business leaders to take in concert with like-minded colleagues.
The benefits of taking an approach which is more positive have been spelt
out above. But there is a negative or risk side to the issue as well. For failure
to bring an organization up to an acceptable level of responsible behavior car-
ries with it increasing costs and risk. Some of the largest and most respected
companies in the world—Shell, Coca-Cola, Microsoft, Ford, major pharma-
ceutical companies and others—have all suffered from negative public atten-
tion and the impact of events which were partly beyond their control. By
understanding and responding to the pressures to achieve a higher standard of
engagement in selected areas, businesses will be able to mitigate the risks,
costs, and potential value destruction which ignorance of these new demands
can generate.
Failure to respond now in each of these eight areas will ensure that attention
will soon be brought to these issues at a political level, perhaps in response to
the highly visible activities of NGOs in a number of international fora. The
anti-globalization demonstrations in Seattle, Davos, Genoa, Bangkok and
Sydney, have already raised these critical issues to a level of board concern. For
some targeted companies, dealing with these issues has become a necessary and
prominent corporate initiative. With global consolidation continuing apace,
these same demonstrators will inevitably have fewer, but larger, corporate tar-
gets upon which to focus their attacks in the future.
Failure to self-regulate, or to contribute more actively to a program of social
amelioration, creates a risk that vote-seeking politicians will translate popular
anti-business sentiments into costly and uninformed economic programs and
operating controls. This need not happen. Businesses are indeed often the source
or contributor to problems, and can therefore contribute significantly to the pur-
suit of solutions to these problems if they so choose. The sources or distribution
86 STRATEGY
systems for pollutants leading to global warming, air quality deterioration,
deforestation, species extinction, software piracy, smoking-related health issues,
cultural or value erosion, and community health issues often lie squarely in the
lap of the business world.
Failure to become part of a solution will contribute to the view that corpo-
rations are the unrepentant source of the problem, ensuring that rectification and
penalty costs are borne by future generations of shareholders. Eventually these
future costs could well lead to discounts in present day market valuations.
The anti-business perspective has many antecedents, but is reaching more
deeply into the hearts and minds of even traditionally free market capitalist
Americans. In a Business Week survey of September 11, 2000, 72 percent of
Americans surveyed said business has too much power over too many aspects
of American life. Al Gore’s Democratic convention attack in the Presidential
campaign in the year 2000 on, “big tobacco, big oil, the big polluters, the phar-
maceutical companies, and the HMOs” was positively received by 74 percent
of respondents in the same survey.
Even higher concurrence on an issue of responsibility came from the same
survey in calibrating support for the statement: “U.S. corporations should have
more than one purpose. They also owe something to their workers and the com-
munities in which they operate, and they should sometimes sacrifice some profit
for the sake of making things better for their workers and their communities.”
Ninety-five percent of survey respondents agreed with these words.
Action to support an expanded notion of corporate responsibility and
engagement in societal initiatives is in the enlightened and rational self-interest
of all modern business leaders. The societal and economic risks, left unman-
aged, will have a significant negative impact on future business performance
and the careers of all leaders of businesses, especially the large and visible.
There is a long and growing list of reasons why a more proactive approach
to responsibility will be in the long-term best interests of all stakeholders in
an enterprise.
At least seven of these are worth highlighting:

Seven Reasons Favoring Greater

Corporate Responsibility

Legal systems
Regulators and accounts
Financial results
Relative organizational capability
Brand and business risk
Team spirit and motivation
Risk of backlash against business
 Integrating Strategy and Responsibility 87

Legal systems will demand it. Already the United States has become the
forum of choice for legal action against international actors operating far from
American shores. It is only a matter of time before US litigation brings more
corporations from the US and beyond before American judges and juries to
account for foreign activities and actions that are detrimental to employees,
suppliers, communities, countries, and the global environment.
For some time, various other courts around the world have attempted to
impose the doctrine of universal jurisdiction in order to drag Latin American
dictators and other unsavory characters into European Courts. This doctrine,
created to ensure that crimes on the high seas against slavers and other
miscreants were not allowed to lie unpunished, is being discouraged as a jus-
tification for trials against defendants who may never have had any direct con-
tact with the prosecuting jurisdiction. Despite this discouragement, the trend
of extending jurisdictional coverage is far from over.
Perhaps the greatest risk to international business are the American mass tort
lawyers, specialists in large and enormously expensive class action suits taken
out against international plaintiffs in local court systems.
The mass tort specialists, many of whom have attained celebrity status in the
global media and acquired lifestyles to match, are constantly seeking to use the
American legal system to bring causes of action against deep pocketed defen-
dants, claiming enormous damages and pursuing cases on a large success fee
basis. The potential to reach settlements with defendants that can lead to fees
reaching into the hundreds of millions of dollars for the lawyers involved will
ensure the risks to business in this area do not go away for years to come.
Regulators and accounts will require it. With the clarifying potential of “triple
bottom-line accounting,” which takes into account community and environmen-
tal impact as well as financial performance, companies can set out a broader and
more engaging set of goals for their enterprise that will be in the long-term best
interest of all of its stakeholders—employees, customers, suppliers, and share-
holders alike. The Global Reporting Initiative, established in 1997, has begun to
address many of the technical issues facing the task. Models of socially respon-
sible accounting have already been tested at British Airways, the Body Shop,
Shell, and TYU Empire at a practical operating level.
Financial results will be diminished. Ignoring the more critical public attitude
toward business can be very expensive indeed. Lost sales, loss of licenses to
operate, increased litigation, a greater tax burden, and other direct economic
costs can result from allowing businesses to continue to be negatively posi-
tioned. Both revenues and costs can move adversely through a failure to antic-
ipate the flow of attitudes and events in this area. At an indirect level, especially
in the emerging markets, allowing social problems to fester unchecked in
areas in which a business may operate can result in higher overall costs
through increased health care contributions, more expensive scarce resources,
increasing staff turnover, rising security expenses, more frequent business
88 STRATEGY
interruption, and a growing tax burden as the state is forced to spend more in
each area of risk management and response to avoidable catastrophe.
Developing countries, for example, which provide much of some multina-
tional corporations’ expectations of volume growth, all face diminished
economic prospects due to expanding populations, poverty, AIDS, recurring pat-
terns of disease, and spiraling environmental, crime, and health care burdens.
Relative organizational capability will suffer. More and more, shareholder
value is created by executing successful strategies in a new economic order.
These strategies are driven by individuals who may be more motivated by
personal engagement rather than outdated notions of paternalistic employment
or relative compensation. Personal lifestyle, the nature of the enterprise, exist-
ing relationships, individual networks, and technological challenges often
outweigh old job selection factors of salary, title, and security. There are too
many attractive opportunities with extraordinary salaries to distinguish one
high-level package from another. Titles are often meaningless. No rational
member of the I-generation values a promise of lifetime job security.
Many of the most talented individuals will be positively influenced by a
working environment sensitive to the full range of issues inherent in a program
of corporate social responsibility. Participation in an enterprise with a greater
sense of purpose and more laudable values will help to attract the brightest of
young managers in the war for talented contributors to a firm’s future.
Enterprises that demonstrate sensitivity to personal lifestyle, community
development, and environmental impact will have a greater ability to attract,
retain, and motivate the best of a small pool of talented future leaders.
By doing good in a broad sense, managers will be serving shareholders well
by attracting and retaining those people who can really make a difference in
the performance and value of a specific business enterprise.
Brand and business risk will increase. These same caring companies also will
enhance the attractive core values of their branded products as well as bur-
nishing their overall corporate image. This will enable farsighted enterprises
to build more enduring, and therefore more valuable, relations with their cus-
tomers. Many CEOs of leading branded companies have already adopted a
more activist stance toward responsible global corporate citizenship.
The Coca-Cola Corporation now lists maintaining its status as a leading
responsible corporate global citizen as one of its six global priorities. Nokia
has sponsored an entire advertising campaign communicating concerns over
social issues. Benetton has long made edgy social and human issues a core
focus of their advertising and brand. These initiatives are not only aimed at
corporate image-building, but are also designed to impact positively on all
corporate products and brands.
In a world where the discovery of environmental abuses, sweat shop labor
in emerging markets or animal testing on cosmetics products can reduce the
 Integrating Strategy and Responsibility 89

attractiveness and value of a brand significantly, an investment in social caring

will provide a reputational and economic buffer should something unexpected
and out of the control of a management team go wrong in the marketplace.
Missteps in product quality, criminal tampering with product safety, errors in
regulatory compliance, rogue employee behavior, or an accident in an outlet or
factory can all put great pressure on business reputation. Not all of these risks
can be foreseen or managed in advance by even the most caring and correct of
management teams. An investment in building the image of a caring company
in advance can be seen as a kind of insurance against the public relations costs
of such inadvertent disasters.
An ethics failure can also result in a catastrophic destruction in shareholder
value, as Enron, TYCO, Worldcom, Parmalat, Cirio, Ahold, Asian Pulp and
Paper, and other global scale corporate disasters attest. Failing to set and
monitor a responsible attitude toward governance in particular can create a
problem of epic proportions which can even be fatal to a business enterprise.
Given the sensitivity of global capital markets to risk associated with corpo-
rate misfeasance, a more proactive risk management approach could even save
the life or independence of your company in a future moment of adversity.
Team spirit and motivation will increase. Perhaps the greatest challenge today
in attracting, keeping, motivating, and engaging employees is the need to cre-
ate and communicate an overarching purpose of the organization. By giving
employees a broader sense of contribution and value, enlightened business
leaders can discover a higher sense of purpose and inspire a greater level of
performance, both individual and collective.
Engagement with worthwhile causes can make the workplace more a part
of an individual’s personal, even spiritual, fulfillment. Businesses are, on the
whole, made up of good people with good values. Reaching into the deep
sources of this motivating set of values will increase the pride, performance,
and value of almost any enterprise.
Risk of a possible backlash against business. A general backlash against
ever-larger businesses is far from impossible. Annual corporate meetings, com-
pany events and facilities, international trade organizations, and high profile
international institutions and conferences have already been attacked, dis-
rupted, and besieged. This growing anti-business sentiment could be partially
checked by visible actions to promote worthy causes, emphasizing business
objectives that extend beyond maximizing the next quarter’s earnings.
In part, the risk of a potential backlash is motivated by a misunderstand-
ing of how businesses operate and how profitable they are. Even in the usually
pro-business United States, according to a survey completed by DecisionQuest/
MCAA, three out of four males distrust US businesses.
The Kaiser Family Foundation and Washington Post combined to test why
Americans thought the economy was not doing better than it was in 2003. Nearly
90 STRATEGY
half of the respondents stated that the economy was not doing as well as it could
because businesses were making too much money. Popular understanding of busi-
ness economics put the expected average business operating profit percentage at
just below 50 percent, more than six times the true figure of around eight percent.
With such a lack of understanding and smoldering resentment in one of the
world’s most commercial societies, one can only infer how volatile anti-business
sentiment must be, and how little it would take to trigger an anti-big business
backlash, in less welcoming and less wealthy nations.

The Global Compact and Codes of Conduct

The world of business has now arrived at a point where it may be essential to
establish a set of principles to guide enterprises and to clarify the standards to
which they hold themselves accountable. It could be a timely exercise to set
forth the shared values and common approaches a corporation shall respect and
observe as it pursues its business objectives. In so doing, a company would
commit to uphold a set of clearly articulated principles and aspire, by virtue of
its commitments and actions, to be welcome in every country and community
in which the company chose to pursue its various business activities.
Further, in order to realize the full promise of a free and open global
economy, it may also now be incumbent upon individual companies in the
broader business community to support more actively the system protecting
free and open global trade, and to engage more visibly in pursuing the goals
of economic development and community engagement.
Role of codes of conduct. There is no shortage of codes of conduct available
for companies to adopt to crystallize their adherence to a higher standard of
corporate ethics and engagement. In addition to the UN Global Compact set
out below, there have been other collections of principles promulgated by var-
ious institutions over the past. The Caux Round Table Principles for Business
were launched in 1994, the OECD Guidelines for Multinational Enterprises
were developed in 1976 and revised in 2000. The Global Reporting Initiative
was begun in 1997, The World Business Council for Sustainable Development
launched its own statement in 2000, and the Reverend Sullivan has extended
the principled approach to apartheid which bears his name to the international
business arena as well.
Some of the world’s largest companies have adopted, adapted, and applied
these various codes over time with differing degrees of seriousness and effect.
GM, for example, invested significantly to support the Sullivan principles
under Jack Smith. Other companies have followed suit, or developed their
own custom tailored approaches.
In order to achieve the objectives of a more responsible approach to
business most efficiently, many companies have adopted the UN principles of
 Integrating Strategy and Responsibility 91

the Global Compact as a wholesale solution to the challenge of setting out on a

path of greater corporate social responsibility. The principles of that approach
are derived from multiple sources of input, notably The Universal Declaration
of Human Rights, The International Labour Organization’s Declaration of
Fundamental Principles and Rights at Work, and The Rio Declaration on
Environment and Development.
Pushed hard by the UN, the World Economic Forum and other large organ-
izations, the UN Global Compact has been able to enrol many (but not all) of
the world’s largest companies in its program.
The nine principles set out in the Global Compact are:

Human Rights
Principle 1: Businesses should support and respect the protection of inter-
nationally proclaimed human rights within their sphere of influence; and
Principle 2: make sure they are not complicit in human rights abuses.

Labour Standards
Principle 3: Businesses should uphold the freedom of association and the
effective recognition of the right to collective bargaining;
Principle 4: the elimination of all forms of forced or compulsory labour; and
Principle 5: the effective abolition of child labour; and
Principle 6: eliminate discrimination in respect of employment and
occupation.

Environment
Principle 7: Businesses should support a precautionary approach to
environmental challenges;
Principle 8: undertake initiatives to promote greater environmental
responsibility; and
Principle 9: encourage development and diffusion of environmentally friendly
technologies.
Many companies have adopted the Global Compact, even while admitting it is
not a full and perfect answer to the issues of corporate social responsibility.
Others, while embracing the spirit of the Compact, have shied away from its full
and formal adoption for various reasons, most often associated with a lack of
precision in the content of the Compact, or over concerns with regard to the
seemingly broad sweep of the labor provisions.
For others, a list of derivative principles from different UN institutions
does not carry with it a comprehensive set of content, nor is it framed
in a sufficiently resonant tone to be an inspiring guide to better corporate
92 STRATEGY
practice. For those wishing to adopt or to adapt a different version, below is set
out an alternative to the Global Compact which was prepared for the
International Business Advisory Council. This code could be included or
adapted for inclusion in business plans and communications, should one be
desired for your own STRATEGY.

Alternative Code of Corporate Conduct

Preamble

We believe in the value of business, the dignity of work and the duty to honor
our obligations to all stakeholders in our enterprises—customers, employees,
owners, suppliers, partners, fellow citizens in our communities and the host
governments of countries where we are present. We recognize that we now
live and work in a world more interdependent than ever before, a world in
which the actions of a few can touch the lives of many.
We also recognize that the economic freedom to pursue our business aspi-
rations in this interdependent world carries with it responsibilities as well. By
setting forth these principles, we acknowledge those responsibilities and com-
mit ourselves to develop our businesses in a manner consistent with the
following principles:

The Principles

I. Environment: We hold the environment in trust for all future generations

and realize that many current environmental trends are not sustainable.
We commit to monitoring the impact our businesses have on the envi-
ronment and shall contribute to the protection and preservation of the
quality of all elements of the environment—air, water, land, forest, flora
and fauna. We shall specify the standards to which we operate and the
principles we observe with regard to the environment.
II. Non-discrimination: We shall not tolerate any form of discrimination on
the grounds of race, gender, religion, or ethnic origin in decisions relating
to hiring, promoting, and rewarding individuals within our businesses.
III. Corporate governance: We commit to the establishment of a governance
structure and reporting system which facilitates transparency and good man-
agement, and which fosters a culture of compliance across our organization.
IV. Customers: Our businesses exist to serve the needs of our customers.
We shall respect their rights to safe products and packaging, access to
required information on products and services, truthful labeling, and
accurate advertising.
 Integrating Strategy and Responsibility 93

V. Workplace quality: We shall provide a safe and healthy workplace and

will invest in the welfare and development of our employees. We will
report on the extent and nature of that investment and on the safety
record of our operations on a consistent and regular basis.
VI. Labor practices: We shall not tolerate the use of child labor or forced labor
within our enterprises, nor tolerate such practices by our subcontractors
and direct suppliers in the communities where we work. We further agree
to respect all relevant laws and regulations, and will specify our policies
with regard to organized labor and work within those guidelines.
VII. Corruption: We shall not tolerate bribery in any form within or by our
organizations, or from organizations and representatives working on
our behalf. We shall strive to eradicate dishonest business practices.
VIII. Free trade: We shall support the development of an open and free global
trading system which is multilateral in scope and rules-based in operation.
We shall contribute to the maintenance and development of an open
global economy which is clear, simple, fair, efficient, and open to all who
wish to compete.
IX. Politics: We shall not engage in partisan politics in the countries in
which we operate and will honor all obligations with regard to the laws
and policies of those host nations.
X. Community: We shall engage and invest in the communities in which we
operate. We shall report regularly on our local involvement, including
employment created, taxes paid and other contributions to the welfare
and development of the local community.
It is our individual responsibility to ensure that these shared principles are
embedded in our core strategies, operations, and daily business practices. We
commit to integrating our reporting on these principles into our annual reports,
and to committing sufficient resource to ensure that we live up to the promises
and principles set out above.

In adopting this code of conduct, or a similar code of your own, a manage-

ment team may be able to make an immediate step forward in clarifying its
commitment to the various communities in which it operates, and set a standard
for corporate behavior which will have multiple benefits for many years to come.

The Shining Star of Starbucks

While some companies will have adopted one or more initiatives mentioned
above as part of their corporate responsibility and sustainability programs,
94 STRATEGY
Starbucks Coffee stands out as a uniquely responsible corporation actively
pursuing an agenda of responsibility at virtually all points of their business
model. Starbucks are well known for their spacious and comfortable premises
and clearly displayed commitments to fair trade, suppliers, employees, and
customers in well drafted and broadly circulated codes of conduct.
The Starbucks specific “Commitment to Origins” is directed at its involve-
ment in the poor countries which produce the vast majority of the world’s coffee
beans. The company specifically promises to its customers that they “can help
to make a difference,” and that each time a customer purchases a Starbucks
coffee, they are “making a difference, helping to improve people’s lives, and
encouraging conservation where [the Starbucks] coffee is grown.” The company
makes a specific pledge which is directly communicated to customers in its var-
ious outlets that the company will “always provide the highest-quality coffee
while contributing to the social, economic and environmental sustainability of
coffee production.”
There are four underlying commitments specified:

Fair Trade: A certification system that seeks to help to improve the lives of
coffee farmers by ensuring they receive a fair price for their harvest.
Farm Direct: Coffee purchased directly from the farmers who grow it, on an
agreed fair price.
Conservation: Working with coffee producers to promote cultivation methods
that protect biodiversity.
Organic: Coffee grown without the use of synthetic pesticides, herbicides or
chemical fertilizers.
(Source: Company literature)

The business has made a clear and unambiguous commitment to fair trade
across its entire business system to ensure that the poor growers of the coffee used
in their expensive cappuccinos, lattes, and espressos are fairly compensated
for their crops. The responsible foundations of the company’s operations also
extend to activities with its own business system in developed markets as well.
In part due to the painful personal experience of a founder whose father fell ill
without health care coverage, the company, unlike most employers, provides
health care benefits to thousands of part-time employees as well as to the full-
time members of the organization.
While the Starbucks business model has a number of well thought through
corporate initiatives, it was in response to an unexpected tragedy that the
true caring values of the company were most visibly demonstrated. When
disaster struck in a Washington DC outlet and three employees were mur-
dered in an armed robbery attempt gone wrong, group founder and Chairman
 Integrating Strategy and Responsibility 95

Howard Schultz personally took charge of the situation. Staying in

Washington for a week to ensure that all aspects of the tragedy were taken care
of, Schultz dedicated all future profits from the outlet to the cause of victims
of crime.
Such a caring attitude has not had a chilling impact on the performance or
value of the hot Seattle-based coffee giant. Demonstrating that a company can
indeed have a heart and a soul without hurting its pocket book, the results
achieved by Starbucks are equal to any. Sales in 2003 exceeded $4 billion a
year. Profits, achieved without franchising the name or premises to others,
exceed $250 million. Stock value by the end of 2003 had increased more than
3,000 percent since its IPO in June of 1992. Opening more than 1,000 outlets
in 2003, the Starbucks unique approach to business, and business caring, has
created one of the world’s best known and most successful branded business
sagas which looks set to percolate and prosper well into the future.

How and What Business Leaders can Contribute

The private sector can make an enormous difference in the areas addressed
above through many different approaches. In addition to supporting the content
of a code of conduct, there are at least seven areas in which enlightened lead-
ership in the private sector can make a major difference in improving the state
of the world in which it operates, and benefit from that contribution.
Restricting potential contribution and compartmentalizing our best capabil-
ities in the area of transnational strategy will only perpetuate the unsatisfac-
tory status quo. This will ensure that the private sector remains, and is
increasingly seen to be, part of a problem when it could easily become part of
a valuable set of solutions. The business community could contribute substan-
tially in the seven critical areas set out below, and could provide far better
leadership and much-needed resources in the most critical areas.

Seven Potential Societal Contributions

from Business Leaders

Strategic capability
Implementation and organizational skills
Political savvy and credibility
Resources and distribution
Mastery of technology
Performance measures
Entrepreneurial energy and leadership
96 STRATEGY
Seven of the areas of greatest potential private sector contribution to societal
problems and challenges are set out below.

Strategic Capability

Honed in the rough and tumble markets of free competition, the skills necessary
to define and execute transnational strategy are far more developed in the pri-
vate sector than in most public sector institutions. One study completed by a
panel of independent businessmen and businesswomen reached the following
conclusion on strategy and operations in one of the world’s most prestigious
multinational institutions.
■ Vision and strategy: there is a need to reconfirm vision, strategy and the
meaning thereof.
■ Leadership: there appear to be serious leadership gaps at all levels.
■ Management processes: there are no clear and commonly agreed upon pro-
cedures for decision-making and there is a perception that decisions are not
based on merit.
■ Organizational structure: the group of teams is not working together as a
unified whole. The current organizational matrix has led to a lack of role
clarity and, as a consequence, there are multiple levels of fragmentation.
■ Organizational control systems: current operational systems and absence of con-
trol mechanisms are major barriers to provide necessary services. Current per-
formance metrics do not measure or reinforce quality performance and results.
■ Skills and knowledge: there are major shortcomings in middle-level managers’
skills to motivate and manage staff.
These are exactly the kind of issues for which winning businesses have a ready
response. Winning businesses have an established process to set vision, clar-
ify and police priorities, allocate resources to the highest priority actions and
investments, measure progress accurately, and follow up as needed to ensure
that the highest return possible is extracted from each investment or
initiative. The result is a culture and operating approach that is informed, mer-
itocratic, rational, effective, and efficient, ensuring that all available existing
resources are well used. In addition, efficient use of resources begets more
resources, ensuring that future resource allocations are applied to a greater
pool of available assets of all kinds.

Implementation and Organizational Skills

One of the most valuable skills in strategy is the ability to implement a well
thought through strategic plan. It is thus not surprising that the business
 Integrating Strategy and Responsibility 97

community values highly those executives who can create economic value
through high quality strategy development and implementation. That same
key skill and ability would be highly valued in the societal area as well.
The impact of a structured and integrated approach will be to ensure that all
strategies of an organization are fully understood, aligned, and implemented.
No element of strategy should be isolated or pursued in a vacuum. An expert
approach to the determination and execution of all elements of a strategy—
including implementation—will lead to the achievement of the full potential
inherent in an initiative. Only the adoption of a best-practice approach will
lead to the realization of the shared vision of the leaders and participants in the
overall effort.
Old solutions often do not apply to modern problems. Implementation plans
need to be equally different, and far more creative than they have been to date.
Nonlinear or breakthrough strategy is the order of the day in global competition.
Accessing the creativity and creative cultures of a 3M, Kodak, Microsoft, or
Cisco could contribute to the design and implementation of vastly more effec-
tive societal strategies.
The development and implementation of any effective strategy will need to
be driven by a new approach to leadership, founded on a clear and common
vision. That vision is now often realized through creative new combinations of
historically separate resources. These new integrated approaches are led by
individuals equipped with a broader skill set than before. Renaissance men
have been described not as masters of any single craft, but as gifted individu-
als capable of mastering and integrating the disciplines of their time. That
skill, and the cooperative approach it requires, are now more critical than ever
to the successful design and execution of global strategies.
As the world economy evolves and grows, consolidations, alliances, and
combinations of resources and organizational strengths have become increas-
ingly important in strategy. The skills to link historically adversarial suppliers
and customers, or even competitors, in new win–win combinations could be
well used in linking disparate public and private sector bodies in a shared ini-
tiative of common purpose.
The same skill would be valuable in linking public and private sector in a series
of issue-specific task forces. A number of recent public and private sector
initiatives, most notably the Global Alliance for Vaccines and Immunization
(GAVI), funded primarily by a $750 million gift from the Bill and Melinda Gates
Foundation, are examples of the application of this new set of STRATEGY
business principles to areas outside of the purely commercial.

Political Savvy and Credibility

Global business, as is the management of global affairs outside the commercial

sphere, is as much about process and politics as it is about substance. The
98 STRATEGY
resolution of major challenges in the business world also has to do with scarce
resource allocation, governmental relations, the politics of large and numerous
organizations, and the oversight of a complex process of change and transforma-
tion. In all cases there is now a large premium placed upon effective communi-
cation skills in both worlds of all aspects of problem, progress, and solution.
Capital markets, enterprise development, and implementation of strategy are
all well served by effective communication programs, internal and external. As
a result, private sector expertise in crafting message architecture, mastering
channel usage, and designing for impact could help in the creation of a positive
and motivating media campaign to support societal challenges as well.
It is not only the great corporate philanthropists like George Soros, Bill
Gates, Ted Turner and others of that ilk who could bring extended credibility
to the initiatives for greater social responsibility. Accessing the personalities,
drive, and capabilities of respected individuals such as Jack Welch, Robert
Rubin, John Reed, or Li Kai Sheng could dramatically upgrade the efforts, and
results, from an expanded set of initiatives and approaches to more engaged
business behavior.

Resources and Distribution

Multinational corporations increasingly control the channels of global

distribution, the flows of global information, and a vast proportion of global
human talent and technology. Businesses employ the majority of the world’s
working population and oversee the deployment of a great proportion of the
world’s capital resources. Within and across these pools of resource and capa-
bility, there is an enormous potential to contribute knowledge, people, access
to distribution channels, and capital of all kinds to the implementation of
global strategy. Global systems of the economy, the environment, disease,
crime, poverty, corruption, illiteracy (particularly among women in developing
economies), and others are developing momentum in the wrong direction. As
the laws of science and nature dictate, only an equal or superior force can halt
or change that momentum. Private sector resources can both increase the
amount of force applied and, through focus and intellect, improve the effec-
tiveness and efficiency of that scarce resource investment.
Accessing a wider range of existing distribution systems is essential to
many global societal initiatives in education, health care, population control,
and environmental amelioration. The GAVI initiative is such an effort, a pro-
gram developed to realize an ambitious vision of protecting the lives of many
of the 3 million children who die every year from vaccinable causes. By
the beginning of 2004, the initiative had already provided basic vaccine to
more than 8 million children. The GAVI initiative will make major progress
as vaccines are paid for, distributed, and administered throughout the world by
 Integrating Strategy and Responsibility 99

a coordinated network of public and private enterprises. It will focus these

resources on a task force basis to achieve precise operating targets and ensure
pre-set operating standards are observed. The network characteristics of the
effort, and the new alliances operating within it, set a new benchmark for
effective global cooperation and creative use of distributive capability.
Other programs, for example the AIDS initiatives in Africa led by corporate
giants such as HSBC, Coca-Cola, Heineken, and Anglo-American, also benefit
from the global resources, reach and capability of these businesses.
Effective action need not be the province only of the individual enterprise in
the private sector. The Rotary Club’s Polio Plus program made a major contri-
bution over many years to the near total eradication of polio in both emerging
and fully developed countries around the entire world.

Mastery of Technology

Perhaps the greatest gap between current public and private sector capabilities
lies in the application of relevant technologies. This technology resource gap
is visible whether one is looking at state-of-the-art Internet exchanges of
carbon and pollution units, or application of pharmaceutical products to
reduce diseases, or new supply chain logistics to transport food or other essential
supplies to areas that risk or suffer from starvation.
It is a well known fact that that mass starvation is never due to a lack of
food. The reasons that millions of people, many of them children, die need-
lessly every year are in fact usually due to problems of conflict, politics,
corruption and logistics, which includes transportation, storage, distribution,
and coordination. Many of these problems have a ready solution in the
technologies and distribution asset bases of many large companies. Some of
these same problems, and therefore potential solutions, could be attributed to
health protection and medical care as well.
Technological advantage lies at the heart of many winning business
strategies. Statistics, logistics, segmentation, prioritization, rapid deployment,
time to market, and other advanced management technologies are joined by
hardware, software, and research benefits in creating lasting advantage in the
competitive workplace for ideas, actions, and ultimate results. These same
resources could equally contribute on a broader range of social issues as well.

Performance Measures

Many efforts at social change flag because there is no meaningful scorecard of

performance. It is a long established truth in the commercial world that “what
100 STRATEGY
gets measured gets done.” Even complex performance such as car dealership
service levels or broker’s investment performance can be broken into compo-
nents, weighted, evaluated, and a single summary service score reported and
acted upon. Priorities can be set and the impact of investments measured appro-
priately. Similar summary measures, such as Singapore’s nine-element
weighted Pollution Standard Index to measure atmospheric purity, can help to
target actions and measure results outside of the commercial sphere. Importing
the measurement discipline to areas of public concern would improve focus
and increase the intensity of investment where it would be most valuable.
For all corporations, triple-bottom-line accounting—measuring and report-
ing on the full financial, environmental, and community impact of a
business—would be a major step toward better practice and renewed faith in
the values of business enterprises.
A related area of valuable transfer is the private sector’s culture which val-
ues, and is driven by, creating demonstrable results. In the private sector there
is generally a lower level of tolerance for delay and a higher value placed on
measurable progress than in many bureaucratic public institutions. A linking
of results, culture, and compensation practices would further enhance the
value of a private-public sector alliance.

Entrepreneurial Drive and Leadership

Not all activities from the private sector with positive societal or environ-
mental benefits need to be pursued on a pro bono publico basis. Reforestation,
energy trading, pollution credit systems, water management equipment, and
other socially beneficial activities may also be developed purely for profit rea-
sons. Such activities are not only likely to perpetuate beneficial activities, but
are able to increase the amount of energy dedicated to improving the overall
state of affairs since they make no claim on available public and private sec-
tor “social” resources.
It is a long-standing truism that “all politics is local.” On the other
hand, today’s corporate leaders, and certainly the heads of large and
successful multinational corporations, are citizens of the world and global
strategists day in and day out. Tapping into this knowledge base and a desire
to improve the reputation of international business may help to bridge the gap,
allowing a select few to realize that there is here no difference between local
and global when it comes to the politics of welfare and survival. Recent ini-
tiatives on the part of the business community to provide leadership in climate
change, in recycling, and in other areas shows the potential for change when
business leaders act in their longer term enlightened self-interest.
Without leadership from the business community on solutions to other soci-
etally challenged areas, the business community will soon be even further
 Integrating Strategy and Responsibility 101

tarred with the brush of failed responsibility. Failure to self-discipline today

could well result in enforced disciplines and penalties later, forcing the unwill-
ing to incur a far greater cost for lack of attention to an escalating risk at an
earlier, and more manageable, stage of development.

An Element of Core Strategy

Broader notions of responsibility are not yet, for many companies, part of their
core strategy. But times are changing fast. Responsibility, sustainability, and
engagement on a broader set of issues is now emerging as a key element of
competition and differentiation for all types of businesses.
In all programs of broader social and corporate responsibility, as for ordinary
commercial business initiatives, the same disciplining questions need to be
answered. What is the objective? What are the measures of success? Is the pro-
posed funding sufficient? Is it necessary? Is the timing right? Are there more
efficient, or more effective, alternative approaches? Who should be involved?
What interdependencies are there with other organizational initiatives or activi-
ties? Is this better done alone or with partners? How can shareholder benefit be
maximized from the investments being made?
The application of rigorous business logic provides focus and discipline to
resource planning, increasing the benefit from the resources dedicated to the
effort. A businesslike approach will magnify the impact of the funds invested in
the first instance and increase the likelihood of their continuation into the future.

Seven Lessons of a Winning

Approach to Responsibility

Take a practical approach

Link to your core business
Start where you are
Organize effectively
Set goals and achieve tangible results
Communicate effectively
Provide leadership

Take a Practical Approach

Experience suggests two principles can be applied to make your approach

more practical. First, it may be more effective to group or to harmonize social
102 STRATEGY
investments across a more limited range of activities which are relevant to
your operating business than to fragment effort. Despite good intentions, and
usually driven by a desire or policy at headquarters to let local operations
decide the list of their own social activities and investments, fragmentation
across a broad range of unrelated activities may reduce the return on total cor-
porate investment.
A shorter list of activities linked to a business system and organizational
capabilities—such as employing construction skills to build local educational
infrastructure, adapting corporate health facilities to reach out to the disad-
vantaged in the community, applying operating skills to improve health or
child care infrastructure, addressing environmental issues—may allow for
greater learning, valuable synergies between projects, greater media value,
and better morale within the organization. Clarity and simplicity of purpose
can make a program more understandable and more motivating, promoting
greater progress toward the goals of the programs selected, and yielding a
higher and faster payback on investment.

Link to Your Core Business

It may be more effective to link the programs selected to the core skills,
products, services, and strategic assets of the sponsoring business. The organ-
ization can bring greater expertise to bear on the specific challenges, thus
improving results. It can also increase the external and communications
benefits. Association with the effort is more easily remembered and understood
by both internal and external constituencies.
A clean drinking water initiative, for example, may make more sense for
a beverage company than for a clothing company. An Indian poverty relief
or educational program may make more sense for a multinational company
operating in India than it does for a domestic US utility. Providing dispos-
able syringes to impoverished African health care centers may be more the
province of a medical products company than an engineering firm, which
would be better placed to advise third world municipal authorities on sani-
tation and infrastructure. Investment to bring Internet access to third world
countries, bridging the digital divide, may make more sense for a computer
hardware or software company than for a financial services company. All
synergies between a sponsoring business and the program selected for par-
ticipation can create extra value in a program of social responsibility, and
none should be ignored.
In a more associative program, where the initiative selected for societal
engagement has a higher degree of sharing with a core business, brand impact
can be greater and more positive since the created benefits are closer,
conceptually, to the core operations and brands of the participating enterprise.
 Integrating Strategy and Responsibility 103

Start Where You Are

Change starts most easily at home, and each company can begin to develop an
appropriate strategy for involvement by focusing on the most important societal
risks and opportunities in its business system and current operating activities.
Addressing issues related to product safety, manufacturing effluent, employment
practices or staff education can be a great starting place. For each element of
strategy, integrating the content of a broader societal agenda with the current
strategic and operating objectives that businesses pursue in their daily operations
can have great impact. That integration can be easier if there is a common model
of strategy, and a common language of values and objectives.
A common strategic approach can serve two objectives. First, the full set of
skills and disciplines developed by private enterprises can be applied to make
more effective societal investments and achieve far better results. At the same
time, the common approach will make it easier to integrate the elements of a
strategy of responsibility and engagement into the core operating strategies of
the participating businesses.

Organize Effectively

As results can vary as dramatically in the pursuit of a societal program as they

can in commercial activities, the right organizational approach needs to be set
with an individual company’s circumstances fully considered in each case.
Board involvement may be essential to draw on deeper experience and know-
ledge of the relevant communities, both financial and social. Although very
much a part of modern business strategy, engagement in programs of social and
corporate responsibility may still be seen by some as a distraction from core
financial or operating objectives. From a purely practical view, board endorse-
ment may be essential to gain in advance of the launch of any initiative.
In the words of one newly appointed chairman in America:

I want to do the right thing, but I also don’t want to be toast if we miss one quarter’s
earnings expectations and people associate me too much with these broader issues.
I have to bring the board along on this thing.

In a harsh world of ever-shorter CEO tenure and ever-increasing earnings

pressure, building the most appropriate program content needs to be, and
needs to be seen to be, consistent with the long-term goals of the organiza-
tion. Board understanding and support for a Code of Conduct or matrix of
responsibility as set out in Book Two, perhaps even worked through a dedi-
cated board committee on governance and responsibility, would be well
advised.
104 STRATEGY
A second organizational need is to ensure that program ownership is suffi-
ciently senior and integrated with the main line functions of an organization.
Just as any strategic program can be fully integrated or considered marginal in
relevance and impact, strategies and initiatives of greater responsibility can be
effectively “hardwired” into an organization or considered a distraction.
Ensuring that the right level of engagement within an organization is achieved
early on by designating the right leadership team may determine the ultimate
value of the effort.
This broader involvement would also be enhanced through a more creative
approach to the sourcing and structuring of the organizational resources allo-
cated to the effort. Task forces, effective in bringing together a diverse set of
individual skills, personalities, and experiences for commercial initiatives,
may be the best approach in this area.

Set Goals and Achieve Tangible Results

Consistent with the theme of applying the full disciplines and values of a
business approach to corporate involvement in a program of broader engage-
ment and responsibility, each individual initiative, each individual’s involve-
ment, and each investment should have an associated set of targeted results.
The same is true of the program as a whole.
The major weakness of most strategies, and of most strategic models, is
their failure to lead to tangible results in the real world. By setting goals and
targeting results early on, this weakness can be avoided, and even expensive
investments can be fully justified by the results they create. By monitoring
progress against pre-set milestones, the program can be kept on track more
easily, with necessary small adjustments made earlier in the process.

Communicate Effectively

One of the most important components of an effort of broader engagement and

social responsibility by corporations, and by the individuals involved in the
effort, is communication. A significant part of the value created will depend
on an effective communication program.
Both internal and external constituencies need to be considered. Channels
and content need to be carefully selected, and a single approach crafted. A
thoughtful architecture of message content is important to be worked out in
advance. What needs to be communicated to whom, by whom, and on what
schedule needs to be determined and built into strategic, organizational, and
tactical discussions. Those decisions need to be developed and coordinated
within an overall program of corporate activity and communication.
 Integrating Strategy and Responsibility 105

All media need to be considered such as internal journals, intranets,

Internet sites, and electronic and print media. Even informal internal commu-
nications channels need to be considered—the famous tea breaks, conversa-
tions at the water cooler and the exchanges between members of various
e-communities—to ensure that full support is rallied and full potential realized.
Another feature of best-practice communications programs is that they are
interactive. They allow for feedback, contribution, and involvement by a range
of individuals and groups. Broadcasting of intention and results without listen-
ing to related feedback diminishes the potential of the effort and should be
avoided wherever possible. Only through an interactive and comprehensive
program of communication and feedback can the investment be connected with
external communities that might contribute to the program. And only through
that approach can the full benefits in the broader community be realized.

Provide Leadership

Consistent with the broader principles of leadership in a modern organization,

the program of social responsibility should be led from the front and from the
center. Visible, motivating leadership is essential. But for the program to be
successful, leadership must also operate behind the scenes, encouraging,
adjusting, refocusing, and ensuring that the strategies are well resourced and
key tactics well executed.
In a network organization, leadership does not always need to come from
the most senior ranks. Often, the younger generation of managers and
colleagues can provide effort, inspiration, and examples of personal dedication.
Passion, even more than position, can make for a good leader and role model
in the effort to participate more fully in programs of societal improvement.

A Clarion Call for Help

Proposing a broader role for the private sector is not intended to usurp or
override the role of the state, nor to reduce the importance of relevant interna-
tional institutions. Kofi Annan, writing on his proposal for a Global Compact
with business, was clear on his desire to see a more engaged private sector:

We cannot wait for governments to do it all . . . Business, labor, and civil society
organizations have distinct skills and resources that are vital in helping to build a
more robust global community.

Annan stated in no uncertain terms that in asking companies to sign up to the

UN’s Global Compact he was sending out “a clarion call for others to join us”,
106 STRATEGY
and that joining in the program would not result merely in theoretical discus-
sions. In language reminiscent of the implementation challenges in the business
world, he concluded:

Our new coalition for universal values must move swiftly to translate good inten-
tions into concrete action. The success of the Global Compact will be measured by
its ability to make a real difference in the lives of real people.

Whether or not a company decides to embrace the principles of the Global

Compact, the benefit and need for a greater engagement by the business
community in programs of social responsibility is clear, as is the risk of
non-participation in a world of instantaneous global communication and
potentially concerted action by unhappy customers, regulators, shareholders,
or opinion-forming NGOs.
The STRATEGY approach to corporate responsibility provides the support
needed to design and implement a more thoughtful model ahead of competi-
tors, a model which will be the most motivating and the most valuable for all
of the stakeholders in a business enterprise.
This forward thinking approach to societal responsibility is another reason
that your own STRATEGY will truly be world class in every dimension and
achievement.
CHAPTER 6

An Alternative Model of Organization

To be successful at the highest levels of business, organizations will need to be

designed and operate to a set of guiding principles that allow a business to
master the full set of challenges of the new paradigm. The most successful
companies will be those that adapt how they work as well as what they address
in order to stay ahead of competitors. In order to pursue these new challenges,
many organizations are discarding older centralized approaches or inefficient
matrix models in favor of a new and alternative approach.
The old model of command and control may not fit well in a complex and
dynamic international business environment. The associated bureaucracy is
too slow, the center too remote from fast-moving markets, and the internal
environment often considered too stifling for young, ambitious managers.
Decentralized organizations, which have swung in and out of fashion over the
past 30 years, may also be poorly suited to identify and focus the full weight
of institutional expertise and resource on high priority international problems
and opportunities. Adapting to local market realities is essential, as is devel-
oping and harvesting the value of global positions. Transnational businesses
need both to optimize the performance of global-scale assets and processes
and remain fast and flexible in local markets, often competing against more
focused local players. Organizations now need to be designed and operated to
achieve a multiplicity of objectives.

A Network Model

As businesses refocus on a limited set of priority actions, organizations must

bring to bear their full capabilities in these areas, intensifying all efforts and
operating more effectively on both local and coordinated global bases.
A new approach to organization, which in many ways resembles a distributed
information or technology network, can respond well to this dual challenge,
optimizing the value added from the center while enabling business units to
respond swiftly and effectively to local market demands.

107
108 STRATEGY
The model works so that every local business unit serves local demand,
communicates extensively with other units and is guided by a shared vision,
defined operating protocols, group or corporate priorities, and investment
rules set down at the center. The center provides a more limited range of value-
added services, and also acts as an intelligent switch to deploy resources
around the business. The network is truly interdependent, drawing on the
capabilities of each unit and the center to strengthen collective performance.
First described in 1989 in the article, “The Webs We Weave,” which
appeared in the United Kingdom magazine Management Today, the network
model has today become a proven source of value and advantage in many
transnational enterprises.
Organizations that adopt this model can expect a radical shift in the struc-
ture and functioning of the organization. Costs at the center can be reduced.
Information will be more thoroughly processed and more widely available.
Hierarchies will break down. Key problems will be studied by managers, often
from different disciplines, on a task force basis. The transparency of business
units will accelerate the need for greater exchange of performance-related
information. Travel and communication may increase as well. And the range
of skills demanded of management will broaden to accommodate the demands
of an interdependent organization.
A graphic example of such an organization is set out below.

New Organizational Approach

Network Model

Operating principles Europe

• Close to customer Retail

More people in markets outlet/ USA
• distribution
• Fewer people at HQ
• Greater global presence
High sharing of Headquarters
•
information
• Less hierarchical
Access expertise and data Emerging
• markets
Asia
on single data base
available 24/7
New
• Supports competitive
product
superiority in key levers of group
performance and value

Designing and implementing a network model will not be easy. Old habits
die hard and an entirely new set of values and operating principles may be
required for your organization to adapt to the new model. The values migration
 An Alternative Model of Organization 109

required is set out below, with examples of the kind of supporting changes
highlighted in the right hand column on the illustration.

New Organizational Approach

Management / Motivational Matrix
Content of Migration Plan
I All managers to
Point of
participate in STRATEGY
arrival Program
(1 year I VP discretion to
Satisfied from now) manage +/–5% of
budget categories
I Monthly management
meetings of two hours
instead of weekly control
meetings of one hour
Dissatisfied I Mandatory retirement
age at 70
Point of
departure (now) I Revision of performance
review system
Centralized Disciplined Freedom I Reduce ad hoc queries
Top down Top down and bottom up requiring written responses
Orders only Clear vision/direction by 75%
No freedom to interpret Freedom in execution

A key unit of analysis and execution of specific initiatives in the network

model will be the task force, a multidisciplinary team with a focused objective,
a preset timeframe for its existence, and a high degree of freedom and auton-
omy in responding swiftly, effectively, and creatively to challenging situations.

The Task Force

Faster, more effective solutions can often come from more creative approaches
to resource management. These approaches can consolidate similar elements
within systems, create purpose-built task forces, establish formal or informal
associations, and combine apparently different operating entities effectively
without creating expensive new organizations or standalone legal entities. The
scarcity of resources, the time demands of the marketplace, and the rigors of
competition have all shaped this approach which can be applied to many
transnational challenges without building in permanent costs.
The key organizational unit dedicated to designing and implementing
global strategy and to managing major events such as a regional economic
crisis or merger initiative is often a transnational task force, involving man-
agers from more than one geography and from more than one discipline. For
many years the public and private sectors have been moving away from the
monolithic command-and-control organizations whose rise predated the
110 STRATEGY
Second World War. The costs, inefficiencies, and ineffective responsive capa-
bility of these headquarters-led structures were too limiting for most modern
business enterprises.
More than half of multinational corporations now use cross-border task
forces as a regular weapon in their problem-solving armory. An integral part
of military history, task forces can be extremely effective in the business world
if they stay focused on what they are: goal-specific assemblies of individuals
from one or more institutions brought together for a specific time to achieve a
specific goal. Task forces are the opposite of permanent, established bureau-
cracies weighed down by history, burdened by tradition, or encumbered by
entrenched political interests.
Drawing on the resources of multiple institutions, task forces can be partic-
ularly effective in combining the strengths and capabilities of different organi-
zations or departments. They are well suited to set out new and more creative
solutions. Multiparty task forces can be the most effective and efficient
approach to provide complementary skills and resources without duplication of
cost or effort. This kind of focused organizational model can also provide a
new, rich, and varied experience for its members, adding an element of novelty,
education, and enthusiasm often lacking in a normal daily occupation.
It is not just more efficient structures and operating principles that can be
brought to bear by joint task force exercises. Properly managed, task forces
can foster a culture of rapid and focused activity, flexible organization, meas-
urable results, compensation for targeted performance, creative alliances,
modern network management, free information flows, organized transnational
initiatives, and new models of global leadership.

Fast Track to Success

One very low profile but exceptionally insightful CEO has long recognized the
value of a network approach to organization as a key element of global strat-
egy. Pat Lupo, the former Chairman and CEO of express delivery company
DHL, presided over a global network company that established and defended
a leadership position across more than 100 individual national markets in a
high-growth global business for more than a decade. By designing and imple-
menting a new approach to organization at the end of the 1980s, he was able
to generate visible success in the express delivery market and create a unique
and enduring source of competitive advantage against more traditional rivals
for more than a decade.
The challenges were formidable. The DHL business had grown from a
small team of entrepreneurial employees in a handful of countries to a highly
sophisticated network of air and ground operations and information systems
to support an on-the-ground presence in more than 200 countries.
The supporting technology infrastructure rivals that underpinning any
 An Alternative Model of Organization 111

complex global business and can track products and services in each part of a
complicated international network ranging from Albania to Zimbabwe, from
Saigon to Santiago and from New York to Tokyo.
Founding his organizational approach on a state of the art view of both the
emerging principles of transnational organizational development from the lat-
est academic research and proven practical experience, the resulting organi-
zational structure and approach were truly world class. Pat Lupo often said that
a great part of his business strategy was to build the best organization he could
and let his management team make as many decisions as possible, so long as
these decisions and initiatives were within the bounds of group vision and
strategies. The organization was designed and operated entirely in line with the
principles of a modern network organization from structure to staffing to oper-
ating principles to adherence to full and open access to a single global database.
Although building an advanced organization around the principles of a
transnational network organization was not the only strategic initiative under-
lying DHL’s success, it was one of the major factors in a great business
success story which saw the value of the DHL business grow 1,500 percent
over a single decade. Said Lupo at the time:
In a high-growth complex international business and within such a dynamic industry,
I can’t foresee every issue that will arise, nor can we always predict when a crisis
emerges. All we can do is to build a highly capable organization, enabled by technol-
ogy, and let them get on with it.To the extent possible we focus on enabling our front
line organization to outperform our competition in every aspect of service delivery.
We also know we can’t foresee every change coming in the market. We manage
what we can, but recognize the need to be prepared for the unexpected as well. And
in that area the DHL organization is our best source of advantage against competition.

Leadership in this kind of fast-moving network model is often more about

influencing than directing, inspiring more than commanding, and integrating
rather than building alone. As the network model is implemented, many
aspects of organizational hierarchy will become obsolete, with outdated struc-
tures and approaches in need of fundamental reinvention. The result will be a
transformation from a fixed set of patterns and responsibilities to a less rigid
and more natural flow of systems, people, communication, ideas, and actions
in a more open construct.

The Network Leader as Modern Renaissance Man (or Woman)

At the center of it all, the most effective operators within this new model will
need to reinvent themselves as charismatic coordinators, value added switches,
and systemic facilitators rather than domineering commanders or dictatorial
controllers. As such, the CEO or other network leader will need to understand
and be able to add value in marketing, distribution, logistics, manufacturing,
112 STRATEGY
operations, outsourcing, IT, tax structuring, mergers and acquisitions, alliances,
and compensation systems, to name but a few of the multiple disciplines called
to the fore by a more comprehensive approach to strategy.
Modern leaders will also need to master all aspects of leadership in the
network world. This distributed approach will require leaders to master more
skills ranging from personal motivation to wide-scale layoffs, add a different kind
of value in a wider range of situations and environments, and ensure that all of
the complex elements of strategy function well and are properly integrated.
In that more integrated role, the leader must operate at all times as a mod-
ern Renaissance Man (or Woman), mastering and integrating the arts, sci-
ences, and disciplines of his or her time and providing focused and practical
guidance across all elements of a complex business world.

The Orpheus Process

The models of modern business organization in some ways have paralleled the
development of organizations in other areas of high-level collective endeavor.
One of these parallel areas to business organization has been, surprisingly, the
world of orchestral music. In the past, most businesses operated under a com-
mand and control system, similar to the authoritarian approach taken by
dictatorial continental maestros such as the fabled Toscanini, who insisted on
absolute adherence to his personal direction in all aspects of rehearsal and
performance.
In the 1970s, Peter Drucker was already describing the future business
organization as drawing from alternative sources of knowledge, including his
observations on how the best organizations were already operating more like a
university or modern orchestra than resembling a top-down military model. In
the orchestral paradigm, the CEO listens and leads as an inspiring conductor
for colleagues playing together harmoniously within an agreed score and
according to an agreed understanding of each player’s role.
The Orpheus Chamber Orchestra has pushed the leadership model to the
next stage of development, operating without any conductor at all. In so doing,
the Orpheus approach may be the harbinger of leadership trends to come in
the business world. Established in 1972 by Julian Fifer and a group of fellow
musicians, the Orpheus Orchestra was founded to pursue an orchestral reper-
toire with a chamber orchestra approach, establishing a flowing style of organ-
ization and a rotating model of leadership without any conductor on a central
podium in rehearsal or during a performance.
This “active team” approach is formally known as the Orpheus Process. Up
to thirty individual musicians perform flawlessly without any one leader stand-
ing in front of the group with a baton or any one musician providing visible
central direction. The group plays together, flowing with the music and
proceeding through each piece as agreed in highly animated rehearsal sessions.
 An Alternative Model of Organization 113

The success of The Orpheus Orchestra is undisputed, with millions of fans

buying their CDs, attending their concerts, and calling the group back for
countless encores after performances in most major countries around the
world. Orpheus have made more than 70 recordings, many with the presti-
gious Deutsche Grammophon label, and count among their many accolades
the Grammy award, the music industry’s highest honor.
Even in rehearsal there is no single leader, with each member of the group
providing thoughts and suggestions for group decision-making on musical
tempo, interpretation, and attitude. This process ensures that more ideas are
presented for consideration and that the group determines direction rather than
any one individual. The result is a fresh and uplifting set of performances
which imbue many classical pieces with new life and energy.
Members of the orchestra are quick to point out that there is not a lack of
leadership, but that there are many leaders in the group, with leadership shifting
seamlessly from one to the other over time within a performance, and even
within a single piece of music. Each member of the orchestra contributes to
the overall flow of the performance. As one member of the orchestra
summarized: “ . . . the music is the leader and we all share responsibility for
our results.”
In pursuing the Orpheus Process, the concept of shared and shifting leader-
ship requires a foundation of individual selfless strength to create group
results. In a discussion with members of an audience during one recent public
rehearsal, the members of the orchestra listed out seven principles that were
critical to their success.

Seven Principles of The Orpheus Process

Leave your insecurities at home

Communicate
Know how and when to let go
Understand “power with” and not “power
over”
Share in the leadership model
Invest responsibility in others
Admit we don’t know everything

Leave your insecurities at home. While ego is seen as important to give an

individual the courage to put forward his or her own ideas to the group and to
motivate individuals to achieve excellence in individual musical craftsmanship,
fragile egos were seen as counterproductive. As one orchestra member put it
bluntly: “You have to deal with rejection; it’s part of the process.”
114 STRATEGY
Communicate. Even in a process which has a highly intuitive element, it is
important to communicate effectively, including developing the skill of
“active listening.”
Know how and when to let go. Although the spirit of the Orpheus Process
encourages all opinions to be heard, not all ideas are adopted by the group.
The process works at multiple levels to generate ideas on musical interpreta-
tion and performance and to weigh and select the ideas presented. Members
of the group who have originated ideas not adopted by the broader orchestra
need to learn to move on even if unhappy with the result.
Understand “power with” not “power over.” Perhaps the neatest summary of
the fundamental philosophy of Orpheus, this phrase captures the sentiment of
shared empowerment and rejects the older notion of top down leadership.
Share in the leadership model. At the same time that there are extended rights
under the distributed authority in Orpheus, there are also expanded responsi-
bilities. Everyone needs to participate to make the approach work. It was also
noted by members in the group that, while very participative, the group was
not really open to any major shift in the basic model. Some of the most expe-
rienced Orpheus musicians, who had been with the group since its founding,
pointed out that it is very difficult to change a culture as strong and as essen-
tial to a group’s functioning.
Invest responsibility in others. The shared approach to leadership required an
ability to trust fellow musicians and the group as a whole. The broader group
was seen as the source of greater capability and wisdom than any one indi-
vidual leader, and also the source of a greater collective emotional intelligence
which contributed to the creation of better musical performances.
Admit we don’t know everything. There was no room for a sense of infallibil-
ity in either the individual or the group in the Orpheus Process. The group and
its presentations were constantly evolving through challenge, renewal, and
change. An admission that not all is ever known keeps the group fresh, open to
new ideas, and ensures that there is always room for constructive change.
Obviously, the Orpheus Process operates at the high end of the emotional quo-
tient spectrum and requires members to be comfortable working through the
intuitive and experiential rather than just the articulated and studied. Members
of the orchestra admit freely that the process can be more chaotic and frus-
trating at times than a traditional top-down approach to orchestral perform-
ances, but also agree that out of the occasional chaos came a consistently
better and more profoundly satisfying approach to music.

Unspoken Harmony of Excellence

While the Orpheus Orchestra stands as proof that a network model can work in
a musical context as well as in a business environment, there are other examples
 An Alternative Model of Organization 115

of excellence which contribute another, even more subtle message. In a

fascinating analysis of great performances by world-class teams, Fortune mag-
azine concluded that there was a deeply intuitive sense of the flow of perform-
ance that allowed members of the best performing teams to achieve the highest
levels of accomplishment without specific verbal or documented direction.
In other studies, great sports teams, medical emergency teams, SWAT teams,
and a chamber orchestra were highlighted as benefiting from a mutual opera-
tion in a kind of deep, unspoken harmony—an arrival of the entire group in
“the zone” of shared understanding and group excellence which few can
reach. In building management teams, this potential for highly productive
harmony should not be overlooked, no matter how impossible to document or
how elusive to describe.

The Obsolete Narcissist

It is worth noting that no model of executive behavior is less adapted to the

leadership of a modern approach to organization than the narcissistic, manip-
ulative, deceitful, or selfish executive.
Narcissists, in business and outside their jobs, are independent, self-referring,
egotistical, and in dire need of external confirmation of their value. A narcissist
manipulates, employs, and objectifies others as part of a scheme of constant
self-reference and self aggrandizement to the cost of others. The new model of
leadership and organization described here, on the other hand, values teams,
connectivity, selflessness, consideration, and development of others.
While less egotistical leaders may be equally demanding of performance,
their approach and style engage and integrate others in a shared vision of the
enterprise, emphasizing humanity rather than objectification. People are
indeed far more than corporate assets or pawns on someone else’s chessboard.
The alternative organizational model described here is fully aligned with this
realization. A broader view of humanity may be far more valuable than indi-
vidual ego in a networked corporation. The new model of organization and
group endeavor values a sense of business-as-community connected to the
outside world in countless ways rather than business-as-empire where all
roads lead to Rome and incalculably large rewards are granted by right to the
Roman emperor and a few selected acolytes. Although narcissistic CEOs can
be effective to a point, they will have great difficulty in realizing the full long-
term potential of their business in the new global paradigm.

The “Even Harder” Stuff

The organizational and human element, the “soft” side of strategy that
addresses the hearts as well as the minds of members of an organization, is
more and more the focus of thoughtful strategists and managers. Intellectual
116 STRATEGY
capital, the learning organization, the knowledge corporation, and their con-
ceptual brethren are the watchwords of many modern books on strategy. These
books are now joined by a growing body of work on spirituality in the work-
place focused on the value of awakening the full human potential of each
individual and the overall group.
Although the soft side of strategy is broadly agreed to be of fundamental
and increasing importance, many senior managers struggle to find the right
approach to build the best organization within their current structure and sys-
tem of human resource principles and policies. Respected business leaders
consistently name culture, teamwork, and motivation as sources of great value
addition. These issues also carry a high degree of difficulty to analyze and to
prescribe effectively on a general basis.
One battle-weary CEO facing these issues in a tough post-merger integra-
tion program quipped, “Perhaps we should not call this the ‘soft’ stuff any
longer—perhaps we should call it the ‘even harder’ stuff.”
The net impact of these observations is the need to create an opportunity to
address organizational issues with a fresh perspective and a wider range of options.
There is no approach to people or organizations which is generically correct or
universally applicable. Only by understanding the true nature of strategy and organ-
ization can leaders select the principles and ultimate approach which can maximize
the return, financial and otherwise, to all stakeholders in an enterprise.
One display which captures what can be done in evolving an organization
toward a better balance of hard and soft skills is a matrix which captures both
and sets out a concrete list of actions necessary to achieve a better future state
of organizational capability:

New Organizational Approach

Skills/Capability Matrix

People -led Fully capable Content of Migration Plan

Add soft skills to performance
reviews in year 2
High

Increase spend on statistical

X
Teamwork
Coaching

quality control
Soft Skills

Point of Arrival
Add internal communication
At risk Technical skills to annual training
programs in Year 1
Low

X Increase CAD/CAM training

budget
Point of Departure
Start DISC profiling and use
of output in Year 1
Low High
Hard Skills
Technical training
Finance
 An Alternative Model of Organization 117

Beliefs, Attitudes, Behaviors

It is not an exaggeration to say that even effective leaders will need to reach
deeper into the hearts and minds of their colleagues to inspire better perform-
ance and to encourage more positive behaviors. Change in behavior is most
meaningful and most enduring when it is the result of a deeper change in
underlying belief and attitude. Crude incentives to drive change in behavior
without addressing the deeper sources and causes of the behavior are likely to
be both short-lived and superficial.
Human behavior is, in fact, the product of response to external situations
or internal motivations as processed by a complex individual and collective
system. At the base of human behavioral systems lie beliefs, those fundamen-
tal building blocks of psychology which inform and guide the formation of
attitudes. Attitudes, in turn, provide a consistent platform for action and reac-
tion in the form of visible behaviors. Attitudes will lead to a consistent set of
behaviors, both desired and undesired. Both beliefs and attitudes are invisible
and can usually only be seen on a derivative basis through patterns of overt
behavior, or lack of behavior, which can be seen and interpreted.
Motivating changes in behavior may be possible through direct intervention
at a behavioral level, motivated by either praise or sanction. But enduring and
committed change requires a fundamental change in deeper beliefs and
attitudes, which will automatically reset the behaviors to align with a more
desirable pathway forward. In designing and implementing a new approach to
organization and culture through STRATEGY, it is essential to reach the basic
level of individual and group belief to motivate fully the individual and to
drive the collective performance of the business to its highest possible level.

Winners and Losers in the Search for Strategic Excellence

In clarifying the challenges of strategy and organization, it is valuable to under-

stand what proven characteristics separate winners from losers. Surprisingly,
despite the piles of hard data on performance and results, it is a consistent set of
soft factors that drive the best performers to the heights of their accomplishment.
Every industry, no matter how difficult or turbulent, has winners and losers.
The shoe industry has hundreds of defunct manufacturers as well as the
triumphant Nike and Reebok. For every McDonnell Douglas or Fokker there is
a Boeing or an Airbus. For every RCA or Bull, there is a Dell or Microsoft.
New business models replace the old. New winners emerge and reap the bene-
fits of their success. Old leaders and lagging followers decline, are taken over,
broken up, or become insolvent. Weak survivors drag along with operating per-
formance and financial return well below the leaders, contributing to industrial
underperformance, and consuming space in the global industrial landscape.
118 STRATEGY
Other companies have also broken out of old limitations to reach new
heights of operating performance and strategic excellence. Ryanair redefined
the nature of competition in the European airline industry. DHL virtually cre-
ated the international air express business, growing at a pace well ahead of
GDP and world trade. Wal-Mart built a powerful business model that puts
them among the top of the list of the world’s most valuable organizations. In
the coffee industry, which is growing at 1 percent a year at best, Starbucks shot
up 65 percent, brewing up a better formula for success. For the shoe industry,
which was experiencing GDP-like growth, Nike raced ahead at four times that
rate for a decade. And Harley-Davidson, once in need of government protec-
tion to stave off bankruptcy and Japanese competitors, roared out of difficul-
ties to become a leader again in the large motorcycle stakes.
For these and other consistent overachievers, visions have been realized.
Superior operating performance has been demonstrated time and time again.
Crises have been mastered. Strong platforms of capability and flexibility have
been built to respond to risks and opportunities, both expected and unex-
pected. Resources have been allocated to generate higher returns. Individuals
and teams have been inspired to higher achievement and reward.

Four Organizational Characteristics of Winners and Losers

The lessons from winners and losers in the search for strategic excellence can
be extracted, examined, and articulated to understand the best approach to
winning strategy. As described earlier, analysis of companies in turbulence
has shown a strikingly consistent set of organizational characteristics for both
winners and losers.
Despite the same external environment, competitors’ fates varied widely
from highly valuable success to highly visible failure. Analyses confirm that
the sources of differential performance by companies were, in the main, man-
agement-driven rather than the result of unmanageable changes in the external
environment. Surprisingly, that analysis showed that 80 percent of business
outcomes—positive or negative—were driven by conscious management
actions, not by external events. Change in the economy, regulation, or tech-
nology affected all competitors equally. Yet some competitors consistently
outperformed their rivals in the same competitive and industrial space.
More particularly, the factors and sources that separated winners and losers
were most clearly attributable to the “softer” aspects of the culture and organ-
ization of the companies in question. Successful programs of change varied
widely due to different industrial challenges and performance pressures, but
according to the insightful analysis of Chris Zook at Bain & Company, all
winning companies demonstrated the same four organizational characteristics.
 An Alternative Model of Organization 119

The Four Characteristics Of Winning

Organizations

Focus: external vs internal

Horizon: long term vs short term
Organization: fast and flexible vs slow and
bureaucratic
Attitude: dissatisfied with the status quo vs.
satisfied

Focus: external vs internal. Winners were universally focused on the external

factors surrounding their businesses—customers, competitors, channels, influ-
encing systems, and economic drivers. Constant attention to the outside world
kept them focused on the priorities that made the biggest difference in the
marketplace.
A leading danger signal of excessive internal focus is a strategy or strategic
plan made without reference to competitors, customers by segment, or changing
business context. Losers are often preoccupied with their own internal issues,
with energies and attention distracted from far more valuable external issues
needing attention in the marketplace. Failure to focus on the external risks and
opportunities inherent in a business will ensure that they are not properly man-
aged and that full potential is not realized.
Horizon: long term vs short term. A second shared characteristic of winners
was an ability to navigate steadily toward long-term success. During periods of
both crisis and calm, the most successful companies proved their capacity to
“navigate by the horizons, not the headlines.” Clear articulation of this long-term
vision was another common characteristic of most of the winning companies.
Organizations with a history of underperformance often have an excessive
amount of energy and interest tied up in short-term financial results. As a
result, critical initiatives with a longer-term payback are deferred or inade-
quately funded, and quarterly operating results are often oversold to match
immediate external expectations. Achieving short-term results is important,
but not at the expense of sustaining investments and initiatives that underpin
the long-term health of the organization.
Organization: fast and flexible vs slow and bureaucratic. In today’s dynamic
and accelerating world of global competition, it is not surprising that a fast and
flexible response capability was a consistent characteristic of winners.
Leading organizations were not only fast and flexible in response to external
events, but also in their pursuit of proactive goals to create competitive
advantage and achieve high levels of financial return.
120 STRATEGY
To co-opt the words of Marcus Aurelius on the art of life itself, winners will
need to adopt an approach to strategy which is “. . . more like the wrestler’s art
than the dancer’s, that it should stand ready and firm to meet onsets which are
sudden and unexpected.”
Strategy can no longer be fully choreographed in advance. The capabilities
necessary for fast and flexible response to unexpected onsets may well be the
capabilities which allow you to outmaneuver or overpower the competition
and end up as the sole occupant of the winner’s circle in the future.
An inability to make swift and effective decisions in today’s dynamic and
rapidly changing world will ensure that opportunities are missed or risks real-
ized through lack of a timely response. In fact, a critical element in net risk
assessment, as detailed above, is the probability of timely deployment of
effective response. A slow and bureaucratic organization will not only miss
opportunities, but can also needlessly increase inherent risk.
Attitude: dissatisfied vs satisfied with the status quo. Leading companies
were never satisfied with their achievements. The status quo, no matter
how successful, was only seen as a stage on the path to realize better
opportunities or to reduce critical risks in the strategic development of the
enterprise.
Creating change, and overseeing a constant process to profit from change,
are necessary for any company to stay on the cutting edge of competition and
winning strategy. A lack of desire to change will ensure stagnation, institu-
tionalize complacency, and create great vulnerability to competitors with a
greater ability to change their organization, adapt quickly to shifts in the envi-
ronment, and outperform their competitors.

“Guilty on All Four Counts”

In one memorable encounter with a leader of one of the world’s largest

consumer products companies, these four points were set out for discussion in
a private session in the director’s large London office. Musing profoundly over
the four characteristics of winning companies, the 30-year company veteran
and main board director sighed and summarized (correctly) with both sadness
and humor that his organization was “ . . . guilty on all four counts.”
Although his summary was more amusing and poignant than many reviews
of weaknesses in organizational strategy, he was not alone in facing the
challenge of an entrenched culture which held back a business from achieving
its vast potential. In this situation there was a happy ending. The director took
the analysis and his conclusions to the main board meeting that same week
and used the need for organizational change as a catalyst for broader, and
much needed, strategic change in the organization.
 An Alternative Model of Organization 121

Creativity, Intuition, and Insight

In all of the perspectives on strategy in business today, the need to be more

creative and demonstrably different is a constant theme. There are too many
competitors offering similar products and services at comparable prices and
on comparable terms to make “me too” strategies acceptable in such a
crowded pool. Strategy, in process and content, now benefits more than ever
from the new, the different, the creative, and the unconventional. In setting out
on your own STRATEGY program, it is essential to look for all opportunities
to initiate constructive change through a creative strategic approach.
Creativity requires a high level of individual receptivity to allow new exter-
nal information or internal intuition to penetrate and influence established
thought patterns, both conscious and unconscious. The creative process in
strategy requires us to be more open, and to receive ideas without attempting
to limit or control these new thoughts with old models of understanding.
Receiving and processing thoughts, ideas, hunches, concerns, and even flashes
of inspiration from unknown sources within our consciousness, may form the
building blocks of a much greater creative capacity for a business.
This openness to new ideas and unexpected inspiration is an essential
part of a more creative process. Maximum corporate creativity requires indi-
viduals to improve their ability to capture the valuable flickers of inspiration
on the margins of consciousness and at the frontiers of their processes of
thought. These ideas must then be evaluated, assessed, filtered, and shaped
into actionable ideas, plans, and initiatives. Often this kind of unprecedented
action inspired by unencumbered intuitive thought is the source of great
strategy.
It goes without saying that a fearful or risk-averse corporate culture can
only limit the opportunity for this kind of thinking. Blame, finger-pointing, or
political manipulation of sincere attempts to find a better way forward can
only operate in a manner adverse to competitive progress and damage share-
holder interests.
There is no limit to the source or impact of creative strategies. From the retail
sector come many examples of concepts which break new ground and pave the
way to great commercial success. Starbucks redefined the coffee business and
established a café-like “third place” between home and office. IKEA became a
global success by offering inexpensive and colorful items of clean Scandinavian
design in large low cost premises outside of city centers, displacing many high
cost, hard sell outlets offering more expensive and less accessible goods in
smaller traditional formats.
Across many sectors, a renewed competitive effort to redefine businesses,
build new business models, and serve customers’ needs in a more satisfying
manner have led to new leaders emerging from the pack and capturing a
greater share of an expanded profit pool. In observing the leaders in the area
122 STRATEGY

Seven Methods to Improve Creativity

Brainstorm
Change the people involved
Explore new angles
Avoid insularity
Meditate
Look for patterns
Integrate

of business creativity, seven common principles can be derived which may

inform your own search for a new and different approach to business.
While there is no magic formula for success in setting out a more creative
strategy, a checklist of seven ideas may help to surface activities which can lead
to the design and implementation of more creative strategies.
Brainstorm—draw on the power of the group. Often, the best ideas are
sparked by interaction between individuals in a group setting. Organizing and
managing a process of group brainstorming may lay the groundwork for the
generation of many good ideas, among them perhaps a few which can truly
make a fundamental improvement in your business results.
There are many businesses which do not allocate sufficient senior time to
brainstorm during or between strategy exercises. Meetings are brief. Some
now even take place in trendy environments where tables have no chairs,
deliberately hurrying colleagues back to their desks rather than allowing them
the time to reflect and share creative ideas in a less stressful, and certainly
more comfortable, atmosphere.
Change the people involved—bring in fresh blood. Great ideas can come from
great people at all levels of the organization. As so much of creativity is about
drawing from a set of differing personal experiences, changing the constitution
of the group from time to time can be extremely useful. New members of the
strategic group can come from different parts or levels of your business, or can
be hired in from the outside on a full-time basis. Alternatively, resources can be
brought in on a contract basis to assist in the strategic process on a focused basis
and then released, without incurring the high costs of hiring and integrating a new
staff member, and without running the risk of a subsequent need to lay off staff.
Explore new angles—think from a competitor’s perspective. During one the
largest takeover battles in UK history, a farsighted CFO appointed one of his
cleverest assistants to step down from his daily job and act throughout the con-
tested bid as the opposing bidder would act, thinking through the potential
strategies, tactics, pricing limits, and alliances of both companies from an
 An Alternative Model of Organization 123

entirely different perspective. The colleague’s performance was so effective

that the CFO, following a hard fought victory, institutionalized the practice for
future takeover initiatives. This same approach could be valuable in a non-
transactional situation as well, providing a whole new look at the business and
its potential from a different perspective.
Avoid insularity—extract lessons from parallel industries and other areas. It
would be a folly to assume that there is only one insight, model, or approach
that can lead to creative understanding or improved results. Nor is there any
best approach which can be fixed in time. There is always an element of
change, of adaptation to the unknown and the unexpected.
It is essential always to leave an open space in the thought process to allow
applicable new information to come forward and for further inspiration to
flourish as the circle of knowledge grows. Remaining open to further inspira-
tion, renewed creativity, fresh change, and insight from all sources is a kind of
built-in protection against a closed mind and an antidote against past standards
of satisfactory underperformance.
By learning from other people’s successes and insights, and adapting their
practices for direct application in a different context, imitators may even
improve on an already good idea. Rapid and effective imitation may be the
highest and most financially rewarding form of flattery you can bestow.
The consideration of alternative views and innovative thinking can be
extremely rewarding. Controversial reading material which is specific to the task
at hand or industry in which a company operates, especially if shared across the
group, can provide a common platform for group discussion from a new per-
spective. One of the limitations of using only a focused Internet-based informa-
tion flow, which confines an individual to information related to specific areas
requested, is that there is no exposure to valuable ideas surfacing in unexpected
areas not directly related to the topic, opportunity, business, or industry at hand.
Reading generally as well as specifically can thus also be useful, as we often
do not know what we do not know. Perusing a broader set of materials may turn
up an occasional nugget not readily available to individuals excessively
focused on one industry.
Albert Einstein once said that problems cannot be solved at the level where
they arise. By taking a different perspective on issues and problems, we are far
more likely to find solutions to even the most intractable of problems, no
matter how and where they arise.
Meditate—clear your mind to make room for innovative ideas. Most of the
principles above are either directed at drawing on untapped sources of group
capability within a firm or tapping into external sources of ideas which can be
effectively transferred across a business or industry boundary. Other sources
of creativity are more personal and require a different approach to clear and
creative thinking. Meditation may be the best of these proven approaches.
124 STRATEGY
By clearing your mind from the clutter of daily preoccupations, there is more
space available for new insights, for an unhurried balancing of contending
claims, for the discovery of new ideas, and the arrival of fresh perspectives.
Uninterrupted, calm meditation by any method not only aids in reducing
stress, which is endemic in most organizations, it adds enormously to the
potential for clear and creative strategic thought.

Look for patterns—understand systemic behavior. Much of creativity, as

Senge describes in his book The Fifth Discipline, is about understanding and
managing systemic patterns of social or economic behavior. In one memorable
article in the Harvard Business Review, a detailed interview was conducted
with two birders, experts in the observation and understanding in patterns of
avian behavior exhibited in the natural world. The interview focused on the
predictability and analytical approaches necessary to understand natural
patterns as they emerged.
As the authors of Spotting Patterns on the Fly stated “ . . . The ability to
grasp complicated phenomena and discern possible trends from seemingly
random events can be a source of competitive advantage, allowing managers
to capitalize on opportunities before they are apparent to others.”
By seeing and exploiting patterns of behavior—customer, competitor,
economic, technological, and other—before others may allow a creative and
open minded management team to create a success story of unprecedented
dimension in the business world as well.

Integrate—find new connections in a network paradigm. The latter phrase is

a modern version of the key principle underlying a world view which tracks
back more than 600 years to the Italian Renaissance. For in the exploration
and mastery of many disciplines, each one interconnected with the others, lie
the sources of insights which can only be accessed through a combination of
perspectives and experiences drawn from complementary disciplines.
The notion of integrating disparate disciplines to find a greater perspective
harks back to a period where a few exceptional men were able to benefit from
an approach and an attitude that transcended any one discipline or single point
of view. These Renaissance Men, some of the most accomplished individuals
in human history, have been characterized by an ability to master and integrate
the disciplines of their time. By bringing together studies in science, the arts,
culture, philosophy, religion, language, politics, history, and engineering,
these men were able to open new vistas, to see new connections and to gener-
ate new insights and works of art that stand as some of mankind’s greatest
achievements.
With Leonardo da Vinci as perhaps the leading Renaissance figure benefit-
ing from this tradition, modern management teams could well aspire to learn
from how he thought as well as what he thought. In a highly original book
 An Alternative Model of Organization 125

entitled How to Think Like Leonardo Da Vinci, published by Thorsons, author

Michael Gelb lists the Seven Da Vincian Principles which underpinned the
genius of a man many believe to have been the most creative of all time:

The Seven Da Vincian Principles

Curiosita
Dimostrazione
Sensazione
Sfumato
Arte/Scienza
Corporalita
Connessione

Author (and juggler, consultant, martial arts master, chess expert, and thinker)
Michael Gelb summarized each principle in a section of his book entitled
A Practical Approach to Genius:

Curiosita—An insatiably curious approach to life and an unrelenting quest

for continuous learning.
Dimonstrazione—A commitment to test knowledge through experience, per-
sistence, and a willingness to learn from mistakes.
Sensazione—The continual refinement of the senses, especially sight, as a
means to enliven experience.
Sfumato—(literally “Going up in Smoke”)—a willingness to embrace ambi-
guity, paradox, and uncertainty.
Arte/Scienza—The development of the balance between science and art,
logic, and imitation. “Whole-brain” thinking.
Corporalita—The cultivation of grace, ambidexterity, fitness, and poise.
Connessione—A recognition and appreciation for the interconnectedness of
all things and phenomena. Systems thinking.

A Continuous Culture of Creativity

As Leonardo Da Vinci proved, there is no end to the human potential for

creativity. There is also no end to the culture of creativity and potential for
126 STRATEGY
creativity in a business organization. As organizational goals are achieved, new
aspirations and opportunities for change will arise to replace them in the pur-
suit of the overall vision of the enterprise. Like success, creativity is a journey,
not a destination. There is no end to the potential for improvement, growth,
and greater reward.
As one poetic summary stated:

As the flames of a fire leap higher, the circle of light spreads wider. But as the light
grows, thus also expands the circumference of darkness. This expanding circle of
darkness provides ever more opportunities at its new borders to extend illumination
and eliminate the shadows of ignorance.
There is infinite potential for growth at the frontiers of the circle of light.

A Balanced Approach

In many cases a balance of linear and nonlinear approaches drove the content
of winning strategies for successful high-performance businesses. A visionary
approach can link a projection of more stable elements from the past (the lin-
ear component) with “discontinuous” or paradigm-changing elements (the
non-linear component) in a coherent approach to future breakthrough strate-
gies. These new visionary approaches required not just a new process, but also
new levels of creativity, a greater respect for intuition, and an acceptance of
alternatives to past models of business success.
An example of discontinuous strategy can be found in the examples of
Starbucks and IKEA described above. Also, Southwest Airlines and Ryanair,
through different low cost approaches, managed to redefine the airline indus-
try and achieve business success in a highly troubled industry populated by a
great number of high cost national flag carriers, most of whom are still mired
to some extent in an outdated and ineffective business model.
It is important to underscore that discontinuous strategies did not allow
leaders or managers to opt out of the hard graft of linear analysis in develop-
ing strategy. On the contrary, they required more data-driven analysis and a
more detailed understanding on the ground than past models of strategy. Only
with the deepest understanding can the most valuable strategic options sur-
face. Only with the presentation of all of the relevant data can patterns, risks,
and opportunities be properly viewed. All of the expanded dimensions of lin-
ear strategy, as set out in the 7C’s model of business analysis, are required plus
an overlay of creative thought to devise the best strategy for a given situation.
An example of effective redefinition of a business model is found in a
Boston-based stereo and hi-fi equipment dealer started by students at the
Massachusetts Institute of Technology. While competing against more
 An Alternative Model of Organization 127

convenient Main Street retailers with cheap goods relying on the “location,
location, location” mantra and a hard sell approach by uninformed and under-
paid staff, this niche operator redefined the competitive equation completely.
The competitors were also characterized by impersonal, uniformed staff who
knew little about their customers or products, cared even less, and sold what
was available as aggressively as possible. This smaller operator insisted on hav-
ing the latest equipment, the widest range possible of high quality products, the
lowest prices for those products, and the most knowledgeable sales force work-
ing in an informal atmosphere. Customers flocked to their small operation and
initial success soon allowed them to repeat their successful formula across
multiple locations.

Organizational Creativity and Intellectual Capital

It is not only external examples that can inspire creativity. The foundation for
creative future initiatives may well be found in the intellectual capital already
resident within an organization. This source of potential value should not be
neglected. Like other asset categories, intellectual capital can be unbundled
for further analysis and targeted development. In his book Intellectual Capital,
Thomas Stewart outlines some of the elements of intellectual capital, based in
part on an in-house approach taken by the Swedish financial services group
Skandia.
A parallel report from the Economist Intelligence Unit further breaks down
the content of intellectual capital in the business world into three interrelated
categories: human, structural, and customer. Each of these three sources of
strategic advantage and superior performance will need to be explicitly
addressed to exploit the full benefits of this corporate asset.
Human capital resides in the staff of an enterprise. It includes innovation, atti-
tude, tenure, turnover, experience, and learning. Employee surveys, new
product success records, human resource records, research experience,
know-how, and other “hard” elements of human capital can flesh out analy-
ses and set targets for development in this area.
Structural capital resides in a company’s documented sources and data regis-
ters such as customer information files, financial data banks, operating man-
uals, patents, intellectual property, and other encoded knowledge. The gap
between a limited use of this structural capital and full potential use can
provide a rich vein of value for data mining and commercial exploitation.
Customer capital embraces downstream relations with customers and, think-
ing creatively, is also about upstream relations with suppliers where your
own business is a valuable customer. Since each enterprise is a customer
and a provider, the opportunity to learn exponentially and profitably exists
128 STRATEGY
at both ends of the business system. On the positive side, most customers
represent untapped sources of fresh ideas and creative opportunities for
change. On the negative side, erosion in the customer base carries with it
both hard and soft costs of lost value.

The creative capacity, and ultimately the wealth-generating capability of any

organization, may now reside as much in its capability to capture, measure, and
manage these intellectual and human assets as in its capability to manage tradi-
tional balance sheet assets such as plant, property, and equipment. In an
age where communication and interaction among diverse communities, on-line
and off-line, is easier than ever, the potential for creative sharing and cross-
fertilization is also greater and will need to be developed appropriately to extract
the full set of available benefits.

3M’s Ten Commandments of Creativity

3M, the former Minnesota Mining and Manufacturing Company, is an

acknowledged master of creativity in the development, application, and exten-
sion of intellectual capital. From an uninspiring base of expertise in overhead
projector lens technology 40 years ago, 3M has grown to global leadership in
refractive technology, adhesives, office supplies and other primary areas of
growth and profitability.
A brief summary of the successful 3M approach to creativity provides a
checklist for companies and groups looking to optimize their development of
intellectual capital. As well summarized by the Sunday Times, the ten com-
mandments of creativity are:
■ Downplay management—senior managers are expected to lead, not direct.
Barriers to performance should be removed, not institutionalized.
■ Smile on chaos and lack of discipline—particularly during the early stages
of conceptualization when freedom reigns in the creative process: “Control
consciousness kills initiative.”
■ Make nerds network—internal learning benefits from contact, just as exter-
nal learning is best developed at points of contact with customers and
suppliers. Networking is especially vital in technology. 3M’s Annual
Technology Forum draws nearly 7,000 individuals from various disciplines
to meet, share ideas, and develop relationships to share future ideas and ini-
tiatives. There is always potential for greater transfer of energy, ideas, and
knowledge when there is greater human contact.
■ Thou shalt follow through—ideas and initiatives with no immediate appli-
cation should not be expunged from the repositories of corporate intellec-
tual capital. The Post-It pads concept took a decade to gestate. Tambacer, a
 An Alternative Model of Organization 129

cardiac drug, took two years longer. At the right time each made a signifi-
cant impact on its market.
■ Blur job distinctions—eliminating rigid boundaries enables creativity. Each
employee has a right and an obligation to contribute to the success of the
division and the company.
■ Divide and grow—3M expressly avoids what could be called the “old IBM”
syndrome which encumbered staff members with a monolithic similarity in
dress, behavior, and thought processes. To maintain intimacy and to foster a
“lean and mean” culture, 3M has divided itself into 50 small business units with
separate responsibility for products, research, development, and financial
results. Where small departmental budgets are not sufficient to drive new tech-
nological ideas, the company’s internal venture capital fund—the Genesis
Grant—steps in to distribute $1 million a year in supportive development funds.
■ Hear everyone out once—all staff are encouraged to speak at meetings.
There is no monopoly on good ideas by the most experienced nor the most
vocal. The strategic process, particularly at meetings, is set to reflect this
understanding.
■ Practice 360-degree performance reviews—reviews are set to break down
barriers in the hierarchy and to maximize the development of intellectual
capital. Supervisors, direct reports, and colleagues of the same level are
canvassed for performance review input. A more holistic view of contribu-
tion of strengths and weaknesses can be extracted to confirm decisions on
compensation, recognition, reward, and also to provide a comprehensive
view for development priorities.
■ Warm and fuzzy things matter—celebrating victories, attributing success,
and personalizing products through an institutional memory extending back
over decades, gives employees a feeling of personal engagement in their
enterprise. Even 3M’s Scotch cellophane tape, developed in the 1930s, is
still referred to as the product idea of Mr. John Borders, a long departed
sales manager formerly based in Chicago.
■ Hire good people and leave them alone—pursuing the best talent available
and giving them room to develop is a foundation element of organizational
strategy at 3M. Employees are encouraged to spend 15 percent of their time
on unstructured experimentation and development. These unstructured
experiments often are more valuable in the long run than the carefully
designed and traditionally structured approaches to product innovation and
service enhancement.

This ten-point approach to encourage and enable creativity has been

enormously successful. 3M is now the leader in many fields of innovative
130 STRATEGY
technology and application. 3M’s leadership in these commercial areas owes
much of its success to leadership in innovation management within a success-
ful overall enterprise.

Back to Basics

Although much of the preceding material has been about new and unconven-
tional elements of organizational design and strategy in order to stimulate fresh
thinking, in the end there are a number of basic questions that need to be
answered in designing any organization. The basic issues of span of control,
number and quality of direct reports, source of performance review input,
relative and absolute compensation, terms of employment, and a whole host of
other issues common to all organizations need to be addressed precisely.
In any type of organization, traditional or modern, there is a standard list of
questions which can be used to test the quality and effectiveness of an organ-
ization. This same list can also serve as a set of prompts which can lead to
changes in structure or operation.

Seven Testing Questions

Minimal layers between staff and customers?

Reasonable spans of control?
Right quality of people in place?
Job descriptions clear?
Potential conflicts eliminated?
Structure and authorities clear?
Likely problems surfaced and addressed?

By responding to these standard questions of organizational design, fresh and

creative thinking on organization can be well anchored in the traditional dis-
ciplines of human capital management. By considering the best of the old
along with the best of the new, you will be able to design and implement the
organization best suited to assist you in the determination and implementation
of your own world class STRATEGY.
A full approach to an alternative model of organization needs to unfold at
multiple levels. There can be change in the structure and operating principles
of an organization, as reflected on a traditional organizational chart or
organigram. At a second level, the individuals occupying the boxes on this
chart and the application of external resources may need to be redefined to
 An Alternative Model of Organization 131

enable the organization to achieve the full potential which can be released by
the appropriate structural approach.
There can also be change in the ways in which an organization operates,
calling into question how an organization’s culture and management systems
evolve over time. And in all cases, paying attention to the opportunities aris-
ing to inspire, increase creativity, reinforce values, and confirm the vision of
the enterprise must be taken into consideration in the assessment of the best
way forward for your organization and your business.
 CHAPTER 7

A New Approach to Leadership

In developing the process and content of better strategy, and in building a more
inspired and capable organization, a new model of leadership emerges which
is worth exploring in greater detail. For navigating through the turbulence of
the new paradigm will require that captains of enterprises adopt a new model
of leadership: mastering and integrating the disciplines of their time, main-
taining a clear sense of objective and direction, keeping a sensitive but firm
hand on the tiller, motivating and guiding a disciplined and expert crew, stay-
ing abreast of changes ahead of competitors, and remaining prepared to tack
quickly (or even to change direction entirely) as new risks and opportunities
present themselves. While continually navigating by the horizons and not
the headlines, modern leaders in the new paradigm will be charged with the
traditional responsibility for overall performance while facing more complex-
ity than ever before.
The enhanced model of leadership necessary to master so many simultane-
ous challenges can also be broken into constituent elements to make the spe-
cific content of leadership more precise, and to provide a useful framework for
any manager aspiring to be a leader of strategy and valuable change.

Of Captains and Stewards

In today’s environment, there are few low-risk, high-return strategies. Status

quo strategies are no longer effective. The old ambition of the CEO to act as
a good steward of a company’s businesses is no longer enough. Winning
businesses need a guiding star above the horizon and a captain to chart the
course toward a more aspirational goal. The failure of many groups to grow
profitably and to take advantage of the opportunities presented by evolution or
turbulence can be attributed to the fact that, as one frustrated executive
bemoaned, “We got a steward when we needed a captain.”
Jack Welch echoed this sentiment in an internationally broadcast television
interview when he responded with his usual passion to the question of leadership

132
 A New Approach to Leadership 133

and the stewardship mentality when he exclaimed that “Stewardship is the

worst word in the world!”
STRATEGY is obviously a program of change, engagement, and
differentiation—real and visible differentiation from the past, from outdated
models, and from current and future competitors in the marketplace. As such,
it demands a new and more effective leadership model which can respond to
the challenges of a new and different era of business practice and competition.
The elements of this STRATEGY leadership model are as follows:

Seven Principles of a STRATEGY

Leadership Model

Empower the vision and the STRATEGY

Live the values
Engage and motivate individuals
Go beyond the conventional
Lead from the front
Lead from the center
Get the job done

For each principle of leadership there are clear supporting observations and
recommended standards of behavior which contribute to understanding and
can lead to successful focus on each element of the new leadership model.

Principle 1. Empower the Vision and the STRATEGY

The process and content of STRATEGY create a platform to provide leader-

ship to an enterprise across every important area of the business model, inter-
nal and external. As such, it provides an opportunity for you to demonstrate
leadership and values in a theater ideally suited for the exercise. Having
brought into the open all aspects of your business for consideration and poten-
tial change, all eyes will be on the leadership team to see what principles and
approaches will guide the effort to capitalize on the insight provided.
As you open the forum and invite participation, the need for authenticity
emerges as a dominant concern. There can be no space between the words, true
beliefs and demonstrated actions of an effective leader. The launching of a
STRATEGY program will be seen as a major event by all concerned. The com-
bination of fear and excitement that accompanies the launching of any such
program of potential change in the business, and hence potential change in
the lives of the people who make up that business, will create a
highly charged atmosphere in which each and every word, action and intention,
134 STRATEGY
real or imagined, will be carefully dissected, scrutinized, and discussed at
great length. In this atmosphere, any hint of hidden agenda, lack of integrity,
or selfish manipulation runs the risk of initiating an undesirable negative reac-
tion and setting back a progressive agenda rather than moving forward toward
a more positive future.
In communicating the program it is instructive to remember the adage that
“your actions speak so loud I cannot hear your words.” This old wisdom is
backed up by research on internal communications and performance reviews
which concludes that over eighty per cent of the impact of a performance review
is derived from the body language and delivery style of the message, not the
actual words recited. The same can be said for messages of change and strate-
gic redirection. How you say it may be even more important than what you say.
The process of empowerment of vision in a STRATEGY program is not only
about the launching of the effort. How you treat the process and content during
and after the exercise is also critical. Doubts, a diminishing level of enthusiasm or
action inconsistent with the vision or content of the program will both confuse and
alienate those who need to put so much into the effort to make the business better.
In setting strategy, it is obvious that it is absolutely essential to get the right
answer on where a business should go. A large part of individual trust and
inspiration for greater collective effort is driven by the single test of whether
the path set by leadership is correct and appropriate. A great deal of respect in
a world driven ever more by intellectual capital and individual bandwidth
comes from the ability to process data, synthesize it, and draw the right con-
clusions and implications. Rising individualism and declining loyalty mean
that every colleague is also a critic. While every individual can make a sub-
stantial contribution to the successful design and implementation of strategy,
each individual is also a possible source of resistance, recalcitrance, and inef-
ficiency unless convinced of the direction set by the leadership team.
For each piece of the strategic plan, the more differentiated the better.
Motherhood and apple pie statements are seldom meaningful for an organiza-
tion seeking clarity, direction, inspiration, and the potential for superior per-
formance at each step of the way.
STRATEGY is about thought and action combining to create the biggest,
most powerful impact possible on a visibly differentiated approach to cus-
tomers, markets, and management of an enterprise.

Principle 2. Live the Values—Demonstrate Character

Through Action

In accepting a leadership role, in assuming the rights and benefits of the lead-
ership contract with those who follow, there is also a responsibility incumbent
upon leaders to live the values promulgated, provide a model for behavior
 A New Approach to Leadership 135

which respects the words in a corporation’s value summary, and demonstrates in

action the higher values, articulated or inchoate, which provide the foundation
and guiding principles of an organization.
Among these values, there is none more important than integrity. Trust,
faith, hope, and many other higher aspects of human emotion are tied up in the
complex psychological act of accepting leadership from another individual.
Of all of the attributes of leadership, trust consistently emerges in research as
the most valued by subordinates. Other values which come out regularly at the
top of polls are credibility, expertise, intelligence, and inspiration. The balance
of values desired from leaders, with character consistently topping capability
and other expected attributes of individuals in positions of authority, reflects
the fact that the true essence of leadership is much more about individual
behavior and moral value than it is about possessing any particular skill or
exhibiting any one personal style.
In addition to the moral value of maintaining personal integrity, there is a
practical reason for protecting and nurturing a company’s values espoused in
action. Any violation in the standards of integrity will breach the tacit contract
of leadership and can even create a counterproductive wave of disillusion-
ment, anger, cynicism, and dysfunctional behavior. There can be no rational
response to a loss of faith in leadership other than the creation of an individ-
ual agenda for each and every person in the business, replacing a desire to
work for the general good with a need to protect or advance an individual posi-
tion, no matter how inappropriate that individual agenda may be for the
broader interests of the group.

Successful Leadership in a Sustainable Enterprise

Arie de Geus, author of The Living Company, notes that the average life
expectancy of a multinational company in the Fortune 500 or its equivalent is
only somewhere between 40 and 50 years. One third of the companies listed
in the 1970 Fortune 500, for example, were gone by 1983. Like so many
smaller companies, these large companies collapse, merge, become acquired,
and are broken into smaller pieces. The process of dynamic corporate change
embraces attenuation, dismemberment and death as well birth, renewal and
progressive reform.
Much of survival and prospering in corporate evolution has to do with flex-
ibility, the ability to adapt, and the ability to emerge triumphant from periods
of adversity. Corporate sustainability and enduring success also have much to
do with leaders, leadership and the management of processes which keep a
company young.
One of the leaders of a global family business, which has operated and pros-
pered in over 40 countries since the middle of the 19th century, defined his
136 STRATEGY
views of successful leadership in simple terms. The keys to successful leader-
ship, he wrote, were to focus on a limited set of high impact determinants of
corporate success:

■ create the vision

■ define the strategy
■ establish professional standards of performance
■ delegate authority, freedom and resources to the lower levels
■ lead collective processes that support collaboration.

In addition to these five key points, observation of the management style of

this low profile executive and his family, now worth many hundreds of
millions of dollars, would add two key points:

■ intervene as necessary at key points in a company’s history

■ live the values you want your business to honor.

This particular family shuns publicity at every turn, maintains a modest

lifestyle, and ensures that the values which can support a sustainable enter-
prise are inculcated in each succeeding generation. The ethos of the family is
centered on creating business value, working hard, working well with part-
ners, accepting risk, embracing change, living appropriate personal values,
and understanding how each new generation can contribute to the sustainabil-
ity and continuing success of the family enterprise.
Understanding and acting consistently with these seven simple principles
has allowed this family enterprise not only to prosper for over 150 years, but
also to be ready to continue that success well into the future.

Principle 3. Engage and Motivate Individuals—Reach the Heart of

Your Organization

Every organization is a collection of individuals, the vast majority of whom

want to do a good job, want to learn and grow as they work, and want to feel
as if they are contributing to the creation of something special. For many, there
is a sense of unfulfilled promise in what they do, a sense of disengagement and
a missing sense of a higher purpose. By reaching deeper into the organization
to reach the hearts rather than just the minds and financial interests of your
colleagues, by responding to that need to contribute to something greater than
their individual selves, you will be able to release new levels of energy for
performance and change in your business.
 A New Approach to Leadership 137

The first step in pursuing this new leadership model is to engage the indi-
viduals involved at a human level. This requires listening actively to their con-
cerns, communicating with them on the most important aspects of their
business lives, and involving them in the processes of STRATEGY relevant to
their areas of responsibility. Bridging the disengagement gap is one of the
many reasons that the process of STRATEGY is as important as its content.
By touching the hearts of the people in an organization, by demonstrating that
the leaders of an organization genuinely care about their colleagues as people
as well as caring about their business contribution, a door is opened to a dif-
ferent kind of relationship between firm and individual. At the same time, this
approach also opens the possibility of a higher and more dedicated level of
personal energy to contribute to the success of an organization.
Motivation can increase from efforts to align the relationship between the
business enterprise with the personal desires of the individuals within it.
Performance-based compensation is a great source of alignment of interests, as
are fair and objective performance review systems, skill development plans,
and improved internal communications. Reward, recognition, promotion, pun-
ishment, demotion, and dismissal are all motivational opportunities which can
guide the relationship between collective enterprise and individual member. In
some cases, the job or task in itself is motivating and uplifting. But often it is
the individual leader or leaders who embody the initiative and can reach out to
inspire individuals to new levels of performance.
Especially for hard-nosed “old school managers” operating in a newer
business environment, it is important to adapt and to remind oneself constantly
that inspiring individuals and teams requires more than mastery of the “hard”
aspects and systems of behavioral modification and control such as pay,
criticism, control and a constant threat of dismissal. Connecting with the
deeper and more positive sources of individual motivation—hope, aspiration,
and desire—rather than negative factors such as fear or insecurity may provide
the greatest ability to increase individual motivation and contribution.
Despite its importance, this ability to reach deeper into individuals is the
hardest capability to analyze, package, or teach. Often it is intuitive or natural.
While there is no single leadership style which is universally more effective
than others, in all cases where modern leaders want to reach the highest pos-
sible level of corporate performance, they must pay attention to the deepest
roots of individual motivation.

Principle 4. Go Beyond the Conventional—Set New

Standards of Excellence

No great champion or master of any discipline ever aspired to be average. No

manager will ever achieve the more ambitious goals of STRATEGY or an
138 STRATEGY
inspiring vision for a business if its leadership aspires only to be conventional
in approach or average in result. No leader, nor his or her organization, ever
achieved greatness by pursuing the path of conventional behaviors and imple-
menting a series of “me too” strategies. None of the leaders who created great
business success stories, from Henry Ford to Bill Gates, built a winning enter-
prise using someone else’s blueprint.
Revering convention may only be an excuse for putting on blinders which
limit vision and focus an organization on a narrow subset of the possible.
Redefining an industry, creating a new business model, or changing the habits
of the past to move toward a better future for your customers are the experi-
ences which can truly set your business apart from its competitors in a
crowded industrial landscape.
The essence of strategy lies in differentiation, in creativity, and in the art
and science of informed action to bring about change. While understanding
the past is always valuable to learn and apply its salient lessons, limiting one-
self to that understanding or approach is never the pathway to new standards
of future excellence and accomplishment.
Breaking out of the box of conventionality can be a liberating experience
for all concerned in a business system, from customers to suppliers to partners
to employees. In rejecting an unacceptable past in favor of a truly satisfactory
future, new sources of energy need to be released to propel a company to new
levels of success and reward.
In expanding the borders of what is possible, it may be useful to think about
the application of the famous Zen principle that one should not become
attached to any fixed outcome. Unexpected events, unanticipated insights, new
risks and opportunities, and the simple nature of life as an ever changing expe-
rience may lead a business to a place not foreseen nor planned for. Embracing
that possibility, and keeping the process and content of STRATEGY open to
that potential, is a hallmark of the truly creative and extraordinary company.
Innovation, experimentation, fresh perspectives, and the spirit of change
always lie at the heart of any effective strategy.

Principle 5. Lead from the Front—Master the Visible

Aspect of Leadership

For all leaders, whether they want it or not, their job is now played out on a
stage with increasing transparency, and in front of multiple sources of com-
ment and criticism. Whether taking the podium at a company meeting in
which the audience is briefed to expect an important speech on the direction
of the company, or in conducting daily business from behind closed doors, the
leader of a business is inevitably expected to be taking decisive actions to
chart the direction and achieve the overall objectives of a business.
 A New Approach to Leadership 139

Whether by listening to explicit statements or by inference from indirect

example, all organizations will look to the senior figures in its establishment
to set out the direction of the enterprise and demonstrate in action the rules
they too are expected to respect along the way. Leading from the front means
that a leader must accept and take advantage of the fact that he or she is on full
public display all the time. As such, it is not only the formal presentations,
team meetings, and company videos which will act as communications vehi-
cles for the leader in front of the team. Clever leaders will take advantage of
every opportunity to direct and set an example for an organization in every
interaction and exposure.
The best leaders in a business are constantly mindful of the opportunities
and risks inherent in the role of leadership from the front. Demonstrating
clarity of vision and indicating collective direction are essential. Careful and
effective communication is critical. Remaining positive and inspiring when
and where possible is a valuable skill, even if personally very taxing on more
than one occasion. Promulgating and policing policies and priorities are
particularly important. Disciplining and correcting is necessary, but needs
to be done selectively, carefully, constructively, and almost always in
private. Finding and demonstrating a sense of confidence, common purpose,
and belief is invaluable. Any hint of hesitation, disbelief, or deep uncertainty
without a path to resolution of the tension created can be potentially confusing
and costly to an entire organization.
One of the most inevitably visible aspects of leadership from the front lies
in articulating priorities and ensuring that they are respected. In a complex and
busy world, it is all too easy to get caught up in long lists of initiatives and to
start many interesting projects that cannot all be carried through to comple-
tion. Setting the right priorities to focus your team on the urgent and the
important is a task of the highest importance and, by necessity, of the greatest
visibility for any leader.
One key attribute of an effective leader is an ability to clear away the under-
brush and publicly focus the right balance of effort on the most pressing and
most important challenges. For business turnarounds, where the risk of enter-
prise failure magnifies the intensity of any business experience many times
over, one experienced CEO has stated that no more than three core initiatives
can be rolled out by an organization in crisis. Some organizations can focus
on only one or two at a time. Occasionally, an excellent team can stretch to
embrace three major objectives such as simultaneous cost reduction, service
enhancement, and portfolio restructuring, but that is rare.
Concentration and consistent application of force are critical to change and
strategic success in any dynamic system—commercial, military, or social. A
capacity to focus on high-priority initiatives and ignore less valuable distrac-
tions is always a valuable skill, but can turn into a test of survival at a time of
deep crisis or serious business difficulty.
140 STRATEGY
The STRATEGY process sets out a proven approach to leadership in strat-
egy, guiding a team through a careful process of realizing the vision of an enter-
prise through effective thought, effort, direction, and inspiration. The overall
approach is one which requires both individuals and the team to reflect and act
upon a carefully implemented model of individual and team leadership
throughout the process.

Principle 6. Lead from the Center—Manage Formal

and Informal Networks

At the same time that leaders must master the skill of visible leadership from the
front, they must also master the more subtle skill of leading from the center, or
even leading from behind, guiding the process with a less visible hand which
brings people together and quietly provides guidance, encouragement, empower-
ment, direction, and correction where necessary. Involving the right people at the
right time in the right way is a critical aspect of centered leadership effectiveness.
Modern leaders will need to take into consideration that technology and
social evolution have moved organizations into a state where they are popu-
lated not just by individuals operating within a single, clear organizational
structure. Internal systems of communication, different affiliations, and the
Internet have combined to create a series of overlapping networks and infor-
mal communities within and across business borders. These new networks
now connect a business to the outside world and influence its development in
ways just beginning to be understood.
Whether you like it or not, every business is now more exposed than ever
before to influences, analyses, discussion and criticism, justified and unjusti-
fied, through the new channels of communication which accompany the rise
of a networked world. These new networks, formal and informal, will need to
be understood, and this understanding incorporated into the active manage-
ment and leadership of the business.
Earl Wilson said many years ago that “Science will never invent a commu-
nication device as powerful as the afternoon tea break.” With the rise of the PC
and the Internet, science may finally have proved him wrong. Yet the essential
truth of his statement is correct, that the informal and human networks of
communication can never be ignored in the management of a business. The
informal gatherings, present and virtual, can be as powerful opportunities for
change as are formal, scheduled session with colleagues.
Contrary to the highly visible nature of the leadership from the front
characteristic of the STRATEGY leadership model, leading from the center
may be best pursued quietly and even invisibly. As Ronald Reagan’s famous
desktop sign proclaimed “You can accomplish anything so long as you don’t
care who gets the credit.”
 A New Approach to Leadership 141

By mastering the art of the invisible hand, you can influence others to work
together toward a desired outcome without overtly driving or dominating the
process. You can create the results you want, along with a pride of ownership
and sense of accomplishment in a team that a more direct and interventionist
approach from above may never be able to foster.

Principle 7. Get the Job Done—Move Seamlessly from

Understanding to Execution

Simply put, many leaders—national, business, or team—most often fail

because they just don’t execute. Ensuring that you avoid this trap and get the
job done, no matter how challenging the task, is the hallmark of an effective
leader and a winning organization.
In many ways, the best business leaders have much in common with star
athletes. In addition to enormous pay packets, they are expected to lift the per-
formance of an entire team and to outperform competition. Performance psy-
chologists, drawing from their analysis of the best performing world-class
athletes have identified a single, dominant psychological variable between
their subjects. Surprisingly, the characteristic was not a desire to win. The real
motivator was a deep-seated fear of failure. By refusing to accept failure, by
getting the job done no matter how daunting the obstacles or how fearsome the
adversary, is a true test of world-class business leadership.
Good strategy, as one of the great figures of strategy consulting once
explained, was an “inexorable flow of logic from insight through to execution.”
The seamless nature of the process and content of strategy which flows from
diagnosis through to implementation has been fully captured in the STRATEGY
program. This implementation focus now needs to be embedded seamlessly
into a winning leadership approach as well if a team is to implement effec-
tively and get real benefit from its well-conceived strategic initiatives.

The 80:100 Rule

As described above, the 80:20 rule is a longstanding rule of economic

efficiency. A minority of a business (products, customers, channels) will
always generate a majority of the results in sales, profits, or learning for the
future. Applied directly, the 80:20 rule would say that 20 percent of customers
should give you 80 percent of your profit. While never exactly 80:20, the rule
of disproportionate contribution applies generally to almost all businesses,
sometimes to the extent that some small minority of customers or products, on
a full cost basis, may contribute more than 100 percent of the profits of a much
larger business.
142 STRATEGY
One of the key skills of the effective strategic leader is to focus on the
important, to keep the attention of the organization turned to the tasks neces-
sary to achieve the greatest impact. Linked with the prioritization exercise set
out in this book, awareness of and acting on the implications of the 80:20 rule
can be a critical discipline in achieving a superior return for your business.
Yet the 80:20 rule is not the only rule whose application can yield extraor-
dinary benefits for your business. A new 80:100 rule is also becoming a basic
truth of modern management. The 80:100 rule, which states that it is better to
have a strategy that is 80 percent right but fully implemented than a strategy
that is 100 percent right but never implemented, goes to the fundamental link
between strategic design and execution.
While the intellectual content of an 80 percent strategy may not be as
elegant nor as detailed as the 100 percent approach, and the execution may be
far rougher, the results are infinitely more valuable. Simply getting the job
done, executing in spite of obstacles and resistance, is an essential part of both
strategy and leadership.

Search for a Higher Purpose

Across the pursuit of all of these principles, perhaps the greatest challenge
modern leaders face in providing direction and leadership to business enter-
prises is not to direct investment, focus response to a shifting competitive
landscape, or design an effective organizational structure. It may not even
lie in the challenge of rallying a bureaucratic organization behind a more
active vision or in bringing coherence to a diverse and fragmented business
portfolio.
The greatest challenge, in fact, may lie in awakening a more aspirational
sense of the self in yourself, in other leaders of your business, in colleagues,
and in other stakeholders of the enterprise. Only by convincing yourself and
other potentially disengaged individuals of the full value and purpose of a
more engaged and committed role can a business reach its true full potential.
New leaders must think through approaches to address this missing element of
higher purpose, understanding and acting on the reasons why so many people
in so many businesses consistently give less than their best. In so doing, effec-
tive leaders will need to reach deeper into the individual nature of each stake-
holder, including themselves, to lift up the collective capability of the whole
organization.
Not all leaders will be capable of pursuing this path successfully. Lack of
confidence, failure to develop a compelling vision or strategy, adherence to
rigid hierarchies, tolerance of exclusive cultural factions, poor communication
skills, ego, and other weaknesses are some of the obstacles which may keep a
business leader from achieving extraordinary results. Filling the gap felt by
many in a search for a higher purpose requires an understanding which is less
 A New Approach to Leadership 143

tangible, more personal, more individual and ultimately more human than
many skills required for traditional strategy.
Leaders should not shy away from the task of inspiration and individual
motivation, no matter how daunting the task may seem. At the heart of any
program of new and deeper understanding, of strategic change and transfor-
mation, lies a uniquely human element which can only be fully reached if
leaders of the enterprise, formal and informal, take into consideration a
broader and deeper view of the values and motivations that inspire all indi-
viduals to purposeful engagement and effective action—from the top to the
bottom of an organization.
Creativity, courage, commitment, motivation, sacrifice, and determination
will now all be required to bring to bear sufficient energy to change systems
of entrenched behavior which may have been left unaddressed for far too long.
In order to drive programs of broad change in areas of longstanding satisfactory
collective underperformance, it will be essential to raise the level of available
energy for change by engaging the individuals capable of contributing to
change in an effort which is, to them, transcendent.
We clearly have an opportunity to drive effective change if we can rise
above old ideas, overcome old antagonisms, and discard outdated myopic
visions of what can and should be done. This approach may require a funda-
mentally different approach to leadership. The challenges of setting out on
such a radically different pathway may be daunting and always carry a greater
degree of risk than a status quo approach.
However, in the famous words of Sir Francis Bacon, “If we are to achieve
results never before accomplished, we must expect methods never before
attempted.”
By combining individual commitment and collective effort in a new
approach to strategy, it is possible to find solutions to seemingly intractable
problems. By tapping into that uniquely human transcendent element, great
reserves of energy can be released to overcome inertia and break down the
limiting barriers of the past. It is indeed possible to create ever more victories
in the battles for higher performance and competitive advantage.
In a modern, fragmented, and increasingly individual world, a sense of
purpose and restoration of belief in the personal value of our business lives can
underpin a greater sense of commitment to the common purpose of commer-
cial activity. That greater commitment and higher capability demonstrated by
the leaders of an enterprise can indeed be the levers that move an ordinary
business to truly world class standard.

Recovering the Lost Art of Strategy

Strategy is both art and science. By considering these seven chapters, each
addressing a separate area of strategy, and by turning your thoughts into
144 STRATEGY
action, you can move toward a realization of the full value that STRATEGY
can provide. By integrating your thoughts from these first seven chapters into
the concrete plans as developed in Book Two, you will be able to overcome
many of the weaknesses underlying past unsatisfactory approaches. You can
use your understanding in each of these areas as a foundation upon which to
build the best and most effective winning strategies.
The elements of strategy spelled out in these chapters can contribute to
a new framework of understanding for you and your team. But improved
understanding is not enough. These elements are only valuable when they
create a platform for meaningful action and effective change. To profit fully
from this new level of understanding, insight must lead seamlessly to action.
By combining insight and action, great change can happen in the areas of
highest priority.
In so doing, you will be able to escape the trap of satisfactory underperfor-
mance, achieve ever higher levels of accomplishment and performance for
your business and recover, through informed action and inspiration, the full
benefit of the lost art of strategy.
 BOOK TWO
Developing Your Own
World Class Strategy

In this second book, we will review both the process and content of strategy,
setting out on a step-by-step basis how a truly world class strategy can best be
developed and presented. The core principles of this approach have already
generated dramatically better financial results for leading businesses in a wide
variety of industry sectors and competitive situations. Companies that have
gone through successful turnarounds, and those that consistently outperform
competitors, often adopt a similar model to define and execute superior
strategies, and thereby achieve superior results.
Trillions of dollars of accumulated experience in business problem solving
have shaped the process and content of this approach to STRATEGY. From
decades of intensive (and expensive) learning across the business world, a
reliable model of best practice strategy has emerged.
The process of Darwinian selection and evolution to arrive at this world-
class model has been brutal. Winning approaches have been proven in the
competitive marketplace, built upon, and rolled out over time, success beget-
ting success. Others are found wanting and unceremoniously rejected.
Surviving from this process of selection is the strongest model for determin-
ing direction, creating competitive advantage, allocating resources, solving
problems, and getting results.
That superior model, here captured in the STRATEGY program, provides a
systematic approach to understanding the current situation of your business,
forecasting where it is going, analyzing how the environment is evolving and
changing the nature of competition, clarifying choices, setting priorities,
managing risk, capturing opportunity, achieving targets, aligning efforts, and

145
146 STRATEGY
building the human and organizational elements of your business. It encour-
ages the creative generation of ideas from all sources to design and implement
new and winning strategies.
STRATEGY addresses on an integrated basis both the “hard” and the “soft”
elements of strategy, including the critical human issues of business as well as
the traditional building blocks of physical, financial, and operating assets.
In the end, the whole of STRATEGY is focused on the opportunity for your
business to achieve the best results it possibly can.

Three Interrelated Phases

Drawing on the experience of the examples selected here, and other world
class companies, there are three interrelated steps in the STRATEGY
approach to define and implement a world class strategy.

Phase I: Phase II: Phase III:

Diagnosis Design Implementation

Phase Purpose
I Diagnosis This first phase provides a deep understanding of your
business from multiple perspectives: internal and
external, static and dynamic. It outlines the range of
strategic options available to you given your unique
environment and business history.
II Design The second phase builds on the understanding devel-
oped in the diagnostic phase and provides a compre-
hensive strategy from vision and values through to
imperatives and actions to create competitive advan-
tage and financial success. The content of this phase
sets out the best strategic option to pursue, improves
organizational design, clarifies priorities, specifies
resource allocation, and identifies priority actions to
focus the business on the key levers of performance
and value.
 Book Two: Developing Your Own World Class Strategy 147

III Implementation This final phase ensures that your strategy is fully
aligned, implemented, led, and motivated. The seven
steps in this final phase specify an effective approach
to tactics, timetables, implementation team constitu-
tion, program control, and corrective management to
ensure you achieve the target results and that your
vision and overall objectives are realized.
These three phases, and the seven strategic steps in each, can lead you to the
definition and execution of creative breakthrough strategies like those
described in the history of winning companies. You too will be able to reset
strategy and align all aspects of your business system to achieve the visionary
goals you set for your enterprise.
This STRATEGY package will lead you through these three phases on a step-
by-step basis. Along the way you will have an opportunity to address all elements
of a best practice strategic architecture and integrate all aspects of your unique
business strategy into a fully aligned and efficient plan of action.
You will also be able to summarize your own strategy in a powerful pres-
entation, pulling together all aspects your strategy in one single document
that will allow you to communicate all (or key parts) of your strategy to the
relevant constituencies inside and outside your organization.
Each of the integrated phases of STRATEGY contains within it seven
constituent elements. By stepping through the process set out in STRATEGY,
you will be able to master each individual phase and be able to construct the
whole of your strategy from the set of interrelated parts. The seven steps
within each phase are as follows:
Phase Constituent Elements
I Diagnosis 1. Point of departure
2. Portfolio perspective
3. Profit pool perspective
4. Competitive perspective
5. Business dynamics
6. Organizational assessment
7. Range of strategic options
II Design 1. The Promise: vision/values/mission
2. Key levers on performance and value
3. Priorities and resource allocation
4. Strategic option selection
5. New organizational approach
6. Risk management
7. Target results
III Implementation 1. Imperatives, actions, responsibilities
2. Tactics and timetable
148 STRATEGY
3. Implementation team
4. Alignment and integration
5. Program control
6. Full value capture
7. Leadership and motivation
Although the approach set out below in these twenty-one sequential steps
appears to be highly structured and analytical, managers should not lose sight
of the fact that strategy today is more and more about the “softer” issues
related to people and organizations. The organized nature of the approach
should not lead to a mechanistic process or limited outcome.

People at the Heart of Strategy

In fast-changing and turbulent environments, individual and organizational

capabilities move to the fore in the battle for corporate progress and competi-
tive advantage. In a world of shifting technologies and new orders of competi-
tion, culture and capability will need to be emphasized to increase creativity,
manage complexity, and increase the intensity of effort applied to find effective
solutions. Only through deeper commitment, and a leadership team sensitive to
the human element of strategy, can inspirational visions be fully realized in the
new world of competitive business.
Across all elements of the STRATEGY approach, full attention must be
given to the realities of execution and the achievement of results. Human
resources must be fully inspired and totally aligned, pulling in the same direc-
tion without wasted energy, reduced effort, or unnecessary distraction to
ensure that maximum results are achieved from the resources invested.

Focus and Brevity

While covering all aspects of strategy—internal and external, past, present,

and future—STRATEGY is expressly designed to focus on the essentials. In
so doing, the value of clarity and brevity is an important consideration in the
development of your thinking and in the presentation of your plan. There
needs to be a constant focus on priorities at each and every step of the way.
There is no great prose volume on your plans demanded by STRATEGY.
The focus is on action and results, not the production of mountainous decks of
acetate slides or voluminous leather bound reports which are far more likely
to gather dust than inspire action.
Often, lengthy reports, excess words, or an overload of data are the enemy
of effective action, leaving readers or participants unable to extract the essence
of a proposed course of action from impenetrable reams of charts, words, and
 Book Two: Developing Your Own World Class Strategy 149

data. An executive summary of no more than two pages in length which sits at
the front and back of the STRATEGY presentation should help to convey the
key points of the strategy and describe succinctly the results targeted.
It is worth noting that shorter presentations may actually take longer to draft
than longer ones as excess verbiage is squeezed out, sloppy thinking tightened
up, priorities set, issues of alignment resolved, and realistic target results
agreed. The format of a bullet point presentation has been selected as the most
efficient and effective format for the summary of your strategy. You will be
able to elaborate and expand on the contents in presenting the material and in
the question and answer sessions that will inevitably follow your presentation.
The time invested in improving focus, clarity and summary will be well spent.
In so doing, you will be able to communicate the essence of what your
STRATEGY contains. As Madame de Lafayette so famously wrote, “I
apologize for the length of this letter. If I had more time it would have been
shorter . . . ”
Brevity can also be the soul of value.

New Elements of Strategy

While valuing focus and concise thinking, strategy is also about consideration of
the new, the emerging, and the future. In pursuing strategies to get the most from
your businesses, it is important not to navigate solely with a narrow rear view
mirror. A long-term forward perspective is essential, which takes into account a
full 360 degree view of relevant facts and factors in all dimensions. Gazing into
the future to understand and anticipate changes is equally, if not more, important
than looking back in time to understand the causes of events and to describe the
results of past strategies. Perceiving future changes in advance and acting faster
and smarter than competitors to take advantage of those changes are character-
istics winning companies have exhibited for many years.
In thinking about future strategy, a few areas call out for particular attention:
the need for more creative organizations, action to build a more responsible
enterprise, an understanding of the patterns of dynamic global systems and their
implications for strategy, a more scientific approach to business risk and oppor-
tunity, a practical approach to prioritization, a workable model of leadership,
and a framework to pursue the elusive goal of profitable growth.
These seven new elements, each of which is addressed in a separate chap-
ter in Book One of STRATEGY, combine to illuminate many of the most dif-
ficult aspects of modern strategy. In these areas lie many of the insights which
can identify, and even create, discontinuities in the status quo model which
can be so important for business success. Through the contemplation and pro-
cessing of insights inspired by this general material, you may well discover
the seeds of a truly breakthrough strategy.
150 STRATEGY
By respecting the approach to process, priority setting, and content of
STRATEGY set out in Book Two, and giving due consideration to the new ele-
ments of strategy set out in Book One, you will be able to develop and implement
a truly world class strategy for your enterprise, no matter how large or small.
Based upon an analysis and understanding of the roots of unsatisfactory
past experience, it is clear that seven key characteristics need to separate a best
practice model from past approaches.

The Seven Differentiating Characteristics of STRATEGY

When compared to past models of strategy, the approach taken here proceeds
in a different manner along a number of critical dimensions. While not dis-
carding the useful elements of the past, STRATEGY is driven from a more
modern framework of understanding and a more complete sense of what is
needed to set and implement world class strategy in today’s world. Specifically,
there are seven areas in which the STRATEGY approach will differ from the
more traditional approaches taken to date:

Seven Differentiating Characteristics of

STRATEGY
More comprehensive
More flexible
More creative
More integrating
More motivating
More responsible
More effective

1. More comprehensive: integrating process and content. The first step in

building a better approach to strategy is the fusion of process and content. In
getting better results from your business, how you go about setting and
implementing your strategy can be as important as the specific structure of
your plans. By excluding key members of your enterprise from the process,
you may be both demotivating those who most need to be motivated and also,
through their exclusion, missing out on key sources of valuable information
and potential competitive advantage.
Especially by excluding those closest to the customers from a strategy
process, or by pursuing an approach dominated by staff members from
 Book Two: Developing Your Own World Class Strategy 151

headquarters, you may be missing out on a fuller understanding of the risks

and opportunities which can either turn into catastrophes or valuable growth
in profits at the edges of your business.
Strategy can no longer be set on an imperial basis from the lofty heights of a
remote and uninvolved headquarters organization. Customers are too far away
from the seat of power to be properly understood or fully served from afar.
Critical employees and organizational needs are too important to overlook.
Operating issues are too important to observe only from the end of a long dis-
tance telescope emanating from the ivory tower rooms of a remote planning
department. A top-down imposition of strategy by e-mail or documentary fiat
may well miss out on the subtleties of local markets and, through ignorance or
arrogance, incur unnecessary risks or lose out on opportunities to create superior
and lasting value for customers, employees, and shareholders.
It is essential to give attention to the process of strategy and to think through
how you will proceed and with whom you will collaborate at all three phases
of development—diagnosis, design, and implementation. An inclusive strat-
egy process will be critical in setting your business on a winning pathway and
staying there.
In addition to specifying the structure and content of strategy, the
STRATEGY approach will also describe who should be involved and how they
should participate in the process of defining strategies for your organization.

2. More flexible: better adapted to accelerating change. The business land-

scape is littered with the carcasses of dinosaurs unable to adapt to a new world
of rapid change. Linear change is faster. Nonlinear shifts appear abruptly and
unexpectedly. Longstanding borders on business and business definitions col-
lapse or erode quickly. Customers and suppliers can become competitors or
close collaborators in future strategy. Competitors can become allies or even
colleagues in new business paradigms. Strategy in the business world, as it is
in the natural world, is all about pursuing the best approach to winning the
constant competition for survival and prosperity in a Darwinian world, or fac-
ing inevitable extinction in a remorseless world of natural selection.
It is instructive to note that Charles Darwin did not say that only the
strongest survive. As an interesting historical footnote, the most famous
“Darwinian” phrase attributed to the renowned naturalist, “the survival of the
fittest,” was not of Darwinian origin. These famous words were in fact penned
by Herbert Spencer, the British author of Principles of Biology, who was
describing in his own words Darwin’s theory of natural selection.
This inaccurate but memorable summary of a more complex argument was
drafted shortly after the publication of Darwin’s On the Origin of Species by
Means of Natural Selection in 1859. Darwin himself said, more accurately,
that those species which adapted fastest to changes in their environment were
the most likely to survive.
152 STRATEGY
One leading European software company, whose products institutionalize a
preset approach to business management, has been described as “pouring con-
crete around the pilings of an outdated business model.” As a result, many of
its clients have suffered through an inability to adapt their business model to
changes in the external environment. This type of approach runs counter to
some of the most valuable historic knowledge on strategy and the manage-
ment of dynamic systems.
The best models of strategy are flexible and adaptable. They respect the
ever-changing nature of the environment we compete in, the systems which
are constantly changing and evolving within and around our businesses, and
understand, as far as possible, the future flow of events which we can only par-
tially anticipate at any one point in time. Winning competitors are constantly
preparing their organizations, consciously and unconsciously, to respond
effectively to inevitable change in the future operating environment.
Constant vigilance across the entire business system is thus required to
ensure that enterprises do not suffer from hardening of the corporate arteries
or end up stuck in a business model with baked-in inflexibility.
STRATEGY addresses the need for you to design and build your organiza-
tion’s strategic capabilities to respond to future change, as well as set out spe-
cific strategic content for immediate action. Strategy today is as much about a
continual building of people and teams as it is about a set plan of action.

3. More integrative: incorporating multiple perspectives. In a complex and

dynamic world, multiple perspectives are necessary to understand the full mean-
ing and impact of events taking place within and around an organization. No one
person, team, or department will have a monopoly on valuable information or
insight into any of the three phases of a full STRATEGY approach. Contributions
from more people embracing diverse sources of perspective and experience need
to be gathered and reviewed to create a full understanding.
The individual elements of STRATEGY can and should be isolated and
separately analyzed, but to be most effective they also need to be consolidated
into one single program. The whole of the strategy, as well as the individual
components, needs to be scrutinized and adapted where necessary for maxi-
mum integrated benefit. Decisions regarding resources and initiatives need to
be informed by a full understanding of the changes in the industry or regula-
tory structure. A program to enhance capabilities needs to be reconciled with
a future view of the relevant external risks and opportunities that will have the
greatest impact on the enterprise. As a result, the whole of a strategy should
always be worth more than the sum of the parts.
Although there are always issues of confidentiality, and appropriate
steps need to be taken to safeguard your strategy from inappropriate access or
disclosure, the costs of excessive secrecy or exclusion often outweigh the risks
 Book Two: Developing Your Own World Class Strategy 153

of a more inclusive approach. Benefiting from a broader set of perspectives

will require that an inclusive process be pursued, even at the risk of some
potential loss of confidentiality in the process.
Diagnosis, design, implementation, skill development, resource allocation,
and motivation need to be consolidated into one indivisible whole. Vision,
strategy, and tactics need to be reviewed, coordinated, integrated, and aligned
in a unified approach to achieve full potential in the real world. Only through
incorporation of a sufficiently large set of differing perspectives can these
objectives be met.

4. More creative: breaking old ways of thinking. STRATEGY requires man-

agers to nurture, value, and manage intuition and creativity as never before.
Experimentation is encouraged and acceptable levels of failure are tolerated.
No one ever made great scientific breakthroughs by a system of pure trial and
success.
Much creativity is free thought inspired by different perspectives. An
approach that is conducive to moments of creative inspiration, the birth of a
fresh perspective or unprecedented insight, can lead to new understanding,
greater differentiation, and the accomplishment of far better results. Traditional
linear thought is not often the chief source of inspired, groundbreaking insights
or results. The status quo approach may often lead to a low common denomi-
nator approach to the creation of strategy.
Too often, incremental change masquerades as strategy, with slight changes
and tweaks to the existing business model allowing uninspired managers to
complete their annual strategic review with little, if any, fundamental change.
In so doing, they may well miss the most important opportunities to rethink
the basic model of their business, missing the opportunities that more intrepid
companies like Dell and Southwest Airlines have ridden to such heights.
There is no exclusive single source or monopoly on creativity. The exercise
of the creative faculty, often linked to intuition and inspiration, can emerge
from many sources. In capturing the leading edge of competitive advantage,
creative thought has become even more important and valuable. An environment
to foster, rather than inhibit, that flow of creativity is a critical ingredient for
long-term success.
The STRATEGY model has its conceptual roots in two disciplines. Taking
the best from traditional models, the content of new strategies respects the
proven strategic laws of gravity, and honors the valuable insights from such
thought leaders and authors as Michael Porter, Peter Drucker, C. K. Prahalad,
Gary Hamel, and other business sages. But STRATEGY, in drawing out a new
set of paradigm principles and incorporating a set of new elements of strategy,
is also an extension of dynamic systems theory as applied to complex organi-
zations in a flow of constant motion, change, and redefinition.
154 STRATEGY
The approach set out here takes into account the fact that the modern
business environment is in a constantly shifting state of flux. Today is always
different from yesterday and tomorrow. As ancient Hindu wisdom summarizes
so well, “You never cross the same river twice.”
Strategy now needs to embrace all elements of analysis and action that can
contribute to winning results in an ever changing paradigm, including a fuller
understanding of risk and opportunity, the full human dimension of business,
and an approach which incorporates an understanding of the patterns and
principles of dynamic systems. In the latter area, systemic insight is particu-
larly valuable as this understanding can relate to the creation or profitable
anticipation of discontinuities in the existing business system.
Strategy is as much art as science and is as much an exercise in psychology
as it is economics. Strategy is as much about vision, values, breakthrough
thinking, a constant culture of creativity, organizational redesign, capability
building, knowledge sharing, skill development, teamwork, communication,
influence, alliance, and motivation as it is about market share and simple
capital allocation to maximize short-term investment return. Strategy, while
capturing the best possible understanding of the past, is really about building
toward the best possible future.
STRATEGY thus embraces the best of linear approaches from traditional
models and adds nonlinear approaches from the application of these new
elements of strategy. The synthesis of these two apparently contradictory ele-
ments changes the content, process, and characteristic of STRATEGY and
allows you to integrate an understanding of both in your own winning
approach to the future of your business.

The Shiva Insight: It may be useful to draw again on past sources of Eastern
wisdom on the nature of creativity as we attempt to build more creative strate-
gies and pursue greater success in the future. Lord Shiva, one of the three
supreme Hindu Gods, has been portrayed as a multi-armed deity with a tool
in each hand. Five of these tools are for destruction and five are for building.
The clear message which reaches out across thousands of years is that we can-
not build the new without destroying the old, we cannot create a new and bet-
ter business model if we insist on clinging to outdated practices and encumber
ourselves with the legacy of an unsatisfactory past.
Destroying old models and rejecting well-established practices is never
easy. Organizational and staff changes are some of the most difficult decisions
to take and to implement in any business environment. Yet without the courage
to discard the old, we can never move forward fully into the new.

5. More motivating: inspiring as well as guiding individuals. The old model of

an hour’s pay for an hour’s labor is no longer enough to retain employees or
inspire them to achieve their full potential. The same is true at a higher level as
engagement in a program of change needs to be presented and pursued in a new
 Book Two: Developing Your Own World Class Strategy 155

and different way. Individuals and entire organizations need to be more fully
engaged and better motivated to rise to meet the challenge of better strategy.
A fuller engagement and motivation of key individuals can trigger a quan-
tum leap in the energy available for change, creating competitive advantage
and inspiring greater collective performance. Great leaders in the new busi-
ness paradigm will go beyond simple resource allocation, the bedrock notion
of traditional strategy and, through inspiration, create a whole new level of
resource for change in the energy of their people and their organizations.
Throughout the entire strategic process, a new approach to leadership
will be required, urging leaders to both lead from the front and simultaneously
“lead from the center” through effective management of all supporting aspects
of the business system. New leaders will be required who can think through
problems and solutions differently and allocate strategic resources more
appropriately.
In a more individualistic world, leadership must respond more thoughtfully
to individual needs and private aspirations to achieve this lifting of collective
performance. Hearts and minds must both be engaged to ensure maximum
individual contribution and the realization of full group potential. Inspired
individuals will in turn become initiators and motivators, multiplying the
power to set and achieve new standards of achievement and excellence across
an entire organization. In so doing, engaged and motivated individuals will
adapt and renew the process, content, and spirit of STRATEGY.

6. More responsible: integrating strategy and responsibility. One of the more

innovative aspects of STRATEGY is the need to embed a more forward-
thinking approach to corporate responsibility within the core model of business
strategy. Pressures are growing to make corporations, and particularly large
transnational corporations, more responsible in the areas of ecology, commu-
nity, diversity, governance, and ethics. This process is gaining momentum and
more enlightened leaders of business enterprises will see this as an opportu-
nity for valuable differentiation and competitive advantage rather than as a
threat to the advancement of their own strategic and commercial goals.
A more responsible business stance can improve relations with customers,
suppliers, legislators, and regulators. Perhaps most importantly, a proactive
approach to responsibility can present opportunities to inspire greater personal
engagement and commitment of employees and other stakeholders in your
business system. Heading a company with a conscience and a healthy bottom
line can create very real value for stakeholders.
By moving faster than the competition in developing responsible strategies,
leaders can position their businesses and their brands as more customer and
community friendly than their rivals. They will reap the benefits of being an
admired and welcome corporate citizen, resident, or guest in all the countries
where they chose to operate. They will also benefit by participating at an
early stage in the emergence of a more thoughtful model of engagement and
156 STRATEGY
responsibility where positive images and actions can now be developed, and
seen to be developed, at relatively lower cost than in a more crowded future.
The list of winning companies above could easily have been expanded to
include examples who have built their strategic success with a core element of
greater responsibility than that demanded by the law. Starbucks have been an
enormous success with a brand enhanced by a responsible attitude toward
their suppliers in emerging markets and their employees. The Body Shop has
made a dedication to the preservation of the environment and protection of
indigenous peoples a core element in a unique customer value proposition. In
the United Kingdom, the various Virgin enterprises all benefit from a core
brand and charismatic individual leader exuding irreverence, youth, and a
sympathetic notion of adult responsibility, with a condom business run by the
group purely for the benefit of AIDS victims.
Even former eco-villains like DuPont and some of the oil majors are
cleaning up their environmental performance and achieving strong business
results at the same time.
As more is expected of the modern business in its impact on the commu-
nity, the environment, and diversity, a summary template is included in the
STRATEGY model which leads you to address these areas on an open and
specific basis. Far-sighted leaders of enterprises and initiatives will want to
move today to get ahead of the demands, and opportunities, of these broader
expectations in the future.

7. More effective: ensuring implementation to achieve tangible results.

Strategies are useful only if they create tangible value in the real world. The
full measure of a new approach to strategy is whether it is more effective than
its predecessors, whether the results are better than before, and whether the
investments to achieve these results are justified by the return. Satisfactory
underperformance must be unveiled in all its forms and addressed directly by
effective actions leading to far better results.
All too often, traditional strategies are documented rather than imple-
mented. Clever titles or code names are dreamed up for strategic initiatives.
Glossy charts or PC-based presentations are rolled out in front of boards, man-
agement teams, and outside audiences. General statements of direction and
commitment are made. Detailed and expensive reports are drafted, edited, and
bound for future reference. But little happens.
Checkpoints are often missed. Declining results soon dwindle even further.
Satisfactory underperformance reigns, and in a few years another suboptimal
strategy and approach are launched, with results again falling short of both
expectations and potential.
More recently, the costs and risks of poor execution have become far more
evident. CEOs are losing their jobs faster and more regularly than ever before.
It is instructive to remember that, according to the Fortune magazine survey
 Book Two: Developing Your Own World Class Strategy 157

cited earlier, the majority of CEOs in America who lost their jobs did so over
the lack of effective execution of strategy.
Value in execution: Strategies need to be designed for execution. Theories
are valuable in STRATEGY only when they lead to specific and measurable
action. Strategies that are not implemented have little value to any stake-
holder—owners, partners, suppliers, distributors, and employees alike.
Indeed, strategies that are not implemented may well carry significant
negative value. They carry a high opportunity cost on the management time
invested, alienate the most capable employees, add to organizational cynicism
and loss of faith in leadership, and lead to many lost opportunities in the mar-
ketplace. They may even leave behind potentially profitable customers in their
unfortunate wake.
Monday morning: For a strategy to be effective, it must set out a clear vision
different from the status quo and enumerate a concrete set of actions to bring
about change. Effective strategists must also ensure that those plans are car-
ried out despite inevitable resistance, inertia, and problems which arise.
STRATEGY is characterized by a clear set of well-defined and coordinated
actions which are captured in a fully aligned implementation plan.
In the business world, the operative question to test whether a strategy is
fully understood and ready for implementation is whether it is clear to all par-
ticipants what they need to do differently on Monday morning when they
come to work. If it is not clear what they need to do at a very practical level,
then the strategy process has either been incomplete or incorrect.
Good strategy and effective action go hand in hand.

STRATEGY and the Spirit of Transformation

By its nature, STRATEGY is more inclusive and less hierarchical than most
earlier approaches. The output of the process is more visionary and, although
precise in its vision, goals, priorities, and immediate action steps may be less
detailed than past prescriptions in setting out future initiatives. By preserving
strategic flexibility, and by leaving room for tailoring, input, and adaptation,
STRATEGY recognizes that an environment may, and probably will, change
as a result of the implementation of the strategy being pursued.
Yet throughout all of the changes and new direction, there is a consistent
spirit expressed in the process which is envigorating and demanding, but
ultimately enormously rewarding.
Perhaps the best word to describe the spirit of STRATEGY cannot be found
in English. The Japanese word shintaro may be the best way to describe this
new way in strategy. Shintaro is both an aspirational name and an abstract
noun in Japan.
158 STRATEGY
Its full definition captures much of the spirit (and then some) of STRATEGY:

A new vision; a fresh perspective that elevates an habitual experience; the process
by which man conjures up the sublime in art, music, and cuisine; the creation of a
loftier conceptual framework; what separates man from beast, what distinguishes
the exalted from the mundane; a stimulation of the imagination that heightens the
senses; a break in the conventional mold, leading to discoveries of countless joys;
the essential way man is capable of contemplating the divine; the way man created
the humanities; the state of mind leading to inspiration and poetry; a positive end
result that stems from a search for new frontiers and horizons.

To capture the full value of a new and more fulfilling approach to strategy,
this spirit must be embraced along with all the hard work and intellectual
effort in the setting of strategy. STRATEGY can set out the specific changes
in process and content which can lead to truly superior strategy and better
bottom line results for your business. STRATEGY can provide a guide to
eradicating the unsatisfactory elements of the past and building toward a more
profitable and more satisfying future. But only you can infuse that effort with
the spirit of change and fulfillment that will truly lift your business to its
highest possible level.
In order to break away from the risk of a fatiguing cycle of sameness and
unsatisfying results, the best of leaders are finding new ways to both set and
communicate strategy in order to rejuvenate their teams and reinvigorate their
efforts. In so doing, they will propel their organizations to greater accom-
plishments, outperforming their competitors and realizing the full potential of
their businesses. In so doing, they will also have adopted and confirmed the
process, content, value, and spirit of STRATEGY.
CHAPTER 1

Shared Elements of World Class

Strategy

The model promulgated here is divided into separate areas, all of which, taken
together, make up the overall STRATEGY approach. The first area relates to
the material set out in Book One, which requires the consideration of new ele-
ments of strategy to prompt ideas and stimulate thoughts which you may want
to include in your own strategy.
The first book of STRATEGY raises new ideas on the frontiers of business
thinking—such thought-provoking ideas as systemic thought, new organiza-
tional models, extended notions of engagement and responsibility, practical
ideas to aid in the pursuit of greater creativity, the application of more scien-
tific definitions of business risk and opportunity, the setting of priorities, a
new model of leadership and an understanding of the search for a higher
purpose in a business enterprise—all of which can be considered and adapted
as necessary to clarify your own strategic and tactical thinking.

The Rights of STRATEGY

Within all of the related elements of better strategy can be found seven essen-
tial characteristics of a winning strategy exercise. Just as the rites of spring can
usher in a new season of hope and fertility, understanding and respecting the
“rights” of strategy can lead to a far better result from your own season of
renewal and change. In pulling together all of these elements into one world
class strategy, throughout all three stages of the strategic process set out
below, it is essential to consider these seven “rights.”

159
160 STRATEGY

The Seven “Rights” of Strategy

Right process
Right attitude
Right people
Right content
Right thought
Right creativity
Right results

While pursuing the development of your own strategy program, it is essen-

tial to ensure throughout the process that your organization is fully in line with
these seven “rights” which can help you to navigate to a more successful
strategic future.

Right process—thought through from beginning to end by those responsible

for the effort.
Right attitude—open, honest, direct, as collaborative as possible, and fully
committed.
Right people—to ensure that both definition and implementation of strategy are
pursued with the highest quality and full commitment of the organization.
Right content—ensuring that all relevant issues and opportunities are raised
and addressed.
Right thought—embracing a full understanding of the situation, competitive real-
ity, customer views, and real options, with no sacred cows or political obstacles.
Right creativity—thinking out of the box on both process and content of strategy.
Right results—setting the right vision and objectives for the organization and
using the strategy process as a best practice example of how to get things done.

Although no checklist can replace the motivating effect of high quality

leadership, respecting these rights and specifying the correlative responsibili-
ties for all involved will support the achievement of the highest standards of
excellence in your approach to strategy. In the examples below, each and every
of these rights of strategy was, to a greater or lesser extent, present and
contributing to the realization of superior results.

The Winner’s Circle

An elite circle of successful companies have proven that it is indeed possible

to emerge as a winner time and time again in the highly demanding world of
 Shared Elements of World Class Strategy 161

modern business. Despite the increasing complexity and constant turbulence

in many sectors of industry, there are consistent winners in the race for
competitive advantage, decisive victors in the battles for market share and
customer loyalty, and winning companies who consistently top the lists of the
most successful and most admired companies. While there is more to becoming
a winning company than pure strategy, getting the right strategy in place and
executing it well is a common characteristic of all companies who create long
term sustainable advantage and achieve superior returns for their shareholders
year in and year out.
Winning companies, through time and through accumulated experience
both good and bad, evolve their strategies, redefine their organizations and set
ever more aspirational targets for their enterprises. Change is a constant and
effective adaptation to change is the hallmark of a champion, and of a survivor.
Darwin was correct when he stated that the surviving species were not simply
the strongest. The real survivors in the natural world were those who adapted
most quickly to changes in the environment.
The modern business world is indeed a world of the quick and the dead.

The Model in Action

The dramatically successful turnaround of Del Monte Royal Foods provides a

good case study of a winning strategic program driven by effective diagnosis,
design, and implementation. The results achieved were exceptional. As a direct
consequence of a new strategy, fully and effectively implemented, operating
results doubled and the company’s share price rose more than 200 percent in
12 months.

The Man from Del Monte

The turnaround story is particularly striking since the vision and leadership for
the change program came from an existing leadership and senior management
team. Usually, dramatic change occurs only when there is a change of leader-
ship at the top. Although there were staff changes throughout the process, rev-
olution in this case was led by the monarch. The story of the turnaround and
the leadership of Vivian Imerman, the colorful Chairman and CEO, provides
an example of how a comprehensive strategic approach can yield fresh break-
through results in a long-established enterprise.
The collection of famous Del Monte food businesses, formerly part of an
integrated global operation, were broken up and sold separately following the
takeover of RJR-Nabisco by KKR. The Anglo-American Corporation of
South Africa teamed up with entrepreneur Imerman in a complex structure to
win an auction for a large portion of the European and Asian Del Monte Foods
businesses at the end of 1993.
162 STRATEGY
The collection of assets acquired included a minority share of a Philippines
pineapple plantation and packaged food business, a fully owned pineapple
production unit in Kenya, a South African deciduous fruit operation, 50 percent
of the Nabisco operations in South Africa, and a full set of manufacturing and
distribution operations in major European countries. Soon after the original
acquisition of Del Monte Royal Foods, further production and distribution
assets were added in Italy through the acquisition of Confruit, a strong local
juice and nectar business.
Tying all of the businesses together was the Del Monte brand and an
experienced operating management team.

Overcoming Crisis

Soon after the acquisition was completed, unexpected troubles emerged that
required radical action. Asian currencies, which represented a significant
portion of Del Monte’s costs, moved adversely against the dollar, as did all
relevant European currencies. Weakening currencies in the selling countries
and strengthening currencies in the producing countries created intense mar-
gin pressure across all business units. The external environment became
increasingly hostile as large distribution chains in Europe continued their
relentless pace of consolidation. Pressure on all food manufacturers heated up
as the “balance of terror” increasingly moved in favor of the retail giants who
dominated European distribution.
Further, in attempting to grow and serve customer needs, product prolifer-
ation in the Del Monte European operations had crept in over many years,
fragmenting management attention and diffusing investment. The product
range had grown longer, pack types had multiplied and unrelated new product
opportunities had been explored in different geographies. As a result, the cost
of complexity rose, scarce resources were spread thinly across a wide range of
traditional product support initiatives and other high growth, but low margin,
opportunities in diversified product areas.
Operating management, schooled in an environment of strong brands, solid
operations and positive financial results, was increasingly challenged by a
complex and distressed situation that promised to get worse before it got bet-
ter. A fragmented shareholder structure at Del Monte Pacific Resources, the
Asian production and marketing arm of the Del Monte businesses, struggled
to reach agreement on a unified approach to strategy and operations, limiting
the chance to achieve the full potential of that portion of the business.
For two years, the share price continued to slide. The failure of incremental
responses to fundamental problems only highlighted the need for a radical and
comprehensive program to address the problems facing the group, and to
reverse the erosion of shareholder value. The Chairman’s significant personal
 Shared Elements of World Class Strategy 163

ownership stake only increased his sense of the importance and urgency of a
program to address the full set of problems on a direct and effective basis.

Comprehensive Strategic Program

Following an intensive diagnosis of the business and its dynamic environment

along all seven elements of the 7C’s model, Del Monte created a com-
prehensive strategic program to turn around the business. Having defined a
different approach to costs, customers, channels, capital structure and the
other elements of the model, Imerman and his team set out to achieve a com-
pletely different set of results which were to be pursued through a coherent
and well articulated strategic plan:
Vision. A new vision was developed to focus on core capabilities, the
venerable Del Monte brand, and opportunities for profitable growth in the pro-
duction, distribution, and sale of well-known pineapple, fruit, and vegetable
products. The vision of leadership in selected fruit and vegetable categories
was redefined and communicated. Each country and operating unit was
assigned a role in the new vision, and strategies were set in place to achieve it.
A task force at the top oversaw the efforts.
Values. Del Monte’s turnaround began with an exhaustive diagnosis of the
business, internally and externally. The company analyzed all elements of the
business systems in detail and made tough decisions. The senior management
team specifically requested that no stone remained unturned. Honesty was
demanded. No issue was off limits. By the end of the six-month review, a
weary group finance director quipped: “At the beginning of this, we stated that
there were to be no sacred cows in the review process. Well, there are none
left. They all were shot in the last six months.”
The internal business values of relentless attention to the restoration of
shareholder value were confirmed and acted on. The external values of
high quality and healthy products were highlighted and communicated to
consumers and staff of the rejuvenated enterprise.
Imperatives/priorities. The highest priority imperatives necessary to realize
the vision were identified and an action plan to support each drawn up.

■ Focus on core brand, products, and capabilities.

■ Redefine the distribution system to reduce costs and improve profit.
■ Sell assets to reduce debt.
■ Restructure the organization.
■ Acquire complementary businesses to increase scale.
164 STRATEGY
Improved operating results needed to be restored. Faced with a secular decline
in volume, compounded by the currency and trade-driven margin squeeze, Del
Monte attacked operating costs across the board. Country operations were
consolidated or closed. New distributors were appointed. Information tech-
nology systems were simplified. Unprofitable customers were cut, reducing
the Italian customer list from 9,000 to 2,700 in less than a year. Ineffective
marketing spending was terminated. Unprofitable product lines were trimmed.
Organizations were simplified. A new set of incentives kept the operating
management team fixed on realizing the ambitious new vision. “We had the
legacy of global-scale operating systems and processes and only a regional
business,” Imerman said. “The costs were killing us.”
Ownership and legal structures changed to solidify the business position,
including a new shareholding structure in the Philippines. Following the break
up and separate sale of the formerly integrated set of Del Monte businesses by
KKR, a subset of the new owners of the branded businesses had each taken a
shared ownership position in the Asian operation, which was the main source
of many core pineapple products. With their ownership stakes had come
matching board representation.
The resulting complexity created a very difficult management situation. Del
Monte Royal Foods (Europe), Del Monte Corporation (United States),
Kikkoman (Japan and parts of Asia), the Macondray Group (Philippines), and
others restructured the ownership of the operation, with only Del Monte Royal
Foods and the Macondray Group remaining as active owners. The two equal
partners shared ownership and control of the business. Rapid and effective
change became possible as the structures were optimized and a full transfor-
mation program was successfully begun.
Jointly led by Imerman and the Lorenzo family, the new capital structure of
the streamlined business built on complementary strengths to increase rev-
enues, broaden product categories, and improve productive yields, quality, and
profits at the same time. In Europe, an equally dramatic transformation pro-
gram was put in place at an operational level.
Although most management effort focused on the existing business, selected
new opportunities were pursued to accelerate growth at low capital cost. Joint
ventures were successfully negotiated in Russia and India. A high quality Thai
plantation, the Siam Agro Industrial Company, was acquired and its operations
restarted. New line extensions and packaging concepts were developed.
Advertising was refocused on core brands and well-established premium brand
values. A bolt-on acquisition of complementary Just Juice in the United Kingdom
added volume and market share to a strong Del Monte branded presence.
The transition program did not come without significant investment costs.
The cash costs alone of the European restructuring program were estimated to
exceed $60 million. Among other moves to restructure the balance sheet, a
 Shared Elements of World Class Strategy 165

program of divestiture was undertaken to raise the funds to cover the

restructuring charges. A portfolio of non-Del Monte brand products provided
a priority list of candidates for divestiture. Property and plant left after con-
solidating assets in Italy were also put on the block. Auction of an Italian tea
business was successfully concluded, with results far exceeding expectations,
to help pay for the restructuring.
New standards were implemented and the management team took a more
conservative approach to accounting by “rebasing” the accounts. Burdened by
a complex history of acquisition-related charges and multiple reporting enti-
ties in a wide set of countries and tax jurisdictions with differing accounting
policies, the company was rightly concerned about a complexity discount on
the share price. Executives at Del Monte and Anglo-American Corporation
agreed that the reporting approach should be simplified and “all the bad news”
incorporated into a single restructuring adjustment.
More than $200 million was written off in an adjustment of the brand value
carried on the balance sheet. Even more was taken as a provision for current
and future restructuring costs. The year end was moved from November to
December. New product development charges and the depreciation schedule
were shifted to conform to international accounting standards. A new group
finance director was appointed. Debt covenants were renegotiated or adjusted
to reflect the new approach. All lenders were supportive and many positively
applauded the changes.

Organization. Imerman realized that his team needed a new set of skills to
deal with the crisis. Greater personal incentives were required. A new and
more entrepreneurial culture was needed to address current and future trade
challenges. Within 18 months, 11 of the top 15 management positions were
filled with new faces from within and outside the company. The organization
structure was simplified. Redundant positions were eliminated and 500 staff
positions worldwide were targeted for reduction.
A core team comprising the chairman and his three senior operating and
finance executives—Jacques Fragis, Francois de Lavallette, and Andrew
Hawkins—led the charge to reverse the decline.

Leadership. Only dynamic and fully involved leadership could have created a
promising future for this long-established corporation. Chairman and CEO
Vivian Imerman said at the time of the turnaround:

We had our backs to the wall and no choice but to undertake a radical approach.
And radical may not be a strong enough word!
It took an extraordinary effort for more than a year, but we are now back on
track. A year ago, things looked grim. Now we have a stronger, leaner business, a
166 STRATEGY
new and energized management team, and a range of interesting strategic options
for the business. Without the intensive turnaround program we would still be facing
far more difficulties than opportunities. Now the opposite is true.
Only a total effort and total dedication could have changed the situation and
gotten us to where we are today.

A key part of the leadership strategy was to change the approach to

communications. More information was delivered more regularly to more
constituencies. Key institutional investors were given detailed one-on-one
briefings. A well-crafted public relations campaign built a positive profile for
the company. The group soon became a better known and more trusted
investment for both domestic and international investors.
Results. With a full year of concerted effort, the Del Monte management
team turned the corner for the first time following four years of decline. The
dramatic news of the turnaround program and new operating style was
announced in July. The share price began a steady climb within a few months
of the announcement. Earnings stabilized in the first year at 30 cents a share.
Results for the first full year of strategic benefits reflected a 70 percent
increase in earnings, to more than 50 cents a share. The share price more than
tripled following the announcements and the proven delivery of forecast
results.

The Olam Story

While the Del Monte story is one of recovery from a very difficult time
through the successful application of a comprehensive STRATEGY model,
the Olam International story is entirely different. Olam, which is a Hebrew
word meaning without limits, is a world class logistics and supply chain man-
ager based in Singapore. Focused on serving the needs of leading multina-
tional foods and consumer products companies spread evenly across the
United States, Europe, and Asia, Olam has grown quickly and quietly from
start-up in 1989 to over $1 billion in profitable sales by 2003. This growth was
achieved without a single acquisition or merger.
The company is now the world’s leading handler of cashews and has
aspirations to become a top three player in the supply chain for coffee, timber
and other selected agricultural and industrial raw material and intermediate
products. Sunny Verghese, Olam’s erudite founder and CEO, has led the busi-
ness from a single source of product in one country to a global enterprise
demonstrating over 20 percent per year growth in revenues and earnings over
a 5-year period.
Increasing its value-added well beyond traditional trading operations, Olam
provides a reliable and de-risked purchasing, processing, handling, and delivery
 Shared Elements of World Class Strategy 167

business, sourcing from over 23 countries and operating in a total of 39 separate

jurisdictions. Its margins are double those of traditional traders, reflecting
its greater value-added strategy and effective use of over 2,700 employees
worldwide.

Spanning the 7C’s

In pursuing its vision of achieving continuing growth and profitability,

Verghese and his highly capable team have pushed the envelope in all ele-
ments of the Seven C’s business model, with a focus on each of the areas as
highlighted below:
Costs. By drawing from low cost sources of skilled staff in India, Olam can
put a highly capable and motivated graduate engineer in the field for far less
than the all-in cost of its Western rivals. By exploiting this low cost and high
quality source of expertise to drive increasing customer value across the entire
spectrum of logistical activities, Olam has built an efficient machine to serve
customers at low cost. It has simultaneously erected a formidable barrier
to entry for competitors which would be exceedingly difficult for anyone to
surmount.
Customers. By serving mainly blue chip multinational companies like Nestle,
Unilever, and Kraft Foods in the developed countries, Olam has a virtually
zero bad debt position and a low risk sales profile spread evenly across the
three major economic trading areas of the world. By de-risking the supply
chain process “from farm gate to factory gate,” Olam allows its customers to
outsource logistics and purchasing processes to a reliable supplier capable of
operating at both lower cost and higher efficiency than any MNC could
achieve on its own.
Competitors. Often compared with agricultural and trading companies like
ADM, ConAgra and Noble, Olam’s true long-term rivals are the supply chain
managers like Hong Kong’s Li & Fung and other logistics companies filling
the complex expert space between low cost origin markets in developing
countries and sophisticated manufacturers in consuming countries.
Capabilities. With over 130 MBAs in the organization, Olam is fully capable
of designing and executing the most sophisticated of strategies and operating
plans. Each member of the management team has spent a considerable time in
at least one origin market, so all aspects of the business are well known across
the whole top management group. Verghese himself began his career with
Unilever in Nigeria, where he spent six years working in a small town
hundreds of miles from the nearest large city. This hands-on experience gives
each member of the organization a deep knowledge of the issues of sourcing,
168 STRATEGY
shipping, insuring, processing, and delivery of their various products. This
shared experience, often painfully acquired, also adds to the practical, colle-
gial, and friendly culture which underpins all of Olam’s interactions with
clients, suppliers, and partners in their management of the various value
chains on which they focus.
Capital. Olam was started by Verghese with the support of his management
team and an internationally savvy family investor, who had been impressed by
the skill, dedication, and entrepreneurial drive of the Olam management team.
By 2002, it became clear that the business would need to access more capital
to fuel its continuing growth needs. Following a systematic process of partner
identification and negotiation, Olam raised nearly $45 million in private equity
capital in a short period of time and enlarged the ownership structure to
include three firms: Russell-Asian Infrastructure Fund II; Temasek Holdings
(a Singapore government entity); and the IFC (part of the World Bank group)
to supplement the prior ownership stakes held by the management team and
the original investing family.
Context. One of the most striking characteristics of the unique Olam business
model is its focus on profiting from a change in the regulatory structures in
origin markets. With the removal of inefficient and frequently corrupt local
commodity boards in many emerging market source countries, Olam was able
swiftly to take up the opportunity to offer a better national economic solution
as board after board was decommissioned around the world.
The change in context fundamentally altered the rules of the game and
allowed Olam to build a successful business ahead of its slower and less adept
competitors along all seven dimensions of the model.

Gucci—A Modern Italian Renaissance

A story of company turnaround and subsequent strategic success similar to Del

Monte’s can be found in the glamorous world of high fashion and luxury
lifestyle goods. The Gucci business, one of the most famous names in the history
of the fashion business, has traveled through dramatic ups and downs over time.
Driven in part by the involvement of a colorful Italian family, the business went
through sequential phases of successful start-up, international growth, owner-
ship transition, near bankruptcy, spectacular recovery, and new challenges.
Beginning with the foundation of the company in 1923, when Guccio Gucci
opened his first leather goods shop in Florence selling high-end luggage and
saddlery equipment, the Gucci business expanded rapidly. By 1953 the company
was operating in the United States as well as Europe and had become a fashion
icon. Clients included some of the most elegant women in the world: Audrey
Hepburn, Jacqueline Kennedy, Maria Callas, and the Duchess of Windsor.
 Shared Elements of World Class Strategy 169

After overexpanding into a plethora of wholesale outlets and a lower end

canvas range of highly visible branded products, the company decided to cut
back aggressively in both areas. Unfortunately, the precipitous drop in sales
which resulted from terminating the wholesale channel and cutting out the
canvas product lines was not matched by a commensurate decrease in costs.
Profits plummeted and the company was threatened with bankruptcy.
At this decisive moment in the company’s history, Investcorp, the private
equity firm which had become the owners of the business, stepped in and sup-
ported a program which required that a new strategy be put in place and that
the value of the business—brand franchise, operating results, and capital
value—be restored.
In response, Domenico De Sole, the then new energetic, bearded CEO of
Gucci, and Tom Ford, who became the world’s most sought after designer,
banded together to create one of the most fabled success stories in the history
of the luxury goods industry. Sharing a vision of restored preeminence of the
Gucci brand in the high end of the luxury goods and fashion industry, De Sole
and Ford set out together to turn around a deeply troubled business.
From the beginning, the Gucci renaissance was marked by creativity, focus,
and an attention to all elements of the strategic mix. The corporate values of
reliable performance and high quality financial results were targeted and
pursued relentlessly by De Sole and his team.
Tom Ford restored the values of glamour, fashion relevance, and brand
awareness through a full redesign of all categories in the Gucci collection
from shoes to handbags to accessories. A special initiative emphasizing and
upgrading the ready-to-wear clothing collections was particularly well
received, generating millions of dollars of free publicity.
While Tom Ford was reestablishing the external values of the brand,
Domenico De Sole was overhauling every aspect of the internal business oper-
ation with equal creativity, energy, and success. Supplier relations were
restructured across northern Italy, the distribution system was reset, and the in-
store operations driven to world class standards, encouraged by De Sole’s
unannounced visits to Gucci shops, internally known as “terminatory tours,”
which left no item of Gucci store operations unchecked.
The organization was restructured and new managers brought in to help
refresh the organization. Old channels, such as the franchise networks in Asia
and Italy, were bought out and direct control of the customer interface and
product merchandising by the company were restored in critical markets. An
independent holder of the watch franchise was also bought out, allowing the
Gucci watch brand to be moved upmarket in line with the more elegant and
fashion forward approach taken to leather goods, accessories, and the ready-to-
wear collections.
The result was extraordinary sales growth, rising from $200 million to
$1 billion in 5 years. There were similar increases in profit, and an October
170 STRATEGY
1995 IPO was successfully concluded that was later voted the deal of the
decade in Europe for the 1990s. Investcorp, by then 100 percent owners of the
business following an acquisition of Maurizio Gucci’s 50 percent in 1993, sold
their stake into the market in two tranches for $2.1 billion, four times what
they had unsuccessfully sought only two years earlier. The share price rose
dramatically from the IPO to match the fashion renaissance of one of the
luxury goods industry’s grandest names as a new generation of Hollywood
icons and music industry luminaries such as Madonna, Gwyneth Paltrow, and
others once again vied to be identified with the Gucci label.
The strategic success of the business turnaround depended upon an entirely
new approach to the business: a new vision; new corporate and design values;
new sets of imperatives; a new organization; a new approach to managing
and owning channels; a new attention to costs, a new focus on effective
implementation, and an entirely new approach to the capital markets.

A New Chapter of Challenge

From its successful initial public offering at the end of 1995 as a high growth,
highly profitable single-brand company, Gucci grew into a multi-brand leader
in the luxury goods sector, expending $1 billion to acquire Yves Saint Laurent
and pursuing other acquisition opportunities to build a broader brand and dis-
tribution platform. In a constant and emotional battle with industry rival
Bernard Arnault at LVMH for years, Gucci eventually ended up in the arms of
urbane French suitor Francois Pinault. The company then went on a rapid-fire
acquisition program to build the set of opportunities available to replicate the
Gucci success and to harness the potential to build a string of success stories
within the PPR/Gucci stable. Other brand names acquired for a total of $2.3
billion included Bottega Veneta in handbags, Boucheron in jewelry, Bedat &
Company in watchmaking, Balenciaga in fashion, Sergio Rossi in shoes and
new designer lines for Stella McCartney and Alexander McQueen.
The business challenges of portfolio and management integration, coupled
with the need to restore profitability to a portfolio of ailing brands, were
daunting in themselves. Yet after years of success and growth, at the end of
2003, once again Gucci was caught up in dramatic events at an ownership and
senior executive level. The two stars who had driven the company to such
great heights—59-year-old De Sole and 42-year-old Ford—resigned together,
apparently due to disagreements with the interventionist approach taken by
billionaire Francois Pinault and his team at PPR.
The Gucci NV (as it had become) business, number 3 in Europe in the
luxury goods sector, struggled with an expanded portfolio of 9 brands, of
which 8 were unprofitable on a combined basis. The Gucci business, repre-
senting 67 percent of sales, contributed all of group profit. The $2.3 billion of
 Shared Elements of World Class Strategy 171

investment outside of the Gucci brand was, according to Pinault CEO

Weinberg in a year end 2003 interview, losing $200 million a year.
The need for a new strategy for the next chapter in the company’s history
was clear. While sharing some of the same elements of challenge faced by
De Sole and Ford a decade earlier, the problems appeared to be even more dif-
ficult to overcome the second time around. The environment in which the turn-
around needed to take place under new leadership was dramatically different
from that of the mid- and late 1990s when De Sole and Ford successfully
changed the strategy of the business.
The brand portfolio had become far more complex to sort out. The events
of 9/11, the war in Afghanistan, the war in Iraq, SARS, the weakened dollar,
the strengthened euro, the lingering aftershocks of the Asian Economic Crisis,
and the long decline of the Japanese economy all contributed to a far more dif-
ficult operating environment as a background for the next phase of the
inevitably dramatic Gucci saga.
As for Del Monte and Olam, the Gucci story proves that there is no end to
the dynamic history of a company. Demonstrating that consolidation, global-
ization, increasing complexity and virtually all of the other eleven principles
of the new paradigm can be reflected in a single company’s history, the Gucci
story is one which will be watched with fascination by industry observers and
customers for many years to come.
The glamour of the brand, the drama of its ownership struggles, the swings
in its past fortunes and the scale of its new challenges mark the company as
one whose future may well be as interesting, and perhaps as instructive, as its
colorful past.

The Cisco Rebound

Cisco Systems, cited earlier in the section on principles of the new paradigm as
a prime example of a company riding the phenomenon of connectivity to new
heights, also stands as proof that that an upward ride in the technology business
can be far from smooth and anything but painless. The dramatic redirection of
the business following the difficulties experienced by all technology companies
in the early years of the new millennium proved that creative, swift, and effec-
tive action ahead of competitors in a turbulent environment can lead to truly
world class results.
Following the problems of “Tech Wreck 2000,” the once triumphalist
John Chambers and his colleagues at Cisco went through an extremely
difficult period of far-reaching strategic diagnosis, design, and active corpo-
rate redirection. The top to bottom overhaul addressed virtually every element
of strategy and resulted in the writing of a very positive new chapter in the con-
tinuing business success story of the Cisco enterprise.
172 STRATEGY
The changes that drove the Cisco renaissance included a familiar line up of
ideas and approaches:
New vision—Instead of focusing heavily on networking equipment, Cisco
redirected its growth initiatives to pursue opportunities in six new markets as
well. To ensure that its business system was fully aligned with growth goals,
Cisco allocated half of its $3 billion budget for research and development to
emerging market opportunities.
New values—Although painful to implement, Cisco was forced to reverse its
longstanding no layoff policy. 8,500 people were let go, 18 percent of the
work force. Following the painful and far-reaching layoffs, Cisco recommit-
ted itself to building a more disciplined and team-oriented corporate culture.
New organizational approach—The engineering function was centralized,
purchasing rationalized, and web strategy sessions increased to extract the full
benefits of Cisco’s Internet applications. Processes, accountabilities, and
responsibilities were reinforced, a major change in the Cisco culture, from
CEO downward.
Standards of operating excellence—Cisco achieved new levels of efficiency in
reducing the complexity of its product portfolio by 27 percent, increasing sales per
worker by 24 percent, reducing costs by over $2 billion in 2002, and raising sales
from new product areas, such as security products, to 14 percent of total sales.
Growth strategies—Cisco dramatically slowed its acquisition program, with
its pace of deal completion dropping from two per month in 2000 to two per
year in 2002. A focus on organic growth was intensified. An internal program
linking post-transaction management accountability to those responsible for
acquisition projects tightened up on the achievement of expected returns in
completed transactions.

Results Speak for Themselves

The financial and operating results from the new strategic approach have been
remarkable. Cisco’s share of the $90 billion equipment market increased in
2003 to 16 percent, a dramatic increase on its 10 percent showing in 2001.
Profits reported near the end of 2003 exceeded $1 billion per quarter on sales
exceeding $5 billion. The company had no debt on its balance sheet and nearly
$20 billion in cash and liquid investments.
Crowed a once again ebullient CEO Chambers in a November 2003 Business
Week interview “We’ve executed to the point that we have 100 percent of the
industry’s profits, 100 percent of the cash, and about 70 percent of the market cap.”
Facing a post tech crisis future from a strong platform of recovery and
success, Cisco emerged from its bold period of strategic rethink and redirection
 Shared Elements of World Class Strategy 173

stronger than ever, and ready to embark on its next successful phase of strategic
diagnosis, design, and implementation.

Shared Lessons

Although the four companies chosen for elaboration here—Del Monte, Olam,
Gucci, and Cisco—are all very different businesses at different phases of their
strategic cycles, all bear witness to the value of good strategy. They also show
that strategic excellence is a journey, not a destination. There is always a new
phase coming with new challenges and a need for further strategic development
and execution.
All four companies also show the value of addressing the common elements
of strategy which form the core process and content of a STRATEGY pro-
gram. By pursuing the program set out here, you will be benefiting from the
learning, often painfully acquired, of some of the world’s leading companies.
By applying the process and content of STRATEGY, you will be able to
achieve many of the benefits of world class strategy without paying the learn-
ing costs of those who came before you and contributed to its development.
 CHAPTER 2

The Process of STRATEGY

One principle underlying much of what is good about the Anglo-Saxon legal
system was famously captured by a leading mind of American jurisprudence
when he stated: “Good process makes good law.” For many of the same
reasons, good process also makes good strategy.
A sound strategic process can ensure that high quality information is avail-
able to inform and guide the development and implementation of strategy. It
can also ensure that the strategic laws of gravity and fundamental principles
of strategy are respected. In addition, good strategic process ensures that the
goals, alternative action plans, and customer needs are debated in a wide and
inclusive forum. Sound strategic process also ensures that the eventual output
will benefit from thoughtful application of the full intellectual capital of an
organization, and will lead to the full motivation of its members.
Gary Hamel, author of leading books on strategy, is only partially correct
when he says that we do not have a theory of strategy creation and that we
know a good strategy only when we see one. A good process and effective
strategic model illuminate the theory and practice of successful strategy
creation. Neither a model nor a process can guarantee good strategy, but they
can substantially improve the average result and can more easily lead to great
breakthrough strategies in some circumstances.
A random, unstructured, or highly constrained process is far less likely to
allow a business to depart from an unsatisfactory status quo and lead to
breakthroughs in operating performance or value creation. A better approach
which captures the best of past learning and builds on it can improve the prac-
tice and discipline of strategy, thus improving its results.
Because the content of STRATEGY may be more demanding than past
approaches, the process to design, implement and document it will probably also
be more demanding. There could be more steps in the process. More people and
perspectives may need to be taken into account. The design process must slide
smoothly into implementation, which will involve even more people. Although
more challenging to manage than more limited approaches, the rewards of a
STRATEGY effort, properly pursued, will be well worth the extra effort.

174
 The Process of STRATEGY 175

The Value of Clear Documentation

One of the most valuable characteristics of STRATEGY is an ability to docu-

ment a strategy clearly and succinctly. Failure to capture the content of strat-
egy accurately in a manner which can allow easy communication can reduce
its value significantly.
Strategies need to be documented for five reasons.
■ First, writing down the strategy inspires thought, insight, and focus.
Conflicts and gaps in thinking and proposed action are exposed. The qual-
ity of thought is improved.
■ Second, a written document is essential for communication of the strategy
throughout the organization to refine its content, achieve buy-in and
approval as needed, and to develop a shared sense of common purpose.
■ Third, future generations of strategy managers will need a reference point to
understand the past and to assess success and failure of the initiatives undertaken.
■ Fourth, a cogent, crisp, and concise summary of the strategy provides the
foundation for aligning group and individual objectives. The quality of
organizational alignment depends in great measure on the clarity and commu-
nication of the vision and supporting strategy.
■ Fifth and finally, strategies are relevant for all members of an organization,
and not everyone can join directly in the process steps of diagnosis, design,
and implementation. For those colleagues who are not part of the core team
or who may have joined after the completion of the STRATEGY exercise, the
opportunity to access a cogent summary of the strategy can be invaluable.
To ensure that a new strategy benefits from the full capability of an organi-
zation and the people in it, a few useful process rules, in addition to the need to
document your strategy, can lead to the highest quality strategic process.
Observing these seven process principles can provide a useful checklist and
reference guide to keep a STRATEGY program on track.

Seven Process Principles of STRATEGY

Ensure an effective process

Ensure an inclusive process—break down
the hierarchy
Set long-term objectives for individuals and the group
Test the logic and the process
Balance strategic planning with strategic flexibility
Search for nonlinearity and creative breakthroughs
Embrace risk, action, and the acceptance of failure
176 STRATEGY
Principle 1. Ensure an Effective Process

One frustration that managers face in complex modern organizations: too

much data, too little useful information. Distillation, simplification, interpre-
tation, harmonization (the use of similar templates to enhance the compara-
bility of information), and upfront summaries of conclusions are essential in a
process create deeper understanding and more effective strategic decision-
making.
Many review and strategy development meetings will be less structured, more
critical, and bolder in thought than usual discussions. Ironically, this broader
range of thought and greater depth of content require basic meeting disciplines to
be even sharper than usual. The time of participants needs to be respected and the
principles of efficient meetings observed. High quality materials and presenta-
tions need to be developed in advance and summarized clearly. Objectives for
each meeting need to be agreed at the outset. Attendance and distribution lists for
minutes need to be defined thoughtfully. A summary of agreed points, points in
contention, possible breakthrough ideas, the potential value of ideas, and agreed
next steps need to be documented and circulated. Summary perspectives and
agreed points need to be recorded and circulated, as do action steps. Promising
thoughts need to be evaluated, distilled, captured, and circulated.
Perhaps the most important of traditional meeting disciplines is listening
carefully and ensuring broad and active participation. The chair’s obligation is
to ensure that all relevant views are heard from each attendee and that
appropriate debate is allowed on each individual’s perspectives. Meetings
dominated by a few individuals or characterized by interruptions and distrac-
tions are unlikely to capture the full potential of the group’s capabilities.
If the process does veer off track, corrective action should be taken swiftly.
Frequent, small corrections in earlier stages of flight are always a more
efficient way to keep a rocket on track than is a massive effort to recapture an
erring trajectory that has gone way off course for a lengthy period. It requires
less energy. The likelihood of a successful flight achieving its objective is far
greater. The risk of unforeseen catastrophe is lower due to a less intrusive set
of corrections and interventions.
The same is true for large transformation projects or strategic planning
exercises. Constant feedback and quick response can keep the process on
track. An effective and efficient process leading to superior strategy and imple-
mentation is the objective. Frequent, small corrections improve the odds of
achieving these larger goals.
STRATEGY may require longer lead times and more groups to provide
input and coordinate multi-year initiatives. In addition to your STRATEGY
document itself, you may also want to include marketing plans, year-end
reviews, investment proposals, capital market initiatives, and other events that
would benefit from full integration with the strategic process. An effective
 The Process of STRATEGY 177

process that ensures management buy-in and effective implementation takes

longer and absorbs more resources up front. But the payback in the future will
be faster and greater.
Many strategic planning processes are set to be efficient rather than effective.
Timetables are brisk. Review sessions are short. Feedback is focused. The
process is repetitive, mechanical and uninspiring. The linear and nonlinear char-
acter of STRATEGY may require further discussion from fresh perspectives
and more challenge on the underlying vision than past processes. More ques-
tions need to be asked, contrary positions played out, and new ideas explored.
The main elements of STRATEGY provide a checklist to ensure that strate-
gic reflection covers all the issues. The 7C’s, 9S’s, 8 Strategic Laws of Gravity,
and other models can also help stimulate discussion and ensure that all relevant
items surface and are integrated into the process. For generating breakthrough
strategies, a systemic view is also essential. Exploring the dynamic implica-
tions of a more systemic view does not mean discarding other viewpoints, but
it does mean adding a new and higher level perspective which can change the
overall perspective and hence the subsequent actions of the group.
An open forum to develop and test these new perspectives is also necessary,
for dynamic systems behavior can be captured at many levels and from many
complementary perspectives. Just as wave and particle physics can describe
the same phenomenon from two equally valued perspectives, systemic (holistic)
and particular (atomistic) views of a business trend or event can be equally
valid and complementary. The more radically different views may be the least
comfortable to adopt, but ultimately may prove to be the most valuable. All
need to be fully explained in an effective STRATEGY process.

A Quick Test

One useful tactic is to end each major meeting with two simple questions that
all participants are required to answer: On a scale of one to ten, how are we
doing? In one sentence, what could we have done better? The short answers
to these questions take little time to gather and may add great value to the next
stages of the process.

Principle 2. Ensure an Inclusive Process—Break Down

the Hierarchy

The development of the best contemporary strategies often reflect a process

which respects neither internal walls within a business nor the traditional
boundaries of a business enterprise. Strategies can benefit enormously from
the informed perspectives of other players in the business and industry value
chains. Entire books are now written on the value of including customers in
178 STRATEGY
strategy. Suppliers as well can be brought in to produce good ideas, align
economic activities, and negotiate the most appropriate trade terms. And, with
the greatest degree of caution, selected competitors may also cooperate with part
or all of a rival in business activities.
Developed rapidly in the technology sector in particular, the trend of greater
strategic inclusion does now extend across the full gamut of industry players.
Even old rivals can become new friends, allies and contributors to strategic
development, spawning the creation of the new word “comperation” to
capture the emerging synthesis of competition and cooperation.
A more inclusive approach internally can also yield great benefits. No indi-
vidual or single level in the hierarchy has an exclusivity on good ideas. At 3M,
a secretary contributed to the creation of the universally popular Post-It, a
highly successful and nonlinear development in office supplies.
At Asda, a successful British grocery chain recently purchased by Wal-
Mart, the word employee was discarded in favor of colleague, a less hierar-
chical term which applied to everyone from the CEO to the newest member of
staff in the loading bays. Under unconventional Asda CEO Archie Norman, all
colleagues sat in an open plan setting where no one had an office with walls,
not even the CEO himself. The more collegial atmosphere opened new
channels in the organization for innovation, leading to new concepts in prod-
uct, service, category management, promotion, and supplier arrangements.
Effective access to knowledge, intuition, and insight at all levels maximized
the use of intellectual capital in the organization and allowed the once sleepy
Leeds-based retailer to become one of England’s most admired turnaround
stories and a sought after acquisition target.
One proven way to increase the creative output of a high-quality organiza-
tion is to break down line and staff barriers in the STRATEGY process. A
combined team of finance, marketing, and line management looking at com-
petitors may be far more effective than a purely marketing-led view of the
opposition. Creative teaming can also break down external and internal walls.
Involving suppliers and customers may elicit win–win opportunities and new
sources of competitive advantage. One limitation of linear models is that they
often do not acknowledge the systemic trend of shared economics that is
redefining the boundaries of processes, strategies and competition.
A more inclusive and participatory approach to the development of strategy
meets four objectives.

■ First, the strategy is improved by increasing the thought and perspectives

that go into the process. In particular, the younger employees in an organi-
zation may contribute fresh and unexpected views on key risks and oppor-
tunities. To hammer home that point, Infosys, a leading Indian software
company, once introduced a rule at some planning meetings that no one
older than 30 is allowed to speak.
 The Process of STRATEGY 179

■ Second, the chance of effective implementation improves greatly through

inclusion. An organization’s sense of owning a strategy will be much
stronger if a broader set of colleagues is involved in its generation.
■ Third, the process provides valuable learning opportunities to participants,
adding practical tools and techniques and stepping up integration within an
organization. An inclusive process allows organizations to realize internal
synergies among divisions, departments, and business opportunities that
might have gone unnoticed.
■ Fourth, a broader process increases the engagement of individuals. The
challenge of engaging and motivating individuals in a collective effort is
one of the most critical tasks a senior manager faces today. Inspiring this
engagement will improve the entire morale of an organization, leading to
higher individual satisfaction, better retention of key staff and customers,
and a wholehearted dedication to the vision and agreed initiatives of a busi-
ness strategy.

Experienced strategists will note, however, that one danger in pursuing a

new and more inclusive process of change is that overenthusiasm can lead to
having too many people in too many meetings with too little effective output.
A carefully managed process will avoid this risk and police the line between
the interesting and the useful.

Principle 3. Set Long-term Objectives for Individuals

and the Group

Deeper understanding of the nature of business enterprises and the competitive

challenges they face will require setting objectives for actions which have imme-
diate results, and also may require objectives to be set which will only show ben-
efits in a much longer time frame. Multi-year perspectives and targets may be
required for major initiatives, for individual and group development plans, and
for organizational evolution. Longer term objectives could include revenue and
profit targets, new product initiatives, improvements in departmental satisfaction
scores, new systems implementation, team skills development, hiring targets,
and individual skills development programs. Consolidation and communication
of these objectives is one of the most important opportunities for senior man-
agers to engage, direct, and motivate their colleagues.
Longer term personal objectives need to be aligned with group objectives.
Development and career plans need to be aligned with the current opportunities
and longer term objectives of both individual and enterprise. A realistic develop-
ment plan with long term dates and responsibilities may need to be set for each
individual. These phased objectives should be short, fewer than ten per
180 STRATEGY
person, and all action items need to be both measurable and realistic. They should
be shared with colleagues and confirmed with all relevant senior mangers. A clear
hierarchy of objectives from enterprise down through all supporting individuals
should be crafted so that each longer term goal is fully supported by the requisite
complement of supporting objectives.

Principle 4. Test the Logic and the Process

Good strategy has been characterized as an inexorable flow of logic from

insight to action, a seamless web of facts, principles, decisions, and actions
that allow an organization to reach its goals and generate extraordinary
returns. In order to ensure that your strategy is indeed world class, all parts of
the strategic logic should be tested, cross-examined, and challenged. Where
falling short, necessary change should be made as early as possible.
As most strategies in the business world have created operating results char-
acterized far too often by satisfactory underperformance, external examples of
real excellence need to be examined. New and better approaches to operations,
growth, and transformation need to be described and their potential applica-
tion examined and challenged. A constant challenge from external perspec-
tives and from a platform of dissatisfaction with the status quo is required.
Effectiveness, as well as efficiency, needs to be an objective.
One optional element of many sound STRATEGY approaches is a set of beta
tests and pilots to assess the workability of proposed new approaches in the real
world. Beta testing, or testing a developed model in a real operating environ-
ment, is particularly important in the implementation of a risky new approach.
Changes that threaten (or promise) to disrupt a long established way of doing
business may need detailed testing, revising, and a phased roll out to ensure that
risk is properly managed and the new model properly implemented.
In order to keep the process on track and the content correct, seven questions
should be constantly in the minds of participants in a STRATEGY exercise.

Seven Testing Process Questions

Are the facts correct and the full picture clear?

Is the proposed interpretation correct?
Is the process capturing all internal and external ele-
ments necessary for inclusion?
Is a past approach obscuring a clear understanding of
the present or limiting the potential of the future?
Is there a better way to achieve what we are trying
to achieve?
 The Process of STRATEGY 181

Is this process different, and better, than prior

exercises?
Do your business judgment and intuition say this is
the best you can do?

An application of best practice from the manufacturing world requires that

strategists do not wait until the process is finished to assess the quality of the
effort. At each stage of the process, particularly at mid-term reviews or other
critical junctures, team members should step back and ask these questions to
assess whether the process is correct, which areas need improvement, and how
the next phase could be improved. Good leaders should regularly solicit con-
cerns from each member of the team, regularly pose these seven questions,
assess progress and performance objectively, and take remedial action swiftly.

Principle 5. Balance Strategic Planning with Strategic Flexibility

There is a benefit to specificity in strategy, but there is also a risk in over-pre-

scribing and limiting future freedom of action. Strategy in our new electronic
world is exceptionally dynamic, and paradigms are rapidly evolving. Strategy
is now more about people, flexibility, and adaptations to shorter and shorter
cycles of all kinds, including technological, product, logistical and competitive.
The product of a STRATEGY exercise is not an enormous tome that sets
out in minute detail the activities and responsibilities of each individual for the
coming years. The business environment is too volatile, the future too uncer-
tain, and the individual too independent (at least the best ones are) to benefit
from excessive direction and control.
The final content of the strategic document should be architectural rather than
exhaustive. It should describe the vision, principles, goals, and outline plans for
action. The plumbing, engineering, and detailed individual plans may need to be
developed and implemented flexibly over time, always fully coordinated and
aligned with the vision, but always with the appropriate autonomy and freedom.
The needs for flexibility and adaptability in modern strategy are so extreme,
particularly in the new market spaces of e-commerce and Internet competi-
tion, that some business sages are recommending a more Zen-like approach to
strategy. They assert that one can no longer become attached to any fixed
outcome. Adhering to static, outdated visions, or even any fixed outcome at
all, can be an automatic death sentence in the e-world in particular. Almost all
winning businesses work at Internet speed these days, or at the speed of
thought as Bill Gates describes it, ensuring that the strategy world is more than
ever a world where accelerating productive change and a built-in capacity to
adapt swiftly to change is a necessity for corporate survival.
182 STRATEGY
Professor Moshe Rubinstein captured the necessary hybrid of strategic
planning and strategic flexibility when he described the need in modern
strategy to be “half planned and half unplanned,” executing on well thought
through initiatives but always ready to respond to the unexpected.

Principle 6. Search for Nonlinearity and Creative Breakthroughs

STRATEGY makes the best of what we do know about creating positive

discontinuity and establishes an effective process to both generate and respond
to the inevitability of that kind of dramatic change. The three phases maximize
the benefits of past experience and learning in the context of the expected,
and also prepare an organization for the unexpected in the future as much as pos-
sible, enabling you to profit from discontinuous change as and when it occurs.
The environment will always produce surprises, as discontinuities in complex
systems, by their very nature, are not always predictable. Those surprises may
require strategic change or redirection and will require organizational cultures
both to plan in an expert manner and to be prepared to discard or amend those
plans if necessary. Good strategies will benefit from fast response to change, and
may even deliberately create and exploit discontinuity for their own advantage.
By understanding the multi-dimensional and interdependent nature of events and
business systems, talented management teams will be able to profit from the
opportunities inherent in any turbulent period.
Dell focused on a new model of channel leadership and created a highly
successful direct sales model. Intuit shifted its Quicken packaged software
business to an on-line presence. ICI and 3Com have redefined their business
models as they voluntarily broke up their business portfolios. The Quantum
Fund constantly seeks arbitrage opportunities for investment to profit from
discontinuities in the international financial order.
With a fuller understanding of risk, opportunity, and the repetitive patterns
visible in dynamic systems, aspects of strategy discussed in Book One, it is
easier to search for nonlinear opportunities and to generate breakthrough
insights and actions. Non-linear change is becoming more common, and mas-
tering response to unexpected events is more than ever a valuable asset in the
business world.

Challenge Received Wisdom

There are many implicit assumptions, beliefs and ideas that underlie most
existing strategies. Often, they are outdated or incorrect. By exposing the
building blocks of belief that provide the foundation of strategy, you may well
 The Process of STRATEGY 183

be able to move on from those misconceptions or outdated assumptions that

lead to inappropriate actions.
For example, in the retail trade, as mentioned above, there is no more
widely disseminated “truth” than the notion that the three most important fac-
tors are “location, location, and location.” Many modern retail empires have
been founded on an entirely different conceptual foundation.
The success of new giants like IKEA, Wal-Mart, and out-of-town “category
killers” such as Toys R Us, Staples, and others stand as testimony to the
success of redefining the nature of a challenge and executing well in a new
strategic space. On the other hand, many vacant shops on elegant streets in city
centers, once the best examples of the “location, location, location” philoso-
phy, show that business today is very visibly divided into those capable of
adapting to change and those who will not survive a new order of competition
in a new paradigm.

Search for Win–Win Answers

Many breakthrough strategies are driven by new approaches. New supplier

relations, integrated logistics, alliances, business combinations, outsourcing
arrangements and new business models bringing manufacturer, service
provider, and customer closer together have all created new business
approaches and led to higher rewards for their creators. There needs to be time
allocated in the STRATEGY process to assess new win–win models of oper-
ation, not just for discussion aimed at optimizations of old approaches and
frameworks.

Principle 7. Embrace Risk, Action, and the Acceptance of Failure

Not all efforts will succeed, but without risk, trial and some failure there can
be little progress. As we have already noted, no scientist ever made great break-
throughs merely through a methodology of trial and success.
Mere theory, no matter how elegant, is not enough in the real world. The
only way we really learn is through action and experience, both good and bad.
In fact, it is perhaps only through our worst experiences that we gain the most
valuable knowledge. Acting, and learning from that action, are thus the source
of our knowledge and wisdom. We must be willing to act, to test the bound-
aries of what we know, and to accept risk to add to our store of relevant knowl-
edge. By acting more boldly, with more courage and creativity, we can test
ever more aggressively the borders of the possible.
184 STRATEGY
Advanced companies accept and manage failure as part of organizational
learning in very different ways. At Intuit, parent company of the enormously
successful Quicken software, unsuccessful initiatives are ended with a party to
celebrate the learning they represent. At 3Com, parent company of the ubiq-
uitous Palm Pilot, a different rite of passage is observed. A mock funeral is
held to bury the effort and free the organization to move forward again. These
two approaches, radically different in their content, recognize the value of risk
and the inevitable need to tolerate some examples of failure as a part of the
organizational learning process.
In testing any alternatives against the current state of satisfactory underper-
formance, we will not always succeed. But failing to take on risk is a guarantee
of failure to achieve our full potential and a sure path to satisfactory under-
performance.

Lessons from the Past

From the contrasting stories of success and failure in past strategic planning
exercises emerge a number of valuable lessons to inform STRATEGY partic-
ipants of the potential for missteps in the formulation of strategy. While
accepting some degree of failure as an inevitable part of the risk cost of aspi-
ration, it is also important to extract as much learning as we can from the past
to avoid repeating old mistakes in the future.
From a broad set of past strategic exercises, a few observations on potential
future process pitfalls may be instructive.

Seven Principles to Avoid Process Problems

Getting the team right first is essential

A vision cannot be developed in a vacuum
There is no independent element of strategy
Strategy is no longer about incremental improvement
The softer elements are more than ever at the heart
of strategy
The broader application of principles should not be
limited
Address irritants, obstacles, and impediments early

First, getting the team right before you start the STRATEGY process is
an essential part of moving your business and strategy to a new level of
 The Process of STRATEGY 185

excellence. In his book Good to Great, which analyzed the key success factors
of a number of “good” performing companies which later became long-term
“great” success stories, Jim Collins discovered that often the management
team had to change before the strategy and operations of a business could be
fully tuned. Other experts have pointed out that in two-thirds of dramatically
successful turnarounds, the old management team had to be replaced
before significant progress could be made in driving an enterprise to turnaround
success.
Second, a vision, while essential, cannot be developed in a vacuum. A thor-
ough understanding of the history, current state of affairs, and future options
is essential to create a meaningful vision for a business that is capable of being
realized through implemented strategy. A full framework of understanding is
needed to promote a more comprehensive and useable set of inputs to strate-
gic diagnosis and design. It is essential to identify sources of satisfactory
underperformance and to ensure that relevant patterns are observed, systemic
characteristics understood, relevant net risks and opportunities quantified, and
the individual elements of the framework fully integrated to provide a com-
prehensive foundation for strategy development.
The third insight is that there is no independent element of strategy.
All elements are important for generating superior results at operating and
strategic levels. Strategic diagnosis, design, and implementation all need to
be fully addressed to realize an aspirational vision for an enterprise. In all
the winning examples described here, a shared approach addressing
and aligning each of the supporting elements of diagnosis, design, and
implementation was necessary to support the ultimate execution of success-
ful initiatives.
Fourth, strategy is no longer about incremental improvement or protecting
the status quo. Successful strategies in today’s world may need to create
opportunities for breakthroughs and fundamental change in industry or busi-
ness enterprise models. New business definitions, new alliances and combi-
nations of resources, new standards of excellence, and new approaches to old
problems are all necessary components of a more ambitious strategic
agenda.
Fifth, the softer elements of organization, motivation, capability, and lead-
ership are more than ever at the heart of strategy. These softer elements merit
the greatest attention if full potential is to be achieved in an enterprise.
Sixth, the broader application of principles derived from one source of
insight should not be artificially limited. Commercial success and failure in
the United States, Europe, and Asia share common patterns, principles, and
lessons. The best practice model of transnational strategy captures the com-
mon nature of this understanding. The resulting implications are more univer-
sally applicable and the sources and content of these new models more
relevant to a range of problems and challenges wherever they arise.
186 STRATEGY
Finally, address irritants, obstacles and impediments early. Even if there is
no wholesale change proposed in management structure, staffing, or operating
principles, it is always important to address on a timely basis the counter-pro-
ductive sources of irritation and resistance that can derail a strategy process and
undermine efforts to achieve operating full potential. These sources may be
found in inadequate data bases, overburdened IT or marketing staff, or even
simple human character.
Over time, a number of styles or attitudes of team participants may emerge
which signal the need for senior management to act swiftly to correct problems.
By taking tough decisions and acting early, risks to the process and strategy can
be managed and greater costs avoided at a later date.
A few recurring archetypes of individuals who can interfere negatively with
a STRATEGY process and jeopardize the outcome can be derived from prior
strategic exercises:
The always right type. Individuals who make no attempt to listen to new facts
or views of colleagues can be a major problem in a STRATEGY program.
Frequently disruptive, these types often fail to contribute to the process and
remove the possibility of a motivating consensus to move a business forward.
There is always a need for individuals participating in the process to work
together to create and execute strategy. Those unable to pull together with col-
leagues risk pulling the entire effort out of alignment.
The passive resister. Individuals who do not confront and challenge the
process, but attempt to slow, stop, or redirect the program through passive
behaviors can unproductively delay, derail or obfuscate the matters at hand.
Frequently failing to complete necessary work, avoiding the chance to voice
an opinion or ducking chances to participate actively in a discussion, the pas-
sive resistors may be either risk averse or more political in their motivation.
But in both cases, taking a stand early on with regard to the appropriate style
and role for all concerned is important.
The indiscreet broadcaster. Confidentiality is one of the key elements of an
effective STRATEGY process. Work in progress insights, proposed actions, and
investment proposals have a real value which can be diminished considerably by
exposure to the wrong parties. While needing broader participation and com-
munication, the elements and objectives of strategy, even unfinished, deserve to
be carefully protected and released only in a conscious and controlled manner.
The kiasu king. In Asia, and in particular in Singapore, the Hokkien term
kiasu has emerged to fill a conceptual gap in the English vocabulary. Kiasu is
an unfortunate state of mind driven by a great fear of being left out or losing
advantage, no matter how small, to another person. It means essentially doing
as little as possible to help others while maximizing the value to oneself of all
individual actions. In kiasu thinking, it does not matter whether the team
 The Process of STRATEGY 187

succeeds or whether the greater good is served. Narrow short-term self-interest

is the only measure of kiasu success. Visionary thinking, team work, effort,
honor, and honesty have nothing to do with kiasu behavior. Small thinking,
self-interest, manipulation, deceit, and laziness are the central values
developed by the kiasu individual.
In fact, selfish kiasu behavior leads to the ultimate in satisfactory underper-
formance and should be swiftly rooted out wherever discovered. Only by
exposing the games being played and by setting a clear standard of what can
and should be achieved can the kiasu risk be avoided throughout the process.
Silo prisoner. Some individuals may have difficulty breaking out of the status
quo models of strategic thinking and status quo models of the organization.
Established departmental or divisional barriers may be considered sacrosanct and
organizational hierarchy rigidly observed. Unless these limitations can be broken
down and removed, the full value of the STRATEGY process will not emerge.
In these, and other well-known models of resistance and inefficiency, the
individuals who threaten a process of change because of self-interest, limited
capability, or emotional attachment to the status quo will require addressing as
early as possible.

Other Irritants

Not all irritants and obstacles in a STRATEGY process are driven by individ-
ual personalities and problems associated with their interactions during the
process. Information systems, budgeting forms, performance review systems,
inter-departmental issues, difficulties with geographical distance, and commu-
nications issues can all create impediments to a fully effective process.
Wherever possible, these impediments should be surfaced, understood and
dealt with as early in the process as possible. By so doing, the full value of the
exercise can be realized and a standard of operating excellence in a project
forum established for replication elsewhere in the organization.

Caveat: Tolerate and Encourage the Intelligent Voice of Dissent

On the other hand, intelligent voices of dissent should not be stilled. The lone
dissenter can be a powerful voice for creativity and new thinking if running
against the grain of established thought. One of the attributes of a true leader
is the ability to separate the fresh thinkers from the counterproductive at all
stages in setting and implementing strategy.
The process of STRATEGY requires leaders to master many complex
balancing acts like this, taking into account and assessing the need for con-
structive dissent with the value of eradicating counter-productive resistance,
188 STRATEGY
the need for creativity with the value of realism, and the need for rigorous
analysis with the value of discontinuous ideas which are not capable of
complete data-based understanding.
In tolerating, and even in recognizing the value of dissent without allowing
the process to be derailed, the effective leader will be able to oversee a debate
which is open, constructive, and comprehensive without descending into a
state of counter-productive discord where the overall objectives of STRATEGY
could be compromised.
CHAPTER 3

Content Phase I: Diagnosis

In this phase we shall begin to set out the specific slides and charts necessary
to generate the best STRATEGY for your own business. As you work through
each step of the prescribed process, you will be moving toward the goal of a
comprehensive, thoughtful, and winning strategy. In order to make the struc-
ture and content of STRATEGY as clear and useable as possible, an example
is developed throughout all phases of the approach. Although your own busi-
ness may differ in many critical aspects from the fictitious example chosen,
the slides and graphs included for the Royal Richesse Company can easily be
supplemented or adapted for any business in a competitive environment.

Three-phase Approach

Strategy is best developed through three sequential phases of diagnosis,

design, and implementation. Every company’s strategy needs to be unique, but
this common approach can serve as a guide and checklist to ensure that your
own world-class strategy is fully developed and properly aligned.
The first diagnostic phase sets out clearly the current and past state of the
business from all relevant perspectives. In this phase is included a set of slides
to help you to think through the past history and current definition of your
business, understand the dynamic trends and influences that will shape the
future of that business, describe succinctly the new paradigm of business com-
petition, and identify the levers on profit and value which can raise the eco-
nomic performance of your enterprise.
The second design phase of strategy begins with the selection of a new
vision and the determination of the most attractive strategic option going for-
ward. The content of this phase focuses on the imperatives, initiatives, and
actions which are required for your business to set out on a winning pathway.
The best organizational approach, targeted standards of excellence, and
a process of integration and alignment of the independent elements of your
strategy will round out this phase. A new organizational structure, staffing, and
operating approach will be prescribed. A final stage of specifying target results
will lock in the fundamental notion that the essence of strategy is all about

189
190 STRATEGY
achieving a vision and getting real results for all stakeholders through informed
and effective action.
The third and final implementation phase ensures that the enterprise realizes
the target results specified in the design phase and captures the full value of
the strategy. The individual steps within this final phase ensure that appropri-
ate resources are made available, that proper measures and controls are in
place, that corrective actions are taken as and when needed, and that the full
value of the strategy is captured from every possible angle.
The STRATEGY process begin with a thorough diagnosis. Before setting
out on any strategic direction for the future, it is essential to learn as much as
possible from the past, to review the pertinent facts and experiences, and
extract the appropriate lessons from information and memory. That learning
must provide a comprehensive understanding of the history of a particular
business, including the immediate competitive environment and those broader
trends and influences which have and will continue to shape that business.
It also helps to understand applicable lessons from adjacent, similar, or rel-
evant sources of learning and knowledge. A full diagnosis looks backward and
forward, outward and inward, and takes into account both dynamic and static
views. Moreover, a thorough approach will look at those subtle trends and
influences which only affect the business on an indirect basis today, but may
have an important impact on the future performance of a business. This thor-
ough approach will ensure that you have learned the lessons of the past as
comprehensively as possible in order to determine as far as possible the
shape of the future. Only through this kind of comprehensive and thoughtful
diagnostic approach can your team arrive at an adequate understanding and
evaluation of the full range of options available.
The diagnostic phase, as are the other two phases in the STRATEGY
approach, is broken down into seven steps, each important in its own right but

Phase I: Phase II: Phase III:

Diagnosis Design Implementation

Phase I: Diagnosis

1. Point of departure
2. Portfolio perspective
3. Profit pool perspective
4. Competitive perspective
5. Business dynamics
6. Organizational assessment
7. Range of strategic options
 Content Phase 1: Diagnosis 191

with each also contributing to the achievement of the greater objectives of a

particular phase and to the overall value of the STRATEGY program. For each
of the seven steps in all three phases there is attached an explanatory slide and
at least one example slide. In a later section, you will find the instructions on
how to download a soft copy of these PowerPoint presentation slides to make
your own STRATEGY exercise as easy as possible.

I.1. Point of Departure

The first step in the diagnostic phase is to describe the point of departure of a
business. This first step captures the company’s current performance, defines its

I.1. Point of Departure

Explanation
The first step in a STRATEGY diagnostic is a description of the point of departure, setting
out the facts and an analytical summary of the current state of the business – in absolute
terms and relative to competitors. This will include:

a) Company history and business definition

b) An overview of customers, markets, and sources of profitability

c) Historical and current results

i) financial
ii) strategic balance sheet
iii) organizational 1. Point of departure
2. Portfolio perspective
The fundamental measures of business performance are 3. Profit pool perspective
essential to document for two reasons. First, they describe 4. Competitive perspective
factually the past and present position of the business and 5. Business dynamics
provide a foundation for strategic design. Second, they will form 6. Organizational assessment
an important yardstick for a new strategy – the charts here will 7. Range of strategic options
also be a key part of the target results for the implementation
phase of your STRATEGY.

I.1. Point of Departure

a. Background and history

Royal Richesse Watches (“Richesse”), founded in 1736, is one of the world’s leading luxury
watch houses, specializing in high end men’s gold case, leather strap chronometers and
pocket watches, epitomizing Swiss values of precision, quality and exclusivity.
Following a series of poorly received product launches in the early 1980’s, the watch
business lost a global leadership position and continues to suffer long term erosion in
market share, brand presence, and relative margins. Ladies' watches are in a particularly
weak position and suffer from performance problems.
Competitors have overtaken Richesse and continue to grow in the core luxury watch
segments and in high growth sectors such as sports watches, where Richesse is not
present. Only pocket watches have maintained a leadership position.
In 1995, the company diversified into the luxury leather goods market with the acquisition of
Perso for $200 million. This acquisition also brought Richesse into the Italian property
market through a Perso subsidiary in Milan.
The acquisition of Perso in 1995 has not provided the desired uplift in profits nor the
expected cross-sell of leather goods and watches. The property division of Perso has
provided even more problems than the core leather goods division.
A new CEO has been hired from the outside to develop a new strategy for business.
192 STRATEGY
business(es), and documents its relevant past. In this step will be included
summaries of financial results, a strategic balance sheet and a description of key
product and customer segments, with particular reference to the profits generated
in each area.
The expanded versions of traditional models of business analysis, the 7C’s or
9S’s, can provide a useful checklist to identify the most salient points.

I.1. Point of Departure

b. Business definition

Richesse is in the business of designing, manufacturing,

distributing, servicing, and marketing one of the world’s
leading luxury watch brands.

In addition, Richesse owns and operates an Italian leather

goods business and a property business unrelated to the
luxury goods unit.

I.1. Point of Departure

c. Financial results
Asian
Economic
Crisis
1200 Acquisition
of Perso Perso
1000
Watch Revenues
800
million
US$

600 Poorly received

relaunch
400

200 EBIT
PAT
1980 Current year
 193

I.1. Point of Departure

d. Customer matrix *
Product Total Sales Pre-tax Total Profit Comments
Customer segment sales/ sales trend profit profit trend
(End user) service % $ mm %
$ mm
Core Collectors 400 40 62 41 Mostly European – need to identify
and work with via direct outlets
European men 40- 190 19 30 20 Losing to Zurich-Swiss
60+ (leading competitor)
European men 20- 50 5 9 6 Losing to Sportius
40 (leading competitor)
European women 50 5 8 5 Weak range and low brand
presence
Asian 100 10 10 7 Price pressure

American 200 20 30 20 Flat sales – lack of brand

excitement
Third Party service 10 1 1 <1 High margin growth opportunity?

Total 1000 100 150 100 Overall performance under

pressure

* Not including Perso

I.1. Point of Departure

e. Customer profitability *
3 most profitable Comments / Implication

Customer Sales EBIT

Collector Club $52mm $19mm High margin product / get to know better
Distributor 1 $11mm $4mm Pocket watch specialist / find more
Distributor 2 $21mm $9mm Great sales practices / document and roll out

3 least profitable Comments / Implication

Customer Sales EBIT

Distributor 3 $6mm ($1mm) Extended trade terms / renegotiate
Asian women $22mm - Discount purchases only / de-emphasize
Wholesaler 1 $18mm ($2mm) No control / new contract needed

* Not including Perso

194

I.1. Point of Departure

f. Cash flow (operating)

150

100 PAT
US $ million

50 Depreciation

CAPEX Net
(50) Cash
W.C.
(100) Flow

(150)
Change in working capital
(200)

T-4 T-3 T-2 T-1 Today

I.1. Point of Departure

g. Balance sheet
Comments

Current assets Current liabilities Mostly working capital loans

Can be replaced with commercial paper

Subsidiary Long term Linked to acquisition but at holding
US$ million

companies and debt company level

investment
Could be refinanced?

Dividend payment policy of 50% of

Property, plant, Shareholder profits to family members and trusts
equipment funds

Assets Liabilities
 Content Phase 1: Diagnosis 195

I.1. Point of Departure

h. Strategic balance sheet
Assets Liabilities

“Hard” Strategic Assets “Hard” Strategic Liabilities

Well known brand Limited range

36 owned outlets Outdated IT systems
600 other points of sale Competitor momentum
High market share $200 million debt (Perso)
Fading brand equity

“Soft” Strategic Assets “Soft” Strategic Liabilities

Quality reputation Perso distraction

Loyal (repeat purchase) customers Internally focused organization
Dedicated workforce Family transitions coming up
“Old World” culture “Old World” culture

I.2. Portfolio Perspective

One of the most valuable elements in any STRATEGY will be a diagnostic

view of your business using a series of portfolio tools. The era of businesses
attempting to be all things to all people in all places at all times is over. Diffuse
strategies have proven too expensive to pursue and yielded poor results for
shareholders and managers alike.
Some of the most successful strategies in recent years have been character-
ized by radical new approaches to business definition. Winning companies
have shed assets once considered necessary parts of an integrated
business chain and fought successfully for valuable leadership positions on
a narrower field of competition. Time and time again a consistent characteris-
tic of success in a winning strategy is focus—applying resources differentially
to achieve new standards of excellence in more narrowly defined fields of
priority action.

Dual Nature of Modern Portfolio Analysis and Action

Unlike traditional approaches to portfolio analysis, STRATEGY allows you

to think about your business portfolio from two distinct perspectives,
external and internal. All too often, executives analyze their businesses from
an external perspective only, missing opportunities to think afresh about their
196 STRATEGY
participation along their own value chain and missing opportunities to review
options to restructure internal activities to their advantage.
Following the selection of a vision and a top-level strategic pathway
forward, senior managers will be faced with the choice of how best to restruc-
ture their businesses externally (as a business portfolio) and internally
(addressing internal processes and activities) to pursue the chosen strategic
option. In some cases the latter choices, redefining how a business operates
and at what cost level, can change the content of a business portfolio strategy
by allowing some restructured businesses to be competitive in the future when
they are not today.

External Portfolio Restructure

Virtually every business is in fact a collection of businesses, operating

together or separately at various stages of a business value chain. The business
portfolio step in the STRATEGY program will define which of these busi-
nesses and business activities you wish to keep, to add, to sell or to exit in
some other fashion.
External restructuring can redefine the industrial landscape for inter-firm com-
petition. This may require a decision on industry-redefining mergers, acquisi-
tions, alliances, cooperations, and major external structural initiatives.
There have been many excellent books written on the best approach to busi-
ness portfolio strategy. The most famous of those approaches, and still the
most useful, is the growth/share matrix. This portfolio framework, usually
associated with GE and The Boston Consulting Group, broke down businesses
along two axes, with one defining the attractiveness of a market or industry
and the other defining the competitive position of the company within that
market. The matrix sets out a diagnostic and a prescriptive approach for each
business based upon its position in the matrix.

Competitive Portfolio

The first diagnostic perspective is provided by that competitive matrix,

which places all of the relevant competitors on a single display based upon
their competitive strength, traditionally measured by their relative market
share, and the future attractiveness of the market. The resulting portfolio
should thus both describe the competitive position of each competitor and
indicates its likely overall financial performance in the longer term. The finan-
cial characteristics of most businesses are well defined by its competitive and
industrial position on the matrix.
 Content Phase 1: Diagnosis 197

I.2. Portfolio Perspective

Explanation
As a first step, clear strategies require a fresh look at the collection of businesses being pursued and the
entire system of value added selective. This perspective is the first step in developing an understanding
that can lead to selective action. The era of businesses attempting to be all things to all people in all places
at all times is well and truly over.

As businesses evolve, a new approach to the management of the portfolios of businesses and activities can
lead to an optimal configuration of assets and activities, internal and external.

Competitive Business Unit Portfolio: Restructuring your

portfolio of businesses properly to focus only on the strategic
business units (SBUs) you choose to pursue, can create great
economic value for your stakeholders. By eliminating low yield
activities, adding to profitable businesses, and focusing 1. Point of departure
investment, you can lift the performance of your business. 2. Portfolio perspective
3. Profit pool perspective
Business Process Portfolio: Restructuring your internal 4. Competitive perspective
portfolio of activities can also lead to a more efficient business 5. Business dynamics
model. Analysis can lead to spinning off processes,
6. Organizational assessment
outsourcing, combining entities, re-engineering, and pursuing
7. Range of strategic options
corporate transformation programs.

I.2. Portfolio Perspective

a. Competitive portfolio
Sector

Sports watches Urban watch Rural Watch Sportius

(competitor) (competitor) (competitor)
High
Luxury watches Tempo Meister ROYAL Zurich-Swiss
Industry (competitor) RICHESSE (competitor)
Attractiveness
(unit growth) Leather goods ROYAL RICHESSE Media Classa Lusso leather
(Perso) (competitor) (competitor)
Pocket watches Tempo Meister Zurich-Swiss ROYAL
Low (competitor) (competitor) RICHESSE

Italian property ROYAL RICHESSE Secondo Property Palazzi

(Perso Property) (competitor) (competitor)
Weak Follower Middle Ground Strong Leader
Current competitive position

Even though this competitive portfolio is essential in understanding the overall

position of a business, each business in turn is made up of a collection of busi-
nesses in different market segments, geographies and competitive positions.
It is important to see where the consolidated business sits on this display, but
198 STRATEGY
filling out a more detailed portfolio for your own business, and for competi-
tors, can add another dimension of understanding, leading to valuable action.
The example above reflects a less detailed business breakdown, which could
be refined by adding, for example, a geographical element.
Getting the right portfolio structure to your business is essential. Selling off
or closing down inappropriate activities, combining units, acquiring, merging,
or allying with other companies can be an important stage in defining the areas
in which you will compete and invest to differentiate yourself from competi-
tors. By focusing your business activities, you will be able to free up funds for
investment and direct the available funds to the areas of greatest competitive
impact and highest economic return.
A simplified version of the growth/share matrix can provide a useful frame-
work for the analysis and redirection of the strategic future for the individual
components of your business. Some will require further investment and man-
agement attention. Others may need to be sold off to purchasers for whom the
business has greater value than it does to you.
The matrix, with its attendant imperatives, is set out below. For those busi-
nesses in the middle ground between leadership and weak follower positions,
a drive to leadership is one likely imperative. In the absence of any realistic
opportunity to invest to become a leader or strong follower, managers need to
pay extra attention to the decisions made with regard to middle ground busi-
nesses. For too often they fail to break out of the pack, and remain a drain on
corporate resources without producing satisfactory returns.

I.2. Portfolio Perspective

Explanation:Traditional portfolio imperatives
Attractive
III. Question Mark I. Star
Middle Ground

Invest or Exit Drive to leadership Focus

High Invest
Industry
Growth
(unit volume) IV. Dog Middle Ground II. Cash Cow

Low Exit or Minimize Optimize returns Maintain

and performance leadership
Review leadership Harvest cash for
options vs. exit reinvestment

Weak Strong
Relative market share
 Content Phase 1: Diagnosis 199

I.2. Portfolio Perspective

b. Competitive portfolio

III. Question Mark Attractive I.Star

Middle Ground

Future Market
High Ladies' watches
Attractiveness
- Growth
- Profitability Note: no sports watches
- Barriers to entry IV. Dog Middle Ground II. Cash Cow

Perso leather Men’s watches Pocket watches

(luxury)
Low Italian property

Weak Follower Strong Leader

Current competitive position

Internal Portfolio Restructuring

Equally important is getting the right internal portfolio structure in place,

allowing your business to concentrate on those processes and activities in
which it can outperform alternatives in cost and service and contribute to max-
imum competitive advantage.
In the past, most businesses operated similarly and traditionally. They
pursued a highly integrated approach to manufacture products and provide
services to customers through a fully owned business system. Management
was general; leaders were expected to provide expertise at each stage of the
value chain and manage the overall system effectively.
As the world became more complex, the fully integrated model fell away in
many industries, leading to a more specialized approach to business system
design. That approach has been called the “unbundling of the value chain.”
Non-core assets and activities were outsourced or sold off, leaving managers to
specialize in a more limited range of activities. They focused on what they
knew best, deriving competitive advantage from greater investment in fewer
parts of the value chain.
The list of internal restructuring options available as a result of the need to
unbundle and focus is far longer than in the past. Alliances, mergers, minority
investments, consolidations of part of the value chain, creation of information
sharing or buying consortia, research and development cooperations, distribu-
tion alliances, shared outsourcing, and other complex variations on the theme
200 STRATEGY
of simple stand-alone independence or complete outsourcing have all been
tested successfully.
Inventory costs can be shared with suppliers. Customer and supplier eco-
nomics can be integrated in new forms of value managed relations.
Competitors can become allies or partners in consolidating back office
processes. Franchises, joint ventures, strategic alliances, shared technology
ventures, new channel development, multiple associations, loyalty program
affiliations, dual branding, new enterprise creation, and other approaches to
process portfolio structuring can change the scope and nature of your entire
business system.
As set out below, a portfolio approach can also be taken to optimize the
internal processes of a business system. By unbundling the elements of inter-
nal process and segmenting them out into the quadrants of the matrix, a
fresh approach to internal processes, as well as to strategic business units, can
be initiated:

I.2. Portfolio Perspective

Explanation: Business process portfolio
Often, strategy is driven almost exclusively through an integrated approach to the
corporate and SBU portfolio, focusing on opportunities to grow, buy, or sell businesses.

However, corporate portfolio and SBU strategy need to be balanced by a thoughtful

approach to the internal processes and practices of a business as well. Great industrial
success stories such as The Ford Motor Company, Dell Computer, and countless
Japanese businesses have been driven by how a company operates as much as what
new businesses it creates. By innovating within the portfolio of processes, companies
may be able to improve relative operating performance and enterprise value dramatically.
Addressing the portfolio of internal activities can lead to:

reduced costs
1. Point of departure
improved service
accelerated innovation 2. Portfolio perspective
freed up capital 3. Profit pool perspective
focus on the essential 4. Competitive perspective
improved opportunities for SBUs 5. Business dynamics
6. Organizational assessment
7. Range of strategic options
 201

I.2. Portfolio Perspective

Business process portfolio imperatives
III. Capable I. Crown Jewels

Keep in house Invest to create clear

In-house leadership
Consider offering as
capability
High third party service to Set and monitor key
vs. performance indicators
gain scale
external
alternatives
IV. Non-core II. Critical
- cost
- quality Low Outsource if quality Invest to improve
- service suppliers available Careful consideration
Discontinue if of outsourcing
possible

Low High
Importance for vision realization and competitive advantage

I.2. Portfolio Perspective

c. Business process portfolio
III. Capable I. Crown Jewels

Building security Product design

In-house Logistics Manufacture
capability High Service
vs.
external
alternatives IV. Non-Core II. Critical
- Cost
- Quality Production of Advertising design
- Service Low marketing material Copy writing
Payroll
HR Management system
administration
Tax management

Low High
Importance for vision realization and competitive advantage
202 STRATEGY
I.3. Profit Pool Perspective

Just as individual businesses occupy different strategic positions within an

industry, businesses will capture different shares of the available profit pool.
Introduced in Book One as one of the most powerful new ways of thinking
about strategy, documenting and understanding the industry profit pool and
your own internal profit flows can lead to valuable insight and action.
The profit pool analysis will set out all of the profits made in the business
from component supply to final distribution. Along the way, the profits made
in servicing, repair, financing, and other related products and services need to
be specified. Understanding the full view of industry profit generation may
lead to major strategic breakthroughs. In the car industry, the profits made
from finance, insurance, maintenance, and spare part provision for some major
manufacturers now exceed the profits made on new car sales many times over.
The same may be true in elevator contracts, where the service contract may be
far more profitable and may provide a much greater return on capital than the
original equipment sale or installation contract.

Service as Efficient Source of Profit

As you review your profit pool diagnostic for insight, a search for new
service opportunities should be included in your thinking. Service businesses
associated with manufactured products or other capital intensive businesses
can be high growth, extremely profitable and usually require far less capital
than a manufacturing or infrastructure-intensive distribution business. In the
car industry, for example, the massive investments in manufacturing and
assembly pants can take decades (if ever) to pay off. The same is true of
expensive show rooms and repair centers of distributors and agents of the
major car companies.

A Creative View

In the application of the diagnostic tool of the profit pool and in its use as a
source of informed action, strategists should attempt to see opportunities from
new and creative perspectives. By looking up and down the value chain and
by taking into consideration the adjacent industries and their available profits,
new insights and opportunities can be surfaced which would otherwise not
be visible.
To take the car industry again, farsighted managers are bundling the
most lucrative elements of the profit pool into longer term fleet management
contracts, where providers agree to charge a fee per mile driven (subject to
annual minimum values) for a fleet of vehicles. This allows a customer
 Content Phase 1: Diagnosis 203

to know exactly what all in costs will be on a variable basis and allows the
fleet manager to purchase a bundled set of products and services which he
or she is well placed to manage effectively.
By breaking out of old conceptual approaches to business definition, you may
well be able to build a new model which captures the most attractive parts of the
profit pool and leaves the thinner pickings to less enlightened competitors.

I.3. Profit Pool Perspective

Explanation

It is no longer enough to analyze only the traditional view of profits earned by a business in a
modern industry. A 360 degree view of profit – and profit opportunities along the value chain – is
essential.

All sources of current and potential profit – taking into account both external and internal profit
pools – need to be analysed, understood and acted upon. Many car companies, appliance
manufacturers and electronic goods retailers, for example, now make far more money in services,
warranties and finance than on new product sales. The same is true for elevator companies.

To be comprehensive in understanding and effective in action,

strategies must address:
1. Point of departure
The external profit pool – documenting and analyzing the potential
to participate in (or withdraw from) various stages of the industry’s 2. Portfolio perspective
profit pool 3. Profit pool perspective
4. Competitive perspective
The internal profit pool – documenting and analyzing the true 5. Business dynamics
sources of profitability within the current (and future) business
6. Organizational assessment
model.
7. Range of strategic options

I.3. Profit Pool Perspective

a. Industry profit pool *
Competitor Revenue Revenue Margin EBIT EBIT Comments
(US$ MM) Trend (US$MM) Trend

Component 500 7% 35 Competition from Asia

Suppliers
Zurich Swiss 1250 * 18% 225 New Leader

Royal Richesse 1000* 15% 150 Lack of range limits growth

Sportius 250 20% 50 Sports watch leadership
Tempo Meister 150 10% 15 Decline/quality problems
Others 200 5% 10 Lack of presence in owned
distribution
Independent 1200 * 6% 72 Developing own brands to
Distributors capture share of profit pool
Insurance 200 * 40% 80 Household contents coverage
Service 300 * 50% 150 Repair, restore, maintain
Retail 3000 15% 450 Globally fragmented

Total Profit Pool US$ 1,237MM

* Luxury watches only
204 STRATEGY
The Internal Pools and Flows of Profit

Similar to the portfolio perspective, the profit pool concept can be applied to
identify and manage the internal pools and flows of profit as well as external
or industry profit pools. Usually a limited set of activities and customers gen-
erate a disproportionate amount of profit for your business. By identifying,
understanding and eventually acting on the understanding of internal profit
pools, senior managers will be able to reorient their business system to oper-
ate in the most efficient manner.

I.3. Profit Pool Perspective

b. Internal profit pool (watches only)
Process Stage Revenue * Margin* EBIT Future Profit Pool Trends
(%) (US$MM)
Design 5 40 2 Increasing
Component manufacture 150 2 3 Declining due to price
(dials, cogs, casing)
Assembly 200 5 10 Declining due to cost
Distribution 90 22 20 Declining due to competition
Direct sales 100 23 23 Increasing due to sales mix
Retail sales/owned outlets 400 20 80 Stable
Services/repair 20 50 10 High growth potential
Insurance 0 30 0 High growth potential
Antique watch restoration 5 50 2 Attractive growth?
and sale
Total 1000 150

* Management analysis based upon comparable margins in similar companies

For both internal and external profit pools, a dynamic forward-looking

perspective is also important. By clearly analyzing where future profits will
be, and by defining focused and creative approaches to access – or even to
dominate – those future profit pools will be a major component of a winning
strategy.

I.4. Competitive Perspective

One of the great failings of many strategic processes is a failure to analyze

and respond properly to competitors. By focusing excessively on the internal
operations of a business, many managers lose sight of the dynamics of the mar-
ket, thereby missing competitor behavior which can create both risks and
opportunities arising. Although 80 percent of knowledge is generated at the
customer interface, that interface is heavily shaped by the actions of the vari-
ous competitors vying for current and emerging profit pools.
Some winning companies maintain a regular monitor on competitor activ-
ity which goes well beyond the usual tracked characteristics of share price and
 Content Phase 1: Diagnosis 205

product/service positioning, noting as well the details of product and service

launches, advertising spend levels, customer relationships, cost position,
capital raising exercises, organizational changes, and other strategic initiatives.
By monitoring closely what your competitors are doing and by assessing
what they are likely to do in the future, managers will be able to position their
own businesses to take the maximum advantage possible from an improved
understanding of the market. Understanding the nature of competition, and
profiling the strengths, weaknesses, opportunities, and threats (SWOT) pro-
vided by different competitors, is another source of strategic insight to design
and implement a better strategy for your own business.

New Tools of Competitive Analysis

STRATEGY requires all businesses to look afresh at setting new standards and
redefining actions to identify and eliminate satisfactory underperformance. In
so doing, a new look at the measures and performance established by competi-
tors is required.
The content of most competitive monitors lie in the annual report categories
of revenues, costs, profits, assets, and liabilities. These same categories also
provide most internal performance goals and measurement systems. Neither is
sufficient for a full STRATEGY program. Strategies which rely solely on
these measures often result in future models which are simply linear extrapo-
lations of the past, missing opportunities to be more creative in thinking about
the performance and measures which could truly differentiate an organization
from its competitors.
A second generation of competitive analysis has led to the identification of
new measures based on an expanded understanding of how a business oper-
ates and how it creates value for its stakeholders. Relative cost position, share
of profit pool, retention economics, cost of complexity, cost of quality, and
other concepts have emerged that led to an improvement in comparing and
managing the overall nature of a business system. The deliberate measurement
and management of intellectual capital is also a new element in a broader def-
inition of relative operating excellence.
Recent best practice has moved even farther, looking at the more
complex sources of value creation in an organization. Intellectual capital, bal-
anced scorecards, EVE, EVA®, and brand equity concepts are now recog-
nized for their contribution to the value of strategy. Industry-specific measures
of relative performance, such as delivery service standards (FedEx, UPS, and
DHL), time to product (Intel), share of wallet (American Express, Citibank),
and share of total food spending, including restaurants and snacks as well as
regular meal ingredients, (Unilever, Asda) capture the true competitive drivers
of performance and creators of long term value for each company.
206 STRATEGY
To be comprehensive, it is no longer enough merely to assess competitive
performance against traditional financial, operating, and market measures.
Standards of competitive excellence now need to embrace customer impact,
business system economics, and other categories of economic performance.
Non-economic measures of relative performance may also be critical. For some
companies, employee satisfaction and retention is a key measure of competi-
tive performance. Triple bottom-line accounting—incorporating financial,
environmental, and community elements—balanced scorecards, and intergen-
erational equity are all reflections of an inexorable trend toward a more inte-
grated model of business and responsibility which require new competitive
targets to be set and achieved.
As the structural content of strategy advances, and as new sources of value
are clarified and developed to the advantage of the organization, competitive
standards also rise. One characteristic of extraordinary companies as
described in the book Built to Last is a culture that sets (and then achieves) Big
Hairy Audacious Goals, ambitious targets which can be set and accomplished
to drive overall enterprise success.
In STRATEGY, new standards of competitive excellence and stretch goals
should be commonplace, not extraordinary.

I.4. Competitive Perspective

Explanation
One of the most common failings of modern corporate strategists is to underinvest in an
understanding of competitors. By fully analyzing relevant competitors, current and future,
opportunities to learn from competition and to exploit their weaknesses can emerge. Two
particular areas to address include:
Competitor SWOT – understanding competitor’s operating
success is never enough. Strategists must think through and
attack the strategy of selected competitors in a focused and
effective manner
Standards of operating excellence – one measure of relative
performance which provides data on the potential for
improved performance is a benchmark of the achievements
of leading competitors. By identifying best practices 1. Point of departure
achieved by competition, progress can be made toward 2. Portfolio perspective
achieving better results 3. Profit pool perspective
By using competitors to reset higher standards and by 4. Competitive perspective
defining target contra-actions, you will be far more able to 5. Business dynamics
drive to a successful implementation of your STRATEGY. 6. Organizational assessment
7. Range of strategic options
 207

I.4. Competitive Perspective

a. Competitor SWOT
Company Strategy / SWOT Implied Contra-Strategy

Zurich-Swiss Merger completed 2001 Extend range to match

New leader in the industry Broaden distribution
Full range capability Invest to exploit weakness in Asia and
Relatively weak in United States United States
and Asia
Strong organization

Sportius Focussed on sports watches Launch sports range or

No proprietary distribution Acquire
Little Asian presence

Tempo Meister Quality problems Penetrate key distributors

Ownership issues Emphasize Richesse quality
No strength in any one category

Others American companies weak in brand Focus on high end only

Japanese at low end of market only

I.4. Competitive Perspective

b. Standards of operating excellence
Operating Competitor best Current Richesse Richesse
standard practice performance Trend
ROE Zurich-Swiss 26% 15% Flat for five years

Growth Sportius 35% –5% in core segment –8% for last five years

Product quality All major competitors 1% reject or defect Rising in both cases –
better in both categories: a worry!
Six Sigma at Zurich-Swiss

Customer retention Zurich-Swiss Watch 78% 45% of customers repeat Declining – was 72%
in 1980s
Environment Rural Watch Co.: 100% #3 from bottom 4% reduction in
recyclable parts, 90% noxious effluent
reduction in emission produced

Responsibility Urban Watch Co.: Last of top six – no Only can go up

Contributing 1% sales to proper program
city rehab programs
208 STRATEGY
I.5. Business Dynamics—Changes in the Enterprise
and Environment

In the earlier sections of this book, there was much discussion of the need to
understand the full dynamic nature of the market and your own business
enterprise within it. In this section on market and business dynamics, you
will have a chance to document the external and internal trends which are
shaping the current and future situation of your business. This will create
opportunities for you to set out on a more differentiated and more innovative
pathway forward.
Describing the full set of trends and influences that are shaping the current
business situation, and defining the best way forward through the expected
future business environment, require that a more sophisticated approach be
applied to help to forecast what the future will be.

External Trends with Current Impact

The application of the principles of dynamic systems behavior to business strat-

egy is a standard part of the Harvard Business School MBA curriculum. The
reason for that inclusion is clear, for each business enterprise stands as an inde-
pendent entity, but also sits in the middle of a constant flow of interconnected
systems surrounding and influencing that enterprise. Trends directly linked to
the performance of an industry or an enterprise need to be listed, documented,
and analyzed. The evolving structure of the industry, emerging technologies,
changing rules of competition, shifting trends affecting products, services,
channels of distribution, customers, economics and other structural aspects of
the economic system need to be understood. Each of these external
systems needs to be understood on its own and as part of a dynamic interacting
whole, and this understanding acted upon.
Your business may actively participate in determining the flow of these sys-
tems, but will also be affected by these flows to various degrees. All business
performance is driven in part by the overall economy, consumer spending pat-
terns, capital markets, labor markets, currency and interest rates, industrial
supply and demand, and patterns of international trade and investment.
Understanding and applying the knowledge of how these external dynamics
do and will operate to affect your own business is a key part of STRATEGY.
In addition to the macro trends mentioned above, more immediately appli-
cable micro trends, or enterprise and competitive dynamics, will directly
affect your day-to-day operations and hence need to be considered in both
strategy and tactics. This will include competitor initiatives, supplier dynam-
ics, channel evolution, product substitution, pricing, regulatory changes, and
other dynamics specific to your industry, business, or organization. Changes
 Content Phase 1: Diagnosis 209

and trends in the industry profit pool, including the actual sum of all profits
made by competitors and participants in your industry’s value chain, require
thoughtful analysis and interpretation.

Avoid the High Costs of Corporate Myopia

It is important to be tough-minded about the sources of external data and the

dynamics you focus on in your analysis. It is not always the obvious current
competitors who are the greatest source of future economic risk.
Some chemical subsidiaries of oil majors in the United States fell into the
trap of incorrect selection of relevant data years ago when they selected fellow
subsidiaries of similar large oil majors as the only relevant source of compara-
tive cost and performance data. By excluding the leaner, more flexible inde-
pendents coming at them from a different angle, they did not see the impending
erosion of their profitability and sharp drop in competitive performance.
The self-inflicted myopia which blinded them to the most important of
external dynamics condemned many of these companies to a future of divesti-
ture, dismemberment, or painful cost reduction. The survivors all faced a dif-
ficult reorientation of their cultures, which had lost touch with the basic flows
of their industry.
The priorities for analysis will vary by business. In the retail grocery trade
in the United States, supplier and customer systems are of the greatest impor-
tance. In telecommunications and financial services, the regulatory environ-
ment and changing global competitive map are on the top rung of key
concerns. For a software company, technology, competitor, and customer
evolution may all be of great importance. A useful prompting list to identify
all sources of potential change in the business environment can be found in the
application of the 7C’s model and in the 11 principles of the new paradigm
described in Book One of STRATEGY.
Two of the leading characteristics of the winning companies are that they
are externally focused and long term in their thinking. It is thus doubly impor-
tant for modern managers to invest the time and effort to determine accurately
what the dynamics surrounding a business mean for their enterprise—past,
present, and future.

External Trends with Future Influence

Limiting a strategic diagnostic to elements currently and directly affecting an

enterprise is a recipe for insufficient understanding. While it is essential to
consider carefully those external dynamics that do have a current and direct
influence on a business, other less direct sources of influence and dynamic
210 STRATEGY
change should not be left out, especially as they may profoundly influence the
longer term development of a business or industry. While not yet directly affect-
ing a business, some trends can exert a strong gravitational effect, shaping the
future and even providing the opportunity (or risk) of discontinuous change.
Understanding and mastering the relevant systems that have a less direct
or less immediate impact may be even more important to position your firm for
long term success than responding to the urgent demands of shorter term issues.
New business models, emerging channels, new lifestyle trends, nascent tech-
nologies, demographic changes, best practices, new concepts, new competitors,
or changes in the risk or opportunity calculus could all trigger important change.
STRATEGY requires us to take into account the potential for new connections,
links, and patterns between apparently unrelated systems and events.
Significant value can often be created by comparisons of apparently unrelated
systems and adoption of best practices across traditional business boundaries.
Channel evolution in the personal computer business can contain valuable les-
sons for vendors of mobile telephones and high-fidelity audio equipment.
E-commerce best practices from a cutting edge women’s clothing supplier may
be beneficially applied to the advantage of sporting goods suppliers. New tac-
tics in customer management systems and powerful loyalty programs can be
imported to supermarkets or financial service competitors from airline pro-
grams. Category killers such as Toys R Us, Starbucks, and Staples can inform
the strategies of retailers in more fragmented industry sectors.
By understanding and acting on the opportunities and risks created by
systems of external influence on your business, you will be able to derive
competitive advantage and, perhaps, trigger the kind of discontinuous change
in an industry or competitive order which can operate to your great and lasting
advantage.

Internal Trends with Current Impact

A comprehensive and dynamic view is also needed to understand and manage

the internal aspects of an enterprise. Often overlooked in traditional strategy
formulation, the internal dynamics directly affecting current performance of a
business may be even more important than the external.
Changes in the patterns of costs, capital structures, core processes,
revenues, profits (by customer, channel, product), capabilities, technologies,
value chains, and corporate cultures need to be considered. The full network
of enabling resources inside a company—financial, physical, intellectual, and
others—requires constant review.
Capturing accurate operating and financial data on internal dynamics will
require the application of traditional tools of analysis, from venerable experi-
ence curves to modern business process diagnostics. The traditional models for
understanding costs, pricing, capital management, organization, and
other variables may need refreshing to get a clearer view of the past and a more
 Content Phase 1: Diagnosis 211

useful perspective on the future. Activity based costing, customer profitability,

segmental analysis and the internal profit pool are always useful additions to
existing management and financial reporting formats on internal trends.

Internal Trends with Future Influence

Understanding the internal trends that will influence the future of a business is
also a potential source of operating and strategic advantage. New business mod-
els, labor practices, globalization opportunities, or workplace/ lifestyle trends
can change the future shape of an organization’s internal structure, practices, or
operating principles. Over time, these internal influences can lead to important
changes, voluntary or involuntary, in your business.
Many of these influences come from sources evolving independently from
your own business. Cost accountants have developed new approaches to diag-
nosing economic information that go well beyond traditional profit and loss cat-
egories. Normative unit cost trends are still important, as are static relative cost
analyses, but other conceptual approaches are unbundling the traditionally inte-
grated business models, taking a new look at the internal economics of business
and opening new areas for insight and action: activity-based costing, cost of qual-
ity, cost of complexity, cycle time analysis, just-in-time inventory systems, value
chain segmentation, and the integration of supplier and customer economics. The
latter blurs even further the boundaries separating external and internal systems.
These new approaches to firm diagnosis contributed to the thinking behind
the business process portfolio integrated into the STRATEGY approach. The
opportunities for outsourcing (and insourcing) have also allowed cost and profit
center managers to recut their economics and redesign their organizations.
A second example of influence on internal approaches motivating major
strategic change can be seen in the hotel and soft drink industries, which have
now actively unbundled and reconfigured the value chain, an approach long
practiced in other industries before being adopted in the hospitality sector.
Leading companies now outsource aggressively, separate asset-intensive busi-
ness from service or network opportunities, focus resources on customer seg-
mentation, and implement programs to enhance loyalty. The most advanced
competitors are now in the process of expanding customer points programs
into sophisticated communications channels, fuel for customer data centers,
and even to operate as virtual currencies.
A new management approach to customer loyalty is another of the proven
internal influences that can fundamentally change the future performance of a
business. The concept and value of loyalty economics were clearly documented
in 1988, with the publication of The Loyalty Effect by Frederick Reichheld.
This classic work demonstrated the enormous leverage available in the existing
customer base through the identification and retention of the most valuable cus-
tomers. To reap the enormous benefits of more loyal customers, a new approach
to analyzing internal data and managing internal resource was required.
212 STRATEGY
Most businesses, Reichheld discovered, suffered from a “leaky bucket”
problem, focusing expensive efforts on acquiring new and unproven cus-
tomers while ignoring the more costly parallel outflow of existing valuable
customers. The financial benefits of superior retention of the most attractive
customer segments were shown to be enormous. Acquisition costs were non-
existent, incremental product sales easier, pricing less constrained, operating
costs lower and profits could be even higher with a different approach to man-
aging the customer relationship. Loyal customers were proven to be worth
many times more than “promiscuous customers,” who switch suppliers
quickly for small differences in price, promotions, or other short term reasons.
Businesses that cracked the code on retention and managed their customers
in a more rational manner were proven to have profitability twice that of lag-
ging firms still fighting traditional battles for customer acquisition. Integrating
the new internal influence of customer loyalty economics created new ways of
seeing a business, and prescribed a limited set of high impact initiatives to ben-
efit from that observation. This new approach to the internal systems of cus-
tomer management changed the views of many senior managers and changed
the profitability of competitors, for better or worse, in many industries.
A longer history proving the value of mastering internal influences can be
seen in the history of the Japanese management practices which shook up the
manufacturing world three decades ago. A great part of the success of
Japanese manufacturers in industry after industry was a thoughtful exploita-
tion of a quality and price opportunity in the US automotive, steel, machine
tool, and other industries. Through the systematic application of W. Edward

I.5. Business Dynamics

Explanation
Each business sits in the middle of a constant flow of external events and systems which affect its
performance and influence its activities. One of the most powerful weapons in STRATEGY is an
ability to see the future more clearly than competitors. By focusing on the future, you will be able to
spot and exploit profitable opportunities ahead of competitors and anticipate future risks by effective
action. By mastering the flow of your business “eco-system”, you will be able to stay on top of your
business challenges now and in the future.

High priority business dynamics can be related to competitors, economic growth, customer and
consumer spending patterns, capital markets, interest rates, labour markets, competitive scale
investment and initiatives, supplier dynamics, product substitution, pricing, regulatory and tax system
rules, channels, and technology evolution.

There are four perspectives necessary to understand the relevant 1. Point of departure
dynamic systems affecting a business:
2. Portfolio perspective
external trends with current impact 3. Profit pool perspective
external trends with future influence 4. Competitive perspective
internal trends with current impact 5. Business dynamics
internal trends with future influence 6. Organizational assessment
7. Range of strategic options
 Content Phase 1: Diagnosis 213

I.5. Business Dynamics

a. External trends with current impact
Trend / pattern Implications

Competitors and channels Increased distribution power of rivals

consolidating Long term cost and margin pressure
Full portfolio approach to be taken
Hiring opportunity of best people

Industry globalizing Expand list of distributors to cover global market

Market research to understand growth sources
Need to understand segment-specific behaviour

Price war in Asia Shrunk regional profit pool 75% for six month period
Impact on long term brand equity not clear

Sport watches accelerating in Need to add sports range ASAP under new brand
popularity or acquisition needed

I.5. Business Dynamics

b. External trends with future influence

Trend / pattern Implications

Emerging of global “overclass” Identify and understand most important customers
with maximum purchasing power Increase models and range to address key segments
Launch and market multi-model RRW Collection

Increased wealth in emerging Explore opportunities in Russia, China and India

markets Review Latin America sales opportunities with partners
Other distribution alternatives/partners to be reviewed

Rise of Internet Update website and on-line marketing program

Staff training in use of e-communication
Monitor competitor online actions
Establish RRW collectors e-community

Deming’s statistical models of quality control, an extremely valuable

American conceptual import from outside the traditional borders of their busi-
nesses, the Japanese were able to overcome a historical legacy of poor quality
and take away leadership positions from complacent American businesses.
Discontinuous change of this type, much discussed of late by strategy gurus,
is in essence the result of the intersection of multiple systems converging and
interacting in a new way to change the way a business or industry operates. In
214 STRATEGY
some ways, discontinuous change is merely another way of describing a
‘catastrophe’ in the mathematical, rather than real world, sense of the term.
Such a discontinuity can be seen in how the Internet is driving the economics
of the music industry, or how digital technology is affecting the photography
or film industries. The same is true in the food industry, where domestic pat-
terns of dual income families are reshaping what food products are purchased
and how they are consumed.
Internal influences also include systems of thought and ideas influencing the
“soft” element of human and individual attitudes and behaviors. As a result of
younger employees’attitudes toward work, managers at all levels of a business may
need to change the way they interact with their colleagues. More independent and
demanding, less loyal and respectful, this new generation will not respond well to
old models of limitation, discipline, expectation, and assumed obligation.

I.5. Business Dynamics

c. Internal trends with current impact
Trend/pattern Implications
Orders consolidating Average order size and price pressure both increasing
Set up key account program to determine opportunities/costs to
get more business from top 100 accounts at profitable prices

Service emerging as major Set up as separate division at HQ

differentiator Consider third party service and link to sales program

Asian costs rising by 4%, prices
declining by 18% this year
Profits flat despite rising sales in
Europe
Regional costs (especially distribution) to be addressed
Pricing discipline program launched
Review phasing of new product introduction
Outsource non-essential functions (payroll, logistics, printing)
Reduce costs while improving service and increasing brand
spend

Low satisfaction among Perso staff Lack of cohesion in management team

and poor values Systematic multi-year fraud in Perso Palermo property
business cost $2.6 million plus losses to date

I.5. Business Dynamics

d. Internal trends with future influence
Trend/pattern
Declining loyalty of staff
Implications
Succession planning and mentoring programs needed in
Switzerland and in regions
Vesting ESOP with broad participation post IPO

Increased use of technology Increase investment in training and development

Migration to integrated/single system for budget, control and
management accounts

Performance-based Internal survey on proposed new approach

compensation Transition from current seniority-based “lockstep”
compensation system –phase in over 18 months

More inclusive organizational Change 100 year old “command and control”
models Geneva-centric approach to greater input and
implementation freedom in e.g. marketing and
display
 Content Phase 1: Diagnosis 215

New Paradigm

Consolidating the foregoing elements of diagnosis into an integrated and holistic

view of the changing business environment will allow you to see the future with
far greater accuracy. This consolidated view of a new paradigm will also provide
a solid conceptual platform for the development and implementation of future
strategy.
By articulating your view of the environment in which your business will
compete in the future, important underlying patterns can become obvious.
New risks and opportunities emerge. New rules of the game are understood
and can be exploited. New organizational challenges become clear. A deeper
view of the past and of the future is possible. This summary view may also
provide a particularly apt departure point for reviewing the application of the
concepts of satisfactory underperformance and other elements of a more
powerful framework of understanding.
In many industries, understanding a new paradigm early on can be the most
important determinant of future success. Credit card companies like MBNA and
GE Capital realized that the future belonged to those most expert in micro-
marketing and mass market credit scoring skills. Massive operating scale plat-
forms are also emerging in the credit card industry, taking advantage of superior
operating economics in low cost countries like India and China. Scaleable tech-
nology platforms are already contributing to the future consolidation of the
industry. Commercial banks, for many years the dominant force in card issuing
and processing, lost their edge in many markets as more focused competitors ate
into the market share and profits of companies stuck in an outdated paradigm.
Changes in the paradigm in the financial services world are nothing new.
Commercial banks in the United States once dominated the management of
financial assets, achieving a 90⫹ percent share of the control of US financial
assets at the time of the Civil War. Since around 1860, for nearly a century and
a half, commercial banks have been on a losing trend as insurance companies,
brokerage houses, money market competitors, investment banks, and other
institutions have steadily eaten into the once great market shares and profit
pools of the commercial bank industry.
We have seen earlier, in the retail example, how old paradigms (the location
obsession) may have to give way to a new paradigm of competition in which
an industry and the competitors within the industry reshape themselves in
order to deliver better value to their customers. This observation is not limited
to any one region, industry, or individual company.
In many other cases, globalization, consolidation, and new business models
will reshape the operative business paradigm and set out a new set of strategic
imperatives for merger, acquisition, or even the sale of a business.
In considering the new business paradigm, it could be valuable to reflect upon
the 11 principles of the new paradigm: globalization, complexity, dynamism,
216 STRATEGY
turbulence, acceleration, rationalization, obsolescence and reinvention,
connectivity, convergence, ephemeralization, and consolidation. Any one of
these “paradigm principles” could have a defining influence on your business.
Understanding and mastering the new paradigm of your sector or industry
could provide a source of long and valuable competitive advantage.

I.5. Business Dynamics

Explanation: New paradigm
A consolidation of the previous elements of diagnosis, plus a consideration of the 11 principles of
the new paradigm, will allow leaders to see a fuller view of the future business paradigm and
understand better the environment within which strategy will need to unfold:

By consolidating a forward view, new patterns can be seen. New risks and
opportunities will surface. New rules of the game can be understood and
exploited. Organizational challenges will be clear.

Actual performance can be contrasted with true full potential

in a changed paradigm. Sources of future underperformance
can be identified in advance and alternative approaches to
achieve and sustain excellence developed. 1. Point of departure
2. Portfolio perspective
A new paradigm is emerging out of recent periods of turbulence in 3. Profit pool perspective
most industries. By thoroughly analysing the new paradigm and 4. Competitive perspective
acting on the resulting insights, you will be able to guide your 5. Business dynamics
enterprise to create deep and enduring sources of competitive 6. Organizational assessment
advantage. 7. Range of strategic options

I.5. Business Dynamics

e. New paradigm
Business Element Historic Paradigm Future Paradigm

1. Industry Fragmented Industry Consolidating channels and

competitors
2. Distribution Owned distribution only or Blended distribution – mix of third
third party only party and hybrid options

3. Brand Single Multiple for multiple segments

4. Customer Loyal with few watches “Promiscuous” with many brands

5. Price Stable and high Pressure to reduce

6. Culture Family business International business

Era of Stability Era of turbulence, globalization and

consolidation
 Content Phase 1: Diagnosis 217

I.6. Organizational Assessment

One of the most difficult, and most important, elements of STRATEGY is

an honest and clear assessment of a business organization and the individu-
als within it. As the history of business success stories clearly indicate, the right
team and the right approach to organization can make all the difference in how
successful your business can be. Often that means changing the structure, style,
and staffing of a business. Whether it is derived from Jim Collins’ book Good to
Great, Jack Welch’s animated recounting of his own successes and failures at
GE, or direct business experience, the need to change the individuals within a
business can be of the utmost importance in accelerating business performance.
In this STRATEGY approach, the perspectives taken on organization unfold
at seven interrelated levels: organizational structure, operating principles, cul-
ture, values, responsibility, individual performance, and capability. All of
these categories of organizational description and assessment need to be
understood in order for your strategic design and implementation to proceed
to create the maximum results possible.
Each of these multiple perspectives can be summarized in a simple and
clear set of frameworks which capture the essence of the current state of
affairs in an organization—and provide input to a program of constructive
change.

I.6. Organizational Assessment

Explanation

A well-developed organizational model and a high level of collective and individual capability are
critical to design and implement successful STRATEGY.

Putting in place a winning organizational model will require you to review organizational
structure, identify capability requirements for strategy, benchmark your model vs. comparable
competitors and identify requirements to close performance gaps.

A tough and honest assessment of an organization is one of the

most valuable and most difficult parts of STRATEGY. A thorough
evaluation, as data-driven as possible, can be broken down into
seven related areas:
– structure
– operating principles
– collective capabilities 1. Point of departure
– values summary 2. Portfolio perspective
– culture diagnostic 3. Profit pool perspective
– satisfaction / style profile 4. Competitive perspective
– individual performance/capability 5. Business dynamics
6. Organizational assessment
Acting early to address issues can have enormous long term 7. Range of strategic options
benefit
218

I.6. Organizational Assessment

a. Organizational structure
Office of the Chairman
(Chairman,Vice Chairman, CEO)

Marketing/Sales Finance

Admin HR

Legal Manufacturing

Europe United States Asia Emerging Markets

Operating principles: Traditional top-down management

Geneva-centered
80% of staff in Geneva HQ
All Swiss executive team
Declining family presence in management

I.6. Organizational Assessment

b. Collective capabilities
Current capability
Initiatives Skills required Comment
score (0-10)

Core business growth Distributor evaluation and 8/10 No foreign nationals in company
management 7/10 Weak in youth and female
Market knowledge 2/10 No experience
Alliance management

New product design Ladies' and sports ranges 5/10 Need to improve
and launch needed design/marketing interface

Acquisition Evaluation 2/10 Only M&A transaction to date

Financial structuring 3/10 failed to add value
Integration 0/10 Little experience

HQ cost reduction Analysis/zero-based budgeting 4/10 Mixed record to date

Implementation 4/10 Good at thinking, bad at
executing

New organization Design new approach 3/10 Fear of change widespread

Reset compensation 5/10 Factions may disrupt
Address cultural issues 3/10 Tough but necessary
 219

I.6. Organizational Assessment

Explanation: Values summary
In order to understand what the organization stands for and to provide input to strategy, it is
essential to clarify the current values upon which a business operates.
There are four elements to a critical values statement.

Internal positive values: By which principles the company operates and how it
is really seen by colleagues
External positive values: What the brand stands for in the eyes of the
customers, business partners, potential customers and other relevant
constituencies
Internal negative values: Characteristics of the business ethos
which require fixing or improving 1. Point of departure
2. Portfolio perspective
External negative values: Plans or problems in public
3. Profit pool perspective
perception of the business, its people, priorities, products and
4. Competitive perspective
services
5. Business dynamics
In making these critical values summaries, it is worth noting 6. Organizational assessment
the obvious – that only the positive need highlighting in any public 7. Range of strategic options
document

I.6. Organizational Assessment

c. Values summary matrix

Internal External

Quality-centered High quality

Conservative Elegant
Positive:
Ethical Traditional
Swiss Exclusive/Expensive
Brand custodians Swiss

Complacency Overpriced
Bureaucratic approach Arrogant to deal with
Negative:
Overly conservative Lack of creativity
Political Poor service reputation
Lacking sense of social Symbol of uncaring
responsibility elitism
220

I.6. Organizational Assessment

d. Culture diagnostic
Slow, Fast,
bureaucratic flexible

Internally Externally
focused focused

Short term Long term

Satisfied with Dissatisfied with

status quo status quo
Today

1.6 Organizational Assessment

e. Satisfaction/style profile

Satisfied

Dissatisfied Today*

Centralized Disciplined Freedom Decentralized

Top Down Top Down and Local authority
Orders only Bottom Up Little central direction
No freedom to Clear vision/direction Freedom in execution
interpret Shared approach to
execution
* Based on survey
 Content Phase 1: Diagnosis 221

I.6. Organizational Assessment

f. Individual performance/capability
Job Required skills Individual Years in Years in Performance rating Need to
job company and comments change
Group Strategic design Name A 1 1 New to job No
CEO Implementation
Motivation
Change management

CFO Cost control Name B 17 32 Poor Yes

Investment Costs too high
Acquisitions Acquisition of
Strategy Perso a failure
Entrenched “old
school” attitude

CEO Sales Name C 2 6 Good No

Europe Brand management Creative
Distributor relations High long term
Pricing discipline potential
Teaming

I.7. Range of Options

The final stage of the diagnostic phase identifies the realistic options available
in pursuing a selected vision and spells out the pros and cons of each.
Although there are always endless theoretical options available, most real and
valuable options can be captured in a relatively limited grouping. A disci-
plined approach usually limits the options to six or fewer, ranging from
options of incremental change to radical breakthrough opportunities.
These options can then be elaborated and systematically evaluated against
a pre-established set of criteria in the design phase.
One option is always to protect the status quo, where little change is
recommended due to limited forecast change in the environment and an
already satisfactory performance. In today’s dynamic world, this is rarely the
best option. One characteristic of winning companies cited above is constant
dissatisfaction with the status quo, signaling that this option is useful to ambi-
tious managers in only the rarest of instances.
At the other end of the spectrum are more radical and higher risk options.
These high profile options exploit all priority opportunities and pursue a dramatic
program of change and transformation. Easy or attractive to choose in theory, the
more radical options may be very difficult to implement and the costs of failure
222 STRATEGY
significant. According to one Harvard Business School study, major transforma-
tion programs failed in more than half the cases where they were launched.
If a breakthrough program is to be led by a proposed alliance or acquisition, it
is important to remember that more than half of these high profile initiatives fail
as well. Realism is essential in selecting a strategic pathway forward, and man-
agement teams should invest heavily in assessing risks as well as opportunities in
selecting a bold option and setting out on an ambitious program of change.
Between the unsatisfactory status quo and high-risk breakthrough options
lie intermediate options that can serve either as ultimate end point goals or as
steps along a path to more radical change. Driven by the notion that many
institutions encumbered by past structures, cultures, and practices need
to learn to walk (or to walk faster) before breaking into a full and sustainable
run, leaders of some businesses may need to match a change in strategy with
a parallel change in the capability to achieve full potential.
The list of available options is never static and real time reassessments may
be valuable. An external event, internal change, or change of perspective
can present new options for realistic consideration which were not formerly
conceiveable.

I.7. Range of Strategic Options

Explanation

While there are an infinite number of permutations or potential combinations of actions, clear
thought can usually group actions under a few coherent strategic options with substantially
different content and consequences.
The options usually can be confined to fewer than six, or can be filtered down to six or fewer,
with a process of discussion and evaluation. In the process, some actions can be reallocated
from one option to another, and labels rewritten to reflect progress in understanding.
Options should include:
sale – which is always an option
status quo – which is infrequently chosen
intermediate options – with ascending degrees 1. Point of departure
of change and various combinations of initiatives 2 . Portfolio perspective
3. Profit pool perspective
By allocating actions and initiatives to clearly labelled options, 4. Competitive perspective
the senior team will be more capable of discussing the 5. Business dynamics
relative merits of the options proposed 6. Organizational assessment
7. Range of strategic options
 Content Phase 1: Diagnosis 223

I.7. Range of Strategic Options

Option A Option B Option C Option D Option E

Focus on
Hybrid and Sell
Status quo plus international watch Breakthrough
network model Company
growth

Content: Stabilize profits As option A plus As option A plus Launch RRW sports Hire investment
Retain and fix Perso - Launch second - Increase points of brand or acquire sports bank to sell all
line sale to 1,000 with watch company (or majority)
Increase brand spend partners Relaunch ladies' brand
- Sign up 50 new of equity
Improve performance distributors - Set up network of Launch Collection
of existing distribution - Add 15 owned sales JVs in key Establish service division
systems outlets countries Grow owned outlets to
No mergers, - Add international - Merge OECD 75 from 36
acquisitions or sales resources distribution/ Add 100 third party
divestitures - Reduce costs logistics system outlets
20% with European
Stay private Cut costs 20%
competitor
No major initiatives in - Sell Perso Sell Perso
- Keep Perso
ladies’ or sports range Build service division Public listing of RRW

Summary of Diagnostic Phase

Having completed the seven steps in the diagnostic phase, you should now
possess a full understanding of your business, inside and out. That under-
standing should embrace past, present, and future views of your business. It
should be both static and dynamic, representing in detail where you are and
the flow of dynamic events and influences which are carrying your business
forward into the future.
In some cases, it may be useful to append a summary of your diagnostic
findings at this stage of the presentation. While there is an approach to an
overall executive summary described in Chapter 6, you may want to add one
per section if you feel that a summary would add to a broader understanding
of each phase and lead to a greater understanding and commitment to your
STRATEGY.
Although we will describe briefly some of the key aspects of a successful
executive summary in Chapter 6, a version of a summary is attached here to
demonstrate how one would fit in the flow should you choose to include such
a summary at the end of this phase.
224

Diagnostic Phase
Executive summary
After a long history of growth and leadership in the luxury watch business, the performance and
strategic position of the Royal Richesse Watch Company has deteriorated for more than five
years
– Loss of leadership in core men’s luxury watch segment
– Weak or non-existent positions in ladies' and high growth sports segments
– Lack of understanding and management of key customer segments
– Failed acquisition of Perso
– Excessive costs and inflexible organization
– Lack of exploitation of opportunity in product/market segments and service areas
– Loss of momentum to competitors

The consequences of past strategy are measured in margin erosion, continued losses at Perso,
organizational disillusionment and decline in enterprise value

All trends and industry pattern reflect an increase in turbulence, globalization and acceleration
of change in the core business

It is both important and urgent for Royal Richesse to address all aspects of strategy and to
define a better way forward to achieve full potential of the business
CHAPTER 4

Content Phase II: Design

Once the diagnostic foundation is in place, the design phase of STRATEGY

can proceed. To be effective, the full complement of all steps of the design
phase need to be put in place, starting with the statement of a new vision and
ending with a statement of the results the STRATEGY proposes to achieve.
As for the diagnosis phase, there are seven elements which make up a full
design phase. The seven elements begin with the determination of long term
direction and identify sources of leverage on future profits. Priority initiatives
are specified, a single strategic option is selected and the appropriate organiza-
tional approach is clarified. Risks are managed and target results agreed. The
design phase sets out all key input for the implementation phase which follows.

Phase I: Phase II: Phase III:

Diagnosis Design Implementation

Phase II: Design

1. The Promise
2. Key levers on performance and value
3. Priorities and resource allocation
4. Strategic option selection
5. New organizational approach
6. Risk management
7. Target results

Unlike the diagnostic phase, which is heavily driven by factual analysis and
historical data, the seven elements of strategic design contain a greater pro-
portion of informed choice for the management team to determine and put in
place. This is accomplished through the application of the insights from the

225
226 STRATEGY
data and observations developed in Phase I, and by drawing on management’s
best knowledge, experience, and intuition.
These management choices are critical. In a Bain & Company analysis cited
above of companies operating in turbulence, the major factor separating
the winners and losers was proven to be primarily management-driven. Over
80 percent of the reasons given for differential performance between firms
operating within the same turbulent industry sector were attributed to deliber-
ate management decisions taken in the heat of competitive battle.
It is surprising to note that the reasons for winning or losing were so little
driven by technology, macroeconomic shifts, or exogenous external market
events. These influences on performance affected all competitors equally
within a defined market. The big differences in performance were determined
by different management teams’ responses to turbulence in their own indus-
trial sectors—how they redesigned their strategies and redirected their opera-
tions to meet the challenges they faced.
The Chinese character for crisis reinforces the insight that turbulence creates
both great problems and the optimal environment for constructive change
and competitive differentiation. The ideogram for crisis, wei ji, is in fact a
pair of characters. The first character signifies danger and carries with it the
negative sense of crisis as captured in the English word. The second charac-
ter represents opportunity, thus capturing a deeper, and more positive,
concept of crisis and turbulence. By choosing to follow the best pathway for-
ward, even in a difficult situation, each manager has an opportunity to design a
strategy which can take advantage of opportunities in the crisis and put him or
her into the winner’s circle for many years to come.

II.1. The Promise:Vision/Mission/Values

Perhaps the most important element in any new strategy is the stated vision
which defines the overarching goal of the enterprise. What is the purpose of
the organization? What is it trying to achieve? What is the guiding star that
will orient the thousands of daily decisions toward a shared common goal?
What is the inspirational goal that will motivate employees, guide investment
decisions, and inspire shareholders?
A true vision answers all these questions in a simple, clear statement of
collective ambition. It can be absolute and independent of any other entity. Or
a vision can be stated relative to a competitor, customer group, technology,
process, or other defined system.
Winning companies have chosen vision statements which are of varying
length, focus and specificity. As mentioned above, credit card provider MBNA
 Content Phase II: Design 227

opted for a customer focused vision in a pithy statement: “Our vision is get-
ting the right customers and keeping them.” Komatsu, a Japanese construction
equipment manufacturer, was even more succinct: “Encircle Caterpillar.”
Masayosi Son, founder of Softbank and inspirational champion of the
Internet, opted for a more galactic vision: “to be the prime energy source for
the constellation of entities and activities that are the Internet.”
Each of these visions, while different, respects the difference between a
vision, a strategy, and tactics. A vision is not strategy. Military history neatly
sums up the difference. Conquering a continent or freeing an independent
country from a colonial empire is a vision. Doing it through a series of polit-
ical alliances and overwhelming military encounters on the ground is strategy.
Doing it quickly at night with tanks is tactics.
To succeed, a vision must translate into strategies, tactics, and actions with
measurable results. Without a clear and coherent vision, even well-defined and
well-executed strategies have no clear purpose. And a vacuum around the ulti-
mate goal and purpose of the enterprise provides little inspiration to the mem-
bers of a group looking for a sense of greater purpose and value in their efforts.
Defining the best vision for your own business is as much art as science, a
careful blend of precise language and aspirational ideal. Finding the right con-
tent, the right tone and the right words are all extremely important as the final
formulation may be the center of much attention and derivative application for
years to come.

A Defining Promise

It may be best even to avoid the use of the term vision altogether. An insight-
ful new Chairman of one of the world’s leading consumer goods companies,
with a market capitalization exceeding $50 billion, decided not to call his
vision for the company a Vision, since that label had long since worn out
through an apparently endless string of successive visions. As a result, the very
word carried particularly negative implications in his various businesses. By
agreeing with the suggestion to relabel his vision statement as a Company
Promise, the new leader of the organization was able to position his new goal
for the company in fresh terms.
The Company Promise carried with it a greater sense of commitment and a
more personal depth of feeling for all concerned. Well packaged, carefully
scripted, and rolled out across the world, his Company Promise set out the full
range of changes and standards he was committed to for the organization. The
Promise became the aspirational goal for thousands of managers and employ-
ees across the world as well as a long-missing statement of greater inclusion
for partner participants in his business system.
228 STRATEGY

II.1. The Promise

Explanation: Vision/mission/values
In STRATEGY, business leaders are encouraged to go beyond the traditional approach to vision
and address a broader set of challenges to reach the heart and soul of an enterprise. By
making The Promise, there is an opportunity to signal a deeper and more personal commitment
and to address a full set of concerns relevant to a business enterprise and the people within it.

The Promise is perhaps the most important element in any strategy as it sets the overarching
goal and higher purpose of the enterprise. It answers a number of key questions:
• What is the purpose of an organization?
• What is it trying to achieve?
• What is the guiding star to which decisions can be oriented to drive an organization
consistently toward a common goal?
• What is the aspirational goal that will motivate employees,
guide investment decisions, and inspire shareholders? 1. The Promise
2. Key Levers on performance and
value
There are four key elements of The Promise 3. Priorities and resource
• a clear vision allocation
• a more detailed mission statement 4. Strategic option selection
5. New organizational approach
• a commitment to values 6. Risks management
• a program of engagement and responsibility 7. Target results

Vision/Mission Statement

The vision/mission statement describes the vision, the overarching purpose,

and the ultimate goal of the enterprise. It may also include a high-level sum-
mary of the most important imperatives, the values, or the target objectives of
the organization. The statement can vary from a pithy summary to a longer
statement of an overarching goal. Examples range from one-page bullet point
summaries to three-page speeches. Generally, the shorter and punchier, the
better, what one British colleague once described as “gritty.”
The vision statement selected in this phase of strategic design may provide
the headline content of a more detailed statement which builds from the
restated vision to spell out in more detail what the organization is trying to
accomplish and what is required to make the vision a reality.
In the future, businesses would be well advised to broaden their mission
statements beyond pure financial and operating goals to encompass aspira-
tions for community and environmental impact. And in many countries, from
Malaysia to the United States, an explicit commitment to diversity is an
essential part of strategy.
Corporations need to be sure that they are welcome whenever they do
business, and are at home in various marketplaces. Only through a more har-
monious relationship with all key constituencies and a non-destructive approach
to the local ecological systems can businesses ensure they will be able to grow,
prosper, and achieve the full aspirational missions they set for themselves.
 229

II.1. The Promise

a. Vision

will become the world’s leading

luxury watch house and one of the world’s most highly
respected companies, constantly setting and achieving
new standards of excellence in timepiece design,
manufacture, sales, and service.

II.1.The Promise
Explanation: Mission statement
A well-crafted mission statement is a powerful tool to expand on the vision, communicate
throughout an organization, manage change, and guide execution of strategy. A good mission
statement will:

• Promote a common understanding of the vision for all employees

• Provide common goals and unify beliefs so that strategy can be easily communicated at all
levels of the business
• Guide strategic management decisions
• Set criteria for strategic decisions
• Define and communicate priorities
– to analysts and shareholders
– to employees 1. The Promise
2. Key Levers on performance and
By setting out a broader understanding of the mission-critical value
3. Priorities and resource
objectives, there will be greater understanding of what is required
allocation
to achieve the overall vision. Some mission statements may go so
4. Strategic option selection
far as to include “mission metrics” – precise measures of
5. New organizational approach
performance necessary and sufficient to achieve the overall vision. 6. Risk management
7. Target results
230 STRATEGY

II.1. The Promise

b. Mission statement
will become the world’s leading luxury watch house and one of the
world’s most highly respected companies, constantly setting and achieving new standards
of excellence in timepiece design, manufacture, sales, and service. Achieving this vision
will require us to:
• Build and communicate the exclusive value of the brands
• Design and deliver exquisite timepieces to select customers
• Center our entire business on watches and related products and services
• Establish and expand on global leadership in quality, market presence, and
organizational excellence in our selected customer, product and market
segments
• Attract, develop, and support the best people in our industry
• Continue to build our enterprise as a caring company which contributes to the
greater world community
Achievement of this Mission will allow to preserve and enhance
our heritage of quality, excellence, and aspirational value, surpassing all others in our
industry.

Commitment to Values

Values are made up of the principles and ethics of an operation and define the
character of the enterprise. They are defined in action rather than words and
are tested in a wide variety of circumstances on a daily basis. The statement
of real values is an important part of strategy, organizational design, operating
principles, and a related communications program. Unlike the diagnostic tool
on values, where insight is created by a critical approach, the values summary
here is a part of the presentation of the vision of an enterprise and thus needs
to be aspirational and positive in content.
To be credible, it is critical that the stated values must be adhered to, or
actively worked toward, across the organization. It is no use citing product
quality as a value if poor quality is a blatant problem lying unmanaged within
the business, fully exposed to the market. Most essential to address in action
and in a strategic plan are the values that drive the culture and differentiating
actions of the enterprise. Where possible, setting priorities (say, a maximum
of five each for internal and external) on the long list of desired values and
linking them to confirming actions will focus this section of a strategic plan
and make it more meaningful.
As an example, HP’s clearly articulated values are fully shared across the
organization and serve as a guideline to managers in that expanding organiza-
tion. The five values highlighted are: innovation and flexibility, high level of
achievement and contribution, teamwork, trust and respect for individuals, and
uncompromising integrity.
 Content Phase II: Design 231

The Uncommon Approach of Standard

Chartered Bank

One of the least standard approaches to values management as part of long-

term strategy can be found at the Standard Chartered Bank, one of the oldest
and most prestigious financial services institutions operating in Europe, Asia,
and Africa. In the bank, and in particular as outlined by Kai Nargolwala, the
urbane Executive Director and chairman of the wholesale banking operation,
the key values of integrity, responsibility, and excellence are not just aspira-
tional ideas, they are built into the body of the organization on a systematic
and expert basis.
Adherence to values is incorporated into individual performance reviews;
behavior relative to selected values is measured and communicated to staff
members. Monthly briefings to the top 200 executives regularly include
progress reports against specific values and value measures. Creative vehicles
to illustrate and communicate values such as staff musicals, videos, and other
creative media are included in the program to infuse the entire organization
with the desired set of values and associated behavior.
Nargolwala is specific on the value created by this approach, ticking off
greater revenues arising from a more positive corporate brand, the attraction
and motivation of colleagues and the insurance or risk value of protection
against an unexpected mishap in compliance, performance, or operation.
Forward-thinking business leaders are already thinking about how the
broader role of the corporation in community, ecology, and diversity can
be integrated into the business’s core values, operations, and strategies. If the
newer values of engagement are left isolated from the main flow of events and
divisions, they are far more likely to wither and die from insufficient senior
attention. The company would then be far more likely to suffer from missed
opportunities and avoidable adverse public reaction.
The purpose in setting out a more critical, and therefore more actionable,
values statement is to identify the areas where corrective action can be taken.
The statement of positive values should be promulgated widely to highlight
the key values of the company to customers and suppliers. The more negative
view needs to be kept in mind when drafting a public statement of values to
ensure that that statement will not conflict with the realities of the situation.
But that more negative view should be kept inside the company and used pri-
marily to direct action to improve the negative elements highlighted by the
statement, not to focus external attention on internal issues.
These challenging value-related issues can be addressed at either the stage
of organizational design or in the imperatives/priorities stage of the develop-
ment of STRATEGY, depending upon management decisions.
232 STRATEGY

II.1.The Promise
c. Commitment to values
’ is committed to the values necessary to realize our vision and achieve the
full potential of our enterprise. To that end we commit and dedicate ourselves to build:

• An expert organization which is focused on world class achievements for our

customers and our products. We are always prepared to provide prompt and
punctual services which impress and exceed customer and distributor
expectations.
• An open organization which reviews its performance openly, honestly and fairly,
makes appropriate corrections and improvement where needed, and takes creative
initiatives to satisfy customer desires for “the world’s leading luxury time pieces for
a variety of occasions”.
• A learning organization, wherein our people constantly grow, adapt to change
within the business environment, and strive to learn and improve themselves in
order to provide superior products and services to our customers.
• A value-driven organization, which respects the values of our heritage and
moves forward to apply these values in a creative as well as classic manner.

Engagement and Responsibility

A new critical area that a full strategy needs to address is corporate responsi-
bility in all of its forms. This element bridges values and initiatives, and its
content needs to link effectively with both. Environmental performance, com-
munity involvement, workplace policies, corporate governance, and honest
reporting are all coming to the fore in setting and implementing corporate
strategies in even the world’s largest and most successful enterprises.
Changes in this direction are already visible. Lester Brown of Worldwatch
Institute notes, “High profile CEOs have begun to sound more like spokes-
persons for Greenpeace than for the bastions of global capitalism of which
they are a part.”
Dr R. K. Pachayuri of the TERI Newswire went even further: “There is a
perceptible change in evidence of the practices of some of the multinationals
that were known as the worst polluters in the past. Their environmental poli-
cies are changing because most of them realize that not only are good prac-
tices good for the public image of the company concerned, but they also
represent good business with favorable effects on the bottom line.” And this
process will continue since it is, as Dr Pachayuri noted, not only in the enlight-
ened long-term self-interest of business leaders to participate—it is now in
their short-term rational interest as well.
It is essential for the long-term success of any business setting out on a
more responsible path that the principles and activities of social engagement
be integrated with its core strategies. There may be some benefit from
charitable contributions and corporate brand development related to stand-
alone financial donations, but severing policies and programs of broader
 Content Phase II: Design 233

responsibility from core operations and organizational activities imperils their

continuity and may reduce their impact.
Environmental policies, for example, need to be integrated into manufac-
turing strategies. Diversity targets need to be integrated into hiring and devel-
opment programs. Participation in global initiatives needs to be integrated into
individual objectives, factored into time and expense allocations, and adjusted
to fit overall objectives for the organization. Leadership of a larger program
may require a multiyear funding commitment. Appropriate resource commit-
ments will need to be made and budgets adjusted accordingly.

Element of Core Strategy

It is essential that programs of social responsibility be sharply defined, with

their content clarified to the same level as other commercial initiatives.
Programs and policies of social responsibility can be built into core operations
as a key part of operating strategy or set out as specific initiatives in the over-
all context of a group strategy. These specific initiatives can be led at corpo-
rate, business unit, or even individual level. In all cases, precise actions, clear
accountability, and the timing of each initiative needs to be specified, reflect-
ing the structure and quality of the commercial initiatives.
The same simplicity and precision are required in the broader areas of engage-
ment as well. Such declarations as “we will adopt industry leading standards of
triple-bottom-line accounting by the end of the next financial year” gives real
meaning to otherwise bland statements. The new effort at precision is well seen
in Coca-Cola’s environmental imperative to reduce greenhouse gas emissions
from coolant equipment by 50 percent over 10 years. It is as essential to bring the
same rigor, discipline, and value to the broader goals of the enterprise as it is to
refine traditional strategic, operating and financial measures of success.

Aspiring to a Universal Welcome

One of the world’s most powerful and foresighted businessmen, a Chairman

and CEO of a company with a multi-billion dollar market capitalization,
remarked recently that he aspired for his company to embrace business prac-
tices and ethics so that they would be “welcome in every community in which
[the company] chose to do business.”
This new standard of excellence, and other less traditional measures of
strategic success, would be well considered as part of the strategy, mission and
values of a business. STRATEGY provides you with a clear framework, an
opportunity to consider these new elements, and a format to include them
seamlessly in your own strategies.
234 STRATEGY

II.1.The Promise
Explanation : Engagement and responsibility
It is no longer possible for leaders to avoid a broader engagement in the world in which their
businesses operate. Social, legal and shareholder pressures, employee demands, and the
increasing value – short and long term – of a more deliberately responsible approach to
business are creating an environment where it is essential to address a broader
engagement and sense of responsibility for eight areas, four of them internal and four
external :

Internal External
Workplace Customers
1. The Promise
Business System Environment
2. Key Levers on performance and
Reporting Social Community value
Governance Business Community 3. Priorities and resource
allocation
4. Strategic option selection
Drawing on the best practice approach of the world’s largest 5. New organizational approach
multinationals, and input from the world’s leading multilateral 6. Risk management
institutions, a summary matrix to key initiatives can be applied. 7. Target results

II.1 The Promise

d. Engagement and responsibility
Workplace Business System Reporting Governance

Internal • Continue “Watch It”
safety program
• No accidents
• Improve lighting and eye
care standards
• Commitment to hire
wheelchair-bound
• Gold suppliers healthy • Adopt triple bottom line • Add two independent
work practices verified accounting non-Swiss directors
• Distributor service • Publish “annual report”, to Board within 2
excellence training even pre-IPO years
• Add Board
Committee on
Corporate
Responsibility

Customers Environment Social Community Business Community

External
• Provide lifetime product • Cut toxic effluents
guarantee from cleaning fluids by
• Ensure safe packaging 80%
materials used • Invest R&D funds to
find alternatives to
plastics in packaging
• Increase annual eye • Fund 20% of budget
care project of watch-makers
contribution college
• World Watch Institute • Chairman on Board
• Provide clocks and of Swiss Industry
teaching materials to Council
African program

II.2. Levers on Performance and Value

Within each business there are a limited set of truly critical levers to lift
business performance in the new paradigm. It is essential to isolate and focus
all available force on the most important of these key levers for your own busi-
ness. These levers will vary by individual business, by type of business and by
the current set of challenges facing an organization. Such elements of strategy
 Content Phase II: Design 235

as relative market share, value chain dominance at a key step in the chain, lively
brand presence, superior service, dominance of key distribution channels, own-
ership of key patents and technologies, share of the most attractive customer
segments and other potentially key levers should all be considered.
In order to break out of the unsatisfying “me too” approach to strategy and
the unsatisfactory results achieved by most companies, it is critical to determine
what are, and what will be, the key levers on your company’s performance. By
identifying and focusing your energies on the highest value levers, you will be
able to lift yourself into the elite circle of consistent winners who have achieved
enduring success in creating value and achieving profitability.
Once the levers of profitability have been identified and priorities set, the
task is to define how these levers can best be applied and which investments
and actions will create the greatest positive impact for your organization.
Often, relative market share and relative cost position are key determinants
of superior profitability. In selecting a few key areas of competition such as
customer segments, product areas, cost or service level, concentration at a
specific stage of the value chain, profit pool, channels, or capital access, you
also set out the factors which will determine your long-term profitability. You
can then focus on them relentlessly. With a sense of the relative current profit-
ability and long term value of customer segments, products, channels and the
most attractive parts of the overall industry profit pool, your management team
can select key determinants of future profitability and define a strategy to
exploit them to the maximum extent possible.

Focus on the Essential and the Differentiating

One turnaround expert maintains that an organization facing a major turnaround

or transformation program can only effectively focus on three or less impera-
tives. If low cost is a critical success factor, then all of the elements of strategy
in the organization need to be focused on that single imperative. Although this
extremely limited focus may sound draconian in its application, and may be too
limited for most businesses, the idea that levers on long-term value creation and
profit performance need to be prioritized is true indeed.
Unfortunately, many companies have lost sight of what truly does make
them different. True differentiators create a measurable difference in the eyes
of customers, in financial performance or in strategic positioning. Only with
the accomplishment of creating some measurable “clear water” between your
own performance and a competitor’s can you claim to have really created
competitive advantage.
In setting out to create competitive differentiators, it is essential to identify the
true levers on value and performance. Only by focusing the attention of the man-
agement team on the most important elements of strategy can the investment in
236 STRATEGY
differential performance create the biggest bang for the buck. In considering
the options to create true competitive differentiation, the traditional analytical
sources on industry and corporate performance can provide useful input.
The PIMS data base linking relative market share and profitability, the
U curve identifying the value of niche opportunities as well as scale advantage,
the integrated concepts of consumer brand push (distribution power) and pull
(brand values) and other potential levers can be raised, debated, and evaluated
to come up with the most powerful set of levers to lift your own business
performance to its highest possible level.

II.2. Key Levers on Performance and Value

Explanation
Within each industry, there is a limited set of high impact “levers” that can lift business performance most efficiently
and effectively. Finding these levers (which can include high market share, low cost position, superior product
quality and service, effective customer segmentation and other elements) can be pursued through the answers to
seven key questions.

Identifying, understanding and focusing on your energy on moving these levers will allow your team to lift the
business to its maximum level of performance and value.

• What correlates most strongly to leading profit and cash flow performance?
• What correlates most strongly to leading revenue performance?
• What correlates most strongly to superior cost?
• What capabilities are needed to achieve market leadership?
1. The Promise
• What key actions are driving competitor success and failure?
2. Key Levers on performance
• Looking forward, what will create valuable differentiation
and value
for key customer segments in the market? 3. Priorities and resource
• What drives capital efficiency and return on equity? allocation
4. Strategic option selection
Answers to these seven questions can be neatly captured in a 5. New organizational approach
framework driven by the 7 C’s model. 6. Risk management
7. Target results

II.2. Key Levers on Performance and Value

Does
this lever Relative Design Distribution/ IT Lowest R&D Customer Portfolio Relative
improve this key Market and Service invest- Price Segmentation/ Focus Cost
business element? Share Brand Presence ment Loyalty Position
Values

Customer Value No Yes Yes No No Yes Yes No No

Competitive Position Yes Yes Yes No No Yes Yes Yes Yes

Channel Presence Yes Yes Yes Yes Yes No Yes Yes No

Capabilities Yes Yes Yes Yes Yes Yes Yes Yes Yes
Cost Position Yes No Yes Yes No No Yes Yes Yes

Capital/Market Yes Yes Yes No No No Yes Yes Yes

Performance
Context / Market Yes Yes Yes No No Yes Yes Yes Yes

Total “Yes” 6 6 7 3 2 4 7 6 5
Key lever? Yes Yes Yes No No No Yes Yes Yes

( = 5 or higher level )
 Content Phase II: Design 237

These levers and the resulting imperatives will serve as a bridge between a
vision and specific priorities, targets and investments. They provide the bridge
from broad objective to specific goal. The imperatives for competitive
advantage should be fully considered in determining the long list of potential
initiatives and the final matrix of selected priorities. By reminding managers
of the need to stay focused on the high impact levers on performance and
value and the need to keep competitors clearly in view at all times, respect for
these imperatives can make the difference between a winning and losing
STRATEGY exercise. By setting out the imperatives whose achievement is a
necessary and sufficient condition to realize the vision, a set of high-level
goals can be set and translated into action. In setting out these imperatives, rel-
ative performance needs to be assessed and truly differentiating performance
targets established.

II.2.Key Levers on Performance and Value

b. Imperatives for competitive advantage
Key Lever Imperatives for competitive advantage

Relative market • 2 x relative market share vs. next largest competitor by 2012
share (i.e. twice as big as #2) in Europe

• Highest awareness
Brand Values • Most aspirational brand values
• Caring and responsible parent company
Distribution • Achieve leadership presence in top 20 countries
presence • Capital city presence in countries 21– 40

Customer • Deep understanding of key segments

Segmentation • Custom-tailored program for key segments

Portfolio Focus • Watch and related services and products only

Cost Reduction • Reduce excessive HQ cost by 20%

Defining the priorities for a business will require you to define how best to
differentiate from competitors. Priorities should all lead to competitive advan-
tage and will need to highlight those broad directives whose accomplishment
will ensure that the vision is realized and that the resource allocation decisions
are made which get the best results from operations, create sustainable com-
petitive advantage, and maximize value to shareholders and other stakehold-
ers in the enterprise. There will be more than one priority imperative, but they
will all need to be stated in simple terms. For example, “achieve top three
238 STRATEGY
rankings in all asset management performance ratings” or “deliver all products
and services faster than two leading competitors” are imperatives which can
be understood and acted upon.
Following the selection of a limited set of priorities and the firm exclusion
of others, a conscious and effective process of resource allocation can be
undertaken. A simple chart can capture the priority pursued, its value, the
financial investment required over an estimated time frame and the human
resources required.

II.3. Priorities and Resource Allocation

The best approach to get to an actionable set of priorities is to work through

the steps of the sequential process as set out in Book One. The first step is to
make a comprehensive list of potential priorities which focus on the levers of
performance and value. The second places each on a priority framework
which rates the expected value of each initiative against the estimated diffi-
culty to implement. The third step selects priorities, drawing a line between
those initiatives which will be pursued, and those which will not. The fourth
and final step is to allocate financial, human, and operational resources to your
selected set of priority items.

II.3. Priorities and Resource Allocation

Explanation
In order to make your strategy as effective as possible, you will need to set clear priorities to achieve the highest
return on investment and the highest level of operating performance. The best seven-step approach to set and
pursue a current set of priorities works as follows:
Identify the imperatives for competitive advantage, setting out a specific list of objectives under each
key lever on performance and value
Draw up a long list of initiatives to respond to imperatives identified under the key levers. This list
should contain existing as well as potential initiatives
Assess the potential value of each initiative and the difficulty of implementation
Array all ideas on the 2x2 matrix, allowing you to see both
relative value and expected difficulty of implementation
1. The Promise
Draw a line of demarcation (the “cutoff line”) on the matrix which
2. Key Levers on performance
separates clearly those ideas in which you will invest and those
which you will defer or avoid. This may require stopping or
and value
redirecting some existing initiatives 3. Priorities and resource
allocation
For each selected priority, specify the resources to be allocated 4. Strategic option selection
to support its implementation.
5. New organizational approach
Review the line of demarcation in the light of the resources 6. Risk management
required to ensure sufficient resource is made available on a 7. Target results
timely basis to achieve the objective
 239

II.3. Priorities and Resource Allocation

a. Long list of potential initiatives (examples)

Key Relative Brand Distribution Customer Portfolio Cost

Levers: market share values presence segmentation focus reduction

• Restore • New ad • Grow points • Market • Sell Perso • Reduce

Potential
growth in campaign to of sale to 700 research to Leather overheads
Action
core reinforce in third party identify key Goods by 20% by
• Add sports brand retail customers • Exit all year end
range or • Redesign/ • Add 39 new • Interactive property • Outsource
evolve classic owned relationship holdings non critical
• Acquire
Richesse outlets program with • Add service admin-
Sportius
models customers and istrative
• Relaunch • Build
• New • Focus sales restoration functions
ladies' range presence in
approach to India effort division • Merge plants
values / • Richesse • Consider C and D
responsibility • Grow in
Collection roll finance and • Perso
emerging
• Repackage out insurance turnaround
markets
product B (for watches
only)

II.3. Priorities and Resource Allocation

b. Selection matrix
Cut off line for options

Low Hanging Fruit Key Initiatives

Sell Perso
Fix/Grow
High Responsibility program
Core business
Relaunch ladies' range Option
Cut Overhead
Ease of
Implementation IPO Launch Sports range Status Quo

Avoid Long Term

Establish service Focus
Build in India Buy Sportius division
Low
Repackage product B Grow in Emerging Markets
Perso Turnaround Merge plants C and D Breakthrough

Low Value High

240 STRATEGY

II.3. Priorities and Resource Allocation

c. Resource allocation
Total Investment
Priority US$ million People Comment
Launch sports range (50) 6 full time 3 year program to roll out full range

Sell Perso 75 5 part time Investment bank to lead process

Expected to raise $75 million net of fees
Buy Sportius (300) 3 full time Small team on transaction (many more to
integrate if acquired)
Cut overheads (cost) (5) 5 part time Cost in year one
Benefits from year two
Public listing (fees) (10) 10 part time Responsibility of CFO

Other (10) 20 part time Coordination by COO

Total net pre – IPO costs (300) Overall co-ordination by CEO

IPO proceeds (est.) 300 Sell 30% of business to raise $300 million

To reinforce the clarity of thought on priorities, it may help to impose the dis-
cipline of dividing a list of key activities into columns of “start” (new activities
to realize the vision), “stop” (current activities no longer in line with the new
direction), and “continue” (activities to be retained or accelerated which are
fully in line with the new strategy). Because strategy is as much about what not
to do as what to do, this framework can clarify what the strategy really means
to an organization which would benefit from further clarification.
An example of a slide in this format can be found at step II. 5. e. later in this
design section.

II.4. Strategic Option Selection

Merely listing a range of available strategic options as set out in step 7 of

phase I and selecting one based on intuition or democratic consensus is not
enough to ensure the best possible result. One of the key areas of value added
in STRATEGY lies in setting out a rational process of option selection, an
approach which allows you to value each option comprehensively and to
select the strategic option which best allows you to achieve the vision you
have set for your enterprise.
The process of selection of the best option to pursue the chosen vision is a
blend of quantitative and qualitative factors. Each option will need to be val-
ued from different perspectives—beginning with a financially driven (and risk
 Content Phase II: Design 241

adjusted by the discount rate) net present value calculation. Each option will
also need to be assessed by the application of other valuation parameters as well,
ranging from the soft aspects of strategy, such as organizational capability to
execute, to directly imposed criteria from group headquarters or divisional cen-
ters. These latter criteria may require a certain profit contribution, or under all
scenarios may impose certain capital or investment limitations. The potential
impact on total group value, equity market capitalization, or the achievement of
overarching group objectives may also require careful consideration.
The best way to choose rationally between the contending options is to take
a weighted approach, setting out specifically what factors are to be considered
in the evaluation of each option, and assigning a specific weighting to each.
Net present value, for example, may receive a 50 percent weighting. Fit with
group brand strategy could be a lesser 25 percent in a financially driven com-
pany. In a global consumer goods company, the weightings may be reversed.
The relative performance of each option against these criteria can then be
properly assessed and weighted, and the overall value calculated by mechani-
cal exercise of multiplication and addition.
One useful checklist for relative valuation of options is a seven-element
model which allows managers to evaluate future strategic options against a
well-grounded business framework:

Seven Elements of Comparative Option Valuation

Value impact in capital markets

Net Present Value (NPV) impact
Contribution to profitable growth potential
Fit with organizational capabilities
Impact on strategic balance sheet
Positive change in customer relationships
Contribution to competitive differentiation

Each option can be rated against these criteria on a simple or weighted basis
on a one to five scale, with one being the best among the five and five being
the worst. Simple or weighted scores can be added and a final score deter-
mined for each option. The lower the score, the more attractive the option.
It should be emphasized that a narrow difference in scoring is unlikely to
provide sufficient information to determine which option should be adopted.
There are pros and cons of each proposal not captured in any single score
which will need to be determined to arrive at a final recommended approach.
242 STRATEGY
Value impact in capital markets: Especially for listed companies, the impact of
a strategy needs to be measured by the increase in shareholder value. This is
usually measured in the improvement in shareholder wealth as reflected in
the equity market capitalization of the business. For privately owned com-
panies, the improvement in debt ratings, implied enterprise value or other
standard can serve as a surrogate for an equity market value measure.
Net present value: The net present value is the most important of financial
measures when assessing impact on an organization from different initia-
tives or investments. The NPV, which is the discounted present value of all
future cash flows, net of any initial cash investments, is the best measure by
which to assess investments, make decisions, and track performance.
Maximizing NPV is the hallmark of any good operating management team.
It also underlies many of the investment approaches of fabled investor gurus
such as Warren Buffett and many highly successful owners of businesses.
Perhaps the value of this cash flow-based measure is best captured in the
statement that “Cash is King” in the business world.
Contribution to profitable growth potential: The current opportunities are not
the only measure of full option value. The potential to create future flows of
revenue, profits, and cash needs to be taken into consideration as well.
Especially in a high growth business, where enterprise value in the capital
markets is driven by expectations of future growth in revenues and earnings,
the option value of future growth is an important factor.
Fit with organizational capabilities: As we have seen elsewhere, strategy is much
about the ability of teams of individuals to design and execute predefined
strategies, but is also about preparing an organization to profit from unanti-
cipated changes and developments in the business system. An option which
can enhance organizational capability should be valued more highly than one
which does less to lift the future capabilities of the team involved.
Impact on strategic balance sheet: The potential to change the hard and soft
assets and liabilities of a business is another measure of success which is
difficult to assess mathematically, but which can have a profound impact on
long-term business success. Addressing actual balance sheet categories and
also taking into account the nontraditional assets and liabilities ensures that
all elements of value addition can be reviewed and accounted for.
Positive change in customer relationships: Serving the customer is the raison
d’être of any company. The ability to drive those relationships to a higher
level is an essential element in strategic assessment and valuation. Taking
into account both hard and soft variables of product, brand and service, the
customer cannot be forgotten in any strategic evaluation.
Contribution to competitive differentiation: Although serving the customer
better carries with it an implicit understanding of enhancing the competitive
 Content Phase II: Design 243

offer, it is important to assess directly the impact on truly different

performance in the market. Options which create ‘clear water’ between a
business and its rivals will create immediate and future value. On the
other hand, an option which may create short-term profits at the expense of
competitive capability may not be the most desirable pathway forward.

Avoiding the Shareholder Value Trap

To some, it may sound like heresy to suggest that strategies which are aimed at
maximizing shareholder value could be considered as anything so negative as a
trap. However, while respecting the essential value of shareholder wealth creation
as a valid objective for a business, it should be pointed out that some businesses
have been caught up in a debilitating cycle of inflated expectations and have
adopted sub-optimal operating approaches to meet those expectations. Puffing up
quarterly expectations, straining management teams, and testing the ethics of
those responsible for accounting and communicating is not a strategy aimed at
maximizing value—it is merely an exercise in artificial share price inflation.
Too often, management teams and business leaders fall into the trap of
covering a bad quarter’s performance with accounting adjustments or prom-
ises of future performance which an organization cannot realistically be
expected to meet. A positive share price trend should be the measure of
success, not the object of manipulation.
It may be worth bearing in mind here the winning approach of oarsman Steve
Redgrave, a former world champion and four-time gold medal winner in the
Olympic Games. Redgrave, an athlete of unparalleled success in his discipline,
said that the essential to achieve victory time after time was not to think about
winning itself, but to focus on what it takes to win. The direct application in
business strategy is to focus on what it takes to create a strategically superior
enterprise, not attempt to manipulate the capital market’s measure of success.

Weighting the Elements of Valuation

In defining the formula by which the various strategic options may be assessed,
management teams may want to weigh some elements more heavily than others.
Not all variables in the criteria set out here are of equal value to different
managers. Attaching a different weighting to one or more elements to reflect
the difference in importance can elevate the calculations to a more valuable plane.
It should also be pointed out that the sale option of an entire business usually
requires separate analysis and weighting of different factors. The option is
included here for consideration, although the real input for a decision of this
magnitude for a family business of such longstanding importance would be
more complex and very individual.
244

II.4. Strategic Option Selection

Explanation
This stage involves valuing the range of options specified at the end of the diagnostic phase and
spelling out the pros and cons of each. Although there are many potential options, most real
options can be captured in a limited set of choices. The seven process steps to select the best
option are as follows:
set out terminal options (status quo vs. sell)
list intermediate options to group initiatives within an overall
concept and label them clearly
list criteria to evaluate with appropriate weighting for each
apply evaluation framework to assess relative value of
each option
sum up all weighted, valued criteria and rank order 1. The Promise
2. Key Levers on performance
final assessment tested by applying insights from experience, and value
company history, industry standards, new global paradigm, 3. Priorities and resource
implementability risks, and other angles allocation
select option based upon balance of quantitative analysis and 4. Strategic option selection
qualitative assessment 5. New organizational approach
6. Risk management
After selecting a single option, the senior team should ensure that
7. Target results
it will indeed lead to the achievement of The Promise set out
earlier.

II.4. Strategic Option Selection

a. Range of options (from I.7)
Option A Option B Option C Option D Option E
Focus on
Hybrid and Sell
Status quo plus international Breakthrough
network model Company
watch growth

Content: • Stabilize profits
• Retain and fix Perso
• Increase brand spend
• Improve performance
of existing distribution
systems
• No mergers,
acquisitions or
divestitures
• Stay private
• No major initiatives in
ladies’ or sports range
• As option A plus • As option A plus • Launch RRW sports • Hire investment
- Launch second - Increase points of brand or acquire sports bank to sell all
line sale to 1,000 with watch company (or majority) of
equity
- Sign up 50 new partners • Relaunch ladies' brand
distributors - Set up network of • Launch Collection
- Add 15 owned sales JVs in key • Establish service division
outlets countries
- Add international • Grow owned outlets to
- Merge OECD 75 from 36
sales resources distribution/
- Sell Perso logistics system
• Add 100 third party
outlets
• Build service division with European
competitor • Cut costs 20%
• Sell Perso
- Keep Perso
• Public listing of RRW
 Content Phase II: Design 245

II.4. Strategic Option Selection

b. Evaluation framework for options (unweighted)
Option A Option B Option C Option D Option E
Focus on Hybrid and Breakthrough Sell
Status quo international network model Company
watch growth
Enterprise value 3 2 2 1 1
NPV 3 2 3 1 2
Growth potential 3 1 2 1 3
Impact on organization 3 2 2 1 3
Strategic balance sheet 3 2 2 1 3
Customer value 3 1 2 1 3
Competitive 3 1 2 1 1
differentiation
Total
(lowest is best) 21 11 15 7 16

Rank 5 2 3 1 = Selected Option 4

Scoring: 1= High 2 = Medium 3 = Low

II.5. New Organizational Approach

Your strategy will need to specify how the individuals and teams operate to set
and achieve the strategy you have now defined for your business. There are
three parts to organizational design: structure, staffing, and operating princi-
ples. An appropriate approach in only one area without equal attention to the
others will not provide enough guidance and focus of effort. All three phases
of organizational design are essential to ensure that options can be imple-
mented in a way that suits the culture and character of a company.

Structure, as discussed in the chapter on organization in Book One, requires

you to design the boxes on an organization chart which will make up the job
functions and reporting lines, defining the architecture of an organization.
Staffing, deciding who takes on which role, and even who stays and goes
within the organization, is one of the most important success factors in
business. The choice of individual hiring, placement in jobs, and firing can
determine in great part how successful your strategy will be. For many com-
panies contemplating a dramatic program of change or breakthrough strat-
egy, the existing team may not all be up to the tasks of meeting a greater set
of demands. Making the tough decisions on who stays, who goes, and which
new members of the team are required from either inside or outside the
246 STRATEGY
organization can be some of the most painful, but eventually most reward-
ing, decisions a leader can make. A simple summary template to assist in
evaluation has been included in Phase I.
Operating principles, which determine how the people and jobs interact, can
have a major effect on the effectiveness of an organization. Based upon the
management style, internal culture, reporting and reward systems, and other
aspects of an organization, the principles of operation will describe how
people will interact, how responsibilities are allocated, how authority is
devolved, and how things get done.

In particular, the style of the leaders will need to be taken into account in set-
ting out a new approach to organization. Strategy, structure, and style all need
to be understood so that the full energies of an enterprise can be released and
focused on priority goals.
Developing the full capabilities to achieve ambitious visions and goals
requires that all elements of organization be placed at the heart of strategy.
Many successful strategies have even been driven off a platform of under-
standing accurately and creatively what the core capabilities or competences
of an organization are: brand development, channel expertise, mastery of a
product or technology set, or other key skills. The ability to understand, build
on and enhance capabilities now needs to be explicitly taken into account in
each and every strategy. The demands for performance, change, and real dif-
ferentiation will not abate, ensuring that organizational issues will be a high
priority for years to come.
The past few years have seen seven accelerating trends that will affect
the strategies, and therefore the organizations, of the new millennium. The
summary result of these changes are organizations that are less expensive to
operate, faster to respond to issues in the relevant markets, better at sharing
data and ideas around a network and reflect a greater use (and reliance) on tech-
nology to integrate activities and operations.

Seven Trends in Organizational Design

Global markets
Acquisitions or mergers
Strategic alliances
More flexible and networked organizations
Delayering and downsizing
More technologically enabled paradigm
Management of intellectual capital
 Content Phase II: Design 247

One of the reasons these new forms of organization have emerged is that there
has been a broadening of boundaries to embrace global and regional markets.
This change also brings in a longer list of competitors and a greater set of
issues related to a business system.
The second trend, related to the first, is recognizing the possible need to
develop an acquisition, merger or other “inorganic” growth program, often
crossing national boundaries or existing product groups. The biggest challenge
in making mergers and acquisitions work lies in integrating two organizations
successfully. It has long been known that, on average, mergers and acquisitions
destroy shareholder value. By preparing your organization to meet the chal-
lenges of post merger integration you will significantly improve the odds of a
successful transaction should you decide to pursue this type of initiative.
The third trend is to increase the number of strategic alliances, formal and
informal, across borders and markets. Each will require greater skills and
capabilities to manage relationships and complex hybrid organizations.
The fourth trend is a move away from old-fashioned command and control
structures and operating principles, and a move toward a more distributed and
participative model of leadership and operation. A network organization,
described in greater detail in Book One, may allow complex yet flexible
strategies to be developed and executed effectively.
The fifth trend is to reduce the number of organizational layers between top
management and the customer. This often means reducing HQ staff dramatically
and moving central resources back into divisions or directly into the field of
operation. It has long been understood that organizational learning takes place at
the operating interface with the customer. More and more, organizations are set-
ting themselves up to manage intellectual capital better and to harness the full
value of the knowledge gained at that customer interface.
One of the greatest challenges will be to continue to get closer to the customer
while fending off global and regional competitors. Or to put it the other way
around, to pursue a common global vision while serving local market needs.
Both these goals may demand a new organizational model as well as adaptations
to company operating principles, values, and strategies.
A sixth element of consideration is the application of technology to increase
productivity and reduce the number of employees required to complete a task
or function. Software and hardware options need to be explored to see to what
extent a smaller, more capable, and better equipped team could improve both
efficiency and effectiveness in pursuing business goals. The implications of
choice in this area could have a significant impact on the size and constitution
of the current and future organizations.
Finally, the rise in understanding of the value and challenge of actively
managing intellectual capital will need to be taken into account in designing
your organization. How and where information and skills reside in your organ-
ization and how you draw on and profit from that information are critical ele-
ments in preparing your business for the future.
248 STRATEGY
In all cases, the structure and operating principles of the organization need
to be aligned with the selected strategy. They will need to be constantly
reviewed to ensure that all aspects of the organization are supporting the
achievement of your vision and contributing to the inspiration and motivation
of your business colleagues.

II.5. New Organizational Approach

Explanation
A well-developed organizational model and a high level of capability is critical to support a
successful implementation of STRATEGY.

As businesses refocus on a limited set of priority actions, organizations must bring to

bear their full capabilities in key areas, intensifying targeted efforts and operating more
effectively on a co-ordinated global basis.
Creating the capability to implement strategies today and in the future is essential. By
building the capabilities of an organization today, you will automatically be creating
more degrees of strategic freedom and opportunities to enhance future value.

In designing and implementing the best model to implement your

strategy and to achieve operating target, the leadership will need to: 1. The Promise
2. Key Levers on performance
select the best model of organization and value
3. Priorities and resource
act to improve capability allocation
change people as needed 4. Strategic option selection
address needs for culture change via management / 5. New organizational approach
motivational matrix and values migration program 6. Risk management
7. Target results

II.5. New Organizational Approach

a. Selected network model

Operating principles Europe

Close to customer Retail

More people in market Outlet/ USA
Distribution
Fewer people at HQ
Greater global presence Geneva
High sharing of Headquarters
information
Less hierarchical
Emerging
Access expertise and data markets Asia
on single data base
available 24/7
Sport
Support competitive watches
superiority in key levers of
performance and value
 Content Phase II: Design 249

II.5. New Organizational Approach

Actions to improve capabilities
Assessment Proposed action

Strengths Good people Retention rates monitored and set to keep star performers
Team approach Recognise teams and team behavior as well as individuals
Quality in design Maintain leadership through increased use of CAD/CAM
equipment and training

Weaknesses Hiring targets high Increase resources to source and screen applicants
Risk to quality Introduce and double training budget
Program to reinforce company values on regular basis for all
employees – new and old

Too many ideas, Application of prioritization 2X2

too few implemented Link implementation to reviews and compensation

Insufficient understanding Analyse and calculate profitability figures by product, by

of impact of profit/ channel and by customer
segmentation Set sales team targets for profit, not just sale volume
on company

II.5. New Organizational Approach

c. New staffing
HQ
(Chairman,Vice Chairman, CEO *)

Special Projects HR VP *

Admin VP Finance VP *

Distribution
Marketing Design * Asia Europe
& Sales

Classic Service *
United States
Third party
Collection *
distribution

Ladies' * Owned shops

Sports * Smaller regions

* = new staff

Although the structure and organizational model selected are critical, it is often
how people work together and what their capabilities are that really determine
successful differentiation at an organizational level. Addressing the capabilities of
individuals within an organization with an eye to eliminating weaknesses and
building on strengths is part of the winning STRATEGY formula.
The net effect of the changes should be to move the organization from its
present mode of operation to its future (better) mode. In some cases, that
250 STRATEGY
migration path can and should be made specific to ensure that all aspects of
the strategy are in line and all issues tabled and discussed.
It may even be advisable to take a poll or to hold a series of discussion
groups to determine where the real issues lie and what really needs to be done
to change an organization embedded in a history which has not yet achieved
the desired future state or performance along critical dimensions.

II.5 New Organizational Approach

d. Management / motivational matrix
Point of Content of Migration Plan
Arrival
(1 year All managers to participate
from now) in STRATEGY Program
Satisfied
X V.P. discretion to manage
+/–5% of budget
categories
Monthly management
meetings of two hours
Dissatisfied X instead of weekly control
meetings of one hour
Point of Departure
(now) Mandatory retirement age
at 70
Centralised Disciplined Freedom Greater freedom to
Top Down Top Down and Bottom Up innovate within budget
Orders only Clear vision/direction
No freedom to interpret Freedom in execution

II.5. New Organizational Approach

e.Values migration program
Weakness * Start Stop Continue
Complacency Hiring from outside Lock step X
Performance-based compensation
compensation
Bureaucratic Reducing paperwork Current weekly X
Increasing verbal reporting forms
communication Quadruple sign-
Increase regional spend offs
authority (within budget)
Geneva-centric “Active listening” Top down Swiss tradition
approach program strategy and
New organizational budget process
model
Poor service Separate service Delegation of Design for lifetime
division service to weak excellence
Express service distributors
standards
Symbol of uncaring Program for Arrogant Family foundation
elistism engagement and advertising
responsibility
* From I.6.b, 1.6.c and I.6.d
 Content Phase II: Design 251

II.6. Risk Management

In Book One, the constituent elements of risk and opportunity are clearly
unbundled and explained. The result is a more scientific definition of risk and
opportunity which allows management teams to know in greater detail where
resources can best be deployed to reduce risk and exploit opportunity.
As in so many other areas in strategy, improved understanding is not
enough. The unbundled elements of risk and opportunity will need to be acted
upon in order to be truly valuable. A response to immediate risk and opportu-
nity, and a long-term program to address capability to respond to both are
essential parts of a successful STRATEGY.
Business risks can broadly be broken down into categories of financial risk
(currency risk, interest rate risk, etc.), operating risk (competitive, organiza-
tional, etc.), and contextual (environmental, disease, security, etc.). A far-
sighted management team will have a specific plan of action in all three key
risk areas.

II.6 Risk Management

Explanation
Every strategy carries with it a set of risks which require analysis and management. There is
no such thing as a low risk/high return strategy in most industries – and the bolder the proposed
change, the greater the risks involved.
Understanding and managing risk is an inevitable part of strategy. The following definition of risk can
both set priorities on action (based upon relative net risk assessments) and focus investment on that
part of the risk equation which can most effectively reduce each
individual risk. (addressing one of the four elements in
1. The Promise
particular). The unbundled content of risk can be specified as:
2. Key Levers on performance
scale of potential harm adjusted by and value
probability of occurrence net of 3. Priorities and resource
ability to respond adjusted by allocation
4. Strategic option selection
likelihood of timely response 5. New organizational approach
Analysis and ranking of business risks need to be balanced by a 6. Risk management
specific approach to risk management, specifying immediate 7. Target results
actions in the context of STRATEGY.
252 STRATEGY

II.6. Risk Management

Key Risk Factor Response
Lack of support from Detailed briefing on regular basis
owning family Board reviews scheduled four times/year
Special strategic sub-committee of board with family
representation

Acquisition target not Investment bank to approach target

available Buy strategic stake (if possible) to lock out counter-bidders
Prepare sports range for launch

Organizational Visible leadership of change program by CEO

resistance Full participation across organization
Change staff where necessary

Organizational overload Regular review of priorities, actions and resource allocation

Quarterly surveys and review of workload and project
oversight
Employee satisfaction monitor

NGO’s target company Rapid rollout of engagement and responsibility program

as symbol of elitism

II.7. Target Results

One of the most essential tasks in the entire STRATEGY process is to link the
strategic exercise to the achievement of results in the real world. This requires
simple and clear measures of success. For example: double the return on
equity to 14 percent, increase market value by 50 percent, or fully extend the
UK standard of triple-bottom-line accounting to the global organization.
The target results can be usefully developed to match the descriptions of
your business set out in the first step in the first phase of STRATEGY.
Financial results, strategic balance sheets, operating results, organizational
changes, total enterprise value, and share price targets can all be set as the objec-
tives of your STRATEGY program. The results of individual initiatives and the
overall performance of the business should be spelled out to ensure that the
impact is measured and that the strategy is indeed aimed at driving the per-
formance of the business on a tangible basis to greater performance and success.
In addition to increasing performance in competitive, financial, and operational
areas, STRATEGY reviews the need to broaden the definition of success for a
modern business, particularly for a modern multinational organization.
By including a different set of measures, business leaders can build a
stronger and more enduring enterprise. External measures that reflect a broader
engagement in community and ecology can be captured in new standards of
triple-bottom-line accounting. Internal measures of employee satisfaction,
retention of desirable employees, intellectual capital development, brand value,
and alliance capability are also potentially important measures.
 Content Phase II: Design 253

These results should be specific and measurable wherever possible.

Initiatives should identify (in advance) the required support, interlinked initia-
tives, and organizational dependencies. Authority and required authorizations
need to be clearly spelled out.
In the spirit of focusing on priorities and investing differentially in a select set
of levers on performance and value, it is useful to confirm that there is at least one
target result for each lever and priority identified in the STRATEGY program.

II.7.Target Results
Explanation
Successful strategies can only be driven by managers with a clear set of targets indicating the
performance required to implement the chosen strategy. These targets must be ambitious,
credible, and fully aligned with agreed strategy.
Target results to measure success or failure include:
key levers
financial results
future cash flow
future strategic balance sheet
future impact of strategic initiatives 1. The Promise
competitive position 2. Key Levers on performance and
value
New measures of value and new standards of excellence in 3. Priorities and resource
performance can contribute to a higher level of operating allocation
performance. 4. Strategic option selection
5. New organizational approach
Measures of external performance can include share of
6. Risk management
industry profit pool, share of key customer segment or share 7. Target results
of consumer spend on luxury watches, relative service
performance, and relative market position.

II.7.Target Results
a. Resetting key levers
Current Status Target Results
#2 behind Zurich-Swiss Leadership restored
Relative market share
0.8x size of Zurich-Swiss 2.0x size of Zurich-Swiss

Leadership position lost Leadership restored

Brand Values
#3 in ad spend Highest unaided recall
Fading values Most aspirational values

500 total distributors 700 total distributors

Distribution presence
100 distributors in the United States 200 distributors in the United States
Change underperforming partners

Don’t know customers Full customer register

Customer segmentation
Most valuable segment Customer value program
under-penetrated implemented

Portfolio focus Perso distraction Portfolio focus on watches

Sale of Perso

Cost/income ratio too high

Cost reduction 20% reduction in overhead
Internal inefficiencies
254

II.7.Target Results
b.Year 3 impact from strategic initiatives
350
Acqui-
300 90 300 sition
Profitability US$ million

250
30

200 30

150
150

100

50

Current Market STRATEGY STRATEGY Year 3 Year 3

Profit Growth Cost Reduction Growth Profit Profit with
Program Programs acquisition

II.7.Target results
c. Financial performance
Asian
Economic
Crisis
1200 Acquisition
of Perso
Perso Revenues
1000 Sale of
Watch Revenues Perso
800 Refocus on
million

watches
US$

600
Poorly received EBIT
400 relaunch
PAT
200

1980 Current T1 T2 T3
year
 255

II.7.Target Results
d. Future cash flow
250
200
Net
150 cash
PAT flow
100
US $ million

50
Depreciation
0
CAPEX
(50)
(100)
(150)
Change in Acquisition
(200) working of Sportius

(250) capital

Current year T+1 T+2 T+3 T+4 T+5

II.7.Target results
e. Future balance sheet
Comments
Current liabilities
Over-capitalized post IPO
Current assets
Long term debt Can increase leverage for acquisition
$US millions

Subsidiary
investment
Shareholder Divided policy to be reduced post IPO to
funds maximum 25%

Property, plant,
equipment

Assets Liabilities
256 STRATEGY

II.7.Target Results
f. Future strategic balance sheet
Assets Liabilities

“Hard” strategic assets “Hard” strategic liabilities

Leading share in key segments Unmet demand

Most admired brand Improving IT capabilities
750 exclusive outlets Competitor range
Product quality Strong competitors
Full range

“Soft” strategic assets “Soft” strategic liabilities

Full, interactive customer “Old World” culture

relationships Family transitions coming up
Lean, effective team
Ability to integrate acquisitions

Summary of design phase

Having completed all of the steps in the design phase, you should be
comfortable that you have all of the elements of your strategy clarified, eval-
uated, and aligned. The major content of your future strategy should now be
clear and the areas for focus and prioritization highlighted. Your organiza-
tional approach, design, and staffing should be determined. There should be no
aspect of your strategy which is out of place or pulling in the wrong direction.
As for Phase I, an executive summary can provide a useful end to this phase
of strategic design.

Executive Summary
To achieve our vision and to double profit in three years, needs to
pursue a strategy with seven imperatives

Imperative Supporting action

1. Focus the business Sell Perso

2. Regain leadership in luxury watches Redesign and relaunch core lines

Increase ad spend $50 million

3. Achieve critical mass in new areas Launch LADY RICHESSE

Acquire Sportius
4. Restore growth in core segments 7C’s + Creativity approach

5. Reduce costs 20% overhead reduction

Tax review

6. Improve the organization New network model

7. Create more strategic freedom / provide Public listing of
resource for major acquisition(s)
CHAPTER 5

Content Phase III: Implementation

Too often, the process of strategy stalls on the threshold of execution. Many
well-designed strategies never have an impact in the marketplace. Many
visions are never realized because the demands of execution are ignored in the
earlier phases. Execution may have been severed from strategy formulation
and presumed to be the province of operating personnel far from the lofty
heights of a strategically minded CEO or leader of a change program. Perhaps
the devil was in the detail, and the risks of real world execution overlooked or
underestimated. In some cases, disenfranchised employees set a low priority
on strategic goals. Without a sense of importance and urgency, change can
move quietly off the agenda, and an unsatisfactory status quo will prevail.
The third and final phase of STRATEGY addresses the issue of implemen-
tation directly and ensures that your plans are implemented as a core part of a
strategy program. The implementation phase addresses the actions, team, and
resources necessary to implement the strategy, the strategic dashboard neces-
sary to monitor progress, corrective management, and an effective approach to
leadership and communication. Specific targets, controls, measures, and
checkpoints need to be set and policed to ensure that the full value of a strat-
egy is realized. Resources need to be raised and allocated to ensure that your
strategies are implemented in the market. A full value review is required as a
final step to ensure that you have squeezed out every possible element of value
from your STRATEGY efforts.
The elaboration of the detailed implementation plan should be a natural
consequence of strategic design, the culmination of that inexorable flow of
logic from insight to focused action in the market. Good strategies are always
designed for execution. A proper execution plan translates vision, strategies,
and tactics into meaningful actions to drive change and create sustainable
competitive advantage in the marketplace.
Appropriate attention should be paid to each of the seven elements of the
third and final implementation phase of STRATEGY.

257
258 STRATEGY

Phase I: Phase II: Phase III:

Diagnosis Design Implementation

Phase III: Implementation

1. Imperatives, actions, responsibilities

2. Tactics and timetable
3. Implementation team
4. Alignment and integration
5. Program control
6. Full value capture
7. Leadership and motivation

As in the earlier discussion about strategic process, the role played by invest-
ments in defining or shaping organizations is essential here as well. People do
indeed lie at the heart of strategy; investing the right time and effort to get the
right team involved at all phases of implementation can pay dividends for
years to come.

III.1. Imperatives, Actions, Responsibilities

The bridge between thought and action is one of the most important charac-
teristic of the overall STRATEGY process. Without meaningful and effective
action, the strategic planning exercise becomes merely academic and poten-
tially counter-productive.
In order to avoid the trap of analysis without action, a clear definition is
required of the actions needed to transform ideas into results. The actions
defined, in turn, need to be scheduled and have an individual responsibility
allocated in order to ensure that both timing and accountability are clear and
that action will be taken. The action and responsibilities, along with the schedule
set out below, will constitute an important input to the strategic dashboard
described in step III.5 set out below.
The actions specified will need to be MECE—mutually exclusive and
comprehensively exhaustive. This means that there is no muddled overlap and
that all necessary actions are included. The actions specified, in turn, will cas-
cade down into more detailed team actions and then into individual actions
and responsibilities. In the most effective companies, accomplishment of these
individual actions will play a central role in an individual’s personal objectives,
skill development plans and performance reviews. Some companies use
 Content Phase III: Implementation 259

project management software and individual time management systems to

help to plan out and align activities from the top to the lowest levels of an
organization. Within each approach, the individuals whose initials appear next
to an action must be fully informed, fully committed and fully aware of the
implications of undertaking those responsibilities.
Priorities need to be translated into the specific actions required to imple-
ment strategy. Initiatives must be turned into detailed workplans with overall
responsibilities allocated. Actions need to be set with individual accountabil-
ity and timing well defined. The final strategic plan, once all tactical input is
integrated, will specify the timing and precise details for implementing each
initiative and for completing each specified action.

III.1. Imperatives, Actions, Responsibilities

Explanation
Immediately upon concluding the design phase, the details of implementation planning need to
begin. In the prior phase, and even in the diagnostic phase, the priority imperatives and action
needed to make your strategy a reality should have become clear and well documented.
By stating the required imperatives and actions to realize your vision – and then allocating specific
responsibility to each – you will link the planning and implementation phases of your strategy.
There are three components to this first step of the implementation phase:

a summary of all imperatives

1. Imperatives, actions,
allocation of individual responsibility responsibilities
a high level schedule of implementation taking into 2. Tactics and timetable
account all relevant factors
3. Implementation team
Ensuring that each executive has signed up to his or her 4. Alignment and integration
responsibilities and has agreed implementation deadlines 5. Program control
should conclude the first step in a successful phase of 6. Full value capture
implementation. 7. Leadership and motivation

III.1. Imperatives, Actions, Responsibilities

a. Summary
Imperatives Actions Resp. Time required
Hire investment Bank CEO ASAP
Sell Perso HQ Team to prepare documents CFO 3 months
Results improved as possible Perso 6 months
Banks notified CFO ASAP
Redesign/roll out core brands Mr. A 12 months
Regain leadership in Service and restoration business Mr. B 24 months
luxury watches Launch of Collection Ms. C 6 months
New ad campaign Mr. D 12 months
Design new ladies' range Mr. A 6 months
Achieve critical mass in Marketing program set Ms. C 1 month
new areas Expand distribution Mr. E 18 months
Sportius acquisition and integration CEO 24 months
Cost targets set CFO 1 month
Outsource quotes obtained Ms. F 3 months
Reduce costs
Cost and process redesign Mr. G 6 months
Staffing outplacement service Mr. H 12 months
260 STRATEGY
III.2. Tactics and Timetable

In setting down the requisite actions, timing, and responsibilities to implement

strategy, managers need to consider the full knowledge available on effective
tactics as well as the discipline of allocation and follow-up. Who, what, when,
where, why, and how can all be given traditional mechanistic answers or can
be answered with verve and competitive insight. In tactics, timing is of the
essence. The phasing of activities, the timing of launch, and the follow-on
activities can all be set with an eye to making the biggest possible impact on
your competitive position. Similarly, a creative decision on who takes the lead
role for an initiative can make a big difference in its ultimate impact.
For each plan of action a careful consideration of all aspects of tactical advan-
tage can be beneficial. A single initiative can be pursued through a wide range
of tactical approaches. For example, a proposed merger between two businesses
can be approached through intermediaries, through a direct and friendly con-
versation between senior executives, or through an unannounced hostile
takeover via a dawn raid on the target company. Each tactical approach carries
with it pros and cons, and a decision on the best initial tactical approach can
have a major bearing on the success or failure of an entire strategy.
Many companies fall into the trap of scheduling out their strategic initia-
tives on a simple calendar basis. In so doing, they miss the opportunity to
define and execute a set of more advantageous tactics. Tactics, defined by
some military strategists as those actions which are pursued in the face of the
enemy, will define the who, what, when, where, why, how, with whom, and
other aspects of informed action. In some cases, relative speed of execution is
of the essence and victory will go to the swiftest of the adversaries. In other
cases, delay or pursuit of objectives along a more drawn out timetable to
ensure a higher quality execution is essential. Either tactic, depending upon
the circumstances, can create success and relative advantage. In every case,
the expected actions and reactions of customers and competitors will need to
be taken into account as you schedule and implement your strategy.
Although much has been written on the different tactics that have been
deployed to achieve strategic objectives in war and in the game of chess, little of
quality has been written on the definition of the term itself, or on the constituent
elements of the concept. Most analysts and strategic theoreticians merely
describe tactics as the pre-planned deployment of actions and resources to
achieve a lower order goal than strategy. Others identify a difference between
tactics and strategy by noting that strategy is a program of resource allocation
undertaken by fewer people operating in an environment of lesser certainty.
In all cases, tactics, like strategy, need to be thoroughly thought through and
proper preparation made before “pulling the trigger” on initiatives. This will
avoid what many managers refer to as the “fire, ready, aim” syndrome which
has led to so much underperformance in so many companies.
 Content Phase III: Implementation 261

Strategy is seen by commentators such as George Steiner, author of the

book Top Management Planning, as distinguished from tactics in that strategy
requires greater information, relies more on subjective values, covers a greater
period of time, embraces a broader set of the activities of an organization (tac-
tics are far more concentrated in their demands), and is more difficult to eval-
uate in its efficiency and effectiveness. On the other hand, tactics are entirely
pre-planned, short in duration, focused on a narrow objective and involve
every member of a military force or business organization in one or more spe-
cific tactical initiatives. While interesting, these definitions and distinctions
are not all that useful for a manager wanting to ensure that the strategy and
tactics selected benefit from as much practical input as possible.
By breaking down the elements of the tactical concept into a useable check-
list of constituent elements, strategists can be more thoughtful about the
preparation and execution of tactics to achieve their strategic goals.
The tactics selected can indeed determine whether or not the larger objectives
of strategy are met. Great military historians spell out time and time again that
the essence of strategy lies in timing and that the preparatory “indirect
approach” moves taken before a battle can in fact be the determining element of
an entire military campaign. The same is true in business.
Higher order tactics can determine the success or failure of a strategy and
often involve movements before engagement—signaling, negotiating, feinting,
establishing alliances, completing stealth movements of resources, building
capabilities and resources, and pursuing all other initiatives to create posi-
tional advantage against an adversary. Superior tactics require some of the
greatest thought and benefit from the greatest degree of attention before, dur-
ing, and after major battles are engaged.
The table below expands upon the constituent elements of tactical content
in more precise language:

Seven Constituent Elements of Tactics

Objective
Resources deployed
Timing
Sequence
Degree of force applied
Contingency
Expectations

In each case, the best tactics are those which thoroughly prepare and build
on the strongest capabilities of an organization. In some circumstances, the
262 STRATEGY
preparatory tactics can even obviate the need for a costly battle altogether.
A show of force or alternative course of action may deflect the need for
direct confrontation. Sun Tzu captured the value of this kind of approach
when he stated “. . . the best victories are from battles which have never
been fought.”
This tactical goal must be in line with and contribute to the larger strategic
goals of the overall effort. There must be a clear objective of the tactics
deployed and alignment with the objective of the defined strategy.
The actual resources deployed need to be fully assessed and carefully
allocated. This can include human resources, funds, assets, and both oversight
and supporting infrastructure.
Timing is indeed of the essence. In setting out the timetable, attention needs
to be paid to both the internal and external factors determining an optimal time
to launch an initiative. Competitive and customer considerations need to
be weighed, along with assessments of organizational readiness and alternative
demands on the resources to be deployed.
No action is taken on a stand-alone basis. The sequence in which initiatives
are undertaken, relative to moves made by colleagues, competitors and allies
alike, can be critical. This sequence will need to consider the prior and suc-
ceeding steps in the overall plan of action.
There is always a range of force which can be applied by the resources
deployed. Determining the degree of force applied, or the magnitude of the
move, will enable the leadership to calibrate the expected impact of the initia-
tive. A tactical burst of ad spending, for example, can be high or low in cost
over a set time frame and relatively heavy or light in its effect.
Unlike the view held by many academic theoreticians on the science of
strategy, the set of tactics deployed in competition or combat must be flexible,
in particular during a fierce competitive engagement or in the face of a mili-
tary enemy. Soldiers and managers without a Plan B can easily be in unnec-
essary danger. Contingency aspects of any sound tactical plan will need to be
figured into the overall approach.
Finally, there need to be clear expectations of the outcome. In a war this will
be related to casualties, materiel lost, ground gained, psychological impact on
the enemy and all of the other aspects of understanding which can inform
follow-up actions—or trigger an all out retreat if not met. In business, the
result of tactical deployment of corporate resources also needs to be forecast
for some of the same reasons. By setting out an expected outcome, the target
results, broader consequences can be assessed in advance and appropriate
actions taken. Follow-on actions can be reset and future tactics adjusted to
reflect both the knowledge and the territory gained.

Essential interdependencies. A second important aspect of setting the best

possible timetable for execution of strategy is the need to take account of
 Content Phase III: Implementation 263

internal and external interdependencies. A product launch makes no sense if

product designs are not complete, production runs not ready, and marketing
material not fully developed.
Along with sequencing, understanding the full set of relevant interdepen-
dencies will ensure that your tactics benefit from all opportunities for support,
and do not fall foul of any risks of execution which could have been foreseen
and managed in advance. Thinking through the impact of tactical alternatives
and internal interdependencies can turn a potentially mechanical exercise of
scheduling activities into an opportunity to improve dramatically, and even
change the outcome, of competitive battles.

Supporting documents. The schedule below captures only the timing aspect
of the tactics of implementation for the example company. If useful, a more
detailed set of charts defining the tactics to be considered and followed within
the broad areas indicated below should be included or attached as part of the
supporting documentation.
This could include the tactical opportunities reflected in a marketing plan,
acquisition proposal, or organizational change program. All of these types of
supporting plans should be fully aligned with your STRATEGY and should
specify the tactics involved for each initiative, using the list of unbundled
elements enumerated above as a guideline.

III.2.Tactics and Timetable

Explanation
For every proposed initiative or action, there are many tactics which can be employed to
change the nature and result of the approach taken. Successful tactics can magnify the
impact of a strategic investment. Poorly chosen tactics, ranging from incorrect timing to
insufficient allocation of resource to failure to plan for contingencies, can reduce the
effectiveness of the investment, or even lead to total strategic failure.

Of all tactical elements, timing may be the most important. Only by considering all aspects
of an initiative can the most advantageous timing be understood.

Also, alliances, resource allocation, and other decisions on investment can contribute
significantly to the value of any tactical undertaking.
1. Imperatives, actions,
Tactics need to answer a series of inter-related questions: responsibilities
– who will lead and support the effort? 2. Tactics and timetable
– which resources will be needed? 3. Implementation team
– when will the action(s) take place? 4. Alignment and integration
– where will the action(s) take place? 5. Program control
– how will the action(s) unfold? 6. Full value capture
– what results can be expected? 7. Leadership and motivation
– what is the fallback if expectations are not met?
264 STRATEGY

III.2.Tactics and Timetable

a. Example: IPO
Timing: Third quarter next year
– following sale of Perso
– before competitors list
– go/no go final date July 1
– possible secondary offer one year later
– post-IPO uplift in earnings and value from cost reduction

Positioning: Growth stock/consolidation opportunity

Raise $300 million funds for acquisitions and growth
Improve earnings by reducing debt (short term)
Professionalize management (easier to hire)

Resources: Budget of $10 million for fees

Swiss investment bank advisor
Sub-committee of board + CEO to lead
2 staff members from finance

III.2.Tactics and Timetable

b. Schedule
This year Next year Future
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Core business growth

redesign core range IPO Continued core growth
expand distribution Prepare for IPO (end of year)
Overhead cost reduction
Competitor analysis Competitor acquisition
New ladies’ range design Relaunch ladies' range and integration or Integration program
(post acquisition)
Customer database and relationship program Prepare sports range Launch sports range

Sell Perso Classic Collection launch

hire prepare auction Commercial paper
bank documents process negotiation, due diligence and closure

New organisation Culture change program design and implementation

STRATEGY II
design Hire/integrate new staff

= Board review

III.3 Implementation Team

Some breakthrough or sale strategies will require a separate project team ded-
icated to diagnosing, designing, and implementing plans. Others will require
that many operating and functional staff reallocate their time to accommodate
a broader set of strategy-related activities. In either case, careful allocation is
required to create the most appropriate mix of resources.
In many organizations, the best team is made up by people from different
disciplines working toward a common goal. Because good strategy is holistic,
 Content Phase III: Implementation 265

the approach should be cross-functional, including members with varying

backgrounds, jobs and expertise.
For individuals joining from within the organization, skills, development
needs, career prospects and planning, succession, enthusiasm for participation,
and opportunity cost of the assignment will help to determine allocation,
full- or part-time, to the strategy implementation program. For a full-scale
transformation, the core team (usually made up of an organization’s most sen-
ior members) operates as an oversight committee supervising the efforts of
initiative-specific task forces or project teams.

III.3. Implementation Team

Explanation
Some STRATEGY exercises will require the constitution of a separate project team
dedicated to the diagnosis, design, and implementation of the strategic plans. Others
will require staff to reallocate time to accommodate a broader set of activities.
For individuals within the organization, skills, development needs, career prospects and
planning, succession, enthusiasm for participation, and opportunity cost of the
assignment will play a role in the allocation of individuals – full or part-time – to the
STRATEGY program.
The core implementation team operates as a task force
comprised of members from different disciplines and working
toward a common goal on a highly focused basis. The team 1. Imperatives, actions,
should be carefully set with regard to: responsibilities
2. Tactics and timetable
• overall structure 3. Implementation team
• team membership
4. Alignment and integration
• fit with regular operations
• required capabilities and resources 5. Program control
6. Full value capture
Where there are resource gaps, insufficient skills or a limited
7. Leadership and motivation
timeframe, a specific program of resource acquisition will be
required.

III.3. Implementation Team

a.Team structure and membership

Committee of the Board

Membership:
Chairman/CEO, Family Member A, Independent Director

Implementation steering committee

Membership:
CEO, CFO, Controller, Head of Europe, Head of Asia

Core Growth M&A Team New

Cost Reduction New ranges
Organization
Leader: Leader: Leader: Leader: Leader:
Name a Name d Name g Name j Name m
Name b Name e Name h Name k Name n
Name c Name f Name i Name l Name o
266 STRATEGY
Resource Inventory and Allocation

Taking stock of the resource demands of the implementation of the strategy is

the first task of the core team. For each initiative the people, capital, skills, and
other assets required need to be specified. Against each requirement a realis-
tic assessment of the status of current resource is required.
Needs and availability can be compared, identifying gaps and areas where
resources may be available, and to identify other gaps that will need filling.
This inventory will enable leaders to allocate available resources efficiently
and to plan to acquire resources and skills that are lacking.

III.3. Implementation Team

Explanation: Resources
A need to take stock of the resource demands of the strategy follows the elaboration of the
implementation plan.
For each key initiative, the skills and other assets required would need to be specified: financial,
technical, technological, and all “soft” skills required.
This inventory will enable leaders to allocate available resources efficiently
and to plan to acquire resources and skills that are lacking.
External resources such as outside experts or sub-contractors 1. Imperatives, actions,
may also require allocation to a program of change if they can responsibilities
supplement the skills of an organization. 2. Tactics and timetable
3. Implementation team
Outsourcing practices have led to selective purchasing of
4. Alignment and integration
state-of-the-art capabilities from strategic planning
5. Program control
consultants, systems design houses, tax planners, executive
6. Full value capture
search firms, and other providers of essential components of
7. Leadership and motivation
an implementation program.

Missing Resource Acquisition—Filling the Gaps

Where there are resource gaps, insufficient skills, or a limited timeframe, a

specific program of resource acquisition will be required. In general, there are
three approaches for rapidly acquiring the needed resources.
The first is training existing staff. Upgrading skills through special training
programs is one way of achieving strategic project goals and strengthening the
organization for the long term.
A second approach is to recruit and integrate new staff to increase the skill
base and strengthen the overall capability of the organization.
A third is to acquire external resources on a project basis for part or all of
the strategy program. Outsourcing practices have also led to selective pur-
chasing of state-of-the-art capabilities from strategic planning consultants,
 Content Phase III: Implementation 267

III.3. Implementation Team

b.Team skills (from I.6.b)
Priority strategic
Skills required for Current capability
imperatives/ Comment
strategy score (0–10)
initiatives
Core business growth Distributor evaluation and 8/10 No foreign nationals in company
management
Market knowledge 7/10 Weak in youth and female
Alliance management 2/10 No experience

New product design Ladies' and sports ranges 5/10 Need to improve
and launch needed design/marketing interface

Acquisition Evaluation 2/10 Only M&A transaction to date

failed to add value
Financial structuring 3/10
Integration 0/10

HQ cost reduction Analysis/zero-based budgeting 4/10 Mixed record to date

Implementation 4/10 Good at thinking, bad at
executing

New organization Design new approach 3/10 Fear of change widespread

Reset compensation 5/10 Factions may disrupt
Address cultural issues 3/10

systems design houses, tax planners, executive search firms, and other
providers of essential parts of the implementation program. Outsourcing can
provide capable resources without incurring the costs or long-term liabilities
of additional in-house capacity.
Outside experts or subcontractors already working in the organization may
also be allocated to an implementation program if they can supplement, on a
cost-effective basis, the skills and resources needed for effective implementa-
tion. Market research firms may play a role in the diagnostic phase. Systems
providers may play a role in the implementation phase, as could brokers,
investment banks, or other capital-market intermediaries. For a large company
with an ambitious agenda of change, strategic consultants can play a suport-
ing role in all three phases of a STRATEGY program as well as augment
resources needed in the implementation phase. They may even have the expe-
rience and insight to initiate, support, and guide your business through the
entire process should you wish to acquire resource and expertise on a non-
permanent basis to turbo-charge the entire process.
Since the painful downsizing of the 1980s and 1990s, many senior man-
agement teams have resisted investing in large staff teams to drive strategy
development or implementation in their operating units. When internal
resources are already allocated, or where a fresh view is sought, external
sourcing may be the most appropriate route to pursue.
268 STRATEGY

III.3. Implementation Team

c. Additional resource acquisition

Skill gaps Options to fill Recommendation

• M&A valuation • External hire • Hire investment banks

• Internal team • Select short list of consultants for
• Strategic consultants assessment
• Investment banks

• Integration • Internal team • Combined approach of Internal

• Strategic consultants team plus strategic consultants

• CAD/CAM • External hire • External training/hire

• Internal allocation/development • Vendor training plus interna
• Specialist consultants allocation/development
• Vendor training

III.4. Alignment and Integration

It is essential to pull together all aspects of strategy into a coherent whole, with
all elements aligned in the same direction. Desired results need to be linked
with rewards. Investments need to be lined up with imperatives. Distractions
or contrary programs contrary to a chosen direction need to be eliminated.
From a defining vision to an implementation plan, all elements of your
strategy need to be checked for potential contradictions and inefficiencies. In
addition, the integration of effort may surface beneficial synergies that may
have been missed when the component parts were developed separately.
It is essential to align all aspects of the strategic business system. To imple-
ment the chosen strategies requires that all barriers and inconsistencies be
removed and all organizational forces applied in the same direction. Too often,
ambitious visions fail to materialize because there is insufficient resource,
contrary initiatives, misaligned activities, or a missing element of organiza-
tional integration necessary to implement the supporting strategies.
If a strategy calls for profitable growth and the sales force incentives are
purely volume-driven, then the conflict between the two may be an irritant in
otherwise smooth forward progress. Similarly, if long-term growth is an objec-
tive, then a staff bonus scheme driven by short-term profits may pull an organ-
ization out of line with the desired results. As for a freight train leaving a
station, one misaligned element can reduce the overall effort dramatically.
Checklist for alignment. The full approach to strategy that you have under-
taken will ensure that your strategy is comprehensive, internally consistent,
and fully effective. Before launching your new STRATEGY, a list of seven
checkpoints will ensure that all elements are in place and that the entire organ-
 Content Phase III: Implementation 269

ization is properly informed, properly directed, fully aligned and motivated to

change the future of your company for the better. The seven key items to
address to ensure alignment are:
1. Vision and Mission Statement—do you have an overarching purpose for your
enterprise or initiative? Do all elements of your strategy align with that vision?
2. Values—do you know what you stand for, internally and externally, and
do you have an agreed set of guiding principles for your organization?
Are there any contrary elements in your culture?
3. Priorities—have you specified the priority needs whose fulfillment is
necessary and sufficient to allow your vision to be realized? Have you allo-
cated financial and human resources on a prioritized basis to be both efficient
(not wasting money) and effective (making the biggest possible impact)? Are
you pursuing activities inconsistent with or contrary to your priority actions?
4. Actions and responsibilities—do you have the highest value actions with set
dates and allocated responsibilities to turn the strategies into action? Do your
plans describe how, when, where, and through which means initiatives will be
pursued to create maximum competitive advantage? Are there any elements in
the action plan that can cause conflict or reduce progam success?
5. Organizational capabilities—are you confident that your team has the
ability to design and implement strategy, now and in the future? Have you
addressed all communication, reward and internal activities to align orga-
nizational behavior with strategy?
6. Results—do you have clear and simple measurements to define success,
identify failure, monitor progress against preset criteria, and respond in a
timely fashion to keep your strategy on track? Are these targets fully under-
stood and agreed?
7. Leadership—have you exercised the highest quality leadership throughout
the process? Are you personally convinced that you have done all possible
to design and execute the best possible strategy for your enterprise? Do you
personally feel fully charged up to drive forward to a better future? Is your
team enthusiastic, fired up, and ready to move forward to support the
achievement of the strategy?
By completing the STRATEGY program, you should be able to respond in
the affirmative to all of these questions and be ready to move forward with
confidence toward a far better future.
This list is not the only check for complete alignment across your business
system. The 7C’s model can also be useful to ensure that your approach to costs,
customers, competitors, channels, capital, capabilities, and business context is
fully aligned with your overall vision and strategies. Further alignment of com-
pensation (rewards and recognition), culture, and communication will also be
required if you are to waste as little resource as possible and bring to bear the
greatest possible energy on the achievement of your business objectives.
270 STRATEGY
However valuable, a checklist approach may not be enough on its own.
An overlay of intuition and experience will be required to confirm that the
plan is fully aligned, integrated, coordinated, realistic, and achievable. A com-
munications program can ensure that progress is reported to key constituen-
cies against preset expectations, ensuring the continuing and coordinated
commitment of all stakeholders involved.
The integration review will need to be interactive, assessing both top-down
and bottom-up perspectives repeatedly, and in ever-finer detail, to confirm that
all wrinkles and inefficiencies are ironed out.

III.4. Alignment and Integration

Explanation
It is essential to pull together all aspects of strategy into a coherent whole. To be effective in
implementing strategy, the entire business system and the full capabilities of an organization
need to be properly aligned to benefit fully from the power of their application.

From a defining vision to an implementation plan, all elements of the strategy need to be
checked for potential contradictions, inefficiencies, and even beneficial synergies that may
have been missed when the component parts were developed separately.

The integration process will need to be interactive – to review the

top-down and bottom-up perspectives repeatedly and in ever finer
detail – to confirm that all wrinkles are ironed out.
1. Imperatives, actions,
This step of the process should address all aspects of strategy, responsibilities
including 2. Tactics and timetable
• vision 3. Implementation team
• values 4. Alignment and integration
• tactics 5. Program control
• organization 6. Full value capture
• communication 7. Leadership and motivation
• leadership

III.4. Alignment and Integration

Element Comment
Vision Need to achieve buy-in three levels down in organization
Board needs to formalize unanimous approval

Values No program in place yet to address bureaucratic attitude

Issues surrounding IPO not yet fully understood

Tactics Timing and negotiating tactics on sale of Perso need finalizing with Board
Current negotiating authorities not adequate

Organization Sales team incentive structure needs resetting

STRATEGY targets and operating budgets need to be integrated

Communication PR plan needs to be redesigned to support growth strategy

Internal communication vehicles (e.g. newsletter) require upgrading

Leadership CEO needs to reschedule and increase time for quarterly review
sessions with Chairman and Board sub-committee on strategy
 Content Phase III: Implementation 271

III.5. Program Control

One of the many reasons that businesses do not operate according to the
visionary exhortations of their leadership is that feedback systems, usually
management information systems, are incomplete or unsuited to the specific
demands of a strategic program of change.
Too often there is an overload of unusable information. A business system
may have decided to focus on profit pool targeting, customer segmentation
and retention, and other specific objectives. But feedback and control systems
often are driven by traditional profit and loss measures of cost and revenue,
depriving executives of the information needed to steer toward a more reward-
ing strategic future.

Strategic Dashboard. Successful strategies are best driven by managers with

a custom-tailored “strategic dashboard” indicating the performance of a sim-
plified list of critical strategic variables against targets on a regular basis. New
measures of value and new standards of performance on that dashboard could
include: relative service performance, relative cost position, market power and
influence, company vs industry price–earnings ratio, share of industry profit
pool, share of key customer segment or “share of wallet” (percentage of total
consumer spending), or even “share of stomach” (an unappetizing term mean-
ing the share of total spending on food, including supermarket, restaurant, and
convenience items).
Other strategic measures of internal performance can include contributions
to research progress, new product development, additions to group intellectual
capital, sales, profits, and other measures of individual achievement that
contribute to the realization of your company’s full potential.
The areas of corporate performance related to a broader notion of
responsibility—community, ecology, diversity—are also becoming an essential
part of any strategy and should be represented in your target set of results.
Clear and concise measures and targets in each area of societal engage-
ment should be set and their achievement supported through investment and
management attention.
272 STRATEGY

III.5. Program Control

Explanation: Strategic dashboard
One of the reasons business systems do not achieve the visionary ambitions of their
leadership is that feedback systems, usually in the form of management information systems,
are incomplete or “tuned in to the wrong station”.

Too often there is both a data overload and an insufficient amount of useable information.

To ensure success, you will benefit from creating a custom-designed strategic dashboard
which identifies and monitors progress against critical target results, timetables for specific
actions, and expected outcomes from those actions.

Rules of engagement and rules for intervention from above are

set against a prescribed set of critical performance indicators –
the strategic dashboard – to ensure timely and effective response 1. Imperatives, actions,
to shortfalls or problems in the execution phase. responsibilities
2. Tactics and timetable
Those initiatives which are significantly off-track or repeatedly 3. Implementation team
failing to meet deadlines will require the attention of senior 4. Alignment and integration
management and the appropriate corrective action taken: 5. Program control
resources can be reallocated, sanctions for underperformance 6. Full value capture
meted out, or a better approach agreed and new objectives and 7. Leadership and motivation
deadlines set.

III.5. Program Control

a. Strategic dashboard
Area Target Status Comment
Overhead 20% reduction Outsourcing contract in place
Early retirement of 4 staff
Strike averted
Growth Launch new ladies' range Advertising brief delayed 2 weeks
Designs approved
Organization Hire new CFO Top industry candidate from Zurich-
Swiss rejected offer
Acquisition Acquire Sportius Board approval received one week
ahead of deal timetable

= OK = less than 5% off track = more than 5% or

3 successive weeks off track

Corrective Management

For an oversight or steering committee, effective systems of feedback, control,

and corrective management are required to ensure that strategic change and
 Content Phase III: Implementation 273

redirection stay on track. Regular reviews need to be scheduled and mecha-

nisms established to track progress and redirect as necessary.
Often, specific rules of engagement are set against prescribed critical
performance indicators—the strategic dashboard—to ensure timely and effective
response to shortfalls or problems in execution. Based on an objective set of
control measurements, initiatives that are on track or ahead of schedule can be
highlighted and those responsible commended. Those slightly behind or lag-
ging for the first time can be reviewed by strategic controllers and swiftly cor-
rected without absorbing scarce senior management time.
Important initiatives that are significantly off track and repeatedly fail to meet
deadlines require the attention of senior management and taking the appropriate
corrective action: reallocating resources, addressing underperformance, and
even considering a new approach, new objectives, and new deadlines.
Flexibility and creativity in response to obstacles or poor results may
be required to reset strategies or realign strategic goals. In some difficult
cases, the appropriate response may be to remove underperformers entirely
and allocate more capable or more dedicated members to the implementa-
tion effort.

III.5. Program Control

b. Corrective management (simplified version)
Area Status Corrective Action
Overhead Need to add assistant purchasing
manager to accelerate progress
Growth CEO to visit top 10 un-
penetrated retail chains

Organization Hire headhunter to approach

candidates from outside industry

Acquisition Approach Sportius Chairman through

family contact to assess interest

= OK = less than 5% off = more than 5% or

track 3 successive weeks off track
274 STRATEGY
III.6. Full Value Capture

Ironically, many well-designed and well-executed strategies fail to yield full

benefits. Why? Simply because not enough conscious effort is put into
reviewing and capturing the full value of the strategy. Internal value is lost
when learning is not captured, best practices not documented, and organiza-
tional heroics not rewarded. Hard and soft benefits can be frittered away if
no one asks how the full benefits of a strategy can be exploited within the
organization.
External benefits, too, may be lost if there is no explicit effort to capture the
full value of strategic advances as they create opportunities in capital markets,
with customers or potential customers, potential recruits, lenders, and other
stakeholders in an enterprise. These areas could all represent additional sources
of value surfaced by a specific and more comprehensive stage of value capture.

Seven Elements of Full Value

Capture

Content value
Customer value
Capability value
Capital value
Future option value
Contingent value
Full potential value

Full value capture is one of the most important and least understood steps
in maximizing the value of strategy. As a strategy unfolds, many opportunities
arise to increase the benefits and value created by the strategy. Each opportu-
nity needs to be investigated separately and as part of the whole. There are at
least seven sources of potential value that could be enhanced or realized
through a comprehensive value screen:
Content value. The full content of a strategy needs to be reviewed to ensure
that all benefits of structural optimization and new operating standards are
achieved. Increased market share may enhance the potential for increased rev-
enue and decreased costs. New levels of product or service performance can
create higher customer value and justify higher prices and margins. Share gain
strategies may carry related scale opportunities to reach more profitable
 Content Phase III: Implementation 275

customers, as would strategies to improve distribution processes or reduce

service yield loss.
Customer value. Often neglected in the formulation of strategy through
inward-focused approaches, there may well be unexploited sources of cus-
tomer value which should be addressed in the strategic process. Both current
and potential customer perspectives need to be addressed.
Strategists need to ask themselves whether a new strategy creates more
opportunities for cross-selling, integrating joint economics, serving selected
segments at lower cost, reaching new segments in existing markets, or reach-
ing entirely new geographic or demographic markets.
The impact of a strategy always needs to be looked at from a customer
perspective to surface and evaluate all risk and opportunity elements of the
strategy, with responses developed and implemented as appropriate.
Capability value. Lessons, best practices, parallel applications, and other ben-
efits that accrue from a strategy may strengthen the organization directly and
indirectly. Capturing and codifying opportunities for capability development
should be an essential part of every strategy.
Capital value. Shareholder value may not be maximized if the full value of a
strategy is not played through to its logical conclusion in the capital markets.
Dividend policies, separate flotations, mergers, spin-offs, refinancing, or even
just better communication with analysts may improve the market value of an
enterprise and increase shareholder wealth.
Future option value. Each successful strategy, by its nature, reduces risk and
captures opportunity. Each strategy, fully and properly executed, lays the
groundwork for subsequent strategies in a dynamic process of evolution and
progress requiring managers to think beyond the immediate phase of strategy.
Each strategy will open a different range of options that can be pursued in the
future.
Contingent value. Not all expectations come true. Competitors, colleagues, part-
ners, regulators, suppliers, national economies, technologies, and customers will
provide unexpected change over the life of your strategy. Most of these changes
will be small and manageable within the context of any strategic option selected.
However, there are some major changes that may call into question the entire con-
tent and direction of a strategy. It is thus always important to have an alternative
contingency plan in hand to reset direction and an understanding of the triggers
that will require it to be implemented.
Fundamentally different from a Future Option Value, contingent value
assesses the degrees of freedom and value of alternatives which may be
required to be pursued before the expected end of the chosen strategic option.
276 STRATEGY
No one wants to be caught in a dead-end alley with no alternative route
forward or back. Contingent value requires the strategic team to think through
in advance the options of what needs to happen should major assumptions or
initiatives go less well than intended.
Full potential value. It is often instructive to compare your intended results with
any early assessment of full potential made in the diagnostic and design phases.
Gaps between targeted results and performance potential need to be highlighted
and corrective actions taken to maximize the benefits of your STRATEGY.

III.6. Full Value Capture

Explanation
Many strategies, even when well designed and executed, fail to yield the benefit they could due
simply to a lack of explicit effort to capture the full value of the strategy.

Internal value is lost when valuable learning is not captured, best practices not documented and
organizational heroics not sufficiently rewarded. Hard and soft benefits can be frittered away if
no one asks how the full benefits of a strategy can be exploited within the organization.

External benefits as well may be lost if there is no explicit effort made to capture the full value of
the strategic advances in capital markets, with customers, or with suppliers.

An Executive Summary should explicitly confirm that all seven

sources of value have been fully exploited.
1. Imperatives, actions,
responsibilities
1. Content
2. Tactics and timetable
2. Customer
3. Implementation team
3. Capability 4. Alignment and integration
4. Capital 5. Program control
5. Option 6. Full value capture
6. Contingency 7. Leadership and motivation
7. Full Potential

III.6. Full Value Capture

Value source Comment

Content Need to monitor first STRATEGY exercise on all dimensions to

ensure precedent of effective process built into company culture
Customer Build database of customers and serve better
Assess options for creative, interactive approach

Capability Roll out European sales approach to Asia

Capital Improved strategy allows reduction in cost of debt

Can build in greater balance sheet flexibility
Follow IPO with commercial paper program
Option Creates opportunity for further mergers/acquisitions in future
Increases value of company for potential future sale

Contingency Acquisition, capital markets, and Perso sale major risks, with own sports
range launch, delay (IPO) and keep/fix (Perso) all acceptable contingencies
Full Potential Achieves industry leading ROE and highest value listed enterprise
 Content Phase III: Implementation 277

III.7. Leadership and Motivation

Resource allocation, acquisition, and alignment are necessary but not suffi-
cient components of a world class approach to organizational management in
strategic implementation. To create truly superior results, individuals and
teams must be inspired to give their best. They must set and achieve new stan-
dards of excellence in their thinking, actions, and overall contribution.
That higher performance is possible only with the wholehearted support of
the individual and team, which in turn is a commitment sustained only by
hearts and minds captured by the vision, strategy, plan of action, and leadership
of your business. This commitment cannot be presumed and will require faith
in the leadership, belief in the plan, and a clear understanding of the personal
benefit, economic and otherwise, of supporting the effort.
Effective leadership throughout the implementation phase requires the full
complement of leadership skills described in detail in Chapter 7 of Book One.
It is worth highlighting that all STRATEGY programs require both visible
leadership—action-oriented leadership from the front—and supportive lead-
ership from behind the scenes to ensure full implementation.
It is a hard truth that individuals or teams at the top often need to change to
provide new direction and effective leadership to an organization. Revolution
rarely begins with the monarch, and significant increases in shareholder value
are often associated with the arrival of new change-oriented management
teams free from association with past practices and prior levels of satisfactory
underperformance.

III.7. Leadership and Motivation

Explanation
Effective leadership throughout the execution phase will require the full complement of leadership
skills – setting an example of dedication, demonstrating proper values, communicating effectively,
setting targets, working with internal and external constituencies, and providing central guidance
to the process.

STRATEGY programs require both visible leadership – action-oriented leadership from the front –
and supportive leadership from behind the scenes to ensure the best outcome.

There are seven steps in a successful leadership model:

1. Empower the vision

2. Live the values 1. Imperatives, actions,
3. Engage and motivate individuals responsibilities
4. Go beyond the conventional 2. Tactics and timetable
5. Lead from the front 3. Implementation team
6. Lead from the center
7. Get the job done 4. Alignment and integration
5. Program control
The highest performance is only possible if hearts and minds 6. Full value capture
are fully captured by the vision, the strategy, the plan of action, 7. Leadership and motivation
and the leader himself or herself. This outcome also requires
continual and effective communication.
278 STRATEGY

III.7. Leadership and Motivation

a. Leadership
Key leadership
attributes for this Self-scored Team score * Change needs
strategy

Empower the 8/10 8/10 Increase internal

vision communications
Live the values 4/10 5/10 Leadership too remote
Engage and 5/10 3/10 CEO needs to spend more
motivate time explaining vision and
individuals imperatives
Go beyond the 7/10 7/10 New strategy better
conventional
Lead from the 7/10 3/10 Needs to avoid
front becoming too directive

Lead from the 3/10 6/10 Needs to broaden team role

center
Get the job done 7/10 7/10 Deadlines not met
* Independent survey

Communication. The program to communicate internally and externally with

selected audiences can be a key part of extracting maximum value from your
STRATEGY. The old leadership principle of “communicate, communicate, com-
municate” is particularly applicable when an ambitious program of change is
undertaken within new or merged organizations. Should you be concerned about
overcommunication of strategy, it may be worth remembering a 1996 survey of
senior executives in major international companies which concluded that half of
their employees could not articulate company strategy at all, calling into question
their ability to make decisions consistent with strategic policy.
The purposes of communication vary by audience and message. But an overall
program can inform, motivate, and confirm the values of a common culture. It can
also instill confidence, build admiration for leadership, and encourage creativity
and innovation, which are all essential for success in a distributed enterprise.
For many companies, attaching a title to the strategy program can facilitate
communication and buy-in from an organization. One world scale Swedish
mining equipment company created a memorable name for their “ABC-123”
program: setting out a goal for the ABC division of becoming number one in
the industry by doubling sales and tripling profits over a three-year time
frame. Associating the strategy with the name of the business (rather than the
name of the new CEO who initiated it) proved to be an effective reminder that
the strategy was for the benefit of all members of the organization.
 Content Phase III: Implementation 279

Other types of labels for an overall STRATEGY program can also work.
Project Diamond worked well for one company which worked to “cut and pol-
ish certain facets of the business”. In more dire circumstances Project Phoenix
or Project Renaissance are common tags for recovery or turnaround efforts. In
a comprehensive strategic plan, no matter what the label, it is essential to
define carefully the structure, content and timing of a communication pro-
gram. A summary matrix, listing key constituencies down one side (investors,
analysts, press, employees, suppliers) and critical channels across the top
(newsletters, one-to-one meetings), is useful for highlighting priorities and
ensuring that a communication program is both comprehensive and aligned in
all aspects with the needs of each target audience. The key messages can then
be targeted by segment and by channel.

III.7. Leadership and Motivation

b. Communications program (key message in box)
Channel
Target Print media One on one Watch
Point of sale RRW Special
and briefings Fair
Audience TV
material newsletter
(or small groups)
brochure
booth
New range, Values, range,
Customers New range
values Collection
STRATEGY, Cost
STRATEGY
Employees Pride reduction, New range
update
organization
New range, Values, range, Service program,
Distributors New range Full range
values Collection New range
New
Service program,
Suppliers business New range Full range
New range
potential
Industry
Update Company update New range Full range
experts
Equity
Update Company value New range Full range
analysts

As for all elements of STRATEGY, the tactics of implementation need to be

carefully selected. Sequencing, contingency planning and the full set of tools
to create tactical advantage need to be applied to get the highest return on your
investment in communication as part of the overall program of leadership and
change.

Summary of Implementation Phase

As for the prior two phases, it will be instructive to provide a brief synopsis of
this final phase. By setting out in brief an overview of the phase of imple-
mentation, reminding members of the audience of the key milestones and
challenges the organization is likely to face in the implementation of the
280 STRATEGY
selected STRATEGY, the overall timing and risks of the implementation
phase can be captured and discussed.
Traditionally, the first of a two page summary captures in words the high-
lights and issues of the implementation phase. The second chart is the one
page timetable of the overall program, including implementation, which is
captured in step III.2.b. above. This timetable can serve as a guide for overall
discussion of implementation issues if needed.

Executive Summary
Implementation
The implementation program will be overseen by a Special Board Committee with a core operating
team led by the CEO. Five dedicated teams will provide the bulk of the effort. Key dates for
completion are as follows:
Completed by

Core business: new men’s range to be rolled out ASAP Q2 next year
new ladies’ range to be launched Q1 next year
sports range launch Q3 next year
Portfolio focus sale of Perso start ASAP
potential acquisition of Sportius Q2 next year
expand distribution network Q4 this year

Organization reduce costs by 20% at HQ Q4 this year

redesign organization Q2 this year
staffing changes completed Q2 next year

Capital structure IPO Q4 next year

Commercial paper program post-IPO

Executive Summary
Implementation schedule
This year Next year Future
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Core business growth

redesign core range IPO Continued core growth
expand distribution Prepare for IPO (end of year)
Overhead cost reduction
Competitor analysis Competitor acquisition
New ladies’ range design Relaunch ladies' range Integration program
and integration or
(post acquisition)
Customer database and relationship program Prepare sports range Launch sports range
Sell Perso Classic Collection launch
hire prepare auction Commercial paper
bank documents process negotiation, due diligence and closure

New organisation Culture change program design and implementation

STRATEGY II
design Hire/integrate new staff

= Board review
CHAPTER 6

The Executive Summary

While we have already seen an example of a summary slide at the end of

each phase of STRATEGY, it is worth stepping back to touch on alternative
structures before drafting an overall summary. Regardless of the length and
structure, a clear and cogent summary of the major components of your strat-
egy is essential. It will help to clarify your own thoughts and can provide bet-
ter understanding for the members of your audience who are less familier or
even entirely new to the exercise.
The summary should be as brief as possible and to the point. The less
verbiage obscuring the recommendations, the better. The summary should be
succinct and direct, but not be so brief as to obscure the richness of the strategy,
nor to reduce excessively the complexity of your proposals. As Albert Einstein
also said, “things should be made as simple as possible, but no simpler.”
No doubt there will need to be multiple iterations on the final summary, an
exercise well worth the time that it demands. To be realsitic, in some busy
companies the summary is critical since it is all that may ever be read or
remembered by senior executives or board members.

Long and Short Versions

Essentially there are two types of executive summary. A long version can
reprise the salient points of all phases of the entire strategy from diagnosis to
implementation and often attaches a number of key illustrative charts from the
full presentation. A shorter version usually focuses on a short summary of the
diagnosis and design phases, attaches a timetable for implementation, and
raises any expected challenges of exceptional significance. As a rule of thumb,
the longer version can be up to ten pages long, while the short version should
be a few pages in length, usually only two or three.
The long version may be best employed in situations where the key
audience may be new to the business, may need more convincing on a major
change program, or may operate in a culture where thorough and

281
282 STRATEGY
comprehensive discussion is valued. These longer summaries demand a very
clear summary of the most important points in each of the three stages of
STRATEGY and may expand on selected points made in the summaries
inserted after each of the three phases in the full presentation. This discipline of
one summary page per phase, as embedded in the example above, may be use-
ful to focus debate on the most important elements in the flow of logic as you
go through your presentation. This more comprehensive summary can ensure
that all parties have understood and signed on to all elements of the STRATEGY
program.
The short version may be best employed in situations where executives are
familiar with the business situation and are used to short, action-oriented sum-
maries. A one-page summary, as shown in the example, has the advantage of
capturing all elements of the strategy on one page which can remain up on the
screen or turned to for common discussion at the end of a presentation in a
paper version. This single-page summary can provide a framework to focus
active debate and to gain consensus as point after point is either agreed or sent
back for further analysis or refinement.
With either long or short form of summary, there should be no hiding or blur-
ring of tough conclusions, no pulling punches on the actions recommended,
and no obscuring the degree of envisioned change.

In the Beginning is the End—Sometimes

The US Army has a simple rule on how to communicate in order to be remem-

bered which requires the speaker or presenter to make the same point three
times:

First, tell them what you are going to tell them

Second, tell them
Third, tell them what you told them.

This means that each member of the audience will have heard the key
message three times rather than once, and is thus far more likely to remember
accurately the content of the communication. Applying this rule to a STRATEGY
presentation would require the presentation to provide an overall Executive
Summary up front, followed by another summary slide at each phase in the
body of the presentation and another copy of the same initial Executive
Summary at the end. In most cases, this is the recommended format for a
STRATEGY presentation.
 The Executive Summary 283

In some cases, however, it may be better to bring your audience through all
of the data and logic on a step by step basis before presenting a bold strategy
or controversial recommendation. In such situations, starting with an
Executive Summary may ignite heated debate on the first slide rather than
waiting to get all of the facts and views underlying the recommendation out
on the table before initiating a discussion. By holding back on the Executive
Summary until the end, there could be a higher quality debate and a greater
likelihood of major change initiatives being adopted.
In the case of the Royal Richesse example, the decision to sell Perso leather
goods could be traumatic for many executives. Some will have initiated or
supported the acquisition. Others will have invested many long hours in
attempting to turn the business around, built personal relations with members
of the Italian team, or may have an immediate career interest in retaining Perso
despite its poor performance and weak prospects. In all likelihood, the price
received on sale will be significantly less than the price paid to acquire the
business, which will further inflame the debate.
Some of the executives involved may want to continue to try to turn around
the business, or hold on to it for a few more years to improve its performance
before sale. The full facts and implications of the present Perso situation could
usefully be presented before the logic of divestiture could be actively and
openly debated in the context of overall group strategy. This will ensure that
any discussion is based, insofor as possible, on current facts and principles
rather than old expectations and inappropriate politics.

Executive Summary
Explanation
At the end of the presentation it is essential to provide a clear and cogent summary of the strategy
recommended. This will serve two purposes. The first is to encourage the architects of the strategy to
identify the highest priority elements of the STRATEGY and ensure that they have been fully
documented. The second purpose is to provide the intended audience with a summary of the strategy
for both understanding and debate. You may wish to present an Executive Summary at the start,
at each stage, and/or at the end of your STRATEGY presentation.
Short Form: As set out below, a short form Executive Summary will present all major insights and
recommendations in bullet point form on one page. The purpose of the short form summary is to
list for discussion the key elements of the analysis and proposed actions. This approach is most
useful in situations where the audience is informed about the business and prepared to discuss
the implications of strategy without the need to review the facts and logic supporting the
recommendations.
Long form: A longer version summarizing the facts and the logic as well as the recommendations,
may be appropriate where the audience is less familiar with the business, or where the
recommendations are particularly bold or controversial. Providing one or more summary pages
on each phase of diagnosis, design and implementation along with selected back up will provide
greater information for those charged with making important decisions about a company’s future.
284 STRATEGY
Structure of the Summary

There is no hard and fast rule on how to present an Executive Summary. What
is important is that the recommendations are clearly stated and that unimpor-
tant items are left out. In the example below, the two page summary could be
used at the start and finish of the presentation. Recommendations proceed
from most significant to the lesser items, beginning with the proposed Perso
divestiture.
In discussion, the presenter may recommend that the group address the
summary from the top down, to ensure that all members of the audience have
addressed all conclusions and recommendations. An alternative is to begin
with the most significant initiatives to ensure that there is sufficient time allot-
ted to gain concensus on the most important issues and most substantial
investments.

Executive Summary
We have concluded a detailed STRATEGY exercise over the past six months, drawing from 15 senior executives and
over 100 colleagues around the company.

Royal Richesse watches is one of the world’s leading luxury watch companies, with sales exceeding $1billion and
profits of $150 million in the past financial year. Our brands are among the most esteemed in the chronometer,
pocket watch and men’s luxury watch segments.

Despite these successes, Royal Richesse performance over the past decade has not been satisfactory. We have:
• lost leadership in our core men’s luxury watch sector
• missed out on high growth opportunities in sports watches
• acquired Perso, which failed to meet expectations
• allowed our organization to stagnate relative to competition
• failed to manage cost sufficiently, especially at HQ

With a new CEO nominated earlier this year, we are well placed to undertake a new direction. Having reviewed our
current situation and assessed all options on an intensive basis, our recommendation is to undertake a transformation
strategy at Royal Richesse. The key elements of that strategy are:

• sale of Perso to refocus on our core business

• investment to redesign and re-launch core mens’ and ladies’ lines
• launch or acquire a sports watch brand, with an industry leadership goal in 5 years
• grow distribution network to cover all geographies
• restructure and re-staff the organization
• cut HQ costs by 20%
• prepare for an IPO 2 years from now
 The Executive Summary 285

Executive summary (continued)

Pursuing this strategy successfully should enable us to:

restore leadership in the luxury watch business
double profits in three years
end Perso distraction
improve organizational morale and performance
Increase the current value and future prospects for our business

The strategy carries with it a set of specific risks (ownership,organizational, financial) which we
believe we can manage successfully.
The implementation timetable will take 3 years:
an intensive first twelve month phase to sell Perso, reduce costs, prepare re-launch of
core products, spec out a new organization, and upgrade the distribution system.
a second twelve month phase to implement the proposed organizational change fully,
pursue the acquisition of Sportius or another sports watch company and prepare for an
IPO.
a final phase in year three to integrate the target sports watch company, capture benefits
of the IPO to improve our balance sheet, and prepare the company for faster profitable
growth and further industry consolidation.

A long form summary could begin with these two slides, attach the sum-
maries from each section and then also follow with selected examples of the
work, possibly the most important five to ten slides from the overall
presentation.
For some audiences a prose version may be prefered, with selected slides
embedded in the text or attached with reference and description in word form.
The ultimate format for the presentation will depend upon the culture,
processes and needs of your own organization.
 CHAPTER 7

Getting Started on Your

Own Strategy

Having completed your review of the process and content of STRATEGY,

you are now ready to move forward to the creation of your own world class
strategy and high quality strategy presentation. This final chapter will provide
a precise set of instructions on how to move forward to start the process
within your own business.

Downloading the Presentation Templates

In order to facilitate your own STRATEGY exercise, you may download a pre-
formatted set of charts which match the Royal Richesse examples contained
in this book. These are fully formatted color Powerpoint slides ready to be
reviewed and their content edited to provide a full strategy presentation cus-
tom tailored for your own business.
You may access a soft copy of these slides by sending an e-mail request for
the file to STRATEGY@worldstrategygroup.com or to STRATEGY@
ustrat.com.
Once filled out with your own content, and supplemented with additional
materials drawn from your business, these slides will give you a complete
strategy from cover page to executive summary, and lead you to achieve the
full benefits of your own STRATEGY program.
By thinking through the entire presentation in advance and setting out a best
practice approach for your own organization to address the demands of a
world class STRATEGY, you will be able to complete the slides, and your
strategy, on time and in a high quality manner. This will ensure that you waste
little time and create the best possible strategy for your business.

286
 Getting Started on Your Own Strategy 287

Getting Started

Having had a chance to read through this book and reviewed the slides pre-
sented, the immediate next steps would be as follows:

Seven Immediate Next Steps

Assemble core team

Outline overall timetable
List participants
Develop communications program
Allocate responsibilities
Specify meeting schedule
Emphasize results

This list of immediate next steps should allow you to move forward swiftly,
drawing on the content of this book to inform each of these seven steps.
Assemble and brief the core team required to put together your strategy. The
core team is usually made up of somewhere between three and eight individ-
uals who will oversee the strategic planning program from beginning to end.
In most cases the core strategy team is led by the Chief Executive. In other
cases the Finance Director, Strategic Planning Director or Marketing Director
can take the lead role for strategy development.
In most cases, the strategy will need to be signed off by the Chairman, mem-
bers of the board of directors, or the proprietor(s) of the business in a non-pub-
licly quoted business. Their inclusion in the process needs to be carefully
considered. Each individual who plays a role as decision maker or influencer
needs to be given adequate time to digest the material and contribute to the
process as he or she wishes. There is nothing more important than strategy for
a business, and unconditional support from the owners of a business, or their
board representatives, is critical to the success or failure of the exercise. This
support will obviously be forthcoming for more easily if these key individuals
are comfortable with the full process and content of the exercise.
Each member of the core team, as a first step in the briefing process, should
read through this book, along with any other relevant materials you assemble
in an initial briefing package. These other briefing materials could include past
or current strategic plans, key speeches by senior executives, summary
288 STRATEGY
financials and comment from the annual report, key competitor reviews, the
best equity analysts’ reports, industry overviews, and any other material which
can be taken from prepared sources or drafted specifically for the STRATEGY
exercise.
Outline an overall timetable for completion of each phase and slide in the
STRATEGY presentation. Start dates and dates of delivery need to be set with
reference to individual and group schedules in order to put together an integrated
work plan to ensure high quality, on-time delivery of analysis and output.
In most cases, a full strategy exercise will take between 8 and 12 weeks to
complete. In a very large organization, that time frame may be extended to
6 months on a first-time basis to ensure that the internal systems work prop-
erly, that an appropriate group of individuals can be involved in the process,
and that the full set of options can be debated and necessary decisions made.
Some STRATEGY exercises will need to be played out on a global basis to
ensure alignment and commitment of individuals, subsidiaries, and the whole
of an organization which may span many countries, many cultures, and many
different operating situations. In these situations, scheduling buffers will need
to be built in to ensure that the proper allowances are catered for in time dif-
ferences, to overcome potential communication difficulties, and to anticipate
other inevitable delays in the process caused by time and distance.
Broadly, the three stages which make up the STRATEGY program—
diagnosis, design, and implementation—will require different time periods.
Assuming a 12-week period for the total exercise, the diagnostic phase may
take 4–6 weeks, the design phase may take 4 weeks; and a final implementa-
tion planning phase may take a final 2–4 weeks during which the plan can be
drafted and approved by all parties. The elaboration of a full tactical plan or
supporting detailed plans in HR, operations, or other areas may take much
longer. To some extent, size matters here and a STRATEGY program in a
large and complex multi-business organization can take up to twice as long, or
even more, than a similar program in a smaller and more focused company.
Obviously, the actual implementation program of all strategies will take
much longer to complete than the time required for a preparatory STRATEGY
program. Programs of cultural change can take years to implement fully.
Integrating any significant acquisition, particularly if a first-time effort, is at
least a two-year process for most major transactions. While time is often of the
essence, and timing a key element in any strategy, implementation should not
be rushed and the value of high-quality execution needs constantly to be borne
in mind to balance the more obvious value of speed and task acceleration.
Most companies review their strategy on an annual basis and reset their
tactics on a more frequent schedule. The old days of scheduling a major strate-
gic review every 3 to 5 years, and setting tactics and targets annually, have
proven to be dramatically outdated in a world where change is accelerating,
 Getting Started on Your Own Strategy 289

technology is evolving rapidly, and the competitive landscape can change vir-
tually on a daily basis. Even more frequent quick checks on strategy may be
required where a business is in a particularly turbulent situation, and frequent
small changes may be required to keep your strategy on course.
That said, there are some elements in your STRATEGY that should endure
unchanged for many years. The vision, the values, and the broad priorities you
set for your organization should not need to be changed for a significant period
of time. Some winning companies have kept the same vision, mission statement,
and operating values for decades. These fundamental elements of strategy are
determined by long-term aspirations, not in response to immediate concerns,
competitive tactics or other short term events.
List participants in the process. This will include the core team, who will pro-
vide the majority of supervisory effort required to complete the STRATEGY, the
support team who will leverage the time of their senior colleagues on the core
group, and those individuals who will make defined contributions to specific
parts of the plan. This can be quite a long list, and may need to be put together
in stages. At a first stage, the key contacts within departments and business
units can be identified. At a second stage, those individuals can in turn decide
upon the appropriate participation within their areas. This more inclusive
approach can begin the process of engagement early on for those identified as
key link points within an organization.
The leadership team can be supported by a small team, made up of between
three and five more junior individuals, which will provide daily coordination,
make interim process decisions, and ensure that the data gathering, analysis,
briefing and communication processes run properly. These team members are
usually drawn from different backgrounds within the organization and can
include product or business unit personnel, marketing personnel, financial
staff, HR representatives, and a representative portion of operating or line
managers as well. These support team members may or may not be allocated
full time to the strategy program.
On a practical note, you may encounter resistance in freeing up some of the
time of the better people within a division or staff department. The best peo-
ple are often the busiest, and their supervisors may be loathe to lose full con-
trol of their time, delay the delivery of other critical projects, or distract
valuable resource from daily operating tasks. Overcoming this resistance may
require an overall mandate from the CEO or board to ensure that the STRAT-
EGY exercise, which is of the utmost importance for the value of an organi-
zation, is properly resourced from the start.
Getting the right stars involved may be far more important than assembling
a cast of thousands to support the effort. In fact, experience shows that a cen-
tral or supporting group which is too large can actually be counterproductive.
Too many people around the table can create a diffusion of effort, can extend
290 STRATEGY
meeting times without adding value, and can delay the accomplishment of
work objectives by too much involvement in a narrowly focused set of activi-
ties. On the other hand, enlisting a few of the very best in an organization is a
clear signal of the importance and value of the effort.
In most cases, attempts should be made to mix experience and seniority on
the teams, drawing equally from team members with the greatest experience
in the company and younger members who may have fresh or entirely differ-
ent perspectives on key issues. Where possible, recent hires from competitors,
suppliers, or other outside companies whose experience can provide valuable
insights should be involved as team members, or at least debriefed extensively
as part of the STRATEGY process.
In all cases, the strategic team should be made up, at least in part, of
individuals working in the business on a daily basis. A team purely constituted
of staff members is likely to be seen as too remote from the operation to give
the strategy meaning and credibility when it comes to final design and actual
implementation.
In a smaller organization, such broad representation and careful balancing
may not be needed and a smaller team can be assembled which will pull
together all of the relevant knowledge and experience from the organization.
Develop a communications program. Following the structure outlined
above, an internal program will brief key constituencies on the process, the
interim findings, and the final conclusions and action plan drawn from the
STRATEGY exercise. This will be necessary in order to instill a broad-based
sense of ownership in the process, even though not everyone can be involved
in the daily activity of drafting the strategy and strategic documents.
Beyond those who will contribute specific input into the strategy is a larger
group who will need to be informed of progress, provide interpretation for the
working team on selected areas of data, and propose any creative ideas on the
ultimate direction of the strategy. This wider group may work informally via
e-mail or can be assembled at critical points in the STRATEGY program to
discuss the data, its interpretation, the range of options, and provide guidance
on the shaping of the strategy going forward.
A major benefit from these interim briefings of larger groups is not only to
improve the quality of strategic thought and design, but also to prepare the group
for implementation of the strategy as and when their support will be needed.
One practical approach that has worked well in the past is to make more than
one opportunity available for the same debriefing presentation at the mid-point
of a STRATEGY program. These interim briefings may focus on the facts and
content of the diagnosis phase only, without opening the discussion on the impli-
cations for strategy which will be developed in subsequent phases of activity.
One multinational service firm based in London scheduled two debrief ses-
sions per week of two hours each for two successive weeks. The four sessions
available, scheduled for Tuesday and Thursday evenings from 6 to 8 p.m. over
 Getting Started on Your Own Strategy 291

a successive two-week period, ensured that every manager had a chance to see
and provide input on the emerging strategy on at least one of these four sessions.
The leaders of that specific project were particularly encouraged to note that
the total headcount for the four sessions exceeded the number of managers eli-
gible to see the output from the strategic review by a wide margin. Apparently
many members of the management team felt the briefings were sufficiently
interesting to attend more than once.
Strategy will ultimately involve all members of an organization. Although
there will be a core leadership team and a supporting strategic planning team
with a need to see all of the inputs and to generate the final output, at least a
short summary version will need to be communicated to every employee in the
enterprise. Failure to develop a broad communication program will ensure that
some individuals will feel left out, disengaged, and ultimately will give far less
than their true full potential to a chosen strategy.
Every member of an organization should eventually see at least a summary
of the vision, mission statement, values, the direction, the implications, some
of the targets, and a guide to how the specific individual can fit into the overall
process of change. A common understanding of that statement of vision and
values is critical to set overall direction, to inform decision-making and, most
importantly, to inspire the team to greater performance and give a sense of
greater purpose to the enterprise. Meetings to brief all groups regularly need to
be embedded in the implementation schedule and communications plan.
A common vision and clearly articulated set of values can be the guiding
star by which countless small decisions are made around the world on a coher-
ent basis. A fully communicated and understood vision can guide actions in
situations where decisions are required, yet there is no available guidance on
how those specific decisions should be made. In making tradeoffs without the
benefit of specific rules or directly applicable guidance principles, managers
will need to know the ultimate purpose of the strategy and the relevant princi-
ples of approach in order to make those tradeoffs in alignment with the cor-
rect direction and values of the business.
In all development and communications of STRATEGY, a central message
that the most important output of strategy is the achievement of results needs
to be constantly repeated. The value and purpose of achieving real and tangi-
ble results need to be communicated time and time again.

Discretion the Better Part of Value

Your STRATEGY program is of immense value to you and your fellow stake-
holders. Should part or all of the STRATEGY leak out to interested parties,
most particularly competitors, that value could be severely impaired or even
eliminated entirely.
292 STRATEGY
Although there is great value in communication, there is also great value in
preserving confidentiality regarding the essential content of your STRATEGY.
Not all elements of the strategy should be distributed or widely discussed until
after they have been launched and the tactical value of secrecy no longer rel-
evant. Establishing appropriate security policies and respecting the value of
confidentiality can create strategic advantage, preserve tactical flexibility and
avoid the risk of an expensive leak to competitors.
In particular, initiatives with a capital market or transactions focus should
be kept only to those who need to know of the plans in these sensitive areas.
Careful thought as to what is necessary and sufficient for each and every
member of the organization to know should be developed and the program of
communication designed and executed with this in mind.
The costs of keeping a strategy confidential are low, and the value of
preserving that confidentiality and integrity are extremely high. By any calcu-
lation, following the disciplines of confidential document management—
numbering copies of each version, limiting circulation, destroying old
versions, using a project code name, and so on—are a very low-cost way to
reduce risk and preserve opportunity for your enterprise.

Allocate responsibilities: Once the team members have been selected and
the communications program started, the precise responsibilities of each team
and team member need to be allocated. There should be no slippage or room
for misunderstanding around deliverables and the dates for delivery. Where
relevant, responsibilities for particular analyses, conclusions and displays of
data should include sign off on content from other parties to the process. A
marketing department’s analysis of customer profitability, for example, should
require the input and consent of the finance, audit, or control team.
Properly allocated responsibilities address content, process and timing on
an integrated basis. Each member of the team, from CEO downward, should
have a clear statement of his or her role, his or her responsibilities, and the key
tasks for which he or she is responsible.
There should be no ambiguity or overlap. The most experienced and effi-
cient of strategy-centered firms may even have a draft of roles and responsi-
bilities, along with a proposed time line, included in the initial briefing
document described above.
After the schedule is finalized, the specific deliverables for each session and
from each party can be established and documented. In particular, the diag-
nostic phase may require extensive deliverables on internal and external data
from marketing, finance, HR, and operating units. To make responsibilities for
the individual elements of the STRATEGY process clear, it may be simplest
to put on each slide in the downloaded Powerpoint example the initials of the
individual responsible and the date for delivery.
 Getting Started on Your Own Strategy 293

As the process unfolds, deliverables and responsibilities may change. This

will require a constant updating of expected output and involvement, an evo-
lution that should be actively managed by the core and supporting teams.

Specify meeting schedule: Following the agreement on an overall timetable,

setting of team membership, and allocation of responsibilities, a final meeting
schedule should be set which ties in to the responsibilities and dates of deliv-
ery specified in the prior steps.
When possible, the final meeting schedule should take advantage of any
opportunity when a team or individuals assemble from remote geographies,
reducing costs and eliminating redundant travel where possible.
As described in the chapter on the process of strategy, space needs to be
built into the STRATEGY schedule for brainstorming, for discussion, and the
intelligent resolution of conflicting views on the diagnosis, design or imple-
mentation of strategy. The schedule should provide an environment and
meeting schedule where creativity can flourish, not be stilled.
In developing this schedule and considering the need for through review of
the business without distraction, many winning companies will insert one or
more special off-site strategy sessions. These sessions, which can last from
one to three days, can take people out of the ordinary environment and exist-
ing mind-set, benefiting from a meeting place where fresh ideas and creative
thought processes can emerge more easily. These off-site sessions may be con-
fined to the core and support team only, or may involve more members of the
organization and board. The actual attendance and agenda will depend upon
the objectives of the session and the current state of the process.
It should be remembered from the outset that the process, structure, and
schedule of a STRATEGY exercise are meant to provide a common platform
for a thorough development of strategy, and that this entire effort is intended
to be liberating rather than limiting. A schedule is merely a temporal frame-
work to expedite and improve the quality of the strategy process and should
not become a limiting factor in the exercise if flexibility is required.
Enhanced creativity is a core element of STRATEGY. The approach and
schedule should be set to encourage rather than discourage creativity and new
ideas wherever possible. You should feel free to depart from or add to the pre-
set STRATEGY material and schedules, if in so doing you improve the ulti-
mate results for your business.
While leaving room for creativity and flexibility is important, efficiency and
effectiveness also need to be considered in setting a forward schedule. Pre-
existing meetings such as weekly control meetings, operating reviews, annual
management retreats, quarterly results reviews, budgeting sessions, and
departmental meetings can provide a time and place when many important
players in the exercise are already present. Thoughtful scheduling to avoid
294 STRATEGY
disruptions to working schedules and unnecessary travel would no doubt be
appreciated by all concerned.

Emphasize results, the ultimate output of strategy. Because the demands of

STRATEGY are probably different from past approaches, and the expecta-
tions for better results will be high, a more thorough approach from the outset
to ensure that you have “hardwired” a results-driven approach to strategy into
your organization should be added to the very first agenda. Any impediments
to setting and achieving the best possible results from your STRATEGY
efforts should be surfaced and dealt with from the first meeting onward.
To ensure that STRATEGY is fully integrated into the daily operations,
actions, and investment plans of a company, the target results of your strategy
should be incorporated into those operating targets and plans, built into budg-
ets, integrated into management objectives, and reflected in performance
reviews and compensation. The appropriate organizational structure and indi-
vidual commitments also need to be aligned with your strategy, as do systems
of operating, financial, and strategic control.
At all times the process and content need to be dedicated to generating con-
crete results and all proposed initiatives and investments need to be critically
assessed against the results they create.
This STRATEGY approach has been developed over many years in many
countries to provide an efficient and effective approach to the generation of
sound strategic plans and the creation of real results in a real world. However,
part of that learning underscores that every situation is unique, every challenge
unprecedented in some way; every strategy will require some elements which
are entirely unique and can only be custom tailored.
The intent of a comprehensive architecture of strategy is not to block out
creative thoughts, nor to prescribe in advance all of the form or elements of
every strategy in every case. If there are other insights, more detailed plans, a
broader agenda, or extra slides which should be added, then by all means add
them. The structure and approach of STRATEGY are meant to encourage this
kind of creativity, to free thoughts, and to uncover new and exciting positive
directions.
Such additions could include marketing and sales plans (with detailed
customer analyses), detailed budgets, IT platform architecture and proposals
for change, detailed analysis of competitors, new product design and specifi-
cation, analysis of channel tactics, supply chain options to serve particular
customer needs, technology changes, and HR programs for training, develop-
ment, and compensation. You may also include capital expenditure proposals,
and other examples of proposed strategic resource allocation.
Share performance and analyses of capital structures, for example, may also
be a critical element of strategy for a publicly listed company, which the
private company example here does not address.
 Getting Started on Your Own Strategy 295

Best Wishes on Your Own STRATEGY Exercise

STRATEGY is not an easy process. It is not meant to be. STRATEGY is a

world class approach to the development and presentation of strategy and can-
not be completed quickly or superficially if world class results are expected.
There is no facile substitute for thoughtful, conscientious completion of each
step in the process. As they say, Rome was not built in a day.
Along the way many difficult issues will emerge. All aspects of a business
and all chapters in its recent history will be exposed. Not all insights and real-
izations will be positive or comfortable. Not all decisions on the pathway
forward will be simple or clinical. The most valuable of strategies may be the
most difficult to design and implement.
The history of each business is a unique accumulation of trophies and scars,
of successes and failures in various battlefields over time. In pursuing this
STRATEGY program, you will be able to learn as much as possible from
these hard earned lessons of the past and to prepare yourself as best as possi-
ble to compete successfully for the future. In pursuing a more informed
strategy—the art and science of informed action to realize a greater vision for
your enterprise—you will now be far more likely to realize the full potential
of your own unique business enterprise.
I wish you well in your endeavor.
 INDEX

3Com, 182, 184 bargaining power of

3C’s model, 10, 15, 16–20 buyers, 21
3M, 128 suppliers, 22
3S’s model, 24–5 Bedat & Company, 170
5 forces model, 15, 20–2 beta testing, 180
7C’s ⫹ Results model, 30–7 Big Hairy Audacious Goals (BHAGs), 206
7C’s ⫹ Creativity framework, 76–80 Bill and Melinda Gates Foundation, 97
7C’s model, 29–30, 76–9, 163, 167–8, 177, Blackstone, 34
209, 269 Bloomberg News, 55
7S’s model, 15, 22–3, 193 BMW, 41, 53
8 strategic laws of gravity, 26–7, 179 Body Shop, 156
80:100 rule, 141–2 Borders, John, 129
80:20 rule, 59, 141 Boston Consulting Group, 196
9S’s model, 10, 28, 179, 192 Bottega Veneta, 170
Boucheron, 170
“ABC-123” program, 278 brainstorming, 122
ABN Amro, 40 British Leyland, 55
acceleration, 44–5 British Oxygen, 40
accounting policy, 5–6 Brown, Lester, 232
adaptation, 151–2 Built to Last, 206
ADM, 167 Burger King, 40
airline industry business
reinvention, 46 context, 29, 36, 78: Olam International, 168
Air Liquide, 40 growth, 10, 74–5
Aldi, 21 point of departure, 191–5
Amazon.com, 34 values, 23, 163, 230–6, 269
American Express, 33, 36, 54, 205 business definition, 17, 18, 26, 75, 195
Anglo-American Corporation of South Africa, business mergers see consolidation
161, 165 business process portfolio, 5
Annan, Kofi, 105 business system, 83
anti-business sentiment, 85, 86, business vision, 34, 60, 62, 82, 96, 108, 119, 126,
89–90 134, 136, 137–8, 139, 140, 153, 154, 157,
Arnault, Bernard, 170 160, 163, 164, 167, 172, 185, 189, 196, 221,
Asda, 178, 205 226–30, 269, 288, 291
AT&T, 55 Business Week Survey, 86
automobile industry
consolidation, 53 Cadbury Committee, 83–4
profit pool, 202–3 capability, 242, 249 (figure), 269, 275
7C’s model, 30
Bain & Company, 27, 226 7C’s ⫹ Results model, 35
Balenciaga, 170 7C’s ⫹ Creativity framework, 79
Banc One, 51 Olam International, 167–8

296
 Index 297

capital, 275 declining, 27

7C’s model, 30 Olam International, 167
7C’s ⫹ Results model, 34–5 Creativity see organizational creativity
7C’s ⫹ Creativity framework, 79–80 customer capital, 127
Olam International, 168 customer rights, 84, 92
capital markets impact value, 242 customers, 211, 242, 275
Carlyle Group, 34, 36, 55 3C’s model, 17
Carrefour, 21 7C’s ⫹ Results model, 33
Caux Round Table Principles for Business, 90 7C’s ⫹ Creativity framework, 76–7
Chambers, John, 44, 171, 172 Olam International, 167
change, 3
charitable trusts, 9 Daimler-Benz, 53
Chase, 54 Darwin, Charles, 151, 161
Chew, Tony Long Chee, 7 Darwin theory of natural selection, 151
Chrysler, 55 Da Vincian principles, 124–5
Cisco Systems, 48, 171–3 Decision Quest/MCAA Survey, 89
Citibank, 205 Dell, 153, 182
Citicorp, 52, 54 Dell direct delivery model, 30, 34
Citigroup, 40 Del Monte Corporation, 164
Coca-Cola, 10, 85, 88, 99, 233 Del Monte Pacific Resources, 162
Collins, Jim, 185, 217 Del Monte Royal Foods, 161–6
communication, 104, 166, 278 Deming, W. Edwards, 47, 213
communication channels, 140 De Sole, Domenico, 169, 170, 171
community development, 84–6, 93 DHL, 111, 205
company promise see business vision Diageo, 55
competitive analysis, 204–7 discontinuity, 79, 182–3, 214
competitive differentiation, 242–3 distribution channels, 30, 34, 76–7, 98–9
Competitive strategy, 20 documentation, 175
competitor investment, 27 Domino’s Pizza, 40
competitors, 21 Drucker, Peter, 112, 153
3C’s model, 17 DuPont, 156s
7C’s ⫹ Results model, 33 dynamic systems, 41–2, 208–9
7C’s ⫹ Creativity framework, 78 See also independent dynamic systems
Olam International, 167
ConAgra, 167 eBay, 34
confidentiality, 186 effectiveness, 156–7
connectivity, 48–9 Einstein, Albert, 123, 281
consolidation, 51–5, 247 encircle caterpillar, 34, 227
contingency value, 275 environmental policy, 84, 91, 232, 233
convergence, 49–50 ephemeralization, 50–1
corporate creativity see organizational creativity EVA®, 205
corporate ecosystem, 38 EVE, 205
corporate fatigue, 8 execution, 141
corporate governance, 83, 92 executive summary, 281–3
corporate myopia, 209
corporate performance, 117–18 family business, 135–6
corporate reporting, 83 Federal Express, 2, 205
corporate social responsibility, 9–10, 81–3, Fifer, Julian, 112
86–90, 102–5, 155–6, 232–3 flexibility, 3
corporate sustainability, 136–7 Ford, 85
corrective management, 272–3 Ford, Henry, 53
corruption, 93 Ford, Tom, 169, 170, 171
costs Fortune magazine, 31, 115, 156–7
3C’s model, 16 Fragis, Jacques, 165
7C’s ⫹ Results model, 32 free trade, 93
7C’s ⫹ Creativity framework, 76 Friedman, Milton, 9
298 Index
Fuller, R. Buckminster, 50 Intellectual Capital, 126
Full potential value, 276 intellectual capital, 126–30, 247
Full value capture, 274–6 intermediate contribution, 5
Intuit, 182, 184
Gadiesh, Orit, 27 Investcorp, 169, 170
Gates, Bill, 9, 97, 181
GE Capital, 40, 215 Kaiser Family Foundation/Washington
Gelb, Michael, 125 Post Survey, 89–90
General Electric (GE), 34, 37, 55, 196, 217 Kiasu, 186–7
General Motors (GM), 90 Kikkoman, 164
Geus, Arie de, 135 Kohlberg, Kravis, Roberts & Co (KKR), 34,
Gilbert, James, 27 161, 164
Global Alliance for Vaccines and Immunization Komatsu, 34, 227
(GAVI), 97, 98 Kraft Foods, 167
global reporting initiative, 87, 90
globalization, 39–40 labor standards, 91, 93
Goldman Sachs, 34 Lafayette, Madame de, 149
Good to Great, 185, 187, 217 Lavallette, Francois de, 165
Gore, Al, 86 leadership, 7, 12, 23, 26, 28, 95–6, 100–1, 105,
Grove, Andy, 45 111–13, 115, 132, 135–6, 165–6, 187–8,
growth/share matrix, 196, 198 269, 277–9
Gucci, 168–7 invisible, 140–1
Gucci, Guccio, 168 model, 133–44
Gucci, Maurizio, 170 turnover, 2
values, 134–5
Hamel, Gary, 174 visible, 138–40
Harley–Davidson, 118 Li, Kai Sheng, 98
Harvard Business Review, 124 Liechtenstein Global Trust (LGT), 35–6, 37
Harvard Business School, 208, 222 Liechtenstein, Philipp von und zu, 35
Hawkins, Andrew, 165 Li & Fung, 167
Heineken, 99 “location, location, location” philosophy, 183
Hewlett Packard (HP), 230 Lord Shiva, 154
HMV, 46 Lorenzo family, 164
Hori, Shintaro, 28 Lucas Industries, 19–20
How to Grow When Markets Don’t, 74 Lupo, Pat, 110, 111
HSBC, 10, 99 LVMH, 170
human behavior, 6–7, 8, 117, 214
human capital, 127 Macondray Group, 164
human resources, 23, 148 Malaysia
human rights, 91 consolidation, 52
Hutchinson Group, 55 management
Japanese style, 212–4
IBM, 46–7 management information systems (MIS), 271
ICI, 182 management/motivational matrix, 109 (figure),
IFC, 168 250 (figure)
IKEA, 121, 126, 183 Maryland National Bank, 33–4
Imerman, Vivian, 161, 163–5 Son, Masayosi, 227
incremental share, 26 MBNA, 33–4, 215, 226
independent dynamic systems, 38 McCartney, Stella, 170
industry profit pool, 5, 27, 202–4, 209, McDonald’s, 40
215 McKinsey and Company, 22
Infosys, 178 McQueen, Alexander, 170
insularity, 123 meditation, 123
integration of multiple perspectives, 152–3 meetings, 178–9
integration of process and content, 6, 150–1 membership rewards, 33
Intel, 22, 205 mental models, 56
 Index 299

“me too” competitors, 32 Prahalad, C.K., 153

“me too” strategies, 138, 235 prioritization, 12–3, 58–60, 163–4, 238–40, 269
Merrill Lynch, 53 steps in, 62–6
Microsoft, 22, 85 private banking, 35
Minnesota Mining and Manufacturing Profit from the Core, 74
Company see 3M
Moore’s law, 44 Quaker, 55
Morgan, J.P., 51 quality control, 213
Morgan Stanley, 34 Quantum Fund, 182
motivation, 6–7, 116, 136–7, 154–15, 277–80 Quicken software, 182, 184
Musicland, 46
rationalization, 45–6
narcissists, 115 Redgrave, Steve, 243
Nargolwala, Kai, 233 Reed, John, 98
NCR, 55 reengineering, 24
Nestlé, 21, 167 Reichheld, Frederick, 211
net present value (NPV), 242 relative performance, 26–7
net risk calculus, 69–72 Renaissance, 124
network model, 107–9, 111–2, 114–15, 256 (figure) resource allocation, 65, 238–40, 262, 266
Nike, 117 retail business, 183, 215
Noble, 167 music, 46
nongovernmental organizations (NGOs), 9 return on capital (ROC), 25
Norman, Archie, 178 risk management, 251–2
Novartis, 55 risks, 66, 183–4
RJR-Nabisco, 161
objectives, 179–80 Rotary Club’s Polio Plus Program, 99
obsolescence, 46–8 Rubin, Robert, 98
OECD Guidelines for Multinational Rubinstein, Moshe, 182
Enterprises, 90 Ruggie, John G., 82
Olam International, 36, 37, 167–8 Russell-Asian Infrastructure Fund II, 168
opportunity calculus, 66–9 Ryanair, 33, 126
organizational approach, 245–50
organizational assessment, 217–21 Sarbanes-Oxley Act, 83–4
organizational creativity, 4, 76, 79, 121–6, satisfactory underperformance, 11–12, 15, 31–2, 43,
127–8, 153–4 126, 144, 156, 180, 185, 187, 205, 215, 277
3M, 128–30 Scandent, 33
organizational design, 247 Schultz, Howard, 95s
organizational excellence, 118–20 Senge, Peter, 56, 124
organizational investment, 27 Sergio Rossi, 170
organizational model, 115 share prices, 243
organizational skills, 96–7 Shell, 85
organizational structure, 23 shintaro, 157–8
Orpheus Chamber Orchestra, 112–14 Siam Agro Industrial Company, 164
Orpheus process, 112–14 silo prisoner, 187
outsourcing, 211 single shot strategy model see 3S’s model
Six Sigma, 24
Pachayuri, R.K., 232 Skandia, 127
Palm Pilot, 184 skills/capability matrix, 116 (figure)
Pareto efficiency, 59, 141 Slywotzky, Adrian, 74
participatory approach, 178–9 smart dust, 51
performance measures, 99–100 Smith, Jack, 90
Pinault, Francois, 170 Snapple, 55
political savvy, 97–8 Softbank, 227
Porter, Michael, 20, 22, 153 Soros, George, 9, 98
portfolio analysis, 195–201 Southwest Airlines, 33, 36, 126, 153
PPR, 170 Spencer, Herbert, 151
300 Index
Standard Chartered Bank, 231 Tata Consultancy Services, 33
Staples, 183 technology mastery, 99
Star Alliance, 41 Tech Wreck 2000, 171
Starbucks Coffee, 94, 118, 121, 126, 156, 210 Temasek, 168
Starbucks Commitment to Origins, 94 TERI Newswire, 232
steering pattern, 28 Texas Pacific Group, 34, 55
Steiner, George, 261 The Economist, 9
stewardship, 132–3 The Loyalty Effect, 213
Stewart, Thomas, 127 time management, 45
strategic alliances, 247 time to market, 24, 45
strategic business units (SBUs), 16 timing, 260, 261, 263
strategic capability, 96 Top Management Planning, 261
strategic dashboard, 271, 273 Toscanini, 112
strategic flexibility, 181–2 Total Quality Management (TQM), 24
strategic options, 221–2, 240–5, 275 Tower Records, 46
strategic planning, 181–2 Toyota Motors, 44
strategy, 1–2, 14, 23, 143, 149–50, 268 Toys R Us, 183, 210
development, 145–6: design, 146, 147, 189, 190, training, 266
223–4, 225; diagnosis, 146, 147, 189, 190, Travellers, 52
223–4, 225; implementation, 148–9, 190, turbulence, 42–3, 118, 226
257–8, 279 Turner, Ted, 9, 98
new language of, 5–6
new tools of, 4 UN Global Compact principles, 90–2,
role of, 2 105
strategy models Unilever, 21, 167, 205
traditional, 10, 15–16, 31, 38: missing elements, UPS, 205
2–5, 13–14 US Army, 282
See also specific models
strategy presentation, 286 Verghese, Sunny, 166, 167, 168
STRATEGY program, 6, 9–10, 12, 31, 57, 58, 62, Virgin enterprises, 156
70, 79, 97, 106, 133, 134, 140, 146– 50, Visa, 54
157–8, 159–60, 184–7, 288–95
characteristics, 150–7 Wal–Mart, 21, 178, 183
process, 174–84 wei ji, 226
structural capital, 127 Welch, Jack, 34, 98, 132, 217
substitutes, threat of, 21 Wilson, Earl, 140
Sullivan Principles, 90 winning companies, 32–3, 160–1, 221
Sun Tzu, 262 Wipro, 33
syndication, 28 workplace environment, 83, 93
systemic behavior, 124 Worldwatch Institute, 232
systemic knowledge, 56–7
Yves Saint Laurent, 170
tactics, 260–4
target results, 252–6 Zen principle, 138
task forces, 109–10 Zook, Chris, 74