http://harvardbusiness.org/product/how-hardwired-is-human-behavior/an/98406-PDF-ENG?Ntt=hardwired
The basic premise is that although humans have developed highly advanced technology and complex organizations, our intellectual capacity is still based on what evolved during the Stone Age. The author draws on the concepts of evolutionary psychology to explain how behavior that evolved in a hunter-gatherer society leads to many of the quirks we see in how people interpret information and make decisions in an organizational setting. As the author puts it, “You can take the person out of the Stone Age … but you can’t take the Stone Age out of the person.” Observations include:
Emotional Filter – As humans evolved, using instinct to react immediately to danger was key to survival. The residual effect today is that no matter how hard we attempt to apply logic and reason, we always have an emotional filter that reacts first to information. In particular, this filter is tuned to avoid danger and reacts to bad news first and most aggressively. Hence the ‘shoot the messenger’ reaction we see in some executives.
Aversion to Loss – When we existed at the edge of survival, our behavior was asymmetrical depending upon whether we were above or below subsistence. Above subsistence, we were extremely reluctant to change lest we disrupt what was working. Below subsistence (faced with a starvation, disease or a predator), we would take immense risk to try and stay alive. The modern equivalent is that when we are comfortable, we avoid change that seems risky. Yet when we feel threatened, we’ll behave irrationally – such as coming apart emotionally if we’re laid off or compounding investment losses in our portfolio when the market drops.
Overconfidence – Confidence was undoubtedly an asset in the Stone Age – it helped ensure rapid decision making and attracted tribe members. Today confidence is still an essential element of successful leadership. The downside is that it can cause leaders to ignore warning signs and forge ahead regardless of negative feedback – believing “…there isn’t a problem they can’t control…”
Classification – Early humans needed a simple way to understand their environment without the help of science. Understanding which plants were edible or which people could be trusted required quick interpretation of visual cues. The carryover today is that people still sort others into groups based on quick assessment of their looks and actions – making effective teamwork between different departments and business cultures a real challenge.
Gossip – Our Stone Age ancestors lived with frequent changes in leadership due to injury and disease. Knowing what other clan members were thinking helped them anticipate and influence changes in the hierarchy. Today’s equivalent is the “rumor mill” – which is still a tool for getting early information and shaping opinions.
Empathy – Empathy is a corollary skill that supports gossip. Clan members are more likely to share information with understanding people. Those who can anticipate how others are feeling will ask more pertinent questions. In general, people have always been co-dependent for survival and rely on friendly exchange of information and favors. The modern downside is that empathy causes us to believe that others are more like us than is really the case and we make excuses for weaknesses rather than addressing them head-on.
Public Contests – In ancient societies, status was determined by the strength, skill and aggressiveness of group members. This ingrained behavior persists (largely in males) in the form of public displays to demonstrate virility and competence. Even when all “…would benefit from cooperation, men frequently choose competition.”
Tribalism – According to research, the human brain is only able to really know and understand about 150 other individuals. Coincidentally, Stone Age clans appear to have been limited in size to about 150 members. In addition, throughout history and across cultures, family businesses typically have no more than 150 members. The implications for modern organization are that similar sized groups are both inevitable (defined by departments or cliques) and are generally most productive.
Hierarchy – Social status based on wealth and behavior was important in the hunter-gatherer world since it lead to being sought out for alliances or leadership. This inbred desire to obtain status carries over to the business world - humans expect and will create an informal hierarchy even in temporary work groups. This behavior supports the use of rewards and recognition as management tools.
The author closes by stating that we ignore evolutionary psychology at our peril. “…encouraged by the optimistic recipes of management cookbooks or constrained by technological and economic imperatives – (managers) falsely believe that with commitment, resources, and ingenuity, anything is possible. In this spirit, time and time again we have tried and failed to eliminate hierarchies, politics, and inter-organizational rivalry. Evolutionary psychology says it’s time to recognize what we are and use this information to live in harmony with our hardwiring.”
A more complete model allows the Vision to develop and mature throughout the Strategy Formulation and Implementation phases. It also recognizes that strategy involves both scheduled (planning) activities and evolutionary (organizational learning) aspects. Once we see strategy from this perspective – “Strategic Thinking” becomes the objective for a robust corporate strategy process. Strategy creation is no longer an annual event but a long term process that has both non-linear and re-entrant elements. Strategy is no longer the exclusive domain of senior executives but must incorporate the best business intelligence (from those close to the information source) and the most creative minds (those not yet biased by established industry practices).
In order to harness the insight and creativity of a broad cross section of employees – the technique of strategy focus teams has proven effective. These teams are composed of mid and lower level people with direct customer contact and/or business process insight. They report to the executive strategy committee but must also maintain a high degree of independence to encourage new ways of thinking about the business. This requires a unique mix of strong executive support yet minimal executive influence. The CEO in particular must endorse a more democratic and inevitably more critical approach to understanding the business and creating new approaches. For those executive teams that have sufficient discipline and self-confidence, the application of a broad “Strategic Thinking” process can yield exceptional new insights.
For more information see my white paper at:
]]>
Bottom-up Approach – this method relies on information gathered directly from the users of the product. It is theoretically the most accurate since these users can provide unfiltered input on their current suppliers, product usage and forecasted requirements. The supplier collecting this data, however, has a potential bias toward overestimating market share by gathering data from customers who are known to the company and overlooking applications or firms that are not currently served.
Top-Down Approach – this method uses high level econometric data and projections to derive demand for the product and thereby estimate market share. This method is less subject to consistent bias but is prone to the compounding of errors in the underlying assumptions used to derive demand. Moving from a high level forecast (such as GDP) to sales of a specific product requires either:
Both methods are subject to random error depending upon the validity of the assumptions and the potential for these assumptions to deviate from historic norms.
Purchased Industry Analysis – this method relies on a third party to capture product sales data within a specific industry. Using such a service should provide better information since they can collect data without representing any particular supplier, are likely to take a comprehensive view of the available market and, since this is their core business, will invest more to refine their methodology over time. On the other hand, these services tend to simplify their data collection by relying on industry suppliers to provide accurate sales figures rather than going directly to a large customer base. Each supplier has a natural desire to maximize their reported sales / share and may include spares, service and upgrade revenue in their reported figures. This tends to overstate total demand and underestimate market share for those companies who accurately report sales.
As you can see, each method has limitations. The best approach is to understand and compensate for those limitations. Utilizing more than one technique is a very useful practice since it forces you to compare results achieved by different methods and understand the underlying assumptions and limitations of each method – ultimately resulting in both more accurate share numbers and a better understanding of market dynamics.
It’s been reported that another Intel legend, CEO Andy Grove, found Bob’s nice guy attitude irritating and believed that his leadership style was ineffective. Andy, known for directness in finding fault, had a fiercely competitive and highly demanding leadership style. According to Richard S. Tedlow in “The History and Influence of Andy Grove”, this created a “pressure cooker” environment within Intel. Interestingly, just as both Bob and Andy were successful with dramatically different leadership styles, it’s clear that both highly stressful and more constructive cultures can lead to corporate success.
The difference between these cultures is in the secondary or unanticipated consequences of using conflict and criticism to motivate performance. Along with higher pressure, you also get defensive behaviors – including unwillingness to volunteer new information, unproductive time spend on CYA activities, attempting to win points in meetings at others expense and heightened politics where alliances are used to avoid personal exposure and shift blame.
High expectations, personal accountability, fast decision making and aggressive action are universal requirements for business success. The fundamental question, however, is whether that pressure is derived primarily from a negative, external stimulus or from a positive, internal drive to succeed. When leaders create a culture of open communication, cooperation and rational discussion of business problems, they are leveraging people’s internal drive to learn and achieve. They are leading based on logic and respect. They are motivating based on appealing to the intellect and positive emotions. They are inspiring us to our best. And along the way, they are getting the benefits of improved productivity and decision making.
For additional details, see a white paper at:
http://www.strat-edg.com/files/Inspirational_Leadership.pdf
Note that I said the development of the roadmap provides this linkage between strategy and product development. This is because the Product Roadmap (the end result of the road mapping process) is nothing more than a graphical tool to visualize a time phased sequence of projects that represent marketing’s best guess on what is needed to expand market share and profitability. Although the roadmap is rather simple, the roadmap development process involves a significant amount of analysis and decision making.
The analysis steps include a thorough understanding of market trends; in-depth knowledge of customer needs and business constraints; analysis of competitive offerings; and assessment of internal development capabilities. This information creates a foundation for the development of new product concepts. These concepts don’t appear from the analysis alone but evolve over time as product and customer experience is coupled with the intuition and innovation of strong product managers and creative technologists.
The decision making kicks in as these new product and service candidates are evaluated and refined – searching for a combination of features that provide unique value to customers at an appropriate price point. This tradeoff of product features versus cost, risk and lead-time results in a condensed project list. Inevitably, there are more concepts for new products, feature enhancements and cost reduction than there are resources to develop these into viable products. As a result, the list of product candidates must be rank ordered based on their potential impact on market share / margin, timing versus market opportunity and resource utilization. Projects near the top of this list and within overall resource constraints are selected for the roadmap and subsequent funding.
Given this sequence, the roadmap becomes the means to an end – the product line plan to implement the business unit strategy – and its primary value is not in the graphical output but in the analysis and decision making embedded in the road mapping process. For additional details, see my white paper at:
There is often no formal integration process – this is typical of less sophisticated acquirers and acquisitions which claim no anticipated changes in a “merger of equals”. Unfortunately, this initial independence is short lived as various corporate functions start expecting information in the format used by the acquiring company. Next, these same well intentioned staffers expect compliance with corporate policies and procedures. This will likely impact budget and hiring approvals and may extend to more critical business processes like customer terms or credit approval. While all these changes seem reasonable to the various staff groups - the cumulative effect on the acquired company is at least a diversion of resources to deal with non-value added administrative tasks and at worst a direct violation of their expectations and trust. The most destructive changes occur when organizational decisions and HR policies combine to impact reporting relationships, titles and compensation. Coupled with the more benign administrative issues and an information vacuum – the intended synergies of the acquisition are quickly forgotten – replaced by uncertainty about levels of authority, long term job security and outright mistrust.
It is never wise to assume or communicate that business will continue as usual for the acquired company. The reality is that many things will change with an acquisition and this needs to be communicated and planned well before the deal is signed. The most critical elements of an effective integration plan include:
For additional details on these elements, see my white paper at:
http://www.strat-edg.com/files/The_Art_of_M_A_Integration.pdf
Tangible product characteristics often carry a higher premium in the customers’ eyes – particularly if they allow that customer to compete more effectively. Supporting a unique capability in your customer’s product or providing higher throughput both fall into this category. Intangible aspects of the product offering can also provide measureable value – such as simple configuration and ordering, fast delivery, manufacturing advice, installation support and simple repair. As a result, both a detailed understanding of the product / application and review of all the steps required to obtain, use and dispose of the product should be considered as potential axes of differentiation.
Creating differentiation is critically important since it forms the basis of establishing unique customer value and thereby justifying a premium price. As discussed in the prior post on Strategic Pricing and in the accompanying white paper – understanding and selling on the basis of value allows you to negotiate from a position of strength rather than reacting to customer demands for lower price and threats to move the business.
2. “Discovering New Points of Differentiation”, Ian C. MacMillan and Rita Gunther McGrath, Jul-Aug 1997.
By becoming an expert in your customer’s business, you are able to both develop competitive products that anticipate their needs and communicate this value in terms meaningful to them. This “value equation” provides a tool to shift the dialog from a defensive reaction when faced with discount demands to a logical discussion of how your product is used and where there are opportunities for cost reduction based on product features, volume, timing or other parameters. This transition won’t happen overnight – it requires that every customer discussion be disciplined to focus on applications, value and tradeoffs that can be made to optimize price/performance. For a more complete discussion of this topic, see the white paper on my website at:
Two excellent books on this topic are:
The KRA’s are a mechanism to move from long term strategic concepts and objectives to short term, executable projects. They are typically built into the annual plan for a business unit. Each KRA includes a description (explaining how it supports the strategy), metrics and a set of projects. These projects are where the action takes place - each has its own definition, owner, metrics and schedule. The owners are typically direct reports to a business unit VP and are expected to marshal internal and cross functional resources to achieve the desired outcome. To ensure progress, each KRA and its related projects are reviewed by the business unit VP on at least a monthly basis. In this way, the strategy is broken down into well defined pieces that can be implemented by working level managers and teams.
I’ve led traditional strategic planning exercises and I’ve led teams in the formation of an executable strategy using KRA’s. The former sat on the shelf until the following year with only some residual influence over the course of day-to-day business management. The KRA approach, in contrast, became an integral part our staff meetings and yielded an 85% hit rate on achievement of strategic goals. For additional information, see the white paper on my website at:
http://www.strat-edg.com/files/Strategic_and_Business_Planning2.pdf
1. Common Objectives – shared within both organizations. In spite of ambiguity in the JV agreement, phase 2 started with acceptance of the JV as a fully capable partner rather than just an overseas distribution branch. There was a common enemy and an opportunity to partner to share resources and ingenuity.
2. Leadership - key operational executives working as partners. Phase 2 was also marked by the appointment of a new JV president that recognized weaknesses in management – replacing key personnel with those who had US work or education experience. The US parent also made adjustments in the leadership, training and recognition system to emphasize the need for partnership.
3. Leverage Differences - in culture and skills to gain competitive advantage. It became evident in phase 2 that the JV had unique skills in terms their customer relationships and automation design capability. These were complemented by understanding of long term technology trends and good process and controls design in the US.
4. Working Level Relationships - based on mutual respect and direct communication. Peers within each company met face to face at least quarterly for both technical and social interaction. Phase 2 was characterized by a very high degree of trust and shared information.
Upon reflection, it’s evident that the single most critical factor was leadership. The relationship between operational managers, their vision of how the partnership benefited both companies and their investment of energy to make it work ensured that we could resolve any conflicting objectives, discover the synergies between groups and foster the peer to peer relationships.
You can read a white paper on this topic at:
http://www.strat-edg.com/files/Successful_Alliances_and_Joint_Ventures2.pdf
I did uncover two excellent software / database tools that directly solve the classification problem and are reasonably priced. The more general purpose tool is from Global Data Mining (GDM) and may be found at www.gdmllc.com. GDM maintains an extensive database under their sister company name of Customs Info. These include US Import/Export classifications, Explanatory Notes, Rulings, Foreign Import/Export classifications and rulings from Other Government Agencies. Their service can either provide look-up access to these databases or a Global Trade Desktop that provides a customized database to search, create and maintain part classification data. The desktop automatically cross references the various databases - providing an audit trail for how the classification was determined. It can also be setup to populate export data fields and as many foreign import data fields as desired. Beyond the product, they are also great people to work with and I highly recommend them.
If your needs are restricted to high tech products, there is another company with a very unique tool. Urusan Consulting (www.urusan-consulting.com) provides an expert system for determining HTS classifications. They have effectively coded the HTS structure, notes and rulings into a series of questions. This allows a person with reasonable product knowledge but almost no US Customs experience to effectively classify products. For the situation I encountered, this was very useful since it allowed for delegation of the classification task to individual product groups in multiple locations. The system is easy to use and has proven very effective. Here again, you are also dealing with exceptional people who are dedicated to providing a quality product and exceptional service.
1. During customer interviews, the target company was portrayed as having sustainable market share (true), good products (partially true) and an excellent reputation (false). Within days of the acquisition taking place, the customers were all asking to meet with senior management in order to layout all the problems and demand our action plan. An important point here is that the acquiring company had a superior record for product quality and customer responsiveness. It was in the customer’s best interest to ensure that the acquisition took place and their feedback had been biased toward the positive. Conclusion – always understand the biases and motivation of people interviewed – they can be expected to act in accordance with self-interest.
2. During on-site reviews with the target company, R&D status of the next generation product was investigated. The specifications, design concepts, business plan, prototypes and testing data all looked fine. Months later when the product first shipped, the division CFO informed me that the product had a huge NEGATIVE margin. Even better, a few months into use, the failures and re-design efforts began. All in all, the product was an anchor on the newly acquired division - consuming resources from every function to stem the financial, customer relationship and operational bleeding. Intelligent technologists missed warning signs during due diligence – including the absence of new but proven design methods for lower cost and higher reliability and extremely dense (hard to manufacture) layout. The team also accepted the cost estimates at face value without validating quotes and assumptions. Conclusion – when technology is a core element of the acquisition, be sure the team has the expertise, time and motivation to dig deeply. This can’t be a two day side project and must include a cross section of experienced technical, operations and financial experts. If the expertise isn’t available internally – bring in the right consultants.
In addition to these specific issues, there is an overwhelming tendency to see what you want to see. In general, both parties want to make the deal happen and the investment banker certainly has only one agenda. Don’t let this euphoria blind you to the reality. Force the team to search for the exceptions, the inconsistent information and the objective evidence to support assumptions. It pays to be a polite skeptic in order to establish the real value and integration challenges.
Another barrier is the negative experience of execs who have participated in formal strategic planning. Weeks of staff analysis and days of executive off-sites often result in little new knowledge or change in corporate behavior. This is generally attributed to the fact that strategy is based on insight into customers, markets, competitors and your own organization. Insight is gained from experience, learning, recognition of patterns / relationships and synthesis of this information to find points of competitive leverage. The limited scope, participation and timeframe for annual planning is not conducive to developing this insight. Quoting the pointy hair boss from Dilbert again – “I’m putting you on the strategic planning team. It’s like work but without the satisfaction of accomplishing anything.” All this has led to an ongoing debate between the “planning” approach to strategy creation versus the “organizational learning” approach.
In order to make sense out of all this, I’m in the process of developing a model of strategic thinking that simplifies and integrates these concepts into something that will hopefully clarify and help guide strategy formation. I’ve been doing a lot of research and came across an excellent Harvard Business Review article by Gary Hamel titled “Strategy as Revolution.” Gary manages to avoid the buzzwords and debate on approach while outlining 10 principles to help companies find revolutionary new strategies. In spite of being published in 1996, the conclusions are as insightful and relevant as ever. You can get an electronic download from Harvard Business Publishing at:
I’ll be publishing my paper, “The Elements of Strategic Thinking – An Integrated Model” later this month on my website at:
Happy Strategizing and Happy Holidays!