BizThoughts

Book: The Strategy Paradox: Why Committing to Success Leads to Failure (And What to Do About It)
Author: Michael Raynor

Definitions

The Strategy Paradox

The contradiction of making a strategic commitment; when a business commits to a particular strategy, it maximizes its chance of success as well as its chance of failure (all or nothing).

Strategic Commitment

The dedication of a company's resources to a particular strategy.

Strategic Uncertainty

The unpredictability of the future means it is impossible to know which strategy will be the most successful.

Requisite Uncertainty

An organizing principle to manage strategic uncertainty; the top of an organization's hierarchy should manage strategic uncertainty and longer time horizons while the lower levels manage operational execution and shorter time horizons.

Strategic Flexibility

A corporate framework for managing strategic uncertainty through the creation of strategic options, comprised of these four phases:

• Anticipate - build scenarios of the future
• Formulate - create an optimal strategy for each of those scenarios
• Accumulate - determine which strategic options are required
• Operate - manage the portfolio of options; preserving, exercising and abandoning them when necessary

Pure vs Hybrid Strategies

Committing to an pure strategy carries a chance of great success or great failure.

Pure Strategies

• Lead by cost & efficiency, with low prices and good-enough products
  • Cost Leadership - Streamline costs to offer low prices
  • Operational Excellence - Offer hassle-free service and lowest prices possible
  • Exploitation - Refine current procedures, like efficiency, production, execution, etc.
  • Defender - Maintain a stable share of the market with cost leadership and operational excellence
• Lead with a great product, by doing innovation and customer research
  • Product Differentiation - Make a great product
  • Product Leadership - Offer products that push performance boundaries
  • Customer Intimacy - Develop what specific customers want
  • Exploration - Discover new possibilities, conduct research, vary product lines, take risks, and innovate
  • Prospector - Locate and exploit new products and market opportunities
  • Analyzer - Maintain stable market share while finding new products and market opportunities

Hybrid Strategies

Companies pursuing a hybrid strategy are making a risk/return trade-off - lower risk for lower return. However, hybrid strategies are not as profitable as pure strategies.

The Limits of Adaptability

Adaptability works only when an organization can match the pace of environmental changes. Very few organizations can, however. The market either goes too fast or too slow, resulting in a mismatch and potential for failure.

Fast Change

• If an organization is tuned to a slower environment, a fast change will overtake it
• Example of fast changes are technological advancements and new-market disruptive innovations

Slow Change

• If an organization is tuned to a faster environment, a slow change will mean it has leapt ahead of its consumers
• Examples of slow change are traditional consumer behaviors and low-end disruptive innovations

The Limits of Forecasting

It is impossible to predict the future accurately enough for strategic planning or adaptability. There are too many variables to calculate them all.

Time as an Organizing Principle

The longer the time horizon for a particular strategy, the greater the number of considered scenarios and the lower the certainty of any of them. Therefore, the time horizon is the most important dimension of any organizational structure, in terms of strategic uncertainty.

Organizational Structures

U-Form Organization

Unitary form; functionally/horizontally-organized; dividing an organization into functional units (e.g. marketing, finance, production, etc).

M-Form Organizations

Multidivisional form; business/vertically-organized; dividing an organization based on the critical element of an organization's strategy (e.g. by markets, by regions, by distribution channels, etc).

Requisite Organization (RO)

An organizational theory from Elliott Jaques. All employees have a "boss" (the direct supervisor) and a "real boss" (the person from whom one can get a useful decision), which sometimes isn't the same person. The real boss is always someone whose time horizon of responsibilities is incrementally greater than the employee's. No matter how complex, all organizations have seven levels of hierarchy based on time horizon divisions.

Requisite Uncertainty

An organization's hierarchy should be differentiated by the degree of strategic uncertainty for which each is responsible, with the top addressing the most and the bottom addressing the least.

• Corporate leaders should be concerned with the long-term time horizons and strategic uncertainty
• Departmental leaders should be concerned with medium-term time horizons
• Functional managers should be concerned with short-term time horizons and tactical execution

The Role of the Board of Directors

While the board should not decide what the company's strategy should be, it is uniquely positioned to determine how much exposure to risk and opportunity the company should have.

Making Choices vs Creating Options

One way to manage strategic uncertainty is to hedge the company's strategy by creating real options - buying equity in a diverse portfolio of companies. Even if the diversification lowers the parent company's overall performance, if the child company's performance is above the parent company's average cost of capital, than this diversification will create value.

Unrelated Diversification

Purchasing equity in another company to leverage the parent company's control mechanisms and increase the child company's performance

Vertical Integration Diversification

Purchasing equity in another company and facilitating supply-chain connections with one another.

Related Diversification

Purchasing equity in another company to share critical resources, from distribution channels to patents to brands.

Strategic Diversification

Purchasing equity in another company to lower the parent company's strategic risks while increasing its strategic opportunities.

It is very difficult for individual leaders to carry out such plans. Doing this successfully requires a corporate office with an organizational framework to direct and guide the actions of the operating divisions.

Strategic Flexibility

A corporate framework for managing strategic uncertainty.

Constraints

• Resource Constraints

  These determine what can be spent. There are three: money, time, and people. Strategic Flexibility deals with two:

  • Money
  • Time
• Structural Constraints

  These determine how those resources can be spent, keeping complexity manageable.

  • Scope - the width of the plan, what it encompasses
  • Scale - the enormity of the plan, how large it is
• Strategic Constraints

  These define whom to spend the resources on, keeping the resources focused on the right things.

  • Customers
  • Risk

Creating Strategic Flexibility

Strategic flexibility is not the same as flexibility or adaptability, it is the ability to change strategies. This can be done through the following framework, starting with anticipate, then formulate, then accumulate, then operate, and back around to anticipate again.

Anticipate

Create multiple scenarios that cover possible futures over a relevant time horizon.

What are scenarios and what are they for?

• They are specific and coherent descriptions of different futures
• They each portray different and extreme conditions
• They group similar variables together so they are easier to handle
• They are credible and realistic
• They capture the range of opinions among an organization's leaders

How do you create scenarios?

1. Ask the right questions - such as long-term, strategic questions
2. Identify the dimensions of uncertainty - such as the economy, government regulation, technology, etc.
3. Determine the limits of uncertainty - find the appropriate boundaries for each dimension
4. Determine the final scenario set - distill the dimensions into a reasonable, manageable set
5. Determine the relative probabilities - prioritize each based on its probability

Formulate

Determine the optimal strategy for each scenario, then define the strategy's core and contingent elements at the corporate level while lower levels hedge and learn how to best achieve the targets set for them.

Board & Corporate

• Deals with: Strategic Uncertainty
• Aims for: Strategic Flexibility
• Answers: "What could threaten our survival?"
• Determine which strategic elements are core and which are contingent

  Core

  Profitable to all scenarios; build these into the company

  Contingent

  Profitable in just some scenarios; seek options to cover these

Business Unit

• Deals with: a mixture of Strategic Uncertainty and Commitment
• Aims for: hedging the downside while committing to a strategy
• Answers: "What could undermine our strategy?"
• Can still use scenarios, but cannot really create strategic options

Function

• Deals with: Commitment
• Aims for: learning how to achieve its targets
• Answers: "What could derail our project?"
• Handles tactical problems

Accumulate

Gather strategic options based on the contingent elements determined from the Formulate phase. Options can be obtained through acquisitions, joint ventures, and partial ownership deals.

Acquisitions

• Outright purchase of another company
• Pros: total control of the option, great for exercising the option
• Cons: high cost, moderate commitment level, difficult to abandon

Joint Ventures

• Formed when two or more organizations create a new company together
• Pros: allows exploration of a new market, low cost, low commitment level
• Cons: competition with co-founders in a learning race for the new market, potentially dysfunctional relationship with co-founders

Partial Ownership

• Taking partial equity stake in another company
• Pros: allows evaluation of an existing market, low cost, low commitment level
• Cons: difficult to gauge how much ownership is best (too little means exercise difficulty, too much means abandonment difficulty)

Operate

Evaluate each option and determine when to preserve, exercise, or abandon each one.

Preserve

• Maintain the target company in the portfolio for future use or abandonment
• Inject cash if the target company is operating at a loss, though this raises the cost of preservation
• Manage the target company as an unrelated division; too much autonomy means unpredictable option value, too much management means it cannot grow naturally

Exercise

• Integrate the target company in to the parent company and a new strategy using on of these methods:
  • Bottom-up

    Business units find the target company and integrate it, with the approval of the corporate office

  • Top-down

    Corporate office guides the business units to integrate and operate the target company

  • Hybrid

    Business unit and corporate leaders work together to integrate and operate the target company

Abandon

• Sell or divest the target company if it's an option no longer valuable to the parent company
• Though it is typically seen as a failure, abandoning an option is much cheaper than exercising a poor option

Valuation

• A strategic option's value is determined by the value the organization places on a particular risk/return profile
• Human judgment of an option's value is better than using a financial framework

Today are more layoffs at Yahoo. 1,500 to potentially 2,000, some say.

Days like this make me wonder what I would do if my business had to lay off employees. I tell myself, "I wouldn't lay anyone off. I would hire slowly and grow only as fast as we're capable of, so we don't end up with a glut of resources." I know that's not always easy, but growing too fast can be disastrous for some companies.

Then, if finances were still really tight and I've made other budget cuts already, I'd cut my own pay first. If we still needed more, I'd cut bonuses. Then I'd ask the leadership team if they'd be willing to take a pay cut. Finally, I'd ask everyone else if they'd be willing to take a pay cut. I would explain that we value everyone and want to keep everyone, so rather than eliminate jobs, we'd rather decrease salaries temporarily. The key point is temporary - as soon as revenues are back up, salaries will return to their previous levels. Or maybe even higher.

Is that realistic? Some companies have done this with apparent success. But there will be a few employees who will inevitably leave because of personal financial concerns, such as mortgages and bills. They live paycheck-to-paycheck and any decrease in pay is a serious economic issue.

To try to reduce that, I would explore the possibility of finding contract work for them. Basically, I'd turn my company into a consultancy and hire my employees out, if they're willing and able to. I would need to keep a percentage of that revenue for overhead expenses, but the vast bulk would go into their pockets. There may be some tax and legal implications though, which I'd have to work out with my attorney and CPA.

The end goal, though, is to keep everyone with the company. No lay offs, no loss of jobs.

Realistic? I think so, though it's probably difficult to execute. This is just me thinking out loud. I haven't had the ill fortune of making such a decision, so I don't know what I'd really do.

In any case, here's my virtual "pour one out for my hommies." Good luck, guys.

Life is about trade-offs. One more bite of that delicious ice cream means more calories. Buying that expensive suit means a regular dry cleaning bill. Spending more time at work means less time with family & friends.

The same is true of building products. Which is why we have the project triangle.

It basically says that if you are building a product, you can build it good and fast, or good and cheap, or fast and cheap - but not good, fast, and cheap. In other words - Good, Fast, and Cheap: pick two.

Why can't you have all three? Typically because of resource, time, and cost constraints. If you had an unlimited supply of each, then, well, send me and email and let's be friends! hehe.

Another way to describe this project management concept is to think of it this way:

• If you build it good and cheap, meaning of high quality and within a tight budget, then it will take a long time (it will not be fast).
• If you build it good and fast, meaning of high quality and very quickly, then it will be fairly expensive (it will not be cheap).
• If you build it fast and cheap, meaning very quickly and within a tight budget, then it will not be of high quality (it will not be good).

This is a typical problem for any entrepreneur. You want all three, but know you can't. So which trade-off is the right one to make?

I believe it depends on the stage of your business. Let's take a web start-up, for example.

1. In the ideation stage, where you are still forming your idea and doing research into its viability, it may be important to build a proof of concept to test it with potential users. At this stage, quality isn't very important; you'll have time to build it right later. For now, you just to make sure a market actually exists for your product. Also, you don't have much money yet because you're just starting out. Therefore, you want it fast and cheap.

2. The next stage is building the first version (or beta) of your product. Just as with before, it is crucial to get your product out the door and into the hands of consumers quickly. But you also want enough features & quality to be a good product. If your first version is weak, consumers will ignore you and competitors will surpass you. Start-ups used to go for good and fast at this stage, with lots of VC-based money. Personally, I think the sweet spot is fast, fairly cheap, and pretty good (listed in priority order). Picture the dot floating somewhere in the middle of the triangle, though a bit closer to fast and cheap.

3. The next stage is the next version of your product. This would involve iterative cycles of consumer feedback, new feature development, and bug fixes. Where the prior stage targeted innovators, this stage is aimed at early adopters, as defined by Crossing the Chasm. There is much debate over what the trade-offs should be in this stage, but I tend to favor cheap, fairly good, and pretty fast (listed in priority order). Most companies probably aren't rolling in the dough by version two or three yet, unless you're Microsoft (MSFT) or Apple (AAPL). So cheap is always a highly-prioritized constraint. Speed is still important, but not as much as quality now. The dot is still floating in the middle of the triangle, but now closer to good and cheap.

4. When the product and industry mature enough to begin enticing the early & late majority, then it's time to focus on quality. This crowd isn't as tech-savvy or tolerant of bugs & difficult-to-use products. So now it's important to provide them with a high quality solution. Hopefully, you'll have enough income to be able to hire more resources now. Depending on your industry, you can be good and cheap or - especially if you're in the high-tech world - good and fast.

Quick disclaimer: I realize that sometimes it's important to denote a fourth constraint too: scope. Many project managers do this and I think that's a great tactic as well.

What do you think? How would you make these trade-offs?

Now for some Friday fun.

Back at Yahoo! (YHOO), there was an unofficial rule of being able to telecommute one day a week. It was known as WFH, or Work From Home. Along with that was another acronym, OOO, or Out Of Office.

Whenever someone would WFH, or be OOO, they'd send an email to their entire team. Sometimes it would include a reason. Other times, simply a "WFH" as the email subject and nothing else.

Isaac Schlueter of Foo Hack recently wrote about an awesome tradition in his team at Yahoo! - writing haiku emails. Whenever someone is going to be WFH or OOO, they'd send it in the form of haiku.

Some examples:

Sick on an airplane.
Second carry-on: virus.
Infect passengers.

Nothing in iCal:
Must take advantage of this.
Work in pajamas.

Sneezing mightily
Wish not to infect colleagues
Thus working from home

How awesome an idea is that? Wish I had thought of it!

The next time you're going to be out of the office or telecommuting (if your company allows it), consider communicating it in haiku.

Coworkers boring?
Office drab and tiring?
Why not make work fun!

Even a little
Can go a long way sometimes
Start a trend haiku

Have a code review coming up? Need to give your peers a thorough review of their code, but are dreading the drudgery of the process? Don't find the peer review process particularly effective?

There are volumes and volumes written about code review processes, including debates with paired programming and other Agile practices.

Here's a simple yet powerful alternative. It comes from a former colleague and uber developer: Kent Brewster. As a published author, he's used the Clarion Method as a process for "critiquing short stories submitted over the course of an intensive six-week 'boot camp' for new writers."

During a team meeting one day, as we hunkered down for a traditional code review, he suggested this alternative. In a nutshell:

Roles

• Moderator
• Code Reviewee
• Code Reviewers (two or more)

Process

1. Code Reviewee brings printed copies of the code to be reviewed (preferably with a maximum of 10 pages or so). Each participant gets a copy. Each line of code should be numbered.

2. Code Reviewee provides a high-level summary of the code. This can include the code's purpose, known bugs, and a brief rationale behind its structure.

3. Each Code Reviewer reads the code for 5-10 minutes in silence. They can make notes on the copies as necessary. The Moderator keeps track of the time.

4. Each Code Reviewer takes a 3 minute turn delivering their review. No more than 3 minutes should be spent, as each turn is meant to be quick. If someone else mentions an issue you wanted to raise, just say "ditto on xxx" instead of repeating it.

5. While the Code Reviewers speak, the Code Reviewee must remain silent. No rebuttals, no explanations, no excuses. Just shut up and sit there. There will be a chance to speak up later.

6. After the reviews, the Code Reviewee now has a chance to speak. This opportunity should be used to ask questions and clarify what issues the Reviewers saw. Both sides can converse and debate freely now.

Exceptions

• If the code requires execution to be properly reviewed, each participant can bring a laptop along. The Code Reviewee should provide a location where the code can be seen an executed.
• If the code is very lengthy, select just one section to be reviewed. Other sections can be reviewed at future sessions.
• If a Code Reviewer offers incorrect advice, raise it at the end so the Reviewer can learn from this session as well.

Kent has a more detailed explanation of this process on his site.

If done well, this process allows everyone to have a chance to voice their opinions about the code, regardless of their skill level. Code Reviewees and Reviewers alike can learn a lot from these sessions. I've even found that developers from across multiple teams can join in without requiring a lot of background information.

Even more telling is that many developers really look forward to their code reviews. This process forms such a supportive, non-threatening, and educational environment that developers know they'll always learn something new from a code review. That, to me, is a mark of a truly effective process.

Here's something I used to tell my team:

If you ever go to sleep on Sunday night, dreading to wake up Monday morning to go to work, then something is very wrong with your job. You need to see me right away so we can sort it out.

I realize this is a luxury few in the working world have. The majority of employees out there probably dread every day except Friday and Saturday. In the dot-com industry, where our jobs are our hobbies, we get free coffee & snacks (and sometimes more) at the office, and there are perks galore, I find that most employees really love their jobs. Or at least don't despise them.

However, if you do despise your job, and dread waking up Monday morning to go to work, maybe you should talk to your manager. Or quit.

Do parents make better managers? I sure think so. There are lots of similar responsibilities in both roles. Each trains you and prepares you for the other in a cyclical manner.

And apparently, according to a Forbes.com article, researchers from Clark University and the Center for Creative Leadership in Greensboro, NC, agree:

According to new research, parents–at least those committed to family life–actually perform better in the office. …

Those who were committed to family life achieved significantly better reviews. The reason: Parents learn to multitask, handle stress and negotiate, says Marian N. Ruderman, research director at the Center for Creative Leadership, and one of the study's authors.

"In parenting roles you get a chance to do a lot of the same things you do as a manager," Ruderman says. "You get to hone your interpersonal skills. You learn how to develop other people. It's another opportunity to learn from experience."

Ah! Exactly what I said!

There are some caveats, though. "After all, employees are not toddlers," says the Forbes.com article. (No, not toddlers. Maybe more like teens. Ever try to settle a petty dispute between coworkers?)

There isn't direct evidence of causality between being a good manager and a good parent, however. But someone who's a good manager typically is a good parent, and vice versa. Tammy Allen, a psychology professor at the University of South Florida, adds: "the best employees are probably those who are engaged in all life roles," whether it be as a manager or a parent, employee or spouse. "It's just indicative of someone who's an active, engaged individual."

In another study by Ajilon Office, an executive administrative professional staffing firm, says that "77% of American women believe that being a parent helps prepare one for being a more effective manager."

Although the study focuses more on women's perceptions of how being a good parent means being a manager, the results raise some salient points:

• "The top parenting skill that helps out the most at work is communication according to 50% of women."
• "Whether it's being constantly on the go with children's extra curricular activities or working on three different projects at once, women rank the ability to multi-task as the second most important parenting skill that helps at the office."
• "More than a third of women decided that learning to be flexible as new projects arise and priorities shift is the workplace skill that's refined most at home while parenting."
• "Another 23% of women believe that the ability to handle workplace conflicts, whether it's between co-workers or with clients, is the top managerial skill that comes from raising children."

See? Mommy's not just a manager at work; Mommy's a manager at home too.

Ever get close to burning out from a heavy workload? Your boss is pushing you to complete twenty tasks this week, yet you know you can only handle five or six. So you stay late and dine on coffee and pizza, trying desperately to finish at least ten.

And after you finish ten tasks (sans sleep and a healthy meal), another twenty tasks hit you next week, giving you a total of thirty. Deeper and deeper you sink as the weeks drag on.

Sound familiar?

As a former manager, I often heard about cases like this from my team. Heck, I experienced cases like this myself. Over time, I developed a way to compensate for these unrealistic & heavy job workloads. I had to; I would have gone insane had I not.

1. First, it's important to realize that it's not always possible to complete all the tasks you've been assigned. Your boss may make you think you can. Even you may think you can. But c'mon, be realistic. Look at all that work. If you feel that troubling pinch in your gut, then trust your gut: you have too much work.

2. Second, let your boss know. Not all managers are able (or willing) to help you lighten the load, but you still need to alert your manager about this condition. Give your boss a chance to fix it if possible.

3. Third, find out the source of all these tasks. Someone asked for this work, so go seek that person out. Ask that person how urgent and necessary this work is; chances are, some of it can be postponed or done by someone else with more time.

4. Fourth, prioritize your tasks. After speaking with the sources, you'll have an idea of the urgency and importance of each task. This can allow you to prioritize each of the tasks and do the most urgent and most important first. Ideally, your manager should help you with this, but if he/she is not able to, do it yourself.

5. Finally, do the work. Do them in priority order. Realize that some of the items won't get done. If you can, set clear expectations with your team and the sources of work. This isn't always easy, as many will argue and try to coax a higher priority for their task. But hey, there are only so many hours in the day. The more they argue, the less time you'll have to finish everyone's tasks.

In my opinion, your direct manager or project manager should handle this kind of task prioritization for you. That person would/should also have the power to delegate and balance the workload across the team, which is something you may not have the authority to do.

Unfortunately, managers aren't always able or willing to do this. If that's the case, hopefully these tips will help.

What have you done to handle a heavy job workload?