Sustainable Development

Having just returned from the ALC 2010 conference in Miami Florida where I was asked to present about developing a sustainable corporate strategy. I had great feedback about the presentation and was asked by the organisation to expand on a few points we covered. Thought I would use our blog to expand on a couple of points (and give those who missed the event a chance to participate).

So first off… it wouldn’t be a management presentation without Dilbert :).

The point here is > DON’T jump ahead… and more importantly – don’t listen to people on your team/in your organisation who want to jump ahead or who are not engaged with this process. These people shouldn’t be the ones making the strategy.

The tools in the slide deck are just a beginning and will hopefully open your mind to a beautiful subject. The main purpose of them is to help you/your team apply focus to thinking when developing ideas around corporate strategy.

Start from the outside and work in, one layer at a time… all the model shows is that there are different layers in the things which affect us and therefore slightly different ways about thinking about them. I always draw the 3 circles to explain this. Always use a framework to help in your thinking for each level.

The models/frameworks I’d recommend (at the minimum) are – PESTLE, Five Forces and VRIN (or RBV of the firm) – each are explained in the coming slides.

SWOT analysis seems to be the most popular one out there but I never liked it as it offers no focus and can lead to meetings going off at a tangent… even when its used within sound guidelines it can lead to arguments over if something is a threat or an opportunity and indeed a strength or weakness (in most cases they are both simultaneously and sometimes all 4 if the boundaries in the research isn’t very well defined – test it by playing devils advocate by trying to fit something into all four boxes…

EG – for a small company in our market space ‘business size’ might be perceived as a:
Strength > our size… being small means our customers matter to us more and we provide better quality/customer service
Weakness > our size… we are small and this means that some large clients won’t give us bigger more profitable projects
Threat > our size…. we are small and means that we could lose our key members of staff or customers to a larger competitor
Opportunity > our size… we are small and this means we can adapt quickly to any new opportunities in the market

SO > which one is it? its a matter of opinion and this leads to poor results and (I think) it is called Stupid Waste Of Time by some leading management thinkers (not Strengths, Weaknesses, Opportunity, Threats).

Also.. developing a strategy for your business is different to developing a business model. A business strategy should provide differentiation and (sustainable) competitive advantage while a business model/plan explains the economics of how the business works and how money and profits are generated. These two terms often get used (wrongly) interchangeably so it’s important we understand that they are different.

So… the outside environment…

this is the key (so I’m going to write it in CAPS) > MAKE SURE YOU DEFINE WHAT IS IT YOU ARE GOING TO TALK ABOUT BEFORE THE MEETING. This process dies if you/the team procrastinates.

Give your team instructions a couple of days before and get them to prepare, tell them something like – we are having a brainstorming session on Wednesday for 2 hours, we’ll be discussing the following Politics, Economy, Society and Technology and how they affect what it is we do.

Start the discussion, go round the table giving each person the chance to speak
Make sure someone chairs/facilitates the meeting and it is their role to a) collect any unwritten ideas and b) KEEP THE DISCUSSION ON TRACK. This person should not give their own opinion and/or own ideas.

Collect EVERYTHING the team says, at this point, there are no stupid ideas.
Transfer these onto the probability VS impact matrix as shown on the slide…. if there are only a few items then you can do this on a whiteboard or powerpoint/keynote presentation but if you get a lot for each category (and I suspect you will) then excel will be better. To do this list all the items and add two columns one called probability and one called impact. Score each item in each heading, 0 being low and 10 being high in each of the columns. Multiply these two numbers together and list them in number order. 100 will be the highest and 0 will be the lowest.

Exploit the highest-scoring ones first to construct strategies to maximize any opportunities which exist in the macro-environment around your company.

PLEASE NOTE: THE MODEL IN ITS ORIGINAL FORM (I.E. JUST THE FIVE FORCES) SHOULD BE USED WHEN ANALYSING YOUR INDUSTRY. THE ‘SUPPLY CHAIN’ PART WAS TO ILLUSTRATE A POINT AROUND THE IMPORTANCE OF EMPATHY AND HOW THIS CAN BE USED TO GAIN A COMPETITIVE ADVANTAGE.

So….Porter’s Five Forces model is a great tool to help you to analyse the industry in which you operate (also called the Micro Environment). It says that there are five forces which interact with any one particular company and it is these five forces which ultimately affect a company’s price, cost and capital expenditure requirements.

The ‘forces’ are:

• the bargaining power of suppliers
• the bargaining power of customers
• the threat of a new entrant (into the industry)
• the threat of a substitute service, and,
• the rivalry that exists between competitors.

Each should be examined in turn and as the slide above will help your management team to focus their thoughts in a strategic meeting.

Broadly speaking this model will encourage you to look for:

1. A position which is less vulnerable to attack from head-to-head opponents, whether they are established or new entrants to the market.
2. A position which is less vulnerable to erosion from the direction of buyers, suppliers or substitute services.

This can be achieved by:

1. Solidifying relationships with existing profitable customers (by empathising with them).
2. Product differentiation (this can be via a brand).
3. Forward integration of your service into your client’s operations.
4. Gaining some sort of technical leadership position.

This is a not very widely known technique (but an excellent one) taught on MBA programmes to help you to look inside your own companies to determine which parts of it (resources) are responsible for creating sustainable competitive advantage in the market place.

Resources which are Rare, Valuable, Imperfectly imitable (can’t be copied), and Non-Substitutable are said to be V.R.I.N resources and the main source of sustainable competitive advantage. You should find these and invest in them.

Method
Get together with your senior management team.

List out your resources (a resource can be anything).

Ask the questions…

• Is it VALUABLE?
• Is it RARE?
• Can it be COPIED?
• Can it be SUBSTITUTED?
• Does it add value?
• Does it reduce cost?

Score each one (i.e. mark out of ten for each aspect), total the scores and action the highest-scoring ones first.

Growing organisations WILL move through distinct phases. Each phase contains a period of relatively stable growth followed by a management crisis. Each stage while independent is influenced by the previous one and will influence the next.

To navigate through these crises the top management team needs a sense of its own organisational history and the skill set to move it on into the next phase. Sometimes this will mean replacing the top team. Often at the early stages of a business this will mean replacing the founder.

In more detail…
Larry E. Greiner originally proposed this model in 1972 with five phases of growth. Later, he added a sixth phase (Harvard Business Review, May 1998). The six growth phases are described below:

Phase 1: Growth Through Creativity
Here, the entrepreneurs who founded the firm are busy creating products and opening up markets. There aren’t many staff, so informal communication works fine, and rewards for long hours are probably through profit share or stock options. However, as more staff join, production expands and capital is injected, there’s a need for more formal communication.
This phase ends with a Leadership Crisis, where professional management is needed. The founders may change their style and take on this role, but often someone new will be brought in.

Phase 2: Growth Through Direction
Growth continues in an environment of more formal communications, budgets and focus on separate activities like marketing and production. Incentive schemes replace stock as a financial reward.
However, there comes a point when the products and processes become so numerous that there are not enough hours in the day for one person to manage them all, and he or she can’t possibly know as much about all these products or services as those lower down the hierarchy.
This phase ends with an Autonomy Crisis: New structures based on delegation are called for.

Phase 3: Growth Through Delegation
With mid-level managers freed up to react fast to opportunities for new products or in new markets, the organization continues to grow, with top management just monitoring and dealing with the big issues (perhaps starting to look at merger or acquisition opportunities). Many businesses flounder at this stage, as the manager whose directive approach solved the problems at the end of Phase 1 finds it hard to let go, yet the mid-level managers struggle with their new roles as leaders.
This phase ends with a Control Crisis: A much more sophisticated head office function is required, and the separate parts of the business need to work together.

Phase 4: Growth Through Coordination and Monitoring
Growth continues with the previously isolated business units re-organized into product groups or service practices. Investment finance is allocated centrally and managed according to Return on Investment (ROI) and not just profits. Incentives are shared through company-wide profit share schemes aligned to corporate goals. Eventually, though, work becomes submerged under increasing amounts of bureaucracy, and growth may become stifled.
This phase ends on a Red-Tape Crisis: A new culture and structure must be introduced.

Phase 5: Growth Through Collaboration
The formal controls of phases 2-4 are replaced by professional good sense as staff group and re-group flexibly in teams to deliver projects in a matrix structure supported by sophisticated information systems and team-based financial rewards.
This phase ends with a crisis of Internal Growth: Further growth can only come by developing partnerships with complementary organizations.

Phase 6: Growth Through Extra-Organizational Solutions
Greiner’s recently added sixth phase suggests that growth may continue through merger, outsourcing, networks and other solutions involving other companies.
Growth rates will vary between and even within phases. The duration of each phase depends almost totally on the rate of growth of the market in which the organization operates. The longer a phase lasts, though, the harder it will be to implement a transition.

Thank You

any comments… please leave a comment below I will be happy to answer them or contact me via

Tel: 0044 1908 572600
Richard.Brooks@k-international.com
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