Wednesday, April 25, 2018

Adapting the scientific method to business strategy

The premise of this blog post is that “conventional strategic planning is not actually scientific”. Strategic planning lacks development of new hypothesis and testing out those hypothesis. In this post, we will talk about the 7 steps to adapt the scientific method to the needs of the business strategy. 
The first step talks about moving from issues to choice. Large organization must not get themselves into the loop of investigating data related to the issues. Instead, a majority of that portion of time is better spent on analyzing and testing out possible solutions.
The second step is on generating strategic possibilities. Now, that the organization has pivoted itself to choices rather than issues, managers should start considering the wide array of possibilities. Genuinely new strategic possibilities are hard to create. A combination of imagination, clear thinking and well-grounded team are required to come up with such creative options. 
After all the possibilities have been generated, the third step is to specify prior conditions which must be true for each possibility to be a terrific choice. Therefore this step is mainly about assessing the validity of a strategic option. Consideration of evidence at this point would be premature. The discussion must center around what must be true rather than what is true. At the end , if all the listed conditions were true then the team must advocate for that choice.  
The fourth step is to identifying barriers.The team must determine which of the multiple conditions from step three are least likely to hold true. This is the step which focuses on what is likely to be true rather than “if it were true”.  
The fifth step is to actually design the tests. For each key barrier in step fur , the team must devise a valid and sufficient test to generate commitment. The most skeptical person(s) in the room for each barrier must design the particular test. The reasoning is that if the person or group of persons are satisfied by the test then everyone should be as well ,since they will have the highest standard of proof. The test might involve creating surverys, number crunching or anything at all. Its most important that the entire group believe that the test is valid and can form the basis for rejecting the possibility or generating commitment to it.  
The penultimate step is to now conduct the tests designed in step five. Least confident tests must be done first as compared to more confident ones. If they are indeed weak to hold up to tests then the least likely ones will be eliminated sooner rather than later.   
The seventh and the final step is review the key conditions in light of our test results to reach a final decision. After reviewing the test results, the possibility with the least barriers must be chosen.   
Applying creativity to a scientifically rigorous process enables team to generate novel strategies and to pinpoint the one most likely to succeed. This approach requires fundamental mind shifts from “what should we do” to “what might we do”, from “what do I believe” to “what would I have to believe” and finally from “what is the right answer” to “what are the right questions”. A team’s ability to inquire is a key to being successful in this possibilities based approach. 

The Strategy of Streaming

In the HBR article, “Bringing Science to the Art of Strategy,” they give 7 steps to strategy making [1]. The third in that set is to “specify conditions for success.” While this step seems obvious, this is an area that causes problems. First, this step is often overlooked because it seems obvious. Success is more money or an increase in patrons or the ability to hire talent. While this is true, success is more complicated than that. Each strategic initiative weaves into the fabric of the overall corporation, working together like cogs in a machine.

The most compelling example of this is the systems project that is currently working with the Pittsburgh Symphony Orchestra (PSO). The systems team was tasked with looking into the possibility of live streaming PSO performances. This is an incredibly complex undertaking because musicians are unionized, so there are complex contracts for all symphony performances and then additional contracts of how to handle compensation for live streaming. It’s not as simple as getting the hall set up to capture both professionally mixed sound as well as a couple of camera angles, the musicians also require additional compensation, which for the PSO would equal hundreds of thousands of dollars per streamed concert. 

Other streaming models are being credited with increasing concert attendance up to 90%, which is quite high [2]. Most performing arts organizations look for an average of 80% or higher, depending on the size of their concert hall. Many orchestras are looking to reproduce this apparent success, but they’re thinking about it in a way that corresponds to direct issues and not in a way that explores all of the possible scenarios.

For example, in an interview with the COO of the PSO, the systems team were told that the only result they cared about was increasing attendance. They cleanly stated that they will only use the team’s suggestions if they can prove this to be true. While increased attendance is a common goal, it does not get to the root of the problem because it doesn’t look at the big picture. Does the PSO want more revenue? Do they want to increase their standing with their immediate community? Do they want to increase their access to their international community? These are all strategic questions that relate to attendance but have much bigger implications than mere attendance.

Take for instance increasing revenue. To increase revenue, the PSO should look at increasing ticket sales, but financial health also comes from donations and how connected patrons feel to the symphony. If revenue is the aim, there should be an articulation of a strategic scenario that encompasses all departments within the orchestra.

This siloing of departments and confusion over what is most important, is why specifying conditions for success is so critical in the strategic process. Putting a band-aid on issues like low attendance will not solve the issue, but a clear and well thought through strategy that is organization-wide has a chance of success.

[1] Lafley, A. G., Roger L. Martin, Jan W. Rivkin, and Nicolaj Siggelkow. “Bringing Science to The Art of Strategy.” Harvard Business Review. September 2012. Accessed April 25, 2018.
[2] Fleming, John. “How the Detroit Symphony Live-streamed Its Way to Success.” Musical America Worldwide. June 2, 2015. Accessed April 25, 2018.

Can you say what your strategy is?

The article tries to find a parallel between how well a company implements its strategy and how well the executives and employees can state it concisely. Collis and Rukstad try to explain this by making an example out of the St. Louis-based brokerage firm Edward Jones who were able to generate huge success just by making sure all their employees adhere to a clear and concise strategy statement.

The basic elements of a strategy statement are Objective, Scope, and Advantage where objective is the goal that the strategy intends to achieve, scope defines the boundaries within which the company domain lies and most importantly the advantage which defines the value proposition that explains why the targeted customer should buy your product.

Although the breakdown looks simple, it is not. Defining the objective, scope and advantage involve identifying the trade-offs and it is often difficult to be specific about these. Often times the major difference between a successful company and the others' is in identifying and making a strategy around these trade-offs. For example, a company that chooses to pursue growth over profitability today might not be successful today, but in the future, it might prove to be fruitful.

Lastly, the most important step in positioning the company in the strategic sweet spot is by understanding the industry landscape. This is a crucial juncture where the company meets its customers' needs in a way that its rivals cannot. This is done by segmenting customers and identifying unique ways of value proposition. It involves quite some thought as the company needs to find this niche that it will be able to maintain for a good foreseeable future without the rival being able to easily mimic and compete.

Methodological Frameworks for Strategy Devlopment and Messaging

This week’s readings provided an opportunity to examine two critical elements of the strategy development process: building a framework for strategy development that relies on a consistent methodological processes, and developing consistent and concise strategy statement that can be used to articulate the organization’s strategy. These two processes/frameworks complement one another, both in terms of their logical consistency and the way that the two functions are supportive of one another, specifically in terms of the way that that they both lead to improved viability and more successful implementations.

Applying a methodological framework to strategy development helps organizations balance competing needs for both innovative ideas and solutions that are practical and achievable. The core of the process lies in the response to a specific challenge or opportunity, so the goal must be tangible solutions that are based on the development of clearly-articulated hypothesis that define opportunities. By grounding the process towards opportunity, rather than the traditional reactive process that looks to correct error, the organization is better positioned to deliver innovative and sustainable strategies that support its position in an evolving future state. When generating these future-state possibilities, an organization must think specifically in terms of its role in the market and how it can win in that space. The emphasis should be on generating possibilities that are verifiable and meet clearly articulated conditions for success, including all possible barriers to success, as well as those barriers that represent the most vulnerability for a given possibility.

By using a scientifically-grounded design process during strategy development, organizations are able to deliver solutions that capture their market advantages by capitalizing on forward-looking opportunities. Likewise, it is important that those organizations employ a consistent methodology for developing strategy statements that are easily understood and communicated at all levels of the organization. To be successful, this statement must be more than a corporate artifact: it must be a clear statement of the value proposition that your firm offers to its customers. In addition, the strategy statement must be unique to the organization and address several components: the objective (the ends that the organization will achieve), the scope (the domain in which the organization works), and the organization’s advantage (the means by which it will succeed). This must be applied to a single goal, which forces organizations to choose between competing priorities such as growth and profit, and be “specific, measureable, and time bound” so that the timeframe to completion and relevant measures of success are understood in the context of the objective.

By applying consistent methodological frameworks to the development of strategy, and to the summary statement that will be used to drive messaging and implementation, organizations are able to deliver specific objectives that address key objectives in a sustainable and inclusive way, while ensuring that the organization’s strengths, advantages, and differentiating factors are clearly understood throughout the enterprise. In this way, consistent methodological frameworks ensure that strategy development proactively and meaningfully engages with the core possibilities and opportunities of the organization.  

Science to strategy: fake news or not?

I'll talk about my change of mind when I read the article, from "fake news" to "this might work".

Coming from a engineering background, Honestly I'm triggered when I read the first several pages. How can these decision process be called science? From my understanding, science means based on the data, you make some assumptions and build a model. With the model, you can then predict the future using mathematical formulas. However, this is not the case with this article. The article mainly describes a structure to make a strategy based on discussion. I see this a "probability based" method. Does it use Bayesian graph model? Does it uses a Hidden Markov Model? How does it define posterior probability and prior probability? Speaking of science method of making decision, since making decision from a large spreadsheet is hard, why not use a neural network with Softmax as activation function in the output layer?

But the business world has been using similar techniques to make strategies for a long time, there's little possibility that I'm so smart that I find a method no one ever figured out. So I read the article again, and I figured out something I did not realize in the first place. I thought science means math. However, ensemble people's idea together, and make a decision that everyone agrees is even harder science. Dealing with numbers is easy, dealing with people is hard. What if you tell your college: my software tells me we should do this, so let's do it. Your college probably won't be happy since he is not convinced. Social and business cases are so complicated that you can't just state: everything can be abstracted to math so just do it. The world is never that easy.

Speaking about the content of the article, it does provide a very good way, so that everyone can express there idea and concern. Every strategy is binded with some hypothesis, or precondition. By testing the preconditions the best hypothesis can be picked. There's still some point not covered though. For example, for every strategy only the precondition is taken into account. However, the potential result should also be considered. How do you decide between some unlikely precondition but huge profit, and likely precondition but little profit?

Ben & Jerry's and Bob Holland's Dilema

Reflecting on Ben & Jerry’s Homemade Ice Cream Inc.: A Period of Transition, Bob Holland took over as CEO from Ben Cohen at a very crucial juncture. Ben & Jerry’s had grown from an ice cream shop in a converted gas station in the 1980’s to a medium sized company with sales of $150 million. Ben & Jerry’s had just posted a quarterly loss for the first time in it’s history as competition was rising and the ‘superpremium’ segment, which was Ben & Jerry’s mainstay, was beginning to slow down. Holland was tasked developing a strategy that addressed the issues faced by Ben & Jerry’s in the ice cream market, but also had to be in line with the company’s mission and background. According to me there are multiple changes in strategy that could be implemented.

The company used no formal market research or test market procedures, relying instead on the founders’ own ideas and tastes. They launched a number of different flavors and lines of products like frozen yogurt and ‘Smooth, no chunks.’ This expansion in the product portfolio along with strict new regulations and difficulties in manufacturing ice cream with large chunks greatly increased the complexity of the business. They had difficulty in forecasting demand of products and flavors which resulted in production efficiency falling. They had to throw away overstocked products and were faced with shortages for certain products which hit their profits. Holland must introduce thorough research methodologies to understand consumer needs. This will enable them to narrow down and focus upon what flavors and product lines to pursue, resulting increased efficiency and as a result- profit.

The company refrained from spending vast amounts of money on traditional forms of advertising, though they were forced to release TV commercials in 1994 due to increased competition. They were very successful with their unconventional methods of garnering media attention. Their annual meetings were highly publicized events where they promoted various social causes. The factory tour became a popular tourist attraction. They also gained a lot of traction through TV shows like The Larry King Show and NBCs The Today Show. Holland should continue with such innovative marketing methods. The strategy to build a franchisee model where in the shops were located in high profile areas with high potential should be continued with. Since they did not spend large amounts on advertisement, these locations with high traffic can be the key to maintaining the profile and brand reputation/image they had built for themselves over the years.

The biggest challenge he faced was how to transition the strategy where the original founders initially did not intend to build a substantial profit-making corporation. They were inclined towards social causes. A New York bakery run by the homeless supplied brownies while nuts were sourced from people from a Brazilian forest. They developed a mission statement which layed out an objective that the company’s success will be measured by both financial as well as social performance. But Holland was an MBA graduate, from a purely business background having worked at McKinsey and Co. in the past. His strategy had to not only make sure it pulled the company out of the mire it was in but at the same time align with the company’s mission and background which the owners felt strongly about. He could build his strategy to maximize growth and profits, which one could argue could increase the available resources for the social causes the company believed in working towards.

The Art and Science of Strategy at Ben and Jerry's

Elaine Zhang
94811 Strategy Development
Prof. Tim Zak
Blog Post #6

In "Bringing Science to the Art of Strategy", the authors point out that the ongoing conflict between the scientific and intuitive nature of strategy. Whereas conventionally CEOs and other leaders of corporations are used to making decisions based on experience and intuition, modern data analytics have made the process more certain and big companies are spending big bucks on data insights to aid in their decision-making. However, all organizations are resistant to change. Despite all the hype, lots of companies are still fairly insulated from a more "rational" and data-driven approach and defer to authority and hunches to formulate strategy.

A good example of this is Ben and Jerry's. As an emerging rival to Haagen Datz in the super-premium ice cream market, they would have benefited a lot from market research. Counterintuitively, the company did no such thing. They did no market research or test market procedures. Instead, they simply relied on the founders' own tastes and ideas and came up with new flavors. As a result, their new chocolate fudge brownie and rainforest crunch contributed to a volume increase of 24% for the company.

This made me think of another article we read last week, "The Coherence Premium", about not succumbing to market pressures because the market's most pressing needs may not be the best option for a specific company. In Ben and Jerry's case, looking outward before inward could lead them to be very reactionary, for instance, playing their strategies against Haagen Datz. They could unconsciously limit themselves to Haagen Datz's paradigms and unable to break free from them. And they would not be able to come up with the quirky, unique flavors that have a rich personal touch and makes them stand out compared to their competitors.

I believe that the authors of "Bringing Science to the Art of Strategy" would take the Ben and Jerry case as a compelling example that there is an undeniable art to crafting strategy. But they would also note that their strategy was not without consideration of the market. Research showed that ice cream cared more about quality than price, thus Ben and Jerry's creativity regarding flavors was not without a market-oriented direction. They had to know what to apply their creativity to before launching into brainstorming sessions. They did a great job combining the art and science of strategy and their success was proof that both were needed.