Source: The Dirty Little Secret of Strategy — Open Lecture
Introduction
I’ve always learned and been teaching that strategy is about being different, bringing a different look to something. So what about bringing a different look or having a different look at strategy. What about trying to peel away the different layers of mystique in order to understand how is strategy really made.
The strategy industry has a dirty little secret – it doesn’t have a theory of strategy creation.
Henry Mintzberg
Now, how is that possible? Strategy is at the heart of business and business success. When we say an organization is successful we immediately suppose, well, it must have a good strategy, otherwise it wouldn’t be successful. On the other hand, if an organization is failing it is probably because it doesn’t have a strategy. So strategy is at the center of success and failure. Right? So, there must be then a theory behind how do we make good strategies. The naked truth is, there isn’t any theory. Nobody knows how to make a good strategy. There isn’t any recipe, there isn’t any cookbook. There are ingredients, there are tools, but then how do you actually do it? Nobody seems to know. Which I find is quite disappointing.
Proposition 1
So, here’s my first proposition for debate: strategy is not a science – the way it is usually presented, it reminds of religion or fairy tales.
It it was a science, let’s try to push this point a little bit further, than it needs to be open to an empirical approach. That’s the greatest philosopher of science, Sir Karl Popper:
In empirical science, nothing can ever be proven right. One can only prove a theory to be wrong.
Sir Karl Popper
If we apply this yardstick, how much science is there in business on strategy? How much do we really know? How many concepts, theories, ideas have not been proven wrong almost immediately after their creation? Zero. Zero percent. Whenever a new book comes out, a new framework comes out, a new recipe of success comes out after a couple of months or years the companies that exemplified this approach will already be bankrupt, dead or at least much less impressive then when the framework was created. So, no science in strategy.
1982, a whole new industry started. The industry of business books or you might even say the industry of business fads. These lighthearted ideas that seem to promise recipes for success and seem to work, but if you put them into practice in 99% out of 100% of the cases they don’t. In 1982 two McKinsey consultants published this great book “In Search of Excellence”. This book is based on 43 large American companies that were considered to have consistently outperformed other organizations over decades. They were examples of greatness. The book became a huge best seller, between 1989 and 2006 in US public libraries it was the most widely held book. Millions and millions and millions of sales. Even today, it is still bought. One of the authors, Tom Peters, has became a guru in his own right. Talking about his book, he admitted, well, first of all, the book was an afterthought, we have done some sort of internal research at McKinsey and then just wrote up the ideas. Then we found, well, we think we identified great companies, but we are McKinsey, we need data. We don’t have any data. After having identified the companies they added the data. In some cases they actually made up the data. Two or three years after the publication in the mid 1980s, a dozen of the companies presented as outstanding in 1982 were no longer outstanding. But this didn’t do any discredit to Tom Peters who’s still widely admired and acclaimed and this book is still considered as the business bible, or one of the bibles of the science of strategy.
Another example. What a difference 11 months can make. January 2001, cover of Fortune: “The 100 best companies to work for”, “Top 10, Number 1: Enron”. For over 5 years it has been rated America’s most innovative company. All lights on green. Hail to Enron. 11 months later, Fortune, December 2001, “The Enron Disaster”.
Strategy as a fairy tale
Well, I realize, I’m in the city of Hans Christian Andersen, so I thought I needed to present something along these line.s. I think you’re all familiar with this fairy tale, “The Emperor’s New Clothes”, and actually he is standing naked. If in your mind you remember this fairy tale and just translate emperor with CEO, the tailors then become consultants making this tailor made strategy for the organization. By emphasizing that you need to be really smart to see the strategy, you need to have a decent MBA, you need to have at least 20 years of senior executive experience otherwise you won’t understand it. So if you don’t see it, you don’t have strategic vision. You’re not a strategist. So the result is, everybody sees it, even if there isn’t anything. Even if the emperor is naked everybody will pretend, yeah, great strategy.
So, that’s the glory of strategy. Unfortunately, in some cases strategy is even almost presented in a mysterious way like some form of mystique or religion. You have to believe. Big companies running their corporate events, they will bring in consultants to explain, like missionaries, the new strategy. It will be different forms of corporate rain dances in order to bring everybody to up to speed about the new direction. And then if it fails, it is never strategy’s fault. The strategy was right, but the senior management team just lacked the belief to implement it, but there was nothing wrong with the strategy or the consultants. I personally don’t want to believe that.
Strategy research: In pursuit of the holy grail
So I turned to strategy research. If strategy want’s to become a science, then there needs to be some sort of research. Perhaps research is going to the right directions and points us to the golden rules of success. In preparation of this little event I’ve looked at hot topics that were published in the Harvard Business Review over the last 12 months, Harvard Business Review being the gold standard of research and strategy. Now, I came across this one. I really liked it, let’s go straight to the center part. There are 3 golden rules for success:
- Better before cheaper – in other words, compete on differentiators other than price.
- Revenue before cost – that is, prioritize increasing revenue over reducing costs.
- There are no other rules.
Now, if I translate this into plain English, the first two for me mean: make products or services that people want to buy. That’s a recipe for success. And then, there is no other rule. Wow. Thousands of companies, organizations have been studied over a month by Deloitte in order to come up with that rule. Isn’t that a breakthrough? If you find that’s great, it gets even better.
Couple of months later, again Harvard Business Review, there’s Michael D. Ryall from Rotman School of Management, a very respected school, and he’s a senior faculty there, he is essentially saying the problem with strategy is we don’t have a mathematical model for strategy. We need better mathematics. If we get better mathematics and build them into strategy, then we can achieve the same level of insights in strategy that we’ve achieved in finance. Fantastic. Give this man a Nobel-Prize.
Proposition 2
Most strategy research, teaching, and consulting suffers from survivorship bias.
Do you know who Yohan Blake is? Do you know, who Usain Bolt is? He is the fastest man in the world. Everybody knows him. Yohan Blake is the second fastest man in the world. Probably running faster than any other human being that has ever lived on this planet and nobody knows him. That’s what I mean by survivorship bias. We focus on the one winner, forgetting about number two, number three, forgetting about all the losers, and we assume the recipe for success, we only find it with Bolt, we cannot find it with Blake. That’s the problem with most of research with strategy. We look at winners.
The way academics and consultants treat strategy is heavily biased.
- Focus on winners.
- Attributing success to good strategy.
- What about “right time, right place”?
- What about organizations that failed with the same strategy?
So, if an organization is successful, the strategy must be good. But what about right time, right place? Take Yohan Blake. Had he lived 5 years earlier, or a couple of years later, he would be the number one. But his problem is, he lives in the same time, competing in the same competitions like one guy, one guy in the world who is faster than him.
Robert and John F. Kennedy are two guys, who knew a lot about survivorship bias. This brings us a little bit into politics and history. In the early 1960-s, with the Cuban missile crisis, the world was on the brink of nuclear war. The story was that American surveillance planes had discovered installations of nuclear missile sites on the island of Cuba. The military tried to push president Kennedy to just bomb these sites. He didn’t do it because his worry was, if we start bombing their sites then we start an escalation that will end up in nuclear war. The point that he made precisely points to the survivorship bias, because had he done what the military pushed him to do, there would have been nobody left to actually tell the military guys that they were wrong.
Niccolo Machiavelli is another very inspirational author who knows a lot about survivorship bias. History is written by the victors. If you look at every major political, historical event over the last couple of centuries what is the version that we’ve got? The victors wrote that version. Now, if we ask the losers, those who are dead, what they were thinking about it, I guess we would get quite a different sort of interpretation. I believe one of the reasons why as a whole mankind does not really seem to learn from history and stumble on from armed conflict into armed conflict is that those who suffered most from it in the first place are no longer there in order to tell us how horrible it actually is.
But let’s get back to business.
Books I REALLY DON’T want to read
- How I did it
- Why Apple is great
- What we can learn from Google
- How to win
- 10 steps to success
- 5 golden rules
- …
And about 94,500 of the 94,637 titles showing up on amazon.com under “business strategy books”.
If you want to know, which books to read, then perhaps we should turn to Nassim Nicholas Taleb, another intellectual friend, who is this interesting combination of an investor, quite successful, philosopher and a very arrogant man. Apart from that he has interesting things to say. If you really want to understand success and failure, don’t look at the podium, where you see the winner, perhaps you might want to consider going to the graveyard and looking up all the losers, all those, who failed with the same strategy.
Books I WANT to read, but which haven’t been written yet (and probably never will)
- Dick Fuld: How I started a global financial crisis, wiped out 160 years of history at Lehman Brothers, and made 26,000 employees lose their jobs.
- Olli-Pekka Kallasvuo: How I turned Nokia into a basket case.
- Tony Hayward: How BP’s Gulf of Mexico oil spill could happen on my watch.
- Mike Lazaridis: How BlackBerry lost connection with the world.
- …
Three lenses for analyzing decision-making
- Rational choice – analysis
- Organizational processes
- Organizational politics
Graham T. Allison from Kennedy School of Government, Harvard University, in 1971 published a book “Essence of Decision”, looking at the Cuban missile crisis. As I’ve said, the world was on the brink of disaster. But apparently not, because from a rational point of view there was never any risk, because the US did not decide to bomb Cuba, they went for a naval blockade, not allowing Soviet ships to land in Cuba without being previously inspected by the US Navy. And the Soviets then made the rational choice no to retaliate but to look for some sort of backdoor deal that would allow both sides to save their faces still dismantle the missiles in Cuba trade them off against some old American missiles in Turkey. Rational decision from both sides, logical process, so we were not in danger.
The interesting bit comes, when Allison introduces two other levels on which we can look into decision making. Organizational processes and routines like standard operating manuals in the US Navy when they’re running a blockade, like operating procedures for the CIA for surveillance flights, and organizational politics, the politics going on in the Pentagon, between the Pentagon and the White House, within the Kremlin and Moscow, and the scary thing is that he discovered, in his analysis, that at these two levels, organizational processes and organizational politics, the world was pushed towards nuclear war, whereas on the rational level the actors were trying to pull it back from the brink, but it was much closer than what a rational, superficial view would suggest. This is quite fittingly summed up by Bobby Kennedy: “The fourteen people involved were very significant bright, able, dedicated people, all of whom had the greatest affection for the U.S. … If six of them had been President of the U.S., I think that the world might have been blown up.”. The interesting message is, nobody deliberately wanted nuclear war, but the way the routines and processes were working in the background, the way the political dynamics were playing out, they were pushed towards it, without wanting it. I believe if this can happen in the largest government in the world at the very highest level then this can happen in any sort of organization anywhere when strategic decisions are made. These influences or inter-dynamics between what you want to do deliberately, rationally and then the processes running in the background and the politics impacting them.
Proposition 3
Most strategy research, teaching, and consulting suffers from a hindsight bias, rationalizing after the event what could not have been clear before.
This is the idea of strategic heroism. The traditional approach to strategy: analyze your industry to death. Get all the data, do a heroic job of analysis and then you will see where the right position to be is, you will find the winning strategy. The uber-guru, the high priest of that approach is Michael Porter says it clearly: “I favor a set of analytical techniques for developing strategy.”. So strategy making equals analysis. Let me show you one prime example where we can see where it leads us.
In the mid 1970s, Britain had not had yet the benefit of Margaret Thatcher and the industry was still lying flat on the floor. Mass redundancies everywhere especially in one of their traditional export markets in the US. The market share of British motorbikes between 1959 and 1973 had come down from 50% to 10% and that was symptomatic for British industry in general. The government in Whitehall they got quite worried. What did they do? Well, they were lucky, now there was a whole new industry to help them, the strategy industry. They turned to a newly set up outlet, the Boston Consulting Group, which was building basing their analysis on insights right out of Harvard Business School and they seriously pretended to make business a science and that became their business. They told the minister, don’t worry, we’re going to help you, we are sorting you out. They delivered a 152 pages report to the British government to the House of Commons on why British industry is lagging behind other competitors and they used specifically the example of the British motorcycle industry, using the traditional concepts of Boston Consulting Group like the experience curve. On the face of it, it all made sense. The middle of their story was this fantastic motorbike. It’s a Honda produced motorbike, the Super Cub, introduced 1959 on the American market. Up to 1958 the market share of Japanese manufacturers in the US for motorbikes was 0%. In 1962-1963 the market share of Japanese manufacturers was over 50% with Honda having the largest share of that.
The Boston Consulting Group was convinced there must be something that British industry can learn from Honda. They looked deep, dug deep into the Honda success story. How could they take the market by storm with this (Honda Super Cub) motorbike. What they’ve found made analytical sense: traditional strategy approach, low-cost strategy, they already had a dominant position in Japan, so they had economies of scale, learning effects, so driving down the experience curve they used their cost advantage in the US, their bikes were very reliable. Most importantly they discovered a whole new market segment, because before motorbikes in the US had a quite negative image associated with Hell’s Angels, Bandidos and all these gangs. Honda totally repositioned the product and therefore the industry. They went after the leisure class, with a nice slogan: “You can meet the nicest people on the back of a Honda.”. A total shift of image, brilliant idea, brilliant strategy. Also, innovative distribution. Honda didn’t go through traditional dealerships. They went through retailers, department stores because they realized there might be barriers to entry if we go through the dealerships. It’s a very smart approach. Careful geographic expansion. They started in San Francisco. Why? Because in San Francisco you have a large Japanese minority in the US, who already knew the bike, so that would be a good starting point to penetrate the Californian market. So, excellent research and development, new products. This was presented to the British government, Boston Consulting Group sent a huge bill, Whitehall paid, nothing happened as usual. But still, this write-up inspired case studies that were taught in MBA classes all over the world until the mid 1980s as an example of brilliant strategy design, strategy development and implementation.
Until one guy came along, who didn’t want to believe. Richard Pasquale at that time, a former McKinsey consultant by the way, was at Stanford Business School, now he is at Oxford University, was going through these case studies that he was supposed to teach on his MBA course in Stanford on Honda and he has been using it before for a couple of years already and he just didn’t like it. For him, something was missing there. He said to himself, I can’t believe this. I can’t believe how these guys from Japan, not knowing anything about the American market, were able to come up with such a brilliant strategy. How did they do it?
So what he then did was taking the opposite approach to what Boston Consulting Group did. If you had Boston Consulting Group or McKinsey and you get that sort of contract on mission from Whitehall or any other client and you have a short time frame, results have to be in one week later, what you do is, well, bring in all the junior analysts, those who only can deal with data and that’s all they understand, let them look over the data, compile it, print it out in spreadsheets and graphs and just write something around it to make it sound nice. That is exactly what Boston Consulting had done.
From fiction to fact
In truth, we had no strategy other than the idea of seeing if we could sell something in the US…
Kihachiro Kawashima
What Pasquale did was taking the time, he went to the Dean of Stanford Business School asking him for a return ticket to Tokyo and a week off, in order to find and interview the Japanese managers who actually run the operations. He was lucky, they were still alive. He found them in a retirement home owned by Honda and he met them over tea one afternoon. They were surprised to learn that their bike, that Honda, had become world-famous. What they told him was that in truth we had no strategy other than the idea of seeing if we could sell something in the US. It all started in a little shed in San Francisco. They didn’t know anything about the American market. They didn’t know for example that the motorbike industry in the US is a seasonal industry. You will have strong sales when it comes out of winter getting into spring and early summer then over summer everybody will ride the bike and then autumn it will decline, nobody will buy a bike for winter. They arrived in autumn because they didn’t know that. They never intended to sell the Super Cub, the small bike, what they wanted to sell were the big 500 CCs, because they wanted to compete with the Triumphs and the Harley Davidsons. They wanted to be seen as a real motorbike manufacturer like all the others. What they didn’t know either was that motorbikes were driven in a very different way in the US compared to Japan. In Japan they’re driven in inner cities, short distances. In California, well, long distances, open Highway. The few bikes that they managed to sell, the big 500s, after a couple of days already they were returned because they were breaking down. The engine was not geared, was not made for the American environment. They found it very difficult to actually get into dealerships. They never intended to approach department stores. Their idea was, well, if you want to compete with the big guys, then we have to sell them in the same places, so they approached all the different dealerships and they were turned down by everybody.
They were trying to start into a despair [WTF?]. The bikes, the 500s had been sent back to Japan for repair, nobody seemed to want them anyway, the dealerships were saying them no, we don’t want your bikes, they arrived at the wrong time of the season, their cash was running out. In their minds, they already decided, that’s a disaster. Let’s forget about that. We still have a little bit of money to spend, while we’re here, why don’t we do a little bit of tourism and driving around California with our own bikes, the small ones, the 50 CCs which they had brought for their own pleasure and leisure from Japan. After one week of doing tourism on the streets of San Francisco quite literally they were stopped by a guy who introduced himself as the Purchasing Manager of Sears Roebuck, the big department store. The guy said, well, what are you driving there, I’ve never seen this before. They politely explained to him that this was very popular in Japan, but they were not in the US in order to sell these bikes. But he insisted, he really wanted to have them, he really wanted to have a dozen bikes to integrate them into the portfolio of his store because he thought American customers might actually like that. The Japanese said, sorry, we can’t do. We can’t do because we are not here to sell the small ones, this would destroy our image, we want to compete with Harley Davidson, with Triumph, we cannot be seen as a producer of small bikes in the US. They stayed in contact and the Purchasing Manager was resilient and after a couple of days finally they decide, OK, let’s have him his dozen bikes and at least he would go away. He took the bikes and after a couple of days they were sold out coming back for more.
At the same time another coincidence happened and that was at the University of California. One of the first customers of the small bike was actually a student, a college student. He was driving around the campus, parking it under the window of his dormitory. Looking through the window was another student, who was just working on his marketing assignment for his degree program and he couldn’t find a topic to write about. He saw this bike, went down to talk to the other guy, what’s that, that’s so nice, that’s so different. He decided on the spot, I will write my marketing assignment on that bike. At the heart of the assignment was a slogan, that he developed for that bike, which is “You can meet the nicest people on the back of a Honda”. He turned in his assignment, professors very happy, top grades, awesome, can I use your assignment? Sure, of course. Professor sends it to a friend who works in a marketing agency. They think that’s a fantastic idea, so they call again the Japanese executives in California, guys, we have a fantastic slogan for you, we will rebrand your product, you will tap into a whole new category of buyers. Sorry, can’t do, they replied, we can’t do this family friendly image, why don’t you guys get it? We want to compete with Harley Davidson and Triumph. After weeks of discussions of Honda headquarter in Japan the headquarter finally give the green light. OK, let these guys do with our product whatever they want to do, we’ve closed down the operations anyway, so, Sears Roebuck got the small bikes. They were allowed to run with this marketing campaign and after a couple of weeks the market just shop up and it became a runaway success.
That is the real Honda story which doesn’t have anything to do, anything at all, with deliberate strategy, deliberate planning. They hadn’t any idea or any correct idea about the American market but in the end they got there.
So at the end of the conversation that Pasquale had with these guys, he told them, but there must be one thing, one thing that you really did well. You started in San Francisco, there were Japanese, they must have helped you. That was a smart choice. At that moment the Japanese started to smile at him, saying, Sir, when you put a cargo on a boat in Tokyo harbor and let it float, where does it end up? It ends up in San Francisco.
The real Honda story
- trial and error
- misconceptions and adaptation
- resilience
- serendipity
The harder I work, the luckier I get.
Mark Twain
Now, serendipity is different from luck. Luck is, well, you play Lotto, then you win, that’s luck. Serendipity is trying and trying and trying again. Try harder, then you will get lucky.
Proposition 4
Strategy-making by “autopilot” is a regular occurrence in organizations.
The mystery of the chimney
It happened in the US a couple of years ago, the controller in a large organization, industrial conglomerate, came across a capital budget spending proposal from the manufacturing division and on the proposal there was just one position, a chimney for $500K. He was looking at it, wondering, what do you want to do with a chimney? He decided, that’s to mysterious, hopped on a plane, went to see the manufacturing plant. What he saw was a new plant under construction of which he didn’t have any idea at all. What the manufacturing division had done was taking the plant, cutting it into small pieces, small work orders that could escape corporate radar, didn’t require corporate approval. The only thing they couldn’t cut into meaningful pieces was a chimney. After some more investigation he found out that this manufacturing division saw an opportunity in the market and they felt, we need to move fast if we want to expand capacity. But, if we put this through the normal corporate approval process, by the time we get the green light the opportunity is gone. So, with hindsight, they made the right decision.
Intel’s exit from memory chips
Memory chips were at the heart of their business. That what they’ve grew up with. But in the 1970s they introduced a second product line, micro processors. At the start it didn’t work very well, so memory chips were the bread and butter business, but then in the early 1980s Japanese competition in the memory business sector became stronger and stronger. Their margins got under pressure. Whereas micro processor sales were increasing with better margins. In 1985-1986 prices crisis at the top of Intel, shall we get out of memory chips, or not? Shall we do it, or not? Do it, or not? For about a year they were discussing internally what would it mean to the company, to the heritage, to the culture and so on. When they finally made the decision, they realized, oh, actually we don’t do any memory chips anymore, because the organization by itself had already anticipated their decision. How? Through routine processes. Every month you had these resource allocation meetings where they would decide for the next 30 days, were will our wayward capacity go? Which percentage will go to memory chips and which percentag will go to semi-conductors? These decisions were driven only be financial rules. They just looked at the margins, they saw the margin development going down for memory chips, going up for micro processors and they just re-allocated capacity, so actually drove Intel out of the market before they made the decision.
Proposition 5
Culture eats strategy for breakfast.
That’s the story of Lexar a spin-off from Cirrus-Logic in 1996, 30 engineers, highly qualified engineers set up a new company, based on new patents in the flash memory field, which was quite the technological breakthrough at the time. They realized, we are engineers, we don’t know how to run businesses, so they hired an outside CEO. This CEO was obsessed with photography. He immediately saw how flash memories could work as a sort of digital film. Right from the outset, the company was focused on photography, we want to become a digital photography company. All the discussions inside the organization were on photography. Individual employees were given digital cameras for the holidays so they would always think photography. Interestingly, internally Lexar employees, for data transfer, also used their technology and put it on some sort of USB stick. They thought, this works quite well. They never ever, ever had the idea of bringing to the market the flash memory USB stick. It was their competitor SanDisk, was the first one coming out with it. Only 18 months later, 18 months is an eternity for Silicon Valley, did Lexar come out with its own version of USB flash memory stick. By then it was too late. They just could not see it. It was not on their radar screen. They were so blinded by the way they saw themselves as a digital photography company.
Proposition 6
Strategy-making is a game of politics.
I believe we all know hidden agendas. I think all of us might have our own personal agendas, so why not be honest about it, because if it exists, it must have an impact on strategy making. Michel Platini and Sepp Blatter were the two most important men in world football. For many years they were best friends. But then somehow one day Blatter decided I don’t like this guy (Platini) anymore. I don’t think he is up to the task. I don’t want him to be my successor. From that moment on world football is split. On every possible issue that is debated in world football you will find that these to men take the extreme opposite view. If one will say A, the other one will say B. This doesn’t have any rational foundation. It is just politics because they can’t stand each other.
That unfortunately is a reality. It happens every day. Personal agendas, hidden agendas driving decision making.
Proposition 7
Each strategy carries the organization’s DNA. “D” standing for decision making processes, “N” for norms and organizational cultures, and “A” for personal agendas and organizational politics.
Strategy as dynamic process
IKEA, similar case as Honda, no design at all. Just trying something, running into barriers, thinking how can we get around these barriers, adapting to constraints, until you finally come up with the right solution. This is how successful strategies are made.
So strategy in that sense is a dynamic process. You start by wanting to do something. Try to implement that and you will realize immediately half of what you plan to do will not work. The people cannot deal with it, we don’t have the capabilities, a customer doesn’t want it, and so on. But at the same time, while you are out there in the market, you see things that you didn’t see before. You spot opportunities and you had to be out there in order to see them. You get interesting feedback from customers and this part then you integrate in your strategy. That’s emergent bit of strategy. What you realize at the end the outcome will be very different from what you plan to do. Then the good organizations they are then able to contrast these two to interpret the gap. How did we end up there, when we wanted to do this. Is it better? Shall we continue on that road? Having this learning feedback and then you go on and on again, so strategy as a process.
How are strategies really made
There’s a decision making process, so strategies yes, are the results of decision making. This process can be deliberate, we have a strategy meeting, we make a decision, or it can also be a routine resource allocation process. Then you have decision relays where you can pass over from one path to the other. For example when Dell recognized the entry into the consumer market as a strategy, it is a decision made at routine resource allocation level that is passed on to deliberate decision making. When they decided at Kodak we need to get into digital imaging, it goes the other way around, it’s deliberate strategic decision making which is handed down to routine resource allocation.
This happens in the context of culture. By culture I mean the perceived identity like Kodak being focused on Fuji, like Lexar seeing itself as a digital film company. Mental framework, sense of mission, silos, alignment values, norms, balances between preservation and renewal.
Finally we have politics as an influence factor. What we see at the end, strategy will be a combination of deliberate decision making where we are aware that we made this decision and while emerging elements where we are quite unaware of them.
This leads to the DNA of strategy. D standing for decision making processes, N for norms and organizational cultures, and A for personal agendas and organizational politics. My idea in using this DNA framework is that I believe if organizations do not renew their DNA they will always product more of the same. How can you expect an organization to work towards strategic change if you have the same culture in place, if the same people are still there with the same interpersonal conflicts and hidden agendas. You might declare at the top, we have a strategic shift, at the bottom it will never go there. If you want strategic change and renewal you have to change the DNA.
One way of doing that is given by a very interesting company, CEMEX, one of the top three global leaders in building material cement. They are interesting because they were born in a third-world country, in Mexico, but getting to global leadership through acquisition. Fast acquisition, fast implementation. A very interesting approach.
DNA Updating at CEMEX
- Interesting example of an emerging market (Mexico) company that becomes a global leader in an industry where low-cost countries have no advantage over developed markets.
- Growth based on acquisitions in key markets.
- Following the acquisition of a company, only 20% of its organizational processes are left in place – 80% are immediately replaced by global CEMEX processes to enable quick integration.
- The replaced 80% of processes are carefully studied for several months by functional experts drawn from CEMEX locations across the world – if found superior to current CEMEX processes, they are rolled out to all business units = constant updating of the “D” part of the strategy DNA (about 70% of CEMEX global processes originated within its acquisitions).
- All manufacturing, inventory, sales and administrative data from all locations can be accessed by all senior managers, creating a culture of transparency and limiting turf war = “N” and “A” parts of the strategy DNA.
