Smartest guys in the room … what could go wrong?

What could go wrong?  Plenty it seems.

Commonwealth Bank (‘Which bank?’) is just the most recent example of overconfidence in the ‘intellectual capacity’ of a leadership team to steer the organisation through the ‘white water’ of modern corporate life.  In its recent report on failures at CBA APRA reportedly found:

  • The board relied too heavily on senior management’s ‘high IQ’ and their ability to take care of all things
  • That their risk management processes relied too heavily on ‘raw intellect over comprehensive analysis’

This is a pattern that we see repeated too often and yet we still fall for it.  We’re a bit like Charlie Brown and Lucy (in the old Peanuts cartoon).  Despite Lucy repeatedly pulling the ball as Charlie goes to kick it, each time Charlie imagines 'this time it is different'. 

There’s been a host of studies on team performance and team dynamics over the years that show that teams full of ‘really smart people’ don’t perform as well as teams which might have 1-2 really smart’ players (and not necessarily the CEO).  But somehow, we too often assuming that the answer to complex problems is ‘smart people’.    

This has proven to be a very expensive assumption. 

Perhaps the doozy of them all was Long Term Capital Management.  LTCM was a hedge fund that boasted two Nobel laureates (Merton & Scholes, famous for options valuation theory), multiple PhD’s, and fund management veterans.  LTCM grew to over US100B in funds within 4 years, showing 40% annual returns.  But for all that, the Asian financial crisis triggered a collapse that saw LTCM facing US1Trillion in default risks.  Ultimately the US Treasury had to step in to stablise the global financial system.   So much for genius. 

A close second: Enron.  From a pipeline company in the 1980’s, Enron grew into the world’s largest energy trader.  The collapse of Enron is told in a documentary ‘The Smartest Guys in the Room’.  It traces the rise and fall of Enron, which grew to be the darling of Wall St, until it collapsed.  The Chairman and Chief Executive of Enron at the time were Kenneth Lay and Jeff Skilling.  They have been described[1] as ‘two supremely arrogant and belligerent men who believed they were the smartest guys in the room: that through sheer cleverness and creativity they had brought into being the most innovative corporation in the US’.  Indeed, Enron was named ‘America’s most innovative company’ by Fortune for six consecutive years.   The collapse was triggered, at least in part, by investigative reporter Bethany McLean who was undistracted by the glossy brochures and glitzy premises.  It seems she didn't drink the Kool Aid.  

As the dominoes began to fall a pattern of appalling behaviour emerged.  For example, when the power markets were deregulated in California, Enron shut down energy generation to create power shortages and drive up energy prices.  According to The New York Times, the top brass at Enron realised what was happening ‘but like a mad and dysfunctional cult, everyone carried on’.  This description has parallels to the revelations of the current banking royal commission.

My final example is closer to home.  The CEO of one of Australia’s leading companies had a reputation for his prodigious intellect.  The company prided itself on capturing the best talent available in the sector.  Despite this, with his powerful intellect, he developed a reputation for intellectual bullying.  But in the years prior to his retirement he was persuaded to introduce a values-based leadership development program.  In a post-retirement interview he observed, with a sense of profound insight, that he had recently come to the realisation that ‘it was all about the people’.  One got the impression the interviewer was nodding approvingly at such wisdom. 

I was bemused.   How is it possible that the CEO of a major company, with a reputation for a prodigious intellect, took until his late 50’s to realise ‘people matter’?  This is Management 101 on any MBA.  Tom Peters, management guru, author and former McKinsey partner, has been telling us this for as long as I can remember. 

The simple reality is that intellect can only get you so far.  Perhaps intellect is a bit like money: more is better up until you reach a point at which the upside plateaus.  At this point, other factors – wisdom, emotional intelligence, and the collective intelligence – begin to play a much bigger role.

 

[1] Oppel, R. A. and A. R. Sorkin (2001). Enron's collapse: The overview.  Enron collapses as suitor cancels plan for merger. The New York Times.

MBA's, strategy and judgement

Why do we teach the various models and concepts of strategy?  Is it as simple as Lewin's aphorism: there is nothing so practical as a good theory?  Actually, it is much more than that.  At its core we are teaching judgement; or at least, providing tools that will enhance judgement.  

But what is judgement?  What does it look like in action?

To finish I offer my own simple mantra for a great strategy process: immersion; synthesis; simplification.  

DDB ... a strategist's view

PS: to my regular readers, my apologies. It has been too long.  But in the last couple of months I've been teaching multiple MBA programs; working with a CEO to develop their strategy; and travelling to KL for some leadership development programs on strategy execution.  And more.  

Read More

Building the moat … the work of strategy

So what is strategy?  Porter did us no favours when he argued that there are only two generic strategies: low cost or differentiation.  It is intellectually correct but practically inadequate.  Strategy is a coherent set of choices around the business model – the fundamental organisational architecture of creating, delivering and capturing value.

These choices have to coalesce around an underlying thesis.  And if this thesis is not embedded in the mental models of your leadership teams, and if it is not reflected in the culture of your organisation, your strategy is lost.  

The challenge of strategy making is to assess whether your existing business model is delivering competitive advantage; and will it continue to do so into the future?  

DDB ... a strategist's view

Read More

Strategy's purpose ... on becoming a moat builder

The term strategy has acquired a certain ‘Humpty Dumpty’ quality: “it means just what I intend it to mean, nothing more, nothing less”.  Before we explore what strategy is, we should be clear around the purpose of strategy. 

The purpose of strategy is to create a sustainable competitive advantage.  But just what do we mean 'competitive advantage'?  It is much more than winning a customer/client.  And just how sustainable is competitive advantage today.  

This is the first of series of blogs on some of strategy's fundamentals.  My experience tells me most leaders all have an implicit understanding of the concept of strategy.  But when I ask 'what is strategy' in MBA classes and with leadership groups, it begins to become a bit murky.  A sharper focus on the purpose of strategy will go a long way to lifting the quality of the strategic conversations.   

A strategist's view ... DDB

Read More

What driving fast cars can teach you about strategy …

Too many executives are focused on the near field obstacles ahead of the end game.  They collapse the time frames in their strategic thinking based on ‘felt’ competitive pressures.  Gary Hamel observed nearly 30 years ago, “most strategic plans tell us more about today’s problems than tomorrow’s opportunities”.

But Jeff Bezos (CEO Amazon) argues that a short time horizon confines organisations to a crowded competitive space.  How do you extend the attention span of the organisation?  Thinking about the longer-term future does not guarantee success, but the converse pretty much guarantees failure in today’s competitive landscape.

DDB ... a strategist's view

 

Read More

I feel the need, the need for speed ...

Most of us think about decision quality - making the right call - when we think about strategic decision making.  But it turns out speed is also vitally important.  More CEO's are ousted for indecisiveness than for wrong decisions.  Too many companies know that they are slow, but don't know what to do about it.  

Jeff Bezos, Amazon's CEO describes their approach to high velocity decision making.  It is predicated on maintaining a Day 1 mindset.  ‘Day 2’ companies make high quality decisions, but they make them slowly.  For Bezos, Day 2 is stasis, followed by irrelevance and excruciating, painful decline. 

Are you a Day 1 company?  What does your extended leadership team think?  And what practices can you put in place to accelerate decision speed in your organisation?  

DDB ... a strategist's view

Read More

Opening minds ... thinking differently

Strategy is ultimately an expression of collective mental models.  To create a strategy that is more than ‘mere incrementalism’ we must therefore create new mental models.  But the idea that people can just 'think differently' is delusional.  We need build into our strategy processes something that makes this real.  

Scenario planning is one such tool.  It exposes us to alternate plausible futures which we ‘experience’ through the scenario narrative: it is through storytelling that we make sense of events.  And in turn it is this ‘experience’ that shifts our mental models.

What are the possible triggers for using scenario thinking?  And does the evidence support the notion that scenarios are more than just a neat story telling trick?

DDB ... a strategist's view

Read More

MBA reflections ... what stuck?

When you teach an MBA strategy class it is interesting to reflect on what sticks?  After 12 weeks, what frameworks have struck a chord with the students?  The MBA cohort offer an interesting perspective, because they are often middle managers ... and middle managers are the backbone of an organisation: they connect the 'head' and the 'feet'.  I outline here three themes that 'stuck' with my latest MBA cohort: strategy execution playbook; strategic readiness; and 'fit'.  

Read More

Shifting political trendlines ... an 'epochal shift' or mere turbulence?

Are we experiencing an 'epochal shift' in the socio-political context within which business operates.  Certainly Brexit surprised; Trump shocked.  But are these are just part of a broader pattern of changes happening across developed democratic societies?   If this is true, the strategist and the executive need to make sense of these changes.  

Our natural instinct is to create a single storyline which 'explains' these events.  Our instinct is not to create multiple storylines.  Nor do we naturally thread together multiple themes.  And yet sober reflection tells us this is an inadequate response.  

Scenarios are the 'tool of choice' for these uncertain futures.  But we need avoid the notion that scenarios are just about building a 2x2 scenario matrix.  Done properly they should impact at a much deeper level.  

We are conducting a short scenario exercise in Perth CBD on Friday 31 March where participants will have the opportunity to explore an array of plausible futures given these changing political trendlines. 

DDB ... a strategist's view

Read More

VUCA translated ... welcome to the world of scenarios

Is the world more turbulent than it used to be?  Not everyone agrees, but in the post war years the economic context was largely stable and expansionary.  Long range planning was at the heart of strategy.  Today, VUCA, a military construct, is increasingly being used to describe the changing business landscape.    What exactly is VUCA?  How does it translate to the business world? 

And more importantly, how can business respond to this VUCA world?  Nicholas Taleb, the man who introduced us to the notion of black swan events, suggests we need to develop 'anti-fragility'.  Interesting turn of phrase, but not much practical help.  I offer a few practical suggestions that will help you navigate these VUCA times. 

 

Read More

It's official: the new economy won

It's happened.  The digital economy is now top of the leader board in corporate America.  Late last year the top 5 firms by market cap were all 'digital' specialists.  Can you guess who?  

And what are we to make of this?  Do these firms actually make serious money?  Are there lessons for 'old economy' firms.   

If you don't know what a platform business model is, you need to read this.  If you're obsessing over your competitors rather than your customers you need to read this.   And if you are struggling to build an innovation culture you need to read this. 

This is the first of a series of posts on lessons from the digital giants.

DDB ... a strategist's view

Read More

Looking back, looking forward ... a strategist's view

2016 was my second year of serious blogging.  In the last year I wrote 23 blogs and LinkedIn posts.  My focus reflects my roots: the strategy process, strategy execution, and leadership.  Based on reader responses, the three most popular posts this last 12 months were my post on the post Brexit/post Trump world; the strategy-execution gap; and an executive's plea for help in strategy execution. 

I finish with some observations around possible blogs for the new year.  

DDB ... a strategist's view

Read More

Woolworths and the normalisation of deviance

Twenty years ago Dianne Vaughan, writing on the Space Shuttle Challenger disaster, coined the term ‘normalisation of deviance’.  This was an underlying contributor to the Space Shuttle disaster. 

The ACCC v. Woolworths case just finalised in the Federal Court provides us a modern local example of this effect.  In his finding for Woolworths, the Federal Court judge found the practice of demanding money from suppliers was ‘consistent with the ordinary nature of retailer and supplier relationships and common practice in grocery retailing’.

How did we arrive at a situation where this sort of behaviour has become common practice?  Normalisation of deviance.

Read More

Brexit surprised. Trump shocked. A strategist’s view

I am often asked: ‘when should you conduct a major strategic review’?  There are various catalysts for a deeper strategic review: a new CEO; serial underperformance; business model disruption; major external shocks.  Brexit should have been a catalyst for a process of deeper strategic reflection within most enterprises.  Post the Brexit decision if you weren’t running scenarios which contemplate a Trump presidency as part of a broader geopolitical shift you were gambling on a status quo potentially under threat.  The next step in that narrative has now unfolded.  Post Brexit it was no great stretch to imagine a Trump presidency. 

But what does this mean for business?  The reality is no-one knows. But in a VUCA world, scenario planning is the best tool to prepare your organisation for what may lay ahead. 

Note: this is a slightly longer blog than usual (ca. 5 mins)

Read More

Are we really that bad at strategy execution? Mostly yes ...

Last night I was teaching strategy execution on the MBA capstone unit. I asked the participants: ‘in your experience, how well did the companies they know rate on strategy execution on a scale of 1-10' Only one rated some of the companies he’d worked with above 5. He gave them a 6-7: ironic really that this defined the benchmark for ‘pretty good’. And worse, 24 others rated their experience as ‘less than 5’. 

When I asked this same group why this was so, out poured all the usual issues: lack of strategy; lack of alignment; confusion; poor communication; lack of resources; poor planning; lack of metrics, and so forth. This was a diverse group, mostly from middle management.

This is truly tragic.  Why? Because it doesn’t have to be: shouldn’t be. There is nothing we don’t know about what is required to execute well. So we need to think more deeply about these issues: why are we really so poor at execution; and what can we do about it?

If you want to know the answer to these questions, come along to a half-day workshop (14 October): A winning edge through strategy execution. You can find the workshop details here … Creating a winning edge through strategy execution. There are still a few places left.

You might also like to check out some of my recent blogs (eg. What's your plan to overcome the strategy-2-execution deficit? ).  

Strategy, execution and dog food ...

I've written a lot about strategy execution recently, but it begins with a shared understanding of what strategy actually is.  Strategy has four dimensions to it: perspective; position; plan and patterns.  You need to understand each of these if you are to overcome the strategy-2-execution challenges.  

Next time you are having a conversation about strategy execution, begin with the question: what is strategy?  And don’t settle for the simple answers.  Growth doesn’t occur without some level of discomfort.  Are you willing to sustain the discomfort necessary for this conversation?

Read More

What's your plan to overcome the strategy-execution deficit?

The first step to solving a problem is to recognise you have one.   Netflix CEO Reed Hastings recognises his biggest challenges now are execution.  Do you have an execution challenge? 

But before you can execute, can you summarise your strategy in 35 words or less?  Would your colleagues put it the same way?  And would they recognise the same top five priorities?  Check out what the research tells us.  

On execution, too many organisations are serial under-performers.   What specific action steps will take your organisation's strategy execution to the next level.  We have developed an Execution Playbook to help clients tackle the challenge of execution. 

Read More

Bridging the Strategy-Execution Air Gap

My previous blog on execution provoked this lament from one reader:

“See, this is what shits me.  We don't want to take the time to actually consider the execution piece of our 'strategy'. Once we have something that looks pretty on paper we then go back to bidding work willy nilly and trying to operationally improve our projects on an individual basis.”

I had written about the socio-cultural elements that could bring much greater success to your strategy execution efforts.  But this only works if you have the fundamentals in place.  Unfortunately organisations often experience an 'air gap' between strategy and execution.  

This blog highlights the gap between the 'what' and the 'how' of strategy execution.  Mintzberg's mantra of 'codify; elaborate; convert' offers a sound process to close this gap.  

You can't solve a problem you haven't defined.  Do you have a strategy-execution air gap?

 

 

Read More

Can someone help me please? I'm stuck!

At a recent workshop a client expressed the fear that she felt stuck when thinking about strategy execution.  That's not surprising.  Research consistently shows that organisations massively under-perform on strategy execution.  

I outline five practices here that will give you a winning edge when it comes to strategy execution. Execution is not a trivial part of managerial work: it defines the essence of that work.

Read More

Apparently mining blew the boom ... but who's the greater fool?

The headlines scream at you: major miners blew the boom.  It is true they repeated the patterns of all commodity booms.  But are we guilty of playing Monday morning quarterback?  What might they have done differently?

And what about shareholder value?  When did we lose sight of the value part of the equation?  And who was the greater fool?

Read More