Five Questions Your Strategy Should Answer

Ken Favaro, contributing editor of Strategy+Business, has a good article today about the key questions that every strategy should answer.   Here are Favaro's five crucial questions.  

How Fearful is Your Organization?

INSEAD Professor, Gilles Hilary, and Managing Director of Alchimie Asia, Vip Vyas, have written a good blog post about fear in organizations.  They argue that a culture of fear does not reduce the risk of major failures; it actually enhances the probability of a catastrophe.   They offer a list of signs that your organization may possess a culture of fear that enhances risk of failure and stifles innovation:  

• An absence of frank and open dialogue. For example, when important conversations happen either before or after meetings, but everyone remains silent during the official discussion.

• A resistance to participate, for fear of being ridiculed, overlooked or “shot down”.

• Only notional alignment (“lip-service”) on action plans, underpinned by a collective belief that those plans will be ineffective anyway.

• A partial or total reluctance to pass any bad news upwards.

• A culture of “going through the motions” without any real engagement; and

• A focus on salient but unlikely catastrophic outcomes.

Does your organization have these characteristics? Are senior leaders aware of the climate of fear that they have created? The opposite climate, on the other hand, is a climate of candor. In those climates, people talk openly about problems and issues, and they are not afraid to share bad news. Those types of cultures not only help senior leaders spot hidden risks, but they also promote creativity and innovation because people do not fear being labeled a failure.

What is Yahoo? What is Every Firm's Toughest and Most Important Question?

The Wall Street Journal has a good article today about Yahoo discussing the company's lengthy struggles leading up to its sale to Verizon.  Jack Nicas writes, "Yahoo’s prolonged demise serves as a classic business case, with an existential question its numerous chief executives struggled to answer: What is Yahoo?"  He goes on to cite a famous memo written by Brad Garlinghouse, a former Yahoo executive.   That memo, written a decade ago, questioned the firm's strategy.  Here's an excerpt from Nicas' article today in the Wall Street Journal: 

“If you’re everything, you’re kind of nothing,” said Brad Garlinghouse, a former Yahoo executive who in 2006 wrote the “Peanut Butter Manifesto,” an internal memo criticizing the company for spreading itself too thin. “The sad reality…is it never solved its core identity crisis.”  Mr. Garlinghouse said Yahoo’s fluctuating strategies often confused employees. He recalled asking managers at a retreat in 2006 the first word they thought of when he named a company. Google, eBay and others yielded clear answers—“search” or “auction.” Yahoo didn’t. Managers said “mail,” “news,” “search,” and other things.

Does your firm have a good answer to this question? Can you define your organization's purpose/mission in a simple sentence? Marc Gobe, author of Emotional Branding, puts it slightly differently, but he gets at the same issue. He asks: Can you tweet your brand promise? In other words, can you express your core pledge to your customers in 140 characters or less? FedEx can do it: "Absolutely, positively overnight."  Ritz Carlton can do it as well: "Ladies and gentlemen serving ladies and gentlemen." What was Yahoo's brand promise? It's hard to find a way to describe its pledge to its customers in 140 characters or less. In the end, the lack of a clear identity led to its demise, and it hurts many other firms as well.

Jonah Berger on Social Influence

Building on the recent blog post about social influence, here's Jonah Berger himself talking about his research.

Video on Social Influence: Mob Rules

Building on the last blog post, check out this National Geographic video about social influence.

When Do Others Help Us Make Better Decisions, and When Does the Influence of Others Hurt Us?

Jonah Berger of Wharton has written a new book titled, Invisible Influence: The Hidden Forces that Shape Behavior.   He was recently interviewed for an article on the Knowledge@Wharton website.   In that interview, he discusses how the presence and influence of others sometimes helps us, and on other occasions, can have a detrimental impact.   Here's an excerpt from that interview:  

There’s this wonderful old study on motivation. This researcher was interested in just the question you were interested in. He looked at a bunch of research and said, “Well, sometimes others seem to be motivating. They lead us to work harder, do better. Sometimes they lead us to get demotivated, do worse. Why is that? What are situations that lead to one versus the other?”

He wanted to figure out a way to test that. He designed this amazing experiment with running, looking at how running was affected by other individuals watching you run. But he didn’t do it with people. He did it with cockroaches. He built this cockroach stadium, where these little cockroaches would run cockroach races — run from one stadium side to the other. But then he could manipulate whether other cockroaches are watching them…. He’s interested in, “Well, how does the mere presence of others affect what we do?”

He had them run one of two mazes. One that was either straight ahead, just really easy, or one where you had to run straight and then make a left turn, really difficult — “Do I go right? Do I go left? What do I do?” What he found is, when the task was easy, when it was well-learned, running straight — something cockroaches know how to do well — having others around helped them do better. They ran faster with others than they did by themselves. But when it was a difficult task, when they had to figure out, “Do I go left or do I go right?” Then it was more complicated. The mere presence of others actually made them do worse.  

As you mentioned, parallel parking. If we know how to do things well, if they are easy things we’ve already done a bunch, then having others around makes us do them better. If you’re great at shooting pool, for example, shooting pool with someone else will actually make you better at shooting pool than by yourself.

But if you’re not so good at shooting pool, if it’s something that you’re not used to doing, if it’s difficult for you, then having others around can make you do worse. Parallel parking, for example, maybe some of us are good at it. But most of us tend to be a little bit nervous to begin with. We’re not excellent parallel parkers. Merely having someone else in the car can make it more difficult for us. It makes us more nervous, more anxious. While that anxiety can help us do better when it’s easy for us to do those tasks, they can lead us to do worse when it’s a difficult or complicated task.

Alumni & The Recruiting Process

Scholars Jason Greenberg and Roberto Fernandez have conducted an interesting new study about job searches and MBA recruiting. They studied approximately 600 students from a top MBA program over two years.  They conducted the research from a sociological perspective, comparing students who landed jobs through connecting with alumni at various companies (search through social networks) to those students who were hired through formal on-campus recruiting programs (formal search).   They refer to connections with alumni as weak ties (i.e., the students did not necessarily know the alumni prior to the search process; they connected with them through a variety of networking activities).  They found that MBAs are much more likely to accept a job offer landed through alumni networking than through formal on-campus recruiting processes.   That's true, even though the compensation tended to be higher from offers derived through on-campus recruiting programs.   Why is the networking so influential and effective?  Those conversations and connections help the students understand the growth potential associated with a particular job, and that proves to be very important to many talented students... more important than compensation perhaps.   Here's an excerpt from the abstract of the academic paper that the scholars published:   

We find that contrary to conventional wisdom, search through social networks typically results in job offers with lower total compensation (-17 percent for referrals through strong ties and -16 percent for referrals via weak ties vs. formal search). However, our models also show that students are considerably more likely to accept offers derived via weak ties. They do so because they are perceived to have greater growth potential and other non-pecuniary value. On balance, our tests are consistent with Granovetter’s argument that networks provide value by facilitating access to information that is otherwise difficult to obtain, rather than providing greater pecuniary compensation.

What's the implication of this study?   Greenberg puts it this way:  “Based on our findings, recruiters earn a higher ROI when spending time and money on facilitating connections between current employees and potential recruits from their alma mater.   Students look to and trust an alumnus from their school who ‘looks like them in three years’ to provide inside information about growth opportunities within the firm. And that powerful association is a huge influencer when it comes time to accept or reject a job offer.”

Becoming a Better Listener

Judah Pollack and Olivia Fox Cabane have written an interesting article for Fast Company about how to become a better listener.   Pollack and Cabane explain how our mind works while we are listening to others.   They argue that we "mentalize" while we listen.   Here's their description of this important, but perhaps highly flawed, sense-making process. 

When we listen, we don’t just hear a person’s words, we try and put those words into context. Neuroscientists call this "mentalizing," the ability to understand another person’s internal motivations and desires. When we hear a person’s words, we also try to imagine why they're saying them. And some of us do this more successfully than others.

What's the problem?  Well, when we mentalize, we often make assumptions about others.  A variety of factors may shape those assumptions (our own beliefs about a subject, the appearance of others, the other party's background or prior statements, etc.).   Unfortunately, those assumptions may not always be correct.   The other party may be motivated by something quite different than we have presumed.   If we are incorrect about their motivations, then we may miss vital information that the other party is trying to convey, or we might misinterpret something that they have said.  

How do we become better listeners?  First, we have to question our assumptions about others.  Ask yourself:  What am I presuming about the other party's motivations and desires?  How might I interpret their statements differently if my assumptions are incorrect?   Second,  we have to engage in thoughtful inquiry.  We have to ask non-threatening questions to try to unearth and understand the other party's goals, interests, and desires.   

The Power of Wishful Thinking

Tim Harford writes a great column (The Undercover Economist) for the Financial Times.  This weekend's essay is titled, "Brexit and the Power of Wishful Thinking."   He derives an important lesson from the widespread Brexit analysis about the way we adhere to our preexisting beliefs.   

Harford begins by describing an experimental study conducted by Guy Mayraz.  In this research, Mayraz asks research subjects to predict the future price of wheat.   He first provides participants with 3 months worth of historical wheat price data.  He informs the subjects that they will be paid based on the accuracy of their forecasts.   Mayraz assigns 1/2 of the participants to play the role of a farmer, while the other 1/2 of the subjects play the role of the baker.  What happens?  According to Harford, "Nearly two-thirds of farmers predicted higher-than-average prices, and nearly two-thirds of bakers predicted lower-than-average prices.  People tended to predict that their dreams would come true."    Harford then draws a connection to the Brexit situation.   He argues that Remain supporters engaged in rampant wishful thinking leading up to the vote by they British public.  People tended to forecast that their dreams would come true, rather than looking objectively at the situation. 

Similarly, Harford argues that many people have displayed confirmation bias in their post-vote analysis.  He counts himself as one of the culprits.  Harford explains that he looked at the drop in the value of the pound and the decrease in the FTSE 100 index as support for his preexisting view that Brexit would have a painful impact on the UK economy.  On the other hand, he dismissed the subsequent stock market rebound because it did not support his position.  "I accepted bad news when it chimed with my beliefs, and dismissed good news when it did not." 

What should we do about this wishful thinking and confirmation bias?   Harford advocates for scenario planning rather than to construct single forecasts.   Harford writes, "Because scenarios are persuasive stories, they can help us face up to uncomfortable prospects and think clearly about possibilities we would rather ignore.  And because scenarios contradict each other, they force us to acknowledge that, in the end, we cannot actually see into the future."  

P&G Overhauls Bonus System

The Wall Street Journal reports today that Proctor and Gamble has chosen to overhaul its bonus system for managers. According to the newspaper, 

"Starting Friday, annual bonuses for thousands of senior managers will be tied more directly to the performance of each leader’s specific business unit instead of being based on the company’s broader, regional operations. “We are trying to get a clearer line of sight between an individual’s responsibilities and their results and their compensation,” Chief Financial Officer Jon Moeller said this week in an interview.

P&G has been trying to reduce bureaucracy, give managers more autonomy to make key decisions for their units, and hold people more accountable for results.  This compensation system change fits with those other efforts.  You should not tie compensation more directly to a specific unit's performance unless you provide the unit manager with a sufficient level of autonomy to make important decisions.

We should keep in mind, however, that no compensation system is perfect.  Diversified firms, in particular, always face a tension between tying compensation to local unit performance vs. the results of large segments or even the corporation as a whole.   One the one hand, you want people to realize the benefits of managing their units effectively.  On the other hand, related diversifiers such as P&G want managers to cooperate with the heads of other units so as to realize important synergies.  The risk of this latest move for P&G is that managers may become too parochial, not thinking enough about how to collaborate with other units to achieve economies of scope.