Monday, May 30, 2016

Strategy Neglect

"I may be wrong, but at least I am not confused."

Jeff Miller, former CEO of Documentum, repeats this point whenever he has a chance. He strikes a chord. A leader, above all, must point the way. Better to be pointed the wrong way than to be left aimless. After all, going the wrong way, your error will eventually become evident. Aimlessness is probably wrong too, but is harder to correct. If leadership is anything, it is about pointing the way.

But pointing the way is difficult. Organizations face conflicting demands: marketing reports on a new competitor with a dramatically different product; R&D has created a breakthrough technology, but it is behind schedule and needs more funding; legal compliance is at odds with the company's China country head, whose "entrepreneurial" actions are ramping up sales there. Leadership can seem so simple when portrayed as pointing to the top of a hill. In practice, leadership is about deciding amid sharply conflicting priorities. For that you need a strategy.

"Bill says you need a strategy." Obvious. But you would be surprised at how many companies I see that do not have direction. The problem? Let's call it strategy neglect. Meaningful strategy gives direction; you know you suffer from strategy neglect when people in your organization don't know how to resolve conflicting priorities. I'm not talking grand mission statements about changing the world, nor lengthy strategic plans packed with detail. I'm talking about a working definition of the company's goal, what it does, and how it does it - a logic that a rank-and-file employee can put into action. Maybe I finish my project a day late because our strategy depends on completing work to perfection. Or maybe I cut some corners to be on time because we're about time-to-market. Whatever the strategy, it needs to be alive in the day-to-day actions of employees. Otherwise, as in so many companies, we are left confused.

Worse yet, leaders often think they are providing direction even when they are not. Instead, they provide formal structure. Social scientists have documented that when faced with confusion, people will often turn to "formal" or "procedural" rationality - making sure we do things in a structured, appropriate way. This often means putting an organizational structure in place. We've been doing this for millennia. Historian Josh Ober documents a formal structure created under Cleisthenes in ancient Greece (see figure) - rationalizing the various tribes of Athens into an elaborate hierarchical structure.

Of course, modern business leaders do this routinely. Confused? Let's have some structure. Here is the rub. Structure alone does not clear up confusion. Structure makes plain the contradictions we face. You still need strategy to help you resolve those contradictions. When we put in place structure without strategy, we can end up increasing confusion.

Take this example, kept anonymous to protect my sources. A global technology firm recently acquired another, smaller technology firm here in silicon valley. The parent company is based on another continent and has operations worldwide, often tailored to particular countries; they have complicated products, and they offer valuable services. They pay smart consultants who help them with their (voluminous) strategic plans. They have a very clear organizational structure. Yet their people are confused.

Why? Ask them and they will tell you that they operate in a 3-dimensional matrix structure. Each middle manager reports equally to a country head, a product head, and a service head - in a business where these three imperatives rarely line up. The result? Making it into management in this firm means being stuck between 3 bosses who can't agree. Like a child caught up in a polygamous divorce, make any one boss happy and you have a serious problem with the other two. I asked one particularly talented manager what he was going to do. The reply: "I'm counting the days for my options to vest."

Should we blame the matrix? Not so fast. Remember, this firm faces imperatives from location and product and services. Somehow decisions have to consider all three. That's why they created their matrix. But the structure is only half the solution. Leadership still needs to point the way, to give middle managers a guide to resolve the contradictions revealed by the matrix.

The problem here is not the matrix structure, it is the lack of strategic direction. Having three bosses confronts you with many choices, but it does not give you direction. Right, left, or middle? To make that choice well, you need a strategy: Not just a planning document on the shelf, but a strategy that lives in the priorities you rank every day.

Don't blame the structure. Set a course to follow. You may be wrong, but at least you will not be confused.

A good overview of strategy as a guide to action, and misuses of strategy, is by Richard Rumelt.

Sunday, May 15, 2016

The Nonconsensus Strategy

Have you ever found yourself boasting about a time when you persevered against all odds, even when others said you were wrong? Of course, we all have. There is something irresistible about the rugged individualist, going it alone against the consensus. Teary-eyed renderings of "my way" sung in high-end bars, chants against the dominant paradigm heard at occupy Harvard, the wealthy alumnus of an elite business school claiming to be a self-made man. For most of us, attempts to make this claim are the stuff of comedy; yet they are evidence that we would love to be the lone innovator courageously bucking the trend.

And no wonder, because history has been written by such people.

Consider the story of Qualcomm. Years ago when Irwin Jacobs was just getting Qualcomm off the ground, the world was pretty skeptical about his attempt to turn CDMA technology into a working wireless standard. The technology was complicated, yet Jacobs’ team claimed to have made it work. Doubts about this claim mounted, even among experts; some esteemed faculty at Stanford University concluded that Jacobs’ work “violated the laws of physics.” If you ever feel surrounded by doubters, imagine how that must have felt for Irwin Jacobs and his fledgling firm.

Today we know that Qualcomm was successful in bringing CDMA technology into the market, and Jacobs is often described as a genius. This success is all the greater because of those early doubts. With so much controversy surrounding CDMA, most of the good early research was done by Irwin and his team. The benefit from being right, in a sea of doubters, is that you end up with most of the intellectual property. So it has been for Qualcomm. To this day they enjoy a handsome stream of payments: The reward for being right about a non-consensus strategy.

As the renown venture capitalist Andy Rachleff likes to say, the sweet spot for an innovator is to be right about a new opportunity before the rest of the world has reached a consensus. After all, if you are right and everyone else agrees, then you are unlikely to see much of an upside. This fact is at work when we say that we would happily go it alone. We know we have an edge when we’re right and others are in doubt.

But what if you are wrong?

If you are wrong, would you rather be consensus or non-consensus?  No doubt: If I am wrong, I just don’t want to be alone. Because if we are all wrong, who can blame me? Whereas if I’m wrong and alone, now I am a fool.  Everyone said I was wrong, but I stayed with my idea anyway, and sure enough I am wrong. What a fool! Like Don Quixote, I did it my way.

In many organizations, the fear of being a fool is stronger than the hope of being a genius. We are human, after all, and vulnerable. We know that pursuing a non-consensus idea puts us at risk of being seen as a fool. So it is that people so often stay with the consensus, remaining silent about their ideas that buck the trend. After all, as long as we remain with the consensus, failure is tolerable; it is failure as the lone fool that we fear.

Is your organization a safe place to be non-consensus? Do those who work for you feel safe when they innovate, even if they are alone? You should frankly ask yourself these questions. Great leaders make it safe for others to innovate. And history then is written about those who were correct about new opportunities, even though there was no consensus.

The academic work behind these ideas can be traced to James March’s paper on exploration and exploitation. Research showing the returns to the nonconsensus strategy appears in my paper with Elizabeth Pontikes.