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A powerful little formula for strategic intent and execution
Posted in Growth
Posted by Oren Harari in May of 2004
In today’s volatile market environment, the strategic challenges for leaders have become more pronounced than ever. Of course, there are no quick-fix formulas that insure competitive advantage, however tantalizing that prospect might be. Recently, I had to gently admonish a persistent client, “It sounds like you’re seeking a precise algorithm that will guarantee earnings growth”. To his credit, he laughed.
Yet while the elusive algorithm doesn’t exist, I’d like to share with you a little equation that I’ve been using with a few clients to help shape their strategic thinking and execution. It’s called: D - E.S.P .- R.
The “ESP” part of the equation originally came from a unit of Charles Schwab, and I’ve expanded it considerably since then. The “D” and the “R” are additional factors that I have tacked on to complete the picture. Here’s what these letters signify, and how they might help you in your own quest for competitive success:
1. “D” stands for “Differentiable”.
The first, and most important, question that I ask clients is: How does your vision, strategy and business model make your company different from that of other providers? Even more specific: How does your strategy make your product or service offerings unique, special, and best-of-breed?—as defined by customers and investors, not by your in-house people. To what extent does your strategy position the company towards product or market breakthroughs, or towards creation of markets that didn’t exist before? Bottom line: What are you doing, or planning on doing, that clearly sets your organization apart from the rest of the pack?
In market environments that are saturated with competitors, increasingly deregulated, and progressively fragmentized, value is created by bold strategies in bold companies that are uniquely different from competitors. All too often, strategies are cautious, bland, “more-of-the-same”, or “me-too”, which means that they are unlikely to generate sustained market leadership and genuine growth. Regardless of the company’s size or its enjoyment of scale, if it’s not different in a way that exasperates competitors, delights customers and inspires employees, the odds for competitive advantage go down appreciably.
The quest for competitive advantage begins with “D”.
2. “E” stands for “Executable.”
Stirring visions and good intentions are great (and necessary!), but can the company implement them with efficiency, speed, and vigor? I’ve seen too many strategic plans go nowhere because leaders could neither effect change nor mobilize teams to deliver. I’ve seen mega- acquisitions destroy shareholder value because executives either didn’t think much about execution while doing the deal, or simply assumed that others down the food chain would somehow make disparate cultures and systems magically meld.
All too often, senior executives either ignore or “delegate” all facets of execution—a sure predictor of sloppiness and decline. In contrast, companies that succeed have leaders who are deeply involved in developing aggressive goals, action plans, and metrics—and then holding people accountable for them. These leaders stay well connected with all the projects that aim to make significant changes in systems, supply chains, and customer relations. They immerse themselves in important details regarding operational efficiency, customer care, and employee attitudes. They are obsessive about getting people collectively inspired towards key goals, and simultaneously they are obsessive about tracking operational and financial progress towards those goals. They care deeply about what the company is doing to insure that the stated strategic priorities and cultural values are truly embedded throughout the organization. In effect, they role-model their strategic intent and their commitment to it, and by doing so, they make it credible and do-able for others in the organization.
Leadership is not simply about the “vision” of where a company needs to go. It’s also about actually getting the company to its destination. Leaders who understand the “E” part of the equation are not micro-managers, nor are they anal obsessive-compulsives. On the contrary, they delegate liberally. It’s just that they understand that they are ultimately responsible for the movement of the organization from point A to point Z, and that in order to do that, they must go beyond “staying in the loop”. They must fashion and lead that loop.
3. “S” stands for “Sustainable”.
Is the strategy of the company likely to survive the test of time? Is it likely to thrive over time? “Programs of the month” are bad enough, but in many organizations, it gets worse. Too often, companies make their big bets on products and services that are indistinguishable from those of competitors. Or they circle the wagons to defend existing business models and cash-cow product lines, even as the former are becoming obsolete and the latter are becoming low-margin commodities. Or they come up with a breakthrough product with little thought as to next steps in delivery, financing, and customer support, and even less thought as to building momentum for next generation products and applications.
Too often, companies purchase exotic, expensive technologies and systems without thinking ahead about how long it’ll take to install and integrate them, or when they’ll be optimally functional, or how relevant those technologies and systems will be with future planned strategic directions. They make big acquisitions with surprisingly superficial due diligence and naive projections as to realistic returns on their investment. Or they do something, anything—a restructuring, a divestment, a strategic alliance, a new sales incentive or marketing campaign, etc.—that represents a quick, short-term gain that has little staying power, and in fact might be counterproductive in the long haul.
Sustainability is about the long view. Yes, companies must always be ready to nimbly change, adapt and capitalize on new opportunities. But the course of action they do commit to must yield dividends beyond today. Sustainability requires longer term foresight and commitment. Sustainability represents the obverse of myopia and expediency. That’s why great leaders think in terms not simply of competitive advantage, but rather sustained competitive advantage.
4. “P” stands for “Profitable”.
The ultimate barometer of a corporation’s performance is profitability. (Even nonprofit organizations have to do well in order to do good, which, in parallel terms, means that their revenues must exceed expenses).
This sounds like a no-brainer, doesn’t it? But I’m often surprised at how many leaders in private-sector organizations cannot make a persuasive case as to when their ideas and interventions will yield profitability, and how much profitability at that. In fact, many leaders act as if other variables, like good intentions, stirring visions, industry awards, press accolades, innovative in-house programs, high-profile investments, and corporate size can substitute for profitability, and they’re wrong. ISO 9000 certification, diversity programs, well-funded R & D centers and the like are all good things, but they don’t lead to corporate success unless they are carefully built into a strategic case for profitability. Often, they’re not.
Similarly, many leaders act as if useful metrics like sales and market share can substitute for profitability, and again they’re wrong. You can always inflate sales figures and market share, for example, by slashing prices (and margins) or doing a quickie acquisition that will incur sizable debt—either of which can hammer corporate-wide profits.
Even growth per se can’t substitute for profitability. One company I studied grew so quickly to a billion dollars that it went bankrupt. It couldn’t handle its success (see “E” and “S” above). The more it grew, the more money it lost.
No strategy, product introduction, capital expenditure or entrepreneurial venture can guarantee profitability. But effective leaders consciously approach the goal of profitability with focused discipline, and continually build a rational quantitative and qualitative case for profitability with any intervention.
5. “R” stands for “Real”.
All strategies and their execution must be built on a fundamental premise: outcomes and metrics are real. As we’re seeing with the ethical meltdowns and accounting shenanigans in so many once-proud firms, a reliance on funny money and financial sleight-of-hand ultimately destroys companies—and careers. A recent BusinessWeek article asserted that nowadays, “trust is more important than growth”. I take that to mean that if investors, partners and customers can’t trust the company’s numbers or its motives, the company’s credibility and attractiveness plummet.
Nowadays, being real means being honest. Secrecy, camouflage and cover-up can easily lead to perceptions of incompetence, deception or fraud. If the organization’s plans, performance and metrics are not deemed totally honest and trustworthy, then any reports of progress and growth will simply be discounted by the investment community, and the strategy will quite properly be labeled a failure. “Closed doors” mind-sets and “creative accounting” practices are ultimately loser’s games when they lead to shady behaviors, dishonest cultures, untrustworthy relationships, lost credibility, major earnings restatements, high-profile bankruptcies or criminal indictments. The more opaque the financial reporting and the more secretive the methods by which results were determined, the more that accountability suffers and the more the integrity of the entire company is called into question. Again, rightfully so.
In increasingly transparent marketplaces, strategies and their outcomes must be increasingly transparent as well—to all stakeholders. When it comes to strategic development and implementation, concepts like full disclosure, honesty and ethics are no longer simply “nice to do”, but increasingly, “necessary to do”. Otherwise, the reactions of outside and inside stakeholders to corporate claims of D, E, S, or P will be, “it’s not real.”
Again, there’s no formula that guarantees competitive advantage, but I’ve found this little equation to be of great help to leaders in focusing their attention and resources on the rights things. I hope you find it useful as well!