StratChat 8 October 2020: Efficiency and business strategy
StratChat is a weekly virtual networking event for business strategists and anyone with an interest in developing and executing better business strategies. It is an informal community-led conversation hosted by StratNavApp.com. To sign up for future events click here.
StratChat is conducted under Chatham House Rules. Consequently, the summary below is presented without any attribution of who said what. As such, it is an agglomerate of views - not necessarily just those of the writer or indeed of any one individual.
This week we will discuss the relationship between efficiency and business strategy.
At our last StratChat, we discussed antifragility. A question that was raised was: does efficiency make organisations more fragile? Unfortunately, we ran out of time to try and answer it.
Does efficiency make organisations more fragile?
For example, had organisations globalised and stretched their supply chains so thin in order to squeeze as much cost out as possible that they were unable to absorb the shock of the global pandemic?
Do organisations need to allow for 'slack' like in order for innovation to happen? (For example, Google famously allowed employees to spend up to 20% of their week on any project they wanted to.)
Could organisations learn from Kent Beck's strategy. Sometime in the 1980s he supposedly admonished software developers to "Make it work, make it right, then make it fast." (Source) Notice that efficiency - "make it fast" - is third and last on the list, after quality has been addressed.
Is this why many startups seem to focus on growth first and profitability only later?
In his seminal HBR article "What is strategy?" (1996) Michael Porter argues that:
- Operational effectiveness means performing similar activities better than rivals.
- Operational effectiveness includes but is not limited to efficiency.
- Operational effectiveness is necessary but not sufficient.
- Strategic positioning, on the other hand, means performing different activities, or the same activities differently, to rivals.
- The last 2 decades of the 20th century had seen a dangerous obsession with operational effectiveness at the expense of strategy positioning.
The subsequent development of methodologies like "Blue Ocean Strategy" aim to redress this balance.
But are we still locked in the battle between operational effectiveness and strategic positioning?
Is efficiency the enemy of strategy?
In innovation, we hear that Google allowed its staff to dedicate up to 20% of their time to projects of their choosing. Innovation requires this slack - this extra capacity - to devote to thinks which may not be immediately and obviously productive. Strategy is similar. People need to be able to take time away from the day-to-day to think strategically.
Efficiency, especially when it translates to cost-cutting, undermines that capacity. People become overworked. They are barely able to complete the business-as-usual activities. They run from fighting one fire to fighting the next. This leaves little, if any, time to think strategically.
Even if the organisation is then forced to bring in consultants do think strategically for them, employees will not have the time to make available to them to ensure they can do a good job.
During the COVID-19 crisis this has got even worse. Organisations have tightened the purse strings. They have had to find new operational solutions in short order. They've not had the time and resources to invest in bedding them in properly. And so at this time of crisis, when organisations most need to think strategically, many of them are even less able to do so than usual.
Consultants are finding that lots of people need there help, but very few are in a position to want to pay for it!
Strategy is about having a long-term view and a clear purpose. Efficiency is about processes and ISO-9000. The focus is on consistency. It becomes about doing what is documented, whether or not it is what is needed.
In times of crisis, strategy becomes more short-term. It becomes harder to see too far ahead. But that does not mean that you need to be less strategic.
It is possible to be strategic right now! Chess is often held up as a game which is very strategic. Yet a game of chess seldom lasts more than a few hours.
Flogging a dead horse
At the moment, business is drying up for many organisations. Customers are disappearing as they themselves are struggling financially and their needs are changing.
Efficiency dictates that you chase that shrinking market even harder. That you squeeze every last opportunity out of it.
But what if that market just keeps shrinking and never returns? Efficiency will not help you there!
Strategy, on the other hand, dictates that you step back - zoom out - and take a broader look at the market. Strategy asks, if your existing market is shrinking, are there different opportunities opening up elsewhere? And if so, how could you reposition your business to successfully pursue them?
If the market has moved, it if is no longer where you are looking, then no amount of targeting it more accurately and more efficiently will work.
Divergence and convergence
Think strategically requires that you can zoom out. But this can lead people to become overwhelmed. It's difficult to carry that breadth of information in your head while you're executing specific plans and tactics. So strategy also requires that you can zoom in as well.
To function strategically, you must alternate between these two processes: zooming out to get the bigger picture, making decisions, and then zooming in to execute them.
When zooming out, you want lots of different, even contradictory ideas. This is divergent thinking. When zooming in, you want to focus on aligning around a smaller number of ideas and excluding the rest. This is convergent thinking.
If you confuse these two processes, you run into difficulties. When zooming out, if people judge ideas too quickly then valuable ideas can be excluded too early in the process. When zooming in and executing, if people are constantly second-guessing the choices that have been made, progress will be slowed.
In software development, this challenge is managed using Agile sprints. Sprints are timeboxed units of work (often lasting for a set period of, say, two weeks). Each combines divergent and convergent processes. Each sprint ends with the team taking a step back to review what is and isn't working, before deciding what should be done in the next sprint - the divergent processes. But then during the sprint, the team focuses on completing just what was planned for that sprint and overcoming any immediate obstacles - the convergent processes.
In strategy terms, the sprint retrospective might take the form of a situational analysis or review.
Sprints provide the organisation with a cadence. A regular timetable that provides clearly defined processes for zooming out and for zooming in. The confident knowledge that, sometime within the next two weeks, there will be an opportunity to review to address broader issues and concerns allows people to set them aside for the time being and focus on execution and tactics. The confident knowledge that everyone in the organisation is being divergent or convergent at the same time.
The cadence also provides a reminder to remember to look backwards as well as forwards. When doing business strategy, and when things feel particularly uncertain, it is important to look back and remind yourself how far you've already come, as well as to look forwards to what remains outstanding.
Agile provides methodologies for scaling the approach up for larger as well as more multi-functional teams.
Agile provides a vehicle for finding the balance between efficiency and strategy.
Agile adoption has been slower than it could have been because:
- Agile is a completely different mindset. It needs to be adopted from the top down. Trying to introduce Agile practices into an environment without that mindset leads to failure.
- Agile struggles at scale unless it is done very well. (Especially when done during lockdown over Zoom!)
- We have inherited a project management mindset from engineering projects. It is difficult to build a bridge using Agile practices. And these 'waterfall' practices have become firmly entrenched in the way we manage change in organisations.
- Many implementations of Agile have been based on a recognition of the limitations of traditional project management practices without a proper understanding of how Agile should work. It takes more than just organising a daily standup. In one situation the daily standup involved 30 people in a 30-minute meeting each day. In another situation, the team refused to give their management any estimates because they were "doing Agile".
- Agile isn't the best solution for everything. For example, selling a major subsidiary is a complex project which does not lend itself well to (many aspects of) Agile. Some of the more subtle aspects of change management can be overlooked in the hustle of an otherwise successful Agile programme.
Melding operations and strategy
It is not uncommon for an organisation's annual strategy process to produce a long and detailed plan on the one hand, and on the other hand for the business's operations to continue on in parallel as if that plan did not exist! 5 years plan were, and probably still aren't all that uncommon. Plans are out of date almost immediately after they are written. This is because changes in the external environment (even changes in the internal environment) don't synchronise themselves with organisations planning cycles.
Agile presents a way to bridge that gap. To bring strategy and operations into close alignment. Through more frequent sprint-like iterations between analysis, planning, execution and tracking.
What's the right balance
It is often suggested that managers should spend 10-20% of their time thinking about strategy.
Unfortunately, research suggests that 80% of executives spend less than 1 hour per month thinking about strategy; 50% spend no time thinking about strategy. They're so busy doing what they're doing and trying to do it better/more efficiently, that they don't have time left to think about whether they are doing the right things.
However, the right amount of time to spend thinking about strategy versus executing strategy versus focusing efficiency probably depends on a number of factors. These include:
- Role: It may be appropriate for the CEO of a global holding company to spend most of their time thinking about strategy whilst the foreman on a construction site might have considerably less need to do so.
- Success: If you have a clearly articulated strategy, it is delivering the expected results, and no major upsets are anticipated, then you might legitimately spend less time worrying about it.
- The nature of the industry, the business and where you are in the growth cycle.
Topics for future StratChats:
- The impact of the environment: is it easier and more appropriate to plan for the long term when the environment is more stable?
- Red oceans and blue oceans.
So why not join us at StratChat at 14h00 BST on Thursday 15 October as we pick up on the subject of the impact of the environment? Find out more and sign up for free at here.