The Business Tree: Growth Strategies and Tactics for Surviving and Thriving by Hank Moore Any company or organization is like a tree. It seemingly looks the same each day but sheds leaves, lets its limbs rot and applies “band-aid surgery” to its branches late in life. Therefore, it does not fully grow and bloom. Often, it withers and dies an early death. The Business Tree™ has 7 major parts… 5 primary branches, a trunk (6) and the base (7): The business you’re in Running the business Financial People Business development Body of Knowledge The Big Picture No single branch (business component) constitutes a healthy tree. None of the limbs and twigs on each branch (staff-consultants) provide all nourishment required to breed a healthy tree (company). Each branch has its proper responsibility and should learn to interface with the others. The Business Tree™ will not stand without a trunk and the base. These keep the branches, limbs and twigs (divisions, consultants and vendors) on a growth curve. Trees with thicker bases and deeper roots will sprout greener (be profitable), shed less often (fewer corporate flaws) and live longer (dominate its industry). Learn more about Hank Moore and The Business Tree™ by visiting his website, www.HankMoore.com.

Technology constitutes less than 1% of any organization’s overall Big Picture. Computer activity constitutes less than 1% of the technology picture. Thus, efforts to treat a fraction of one percent took resources away from addressing the other 99.999% of companies’ full-scope planning.

My concern was that money was diverted from most other aspects of organizational wellness toward treating one symptom of one disease. I advocated a balanced approach toward planning, visioning and the Big Picture.

Rather than bash those who neglected other aspects of the organization in favor of Y2K Readiness, let’s refocus what we did and learned toward other future applications.

Among the lessons which we learned from the Y2K Bug exercise were:

• When they want to do so, company leadership will provide sufficient resources to plan for the future, including crisis management and preparedness (of which computer glitches are one set of ‘what ifs.’)
• When they want to do so, company leadership will provide leadership for change management and re-engineering… two of the many worthwhile concepts that should be advocated every business day.
• People are the company’s most valuable resource, representing 28% of the Big Picture. Today’s work force will need three times the amount of training that it presently gets in order for the organization to be competitive in the millennium.
• Change is good. Like change… don’t fear it. Change is 90% positive. Without always noticing it, individuals and organizations change 71% per year. The secret is to benefit from change, rather than become a victim of it.
• Pro-active change involves the entire organization. When all departments are consulted and participate in the decisions, then the company is empowered.
• Fear and failure are beneficial too. One learns three times more from failure than from success. Failures propel us toward our greatest future successes.
• When we work with other companies and the public sector, we collaborate better. All benefit, learn from each other and prepare collectively for the future.
• In the future and in order to successfully take advantage of the future, make planning a priority, not just a knee-jerk reaction.

Calculating Each Organization’s High Costs

People and organizations are wont to throw money at things that pop up at the moment or that look good at external publics. It is easier to tinker with machines than to admit that the organization has deep management and philosophical issues. After all, 92% of all organizational problems stem from poor management decisions.

Our society is infested with the band-aid surgery way of treating things as they come up. This approach costs six times that of doing things correctly on the front end… meaning planning, sequential execution and benchmarking progress.

Each year, one-third of the U.S. Gross National Product goes toward cleaning up problems, damages and otherwise high costs of doing either nothing or doing the wrong things.

On the average, it costs six times the investment of preventive strategies to correct business problems (compounded per annum and exponentially increasing each year). In some industries, the figure is as high as 30 times…six is the mean average.

The old adage says: “An ounce of prevention is worth a pound of cure.” One pound equals 16 ounces. In that scenario, one pound of cure is 16 times more mostly than an ounce of prevention.

Human beings as we are, none of us do everything perfectly on the front end. There always must exist a learning curve. Research shows that we learn three times more from failures than from successes. The mark of a quality organization is how it corrects mistakes and prevents them from recurring.

“They can’t hang you for saying nothing,” quipped President Calvin Coolidge in the 1920′s. He spent more time doing chores at his farm and taking long naps than taking care of the nation’s business. Coolidge prided himself upon doing little and, thus, failed to see crises brewing during his presidency. This ‘keep your head in the sand’ mentality is prevalent of people who move on and let others clean up the damage.

Doing nothing becomes a way of life. It’s amazing how many individuals and companies live with their heads in the sand. Never mind planning for tomorrow… we’ll just deal with problems as they occur. This mindset, of course, invites and tends to multiply trouble.

7 Categories of High Costs

1. Cleaning Up Problems. Waste, Spoilage. Poor controls. Down-time. Lack of employee motivation and activity. Back orders because they were not properly stocked. Supervisory involvement in retracing problems and effecting solutions.
2. Rework. Product recalls. Make-good for shoddy or inferior work. Poor location. Regulatory red tape. Excess overhead.
3. Missed Marks. Poor controls on quality. Fallout damage from employees with problems. Undercapitalization. Unsuccessful marketing. Unprofitable pricing.
4. Damage Control. Crisis management. Lawsuits incurred because procedures were not upheld. Affirmative action violations. Violations of OSHA, ADA, EEOC, EPA and other codes. Disasters due to employee carelessness, safety violations, oversights, etc. Factors outside your company that still impede your ability to do business.
5. Recovery and Restoration. Repairing ethically wrong actions. Empty activities. Mandated cleanups, corrections and adaptations. Employee turnover, rehiring and retraining. Isolated or unrealistic management. Bad advice from the wrong consultants. Repairing a damaged company reputation.
6. Retooling and Restarting. Mis-use of company resources, notably its people. Converting to existing codes and standards. Chasing the wrong leads, prospects or markets. Damage caused by inertia or lack of progress. The anti-change ‘business as usual’ philosophy. Long-term expenses incurred by adopting quick fixes.
7. Opportunity Costs. Failure to understand what business they’re really in. Inability to read the warning signs or understand external influences. Failure to change. Inability to plan. Over-dependence upon one product or service line. Diversifying beyond the scope of company expertise. Lack of an articulated, well-implemented vision.

Remediating the High Costs

7 Primary Factors of The High Cost of Doing Nothing™:

1. Failure to value and optimize true company resources.
2. Poor premises, policies, processes, procedures, precedents and planning.
3. Opportunities not heeded or capitalized.
4. The wrong people, in the wrong jobs. Under-trained employees.
5. The wrong consultants (miscast, untrained, improperly used).
6. Lack of articulated focus and vision. With no plan, no journey will be completed.
7. Lack of movement really means falling behind the pack and eventually losing ground.

What Could Have Reduced These High Costs:

1. Effective policies and procedures.
2. Setting and respecting boundaries.
3. Realistic expectations and measurements.
4. Training and development of people.
5. Commitments to quality at all links in the chain.
6. Planning.
7. Organizational vision.

7 Levels of Handling Problems, Determining Effectiveness

1. Do Nothing. Think that things will work themselves out or that causes of problems will go away. Research shows that doing nothing results in creating 3-6 more affiliated problems.
2. Deny, Actively Avoid. Don’t see problems as such. Keep one’s head in the sand and remain impervious to warning signs of trouble. Go to great lengths to put positive spins on anything that may point back to one’s self, department or organization as being problematic.
3. Cover Up. Cover-ups cost 6-12 times that of addressing problems upfront. In addition to financial, cover-up costs can include the effects upon morale, activity levels, productivity, decision making, creativity, adaptation and innovation. Even after the cover-up has fully played out, there is an additional cost: the period of recovery and restoration of confidence.
4. Partially Address. Perform band-aid surgery, at such time as action is demanded. Address signs and symptoms, without addressing root causes. This shows that something is being done, but it is often the wrong thing at the wrong time.
5. Handle in Politically Correct Terms. Some problems are addressed, partially or fully, because bosses, regulators or stakeholders expect it. Some are handled for fear of repercussion. This motive results in tentative actions, with lip service paid to deep solutions.
6. Address Head-On. Problems are, of course, opportunities to take action. Everyone makes mistakes, and success lies in the way that problems are recognized, solved and learned from. The mark of a true manager is to recognize problems sooner, rather than later. The mark of an effective leader is the ability and willingness to take swift and definitive actions. The mark of an empowered team is its participation in this process. The mark of a successful organization is its endorsement and insistence upon this method of action.
7. Address in Advance, Preparing for Situations. Pro-actively study for patterns. 85% of the time, crises which are predicted, pre-addressed and strategized are averted. The skill in pre-managing problems is a fundamental tenet of a quality-oriented organization.

If postured properly, the process of planning and visioning remediates opportunity costs before they occur. Running a profitable and efficient organization means effectively remediating damage before it accrues. Processes and methodologies for researching, planning, executing and benchmarking activities will reduce that pile of costly coins from stacking up.

About the Author

Hank Moore has advised 5,000+ client organizations worldwide (including 100 of the Fortune 500, public sector agencies, small businesses and non-profit organizations). He has advised two U.S. Presidents and spoke at five Economic Summits. He guides companies through growth strategies, visioning, strategic planning, executive leadership development, Futurism and Big Picture issues which profoundly affect the business climate. He conducts company evaluations, creates the big ideas and anchors the enterprise to its next tier. The Business Tree™ is his trademarked approach to growing, strengthening and evolving business, while mastering change. To read Hank’s complete biography, click here.

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Business is a fast and zigzagging road – a road that needs guardrails to keep businesses and projects on track. On your road to success (whether it be to increase profits, become an industry leader, capture more market share, etc.), you need to establish your own guardrails so you do not drive your company or project into the weeds.

The Zigzag Principle: The Goal Setting Strategy that will Revolutionize Your Business and Your Life by Rich Christiansen Have you ever set your sights on the top of a mountain and then started your ascent by heading straight through the trees and up the sheer cliffs? Or jumped in your car and headed to the other side of town – as the crow flies? Of course not! Because you instinctively know, just as a mighty river has to wend its way around obstacles and obstructions, that the best route from where you are to where you want to be is never actually a straight line! In The Zig Zag Principle, Rich Christiansen applies a foundational law of nature to business management, entrepreneurship, goal-setting, and life in general as he explores why zigzagging toward our intended outcomes is far more effective than trying to bulldoze our way through whatever stands between us and our objectives. Everything you need to know to get on the right path is here in The Zig Zag Principle: How to identify your destination: Where do you want to go? How will you get there? Why does Mental Capital plus Relationship Capital equal Financial Capital? Why having a defined set of values will be key as your business finds its way? How to add resources and hire smart – as you to turn the cash you have into fuel for more. Replicating your successes to bring your product to the masses. Protecting your resources, your family, and your sanity. The simplicity of a straight line can be seductive. But it’s not a realistic way to go about achieving your goals because you will always come upon unexpected obstacles in the road. Zigzagging requires you to be nimble and flexible, to ‘bootstrap,’ and to be able to take advantage of multiple opportunities. What it delivers is success – in business and in life – far beyond your initial plans and dreams. Use The Zig Zag Principle to assess your resources, use them to their fullest, and keep yourself and your team motivated – all while living a life of balance.

Establish Guardrails

I worked in several large companies during my corporate career, and I can’t tell you the number of pet projects that became my pet peeves. I saw literally millions and millions of dollars flow into projects that had no real metrics and timeline in place. In other words, these projects had no guardrails.

You can ensure that your projects don’t waste time or money by simply putting the correct boundaries in place. You must think, “this is what we’re trying to drive to and if we don’t get to it at this point, we’re going to go back to the drawing board to go after the next idea.”

Proper Boundaries

To establish proper boundaries, you must do the following:

1. Identify the major steps (or zig zags) that will take you to your goal. Example: Zig #1: Drive to profitability – have product bring in $20K in revenue.
2. Define when you have completed your zig zag. Example: We will have sold 15K units of product.
3. Set a deadline to assess your team’s progress. Example:We will have sold 15K units of product and bring in $20K in revenue by April 2012, or we will go back to the drawing board.

Zigzagging to Success

Establishing guardrails is just one element of the entire Zig Zag Principle. I encourage you to be strategic and deliberate about the way you approach your business. It may seem counterintuitive, but zigzagging to your goal (rather than charging straight for it), with the correct guardrails in place, will lead you and your business to success.

About the Author

Rich Christiansen describes himself as ‘a perfectly good business executive, turned entrepreneur.’ Before becoming an entrepreneur, he was a skilled executive and market innovator in the corporate world. He was General Manager at both Mitsubishi Electric and About.com. After 20 years in the technology industry, he discovered that his true passion and talent is in launching start-up companies.

Rich has founded or co-founded 32 businesses. These ventures were bootstrapped with just $5,000 to $10,000 of starting capital. Eleven of those businesses were miserable failures, but eleven have became wildly successful multi-million dollar businesses. Rich has identified The Zig Zag Principle as his secret formula for optimizing success while minimizing failure. It is also his methodology for setting goals and living a happy, healthy life. To read Rich Christiansen’s full biography, click here.

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About the Reference

What I Didn’t Learn in Business School: How Strategy Works in the Real World by Jay Barney and Trish Gorman Clifford reveals the shortfalls of the principles learned in the idealistic academic environment when applied directly to the messy, unpredictable and politically charged business world. Through a storied approach, Jay and Trish reveal the inadequacies of modeling to fully predict business outcomes and the challenge of creating alignment among leaders with differing points of view and personal agendas. They go on to illustrate the power of moving leaders past the limits of these barriers and their own collective experience to gain significant marketplace advantages and organizational prosperity.

Benefits of Using this Reference

StrategyDriven Contributors like What I Didn’t Learn in Business School because it so clearly illustrates the premise for our website, namely, that while highly beneficial, academic principles must be adapted from the ideal environment of the classroom to the unpredictable environment of the shop floor in order to provide real value to any organization. Furthermore, no single model or performance measure can adequately portray a given situation in such a way that a definitive decision can be made. Rather, multiple models and measures should be employed to create a complete picture of performance from differing perspectives to enable robust decision-making.

Its well supported, fully illustrated assertion that strong business performance is achieved through the application of sound academic principles tempered by real-world business experience makes What I Didn’t Learn in Business School a StrategyDriven recommended read.

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Episode 2 – What makes an organization StrategyDriven? examines the qualities and characteristics of a StrategyDriven organization as well as the benefits these organizations realize over competing firms not so well aligned.

Learn more about how to become truly StrategyDriven by reading: The StrategyDriven Organization.

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Thank you again for watching this StrategyDriven Podcast – Video Edition episode!

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Many conventional metrics we use to estimate value are based on faulty assumptions. Net present value [NPV] is a case in point. The logic of NPV is to project cash flows into the future and then discount those flows back into today’s dollars at a given cost of capital.

Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity by Rita McGrath Companies have long struggled to generate sustained profitable growth – and few have succeeded. Time after time, new initiatives and projects are rolled out with great fanfare only to end up abandoned and dubbed expensive flops. Yet for the small handful of companies that have managed to drive growth consistently – even through tough times – the payoff is great. How do they do it? In Discovery-Driven Growth, Rita McGrath and Ian MacMillan challenge what you thought you knew about managing growth. They explain that capitalizing on uncertain opportunities requires a starkly different mindset than when pursuing strategy in your core business. In fact, the very same practices that work for ‘business-as-usual’ can be lethal when your challenge is growth. For instance, intelligent failures can add more value than predictable successes, and low-cost experimentation trumps analysis. Based on a combined thirty years of research and experience, Rita and Ian’s book provides a breakthrough system for managing strategic growth. You will learn how to identify and prioritize your company’s full portfolio of opportunities – from new product lines to entirely new businesses. The authors then show how to best execute specific initiatives, test major project assumptions, and develop a culture that values disciplined experimentation and learning over meeting mindless and unrealistic goals. Tools for each challenge are presented, backed by examples from companies – from small firms to global giants – that have successfully put these methods into practice. The discovery-driven approach will dramatically change how you lead strategic growth. Using it, your company can greatly improve the success of new strategic initiatives, significantly reduce growth costs, minimize surprises, and know when to disengage from questionable projects before too much money is spent. With Discovery-Driven Growth, Rita and Ian offer managers everywhere a time-tested blueprint for planning and executing a strategic growth agenda with confidence – in any market.

Given that money today is always worth more than money in the future, you are trying to establish what the future value of the investment will be in terms of that money’s value today. If it is positive, it’s thumbs up, if it’s negative, it’s thumbs down.

One problem is that NPV calculations tend to compare today with some future state. What they should be used for is to compare today with two different future states: one in which we do nothing and one in which we do something. Doing otherwise biases the business against innovation because what you are projecting may look unattractive relative to your business today.

Another well-known problem is that if you are a P&L leader in a publicly traded firm, you pay dearly for missing quarterly targets and don’t get dinged at all for failing to invest in the future. Imagine you’re the guy who was running the Walkman business at Sony a decade ago. Your career depended on that business going forward, and the numbers that mattered had to do with the performance of that business, not with Sony as a whole. So when the first little inklings appeared that there may be a shift from battery cassette players to solid state rechargeable digital music archives like the iPod, your incentive was not to embrace that reality but to eke out another quarter or two doing what you were already doing.

Given that some of these problems are rooted in people’s tendency to resist change, do newer firms have an advantage when it comes to creating the best new business models?

No. I don’t think so. My own research has shown that there are a number of big companies that have overcome these problems. But they do it very consciously. That makes all the difference. I’m thinking of HDFC Bank in India, Yahoo! Japan, Infosys, and Sagentia in the UK. All four companies have systematic ways of estimating how long a particular advantage is going to last, systems that nurture innovation, and processes that make sure the right people are at work on the business.

Companies that will eventually be wrecked by others’ innovations are operating on autopilot. They think their systems work, so they follow the adage, ‘If it ain’t broke, don’t fix it.’ The companies exist to exploit existing businesses, not to create new ones.

A new company’s advantage is that it doesn’t have that to fight against. But the disadvantage is that if you try something and it blows up, you’re dead. Established companies have the opportunity to do more experimentation if they commit to consciously embracing new models, because they have more resources to buffer themselves in the advent of adversity.

New product development is such a big piece of building new business, or so we are told. Why do you say that businesses really need to frame their priorities in terms of outcomes rather than having a myopic focus on products?

Businesses need to frame priorities around customer outcomes. If you are thinking about your product first, you have already made the assumption that what the customer is buying is what is in your product. But most of your customers don’t care. Products and services are merely vehicles to provide customers with a way to get the jobs that they want to get done, done. This is a perspective taken by my colleagues at consultancy Innosight.

Take a doctor’s office. What the doctor wants to get done is an efficient, organized practice, which runs with minimal continual inputs, with very little disruption. How can the doctor get that done? They can hire an individual to manage it, they can outsource the office management, they could sign up with a software service platform like Microsoft to run it for them. If I came at it from a product perspective, I would ask, how can I sell practice-management software, or how can I automate patient record-keeping? You’re not seeing the task that the customer is trying to get done and is willing to pay you for.

This matters because it can cause you to be blindsided. Surprisingly, big inroads in the physician office-management market are being made by non-traditional players, such as Best Buy’s Geek Squad. The traditional practice-management groups would not even have considered them to be competition, and yet in a very real way they are.

How does this perspective – jobs to be done – help firms create effective new business models?

Well, you’ve designed a business model, hopefully, that is so well adapted to getting the customer’s job done that the products or services it turns out become the obvious choice. You want something where the customer says, “Yeah, I could really use that to get this done, to make life easier.”

Now the other reason it matters to firms to understand the jobs customers want to get done is the collateral damage problem. We’ve now got a huge battle being fought in the area of payments. If I want to pay for something, I can pay cash. I’ve also got credit cards, I’ve got debit cards, or I can pay for something over the phone. Google Wallet comes along and doesn’t even charge me to make a payment because it wants my identity so it can more closely target me for advertising.

Google is not targeting the credit card business; they are targeting payment streams. If Visa and American Express are not focusing on who is competing to fill this need – the jobs the customer needs to get done – they could miss this opportunity in their competitive analysis.

What makes one business model more attractive than another?

An attractive business model is one where the customer has a reason to stick with you, the service is essential not optional, the problem they need to solve is ongoing so they need your help for a while, and there is some kind of relationship that is embedded in an ecosystem, where you don’t have to reinvent your relationship with customers everyday. That’s a more powerful model than something that is purely transactional.

In bond trading, there is no relationship, bond prices today have little to do with bond prices tomorrow, and I could completely change my positions overnight. It is among the most transactional of all businesses. That’s a harder business model to sustain than installing an ERP (enterprise resource planning) system. My whole company depends on it. I have to keep investing in upgrades, and it’s deeply embedded in my systems. It is inherently a more attractive business model. [Download McGrath’s Scoring Business Model Attractiveness (PDF, 50KB)]

What are the big assumptions that firms and managers should shed when looking to create a new business model?

One, eliminate the assumption that because we’ve always done that is a good reason to keep doing it. Most business models grow up in an era when certain kinds of constraints are difficult to overcome. Take newspapers. Fifteen years ago, what was a news executive thinking about? The cost of paper, how hard trucks are to schedule, union agreements – a whole series of things that constrain your ability to do things. Now, as you move toward digital production, those constraints change. And people forget that when constraints change around one thing, they need to look at the implications for the rest of the business – where else constraints have changed in the business.

Two, don’t assume that your firm or even your industry has the answers. Firms should remember that flattery and imitation are worthy. A great place to look for new models is in adjacent industries or even entirely different industries.

A lot of companies are very unimaginative on this count. It happens all the time – I’ll meet an executive and they’ll tell me, “Well, you don’t know our industry,” as though there was nothing to be learned by venturing beyond the boundaries of the industry as it is today. It drives me crazy and is very shortsighted. Instead, what we invariably find when we mix together people from different industries (as we do in my Executive Education course) is immense learning because people question why certain practices are maintained. Further, many problems are common across industries and a solution that works for, say, the chemicals industry may be surprisingly relevant in a financial services context.

Finally, it’s really striking how quickly and frequently people change their business models today. It’s much more common than it used to be. Be prepared. Just because your model hasn’t changed much yet doesn’t mean that it won’t.

Reprinted from Columbia Ideas at Work by permission. Copyright 2011. Columbia University.

About the Author

Rita McGrath, a Professor at Columbia Business School in New York, is one of the world’s leading experts on strategy in highly uncertain and volatile environments. She works with both Global 1,000 icons and smaller, but fast-growing organizations. Some current clients include F-Secure, Nokia, Microsoft, (and its CEO Summit), AXA Equitable, General Electric, Novartis, PPG Industries, the Stena Group and the World Economic Forum. She is a popular speaker and consults to senior leadership teams. In 2009, she was inducted as a Fellow of the Strategic Management Society, an honor accorded to those who have had a significant impact on the field. To read Rita’s complete biography, click here.

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Discovery-Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity by Rita McGrath Companies have long struggled to generate sustained profitable growth – and few have succeeded. Time after time, new initiatives and projects are rolled out with great fanfare only to end up abandoned and dubbed expensive flops. Yet for the small handful of companies that have managed to drive growth consistently – even through tough times – the payoff is great. How do they do it? In Discovery-Driven Growth, Rita McGrath and Ian MacMillan challenge what you thought you knew about managing growth. They explain that capitalizing on uncertain opportunities requires a starkly different mindset than when pursuing strategy in your core business. In fact, the very same practices that work for ‘business-as-usual’ can be lethal when your challenge is growth. For instance, intelligent failures can add more value than predictable successes, and low-cost experimentation trumps analysis. Based on a combined thirty years of research and experience, Rita and Ian’s book provides a breakthrough system for managing strategic growth. You will learn how to identify and prioritize your company’s full portfolio of opportunities – from new product lines to entirely new businesses. The authors then show how to best execute specific initiatives, test major project assumptions, and develop a culture that values disciplined experimentation and learning over meeting mindless and unrealistic goals. Tools for each challenge are presented, backed by examples from companies – from small firms to global giants – that have successfully put these methods into practice. The discovery-driven approach will dramatically change how you lead strategic growth. Using it, your company can greatly improve the success of new strategic initiatives, significantly reduce growth costs, minimize surprises, and know when to disengage from questionable projects before too much money is spent. With Discovery-Driven Growth, Rita and Ian offer managers everywhere a time-tested blueprint for planning and executing a strategic growth agenda with confidence – in any market.

1. Leave the definition of success fuzzy – I conduct a lot of post-mortems – you know, those meetings where warring parties come together to argue about whose fault it was that something went horribly wrong. Actually, when well designed, post-mortem meetings can be quite productive. I begin by going back in time and reconstructing what people were thinking at the time the project or initiative was started. Amazingly, by the time it has failed, the original goals for the project are often forgotten and there is no documentation or human memory of what they were. This situation creates the conditions for blaming and acrimony, none of which add value. So, before you start any new strategic project, get it in writing: what are we trying to accomplish, by when, and whose responsibility will it be to get to closure?
2. Don’t plan the disengagement – Organizations have processes for just about everything, it seems. Ironically, however, when it comes to handling failure, in most organizations it’s an awful, improvised process that leaves trust, careers and feelings in tatters. It doesn’t have to be that way. Instead, I recommend developing a disengagement plan. In a solid disengagement plan, all those with a stake in the project are considered and it is someone’s specific job to find a way to make them if not whole, at least to address the worst of the issues that a closure means for them.
3. Overspend – Big flops are bad flops. These are the ones that leave you scratching your head and asking “what were they thinking?” Cue recent examples such as Cisco’s $590 million acquisition of the company behind the Flip video camera or Google’s $200M+ exit from the real-life radio ad business. One could argue (as some have done) that there will be valuable learning coming out of these negative experiences, but surely some lessons didn’t have to be so expensive! Instead, I recommend following the old Silicon Valley adage: Fail Fast, Fail Cheap, Move On.
4. Have no way to distinguish bad luck from bad management – Failure creates a paradox: On the one hand, nobody likes failure; while on the other, you don’t want to reward managers who fail foolishly. What is needed is some way to determine whether the executives in charge made the right decision given what was known at the time, and therefore whether the failure was the result of something they should have known. I find that keeping careful track of assumptions, particularly at key project turning points, can help make this distinction. This in turn, makes it possible to reward ‘intelligent’ failures and prove to people that your organization can take risks and learn, even when things go wrong.

Of course nobody likes to fail. Failure, however, is one of the few things you can be guaranteed in uncertain and high-velocity environments. The real skill lies in making the most of it.

On October 3-7, 2011, Rita McGrath, Associate Professor, Management at Columbia Business School, will teach ‘Leading Strategic Growth and Change’ at Columbia Business School Executive Education. Professor McGrath developed the program in order to instruct participants on how to thrive in rapidly changing, highly uncertain environment. To learn more, visit the Columbia website.

About the Author

Rita McGrath, a Professor at Columbia Business School in New York, is one of the world’s leading experts on strategy in highly uncertain and volatile environments. She works with both Global 1,000 icons and smaller, but fast-growing organizations. Some current clients include F-Secure, Nokia, Microsoft, (and its CEO Summit), AXA Equitable, General Electric, Novartis, PPG Industries, the Stena Group and the World Economic Forum. She is a popular speaker and consults to senior leadership teams. In 2009, she was inducted as a Fellow of the Strategic Management Society, an honor accorded to those who have had a significant impact on the field. To read Rita’s complete biography, click here.

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The strategic principle doesn’t merely aggregate a collection of objectives.

Landing in the Executive Chair: How to Excel in the Hot Seat by Linda Henman   In today’s fast-paced, unprecedented, and unpredictable economy, many executives simply don’t know what to do. Conventional methods-which many never entirely understood in the first place-often don’t work during economic upheaval. Executives, especially CEOs, need something better. They need a guide that identifies the roadblocks and points out the landmines. In her more than 30 years of working with hundreds of executives, Dr. Linda Henman has observed the critical elements of success, both for the new leader and the one who aspires to the next level of success. In Landing in the Executive Chair, you’ll learn how to: Avoid the pitfalls and identify a clear plan for personal and organizational stress. Leverage the first months in a new executive position- that time of transition that promises opportunity and challenge, but also brings a period of great vulnerability. Create a competitive advantage, set the right tone, make effective decisions, keep talent inside your doors, and establish credibility-all while navigating unfamiliar and turbulent waters. As organizations expand and grow, the skills that led to success often won’t sustain further development in a more complex, high-stakes environment. Present and future executives need more. They need Landing in the Executive Chair.

Rather, this simple statement captures the thinking required to build a sustainable competitive advantage that forces trade-offs among competing resources, tests the soundness of particular initiatives, and sets clear boundaries within which decision makers must operate.

Creating and adhering to a concise, unforgettable, action phrase can help everyone keep an eye on the ball at all times. Wal-Mart offers one of the most well-known strategic principles: Low prices, every day.
A well-thought-out strategic principle pinpoints the intersection of the organization’s passion, excellence, and profitability, or in the case of not-for-profit organizations, its unique contribution. As you can see from the graphic, success lies at the intersection of the three. (See Figure 1)

If your organization operates in section one, you will probably experience some short-term success. People who can do the work they feel passionate about and engage in work that rewards efforts with large monetary compensation, can often stay in the game for the short run. But if you aren’t the best, the competition will soon surpass you.

Figure 1: Strategic Success

Passion and excellence without profitability, or section two, won’t even allow you a short run. This undisciplined orientation – to do what you like and are good at – without consideration of the market, won’t provide anything other than some short-lived fun, which should last right up until the time your bills come.

Section three is a recipe for burn out. You can work hard at something you’re good at and that makes you significant money, but you won’t excel at it for long unless you feel some passion for it.

Sustained success lies in area four, the intersection of passion, excellence, and profitability. Only here can your organization thrive as you work diligently to produce a product or service that your competition can’t match.

When companies face change or turmoil, the strategic principle acts as a beacon that keeps the ships from running aground. It helps maintain consistency but gives managers the freedom to make decisions that are right for their part of the organization. Even when the leadership changes, or the economic landscape shifts, the strategic principle remains the same. It helps decision makers know when to develop new practices, products, and markets. When they face a choice, decision-makers will be able to test their options against the strategic principle by simply applying the three-part litmus tests:

• Are we passionate about his work?
• Can we do it better than our competitors?
• Will it make us money?

When designed and executed well, a strategic principle gives people clear direction while inspiring them to be flexible and take risks. It offers a disciplined way to think about decisions, strategy, and execution and challenges people to play an ever-evolving better game.

About the Author

For more than 30 years, Linda Henman has helped leaders in Fortune 500 Companies, small businesses, and military organizations define their direction and select the best people to put their strategies in motion.

Linda holds a Ph.D. in organizational systems, two Master of Arts degrees in interpersonal communication and organizational development, and a Bachelor of Science degree in communication. By combining her experience as an organizational consultant with her education in business, she offers her clients selection, coaching, and consulting solutions that are pragmatic in their approach and sound in their foundation.

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People exhibit misplaced priorities and impatience… seeking profit and power, possessing unrealistic views of purpose, and not fully willing to do the things necessary to sustain orderly growth and long-term success.

The Business Tree: Growth Strategies and Tactics for Surviving and Thriving by Hank Moore Any company or organization is like a tree. It seemingly looks the same each day but sheds leaves, lets its limbs rot and applies “band-aid surgery” to its branches late in life. Therefore, it does not fully grow and bloom. Often, it withers and dies an early death. The Business Tree™ has 7 major parts… 5 primary branches, a trunk (6) and the base (7): The business you’re in Running the business Financial People Business development Body of Knowledge The Big Picture No single branch (business component) constitutes a healthy tree. None of the limbs and twigs on each branch (staff-consultants) provide all nourishment required to breed a healthy tree (company). Each branch has its proper responsibility and should learn to interface with the others. The Business Tree™ will not stand without a trunk and the base. These keep the branches, limbs and twigs (divisions, consultants and vendors) on a growth curve. Trees with thicker bases and deeper roots will sprout greener (be profitable), shed less often (fewer corporate flaws) and live longer (dominate its industry). Learn more about Hank Moore and The Business Tree™ by visiting his website, www.HankMoore.com.

What organizations and individuals started out to become and what we’ve evolved into being are decidedly different things. The path toward progress takes many turns, expected and unexpected. How we evolve reflects the teachings, experiences and instincts which are not part of formal education.

Pressures continue and accelerate for companies to stay in operation, become competitive, keep ahead of the marketplace and perform quality work. Businesses of all sizes are besieged with opportunities, competing information sources and large amounts of uncertainty.

Executives are not fully prepared to handle challenges of the moment, much less to begin developing Big Picture thinking. Seasoned executives face burnout daily. Much of the workforce is in transition, with unclear anchoring of where they’ve been and where they could head. Young and mid-level workers do not really know what it takes to succeed long-term and are, for the most part, impaired from optimum achievement.

Failure to prepare for the future spells certain death for businesses and industries in which they function. The same analogies apply to personal lives. Greater business awareness and heightened self awareness are compatible and part of a holistic journey of growth.

I mentor business principals on all their options and the big ideas. I lay the groundwork so they can best utilize the niche consultants. I support all of the others and educate business owners on the best contexts to make consultants most effective.

There are seven levels of strategy retreats and processes in which companies can engage, with #1 being a starting point and #7 being the ultimate outcome:

1. Information Sharing. What’s new in the marketplace. What the competition is doing. New ways of looking at the core business.
2. Reacting to a Crisis or Emergency. Responding to crises is a good way to get in the research-planning habit. Preparing for crises helps avert 85% of them.
3. Niche Review. Some phase of the business requires re-evaluation.
4. Growth Strategies. How and where to grow. Concepts of orderly growth. Dynamics of growth, in relation to other organizational factors.
5. Planning for the Future. Planning, vision and strategic direction account for 15% of an organization’s full picture…constituting the trunk and roots of The Business Tree™. The company that does not plan will not achieve staying power.
6. Visioning. Determining what the organization will become.
7. Change, Growth. Determine how the organization will get where it needs to go. Creative thinking about new approaches. Develop a true corporate culture.

7 Levels of What Companies Do with Think Tanks:

1. Don’t understand the concept (confuse it with selling or training).
2. Hold when the company is at a crossroads.
3. Realize value and merit.
4. Want to know and learn more. Eager to hold, assess and apply.
5. Do something with it. Put findings to good use.
6. Want to do more and evolve the business to higher plateaus.
7. Change-Growth. Achieve advantages via knowledge. Make impacts on company future.

What Is a Think Tank:

• Source of new ideas from outside speaker-presenter (as opposed to a training facilitator).
• Common sense reminders of things people already know.
• Inspiration to try new things and be successful.
• Injecting Big Picture thinking into each part of the organization, macro over the micro.
• Inspires the development of organizational Vision.
• Realistic views or company strengths, weaknesses, opportunities and threats.
• Study of external forces that can hamper your ability to do business.
• Mentorship and leadership development.
• Outside-the-box approaches to old problems.
• Creative learning that helps executives think new ways.
• Ways to understand the organization’s people (its best resource) better.
• Common sense updating of old principles, with Futuristic viewpoints.
• Puts the demands of the moment into perspective.
• Takes Futurism out of the esoteric and into cohesive applicability.
• Converts learning to knowledge…and knowledge to wisdom.

What a Think Tank is NOT… and Should Not Be Confused with Being:

• Training. Political fund raising.
• Sales or marketing support. Facilitated gripe session.
• Bean counter approaches to processes. Ivory Tower academic exercise.
• Internally conducted goal-setting workshop. Intellectual elitism.
• Brokering of ideologies and hidden agendas. Research.

This program will accomplish the following:

• Help small businesses of any size focus more clearly on their niche, strengths, weaknesses, opportunities and threats.
• Apply Big Picture thinking toward all facets of the organization… to reduce costs of companies responding to problems with small-picture treatments.
• Reduce costly organizational problems with planning on the front end.
• Provide business owners with a totally different perspective on how they can operate and be more successful.

Visioning is the process where good ideas become something more. Visioning is a catalyst toward long-term evaluation, planning and implementation. Visioning is a jump-off point by which forward-thinking organizations ask: What will we look like in the future? What do we want to become? How will we evolve? Vision is a realistic picture of what is possible.

Organizations will succeed by having, communicating and garnering support for a Shared Vision. Visioning sets the stage for necessary processes, such as growth strategies, re-engineering, training, enhancing shareholder value and organizational development. Without visioning, other functions (marketing, human resources, financial, production, quality control, public relations, etc.) are simply performing band-aid surgery.

The Strategic Plan comes off the shelf and alive into action by being relative to all levels of the organization:

1. Resource. Equipment, tools, materials, schedules.
2. Skills-Tasks. Duties, activities, tasks, behaviors, attitudes, contracting, project fulfillment.
3. Role-Job. Assignments, responsibilities, functions, relationships, accountability.
4. Systems-Processes. Structure, hiring, control, work design, supervision, decisions.
5. Strategy. Planning, tactics, organizational development.
6. Culture-Mission. Values, customs, beliefs, goals, objectives, benchmarking.
7. Philosophy. Organizational purpose, vision, quality of life, ethics, longterm growth.

Organizational and Business Planning

• Questions to ask the organization… basis for budgeting.
• Guidelines for re-examing the business position…criteria and benchmarks.
• The 10 most common benchmarking mistakes.
• Guidelines for conducting Strategic Planning.
• Steps, processes and methodologies encompassed in longterm Strategic Planning.
• Benefits of Strategic Planning.
• Big Picture Visioning issues and dynamics.
• How to make the process productive in the longrun.

About the Author

Hank Moore has advised 5,000+ client organizations worldwide (including 100 of the Fortune 500, public sector agencies, small businesses and non-profit organizations). He has advised two U.S. Presidents and spoke at five Economic Summits. He guides companies through growth strategies, visioning, strategic planning, executive leadership development, Futurism and Big Picture issues which profoundly affect the business climate. He conducts company evaluations, creates the big ideas and anchors the enterprise to its next tier. The Business Tree™ is his trademarked approach to growing, strengthening and evolving business, while mastering change. To read Hank’s complete biography, click here.

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Brand Relevance

The first and most commonly used route to winning customers and sales focuses on generating brand preference among the brand choices considered by customers, on beating the competition. Most marketing strategists perceive themselves to be engaged in a brand preference battle. A consumer decides to buy an established product category or subcategory, such as SUVs. Several brands have the visibility and credibility to be considered – perhaps Lexus, BMW, and Cadillac. A brand, perhaps Cadillac, is then selected. Winning involves making sure the customer prefers Cadillac to Lexus and BMW. This means that Cadillac has to be more visible, credible, and attractive in the SUV space than are Lexus and BMW.

Brand Relevance: Making Competitors Irrelevant by David Aaker   Prius. Whole Foods Market. iPod. Kindle. Not only are these brands phenomenally successful – they are examples of product categories where competitors are nearly irrelevant, says branding guru David Aaker. In his groundbreaking new book, Brand Relevance: Making Competitors Irrelevant, David shows how any company can use the “brand relevance” strategy to achieve long-term, competitive success. Brand Preference vs. Brand Relevance Despite extensive reliance on brand preference strategies to win customers, companies must abandon this approach and focus on brand relevance instead, explains David. Pursuing a brand preference strategy means constantly striving to be faster, cheaper, and better than the competition – an endless battle where competitors quickly match each other’s product improvements. With brand relevance, the goal is to make competition irrelevant – to offer something so different and special that it creates its own unique category and customers don’t perceive that there are any alternatives to consider. Detailed with more than two dozen case studies, Brand Relevance lays out the four key tasks required to attain brand relevance: Finding New Concepts Evaluating a Concept’s Prospects Defining and Managing the Category or Subcategory Creating Barriers: Sustaining the Differentiation “Success today is not about winning the brand preference battle, but about winning the brand relevance war,” asserts David. “Understanding and managing relevance can be the difference between winning by becoming isolated from competitors or being mired in a difficult market environment where differentiation is hard to achieve and often short-lived.” Brand Relevance provides the tools companies need to generate innovative offerings that can create long-term financial success.

The brand preference model dictates the objectives and strategy of the firm. Create offerings and marketing programs that will earn the approval and loyalty of customers who are buying the established category or subcategory, such as SUVs. Be preferred over the competitors’ brands that are in that category or subcategory, which in turn means being superior in at least one of the dimensions defining the category or subcategory and being at least as good as competitors in the rest. The relevant market consists of those who will buy the established category or subcategory, and market share with respect to that target market is a primary measure of success.

The strategy is to engage in incremental innovation to make the brand ever more attractive or reliable, the offering less costly, or the marketing program more effective or efficient. It is all about continuous improvement – faster, cheaper, better – which has its roots in Fredrick Taylor’s scientific management with their time and motion studies a century ago and continues with such approaches as Kaisan (the Japanese continuous improvement programs), Six Sigma, re-engineering, and downsizing.

This classic brand preference model is an increasingly difficult path to success in today’s dynamic market because customers are not inclined or motivated to change brand loyalties. Brands are perceived to be similar at least with respect to the delivery of functional benefits, and often these perceptions are accurate. Why rethink a product and brand decision that has worked when alternatives are similar? Why go to the trouble to even locate alternatives? Seeking alternatives is a mental and behavioral effort with little perceived payoff. Further, people prefer the familiar, whether in regard to a route to work, music, people, nonsense words, or brands.

Brand Relevance Competition

The second route to competitive success is to change what people buy by creating new categories or subcategories that alter the ways they look at the purchase decision and use experience. The goal is thus not to simply beat competitors; it is rather to make them irrelevant by enticing customers to buy a category or subcategory for which most or all alternative brands are not considered relevant because they lack context visibility or credibility. The result can be a market in which there is no competition at all for an extended time or one in which the competition is reduced or weakened, the ticket to ongoing financial success.

More formally we define brand relevance as occurring when two conditions are met:

• The target category or subcategory is selected. There is a perceived need or desire on the part of a customer for the targeted category or subcategory, which is defined by some combination of attributes, applications, user groups, or other distinguishing characteristics.
• The brand is in the consideration set. The customer considers the brand when he or she is making a decision to buy or use that target category or subcategory. In other words, the brand passes the screening test.

Winning under the brand relevance model is now qualitatively different than under brand preference competition. Under the brand preference model, the winning brand is preferred to others in the established category or subcategory. Under brand relevance, in contrast, winning occurs when other brands are not considered given the selection of the category or subcategory. Some or all competitor brands are not visible and credible with respect to the new category or subcategory, even though in other established categories they might not only be visible and credible but even have the highest reputation and customer loyalty. When competitors’ brands are not considered; the only relevant brand wins by default.

About the Author

David Aaker, author of Brand Relevance: Making Competitors Irrelevant, is Vice-Chairman of Prophet, a marketing consultancy that helps senior executives balance their organization’s short-term business needs against their long-term growth goals, and Professor Emeritus of Marketing Strategy at UC Berkeley’s Haas School of Business. One of the world’s leading experts on branding and the winner of three awards for lifetime contributions to the science of marketing, David has published over 100 articles and fourteen books; including Strategic Market Management that has been translated into eighteen languages. To read David’s complete biography, click here.

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Too big to fail has proven to be a flawed notion. In Advantaged Capabilities, Booz & Company partners Gerald Adolph and Paul Leinwand conclude their discussion on the role of capabilities in mergers and acquisitions (M&A) and explain why pursuing a capabilities-driven M&A strategy produces more successful companies that enjoy a right to win.

Advantaged Capabilities is the fifth of a series of five interviews focusing on capabilities-driven mergers and acquisitions. Previous editions include:

• The New Meaning of Scale, part 1
• The Path to Coherence, part 2
• Capabilities Roadmapping, part 3
• Integrating Capabilities, part 4

About the Authors

Gerald Adolph is a New York-based Senior Partner with Booz & Company with a specialty in strategy and operations for technology-driven businesses. His work primarily focuses on assisting clients with growth strategy, new business development, and industry restructuring. He has led numerous assignments in corporate and portfolio strategy as well as business unit strategy. In addition, he deals with value chain and industry restructuring driven by technology changes, and how companies respond to these disruptions and opportunities. Gerald is the co-author of Merge Ahead: Mastering the Five Enduring Trends of Artful M&A with Justin Pettit. To read Gerald’s complete biography, click here.

Paul Leinwand is a Booz & Company partner based in Chicago. He works in the consumer, media, and digital practice and focuses on capabilities-driven strategy for consumer products companies. Paul is the co-author of The Essential Advantage: How to Win with a Capabilities-Driven Strategy. To read Paul’s complete biography, click here.

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• obstacles business leaders face when executing their business strategy
• why companies need to focus on one primary customer
• the importance in choosing which among shareholders, customers, or employees are most important to the company’s success
• how executives should decide which few metrics to focus on
• key approaches to effectively making tough priority selection decisions

Robert Simons on the StrategyDriven Podcast

Last month, we were privileged to talk with Robert about his new book, Seven Strategy Questions, on the StrategyDriven Podcast. Listen as we explore the seven strategy questions that can help an organization’s leaders identify gaps within their strategy and its execution.

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Too big to fail has proven to be a flawed notion. In Integrating Capabilities, Booz & Company partners Gerald Adolph and Paul Leinwand continue their discussion on the role of capabilities in mergers and acquisitions (M&A) and explain why pursuing a capabilities-driven M&A strategy produces more successful companies that enjoy a right to win.

Integrating Capabilities is the fourth of a series of five interviews focusing on capabilities-driven mergers and acquisitions. Other editions include:

• The New Meaning of Scale, part 1
• The Path to Coherence, part 2
• Capabilities Roadmapping, part 3
• Advantaged Capabilities, part 5

About the Authors

Gerald Adolph is a New York-based Senior Partner with Booz & Company with a specialty in strategy and operations for technology-driven businesses. His work primarily focuses on assisting clients with growth strategy, new business development, and industry restructuring. He has led numerous assignments in corporate and portfolio strategy as well as business unit strategy. In addition, he deals with value chain and industry restructuring driven by technology changes, and how companies respond to these disruptions and opportunities. Gerald is the co-author of Merge Ahead: Mastering the Five Enduring Trends of Artful M&A with Justin Pettit. To read Gerald’s complete biography, click here.

Paul Leinwand is a Booz & Company partner based in Chicago. He works in the consumer, media, and digital practice and focuses on capabilities-driven strategy for consumer products companies. Paul is the co-author of The Essential Advantage: How to Win with a Capabilities-Driven Strategy. To read Paul’s complete biography, click here.

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Too big to fail has proven to be a flawed notion. In Capabilities Roadmapping, Booz & Company partners Gerald Adolph and Paul Leinwand continue their discussion on the role of capabilities in mergers and acquisitions (M&A) and explain why pursuing a capabilities-driven M&A strategy produces more successful companies that enjoy a right to win.

Capabilities Roadmapping is the third of a series of five interviews focusing on capabilities-driven mergers and acquisitions. Other editions include:

• The New Meaning of Scale, part 1
• The Path to Coherence, part 2
• Integrating Capabilities, part 4
• Advantaged Capabilities, part 5

About the Authors

Gerald Adolph is a New York-based Senior Partner with Booz & Company with a specialty in strategy and operations for technology-driven businesses. His work primarily focuses on assisting clients with growth strategy, new business development, and industry restructuring. He has led numerous assignments in corporate and portfolio strategy as well as business unit strategy. In addition, he deals with value chain and industry restructuring driven by technology changes, and how companies respond to these disruptions and opportunities. Gerald is the co-author of Merge Ahead: Mastering the Five Enduring Trends of Artful M&A with Justin Pettit. To read Gerald’s complete biography, click here.

Paul Leinwand is a Booz & Company partner based in Chicago. He works in the consumer, media, and digital practice and focuses on capabilities-driven strategy for consumer products companies. Paul is the co-author of The Essential Advantage: How to Win with a Capabilities-Driven Strategy. To read Paul’s complete biography, click here.

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Special Edition 57 – An Interview with Robert Simons, author of Seven Strategy Questions explores the seven strategy questions that can help an organization’s leaders identify gaps within their strategy and its execution. By asking and effectively answering these questions, executives and managers gain the insight necessary to better align their organization’s day-to-day operations to the optimal achievement of mission goals; thereby enhancing overall bottom line results. During our discussion, Robert Simons, author of Seven Strategy Questions: A Simple Approach for Better Execution, shares with us his insights regarding:

• the benefits of routinely asking the right strategy questions
• the key Seven Strategy Questions and what makes them so important
• how leaders can formally incorporate the Seven Strategy Questions into their business processes
• actions executives should take to develop rising managers so that they instinctively ask the Seven Strategy Questions as a part of their internal thought process and the way they interact with their staffs

Additional Information

In addition to the outstanding insights Robert shares in Seven Strategy Questions and this special edition podcast are the resources accessible from his Harvard Business School Working Knowledge website.   Robert’s book, Seven Strategy Questions, can be purchased by clicking here.

Final Request…

The strength of our community grows with the additional insights brought by our expanding member base. Please consider voting for us on Podcast Alley by clicking here. Casting your vote for the StrategyDriven Podcast improves our ranking and helps us attract new listeners which, in turn, helps us grow our community. Thank you again for listening to the StrategyDriven Podcast!

About the Author

Robert Simons, author of Seven Strategy Questions, is the Charles M. Williams Professor of Business Administration at the Harvard Business School. For twenty-five years, he has taught accounting, management control, and strategy implementation courses in the Harvard MBA and Executive Education programs. Robert’s research has been published in the Harvard Business Review and the Strategic Management Journal, among others. To read Robert’s complete biography, click here.

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Too big to fail has proven to be a flawed notion. In The Path to Coherence, Booz & Company partners Gerald Adolph and Paul Leinwand continue their discussion on the role of capabilities in mergers and acquisitions (M&A) and explain why pursuing a capabilities-driven M&A strategy produces more successful companies that enjoy a right to win.

The Path to Coherence is the second of a series of five interviews focusing on capabilities-driven mergers and acquisitions. Other editions include:

• The New Meaning of Scale, part 1
• Capabilities Roadmapping, part 3
• Integrating Capabilities, part 4
• Advantaged Capabilities, part 5

About the Authors

Gerald Adolph is a New York-based Senior Partner with Booz & Company with a specialty in strategy and operations for technology-driven businesses. His work primarily focuses on assisting clients with growth strategy, new business development, and industry restructuring. He has led numerous assignments in corporate and portfolio strategy as well as business unit strategy. In addition, he deals with value chain and industry restructuring driven by technology changes, and how companies respond to these disruptions and opportunities. Gerald is the co-author of Merge Ahead: Mastering the Five Enduring Trends of Artful M&A with Justin Pettit. To read Gerald’s complete biography, click here.

Paul Leinwand is a Booz & Company partner based in Chicago. He works in the consumer, media, and digital practice and focuses on capabilities-driven strategy for consumer products companies. Paul is the co-author of The Essential Advantage: How to Win with a Capabilities-Driven Strategy. To read Paul’s complete biography, click here.

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4. StrategyDriven Podcast Episode 28 – Responsibility-Driven Leadership
5. Are You A Strategy Driven Storyteller?

Too big to fail has proven to be a flawed notion. In The New Meaning of Scale, Booz & Company partners Gerald Adolph and Paul Leinwand begin their discussion on the role of capabilities in mergers and acquisitions (M&A) and explain why pursuing a capabilities-driven M&A strategy produces more successful companies that enjoy a right to win.

The New Meaning of Scale is the first of a series of five interviews focusing on capabilities-driven mergers and acquisitions. Editions to follow include:

• The Path to Coherence, part 2
• Capabilities Roadmapping, part 3
• Integrating Capabilities, part 4
• Advantaged Capabilities, part 5

About the Authors

Gerald Adolph is a New York-based Senior Partner with Booz & Company with a specialty in strategy and operations for technology-driven businesses. His work primarily focuses on assisting clients with growth strategy, new business development, and industry restructuring. He has led numerous assignments in corporate and portfolio strategy as well as business unit strategy. In addition, he deals with value chain and industry restructuring driven by technology changes, and how companies respond to these disruptions and opportunities. Gerald is the co-author of Merge Ahead: Mastering the Five Enduring Trends of Artful M&A with Justin Pettit. To read Gerald’s complete biography, click here.

Paul Leinwand is a Booz & Company partner based in Chicago. He works in the consumer, media, and digital practice and focuses on capabilities-driven strategy for consumer products companies. Paul is the co-author of The Essential Advantage: How to Win with a Capabilities-Driven Strategy. To read Paul’s complete biography, click here.

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4. Healthcare Mergers: An Emerging Crisis
5. StrategyDriven Podcast Episode 3 – Prioritize the Mission, part 1 of 2

Pick any sector right now, and what do you see? People and businesses are looking for opportunities. What kinds of opportunities? Real estate investments, undervalued stocks, strategic partnerships, you name it. The one pervading message we’re hearing lately is that organizations are watching for the economic recovery to start soon and looking for ways to come out of this down cycle stronger than before.

One retail CTO summed it up well at a recent SAS event when he said, “We don’t want to just struggle through and be hanging by our fingertips when the economy recovers. We want to come out strong.” Thinking long-term has led this retailer’s CEO to investigate real estate purchases at lower rates and to buy up high-end equipment now while the prices are low.

Where can you find long-term strategies for your business? Consider these 11 ideas from the Radical Times Webcast series by SAS Marketing Director Jonathan Hornby:

1. Remember, recessions make us stronger. According to economist Carl Schramm, recessions are part of the normal cycle. They make us stronger and force us to concentrate on strengths. It may be survival of the fittest, but it is never too late to put your house in order.

2. Beware cascading consequences. Joel Barker, futurist and author, warns about unintended consequences. The moment a plan or initiative is executed, you get a ripple of cascading consequences – some good, others bad. Unfortunately, few organizations consider the ripple effects up front. A decision that delivers positive first-order consequences could very well lead to negative second- or third-order events.

3. Understand what creates value. Alarmingly, recession or not, many organizations destroy 400 percent of the previous year’s profit without even realizing it. Peter Turney, CEO of Cost Technology, suggests using activity-based management techniques to recognize which business activities and which customers are causing a drain on your bottom line. Once you know, rebalance or change your strategy to deliver optimum returns.

4. Improve productivity. According to productivity expert Tor Dahl, only 8 percent of what we do at work is deemed perfect from a productivity point of view. As Dahl puts it, there are various “logs” that stand between us and our objectives. Remove them and you will find more time to focus on innovation. Start by asking a simple question: What am I doing that no one in this organization should be doing?

5. Get strategic. Gabor George Burt encourages organizations to defy conventional wisdom, and then simultaneously pursue a differentiated strategy with lower costs. When done correctly, you move from a bloody red ocean of competition to a calm blue ocean of opportunity. As an example, look to the Nintendo Wii, a gaming platform that sought to attract 90 percent of the population instead of the 5 percent targeted by the traditional gaming community – all at a lower cost.

6. Innovate quickly. Joel Barker says you can innovate faster, cheaper and with less risk by developing innovations at the verge. To do this, combine two separate things to create a totally new offer that addresses an unmet need. The gift bag, which combines brown bags and gift wrap, is a great example. There are probably millions of other combinations waiting to be discovered.

7. Innovate constantly. No innovation lasts forever, says author and business advisor Geoffrey Moore. You have to understand the innovation life cycle. It starts by defining your company’s core and context – core being what truly differentiates you. With that understanding, focus on how you will continuously recycle resources from invention to deployment, management, offloading and back.

8. Be extraordinary. Kevin Freiberg has discovered that ordinary people can achieve extraordinary results. It starts by creating a culture that encourages employees to do what’s right for the customer. For one employee at Wegmans, it was about challenging what was on offer in his deli. For Southwest Airlines, it was about how they could maintain the current schedule with fewer planes.

9. Keep it simple. Author Mark Thompson would encourage you to go back to basics and give customers just what they want: simple offers that exceed expectations. For example, one-click access to thousands of mutual funds, or exceptional service for the price paid. When setting expectations, always under-commit and over-deliver.

10. Focus on return on customer. Your customers are a finite resource, says Martha Rogers, Founding Partner of Peppers & Rogers Group. If you budget and reward employees based on the long-term value of customers, you will protect your organization today and well into the future. One Canadian bank applied this thinking to bounced checks. Instead of charging “good” customers to meet fee income targets, they sent notes asking them to deposit additional funds. The propensity for that customer to do business with them in the future went through the roof.

11. Lead to breed success. According to entrepreneur Gary Hoover, there are eight keys to building success, starting with a leader’s curiosity. Study history; few ideas are truly new. Look to the founding era of your industry and identify best practices that became too expensive to maintain during the ‘60s and ‘70s. Technology can probably breathe new life into them.

This article was republished with the permission of sascom Magazine.

About the Author

Jonathan Hornby, a Senior Marketing Manager at SAS, is a visionary and thought leader in the field of performance management. His experience comes from a hands-on background within the banking sector of the United Kingdom, followed by extensive travel, dialogue, and collaboration with customers, management consultants, and respected thought leaders around the world. To read Jonathan’s complete biography, click here.

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Special Edition 46 – An Interview with David Axson, author of The Management Mythbuster explores the common errors made when executing time-honored strategic planning and business management practices and how to avoid these mistakes; subsequently improving management’s effectiveness and the organization’s bottom line. During our discussion, David Axson, author of The Management Mythbuster and President of the Sonax Group, shares with us his insights and illustrative examples regarding:

• whether many time-honored business principles need to be changed or the way in which they are implemented needs improvement
• the role of the mission statement and the qualities of a good mission statement
• circumstances when consultants should be hired and the actions managers should take to ensure their consultants add real value
• principles to follow when using forecasts as a planning tool
• how to motivate prudent long-term risk-taking even at the realization of near-term costs
• why there is no such thing as an IT project
• what should be done to enhance the value of financial information such that it creates real, value-adding decision-making information for executives and managers

Additional Information

In addition to the outstanding insights David shares in The Management Mythbuster and this special edition podcast are the resources accessible from his website, www.DavidAxson.com.   David’s book, The Management Mythbuster, can be purchased by clicking here.

Final Request…

The strength of our community grows with the additional insights brought by our expanding member base. Please consider voting for us on Podcast Alley by clicking here. Casting your vote for the StrategyDriven Podcast improves our ranking and helps us attract new listeners which, in turn, helps us grow our community. Thank you again for listening to the StrategyDriven Podcast!

David Axson, author of The Management Mythbuster, is President of the Sonax Group, a business advisory firm. He is a former head of corporate planning at Bank of America and was a co-founder of The Hackett Group. He is a sought-after speaker and writer on business strategy and management and is widely regarded as a thought leader in the industry. To read David’s complete biography, click here.

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The Monsanto experience holds an important lesson: If corporate sustainability strategies are narrowly construed, they will fall seriously short. It is not enough to develop revolutionary technology with the potential to leapfrog currently unsustainable methods. Antiglobalization demonstrators have made it apparent that if corporate expansion is seen to endanger local autonomy, it will encounter vigorous resistance. Multinationals seeking new growth strategies to satisfy shareholders increasingly hear concerns from many quarters about consumer monoculture, labor rights, and cultural hegemony. As long as multinational corporations persist in being outsiders—alien to both the cultures and the ecosystems within which they do business—it will be difficult for them to realize their full commercial, let alone social, potential.

Capitalism at the Crossroads: Next Generation Business Strategies for a Post-Crisis World (3rd Edition) by Stuart L. Hart   This book takes the contrarian’s view that business—more than either government or civil society—is uniquely equipped at this point in history to lead us toward a sustainable world in the years ahead. I argue that corporations are the only entities in the world today with the technology, resources, capacity, and global reach required. Properly focused, the profit motive can accelerate (not inhibit) the transformation toward global sustainability, with nonprofits, governments, and multilateral agencies all playing crucial roles as collaborators and watchdogs. The book is written with a practical focus and should be of direct use to executives, entrepreneurs, and technologists, as well as business school faculty and students. The contents are equally appropriate, however, for those from the nonprofit world, the public sector, and society at large, especially those interested—and inclined—to collaborate with the private sector. The book carries an optimistic message. Despite the gathering storm of environmental degradation, poverty, financial crisis, and terrorism, it envisions a central and expanding role for commerce in fostering global sustainability. It foresees massive opportunities for companies both to make money and to make the world a better place, particularly among the four billion poor at the base of the economic pyramid. This book is the result of an intellectual journey that began for me nearly four decades ago. My own personal evolution is reflected in its structure and flow.

Today corporations are being challenged to rethink global strategies in which one-size-fits-all products are produced for the global market using world-scale production facilities and supply chains. Even so-called locally responsive strategies are often little more than pre-existing corporate solutions tailored to “fit” local markets: Technologies are frequently transferred from the corporate lab and applied in unfamiliar cultural and environmental settings; unmet needs in new markets are identified through demographic (secondary) data. The result is stillborn products and inappropriate business models that fail to effectively address real needs. As GE CEO Jeff Immelt recently noted, existing large corporations will be pre-empted by more nimble local players from the developing world unless they learn how to innovate from the ground up—what he calls “reverse innovation.”³⁸

Indeed, in response to the failure of traditional development assistance and large corporations’ inability to effectively address the needs of the poor, “social entrepreneurship” has burst onto the scene.³⁹ Rather than innovating from within existing institutions, this new breed of change agent seeks to launch new enterprises that address directly the problems of poverty, inequity, and unsustainability. Led by organizations such as Ashoka and Grameen Bank, there are now thousands of such fledgling enterprises around the world, each seeking to develop the new strategies and business models needed to catalyze social change.

The past decade has also seen the emergence of a new brand of financier—the “patient capitalist.” Patient capitalists are not aid agencies or large corporations, but rather groups of investors and intermediaries focused on supporting small, high-impact entrepreneurs on the ground. This emerging sector includes groups such as the Acumen Fund, E+Co, Root Capital, Grassroots Business Fund, Intellicap, Microvest, New Ventures, and Technoserve. Taken together with the rapidly growing social investing, clean tech investing, and microfinance sectors, we are witnessing the birth of an entirely new industry—impact investing. Indeed, at the 2009 Clinton Global Initiative, the Global Impact Investing Network (GIIN) was announced as a vehicle for accelerating the development of this new financial sector.

Clearly then, the next challenge for large corporations will be learning how to become “indigenous” to the places in which they operate (see Exhibit 1.2). Doing so will require that they first widen the corporate bandwidth by admitting voices that have, up to now, been excluded; this means becoming radically transactive rather than just radically transparent. It will also entail the development of new “native” capabilities that enable a company to develop fully contextualized solutions to real problems in ways that respect local culture and natural diversity. When combined with multinational corporation’s (MNC) ability to provide technical resources, investment, and global learning, native capability can enable companies to become truly embedded in the local context. It was with this realization that I embarked on a new professional challenge in 2003, having accepted the Samuel C. Johnson Chair in Sustainable Global Enterprise at Cornell University’s Johnson School of Management. Our initiative at Cornell has spawned a new effort, the Base of the Pyramid Protocol, which seeks to develop a practical approach for becoming indigenous.

Unilever’s Indian subsidiary, Hindustan Lever Limited (recently changed to Hindustan Unilever Limited), provides an interesting glimpse of the development of native capabilities in its efforts to pioneer new markets among the rural poor.⁴⁰ Hindustan Lever Limited (HLL) requires all employees in India to spend six weeks living in rural villages, actively seeks local consumer insights and preferences as it develops new products, and sources raw materials almost exclusively from local producers. The company also created an R&D center in rural India focused specifically on technology and product development to serve the needs of the poor. HLL uses a wide variety of local partners to distribute its products and also supports the efforts of these partners to build local capabilities. In addition, HLL provides opportunities and training to local entrepreneurs and actively experiments with new types of distribution, such as selling via local product demonstrations and village street theaters.

By developing local understanding, building local capacity, and encouraging a creative and flexible market development process, HLL has been able to generate substantial revenue and profits from operating in low-income markets. Today more than half of HLL’s revenue comes from customers at the base of the economic pyramid. Using the approach to product development, marketing, and distribution pioneered in rural India, Unilever has also been able to leverage a rapidly growing and profitable business focused on low-income markets in other parts of the developing world. Not surprisingly, Unilever has encountered challenges and bumps in the road in its journey to reach the base of the pyramid; these are discussed in later chapters. Importantly, however, through its strategy, the company has created tens of thousands of jobs, improved hygiene and quality of life for millions, and become a partner in development with the poor themselves.

The Road Ahead

To summarize, the greening initiatives of the late 1980s and early 1990s were revolutionary, if insufficient, steps: They repositioned social and environmental issues as profit-making opportunities rather than profit-spending obligations. More recent “beyond greening” strategies are even more significant: They hold the potential to reorient corporate portfolios around inherently clean technologies and create a more inclusive form of global capitalism that embraces the four billion poor at the base of the economic pyramid. If narrowly construed, however, such strategies still position MNCs as outsiders, alien to both the cultures and the ecosystems within which they do business. The challenge is for multinationals to move beyond “alien” strategies imposed from the outside to become truly indigenous to the places in which they operate. To do so will require companies to widen their corporate bandwidths and develop entirely new “native” capabilities that emphasize deep dialogue and local codevelopment. A more inclusive commerce thus requires innovation not just in technology, but also in business models, business processes, and mental frames.

Indeed, over the past ten years, “Clean Technology” and “Base of the Pyramid” strategies have exploded onto the scene, and social entrepreneurship has emerged as a new force for innovation. Each strategy provides important pieces to the sustainable enterprise puzzle: The former contributes “next generation” technologies with dramatically lower environmental impacts, and the latter creates innovative new ways to reach and include all of humanity in the capitalist dream. Yet each also comes with its own baggage and blind spots. Therefore, a crucial next step is to converge these strategies into what I call the “Green Leap.” Such a strategic convergence recognizes that clean technologies are almost always “disruptive” in character. (That is, they threaten incumbents in current served markets at the top of the pyramid.) As a result, the base of the pyramid might be the best place to focus initial commercialization attention. At the same time, the Green Leap approach also recognizes that successful strategies must be cocreated with communities and local partners so as to ensure cultural embeddedness, rather than imposing technological solutions from the top down.⁴¹

Given the urgency of both the need and opportunity described here, Cornell’s Center for Sustainable Global Enterprise launched the Cornell Global Forum on Sustainable Enterprise—an initiative to accelerate the rate of change toward this Great Convergence in the world. Indeed, nearly 100 of the world’s leading practitioners on the forefront of the “Green Leap” participated as delegates to explore entrepreneurial strategies for the growth and scaling of ventures in the “convergence zone.” The inaugural Global Forum was held in New York City, June 1–3, 2009, and the plan is to build this initiative into a growing global social network and an ongoing business movement.

Thus, as we enter the second decade of the new millennium, capitalism truly does stand at a crossroads. The old strategies of the industrial age are no longer viable. The time is now for the birth of a new, more inclusive form of commerce, one that lifts the entire human family while at the same time replenishing and restoring nature. The path to a sustainable world, however, will be anything but smooth. It will be a bumpy ride strewn with the remains of companies that variously dragged their feet, made promises they could not keep, bet on the wrong technology, collaborated with the wrong partners, and separated their social and business agendas. Only those companies with the right combination of vision, strategy, structure, capability, and audacity will succeed in what could be the most important transition period in the history of capitalism.

-This is part 3 of a 3 part series excerpted from Stuart L. Hart’s, Capitalism at the Crossroads (3rd Edition), published by Wharton School Publishing, an Imprint of Pearson.

Sources

38. Jeffrey Immelt, Vijay Govindarajan, and Chris Trimble, “How GE Is Disrupting Itself,” Harvard Business Review, October 2009.
39. See John Elkington and Pamela Hartigan, The Power of Unreasonable People, (Boston, MA: Harvard Business Press, 2008).
40. Brian Ellison, Dasha Moller, and Miguel Angel Rodriguez, Hindustan Lever: Reinventing the Wheel (Barcelona, Spain: IESE Business School, 2003).
41. Stuart Hart, “Taking the Green Leap,” Cornell University, Working Paper, 2009.

About the Author

Stuart L. Hart, author of Capitalism at the Crossroads, is the Samuel C. Johnson Chair of Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. Professor Hart is one of the world’s top authorities on the implications of sustainable development and environmentalism for business strategy. He has published over 50 papers and authored or edited five books. His article “Beyond Greening: Strategies for a Sustainable World” won the McKinsey Award for Best Article in the Harvard Business Review for 1997 and helped launch the movement for corporate sustainability. To read Stuart’s complete biography, click here.

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2. Capitalism at the Crossroads – Mapping the Terrain

Yet this personal reconciliation was by no means the end of the road. The corporate “greening” initiatives of the late 1980s and early 1990s—pollution prevention and product stewardship—were important first steps. They shattered the myth that business should treat societal issues as expensive obligations. Instead, seen through the prism of quality and stakeholder management, these issues could become important opportunities for the company to improve its societal and operating performance simultaneously. A growing body of research pointed to the potential for enhanced financial performance through well-executed pollution prevention and product stewardship strategies. Pioneers such as 3M, Dow, and Dupont realized significant cost reductions and enhanced reputations as a result of their activities. The World Business Council for Sustainable Development, with its mantra of “eco-efficiency,” helped to erase the false dichotomy between business and environmental performance.

Capitalism at the Crossroads: Next Generation Business Strategies for a Post-Crisis World (3rd Edition) by Stuart L. Hart   This book takes the contrarian’s view that business—more than either government or civil society—is uniquely equipped at this point in history to lead us toward a sustainable world in the years ahead. I argue that corporations are the only entities in the world today with the technology, resources, capacity, and global reach required. Properly focused, the profit motive can accelerate (not inhibit) the transformation toward global sustainability, with nonprofits, governments, and multilateral agencies all playing crucial roles as collaborators and watchdogs. The book is written with a practical focus and should be of direct use to executives, entrepreneurs, and technologists, as well as business school faculty and students. The contents are equally appropriate, however, for those from the nonprofit world, the public sector, and society at large, especially those interested—and inclined—to collaborate with the private sector. The book carries an optimistic message. Despite the gathering storm of environmental degradation, poverty, financial crisis, and terrorism, it envisions a central and expanding role for commerce in fostering global sustainability. It foresees massive opportunities for companies both to make money and to make the world a better place, particularly among the four billion poor at the base of the economic pyramid. This book is the result of an intellectual journey that began for me nearly four decades ago. My own personal evolution is reflected in its structure and flow.

However, greening alone fell well short of what was possible—and needed: Incremental improvements to current product systems and production processes only slowed the rate of environmental damage. Sustainability means inventing a new form of “natural capitalism.”²⁰ As University of Virginia architect Bill McDonough points out, greening is akin to heading in the wrong direction, but at a slower rate of speed—being less bad. Sustainability, however, means actually turning around and heading in the right direction—being more good. It is, as McDonough and his colleague Michael Braungart point out, the difference between being eco-efficient and being eco-effective.²¹

Furthermore, most corporations continued to serve the needs of the wealthy exclusively while exploiting the developing world primarily for its abundant resources and cheap labor pool. A sustainable form of global enterprise would instead seek to create corporate and competitive strategies that simultaneously deliver economic, social, and environmental benefits for the entire world.²² By the mid-1990s, it was clear that the corporate agenda was much bigger than just greening—and that the business opportunity was much more substantial as well. This was the key message of my 1997 McKinsey award-winning article in the Harvard Business Review, “Beyond Greening: Strategies for a Sustainable World.” It was also my primary motivation for moving to the University of North Carolina at Chapel Hill in 1998 to become the founding director of the Center for Sustainable Enterprise at the Kenan-Flagler Business School.

Corporations were being challenged to move beyond greening, first by pursuing new technologies that had the potential to be inherently clean (renewable energy, biomaterials, wireless IT), and second by reaching out to bring the benefits of capitalism to the entire human community of 6.7 billion people (rather than just the one billion at the top of the economic pyramid). In recognition of this challenge, my colleagues at UNC and I launched in 2000 The Base of the Pyramid Learning Laboratory, a consortium of large corporations, new ventures, and nongovernmental organizations (NGOs) all focused on how best to serve the needs of the four billion people at the base of the economic pyramid (BoP) in a way that is culturally appropriate, environmentally sustainable, and economically profitable.

By moving beyond greening, companies hope not only to address mounting social and environmental concerns, but also to build the foundation for innovation and growth in the coming decades. In so doing, they would outperform their competitors in today’s businesses and, even more importantly, outrun them to tomorrow’s technologies and markets. In short, sustainable global enterprises would create competitively superior strategies that simultaneously move us more rapidly toward a sustainable world.

In fact, over the past decade, there has been an explosion of clean technology investment—a veritable “revolution.”²³ Venture capitalists have pumped in excess of $20 billion into clean tech companies since 2005. The Obama administration has pledged more than $100 billion for clean technologies, and China plans to invest $200 billion.²⁴ There are now literally thousands of new “clean tech” startups flush with investment capital, particularly in the strategically significant arenas of biofuels, renewable energy, and biomaterials.

Alongside the “clean tech” revolution, commercial strategies for serving the bottom (or base) of the income pyramid have also emerged over the past decade. Dozens of global corporations and hundreds of smaller social enterprises around the world have now initiated or deepened commercial experiments to serve the four billion poor who have been largely bypassed by economic globalization to date. These early initiatives may hold the keys to a new, more inclusive form of capitalism.²⁵

Exhibit 1.1 summarizes the evolutionary path that corporations have followed over the past 50 years. Crossing the chasm from seeing societal performance as a trade-off or obligation (the left side of the figure) to a possible win-win opportunity (the lower-right side) was the major breakthrough of the 1980s. By 2000, many large corporations had internalized the capabilities and disciplines associated with greening, although some still had a long way to go. As a result, the competitive front migrated to the “beyond greening” domain (the upper-right portion).

Rather than seeking incremental improvements to what already exists, moving beyond greening often means pursuing innovations that may make obsolete what currently constitutes the company’s core business—it is an inherently disruptive act. Thus, given its focus on new technologies and markets, the “beyond greening” space is blessed with much greater opportunities, but also fraught with bigger risks. One case in particular—Monsanto’s controversial entry into genetically modified seeds—illustrates the potential opportunities and pitfalls of pursuing such strategies.²⁶

Raging Against the Machine

In the mid-1990s, new CEO Robert Shapiro sought to revolutionize Monsanto. Through the power of his vision, he hoped to convert the firm from a chemicals manufacturer to a life-sciences company focused on “Food, Health, and Hope.” Consistent with this vision, Shapiro spun off several strategic business units (SBUs) associated with the organization’s chemicals business heritage, retaining only those closely tied to its life sciences focus. Simultaneously, he took the company on an acquisition binge, aggressively buying up biotech and seed companies, and accumulating huge debt in the process. The more focused—and leveraged—company then set out on a rapid growth strategy to make agricultural biotechnology a practical reality.

Shapiro also articulated how Monsanto’s genetically engineered seeds gave the firm an advantage in the drive toward sustainability because they could increase farmers’ yields, reduce pesticide use, and help to deliver nutrients to the world’s chronically undernourished poor. In the space of a few years, Monsanto convinced farmers to plant nearly 60 million acres in the U.S. in genetically modified crops. In 1997, Shapiro also launched a new Sustainable Development Sector, empowering dozens of internal champions to identify and grow the new businesses of the future that would address global social and environmental concerns in an economically profitable manner. Between 1995 and 1997, Monsanto’s stock price soared amid rosy projections of blockbuster products and rapidly expanding markets for agricultural biotechnology.

As a result of these developments, Monsanto was thrust into the public eye in a way that few companies had ever been in the past. Shapiro’s portrayal of biotechnology’s role in the future of agriculture generated unprecedented levels of public attention and scrutiny. This scrutiny resulted in problems for Monsanto as critics cast bright lights on incidents in which company actions did not match the spirit of Shapiro’s vision.

For example, when Monsanto attempted to launch its genetically modified seeds in Europe, it met intense resistance from organic farmers and environmentalists, despite the fact that all the necessary regulatory approvals had been secured. Some Monsanto managers hired private investigators to ensure that customers (farmers) were not illegally saving Monsanto’s genetically modified seed for replanting the following year. These actions and others alienated many who called into question Monsanto’s true dedication to sustainable development and environmental stewardship. Shapiro’s vision, in other words, did not always align with the actions taken by people in the company.

Other stakeholder groups included the millions of small farmers in developing countries such as India. These farmers protested against Monsanto in the streets, fearing that the company would enforce patents on essential grains and make them pay international prices for the seed they planted. Moreover, the farmers were concerned that Monsanto’s patent ownership (via acquisition) of the “terminator” gene (seed-sterilization technology) would not allow them to practice the age-old tradition of propagating seeds from their own crops.

Regrettably, Monsanto did not enable these voices to reach business decision makers. The firm consulted with its immediate customers (large-scale farmers), regulators, and consumer groups in the United States. Despite efforts by the company’s Sustainable Development Sector to access other voices, the business decision makers did not consider consumer groups in Europe or small farmers in developing countries to be legitimate or persuasive, even if their claims seemed urgent.

Instead of becoming a more open, innovative culture, the firm became more defensive and had to back away publicly from several of its biotechnology initiatives under pressure from growing protest. Indeed, in October 1999, Monsanto publicly apologized for its behavior: “Our confidence in this technology (genetic engineering) and our enthusiasm for it has, I think, been widely seen, and understandably so, as condescension and indeed arrogance.”²⁷ External support for the firm’s strategy had eroded, and in late 1999, the company followed through on merger talks with pharmaceutical maker Pharmacia & Upjohn. This move effectively ended the Shapiro era of sustainability-driven corporate strategy at Monsanto.

Smart Mobs Versus Smart Globalization

How do we account for the rapid rise – and even more precipitous fall – of a major corporation such as Monsanto, which had done nothing wrong according to society’s legal and regulatory institutions and had, in fact, transformed its business model to add value to its customers while reducing environmental impact?²⁸ Certainly, the emergent nature of biotechnology had something to do with the problems that Monsanto experienced. Indeed, an accelerating pace of technological change appears to be generating ever-faster cycles of creative destruction.²⁹

Yet there is even something more fundamental at work here. The power of governments has eroded in the wake of globalization and the growth of transnational corporations with global supply chains that span several continents. NGOs and civil society groups have stepped into the breach, assuming the role of monitor and, in some cases, enforcer of social and environmental standards.³⁰ Today, for example, there are more than 50,000 international NGOs, compared to fewer than 20,000 only a decade ago.³¹

At the same time, the spread of the Internet and other information technologies has enabled not only these groups, but also millions of individuals, to communicate with each other in ways that were unimaginable even a decade ago.³² Indeed, Internet-connected coalitions of NGOs and individuals—smart mobs—are now making it impossible for governments, corporations, or any large institution to operate in secrecy.³³ The varied claims of these smart mobs have created a dynamically complex business environment in which organizations find it difficult to determine what knowledge is relevant for managing strategic change; just ask senior managers at Shell, Nike, the World Trade Organization, or the World Economic Forum.

As might be expected, the past decade has been a combination of good news and bad news for Monsanto. In 2000, it merged with Pharmacia and Upjohn and was incorporated as a subsidiary called “Monsanto Ag Company.” Later that year, its name was changed to “Monsanto Company” when a Separation Agreement transferred the operations, assets, and liabilities from Pharmacia to the subsidiary. But name and legal changes haven’t deterred the company’s critics. Abroad, the company has been under fire in India (where a number of farmer suicides have been linked to Monsanto’s high Bt cotton seed price), in South Africa (where farmers have experienced reduced maize yields due to variations in pollination), and in Europe (where labeling laws were passed in 2004 to appease anxiety over the possible risks of GM foods).

At home, legal battles haven’t helped the company’s image: Since the late 1990’s, Monsanto has filed some 140 lawsuits against U.S. farmers for claims of seed patent infringement.³⁴ However, despite this continued public scrutiny, the company has created economic value with its GMOs. In 2009, it sold $7.3 billion in GMO products (versus competitor DuPont’s $4 billion) and has seen sales increase at an annualized 18% rate over the past five years. And as a testament to its economic success, Monsanto was named Forbes’ Company of the Year for 2009.³⁵ The question is: Has Monsanto really found its groove, or is it just a matter of time until the next stakeholder swarm takes the company down again?

As the Monsanto case illustrates, most companies still tend to focus management attention only on known, powerful, or “salient” stakeholders—those who can directly impact the firm.³⁶ Even recent efforts at “radical transparency,” the complete and truthful disclosure of an organization’s plans and activities, appear inadequate because they entail reporting only what has already been decided or, in fact, accomplished. Yet in a world of smart mobs, firms cannot manage stakeholders. Instead, swarms of stakeholders self-organize on the Internet in chaotic and unpredictable ways.

Groups at the “fringe” of a firm’s stakeholder network can acquire an important voice in such swarms. To avoid the wrath of the smart mob, it has now become essential to proactively seek out the voices from the fringe that had previously been ignored. To survive and compete for the future, firms must harness these voices to identify creative new business models and opportunities. The tyranny of the smart mob can yield to a new form of what might be called “smart globalization:” growth via disruptive business models that address the social and environmental concerns of fringe stakeholders.³⁷

-This is part 2 of a 3 part series excerpted from Stuart L. Hart’s, Capitalism at the Crossroads (3rd Edition), published by Wharton School Publishing, an Imprint of Pearson.

Sources

20. Paul Hawken, Amory Lovins, and Hunter Lovins, Natural Capitalism (New York: Little, Brown, and Company, 1999).
21. William McDonough and Michael Braungart, Cradle to Cradle.
22. This is referred to as the “triple bottom line.” See John Elkington, Cannibals with Forks (Gabriola Island, B.C.: New Society Publishing, 1998).
23. Ron Pernick and Clint Wilder, The Clean Tech Revolution (New York: Collins, 2007).
24. Mark Johnson and Josh Suskewicz, “How to Jump-Start the Clean Tech Economy,” Harvard Business Review, November 2009: 53–60.
25. C.K. Prahalad and Stuart Hart, “The Fortune at the Bottom of the Pyramid,” Strategy+Business, 26 (2002): 54–67.
26. Erik Simanis and Stuart Hart, Monsanto Company (A) and (B): Quest for Sustainability (Washington, D.C.: World Resources Institute, 2000).
27. Robert Shapiro, Address to Greenpeace’s Annual Conference, 1999.
28. This section is excerpted from Stuart Hart and Sanjay Sharma, “Engaging Fringe Stakeholders for Competitive Imagination,” Academy of Management Executive, 18(1) (2004): 7–18.
29. Robert Foster and Sarah Kaplan, Creative Destruction (New York: Currency Books, 2001).
30. David Korten, When Corporations Rule the World (West Hartford, CT: Kumarian Press, 1995).
31. Christopher Gunn, Third-Sector Development (Ithaca, NY: Cornell University Press, 2004).
32. Ann Florini, ed., The Third Force: The Rise of Transnational Civil Society (Washington, D.C.: Carnegie Endowment for International Peace, 2000).
33. Howard Reingold, Smart Mobs: The Next Social Revolution (Cambridge, MA: Perseus Publishing, 2002).
34. www. Monsanto. com.
35. Robert Langreth and Matthew Herper, “The Planet versus Monsanto.” Forbes Magazine, January 18, 2010.
36. R. K. Mitchell, B. R. Agle, and D. J. Wood, “Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts,” Academy of Management Review, 22 (1997): 853–886.
37. See, for example, Anil Gupta and Eleanor Westney, eds., Smart Globalization (San Francisco: Jossey-Bass, 2003).

About the Author

Stuart L. Hart, author of Capitalism at the Crossroads, is the Samuel C. Johnson Chair of Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. Professor Hart is one of the world’s top authorities on the implications of sustainable development and environmentalism for business strategy. He has published over 50 papers and authored or edited five books. His article “Beyond Greening: Strategies for a Sustainable World” won the McKinsey Award for Best Article in the Harvard Business Review for 1997 and helped launch the movement for corporate sustainability. To read Stuart’s complete biography, click here.

Relate Articles:

1. Capitalism at the Crossroads – Mapping the Terrain

Having grown up in western New York in the 1950s and ’60s, I have memories of family vacations spent at destinations like Niagara Falls. Although the Falls themselves were indeed magnificent, equally memorable for a 10-year-old was the soot from nearby factories that accumulated on the porch furniture, requiring that we cleaned the furniture daily, lest we ruin our clothes. The accompanying stench was also something to experience. I still remember asking why, in a place of such natural beauty and splendor, did it have to be so polluted? The answer, accepted wisdom in those days, was that this was “the smell of money.” If we were going to have economic prosperity, then we would have to put up with some minor inconveniences, such as soot, stench, rivers that catch fire, and mountains of waste. It was the cost of progress. I remember being singularly unsatisfied by this response.

Capitalism at the Crossroads: Next Generation Business Strategies for a Post-Crisis World (3rd Edition) by Stuart L. Hart   This book takes the contrarian’s view that business—more than either government or civil society—is uniquely equipped at this point in history to lead us toward a sustainable world in the years ahead. I argue that corporations are the only entities in the world today with the technology, resources, capacity, and global reach required. Properly focused, the profit motive can accelerate (not inhibit) the transformation toward global sustainability, with nonprofits, governments, and multilateral agencies all playing crucial roles as collaborators and watchdogs. The book is written with a practical focus and should be of direct use to executives, entrepreneurs, and technologists, as well as business school faculty and students. The contents are equally appropriate, however, for those from the nonprofit world, the public sector, and society at large, especially those interested—and inclined—to collaborate with the private sector. The book carries an optimistic message. Despite the gathering storm of environmental degradation, poverty, financial crisis, and terrorism, it envisions a central and expanding role for commerce in fostering global sustainability. It foresees massive opportunities for companies both to make money and to make the world a better place, particularly among the four billion poor at the base of the economic pyramid. This book is the result of an intellectual journey that began for me nearly four decades ago. My own personal evolution is reflected in its structure and flow.

Fast-forward to 1974. As a freshly minted college graduate headed to Yale for graduate work in the School of Forestry and Environmental Studies, I was convinced that corporations were the “enemy” and that the only way to deal effectively with environmental problems was to “make them pay” through regulation—to internalize their externalities, in the jargon of economics. This was probably a correct perception at that point in history: Large corporations, by and large, had been unresponsive to environmental issues, and it appeared that the only way to deal with the problem was to force them to clean up the messes they were making. The Environmental Protection Agency and scores of other regulatory agencies were created precisely for this purpose. A mountain of command-and-control regulation was passed during the decade of the 1970s, aimed at forcing companies to mitigate their negative impacts.

Regulators and citizen activists, buoyed by their newfound power, increased the pressure on companies through fines, penalties, campaigns, and consent decrees. The courts became clogged with lawsuits aimed at halting projects that were deemed unacceptable due to their environmental or social impacts. Economists of the “environmental” variety wrote books about externalities and the public policies that would be required for them to be “internalized” most efficiently by companies.¹ In the process, companies became convinced that social and environmental issues were necessarily costly problems, usually involving lawyers and litigation. For better or worse, the message was that environmental and social issues were “responsibilities” that companies were required to deal with—and it was going to be expensive.

The Great Trade-Off Illusion

There can be no question that command-and-control regulation was of enormous importance; it required, perhaps for the first time, that business address directly its negative societal impacts. Since the time of the industrial revolution, enterprises had relied upon the extraction of cheap raw materials, exploitation of factory labor, and production of mass quantities of waste and pollution (think of those “dark, satanic mills”). Indeed, pollution was assumed to be part of the industrialization process. When economists conceived the concept of externalities, in other words, it seemed virtually impossible that firms could behave in any other manner. For the better part of 200 years, industrial firms engaged in what might be described as “take, make, waste” as an organizing paradigm.² Command-and-control regulation seemed a necessary and appropriate counter to the prevailing industrial mindset.

Paradoxically, this mindset also resulted in what I call the “Great Trade-Off Illusion”—the belief that firms must sacrifice financial performance to meet societal obligations.³ A massive wall of environmental and social regulation has been spawned over the past 30 years, most of which has been written in a way that makes the Great Trade-Off Illusion a self-fulfilling prophecy. Just track the thickness (and lack of flexibility) of the Code of Federal Regulations in the United States for confirmation.⁴ Too often, command-and-control regulations prescribed specific treatment technologies without regard to their efficiency or cost-effectiveness.

A generation of businesspeople was shaped by this framing of the situation. Not surprisingly, the managers and executives who rose to prominence during the postwar years were predisposed to think of environmental and social issues as negatives for business. A socially minded executive or company might “give back” to the community through philanthropy or volunteering, but such concerns would certainly never be part of the company’s core activities! The social responsibility of business was to maximize profits, as Milton Friedman advocated, and it seemed clear that social or environmental concerns could only serve to reduce them.⁵

Even today, this mindset lingers. Try the following thought experiment: Imagine that you are a general manager in a business or company of your choosing. Your assistant calls saying that the environment, health, and safety (EHS) manager and the public affairs director are in your outer office, and they say the matter is urgent. What is your first reaction? If you are honest with yourself, you will have to admit that the first thoughts that come to mind are something like: problem, crisis, spill, incident, accident, boycott, protest, lawsuit, fine, or jail time. Your first instinct was probably to head for the back door of your office to escape.

But now try a second thought experiment: Your assistant calls saying that the heads of marketing and new product development are in your outer office, and they are anxious to meet with you. Now, what is your first reaction? What thoughts or issues come to mind? In all likelihood, your mind probably flashes to images like: breakthrough, opportunity, blockbuster, innovation, or growth. Your first instinct is to run to the front door of the office to let them in.⁶

The Great Trade-Off Illusion trained a generation of corporate, business, and facility-level managers to assume that societal concerns could only be drags on their business. As a consequence, their attitude tended to be reactive—they would do only the bare minimum necessary to avoid legal sanction. Unfortunately, when lawmakers and activists unfamiliar with operations or market dynamics write the rules for compliance, it is a virtual certainty that the rules will not integrate well with company strategy or operations. Taking a reactive posture thus doomed companies to a decade or more of onerous regulations that treated the symptoms rather than the underlying problems. These regulations targeted specific wastes, emissions, pollutants, and exposure levels through command-and-control-style rules that forced companies to deal with problems “at the end of the pipe” rather than addressing them as part of their core strategy or operations. Unfortunately, pollution-control devices can never improve efficiency or produce revenue; they can only add cost.

The Greening Revolution

The decade of the 1980s brought with it a growing sense of unease with command-and-control regulation. Despite enormous expenditures, it was not at all clear that the end-of-the-pipe approach to pollution control and regulation was working.⁷ Alternatives such as market-based incentives and tradable emission permits demonstrated that pollution levels could be reduced in a dramatically more efficient and cost-effective manner. In Europe, a more collaborative and goal-oriented approach to regulation was the norm; the focus was on actual environmental and social improvement rather than the specification of particular treatment technologies or pollution control devices.

I, too, was undergoing a transformation of sorts. In 1986, I joined the faculty at the University of Michigan Business School, having completed my doctoral work in strategy and planning in 1983. My transition from a regulatory to a business strategy orientation reflected my own growing disenchantment with the command-and-control approach to dealing with environmental and societal problems. Rather than simply trying to halt polluting projects or mitigate damage, I became increasingly interested in understanding why such seemingly bad projects were being proposed in the first place.

This change proved fortuitous: By the late 1980s, there was a growing receptivity to environmental and social issues within companies—and business schools. As luck would have it, this openness developed through innovation in another arena: quality management. As you might recall, in the late 1970s and early 1980s, Japanese companies were literally overrunning their American and European competitors with higher-quality and lower-cost goods. From steel makers to automobile firms, to consumer electronics manufacturers, companies were scrambling to match the Japanese quality advantage. Because of widespread plant closures and downsizing, there was palpable concern that the West would lose to “Japan, Inc.”⁸

After three glorious postwar decades of high-volume, standardized mass production with quality inspected in (after the fact) rather than built in (as part of the design and production process), Western companies were being out-competed by a new and better way. Instead of countering with their own unique strategies, American and European companies became obsessed with learning and copying the ways of Japanese quality management.⁹ Among other things, they built the capacity for “continuous improvement” (kaizen) into the management system by empowering workers to improve their work processes rather than blindly following prescribed procedures. Managers’ mindsets changed from a fixation on centralized control and a “results” orientation (detecting defects and fixing them) to a preoccupation on decentralization and a “process” orientation (improving the management system so that employees could prevent quality problems from occurring in the first place).¹⁰

Shattering the Trade-Off Myth

The confluence of the quality and environmental movements was a marriage made in heaven: By the late 1980s, it had become clear that preventing pollution and other negative impacts was usually a much cheaper and more effective approach than trying to clean up the mess after it had already been made. The emergence of market-based incentives such as tradable emission permits made prevention even more appealing. Furthermore, the discipline of quality management could be easily expanded to incorporate social and environmental issues. In the early 1990s, this confluence produced a flurry of so-called environmental management system (EMS) approaches and “total quality environmental management” protocols, culminating in the advent of the International Standards Organization (ISO) 14001, the environmental equivalent of ISO 9000 for quality.

Community advisory panels and stakeholder dialogue intended to involve affected parties in company affairs instead of doing battle in court proved to be a much more effective way to maintain legitimacy and the “right to operate.” Indeed, in designing its self-regulation program called Responsible Care, the chemical industry enshrined the principles of pollution prevention and community engagement as part of its product stewardship process. In short, the quality revolution taught us that muda (waste) was the enemy of good management. Pollution and litigation were the ultimate forms of muda.

As social and environmental issues became more deeply embedded in the ongoing operations of enterprises, managers began to see that corporate and societal performance need not be separated. Whereas companies previously sought to first make money through their business operations and then give back to society through philanthropy, now these two agendas could be merged. What had been a virtual firewall separating business from philanthropy was now transforming into a host of new and creative approaches to combining the two through corporate partnerships with nongovernmental organizations, strategic philanthropy, and other forms of social innovation.¹¹

Furthermore, in certain situations, preventing pollution through process or product redesign could actually save money, reduce risk, and even improve products for the firm. An extensive body of research began to document the situations and contexts in which pollution prevention and product stewardship resulted in superior financial performance.¹² Not surprisingly, parlaying environmental and social performance into improved business performance required a set of supporting or complementary capabilities, such as employee empowerment, quality management, cross-functional cooperation, and stakeholder engagement. This meant that the greening revolution had not only succeeded in elevating the significance of social and environmental issues, but it also had converted them from expensive problems into strategic opportunities for certain firms with the necessary skills, capabilities, and leadership vision.¹³

Breaking Free of Command-and-Control

Accompanying the greening revolution in the corporate sector was the emergence of a new philosophy in regulation and public policy that recognized the limitations (and expense) of conventional regulation and the end-of-the-pipe mentality. In response, a slew of new voluntary initiatives were introduced that recognized the power of information disclosure and transparency.¹⁴ The pioneering initiative was the Toxic Release Inventory (TRI) in the U.S. Passed in 1988 as a rider on the Superfund Reauthorization (the law establishing strict liability for toxic waste sites), the TRI received relatively little attention in its early days. This seemingly innocuous provision required only that manufacturers disclose their use, storage, transport, and disposal of more than 300 toxic chemicals (all of which were perfectly legal at the time). Much to everyone’s surprise, this data, maintained by the U.S. Environmental Protection Agency, became an important new source of information for activist groups, the media, and third-party analysts to track corporate environmental performance. Top 10 lists of corporate polluters became de rigeur.

The TRI also provided, for the first time, a metric for corporate and facility managers to track their own firms’ performance and benchmark it against competitors. What gets measured gets done. Ten years later, toxic emissions in the United States had been reduced by more than 60 percent, even though the U.S. economy boomed during the 1990s. Indeed, many companies actually saved tens of millions of dollars in the process of reducing or eliminating their toxic emissions.¹⁵ We could argue that the TRI was one of the most important and effective pieces of social legislation ever passed. And it required nary a lawsuit, court battle, or inspector to make it happen. Since then, many developing countries have adopted a similar philosophy of transparency and information disclosure as the basis for their environmental policies, given that these can be implemented at a fraction of the cost of command-and-control regulations.

Equally important was the advent of “extended producer responsibility” laws, primarily in Europe.¹⁶ Quite simply, these laws stipulate that manufacturers are responsible for the products they create all the way to the end of their useful lives. Beginning with regulations on packaging waste in Germany in the late 1980s, these laws now extend to several industrial sectors, including automobiles, consumer electronics, and computers. Requiring that producers take back their products after they have reached the end of their lives has obvious effects on the way companies go about designing products in the first place. This simple requirement has fomented a revolution in product stewardship and “green design” protocols, using life-cycle management as its core principle. Rather than focusing only on the phase of the product’s life cycle that the company controls (manufacture or assembly), product stewardship means designing products to take account of their entire life cycle, from the sourcing of raw materials and energy from the Earth to the reuse, remanufacture, or return of the materials to the Earth. Rather than thinking linearly, in terms of “cradle to grave,” increasingly, designers think cyclically, in terms of “cradle to cradle.”¹⁷

In the process, companies have discovered that life-cycle design principles can yield competitively superior products. During the early 1990s, for example, Xerox pioneered take-back, remanufacturing and design-for-environment strategies in the photocopier business and reaped significant competitive benefits. Given the company’s extensive field presence for servicing commercial copiers, it was relatively easy to take back used machines, refurbish parts and components, and produce a line of remanufactured machines. However, it was not until the mid-1990s that Xerox actually began to design copiers with an eye toward taking them back. This program, dubbed Asset Recycle Management, was founded on the notion that by reusing assets as many times as possible (recall that most Xerox commercial copiers were leased, not owned by customers), the company would not only reduce its environmental footprint, but also lower its costs and increase its return on assets. It set the goal of producing “waste-free products from waste-free factories.”¹⁸ By the late 1990s, Xerox was saving close to $500 million per year through this program, a figure approaching 2.5 percent of company sales. In fact, it can be argued that, given Xerox’s failure to shift its strategy toward printers (considering documents were increasingly being stored electronically and printed rather than duplicated), the Asset Recycle Management Program kept the company afloat for much of the 1990s.

As the green revolution progressed, leading companies began to shift their energy and attention more toward proactive strategies that reduced waste, emissions, and impacts while simultaneously reducing costs and risks. Paying real money for raw materials and inputs only to dump substantial amounts of these into the environment in the form of waste made little economic sense. In fact, Dow Chemical estimated in the early 1990s that reactive efforts such as regulatory compliance, cleanup, and remediation result in returns in the range of -60 percent while proactive initiatives typically produce positive returns in excess of 20 percent.¹⁹ The problem was that most corporate activity (perhaps as much as 90 percent) was still of the reactive variety. The challenge was to transform the portfolio so that more was of the proactive sort. Ultimately, the goal is to get out of the regulatory compliance business entirely.

It was becoming clear that under the right circumstances, firms could actually improve their own competitive position by creating societal value. They could, for example, lower costs by internalizing externalities through pollution prevention. Furthermore, through product stewardship, it was sometimes possible to supply public goods and achieve superior performance. Witness Volvo’s new radiator that actually cleans the air as it cools the engine or BP’s climate-change policy that reduces its greenhouse gas emissions while reducing its costs. We should emphasize, however, the caveat “under the right circumstances:” Only through creativity, imagination, and the persistent development of particular skills and capabilities can firms simultaneously optimize financial, social, and environmental performance.

By the early 1990s, the greening revolution had led to the creation of a new dual-degree program at the University of Michigan involving both the Business School and the School of Natural Resources and Environment: the Corporate Environmental Management Program (CEMP), now the Erb Institute’s dual masters program. Integrating pollution prevention and product stewardship into the management curriculum was the backbone for this program. As the founding director of CEMP, I had completed a virtual turnabout: It was now clear to me that the corporate sector itself was the key leverage point for achieving substantial and lasting change in societal performance and that financial performance need not suffer in the process. I could finally put aside the demons from the past associated with “the smell of money.” I came to realize instead that pollution was the smell of waste and poor management.

-This is part 1 of a 3 part series excerpted from Stuart L. Hart’s, Capitalism at the Crossroads (3rd Edition), published by Wharton School Publishing, an Imprint of Pearson.

Sources

1. For example, Allen Kneese and Charles Schultze, Pollution, Prices, and Public Policy (Washington, D.C.: Brookings, 1975); and Robert Dorfman and Nancy Dorfman, Economics of the Environment (New York: W.W. Norton, 1972).
2. Ray Anderson, Mid-Course Correction (White River Junction, VT: Chelsea Green, 1998).
3. It is not my intention here to suggest that trade-offs do not exist between corporate economic and societal performance. Clearly, in some situations, command-and-control regulation is the only viable solution. In others, however, it is possible to internalize externalities or even supply public goods in a way that facilitates economic performance. The problem has been blind adherence to the belief that such “win-win” situations are generally not possible.
4. Again, my intention here is not to suggest that command-and-control regulation does not serve an important purpose. For laggards and criminals, there is no option. However, for those firms seeking to move beyond compliance, such regulation can sometimes limit degrees of freedom and slow the rate of innovation.
5. Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” The New York Times Magazine, 13 September (1970): 32–33, 122–126.
6. My thanks to Paul Tebo at DuPont for this wonderful illustration.
7. Indeed, the Reagan administration in the United States was bent on reforming—or, better yet eliminating—these regulations.
8. Clyde Prestowitz, Trading Places (New York: Basic Books, 1988); Barry Bluestone and Bennett Harrison, The Deindustrialization of America (New York: Basic Books, 1982); and Ira Magaziner and Robert Reich, Minding America’s Business (New York: Vintage Books, 1982).
9. Ironically, quality management was an American invention in the first place, but it was rejected in the 1950s by U.S. companies who were making too much money through high-volume, standardized mass production. Proponents such as Deming and Crosby found willing adopters, however, in the struggling companies of post-war Japan.
10. See, for example, Masaki Imai, Kaizen: The Key to Japan’s Competitive Success (New York: Random House, 1986).
11. Excellent examples include Bill Shore, The Cathedral Within (New York: Random House, 1999); and Mark Albion, Making a Life, Making a Living (New York: Warner Books, 2000).
12. Michael Porter and Claas van der Linde, “Green and Competitive: Ending the Stalemate.” Harvard Business Review (September/October 1995): 120–134; Stuart Hart and Gautam Ahuja, “Does It Pay to Be Green? An Empirical Examination of the Relationship Between Emission Reduction and Firm Performance,” Business Strategy and the Environment, 5 (1996): 30–37; Michael Russo and Peter Fouts, “A Resource-Based Perspective on Corporate Environmental Performance and Profitability,” Academy of Management Journal, 40(3) (1997): 534–559; Petra Christmann, “Effects of ’Best Practices’ of Environmental Management on Cost Advantage: The Role of Complementary Assets,” Academy of Management Journal, 43(4) (1998): 663–680; and Sanjay Sharma and Harrie Vredenburg, “Proactive Corporate Environmental Strategy and the Development of Competitively Valuable Organizational Capabilities.” Strategic Management Journal, 19 (1998): 729–753.
13. For an excellent and in-depth treatment of greening as business opportunity and strategy, see Forest Reinhardt, Down to Earth (Cambridge, MA: Harvard Business School Press, 2000).
14. A. Marcus, D. Geffen, and K. Sexton, Reinventing Environmental Regulation: Lessons from Project XL (Washington, D.C.: Resources for the Future/Johns Hopkins University Press, 2002).
15. Andy King and Michael Lenox, “Exploring the Locus of Profitable Pollution Reduction,” Management Science, 47(2) (2002): 289–299.
16. See Nigel Roome and Michael Hinnells, “Environmental Factors in the Management of New Product Development,” Business Strategy and the Environment, 2(1) (1993): 12–27; and Ulrich Steger, “Managerial Issues in Closing the Loop,” Business Strategy and the Environment, 5(4) (1996): 252–268.
17. William McDonough and Michael Braungart, Cradle to Cradle (New York: North Point Press, 2002).
18. Fiona Murray and Richard Vietor, Xerox: Design for Environment, (Boston: Harvard Business School Publishing, 1993).
19. Personal communication with Dave Buzzelli, Dow Chemical Company, 1996.

About the Author

Stuart L. Hart, author of Capitalism at the Crossroads, is the Samuel C. Johnson Chair of Sustainable Global Enterprise and Professor of Management at Cornell University’s Johnson School of Management. Professor Hart is one of the world’s top authorities on the implications of sustainable development and environmentalism for business strategy. He has published over 50 papers and authored or edited five books. His article “Beyond Greening: Strategies for a Sustainable World” won the McKinsey Award for Best Article in the Harvard Business Review for 1997 and helped launch the movement for corporate sustainability. To read Stuart’s complete biography, click here.

Relate Articles:

1. StrategyDriven Podcast Special Edition 19 – An Interview with Arlene Johnson, author of Success Mapping

It is easy to jump on the bandwagon and declare that in today’s volatile and uncertain world strategic planning is irrelevant. Amidst all the talk of flexibility, agility, speed and responsiveness, strategic planning seems oddly out of place. After all how useful can a long-term view of future be when our predictive ability is so poor?

The Management Mythbuster by David Axson   Most of the management practices upon which organizations rely are broken beyond repair. At no time did this become clearer than in 2008. Within the space of a few months, much of the framework of modern management practice came crashing down. Corporate titans were humbled, long established compensation practices failed, and the only certainty about any forecast was that it would be wrong. All of this upheaval is causing executives in every industry to rethink the conventional management wisdom they had so implicitly trusted. Taking a seriously irreverent look at some of the more popular management myths, The Management Mythbuster features short chapters on many of the theories, tools, and behaviors that continue to govern decision-making in today’s business world, such as: Missions, visions, and other expensive pastimes Strategy and stuff like it Gurus, consultants, and other advisors Forget success, focus on failure Budgeting – A Modern Vision of Hell (Well, Purgatory at Least) The Futility of Forecasting Total Quality, Six Sigma, Process Re-engineering, and more Pay for Performance? Failure Pays Very Well These Days The Business of Spin Why Accountants Rule the World And much more!

However, before we discard strategy lets back up, maybe the problem is not strategic planning itself but the way in which we apply the technique. As Michael Porter author of numerous books that are essentials in the library of any strategic planner commented: “Strategy is a word that gets used in so many ways with so many meanings that it can end up being meaningless.”

Porter is right. The whole subject of strategy has become too confusing. It seems that everything is strategic; otherwise, it is not really that important. We have become overwhelmed with strategic plans, strategic vision, strategic thinking, strategic insight, strategic management, strategic information, strategic marketing, strategic branding, strategic positioning, and even strategic bombing. Appending strategy or strategic to anything elevates its significance and that of anyone associated with it. “Oh, I’m working on a strategic project,” marks you as a very important person who is going places. Frankly we have lost the plot. Today you can define strategy just about any way you like, and that is a large part of the problem. Here are just a few definitions ranging from the confusing to the merely stupid:

• Strategy bridges the gap between policy and tactics.
• Strategy is the means by which policy is implemented.
• Strategy is the art of distributing and applying resources to fulfill the ends of policy.
• Strategy answers the question: What should the organization be doing?
• Strategy is a plan, a “how,” a means of getting from here to there.
• Strategy is a pattern in actions over time
• Strategy is position; strategy is perspective.
• Strategy emerges over time as intentions collide with and accommodate a changing reality.

However, none of these make my top three listing of the most absurd definitions of strategy. In best beauty pageant form, here they are in reverse order, with my comments in italics:

3. “Strategy has no existence apart from the ends sought.” I love this one as it reminds me of late-night, alcohol-infused philosophical discussions while in college on the meaning of life or the real message behind Led Zeppelin’s “Stairway to Heaven.”
2. “Strategy is a broad, ambiguous topic. We must all come to our own understanding, definition, and meaning.” Well, that clears things up doesn’t it?
1. “Strategy is what top management does that is of great importance to the organization.” Ah, so that is what they do!

Clearly, there is no clarity! Yet strategic planning should be both important and valuable provided it is kept in perspective—strategies are not five-year budgets, obscure aspirational statements that have little grounding in reality, or excuses for each new management team to put its own stamp on an organization. Done right, strategy lays out a direction and focus that guides an organization’s actions. Instead of handicapping management in times of uncertainty, strategy provides a foundation for fast, confident decision-making.

Keeping strategy simple makes it very easy to ask basic questions as ideas, opportunities, or events arise that impact an organization such as: How should we respond to these unforeseen events? What are the implications? At U.S. retailer Target, the question is always, “How does this decision reinforce the brand?” Effective strategies work in both good and bad times. Warren Buffet’s investing strategy has barely changed in fifty years through all manner of economic cycles.

The truth is that very few organizations or managers are truly strategic. When push comes to shove, strategic thinking flies out of the window as the pressure to make budget or hit the quarterly numbers takes over and anything that does not directly contribute to making near-term goals gets ignored. During 2008, billions of dollars worth of strategic plans were tossed out the window. It is interesting that Apple did not abandon its strategy of creating beautiful and innovative products, IBM did not toss its “Smarter Planet” strategy out of the window, and BMW gained share from its luxury rivals even as industry-wide sales slumped.

Unfortunately, for many organizations strategy has many similarities to the excessively complex financial instruments (think—credit default swaps and collateralized debt obligations) that were at the heart of the credit crunch. We need to get back to basics: with strategy, if you don’t understand it, you can’t execute it; with a financial instrument, if you don’t understand it, don’t invest in it. Simplicity is key. I like the way General Electric described growth strategies in its 2003 Annual Report, “The best growth strategies take companies to places where only a few can follow.” I understand that, and it provides a test I can apply to any strategy: will it create distance between our competitors and us?

A GE alumnus offered some of the best advice on strategy. Larry Bossidy was Jack Welch’s number two at GE for many years before becoming Chairman and CEO of AlliedSignal and then Honeywell. I had the pleasure of working with him early in his tenure at AlliedSignal during the early 1990s, and his candor and clarity left you in no doubt what he was thinking. In the 2002 book Execution: The Discipline of Getting Things Done, co-authored with Ram Charan, Bossidy described strategy thus: “It’s a roadmap, lightly filled in, so it gives you plenty of room to maneuver.”

I like that; it’s simple and readily understandable. You have a destination in mind, and you’ve worked out a rough direction or route for getting there, but you haven’t necessarily planned out every restroom break or constrained yourself to a single road. You have options to take alternative routes if needed and maybe even change the ultimate destination based upon events along the way.

Building upon this I would add one further dimension—speed. How fast do you want to get there? Strategies that clearly describe a direction, a destination, and a speed provide a solid foundation for planning. For example, the command, “Go west young man,” offers information as to direction but provides little guidance for planning. If I am sitting in New York, will getting to Pittsburgh be good enough, or do I need to go all the way to San Francisco?

If the destination is defined as San Francisco, you now have more information to start building a plan to get there, but you still have a lot of choices—walk, ride a Harley, cruise in a Corvette, or fly on the Learjet. If speed is added to the equation in the form of “head west to San Francisco and try to get there in less than 24 hours,” planning just got a whole lot easier. You can eliminate walking, riding your motorcycle, driving, or catching the train as options since none of these tactics will get you there in time.

Strategic planning is not dead; we just need to get to the basics. In today’s uncertain world remember three key points:

1. Strategies increase flexibility, rather than reducing it.
2. Good strategy simplifies planning by taking certain options off the table. Often the most valuable section in a strategy is the one headed: “Things we will not do.” Interestingly, it is often the one section in voluminous strategy documents that is missing.
3. The ultimate test of a good strategy is that it remains relevant in bad times as well as good. That’s why Apple, Johnson & Johnson, WalMart, Tesco and Berkshire Hathaway consistently outperform their rivals.

This article is adapted from David Axson’s recently published book The Management Mythbuster (Wiley 2010).

David Axson, author of The Management Mythbuster, is President of the Sonax Group, a business advisory firm. He is a former head of corporate planning at Bank of America and was a co-founder of The Hackett Group. He is a sought-after speaker and writer on business strategy and management and is widely regarded as a thought leader in the industry. To read David’s complete biography, click here.

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Special Edition 35 – An Interview with Robert Kolb, co-author of Corporate Boards explores the motivations, conflicts, limitations, roles, and ethics of corporate boards; answering the often asked question of why Boards and their members behave the way they do. During our discussion, Robert Kolb, co-author of Corporate Boards: Managers of Risk, Sources of Risk and Professor of Finance and holder of the Frank W. Considine Chair of Applied Ethics at Loyola University Chicago, shares with us his insights and illustrative examples regarding:

• the Board of Directors’ role in managing upside risk
• how companies deal with the risk of diminished Board independence that occurs when the CEO is also the Chairman of the Board
• what time-inconsistent misconduct is and why it occurs
• why compensation plans may encourage executives to engage in exceedingly risky merger and acquisition deals and the actions Boards take to mitigate this risk
• the Board’s role in establishing executive compensation, including those mechanisms that result in unduly rewarding failure
• who the Board of Directors should serve… just shareholders or a broader group of stakeholders that includes shareholders, employees, the environment, and society

Additional Information

Robert’s book, Corporate Boards, can be purchased by clicking here.

Final Request…

The strength of our community grows with the additional insights brought by our expanding member base. Please consider voting for us on Podcast Alley by clicking here. Casting your vote for the StrategyDriven Podcast improves our ranking and helps us attract new listeners which, in turn, helps us grow our community. Thank you again for listening to the StrategyDriven Podcast!

Robert Kolb, co-author of Corporate Boards, holds PhDs from the University of North Carolina at Chapel Hill in philosophy and finance and has taught at the University of Florida, Emory University, the University of Miami, the University of Colorado, and Loyola University Chicago, where he currently serves as Professor of Finance and holds the Frank W. Considine Chair of Applied Ethics. Robert is the author or co-author of more than 50 research articles and 25 finance texts on topics, including financial derivatives, investments, corporate finance, and financial institutions. Robert recently edited the Encyclopedia of Business, Society, and Ethics. He also founded Kolb Publishing, Inc., which published finance and economics university texts and was acquired by Blackwell Publishing, now part of John Wiley & Sons, Inc. To read Robert’s complete biography, click here.

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4. StrategyDriven Podcast Special Edition 28 – An Interview with Ken Blanchard, author of Leading at a Higher Level
5. StrategyDriven Podcast Special Edition 7a – An Interview with John Leonetti, author of Exiting Your Business, Protecting Your Wealth, part 1 of 2

Special Edition 32 – An Interview with Nilofer Merchant, author of The New How explores the transformation of the traditional, top-down approach to strategy planning and execution into a collaborative process proven to be significantly more effective. During our discussion, Nilofer Merchant, author of The New How: Creating Business Solutions Through Collaborative Strategy and Chief Executive Officer of Rubicon Consulting, shares with us her insights and illustrative examples regarding:

• the definition of business strategy
• why input from those lower in the organization is needed when formulating the organization’s strategy
• why being the ‘Chief of Answers’ is harmful to the planning process and what can be done to avoid assuming this role
• why it’s important for everyone within an organization to understand its strategy
• the ‘First Principles of the New How‘ and why they are important to strategy development and execution

Additional Information

In addition to the invaluable insights Nilofer shares in The New How and this special edition podcast are the resources accessible from her websites, www.RubiconConsulting.com and www.The-New-How.com.   Nilofer’s book, The New How, can be purchased by clicking here.

Final Request…

The strength of our community grows with the additional insights brought by our expanding member base. Please consider voting for us on Podcast Alley by clicking here. Casting your vote for the StrategyDriven Podcast improves our ranking and helps us attract new listeners which, in turn, helps us grow our community. Thank you again for listening to the StrategyDriven Podcast!

Nilofer Merchant, author of The New How, is Chief Executive Officer of Rubicon Consulting, a strategy and marketing consultancy designed specifically to serve the needs of technology companies. Nilofer has honed her unique collaborative approach to solving tough business problems while working with and for companies such as Adobe, Apple, Nokia, and HP. To read Nilofer’s complete biography, click here.

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Special Edition 28 – An Interview with Ken Blanchard, author of Leading at a Higher Level examines how world-class leaders create a compelling vision; ensuring their employees know who the leader is, where they are going, and the values that will guide the journey. During our discussion, Ken Blanchard, author of Leading at a Higher Level, Revised and Expanded Edition: Blanchard on Leadership and Creating High Performing Organizations and Chief Spiritual Officer of The Ken Blanchard Companies, shares with us his insights and illustrative examples regarding:

• the value of focusing the organization on the ‘Tripple Bottom Line’
• the quantitative and qualitative characteristics of a high performing organization
• what the High Performing Organization (HPO) Scores model is and how it can be used to identify organizational performance improvement opportunities
• using Situational Leadership to foster improved individual and team performance
• establishing and reinforcing individual accountability
• what differentiates servant leadership from traditional leadership approaches and why this approach is so powerful
• benefits of developing and communicating a leadership point of view

Additional Information

In addition to the incredible insights Ken shares in Leading at a Higher Level and this special edition podcast are the additional resources accessible from his website at www.KenBlanchard.com.   Ken’s book, Leading at a Higher Level, can be purchased by clicking here.

Final Request…

The strength of our community grows with the additional insights brought by our expanding member base. Please consider voting for us on Podcast Alley by clicking here. Casting your vote for the StrategyDriven Podcast improves our ranking and helps us attract new listeners which, in turn, helps us grow our community. Thank you again for listening to the StrategyDriven Podcast!

Ken Blanchard, author of Leading at a Higher Level, is Chief Spiritual Officer of The Ken Blanchard Companies, a global leader in workplace learning, employee productivity, leadership, and team effectiveness. Ken has had a profound impact on the practice of management around the world. His bestseller, The One Minute Manager, has been published in 27 different languages and sold 13 million copies. His 17 business bestsellers include Raving Fans: A Revolutionary Approach To Customer Service, High Five! The Magic of Working Together, and The Secret: What Great Leaders Know – And Do. To read Ken’s full biography, click here.

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The Big Picture of business is a continuing realignment of current conditions, diced with opportunities. The result will be creative new variations.

The Business Tree: Growth Strategies and Tactics for Surviving and Thriving by Hank Moore   Any company or organization is like a tree. It seemingly looks the same each day but sheds leaves, lets its limbs rot and applies “band-aid surgery” to its branches late in life. Therefore, it does not fully grow and bloom. Often, it withers and dies an early death. The Business Tree™ has 7 major parts… 5 primary branches, a trunk (6) and the base (7): The business you’re in Running the business Financial People Business development Body of Knowledge The Big Picture No single branch (business component) constitutes a healthy tree. None of the limbs and twigs on each branch (staff-consultants) provide all nourishment required to breed a healthy tree (company). Each branch has its proper responsibility and should learn to interface with the others. The Business Tree will not stand without a trunk and the base. These keep the branches, limbs and twigs (divisions, consultants and vendors) on a growth curve. Trees with thicker bases and deeper roots will sprout greener (be profitable), shed less often (fewer corporate flaws) and live longer (dominate its industry). Learn more about Hank Moore and The Business Tree™ by visiting his website, www.HankMoore.com.

Business must review, revise and reinvent itself for the 21st Century. The great mistake is thinking that tomorrow will be the same as today. 90% of all firms are out of business by year 10. 70% of businesses cannot or should not grow any further.

Companies spend so much time rearranging small pieces of their business puzzles that they neglect long-term Strategic Planning and miss potential successes. 98% of companies have no real plan of action and meander toward uncertainty and perils.

Each year, one-third of the U.S. Gross National Product goes toward cleaning up damages caused by companies that failed to take proper actions. The costs of band-aid surgery for problems and make-good work cost business six times that of proper planning, oversight and accountability. 92% of problems stem from poor management decisions.

98% of all organizations – including major corporations, small businesses, public-sector entities and community groups — have no real plan for where they are going or how they will get there. Of the two percent that do, their plans usually consist of sales goals, lists of projects to be completed, trite slogans that pass for mission statements, or marketing hype.

Organizations stop growing because they have failed to make investments for the future. Rather than plan to grow and follow the plan, they rationalize organizational setbacks, excuse poor service or quality, and avoid change, all the while denying the need for change and avoiding any planning. Too often, they rely on what worked for them in the past, on buzzwords, and on incomplete strategies. I’ve also seen businesses in which a paralysis creeps in, keeping them from doing anything at all.

To benefit from change and to grow, each organization may take these actions in order to move forward:

• Understand where you’ve been and where you might go.
• Research trends and spot opportunities.
• Heed messages from the marketplace telling them of changing market conditions, new global business imperatives, new partnering concepts, recognition of new stakeholders, and other changes outside of their influence that may profoundly affect them.
• Put more focus upon running a successful organization.
• Get a qualified business mentor.
• Identify the company’s stakeholders and work with them.
• Predict and benefit from cycles in business.
• Broaden the scope of your services.
• Find creative ways to collaborate with other companies. Collaborations, partnering and joint-venturing are the major business emphasis for economic survival and future growth.

A growth plan or strategic plan is a must for any organization that intends to survive and thrive in today’s rapidly changing business environment. Take a big picture business approach by looking at the whole, then at the parts as they relate to the whole, then at the whole again. Plan to grow, and grow by the plan.

These are the basics of Big Picture business growth strategies:

• Know the business you’re really in. Prioritize the actual reasons why you provide services, what customers want and external influences. Where all three intersect constitutes the Growth Strategy.
• Focus more upon service. Dispel the widely-held expectations of poor customer service. Building relationships is paramount to adding, holding and getting referrals for further business. Retaining 2% of customers from deflecting has a bigger impact on your bottom line than cutting 10% out of operating expenses.
• Plans do not work unless they consider input and practicalities from those who will carry them out. Know the people involved, and develop their leadership abilities. Plans must have commitment and ownership.
• Markets will always seek new and more profitable customer bases. Planning must prepare for crises, profit from change and benchmark the progress. “More of the same” is not a Growth Strategy. A company cannot solely focus inward. Understand forces outside your company that can drastically alter plans and adapt strategies accordingly.
• Evaluate the things that your company really can accomplish. Overcome the “nothing works” cynicism via partnerships and long-range problem solving. It requires more than traditional or short-term measures. He who upsets something should know how to rearrange it. Anyone can poke holes at organizations. The valuable ones know the processes of pro-active change, implementation and benchmarking the achievements.
• Take a holistic approach toward individual and corporate development. Band-aid surgery only perpetuates problems. Focus upon substance, rather than “flash and sizzle.” Success is incrementally attained, and then the yardstick is pushed progressively higher.

Management and leadership activities must be fine-tuned to the company’s Big Picture. Vision is an organization’s way. Corporate culture is the methodology by which they successfully accomplish Vision.

For companies to succeed long-term, the Visioning process begins with forethought, continues with research and culminates in a Strategic Plan, including mission, core values, goals, objectives (per each key results area), tactics to address and accomplish, timeline and benchmarking criteria.

Corporate Visioning goes beyond the Strategic Plan. It sculpts how the organization will progress, its character and spirit, participation of its people and steps that will carry the organization to the next tiers of desired achievement, involvement and quality.

Both the Strategic Plan and the Visioning process must be followed through. This investment is one-sixth that of later performing band-aid surgery on an ailing organization.

Key Messages to Recall and Apply Toward Your Business:

• Understand the Big Picture
• Benefit from Change
• Avoid False Idols and Facades
• Remediate the High Costs of Band-Aid Surgery
• Learning Organizations Are More Successful
• Plan and Benchmark
• Craft and Sustain the Vision

About the Author

Hank Moore has advised 5,000+ client organizations worldwide (including 100 of the Fortune 500, public sector agencies, small businesses and non-profit organizations). He has advised two U.S. Presidents and spoke at five Economic Summits. He guides companies through growth strategies, visioning, strategic planning, executive leadership development, Futurism and Big Picture issues which profoundly affect the business climate. He conducts company evaluations, creates the big ideas and anchors the enterprise to its next tier. The Business Tree™ is his trademarked approach to growing, strengthening and evolving business, while mastering change. To read Hank’s complete biography, click here.

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Fah.ren.heit 212 [far-uhn-hahyt too-wun-too] noun: 1 an innovation consultancy that drives top-line growth by creating transformational new products, brands and businesses 2 marries commercial acumen, strategic vision and creativity, bringing scale and velocity to its clients’ most important growth opportunities Fahrenheit 212 Big, fast, doable innovation.

Drinks that prevent hangovers.

Athletic clothes that go beyond wicking and actually hydrate.

A service called Dial A Mom that would provide all the services you want when you’re sick –making doctor appointments, picking up your prescriptions, even sending chicken soup. And the best part is the business would be staffed by actual retired moms. They would get paid for doing what comes naturally and sick people would get what exactly what they want at exactly the right moment. Genius!

The point is, great ideas are everywhere. Online, off line, even in a line at Starbucks, today’s culture consists of people who are constantly dreaming up new things that should exist. And as a result, I think most readers would likely agree that the old adage is true: ideas can indeed come from anywhere.

And yet, while they can come from anywhere, most ideas never really go anywhere. Why?

I would suggest it’s due to the fact that there’s a big difference between an idea and an innovation.

Idea vs. Innovation

When you start to explore the difference between an idea and an innovation, you’re (not surprisingly) confronted with a million and one different definitions of the two terms.

An idea is a provocative thought that has the power to inspire action.

An innovation is the result of inspired action. It’s something created that improves life in a manner that’s both quantifiable and sustainable.

Innovations require the catalytic power of ideas. But it’s the catalyzed action that generates the outcomes that change the world.

It’s the difference between concept car and the Prius. Between Bell Labs and Apple. Between Dial-A-Mom and Amazon.com.

When we launched Fahrenheit 212, we set out to create a firm specializing in the creation of new products, businesses and services for our clients that would make this critical leap from idea to innovation.

Ah, The Benefits Of Hindsight

Without question, one of the smartest things we did was to anchor our business model on a performance-based compensation structure. It’s a straightforward approach in which we put 2/3 of our potential revenue at risk based on the performance of the innovations we create for our client.

The decision to link our success to that of our clients was driven by two factors. The first stemmed from Fahrenheit 212’s New Zealand origins where “put up or shut up” is a defining cultural norm. The second was our initial suspicion that potential clients would welcome the idea of a consulting firm that actually had skin in the game.

What we didn’t realize at the outset was that it would be the key to creating successful innovations.

When You Have To Deliver, You Learn To Deliver

In 1999, Jim Collins wrote a brilliant piece in the Harvard Business Review entitled, “Turning Goals Into Results: The Power Of Catalytic Mechanisms.” In it he addressed the problem that many managers face within their organization: they have a big goal but lack the organizational focus and courage to achieve it. Collins offered catalytic mechanisms as a potential solution.

By his definition, a Catalytic Mechanism is “the crucial link between objectives and performance, [the] galvanizing device that translate lofty aspirations into concrete reality.”

His article provided some fantastically poignant examples that span a wide range of industries. But for the purposes of this discussion, I’ll break his central thesis down into an analogy we can all understand: if you’re standing next to a lake and you have to catch a fish to eat, you will catch a fish.

Collins posits that this same philosophy can be applied to business problems simply by framing a firm’s most ambitious goals in this type of scenario:

• Step One: Translate your objective (I would like to catch a fish) into an imperative (I will catch a fish)
• Step Two: Give it real teeth (or I will die)
• Step Three: Get to work (start fishing… with dynamite)

For Fahrenheit 212, our performance-based compensation model provided us with a powerful catalytic mechanism – we needed to figure out how to generate true innovations quickly, consistently and across a wide range of categories.

And in so doing, it gave us a much better understanding of the core tenets of effective innovation.

Money and Magic

In order for an innovation to gain necessary traction inside a company and ultimately within a competitive market, it needs to have two central characteristics. It has to tap into a real commercial opportunity and it has to capture people’s imaginations in a manner that is both unique and compelling. Said simply, it needs to have “the money and the magic.” Without “the money” it won’t likely see the light of day. Without “the magic” it’s unlikely to break into consumers’ consideration set in a sustainable manner.

As simple as this prescription sounds, it’s frequently overlooked. In some instances, a company’s desire to capitalize on a rapidly emerging growth opportunity can overwhelm its better instincts and cause it to rush a me-too product to launch only to discover it lacks the magic necessary to unseat the market leaders (think Microsoft Zune).

Or conversely, a company can be painfully disappointed when it discovers its new magical product hits a gap in the market, but not a market in the gap (sorry Dean Kamen).

The What, The Why and The How

Once it’s clear the innovation you’re creating offers a balance of the money and the magic, it’s important to create an action plan that will enable you to leverage the necessary support amongst key stakeholders within your organization.

Here again, we’ve found that simplicity is an asset. We believe successful innovations can be distilled into three component parts:

• The What: The first step is capturing the lightning in a bottle and expressing it in a manner that clearly defines “what” you are creating that will make the world a better place. The hybrid car. The stain stick. The first detergent in the world that’s so beautiful you actually want to keep it above the sink. The What should be the encapsulation of the inspiration. It’s the loadstone that guides the collective actions necessary to get your vision into the hands of customers. If it’s simple and clear, it will drive action. If it’s not, you run the risk of giving the world the next Pontiac Aztrek.
• The Why: The second step is articulating “the why.” Unfortunately, today’s corporate culture has become a hotbed of risk-aversion. Senior managers across categories are frequently rewarded for their ability to challenge, to question and to advocate on behalf of the devil. And as a result, early stage innovations are often forced to climb a steep hill of inquisition before they reach acceptance. To succeed, innovators need to be able to convincingly yet succinctly defend why the idea they are championing has strategic and commercial power.
• The How: There’s a reason the number of ideas far exceeds the number of true innovations: the lightning strike is just the beginning. Sure the blinding inspiration of a “eureka moment” is thrilling; but in reality, it’s just the first step. As any entrepreneur will tell you, the journey from conceptualization to commercialization is often when the real break-through thinking happens. As a result, it’s critical to have a well-defined understanding of what needs to be true for an innovation to get to market. Once you’ve defined “the how”, the champion should surround herself with lateral-thinking people who can react quickly to new challenges without ever losing sight of the true vision.

Pete Maulik is Partner and Chief Operating Officer at innovation consultancy Fahrenheit 212. He is instrumental in the development, evolution and actualization of clients’ innovation efforts. His experience includes leading innovation projects in the alcohol, technology, FMCG, software, beauty, financial services and hospitality categories. Pete is responsible for unleashing the potential of the Fahrenheit 212 organization. This includes finding world-class people, giving them a structure in which they can perform at their peak and ensuring Fahrenheit 212 is delivering transformational innovations on every project.

Pete has spoken on the power of bringing creativity to business at Columbia Business School, Pace University, American Marketing Association’s Quarterly Meetings, The Art Director’s Club of New York, ESSEC and Fordham Business School.

He holds an undergraduate degree from Harvard and an MBA from Columbia Business School.

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I love learning from activities that are not designed as learning events. The parallels that you can draw between a game like scrabble and the game of life are important and timelessly relevant. For instance, I got to go first because I drew the letter with the highest value, G worth 3 points. By going first, and seeking a five-letter word, I’d also receive double the word score. The word I made from the random selection of letters I chose was exquisite: geode. I nearly gave myself a standing ovation for that little creation, which was result of luck, position and a little bit of geology that I learned as a science major at the University of Kentucky 20 years ago.

As the game progressed, I noticed my frustration of planning my next move, only to have a competitor use the position (letter) I chose on the board for their benefit. The roar of the crowd from my inaugural word play didn’t even matter now. Each turn was a new game. I learned quickly that I had to be ready to change my plan. I needed to look for a new word, and scout out a strategic location for the word each time it was my turn. Ultimately, I won the game!

Strategy- the business buzz word of the 21st century. Truly it is not a new concept but one that has gained a lot of press in business literature and education. The development of strategy is crucial to the success of business. However, without consistent surveillance of the environment you’re playing in, even the best strategic plans have little value. In strategic plans, course correction should be anticipated, if not expected and a process of correction can be a part of the plan. Who will make the final decision about change in strategy? Who will communicate the change to the organization? How will the change impact the expected outcome? These are the types of questions that should be considered before filing away the strategic plan and hitting the go button.

My scrabble-loving son taught me another lesson through his approach to the game. He very rarely started planning his next move until it was his turn. Of course this resulted in slow game play, which was frustrating to someone like me who is always thinking 12 steps ahead. However, his thinking was so calculated that his moves were almost always brilliant. And this one stands out: He scans the board for a place to play. After an agonizing full 2 minutes or more, he laid down two U’s and a T, and created the word FUTURE from the other letters that were already on the board. All of the adults sat stunned for several minutes. “How did you see that?” We asked him, incredulously. He responded, “Well, I had these two U’s, and I thought, what can I do with these things, and then I saw (the) future.”

Another lesson from scrabble… If you are willing to take your time, use your resources (even the U’s that seem to have little purpose) and see your world in a different way, you will create a brilliant future! Not a bad days learning from a well-worn game of Scrabble and an 8-year-old aficionado. Maybe I should get in the game more often. It’s definitely the only way to win… and learn.

Shelli Stinson is the VP of Business Development at WealthBridge Connect. She brings experience from education, sales and marketing as well as project management. Most recently, Shelli was the employee wellness manager at Northern Kentucky University. In this position, she learned how much influence that leadership has on the physical, emotional and mental wellness of employees in the workplace. After graduating from NKU with a Masters degree in Executive Leadership and Organizational Change, she joined WealthBridge Connect. In this new role, she hopes to influence businesses to invest in their employees through comprehensive leadership development initiatives, promoting healthier and more productive workplaces- from the top down and the inside out.

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At some point in his or her career, every politician gets tarred with a catch phrase – and usually not a flattering one.

George Bush, Sr. is stuck with two. There was “Read my lips, no new taxes,” of course. But only slightly less unfortunate was his dismissal of what he called, “The ‘vision thing.’”

He was trying at the time to shake the impression that he was a competent day-to-day manager but lacked any grander vision of where he wanted to lead the country. His choice of words and tone of voice didn’t exactly help.

John F. Kennedy had a vision: “A man on the moon before the end of the decade.” And it inspired the seemingly impossible. We had about 15 percent of the needed know-how when he made that declaration.

Bill Gates had a vision that there would be a computer on every desk in America. And this was back when most people didn’t even know what a computer was!

Thank God It’s Monday!: How to Create a Workplace You and Your Customers Love by Roxanne Emmerich   Thank God It’s Monday! is about loving what you’re doing and creating massive results. Roxanne Emmerich introduces you to two CEOs: one desperately struggling to stay afloat and another who’s discovered a better route to growth and profitability. As you join them both on their journey, you’ll gain valuable insights for jump-starting positive change from anywhere in the organization… replacing dysfunctional organizational behaviors with passion and creativity… overcoming setbacks… making vision and values actually work! Whether you’re on the front line, in an office, or running the show, you’ll see how to: Replace dysfunctional behaviors with passion and creativity Overcome setbacks with a “bring it on” attitude Breathe results-generating life into vision and values Think big and make big things happen Thank God It’s Monday! presents a unique approach that makes an impact on three groups at once: Employees discover how to win at work and love their work Companies turn around results quickly and profoundly Customers experience a powerful and visible commitment to their success You will shift from a “why we can’t” to a “how we can” workplace – in one day! Your customers will go crazy about you. You will find yourself loving to go to work where everyone exclaims, Thank God It’s Monday!

Why vision matters
I once had a CEO look me straight in the eye and say he didn’t really “go for” visions. “I put my energy into training,” he said. “Training, training, training.”

But training for what? I wondered. You do training without a vision, you’re all gas pedal and no windshield.

A study at the Sloan School of Management showed that leaders who create, communicate, and implement successful organizational visions were shown to be more successful in EVERY measure of a business than those who did not.

Three elements of a truly GREAT vision
Powerful, effective, propelling visions all have three things in common:

1. Short, simple and strong. Shorter is stronger. Take a given sentence and ask which words are pulling their weight and which can take a hike. Change vague expressions like “high-quality” and “world-class” into specific, powerful language that reflects your values. Simpler is also better. Use words that a fourth grader could understand.
2. Visual. There’s a reason it’s called a VISION. A statement that doesn’t create a powerful visual image of the future isn’t a vision. It doesn’t give people anything to keep in their mind’s eye while they work. You need a landmark on the horizon or you’re driving blind.
3. Of service to others. Make sure your vision statement reflects an intense, focused drive to serve the needs of your customers, not just to “satisfy.”

The human spirit will not invest in mediocrity. That’s why a vision always starts with a bold and audacious idea. A vision statement is nothing less than an invitation for others to invest in your dreams and a promise to do the same in return. By following these simple rules, you can create the kind of vision that has been proven to power companies beyond what was ever thought possible.

Roxanne Emmerich’s Thank God It’s Monday!: How to Create a Workplace You and Your Customers Love is a New York Times, Wall Street Journal and #1 Amazon bestseller. Roxanne is renowned for her ability to transform “ho-hum” workplaces into dynamic, results-oriented, “bring-it-on” cultures in a day. Listen to the free 60-second audio with teammates each Monday to clean up the craziness in your workplace and focus on getting massive results. Sign up today at www.ThankGoditsMonday.com.

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Yes, strategy requires many hours of well-spent time researching the landscape in which you may find yourself. This implies understanding your product or service inside and out; your competitors – a SWOT analysis at this point is masterfully useful – and also defining a clear path to that which you hope to achieve.

It has been proven that those who have a clear vision for their goals achieve them nine times out of ten, whereas those without a vision only hit the mark half the time.

Defining the Vision
The “vision” quite simply put, is that which initially drove and inspired you to take the plunge and launch your idea.

There is no need to put the vision together in detail at this initial stage; bulleted lists will more than suffice. Fill out the details once you are comfortable with the general overview of your vision. This will assist you as well as any other potential investors or partners to understand your own goals coherently. It will also allow for you to plan carefully around the existing landscape.

It is important to stay focussed on your idea and vision throughout the initial life cycle no matter how difficult this may be. New ideas will arise as you put thought into practice. Some of these ideas may be feasible, but others might lead you astray. It is important that when such distractions come into play you are ready for them. Understand them for what they are and know how to deal with them. Some find it helpful to employ the services of specialist consultants to steer them through the clutter of these initial steps.

In Japanese philosophy there is a word that captures this phase of constant vigilance, “Zanchin”.

Awareness, determination and perseverance lead to success.

The Art of War
In a competitive landscape with few refreshing new ideas many businesses find themselves at war with one another. That is the true definition of the word “strategy” after all – “the art of war”.

A well known writer by the name of Sun Tzu wrote a book on this principle which is easily adaptable to any situation in which you might find yourself. We are all warriors in the greater scheme of life, fighting to keep our entities afloat and successful.

“People should not be unfamiliar with strategy, those who understand it will survive, Those who do not understand it will perish.” From Sun Tzu’s The Art of War.

Five Elements of Strategic Planning
In his book, Sun Tzu outlines the five elements of strategic planning as he sees them. These elements are;

1. The Mission – Your vision: the business, the people, the clients and your role.
2. The Climate – Creating the opportunity. The timing and trends that provide you with opportunity.
3. The Ground – The area of your business where you choose to compete.
4. The Leadership – Great leaders inspire followers. Ensure that your leadership style buys into your vision.
5. The Methods – The way in which you choose to run your business, a mastery of certain skills and processes.

“Until we equal or exceed our opponent’s score in these five elements, we do not challenge or begin our venture or even respond to our opponent.” From Sun Tzu’s The Art of War.

Sun Tzu further explains that it is from here that we advance our position by understanding the five elements of strategic planning. It is the foundation from which we know our strengths and set our goals and vision to overcome our opponent. This is a way to secure success in the challenge before it has commenced.

Leverage Thought Leaders
We are very fortunate that the Internet has made it possible to find and follow the strategies and philosophies of many great thought leaders from around the world.

Although we are not able to speak to Sun Tzu directly, there are many great leaders that have adopted his principles and have built successful empires in the modern world. Google and Nokia are amongst these.

There are many websites that specialise in putting you in touch with the right people in this modern age. Some are so well connected that they are able to bring you a handful of those people and get you guaranteed one-to-one sessions with such gurus of industry.

When it comes to strategy in a competitive landscape, two heads are better than one. Ensure that you follow the basic principles to set the foundation and where possible leverage from the experience of those that have gone before you to build successful business strategies.

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