Espoused Strategy vs. Strategy-in-Use: Watch How The Resources Are Allocated

I recently encountered an organization with two main business units: the large core business and a smaller adjacent unit.  The enterprise as a whole was doing quite well, though it competed in a market that was becoming increasingly challenging.  Senior executives and board members lamented that the core business, while quite healthy, lagged behind several industry-leading competitors.  They pointed to  analysis by outside parties as evidence of the core business' secondary position in the industry.  Executives and board members had bold aspirations for elevating the core business to a more prominent competitive position. They wondered why managers and employees could not improve performance.  The stated strategy was clear: make the core business a top-ranked competitor in its industry.  

A close examination of resource allocation at the enterprise revealed a quite different story.  Competitors also had a similar structure: a large core business and a smaller adjacent unit.  Yet, the top competitors in the industry invested much more heavily in their core businesses and allocated far fewer resources in their adjacent units.  In fact, this organization invested three times as much on its adjacent business as the top-ranked competitors did.  Yet, executives and board members were shocked that the enterprise's core business lagged behind these rivals.  Company leaders loved to talk a good talk about being #1 in the industry in which the core business competed, but they loved to invest in the adjacency that was a pet project of some enterprise leaders.  

The story illustrates a powerful distinction between espoused strategy and strategy-in-use.  The great scholar Chris Argyris coined the terms espoused values and values-in-use to describe the distinction between what companies say their values are and how people in those organizations actually behave.  The same distinction can apply to strategy.  Don't pay attention to what executives and board members say that their strategy is.  Instead, pay close attention to how they allocate resources.   In so doing, you will see the actual strategy-in-use.  Pay even closer attention when you see resource allocation fundamentally divorced from the stated vision and strategy.  In the end, don't focus too much on executive speeches, strategic plans, and slick promotional materials.  Focus on where the dollars flow.  That will tell you about the actual strategy.  If you discover a mismatch, ask yourself: Why is there a divide between the espoused strategy and the strategy-in-use?  Uncovering the reason for that divide will help you think about how that enterprise has undermined the competitive position of its core business, as well as how a successful transformation can be unleashed.   

The "Kill the Company" Exercise

 

Author and consultant Lisa Bodell has created a simple, yet ingenuous, exercise for stimulating change and innovation at companies. Like many people, she noticed how unproductive many strategic planning processes could be. She also observed the barriers that prevented managers from recognizing the need and urgency for change. Therefore, Bodell asks executives to engage in a powerful exercise to reshape their thinking. She directs them to put themselves in the shoes of their firm's primary competitors. Then Bodell poses the question: What could those rivals do to attack and even destroy our company? The exercise exposes a series of key vulnerabilities. Then, managers can rank those threats from most to least substantial. The exercise also enables managers to identify key assumptions and beliefs, perhaps taken-for granted as part of the conventional wisdom, that deserve questioning and challenging. Moreover, Bodell urges managers to ask the all-important question: Why do these vulnerabilities exist? What practices, processes, and choices leave us in a position of weakness vis a vis our primary rivals? Bodell also notes that managers then can turn this exercise around and examine their key competitors in a new light as well. They can pose the question: If we address some of these weaknesses effectively, could we gain the upper hand on some of our rivals? Which shortcoming, if addressed, would provide us a powerful competitive advantage?

Declare Your Unstated/Hidden Assumptions

Source: Wikimedia

Managers many a number of crucial assumptions when they make strategic decisions or craft strategic plans.   No strategy rests simply on a body of facts or evidence.  Ambiguity and unpredictability about the future always reigns, and therefore, managers must build their plans based on certain assumptions. Of course, we often don't identify these assumptions explicitly.  They remain hidden.  Declaring your assumptions enables them to be discussed and debated.  They can be tested and probed critically.  Otherwise, managers may take certain assumptions for granted, treating them as truth, when they may actually be quite shaky.   Several years, Mark Hollingworth wrote a good article for Ivey Business Journal, in which he explained the six primary benefits of including a statement of your assumptions any strategic plan: 

1. Inclusion facilitates the analysis of any organization’s business plan by a financial institution, venture capitalist or angel investor. The risk of making a bad investment will be reduced if the investors understand and share the strategic assumptions of the organization’s management team.
2. Differences in points-of-view about strategic assumptions are the source of many of the conflicts that arise between investors and company management – and within a management team itself. Strategic assumptions represent the shared values, beliefs and vision of the management team. Demanding that they be included in a strategic plan will force management teams to hold the difficult internal conversations required and that allow them to uncover, challenge, and capture their shared assumptions.
3. Knowing they need to exit a strategic planning process with a complete, shared set of strategic assumptions forces a management team to use a much more rigorous strategic planning process.
4. Face-to-face, it is very difficult for most people to defend strategic assumptions which are ungrounded or that they do not believe or share.
5. Developing and debating strategic assumptions with groups of employees is an excellent way to gain buy-in and commitment to the organization. Having to declare and justify the assumptions upon which a plan is built means that it is difficult for a CEO to impose his or her views. With increased levels of employee buy-in, there is a greater probability that the strategic plan will actually be implemented.
6. By presenting strategic assumptions for rigorous debate and analysis, the probability is minimized that investors, employees, management and any other stakeholders will waste time, money and energy on trying to implement plans that have little chance of generating the promised results.

The Strategic Chief Human Resource Officer

Adam Bryant, formerly of the New York Times, continues to conduct fascinating interviews with senior executives. He now posts them on LinkedIn on a regular basis. In a recent interview, he spoke with Jorge L. Figueredo of McKesson Corporation about the role of the Chief Human Resource Officer in an organization. Here's an excerpt that I found particularly illuminating: 

Question: What would you say to a CHRO who called you looking for advice because they were frustrated that they weren’t getting the strategic role they were promised?

Answer:  I would tell them, first off, you’re not alone. This is not a unique situation. Many CEOs say they want a strategic CHRO, but they often don’t think through what it really means.  People should see this as an opportunity to educate and help your CEO to understand what it actually means. But whatever you do, do not whip out an article or book about it. You need to personalize the discussion to your company – not offer generic advice. Start by talking about the most important and critical people and organizational issues that you need to tackle as the CHRO in order to achieve the strategic goals.

Figueredo's comments offer an important reminder to all of us.  In many cases, CEOs and other business leaders articulate a strategy, and they focus on allocating the appropriate financial resources to enact that strategy.   A key question, though, is whether the organization has the right human resources in the right positions to be able to implement that strategy effectively.   A good chief human resource officer can help inject that critical talent management question into the strategic planning conversation.  Does the organization have the talent and capability to make that strategy work?  Will new talent have to be acquired?  What development must take place for the existing people in the organization?   How might people have to be shifted into new roles?  Many strategies fail not because of a lack of  effective financial resource allocation, but because the human resource question has not been addressed effectively.  

Decision Narratives at Amazon

In this article by Drew Hansen as well as this one by Adam Lashinsky, we learn about an important facet of the decision-making process employed by Jeff Bezos and his top management team at Amazon.  Here's an excerpt from the latter article:

Meetings of his "S-team" of senior executives begin with participants quietly absorbing the written word. Specifically, before any discussion begins, members of the team -- including Bezos -- consume six-page printed memos in total silence for as long as 30 minutes. (Yes, the e-ink purveyor prefers paper. Ironic, no?) They scribble notes in the margins while the authors of the memos wait for Bezos and his minions to finish reading.

Amazon executives call these documents "narratives," and even Bezos realizes that for the uninitiated -- and fans of the PowerPoint presentation -- the process is a bit odd. "For new employees, it's a strange initial experience," he tells Fortune. "They're just not accustomed to sitting silently in a room and doing study hall with a bunch of executives." Bezos says the act of communal reading guarantees the group's undivided attention. Writing a memo is an even more important skill to master. "Full sentences are harder to write," he says. "They have verbs. The paragraphs have topic sentences. There is no way to write a six-page, narratively structured memo and not have clear thinking."

The use of narratives at Amazon reminds me of this article written many years ago in Harvard Business Review about strategic planning at 3M.   The innovative industrial conglomerate had adopted the use of storytelling during its strategic planning.   In the article, the authors explained that bullet points on Powerpoint slides have several deficiencies.  Bullet point lists often prove rather generic, fail to clarify causal relationships, and leave crucial assumptions unstated.   One manager quoted in the article explains, "If you read just bullet points, you may not get it, but if you read a narrative plan, you will.  If there's a flaw in the logic, it glares right out at you.  With bullets, you don't know if the insights is really there, or if the planner has merely given you a shopping list."  Stories or narratives enable you to think more holistically, and they provide the basis for a more thoughtful dialogue and debate.  Finally, stories prove much more compelling than lists.  If we hope to persuade others that a strategy makes sense, a good story works much more effectively than a set of bullet points.