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Connecting the Head to the Feet

Published in Hebrew in Status - Management Thinking Magazine, January 2004 (issue 151)
By Amnon Danzig, Senior Facilitator and Consultant at ZOOZ, the Israeli Manager of Stren Stewart & Co.

In our competitive world it is important to remember: success is the progenitor of failure. Therefore, one should make a brave and systematic examination of the organization's battlefield, and build competencies that will enable the organization to produce value on an ongoing basis. In order to ensure this, the organization must focus on a chosen strategy and invest all its resources on implementing and sharing this strategy.

Introduction

The extensive discussion of strategic issues in various organizations takes on a problematic form: usually unproductive meetings leading to banal statements that result in a feeling of frustration - "Oh well, what did we get out of it?" Furthermore, the failure of a strategic process sets up a tremendous obstacle for future attempts on the subject. Often, such a process is "the responsibility of senior management" and so it remains - the desire to be a part of this process in the organization as a whole is not easily achieved. Still, the tough competition demands a different way of thinking. The board requires such a process, so "something must be done". This article looks at the weaknesses and problems of strategic processes through different lenses.

Let us begin by defining the desired process. We examine the way to instill it to all levels of management. This is an important note: a process that fails to take into account the ability to apply it throughout the organization loses a considerable part of its potential effectiveness.

Actually, the problem that leaders face is somewhat larger in scope: a manager wishing to embark on a strategic process has to choose the suitable methodology out of countless approaches. Moreover, strategic consultants themselves have a hard time keeping up-to-date in light of the plethora of professional literature of the late 20th century; Literature dealing with strategic processes has grown exponentially in recent decades.

Older generation CEOs are repelled by the process as if it was fire. Obviously, they always provide an appropriate intelligent explanation: "The character and pace of changes make strategy redundant. I have a gut feeling of what has to be done. I don't need academics teaching me." Up-to-date CEOs often make an error of a different kind: boasting the implementation of a whole array of managerial approaches. And what should the reasonable CEO do? Where should he turn to? What should he choose? With whom? How would he decide? The article before you deals with these questions and more.

We will attempt to lay out an organized CEO agenda by presenting a complete picture of the required process, efforts and outcomes. We will not go into a review of existing literature and management methods. We will try to stick to a model that may be implemented with practical and inexpensive resources.

Part A deals with the desired process at the senior management level. Part B examines the optimal route to drive the process and insights to middle management. Part C discusses the most difficult issue of all - training, educating and coaching people in the organization; How to translate strategy to a daily language for each person, every day, the whole day through. How to build a strategy-focused organization.

A. The desired process at the senior management level

Each organization must work around a strategy that reflects its understanding of reality and its ability to change. Strategy is currently defined in management literature as "a direction and agenda". The aim of our work is to sharpen our understanding of: 1. The direction
2. The agenda
3. The consequences of both to all areas of management
4. The change - as an ongoing process of building organizational abilities

Here are some basic terms:

• Info : In a time of increasing competition the "value zone" will shift or migrate.
• Money making: Profit rather than profitability. Whether daily activity produces more money at the end of the day, and how much.
•  The goal: Producing value on a continuous and long-term basis.
• Strategy: The way we attain our goal.
• Tactics:How strategy is implemented.

There are two models of strategic thinking:
1. Tunnel Vision Model (or Core Business Capabilities)
2. Radar Vision Model

The Tunnel Vision Model is common among experienced and veteran professionals of the field. It is characterized by a focus on the core products, clients, transformation processes within the organization and known competitors. These people are the professional "heart" of each business. Without them the business loses its ability to produce cash. Their responsibility is tremendous: supplying fuel and power to steer the ship ahead. However, a strategic danger may arise when they take over the determination of strategic direction and the organizational agenda. It is worthwhile noting two dimensions: one qualitative and the other quantitative.

The qualitative dimension:

• What do my clients make money from?
• Who are their clients?
• Why do they buy from us?
• Why do they have to buy from us?
• Why do some of the clients no longer buy from us?
• Why do some of the clients no longer buy from us?
• What activities have to be done within the organization (Core Business)?
• What should be done out of the organization (outsourced)?
   

The quantitative dimension:

A preceding analysis should be performed in order to focus the discussion on the major clients from whom we make most of the money ("produce value for the firm"), the major product groups producing the greatest value for the firm, and a cross-analysis: within the major clients group, which product groups make most of the profit (not turnover!). Such an analysis may take the form of an 80%-20% representation. It is important to keep the discussion on the essential matters. The following questions should be answered:

• Who are our major clients today?
   i. Why?
   ii. Why do they stay with us?
   iii. How much money do I produce thanks to them?
• Who should we not sell to?
• What should we not sell?
• What should we not sell to our major clients?
• What should we not produce?

Questions and decisions in these areas are at the heart of today's business activity. According to BCG, one should be milking the "cash cow" in the most effective and efficient way possible.

The Radar Screen Model is characterized by a strategic way of thinking, taking into account that "all is game and permissible". Searching all of the threats and opportunities in the field in a dynamic fashion:
1. Direction
2. Agenda
3. The consequences of both to all areas of management

This subject ought to be tackled by people from various disciplines. The gravest danger to an organization is its current success. Success makes leaders blind, and "crowns" Tunnel Thinking people.

Three patterns should be searched for:
1. Changes in client preferences
2. Alternative business structures as an answer to changing client preferences
3. Ways of reorganizing in view of "value migration"

1. Changes in client preferences

• Who is the client? Are decision makers and powers changing? If so, why?
• How do client preferences change?
• Which clients and market segments are growing more important? What are the preferences of these clients / market segments?
• How do clients develop? Do they gain power? Are they becoming more sophisticated? Acquiring better capabilities? How is their business structure changing?
• How do external events influence the priorities of these clients? Which new benefits may this give rise to?

2. Alternative business structures as an answer to changing client preferences

• Which dimensions of the business structure are critical to changing client needs?
• Where is new business activity coming from: New business initiatives? Existing industries working in other segments? Firms on different levels of the market's "value chain"?
• What are the basic characteristics that enable different business structures to respond to Value Migration? Is it the firm's economic structure? Managers' behavior? Ability to cope with change?
• External events: what are the response capabilities of each business structure?

3. Ways of reorganizing in view of "value migration"

• Which various models of business structure suit client preferences?
• How many extra advantages may be produced for clients? How much profit may be retained by the service supplier?
• How is value distributed among the (business) models? What is the direction and force of the "value migration"? Can the value provided to the client be increased? Can some of the value be kept for the benefit of the supplier?

This chapter may be summarized by the following list of questions. A systematic reply on these issues will produce a new reality in the eyes of the beholder:

• Who will be our clients?
• What will they be making money from?
• What will we be making money from?
• What will we be making money from?
• How do we adjust it to "the new world"?
• How do we supply our client needs while making a profit?

Issues and problems to be considered include:

• Value migration today occurs in incredible directions and rates.
• The daily operation of a business takes up most of the organization’s management resources.
• Thus, many organizations remain in an ever-shrinking "value zone". This causes higher pressure on leaders to focus on the well known value area. Money in the bank is running out and tension rises.
• Therefore, how may one prepare for a continuous search of the organization's broad business environment?
• Decision makers have to allocate time and management capabilities for:
  1. Ongoing operation ("Cash Cows").
      Requires the development of Tunnel Thinking abilities.
  2. Strategic thinking ("Rising Stars", "Dead Dogs").
      Requires the development of Radar Screen abilities.

To read the second and final part of this article - click here.

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