Design and Strategy

Balancing Act

 

Whether it is fair or not executives are ultimately held responsible for the performance of their company.  The business leader must ensure all parts of the business work together to deliver the highest value proposition to the customer while satisfying investors. 

 

From one perspective business comes down to investments.  Customers are looking to invest their money in products and services.  If they believe that they will receive the largest return on their investment with a particular company’s offerings that company will capture market share.  If customers feel other competitors’ have a superior value proposition then those companies will see a rise in sales.  Customers invest their money in the products and services of the company offering the greatest perceived value proposition.

 

On the stockholder side of the business people make decisions about where to invest their money to garner the greatest returns.  These investors are looking for well-run companies positioned to increase market share and operating profit.  Investors place their money in the companies offering the greatest perceived potential return on their investment.    

 

Located between these two sets of ‘investors’, with somewhat conflicting goals, is the business leader trying to balance expectations.  This is a precarious position to be in.  Not only is the executive trying to get just the right balance but is doing it in an ever changing environment.  The innovative design of today is the obsolete design of tomorrow.  Every product becomes obsolete and every business model becomes obsolete as the competitive environment changes.

 

All Designs become Obsolete  

 

According to Tom Peters in his book Re-Imagine, 426 of the S&P’s 500 companies listed in 1957 no longer existed in 1997.  In just 40 years 80% of America’s top companies did not just perform poorly – they no longer existed.  These were the 500 largest companies with great wealth and access to resources in the world’s most dynamic economy.  The question begs to be asked:  How could that possibly happen to so many companies? 

 

Mr. Peters has an interesting take on the situation.  He says it is not that the corporate executives fell asleep on the job but instead they were fighting the last war.  Can’t you visualize Sears and IBM’s executives trying to figure out what they needed to do to defeat Wal*Mart and Microsoft?  They must have brought in the best consulting firms to help them create the strategies, initiatives and projects needed to counteract their opponents.  Hundreds of millions of dollars would have been spent trying to keep the wolves at bay.  And they failed. 

 

How could they have failed to adapt when they had the best consultants, strong management teams and access to almost unlimited resources?  It is quite simple.  They were looking in the wrong place for their solution.  They went to the playbook that had brought them so much success.  Only the plays no longer worked.  So what do companies do when the play they called does not work?  They go back to the basics.  The executives just know that if their employees “work smarter and not harder” and “have a sense of urgency” that the company will prevail.           

 

This is exactly what happened at the outset of an annual strategy meeting for a well-known US consumer goods corporation.  I was in the meeting when the president of one of their business units suggested that the leadership team needed to “think inside the box”.  He felt that corporate leadership had wasted enough time and money trying to do something creative to counteract eroding market share and said they needed to return to basics and block and tackle better.  That was instantly received by the other division presidents for two reasons:  1) because the solution was comfortable – they felt like they were going back home, and 2) mid-management and the hourly employee were the  blame for poor performance.

 

The outcome of that company is similar to that of Sears and IBM.  Even though the executives in that room spent months developing new strategies and trying to get their employees to block and tackle better their customers had already moved on.  Their business was designed to be competitive in the 1960’s – 1980’s   and all the efforts and money invested in getting that design to be executed better was wasted.  Remember the first image in this article with the customer weighing the value proposition?  You don’t get to make that decision – the customer does.  You don’t get to decide if your design is competitive – the market does.  Going back to blocking and tackling is essentially sticking your head in the sand and then being surprised when you don’t get the results you were looking for.  Great performance is not possible with an obsolete design – regardless of what strategies are created or how hard people work.

 

That corporation’s stock is now trading at ¼ the price it was only five years ago, sales and profits are falling through the floor and owner equity has been reduced by more than a billion dollars.  And you know whose fault it is – right?

 

Importance of Design in Business Performance

 

Executives must apply to their business the same design principles they apply to their products.  Performance = Design + Execution.  Performance issues are the result of either a poor design or the poor execution of the design.  Dr. Michael Hammer suggests that 80% of the time design is the culprit in lack of performance while 20% of the time it has to do with how the design is being executed.  Design is the reason for poor performance in nearly all instances.

 

Who is responsible for the business design and who is accountable for the execution of that design?  The CEO.  Those responsibilities should be part of the job description of today’s business leader.  No one else has the authority to redesign the entire business.  Business design is ensuring that all parts of the business are aligned and designed to work together and only the CEO is in a position to accomplish that feat.

 

The idea of business leaders being responsible for the design of a business is not a new idea.  In 2000 Dr. Richard Farson said in his Management by Design that:

“We should not underestimate the crucial importance of leadership and design joining forces”.  He went on to say that “…designers need to become leaders and leaders need to become designers.” 

 

In order for a leader to design the business s/he must understand all the parts and how those parts must work together to provide Total Business Performance.

 

Dr. Farson understands that businesses have a design.  The design may not be visible but that does not mean it doesn’t exist.  Many people have learned during the past 20 years that a well-designed process can result in better performance.  Those processes first need to be documented (become visible), then analyzed and then updated.  The critical pieces to process performance are:

·        Quality of the process design

·        Implementation of the process design, and  

·        Execution of the process design. 

 

In the preceding paragraph just substitute the word process with business and you have the critical pieces to business performance.  Notice that nothing was said about strategy when speaking about improving performance.   

 

Fallacy of Strategic Planning

 

Leaders have been taught throughout their careers that the key to adapting to change and keeping their companies relevant is strategy.  And for this reason they bring in specialists to have them facilitate the annual strategic planning exercise.  These leaders make a critical mistake by confusing strategy and design.  Those two concepts have become so intertwined over the years that they are thought of as one idea.  

 

Business leaders think that strategic planning is the vehicle of change.  That thinking is reinforced by top consulting firms with practices loaded with talented thinkers.  Annually nearly every company goes through their 6-step process to change:

1.      Where are we?  (Current performance levels)

2.      Where do we want to go?  (Strategic goals)

3.      How do we get there?  (Strategic Plan)

4.      What initiatives come from strategic plan? (Master Project Plan)

5.      How do we fund the strategic plan? (Budget)

6.      Execute strategies.

 

Leaders believe that a new Strategic Plan means a changed business model.  New strategies mean the business is going to do things differently which implies the business will not be the same.  On the surface that is true however the strategy process and the thinking surrounding it are flawed.   

 

An analogy to make the point.  Instead of a business leader you are a race car driver.  You are entered in the Indy 500 and have set the goal to win.  Before starting the race you will develop strategies based upon your competition, the capabilities of your team and the design of your vehicle.  During the race you may decide to change your strategies because things are not going the way you had planned.  If you were to change your strategies how would the design of your car change?  At best changing strategies will allow you to reach the maximum performance of your car’s design but you can never outperform its design.    

 

It is easy to understand with cars or planes that changing strategies do not change designs.  Designs determine which strategies can be executed.  Any strategy can be created but if the design is not capable of letting that strategy be executed then failure is assured.

 

That is why a different process is necessary to ensure the desired changes in business can take place.  You will notice that the 6-step planning process mentioned previously is embedded in this process. 

1.      Document the existing design

2.      Where do we want to go?  (Strategic Goals)

3.      How do we want to get there?  (Create preliminary strategies)

4.      Analyze existing design against Strategic Goals and strategies

5.      Update business design to enable goals to be reached and strategies to be executed  

6.      How do we get there? (Strategic Plan)

7.      Create Master Project Plan

8.      Create Budget

9.      Implement new business design

10. Execute strategies.

 

While the recommended approach does have additional steps it is important to know the total amount of time to create a strategic plan is not increased.  The documentation of the business design actually expedites the overall process – especially since documenting a business design only takes four to six weeks. 

 

Companies that do not go through the recommended process often fail to execute their strategies while incurring more risk.  Just because businesses plan on executing strategies does not mean they do.  In fact if you speak to most executives they will tell you that step 6 (Execute Strategies) is by far the most difficult.  Many books and articles have been written on the difficulty of implementing strategies.  As one CEO said “Strategic planning is easy, it is when we go to implement where it all falls apart”. 

  

There are two reasons why “it all falls apart”:

1. Strategies are not implemented.  Strategies can never be implemented.  Strategies can only be executed.  There is a fundamental misunderstanding of what strategies are.  As mentioned previously executives confuse strategy and design.  
2. In order for a strategy to be executed the design must be able to accommodate the strategy.  It does not matter how hard you work or how much you care – if the design can not accommodate the strategy then the strategy can never be executed.  But since executives do not take into account the concept of design many strategies will never be executed. 

The impact design has on executing strategies is equally strong on achieving goals.  Just because you set a goal does not mean it is achievable.  For that reason both desired goals and strategies are input into the business design.

 

Working on goals that can not be reached and strategies that can not be executed are harmful to an organization on several levels.  First it is a less productive investment in time and resources.  The business may see some slight gains in trying to improve execution activities but not to the level desired by management.  Instead of spending time redesigning the business to achieve the desired goals, the executives have their people trying to reach the unreachable.  And that leads to negativity and frustration on both sides.  Management thinks the employees do not care enough or aren’t working smart and the employees look at management and resent being told to work on goals that will never be reached.

 

The time spent on unrealistic goals also represents lost opportunities.  Just imagine where you would be if you had taken the time to design your business to achieve your desired results.  You would be leading the way.

 

Having great strategies is not enough.  It is true that great strategies are important in the success of any venture.  But equally important is the design of the business.  You can create all the strategies you want but if they can not be executed due to some constraint within the design then the strategy is actually harmful.  A poor design can never result in good performance.  A great design with poor strategies can at least provide adequate results.  I have an interesting diagram to illustrate this point but it does not show when I copy this article into the blog.  If you wish to see it I can forward it to you.

 

Every business leader needs to understand the role that design plays in the performance of a company and that s/he must take responsibility for that design.  Design and strategy are the keys to change.  The best way to balance the demands of the customers and shareholders is to design the business and execute the strategies to achieve the desired results.