Wednesday, April 27, 2011

General Electric: Back to where it all started

“An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage. “ – Jack Welch

General Electric was started in the year 1878 with generation, distribution and use of electric power at the center of its priorities.

Near the end of the 20th century, General Electric took the risk of not focusing enough on its core competency i.e. making physical products and was allured into the fancy trap of quick money as they thought financial engineering was the way forward.

The result: It was punched in the face by the financial crisis.

The lesson: Stick to what you know.

The solution: In the wake of recent events, powered by a study from McKinsey & company, they made the wise decision of turning back to what had worked well for them in the past one hundred plus years.

The way forward: While the firm is back on track it is important for them to continue down that path.

What happened can be best summed up in the following words by the famous Jack Welch.

“Change before you have to. “– Jack Welch

REFERENCES:

  • G.E. Goes With What It Knows: Making Stuff (New York Times, December 4, 2010)
  • Can You Say What Your Strategy Is? (Collis and Rukstad, Harvard Business Review, April 2008)
  • The Secrets to Successful Strategy Execution (Neilson, Martin, and Powers, Harvard Business Review, June 2008)
Author: Shubham Raj

Wednesday, April 20, 2011

Strategy Statements in the Cereal and Snacks Market


As a bit of an experiment, I typed “company strategy” in Google search. The first company to be listed in the search results? Kellogg Company, which explicitly states its two-pronged strategy under “Investor Relations” on its website (www.investor.kelloggs.com). Their strategy is simple: Grow Cereal. Expand Snacks. In the article “Can You Say What Your Strategy Is?” Collis and Rukstad claim that a widely held, clearly understood strategy helps companies to better implement processes that support their mission and goals. They recommend that a strategy statement include an objective, scope, and advantage. Although Kellogg’s strategy statement contains only four words, it seems to encompass these three elements—Kellogg is looking to grow and expand in order to achieve financial dominance. Kellogg is already widely recognized as the number one category share position in the U.S., so their strategy statement encourages continued growth of the cereal and snack markets.

Another assumption of Collis and Rukstad’s article is that companies with effective strategy statements will be more successful than companies who do not have a clear strategy statement. According to Yahoo Finance, General Mills and Nestle are Kellogg’s closest competitors. I searched through General Mills website and was unable to find their strategy posted. It should be noted that although their strategy is not posted on their website, we cannot simply assume that General Mills does not have one. The strategy may be contained in internal documents, for example.

In contrast, on Nestle’s website under “strategy,” the company outlines their detailed strategy of “creating shared value” using the “Nestle Roadmap to Good Food and Good Life.” Their strategy statement is far longer than 35 words, though the core of their strategy is not as readily apparent as Kellogg’s.

A comparison of stock prices (from ycharts.com) between Kellogg and General Mills shows that, in terms of price metric, Kellogg is outperforming General Mills (see chart above).

Is Kellogg’s success solely based on the strength of its strategy statement? No. But does having a strategy statement to help align company behavior with short-term goals give the company a competitive advantage? Yes, it seems so. Since Kellogg’s main strategy is growth and gaining market share, it appears that their strategy has proved successful.

Question:
Do you believe that a strategy statement impacts company performance to the extent outlined in the article “Can You Say What Your Strategy Is?”

Leaders and Strategy Execution


One of our readings for this week was 'The Secrets to Successful Strategy Execution'(TSSSE). In this blog post, I'm addressing this article and presenting my views about it.



This article, in my opinion, has great insights. I felt a strong relation between this article and another one I had previously read in my 'Organizational Design and Implementation' class - 'What Leaders Really Do'.



'What Leaders Really Do' is written by John P. Kotter and in that article, he explains the difference between a leader and a manager through 3 distinct comparisons.

1. Setting a Direction vs Planning and Budgeting
2. Aligning people vs Organizing and Staffing
3. Motivating People vs Controlling and Problem Solving

As mentioned in TSSSE, the two elements that matter the most for Strategy Execution are

1. Information
2. Decision Rights

The way I envision is that point 2 from Kotter's article relates strongly with both the points of TSSSE. As Kotter explains in his point 1, about setting a direction, the article TSSSE assumes that the Strategy is already developed and the firm and its top executives know which direction they need to steer the company in.

It is at this stage that TSSSE starts out, where the article states that Information and Decision Rights are the most important elements for companies to focus on, to ensure success of strategy - which I would imagine to be a part of 'Aligning People' task in Kotter's article.
As noted in TSSSE, many firms failed at strategy execution as they chose restructuring as the way. I imagine this to be a part of 'Organizing and Staffing' task in Kotter's article which is not a part of Leadership, but is a part of middle management.
Some aspects mentioned in TSSSE also feature in the planning and controlling task from Kotter's article.

I guess the point I'm trying make here is that, as a leader / chief executives in a firm, you are not only entrusted with the task to form a strategy but also to make sure that the firm is positioned in such a way that they can execute the strategy.
The way they can achieve it is by 'Aligning People' - making sure that information is fluid between everyone in the organization and also making sure that decision rights are clarified, amongst other things.
This article has allowed me to further develop a structure for the tasks that a executive of a firm has to do, all the way down to the 17 traits listed in the article.

My question to my classmates is - Do you agree with this connection? Do you also agree with the insights of TSSSE?

Incentives

Two of the readings for this week were all about how to execute or implement strategy. In the HBS reading, "Seeking Alignment," the authors concentrated on the importance of people and incentives when it comes to implementing strategy.

Normally, I would say a rewards system for great performance makes a lot of sense, until I read an ex-employee message board for a certain company that will remain nameless. I realize, most of the people who would go out of their way to post on the message board are probably disgruntled in the first place, but a common theme arose from all of the responses: pros - great pay & bonuses, cons - no job security. Basically, workers in the warehouse were incentivized to be extremely productive, and if they did so, they were rewarded handsomely. At the same time, if you performed below par, you were almost guaranteed to be placed on the chopping block. In the end, many people on the message board wrote, the high wages were not worth the stress, and said the last day on the job was the best day of their lives.

Human beings are more complex, and incentives are not the only thing that motivates us. In fact, this article is missing the most important step for strategy implementation - mobilization. As Kouzes and Posner will tell us, one of the most important steps in being a great leader is creating a shared vision with your staff or team: http://changingminds.org/books/book_reviews/kouzes_posner.htm Without mobilization, you are treating your employees like children. We learn as we grow older that we should eat our vegetables because they are good for us, not because it means we will avoid punishment or get a treat from mommy or daddy. Incentives without a shared vision only produce short-sighted, short-term results.

Challenges in Measuring Strategy Implementation (Week 6, blog 5)

One article in this week’s readings "From Strategy to Implementation-Seeking Alignment" 6 major elements for successful implementation: People, incentives, supportive activities, organizational structure, culture and leadership.

With all his arguments about how those 6 elements aligned with the strategic goals and to each other making perfect sense, I start to wonder, how can we know if the implementation is good or not? What makes the implementation a success?

We can find all kinds of arguments talking about ways to ensure a better strategy implementation process. Some suggested tying the result with some rewards. Some others mentioned the adept leadership to communicate and convince all employees about the benefits of the new strategy. Overall, the main idea can be summarize into “include the whole organization into the implementation process”.

Even with the right people who have right skill sets, enough incentives for them to implement the strategy, effective supporting activities within the company, communicational-friendly organizational structure, supportive culture and powerful leadership, is it still possible for the organization to fail in the implementation? Or furthermore, how can we define a good implementation? Does a good implementation means stick to the original strategies? What if the strategy itself is flawed? Should the people who are responsible for the implementation keep on doing their job without questioning the strategy? Does a good strategy means a good execution? For example, our strategy is to increase the revenue by implement this new IT system. But in the end, how can we determine how much of the increased revenue is attributable to this IT system?

Fortune Magazine stated that “Less than 10% of strategies effectively formulated are effectively executed.”, and according to R. Kaplan and D. Norton, “90% of well-formulated strategies fail due to poor execution[1]”. Why is strategy execution so hard? The answer, according to Edward M. Gurowitz, “lies in the way the nature of business has changed in the past 30 years[2].” And referring to the shift from value based in tangible assets to value based in intangible assets, he points out that back in 1980s, most of the market value of companies could be attributed to tangible assets, and as time went by, more and more knowledge-based economy and services-oriented companies appears and changed the ratio to a further shift that most of the market value can be attributed to intangible assets. And such moves make the whole” measuring the performance” part even more difficult, and therefore, so is the management within the implementation process of the overall strategy.

With those been said, here comes my question, how can we measure the strategy implementation? What are some criteria?



[1]R. Kaplan and D. Norton, Harvard Business School Press, The Strategy-Focused Organization, 2001

[2] Edward M. Gurowitz, The Challenge of Strategy Implementation, http://www.gurowitz.com/articles/Strategy.pdf

From Corporate Perspective to See Government Strategy Implementation


After read this week’s article titled “From Strategy to Implementation: Seeking Alignment”, I think about a project I completed in my last summer intern. Our project is researched on the investment opportunity of China social housing. We need to analysis the whole process of social housing policy and gave a forecast of its impact to the capital market. China’s Vice Premier Li has taken charge of social housing, doubling that year’s target and aiming for 15.4 million units by 2012, which will contribute 2-3% of GDP. This is a very aggressive goal for government, and our job is to analysis the possibility of the completion of this policy.

During this research process, I found a big problem is the evaluation of the policy implementation, including the capital, people, resources, incentives, structure, supportive activities and cultures. And all of these factors are essential to the result of the strategy. First thing is the capital. After reviewed previous local government revenue and centre government support, the problem came out. Actually, from our deep analysis of the financial condition of local and centre government, the money would not be a problem. But it is a problem because this money should be used on social housing. According to our analysis, the main revenue source of majority provinces comes from land sold to real estate developers. Since this policy, the local government faces a very intense situation to generate future revenue since they not only cannot sell land anymore but also need to subsidize the social housing construction. Hence, it leads to another main factor of strategy implementation---incentives. The local government, the main implement entity, lack of incentive to implement the social housing policy. How to incentive the local government became another problem of our project. We found the key factor to decide this policy is the officer of the province. And the incentive of these officers is the performance evaluation from centre government. So far, the performance evaluation of local officer is based on the measurement of GDP. If the central government wants to enhance social development, like education, medicine and social housing. They need add the social development performance evaluation into these local officers’s performance evaluation. Hence, the officers have to build social housing for their future promotion.

Besides the incentive policy, the other supportive activities are also very necessary. For example, the public transportation needs to add line near the social housing or expand their network to social housing community, since majority social housing built in the suburban. All of these implementation factors have huge impact on the final result of this policy. Overall, a successful strategy is depending on the right direction and series supportive strategy implementation. And these factors need to link to each other.

GE Goes With What It Knows: Making Stuff (Blog 5, EMiceli)

As I read the article GE Goes With What It Knows: Making Stuff, I did not know if I should be praising Jeffrey Immelt, GE’s chairman and chief executive, for his current decision to embrace the old GE strategy of “making physical products” or to ask him what the company’s strategy was during Welch’s tenure in the 80’s and the 90’s when the company added the financial segment. By the time Immelt took over in 2001, 50% of the company’s make up was the financial segment of GE Capital. Immelt was a part of this financial growth segment during his early years as CEO.

How does a company that started 132 years ago with the making of incandescent light bulbs and a history of manufacturing end up in the financial world? Simply, Immelt states that company decisions were made on the basis of “anticipated returns – not so much market expertise … If a deal looked like a money-spinner, he says, it got the nod. And you don’t have to build a factory.” This was quite an honest answer. What is going on here? Is this a good strategy?

To find out if Immelt shared this kind of information to his shareholders, I read Immelt’s 2010 letter to the shareholders. Immelt recounts the volatile events of the last 10 years including two recessions, and the 9/11 tragedy, and admits they were in businesses were they could not sustain a competitive advantage. He also states, “Being a CEO can be pretty humbling. I have made a few mistakes and learned a lot over the last decade. I am more resilient. To do this job well, you have to “burn” with a competitive flame that demands daily improvement. My desire has never been greater.“ Interestingly enough, there was no mention of how GE made their strategic financial segment decisions in the shareholder’s letter only rhetoric that they promise to do better.

GE has the backbone and infrastructure of manufacturing great products, but somehow was lured into the financial world and in effect changing their strategy. Financial services were not a competitive advantage skill that GE possessed in its history and due to the financial crisis they have gone back to their roots. I commend GE on the idea of wanting to enter a completely different field, but they should also be embarrassed that they did not research their strategic new move. I believe that they were embarrassed. To prevent another disaster, in February 2011, the Board of Directors created a risk committee. This committee oversees GE’s key risks including strategy, operational, market, liquidity, funding, credit and product risk and the guidelines, policies and processes for monitoring as well as mitigating such risks.

Is this what happens when your new strategy does not work – go back to what you know?

Resources: GE Goes With What It Knows: Making Stuff”, The New York Times

GE 2010 Annual Report – Letter to Investors and Managements Discussion and Analysis

How Leadership Matters: The Effects of Leaders Alignment on Strategy Implementation

In 2009 the journal, The Leadership Quarterly, published an empirical research studying the influence of leadership in the alignment process in an organization’s attempt to implement a strategy. The research begins by questioning the ability of top management to align every person in an organization. According to the research, the idea of leadership in isolation (top management leadership), is unsustainable because organizations have management in all layers that is necessary for the successful implementation of a strategy.

As an introduction to its empirical study, the article cites a 1986 study (Guth & Macmillan) that concluded that if middle management where not aligned by top leadership in the strategy implementation process, middle management could sabotage the strategy. And, a 1990 study (Wooldridge & Floyd) of 196 managers in 20 different organizations that concluded that the success of strategy implementation lied in the alignment of middle management. This study concluded that there is a positive correlation between the level of success of middle management and the degree of success in the implementation of the strategy.

The research study presented in this article attempts to verify the findings of previous studies such as the ones quoted above. To this end, researchers studied a major health care organization that has more than 3,000 physicians, 19 large medical centers and clinics and provides medical services to over one million health plan members. The assumptions for the study were the following:

Hypothesis 1: The higher a department perceives that its leader (CEO, division leader, immediate or direct leader) supports a new strategy, the stronger the likelihood that the new strategy will be implemented in that department, that is, result in increases in strategically relevant organizational performance.

Hypothesis 2: The more department members perceive that leaders, aggregated across hierarchical levels support a new strategy, the stronger the likelihood that the new strategy will be implemented, that is, result in increases in strategically relevant organizational performance in that department.

Surprisingly, the results contradict hypothesis one. The research does not such independent effects for top leadership effectiveness. On the other hand, hypothesis two was supported by the research findings. According to the results, when the leadership effectiveness variables across hierarchical levels are entered simultaneously, the adjusted R2 increases and all leadership effectiveness variables are positive and significant.

In general, the results of this study were aligned with the results of previous studies. The research concludes that top management leadership is hindered by the availability of resources to the leader, the level of discrete power and the amount of support that a top manager enjoys from the managers that are subordinated to him.

If there are many studies warning about the risks of not including middle management in the process of strategy implementation why do you think that organizations that continue to fail in their strategy implementation efforts by failing to include management in all layers of the organizational chart in the process?

Source: http://faculty.haas.berkeley.edu/chatman/papers/04_HowLeadershipMatters.pdf

Strategy Alignment- what do you do if you are already there?

In the article, From Strategy to Implementation: Seeking Alignment, the authors discuss the need to align ‘People and Incentives’ to strategy. As an HR professional, this was interesting to me. The example given is that of a cookie franchise that was recruiting for and hiring candidates who were a mismatch with the company’s strategy (entrepreneurs who had difficulty following the procedures). That example seemed like a very obvious misalignment of strategy. At places that I have worked, I haven’t seen that glaring of an example of a misalignment. I have seen more instances where the strategy is aligned, but there needs to be continuous monitoring for optimization of that alignment. Aligning ‘people and incentives’ to strategy is important, but once you do that, how do you know that you are ‘there’ and how do you continue to optimize that alignment?

For example, our staffing process is aligned with the corporate strategy. How do we know this? First, we have a process in place that aligns staffing to business plans, and those business plans align to strategy. The staffing process: Managers create business plans for sales and operations, and using that data, create staffing plans. For staffing, managers, working with the HR department, create organization charts, job descriptions, recruiting plans, interview plans and on-boarding plans before we even post that a job is available. By taking those steps, we create a picture of the ideal candidate, how they will fit into the organization and how we will help them succeed.

How do we know that we are successful in aligning the staffing process to strategy? We look at metrics such as turnover; we conduct employee and manager satisfaction surveys; we monitor new employee performance; and we look at succession planning. Our metrics indicate that our process appears to be aligned with strategy. The next question is this- is it optimal? Can we do better? For example, in the GE article, their interviewing process includes a section where candidates are evaluated on a team building exercise. As we do not do anything like that during our interviews, I found it to be an intriguing idea. The idea inspired me to think that maybe we could try something new like that in our process; it might result in us reaching a decision on a candidate faster. Even though our staffing process is aligned with strategy, we need to be open to new ideas that could assist us in optimizing the process.

Question: Has anyone else worked on optimizing alignment of strategy? And does anyone have any interesting interviewing experiences to share?

Culture: It's all about the journey.

For this week’s entry, I have once again taken the plunge back into my college years to discuss one of my favorite topics, culture and its impact on business. I find cultures within business fascinating because they often get ignored in favor of more tangible things like financials. I suppose it’s, my roots as a Western Pennsylvanian and a hockey fan that make me believe that the intangibles are just as valuable as the tangibles. Culture is sort of the ultimate intangible. While changes in it can at times be quantified through increases or decreases in company performance, its effects are so wide spread I find it hard to believe all of them can be measured.

The article “From Strategy to Implementation” in this weeks reading as well as this article entitled, “Culture makes a meal of strategy during a recession” (http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10720407) both make arguments for the value of culture in strategy. In the NZHerald article, JRA consultant Eunice Oh makes the point, “It is vital that organizations focus on creating a great workplace culture. Oh concludes this will "place organizations in an advantageous position in the talent war which will emerge as the economy begins to strengthen”. Similarly in the Strategy to Implementation article argues that companies with stronger leadership and cultures are better aligned and their strategies are more likely to play out how they are envisioned.

I think it is obvious that companies with strong cultures are considered better places to work and are more likely to draw the attention of top candidates for various positions. But this brings me to my question, how does one build culture effectively? To answer this I look back to my operational excellence background. In college I minored in Operational Excellence and one of the key issues we continuously focused on was culture. No major changes will ever occur without the company culture supporting them.

Culture is experiential. It is not learned; it’s experienced through doing. Day in and day out, repeatedly engaging in behavior that promotes new culture. Over time employees begin to assimilate that behavior into his attitudes. As superiors reward these new attitudes, they eventually become part of one’s deep learning cycle creating beliefs and values. At this point the culture has become part of who that employee is as a person. People are no longer acting a certain way because they’ve been told it is the correct way to act. Instead, those actions are natural, they are instinctual, and are in harmony with the new culture. In general, I feel the only way to effectively create and sustain a culture within a company is to grow and nourish it in this manner, than try and force it upon employees through classes, slogans or banners. What do you think?

From Strategy to Implementation - An Examination of Previous Workplace

Reading the article "From Strategy to Implementation" led my memory back to the organization that I worked for 1 year during my undergraduate studies. At that time, when the Assistant Director introduced a new strategy, I personally thought it's a good idea - so did the Director. Yet, the strategy took forever to implement. In fact, before I left, it was still in the beginning stage. What happened?

This organization operates the resemblance of University Center at CMU, except it is at my undergraduate institution. Every year, many initiatives were made to provide a better service to our constituents (i.e. students, faculty and visitors). The strategy that was being rolled out was basically to "do more, and more quickly", which then involved an overhaul (or creation) of project management system to vamp up project efficiency. While exploratory discussion showed that top management was generally in favor of this, and subsequent planning activities ensued, the project management system was still in its infancy stage when my term ended. (It is ironic that the project of creating a new project management system took probably the longest among all projects.)

The alignment checklist no doubt answered a lot of my questions.

1. People
  • "Our people have the necessary skills to make the strategy work" - The new project management system implementation is IT-driven. Unfortunately, traditionally mid-level managers handle projects offline. Apart from data entry, email communication and minimal documentation, managers rarely use any kind of project management system to plan a timeline or track progress. Some managers were not even technology-savvy.
  • "They have the resources they need to be successful" - The most lacking resource is time. To many of the managers, "using computers" to track projects means that they have to spend more time on computers in terms of documentation and coordination, and that would take time away from their daily operational activities.
  • "They support the strategy".....plus
  • "Their attitudes are aligned with the strategy" - Based on the above reasons, the managers were skeptical with the system.
2. Incentives
  • "Our rewards system is aligned with the strategy" - Essentially, there was no reward system to incentivize managers! The Project Manager did set performance goals, but did not set incentives to counteract managers' resistance.
3. Structure
  • "Units are optimally organized to support the strategy" - For every new project, there would be a new committee created just for the purpose and disbanded after the project was finished. Inevitably, some of the team members were pulled into the committee even though their schedule was occupied by daily operational activities. While I do not know what the best way would be to structure project teams, I do know that the traditional team formation was not the most conducive way to align with the strategy of "doing more and more quickly". Team members had to pick up additional workloads, usually unwillingly or without their availability being considered.
4. Supporting Activities
  • "The many things we do around here support the strategy" - Accounting department took weeks to process procurement orders; marketing department took weeks to print out publication materials. Simply adding a project management system to track progress does not improve efficiency if the bottlenecks switch to ancillary units.
5. Culture
  • "Our culture and strategy are well matched" - Organizational culture was laid-back. Student-service driven projects were rarely a "crash" project for managers, so tracking progress and achieving milestones on-time was not ingrained in managers' mind.
Examining these five categories on the checklist, it was now clear why implementation took so long at my previous workplace. Strategy was visionary and brilliant but supporting activities, people and structures were not in place to align with the strategy. Alignment not only defines successful relationship between corporate strategy and operations, but also defines a critical skill for leaders. Kotter said that one of the most important characteristics leaders should possess is the ability to align employees with corporate objectives and goals. Strategies must be well-communicated throughout entire organization to ensure successful implementation. I am glad to see that this article underscored this point.


Tuesday, April 19, 2011

EA Knows Their Strategy - Juli Digate

One of the articles that stuck out to me this week in our readings was "Can You Say What Your Strategy Is?" from April 2008's Harvard Business Review. Essentially, I think few companies can clearly and concisely state their strategy. Many companies have a vision statement, and many make strategic plans, but few have strategy statements. In the article, Edward Jones was used as an example, and the company has a clear strategy statement that I thought was most interesting. That type of statement really does leave no room for misinterpretation, as the article indicates.

EA, Electronic Arts, has recently outlined a strategic vision that is their strategic vision: "fewer and bigger brands, more digital content and consumer outreach, a larger free-to-play business, and more new IPs." (See linked article below.) I was searching for companies' strategic statements, and this was one of a select few that were clear and to the point.

Do you think companies should make sure to have strategic statements, like mission statements, rather than just a lengthy strategic plan? How do you think strategic statements influence consumers? How do they influence competitors? Do you think these statements indicate a greater understanding of one's own strategic vision?


Read more: http://www.businessinsider.com/eas-fewer-and-bigger-brands-strategy-doubles-fps-marketshare-for-company-2011-4#ixzz1K22Nf8Pp

From Strategy to implementation

According to the article “From Strategy to Implementation”, Strategy is nothing but hot air if equal or greater attention is not given to the harder and less glamorous work of implementation. Implementation describes the concrete measures that translate strategic intent into actions that produce results.








The rate of successful implementation is only 10% to 30%. While implementing a strategy it is important to consider every component because implementation of a strategy requires an integrative point of view. We should consider not only the organizational structure but also cultural and human resource aspects.
The key factors for success are
 CULTURE
Every organization possesses shared beliefs and values which is known as the culture of the organization. To implement strategy successfully, the senior employees should not assume that the junior employees would have the same perception of the strategic plan as theirs. They may have a different understanding on the implementation, the underlying reason and the urgency. Hence, alignment of implementation among all the employees in the hierarchy is critical.

 ORGANIZATION
The main reason of implementation failure is that assignments of responsibilities is not clear. Also, employees tend to think from only their department point of view. So, cross functional relations are critical for an implementation effort.

 PEOPLE
For effective strategic implementation, there should be a proper fit between intended strategy and the personality of the specific people who are crucial to the implementation of the strategy throughout the various departments of the organization. Teamwork plays a very important role in the implementation of the strategy.

 CONTROL SYSTEMS AND INSTRUMENTS
A key function for top management is to assess the performance of the strategy during and after implementation. Balance score card and other supportive software solutions can be helpful for this assessment.

A well-formulated strategy followed by successful implementation can have an enormous impact on the company’s success.

What could be one of the major causes of Implementation failure?

Corporate DNA- NOT Born This Way


In “G.E. Goes with What It Knows: Making Stuff", Steve Lohr addressed how G.E. Capital almost dragged the whole enterprise during the economic downturn and learning the harsh lesson, G.E. decided to go back to basics. “The underlying DNA of G.E., going back a century, has been to invest for growth in its technology base.”

G.E.’s story marks my interest in investigating into corporate DNA, a concept that explains the characteristics of companies who have been able to innovate and maintain a competitive advantage over a long period of time. The conveyance of this advantage includes a clear company statement—mission, values, vision, strategy and balanced scorecard and solid execution as are addressed in this week’s readings. Almost every company is trying to do one ultimate thing, which is convincing people to buy in why they exist, what they believe in and how they will behave, what they want to be, what their game plan will be and etc. However, what companies forget to mention is what they will not do.

Just as we believe that our DNA determines to a large extent what type of person we will be, corporate DNA determines what a company can do and cannot do. G.E.’s expertise lies in manufacturing basics; therefore, the company should focus on investing in R&D and manufacturing. Obviously G.E. and Morgan Stanley are built in different DNA and what Morgan Stanley is good at does not represent G.E.’s advantage in the capital market.

Google is an exception. As is reflected in the philosophy of Google—“Don’t be evil”, Google proved itself from retreating from mainland China’s search engine market. The retreat manifests Google’s DNA that it is not born to be evil. Though China is a lucrative market, Google would not support the government to supervise its people’s online activities by disclosing its users’ information and could barely handle the cyber attack that stole intellectual property rights from Google.

In the NY Times article, Mr. Immelt has expressed the same frustration about the difficulties of doing business in China, especially when G.E. is in the industries that the government declares to set top priorities on to the nation’s economic development.

To conclude my blog, I would like to state my suggestion for companies’ strategic direction and that is to take its corporate DNA into consideration, not only traits that are embedded in its expertise armory but also characteristics that make it not fit for a market, for a business line, just to name a few. After all, not every company can be a successful manufacturer like G.E. or an I.T. mogul like Google.

Further reading:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a8jW1HKPXfDw&pos=7

Maintain Your Advantage


Steve Lohrs's G.E Goes With What It Knows: Making Stuff, shows G.E's struggles during the financial crisis of the late 2000's. G.E's issues could be summed up to be because of an over-reliance on its increasingly large financial arm, GE Capital. While the financial arm increased its reach, GE's traditional strategy of "building stuff" took a backseat role. This makes GE a microcosm of the United States, as our country as a whole has fell far from the manufacturing giant it once was.

One thing that we have learned is that competitive advantage is a integral part of a company's strategy. GE quickly realized that their movement away from their traditional competitive advantage in the area of "technology based manufacturing," was a slippery slope. David J. Collis and Michel G. Rukstad would be able to agree with this proclamation as they emphasized the importance of "Defining the Advantage" in Can You Say What Your Strategy Is?. Collis and Rukstad would say that GE's prowess in the areas of "industrial innovation" would define their "strategic sweet spot." This strategic sweet spot should be exploited at all times.

GE quickly realized the need to get back to their "roots" when their leadership spurred initiatives in the area of "ecomagination." This was GE's way of adapting to the rapid and unforeseen changes with what they knew. GE has turned these energy efficient products into a souce of $20 billion in sales. When GE went from conglomerate powerhouse to a company without its tripe-A-credit rating, it was obvious that losing sight of your strategic advantage(s) can be a dangerous move. Luckily for GE, their leadership was quick to realize this and stabilized the company.

What company's focused on an area other than that where their strategic sweet spot was, and succeeded? I wonder if there are several, or if those company's are in the minority.

Is Strategy Implementation Possible in Franchises?

The "From Strategy to Implementation" article argued that more important than strategy is implementation (although ideally both will be executed well). While I can agree with the logic behind this I wonder if corporate strategy implementation is possible in businesses (for the purposes of my argument I will discuss restaurants) that grow through franchising.

Most chain restaurants in the US are grown through franchising, where an equal business partner opens a new restaurant by investing their own money. Through this investment the franchise (ex: McDonald's) and the franchisee (investor) become equal partners in the restaurant's opening and share in the profits. While the franchise benefits financially through the growth and sale of these new restaurants it has very little control on specifics of how that business is run in terms of the elements presented in "From Strategy to Implementation"

1. People and Incentives
While franchises can offer suggested practices for start up businesses they are not always followed. The article used the example of the cookie company that advertised "Be your own boss" to managers. Naturally this attracted entrepreneurial investors who did not stick to the proven method of operation. On the other hand, many times corporate strategies are not applicable to all franchisees. McDonald's forced all restaurants to invest over $100,000 on new equipment for the McCafe but owners in and around Boston protested knowing that local people had a strong loyalty to Dunkin Donuts coffee. The franchisees proved right in this case that the McCafe was largely unsuccessful in Boston.

2. Supportive Activities
Non-franchised firms find it very difficult to align supporting activities in business even when they receive strategy from a top-down hierarchy. Many times franchised restaurants have differing suppliers, lenders, and differing hiring practices that make alignment of supporting activities as a corporation nearly impossible, especially considering franchisees often consider themselves independent owners.

3. Organizational Structure
To create a lean business process, managers often institute a horizontal hierarchy focusing more on teams and coaches rather than managers and personnel. For this reason many franchised restaurants have customized operations unique to that store alone rather than an organizational structure as a corporation.

4. Culture and leadership
As an equal partner and investor in the business, franchisees often decide the culture among their employees although the restaurant experience to the customer is dictated by the corporation

I do not disagree with the author that these criteria are essential to successful strategy implementation I would only ask whether or not this is attainable in franchised restaurants. The menu and customer experience generally stay the same across the corporation but to be able to move strategically as a restaurant corporation seems nearly impossible. I believe a lack of ability to change or alter strategy is why there is such rapid growth and decline of restaurants chains. A successful restaurant with a unique strategy can expand quickly through franchising but when faced by superior competition it is rare that the corporation can act as a single unit to change its business strategy across its many franchised restaurants.

Question: After its growth for the sake of growth strategy, has Starbucks been able to successfully focus its goals and strategy on profits?




Monday, April 18, 2011

Some more insights into Successful Strategy Execution..

In the latest Economist series, Michel Syrett, a prolific writer, has written a book, “Successful Strategy Execution: How to Keep Your Business Goals on Target”. In this book he writes about how managers can bridge the gap between strategy creation and performance. Following up on this week’s article ‘The Secrets to Successful Strategy Execution’, here are 10 steps that Michel suggests can lead to successful strategy execution.

1. 1. Setting the scene

Michel quotes Mark Hurd, CEO HP, “Vision is nothing without execution”. Michel says that it is a myth that creation and execution of a business strategy are a mystery which can only be unraveled by management gurus, MBA graduates and consultants. Developing effective business strategies and direction is not rocket science. In fact they consists of ideas already known but the key is to determine if the strategy is right for your organization and then get the rest of the organization in harmony with it.

2. 2. Friction

Execution of any strategy can be hampered due to many reasons such as cultural differences, staffing changes, operational difficulties, lack of necessary information or misinterpretation of it and lack of accountability. In the Harvard Business Review, ‘The Secrets to Successful Strategy Execution’, the authors have touched upon the same concepts by explaining that free flow of information across the organizational boundaries and a sense of accountability for the decisions is vital for successful strategy execution.

3. 3. Focus

If every member of the organization knows what they have to achieve, the members can decide how to go about accomplishing their task. However, it is necessary to give them the right focus. This includes clear articulation of goals and breaking them into tasks.

4. 4. Communication

Communication plays a crucial role in not only articulation of tasks but also reporting the results and targets. Michel cites the example of Diageo, the world’s largest wines and spirits group. When it’s new CEO, Iwamoto took over the company in 2004; his main task was to motivate the workforce. In Japan, since words hold high importance, the CEO had to use precise language to instill confidence in the employees and trust in their mangers. The employees were paid performance bonuses without achieving their performance targets. The CEO introduced a new performance management system, and communicated effectively to the organization about bonus decisions and justifications. Team building activities were introduced and by communicating the intent effectively to its employees, the company was revived. Thus communication was significant in achieving tasks.

5. 5. Behavior

Michel states that there is a huge difference between strategy execution today and in the last two decades of the 20th century. Back then, the focus was more on process re-engineering while now it is determined by the behavior of the employees. The employee’s behavior is an amalgamation of her attitudes and aspirations and is further influenced by the organization’s cultural and protocols. Deutsche bank has identified key elements of this behavior as follows:

· The willingness to perform beyond the expected level

· The urge to remain a part of the company

· Emotional involvement with the organization

6. 6. Measurement

Effective execution of strategy is largely dependent on effective measurement techniques. The performance of business partners, suppliers and distributors has to be aligned closely with the main goals of the organization and the internal departments. Strategic management tools include a strategy map to align the activities of the various business units to the corporate goals, use of balanced score cards and a mission dashboard where the employees can keep a track of their contribution towards the company’s strategic objectives.

7. 7. Leadership

Successful strategy execution is possible if leadership is demonstrated not just at the senior management level but at all levels of the organizational structure. It includes instilling focus and clarity, generating engagement and commitment, effective resource allocation, collaboration fostering, creating the right milestones and managing pace.

8. 8. Change

Employees are usually averse to change. Change is however necessary for businesses to face new challenges. Change management is therefore very important for successful strategic execution.

9. 9. Innovation

Instead of focusing on developing a group of highly innovative individuals, the organization should aim to create an environment wherein the employees are able to tap their own creative potential. Innovation can be fostered by encouraging employees to share their thoughts, eliminating blame, rewarding creative contributions and picking the right team leader.

10.10. Pathway

The pathway to successful strategic execution depends on focusing on the right strategic goals and the freedom given to employees to carry out the goals in innovative and creative ways. It is built on the following foundation:

  • Transparency – letting people see what the others are doing
  • Engagement – allowing workers to implement and shape the strategy
  • Collaborative – building trust within and outside the organization
  • Disruption – making the rebels the organization’s best agents of change
  • Networking – enabling free flow and sharing of work, thus developing centers of best practice
  • Amoebic – Adapting and changing with changes below the surface.

Reference:

http://issuu.com/38902/docs/the-economist---successful-strategy-execution

Process/Steps of Successful Strategy Execution

This week’s two readings, “From Strategy to Implementation: Seeking Alignment” and “The Secrets to Successful Strategy Execution,” provide unique perspectives on strategy execution and implementation. The first article puts emphasis on alignment of 6 elements – people, incentive, supportive activities, organizational structure, culture and leadership, while the second article focuses on two levers for strategy execution – decision rights and information flows. Both articles took a similar approach to extract critical elements of successful implementation – looking back and evaluating the past strategic execution from current understanding. Therefore, my focus on this blog is to apply the concepts from the articles to effective strategy execution in the past and analyze the process, not a snapshot, of implementation. I use Intermountain Health System as an example of an organization which implemented strategies effectively.

Intermountain Health Care (IHC) is a nonprofit system of fifteen hospitals in the state of Utah. IHC is one of the first healthcare systems which applied a comprehensive clinical management model, an innovative business model in the healthcare provider industry. The organization “replaced the previous piecemeal approach to improvement in the health care delivery” with the model and regarded as a national leader in clinical quality improvement among delivery systems. In the following, I analyzed with the concepts the steps IHC took to transform itself into a clinically-centered organization.

· Leadership: The strategy on quality improvement started from one of the executive’s leadership. Inspired by Dr. W. Edward Deming’s idea that “higher quality could lead to lower cost,” Brent James, executive director of Intermountain Health Care’s Institute for Health Care Delivery Research, initiated numerous changes to improve quality of cares within the system.

· Culture and People: James initiated workshop series where he presented a concept in his mind to the top managers and senior physician leadership. With the efforts, he created the right culture for the upcoming strategic execution and “people with right attitudes that support the strategy.”

· Supportive Activities: Facing the failure of two pilot projects, IHC learned to establish effective supportive activities. IHC spent several million dollars without any significant changes because IHC provided the wrong data – financial data – to have physicians manage quality. Learning “the key to engaging physicians in clinical management was to make it meaningful by aligning data collection to work process,” IHC established the clinical data collection system. This illustrates the concept presented in the article “The Secrets to Successful Strategy Execution.”

Organizational Structure and Incentives: Interestingly, organizational structure and incentive are the last pieces of IHC’s strategy execution. IHC maintained the parallel structure between the existing line management and a new clinical management structure until the members experienced the redundancy and initiated “merge of their own accord.” Then, IHC changed the senior management’s incentive system to reflect the new priorities.

Examining the successful change of an organization as an example, what I found very interesting are:

  • · In contrary to the conventional notion on implementation, IHC started its strategic execution from soft elements of the 7S framework – shared values, style, skill, and staff – and moving to hard elements.
  • · Supportive activities, especially information systems, were portrayed as the key elements that make or break strategic execution. IHC used information systems as a tracking system of implementation as well as data collection tools for evidence-based management.

  • · IHC used structural change and incentives as a tool to “seal” the ongoing changes, instead of the main activities for implementation.

Questions:

  • · Can we generalize that it is best practice to start from the soft elements of the 7S framework? Or is it specific to IHC case?
  • · Should we start our implementation from one area and take a step-by-step approach? Or should we start execution from multiple areas simultaneously?

REFERENCES:

  1. From Strategy to Implementation: Seeking Alignment (Excerpted from: Strategy: Create and Implement the Best Strategy for Your Business (HBS Press), 2006)
  2. The Secrets to Successful Strategy Execution (Neilson, Martin, and Powers, Harvard Business Review, June 2008)
  3. Intermountain Health Care (Bohmer, Edmondson, Harvard Business Case, 9-603-066, June 2006)

Strategic Options for Healthcare Providers

The article “Types of Strategy: Which Fits Your Business?” presents an overview of strategic options and summarizes four generic strategies – low-cost leadership, differentiation, customer relationship, and the network effect. In this blog, I am applying the concepts to the healthcare industry and evaluate the applicability of the options to this specific industry. My focus here is to explore the strategic options in the healthcare provider industry and to jot down my ideas on this topic.


Low-cost leadership

  • · There seems to be no clear evidence that low-cost leadership works effectively among the healthcare providers. Why so? The nature of healthcare as a service: quality is the most important attribute of healthcare as service because health has significant impacts on one’s quality of life. In general, consumers typically perceive the strong correlation between quality and price; the higher the price of a service, the better quality is. Therefore, low-price healthcare providers are likely to be perceived to provide low-quality healthcare services, which failing to expand the share.

  • · However, the first point above may not hold true when the medical condition is relatively less complicated. Retail clinics illustrate this point. Retail clinics, an innovative business model among providers, treat a limited number of common medical conditions –e.g. red eyes, fevers – with a lower price. In this sense, the market of healthcare is being segmented by the complexity of medical conditions.
  • Another reason why low-cost leadership may not be effective in the healthcare industry is disjoint between low-cost and high-volume: One of the prevalent business models with low-cost leadership is to sell a large number of products/services at a small profit. This model does not work for healthcare providers mainly because of the third party payment system. Even though a hospital lowers prices for services, it does not necessarily lead to an increased patient volume because 1) patients do not directly pay for healthcare services because they consume services through their health plans, 2) patients typically do not have access to pricing information of services. Therefore, in the healthcare provider industry, the impacts of lowering prices for a service are somewhat limited.

  • · Is low-cost leadership always linked to low-pricing? Low-cost strategy always reminds me of Wal-Mart. Despise lower prices they offer, the company generates huge profits because they sell large volume. In this sense, low-cost, low-price, and large market share are always linked together. And if so, this business model is not effective as I hypothesized above. My hypothesis above is based on the assumption that a low-cost leader is always a low-price setter to seek for a larger market share. However, there should be alternative models where low-cost leaders do not necessarily set low-prices. For example, Toyota, as the article points out, achieves low-price through “continuous improvement in operating efficiency,” but they do not necessarily set the lowest price. Instead, they seem to compete based on values and maximize profits by optimizing price and volume. Is Toyota’s business model applicable to healthcare providers?

Differentiation

  • · Is healthcare service commodity? Or are consumer informed well enough to differentiate medical services?
  • · If healthcare service is not perceived as commodity by consumers, what attributes help providers to differentiate their services? Speed or no wait-time? If so, what would be the priority of each attribute? Or, is quality the only attribute of healthcare service?

  • · If healthcare service is considered commodity, is it still possible to differentiate on the basis of accompanying services? If so, what would those be? Single billing?

Customer Relationship / Focus

  • What factors help hospitals establish strong customer relationship beside the ones listed in the article? Does the size of hospitals impact the nature of customer relationship? How does training of staff improve customer relationship? How open physicians are to the idea of patient as customer?

REFERENCES:

  1. 1. Types of Strategy: Which Fits Your Business? (Excerpted from: Strategy: Create and Implement the Best Strategy for Your Business (HBS Press), 2006)

Sharing Ideas and Information


Seamless flow of information across an organization critical to it’s success. Information could be either tactical such as operational efficiencies, sales volume or strategic such as best practices, success stories, competitive landscape. Less information could lead to un-informed decisions and more information could lead to ‘information overload’ and it’s not always easy to find a fine balance between the two. In this article I would like to emphasize on the ways in which organizations could share information and ideas. I have drawn upon my experiences as an employee of a leading Indian IT company and found these ways really effective.

One of the most prevalent means of sharing information is the use of ‘wikis’. Companies should work towards building an open culture where employees are encouraged to share their professional experiences either good or bad. Fellow employees could learn from co-workers about the best practices, potential pitfalls and ‘what went well’ so that they could replicate success and avoid failures. At the same time, it also gives the upper management an understanding of the issues that employees at the ground level face. In my previous company, people shared all kinds of information such as technical issues, project bottlenecks, resourcing problem, cross-cultural issues and upcoming trend in software industry. In fact, some of the best ideas came from such forums. Employees were duly recognized and rewarded for their contribution.

Another way of sharing information and a more direct one is having ‘open-house’. These open houses were typically conducted in large rooms where the upper management directly interacted with the employee sharing their views and answering questions, if any. These open-houses were conducted on a quarterly basis. This also gave me an opportunity to understand where my company is heading, what’s our business strategy and where do I fit in the ‘big picture’.

Another way of sharing knowledge is by conducting training sessions or workshops. Employees were encouraged to conduct cross-divisional sessions. There were monetary incentives attached to it. This gives an opportunity to understand the business in a holistic fashion and get to know the impact of your work in the upstream and downstream systems.

These are some of the ways in which ideas and information could be shared across an organization. Implementing these could require high level of commitment from the management and an open culture within the organization.