Posted on

Jeff Bezos: Deliberate Billionaire

Is it possible to think yourself rich?

Is it possible to define a hugely successful business through careful consideration?

I think the answer is yes, and the evidence is Jeff Bezos.

Jeff Bezos

Brief Biography

Jeff Bezos was born in 1964 and grew up in New Mexico and on his grandparents’ ranch in Texas. From an early age, he enjoyed tinkering and building engineering and science projects in his parents’ and grand-parents’ garages. After graduating in electrical engineering and computer science from Princeton University, he started a rapid rise through the corporate world, moving from a New York start-up, Fitel, to Bankers Trust, where he became its youngest vice president. He then went to a Wall Street firm called DE Shaw & Co, where someone said of him: ‘he is going to make someone a lot of money one day’.

I don’t know how much he made them, but it was whilst he was there that he had the inspiration that would lead him to found Amazon.com. Amazon led the internet revolution in the late 1990s, rapidly overtaking its major competitors, the big US retailers, in turnover. It rode out the storm of the 2000 dot com bubble bursting, and went on to where it is now, taking on just about any big interests – most notably at the moment, the big publishers (about which both I and my publishers have a vested interest and I, for one, as an author and a reader, have complex and mixed views).

But Amazon is no longer just a book seller: it sells anything anyone wants to sell. It also manufactures handheld devices as part of its revolution in eBook selling, and has recently launched its first mobile phone. Bezos himself is now worth over $30 billion and uses his money to pursue his passion for space exploration, his belief in the long term future of the planet and, recently, in acquiring the Washington Post newspaper (2013).

Bezos and Business Strategy

All of the above is well-documented (indeed more fully documented) elsewhere. So why put Bezos into the Management Pocketblog? I think there is one really important lesson I want to draw from the often told foundation story of Amazon, which can be a vital lesson for managers everywhere. It comes in three parts:

1. Openness and Perception

We all come across interesting facts and curious statistics every day. It sometimes seems that this is what the internet is for (if it is not for cat photos or shopping at Amazon, that is). The difference with Bezos is that he took a statistic that millions were aware of and thought about it: In 1992, the internet was growing at 2,300 per cent per year. No matter how small the base was, this meant a huge potential and he saw it. And he also saw that this meant a potential for successful online commerce.

2. Deliberate Analysis

Bezos didn’t just go for what he knew, for what he liked, or for what seemed easy. He made a long list of every category he could sell and whittled it down to find the category with the greatest potential to make a breakthrough in online retail. Books had a lot going for them, he reasoned:

  • A huge inventory of titles – that traditional retailers could not offer but he could
  • No single (or few in number) dominant retailer
  • Easy to transport by post

He then selected his base of operations a long way from where he was living (New York) or his family (Texas and New Mexico) because it was right for the business. Seattle offered:

  • The right workforce of skilled software engineers
  • The right taxation regime
  • The proximity of a major book wholesaler

3. Constant Innovation, Development and Striving

Amazon has never rested and the driving force for that has been Bezos. It has innovated in:

  • Customer engagement
  • Retail software
  • Synergistic hardware development

Bezos Quote

What could you achieve with a fraction of Bezos’:

  1. Openness and perception?
  2. Deliberate analysis?
  3. Innovation, development and striving?
Share this:
Posted on

Henry Mintzberg 2: Management Thinker

This is our 250th weekly Management Pocketblog.
We’re looking forward to the next 250!

In last week’s blog, we started our exploration of Henry Mintzberg, Gadfly Generalist. In this second blog, I want to examine two other aspects of his work: the way organisations are structured, and how they think strategically. But first, I feel the need to add in, gratuitously, another of Mintzberg’s more memorable quotes.

Mintzberg Delayering

Mintzberg on The Structure of Organisations

Mintzberg has visited this topic twice: in his 1979 book, The Structuring of Organisations, and then again, in 1989, in Mintzberg on Management. His earlier work identified five archetypical organisational structures or types, which he later revised to six.

  • Entrepreneurial Organisations are small, informal, with loose allocation of roles, but frequently strong leadership from a single chief executive.
  • Machine Organisations are excellent at repetitive tasks like manufacturing, placing efficiency of process at their heart, and formalising everything.
  • Diversified Organisations create a central administrative function to serve a range of operating units that are more or less autonomous. The degree of autonomy seems to vary in cycles with the current cycle creating a high degree of centralisation. See the earlier article, Kenichi Ohmae: Irrational Strategy.
  • Professional Organisations might also be called knowldege organisations. They use the skills and knowledge of their highly trained workforce to deliver fairly standardised services.
  • Innovative Organisations are flexible, informal and multi-disciplinary, allowing them to adapt and innovate. Mintzberg saw these as increasingly succeeding over competitors in the future.
  • Missionary Organisations have a clear mission that provides the basis for strategic choices and the motivation for employees.

Mintzberg on Adhocracy

I am going to make more of this than it may strictly deserve, as it is just one of very many topics on which Mintzberg writes. But it is one that interests me, especially with the emergence in recent years of the concept of holacracy, which seems a natural successor.

The term was, I think, first coined by Warren Bennis and then taken up and popularised by Alvin Toffler in his book, Future Shock. An adhocracy is a way of governing an organisation, not through formal structures, but through informal networks in which individuals take on the roles that are needed at the time. Such organisations are fluid and undocumented and unstructured knowledge has a high value.

Mintzberg developed these ideas, advocating small scale, temporary organisations coming together within the larger whole, to deliver a project, or one product or service, or to serve one customer. He saw two models:

The Operational Adhocracy, which works on behalf of it clients, like service businesses such as consulting

The Administrative Adhocracy, which comes together to serve its parent organisation.

Both of these models are excellent at creating adaptability and reacting to changes in circumstance. Consequently, both are poor at strategy building, because members have little investment in the adhocracy’s long-term development.

Mintzberg on Organisational Strategy

Mintzberg has made several influential contributions to thinking about organisational strategy too. His most notable influence has been, like Ohmae, to advocate non-linear, creative thinking over formulaic, analysis-driven strategy development. Once again (see last week) Mintzberg’s HBR article on the subject is very widely read and, once again, the enterprising reader could find a copy notwithstanding HBR’s copyright if you chose to. His books on the subject include: Rise and Fall of Strategic Planning (1994), The Strategy Process (1996), Strategy Safari (1998), and Strategy Bites Back (2004). Many of these are in revised editions and remain valuable today.

He sees three major pitfalls in traditional strategy making and rejects any assertions that our volatile, uncertain times are anything special – try telling that to people in Stalingrad during the Second World War, he says. All people at all times have seen their world as complex and uncertain.

Mintzberg’s three pitfalls are:

  1. Assuming that we can predict discontinuities. We tend to assume, implicitly, that the future will flow from the past and that changes will arise from trends. This is a theme that Nassim Nicholas Taleb has recently made his own, with his best selling book, The Black Swan.
  2. Planners are often detached, in the ivory planning towers, from daily realities. They are focused on the hard data and its analysis and miss out on the soft information that would alert them to big shifts. This says that operational managers need to be highly engaged in any strategic work.
  3. A belief that formal strategy development can follow a linear process. Instead, he argues, creative, divergent thinking is needed, which can make links outside of the logic-chain, subverting established categories and dogmas.

So, to end this exploration of Mintzberg’s thinking, one last, telling quote.

‘The real challenge in creating strategy lies in detecting the subtle discontinuities that may undermine a business in the future. And for that there is no technique, no program, just a sharp mind in touch with the situation.’


Pocketbooks you might enjoy

I am a little loath to include a book on the process and tools of strategy, but it is a good book and I have included it alongside others on creative thinking!

Share this:
Posted on

Kathryn Harrigan: Decline and Join

There are two main themes in the research and writing of strategic management professor, Kathryn Rudie Harrigan. First is businesses in decline and how mature businesses can remain profitable in contracting markets. The second is around strategies for businesses joining together in more or less formal and complete ways from full mergers and acquisitions at one end of the scale through joint ventures, to strategic alliances. These two areas of interest offer much to learn from and, if your business interests lie in one of these directions, you can be assured of rigour and subtlety from her: in the past, she has lambasted quick-fix easy solution business books and models, describing her work as being for thoughtful managers.

Kathryn Rudie Harrigan

Brief Biography

Kathryn Harrigan was born in 1951 and grew up in Minnesota. Her initial training was in the theatre, taking a Bachelor’s degree in Theatre Arts at Macalester College and starting a master’s degree in Fine Arts. Early in her career, her entrepreneurial inclinations led her to create a theatre company. In 1976 she gained an MBA from the University of Texas (Austin) and went on to study at Harvard, with Michael Porter, for a DBA.

After a spell as a junior faculty member at the University of Texas (Dallas), she moved to Columbia University in New York, where she is now Henry R. Kravis Professor of Business Leadership.

Declining Businesses

Harrigan’s first research at Harvard was into declining businesses and led to her first book, Strategies for Declining Businesses, published in 1980. She returned to this topic in her 1988 book, Managing Maturing Businesses: Restructuring Declining Industries and Revitalizing Troubled Operations, and then again in her last book to date*, Declining Demand, Divestiture, and Corporate Strategy, published in 2003.

Her core thesis is that decline is inevitable if a business fails to constantly renew and refresh itself. Growth is nice to have, managers should not underestimate the challenge and rewards of properly managing a business in a mature or even diminishing market. In her 1988 book, Managing Maturing Businesses, she sets out four strategic options:

  1. Divest quickly and be the first player to exit a declining market, maximising the price you can get for any assets, intellectual property and good will you can sell off.
  2. Shrink your business selectively, divesting the weakest parts and focusing on the most lucrative areas of business, leaving your competitors  to fight over the rest.
  3. Milk the business. Adopting the BCG metaphor of a ‘cash cow’, she offers the option of continuing to manage it as well as you can, as the market declines, to drain every last dollar of return from past investments.
  4. Be the ‘last iceman’ – serve the few customers who continue to want legacy products and make this a profitable premium niche.

Strategic Alliances

In Harrigan’s other work, she has focused on the variety of alliances that companies can make, which to select, and how to do it well. Her books on this topic started with 1983’s Strategies for Vertical Integration, and continued with Strategies for Joint Ventures (1985), Strategic Flexibility: A Management Guide for Changing Times (1985), Managing for Joint Venture Success (1986), Vertical Integration, Outsourcing, and Corporate Strategy (2003), Joint Ventures, Allliances, and Corporate Strategy (2003), and looks set to continue with future work*.

Her earlier work emphasised the dangers that vertical integration of the value chain (supply and distribution) hold by limiting a company’s strategic flexibility to rapidly adapt to market changes. She saw co-operation in the form of joint ventures and strategic alliances as the key to success in future changing world markets.

This is despite the fact that the concept of joint ventures goes back to antiquity and the maritime trading of the Egyptians and Phoenicians, and continued through the great mercantile revolutions of 16th century Europe. Harrigan defines a joint venture as ‘separate entities with two or more actively involved firms as sponsors’.

It is my sense that her predictions of the 1980s are coming true: that constellations of firms working in alliance will compete with one another, rather than individual corporations. This is clearly visible in the consumer electronics industry, where systematic outsourcing creates strategic flexibility, commercial efficiency, and the capability to take on vast projects.


* I believe she is working on a new book, Strategies for Synergies.
This  emphasises the intellectual debt she owes to Igor Ansoff.

 

Share this:
Posted on

Igor Ansoff: Strategic Management

Igor Ansoff was the pre-eminent thinker who codified the way we consider business strategy. Other strategic thinkers have since either followed him or reacted against him. His first major book, Corporate Strategy, laid the groundwork for the discipline and set the direction for Ansoff’s whole academic career.

Igor Ansoff

Brief Biography

Ansoff lived a long life, that encompassed three continents (if you include his conception in Japan). He was born to a Russian mother and US diplomat father in 1918, in Vladivostock, as Russia was becoming the Soviet Union. When the family returned to the United States, he was educated in New York, studying physics and mechanical engineering, before serving in the 1939-1945 war. On his return, he took a service scholarship and completed a PhD in applied mathematics at Brown University, in 1948.

His first job was at the Rand Corporation, where he used his mathematics to contribute to operations research and strategic management, but he became frustrated with the lack of application of his work and also by his inability to truly excel as a mathematician. Seeking a new direction, he moved to Lockheed, first as a long-range planner, then leading acquisitions and diversification, and finally, taking a senior management role, where he learned how to manage people. He was successful in leading a profitable division, but wanted something else from his life, so he deliberately left Lockheed and sought an academic role.

A series of academic appointments followed, first at Carnegie-Mellon University (from 1963), where he wrote his seminal book, Corporate Strategy, then to found the Graduate School of Management at Vanderbilt University (from 1969). Here, he published the paper: ‘The Concept of Strategic Management‘ that led people to refer to Ansoff as the ‘father of strategic management’. Finding the distractions of running a school not to his taste, Ansoff moved to Europe in 1975, to join the European Institute for Advanced Studies in Management, in Brussels. Here, he wrote the book that was to address the need to incorporate strategic thinking into day-to-day implementation, Strategic Management, 1n 1979. He saw this as his most important work.

Ansoff’s final academic post was back in the US, when he joined the US International University in 1983. Here he wrote the follow up to Strategic Management in 1984: Implanting Strategic Management. He retired from academic life in 2000, becoming a distinguished emeritus professor, and died in 2002.

Ansoff’s Ideas

At the heart of Ansoff’s thinking was the idea that strategic planning could be approached in a rigorous way, using a variety of practical tools. Most notable of these tools is his 2×2 matrix, now best known as The Ansoff Matrix. This first appeared in a paper in 1957, while he was at Lockheed. The matrix offers a simple tool for assessing four growth strategies.

Ansoff Matrix

Ansoff introduced many new concepts, two of which have become management commonplaces. The first is the much over-used and often misunderstood concept of synergy: that by bringing together the right components and integrating them effectively, the final result is more valuable than the sum of its parts – ‘2 + 2 = 5’ in Ansoff’s memorably simple explanation. The second is the concept of ‘gap analysis’. This is the idea of determining where you want to get to, understanding where you are, and then identifying what it will take to bridge the gap.

The problem that Ansoff found was that his focus on rationality and his extensive kit of strategic thinking and decision-making tools were leading managers into what he called ‘paralysis by analysis’ – another coinage that has become commonplace. This led him to focus his efforts on understanding why this was happening and how to overcome it. In so doing, he effectively became his own most ardent critic. This led him from Corporate Strategy to Strategic Management – an understanding of how people behaved strategically. This was quite a theoretical analysis, synthesising ideas from many fields. So his 1979 Implanting Corporate Management put the focus on practical ‘how-to-do-it’ techniques.

His later research sought to underpin many of his hypotheses with strong empirical evidence. Ansoff always stayed close to working business leaders and his students were able to conduct detailed research into what Ansoff called his ‘Strategic Success Hypothesis’.  This asserted that a business could optimise its returns by matching strategic activities to its changing environment, and by developing internal structures and capabilities to support its strategy. In this way, he anticipated the McKinsey 7S model, in much the same way as Ansoff anticipated a lot of our modern understanding of strategic management.

Pocketbooks you may enjoy include:

The Strategy Pocketbook

 

 

Share this:
Posted on

Richard Tanner Pascale: The Honda Effect

… or Experiment, Adapt, and Learn

Richard Tanner Pascale is known as a subtle thinker who refuses to be seduced by easy models and trite explanations, preferring to take an enquiring view of the complexities of organisational challenges.

His two big contributions flow, first, from his association with the McKinsey 7S Model, and later from his championing of the concept of complex adaptive systems as a powerful metaphor for organisations.

Richard Tanner Pascale

Brief Biography

Richard Pascale keeps much of his life private – there is little I can find of his early life, between his birth, in 1938, and his education at Harvard Business School. In the late 1970s, he and fellow academic Anthony Athos collaborated with McKinsey consultants Robert Waterman and Tom Peters in the creation of the 7S model, which later became a central component of his and Athos’ book, ‘The Art of Japanese Management’. He spent 20 years at Stanford University n their Graduate School of Business and then became an independent consultant. He is now also an Associate Fellow of Said Business School, Oxford University.

Early Work

The McKinsey 7S model offered seven inner-related aspects of a business and became an important part of both Athos and Pascale’s book, and of Peters and Waterman’s: ‘In Search of Excellence’. Whilst Peters and Waterman focused on examples of US success, taking a fairly reductionist view of what it takes to succeed, Pascale and Athos focused on Japanese business and highlighted the importance of the ‘soft S factors’ rather than the ‘hard S factors’.

Soft S Factors

  • Style of management
  • Staffing policies
  • Skills
  • Shared Values

Hard S Factors

  • Strategy
  • Structure
  • Systems

In this book, he also started to identify how Japanese businesses were able to respond successfully to complex and ambiguous situations, where rational analysis was unable to create a clear solution. Instead of jumping to a final resolution of a problem, he advocated accepting the uncertainties and proceeding on the basis of an initial assessment, and then using the new information you gain as the basis of tweaking your approach. This leads to a step-wise, incremental approach, rather than a bold, decisive strategy.

In many ways, therefore, he was advocating an approach akin to the Deming (or Schewart) Cycle, or the OODA and CECA Loops.

Work on Agility

The Boston Consulting Group (BCG) had taken an interest in why Honda had been so successful in launching a business in the US, but it was Pascale’s response in a 1984 edition of California Management Review that stimulated debate and raised awareness of Pascale’s ideas. Whilst BCG attributed their success to a long term investment strategy and gritty perseverance, Pascale saw things very differently. After interviewing Honda executives, he saw a series of failures and setbacks, followed by learning and adaptation. He perceived Honda’s approach as one of experimenting and reflecting.

Pascale adamantly rejects the western approach of oversimplifying, decrying management and strategy fads, and disassociating himself from common terms like expert or guru. Instead, he prefers a process of testing and questioning, reflecting and learning, and adapting. He has constantly returned to the theme of agility as the core competence of an organisation in a complex and changing world.  He concluded:

  • Agility is a key source of competitive advantage
  • Organisational culture and attitude to uncertainty and change, rather than processes are what lend it agility
  • Four things determine how agile an organisation will be:
    1. Power: the power employees have to influence events
    2. Identity: the extent to which individuals identify with their organisation
    3. Contention: how creatively is conflict managed
    4. Learning: how the organisation handles new experiences and ideas

In item three, the four elements can lead to stagnation, so Pascale went further, in a Harvard Business Review article (Nov-Dec 1997) called ‘Changing the way we Change’. He listed  seven mental disciplines that drive agility:

  1. Building an intricate understanding of your business
  2. Encouraging uncompromising straight talk
  3. Managing from the future
  4. Harnessing setbacks
  5. Promoting inventive accountability
  6. Understanding quid pro quos
  7. Creating relentless discomfort with the status quo

Pascale views complexity and ambiguity as the drivers of change, and that constant change as the key to success. ‘If it ain’t broke: don’t fix it’ is a truism. Pascale would say:

‘If it ain’t broke: go break it’.

Complex Adaptive Systems

More recently, he has been thinking carefully about the science of complex adaptive systems and drawing somewhat fruitful analogies with organisations. The problem I see is that this has become one of the fads he has derided, and been subject to much over-literal interpretation by lesser thinkers. His Sloane Management review article ‘Surfing the edge of Chaos’ and his subsequent book, also called ‘Surfing the Edge of Chaos‘ showcase his thinking in this interesting area. However, as intellectually stimulating as it is; it is hard to see how directly managers can apply the ideas.

Share this:
Posted on

Clayton Christensen: Disruptive Innovation

Clayton Christensen currently* styles himself as the ‘World’s Top Management Thinker’.  I don’t propose to either challenge or endorse his claim, but let’s at least take a look at his thinking and see what the source of that extraordinary claim is. It is about ‘disruptive innovation’ – the idea that new entrants to a market, with new ideas, can disrupt the market. Established competitors – even the best managed ones (particularly those, Christensen argues) will fail.

I confess I don’t have any of Christensen’s books on my shelves, but I do have ‘The Mind of the Strategist‘ by Kenichi Ohmae: ‘But to break out of a stalemate, the strategist has to take drastic steps.’  Christensen’s idea is not new: what he does is examine it in great depth.

Clayton Christensen

Brief Biography

Christensen was born in Salt Lake City in 1952, and took his first degree, in economics, at Brigham Young University. He then wen to Oxford as a Rhodes Scholar, to study applied econometrics, returning to the US to take Harvard MBA. He joined prominent strategy consulting firm Boston Consulting Group, did a spell in the Reagan White House, within the Transportation Department, and co-founded a high-tech materials science business, CPS Technologies Corporation, in 1984. He returned to Harvard in the mid-1990s to do a doctoral thesis in Business Administration, from which he joined the faculty. He is now Kim B. Clark Professor of Business Administration at the Harvard Business School; and is regarded as one of the world’s top experts on innovation and growth.

In 2000, Christensen founded a consulting firm called Innosight, which applies his theories of disruptive innovation to help companies create new growth businesses. In 2007, he also founded Rose Park Advisors, an investment firm that seeks to invest in disruptive companies. His Innosight Institute is a non-profit think tank with a mission  to apply his theories to social problems such as healthcare and education.

He has written a number of books, which are discussed below.

Christensen’s Ideas

The Innovator’s Dilemma: When new technologies cause great firms to fail

The Innovator’s Dilemma was published in 1997. Its primary thesis is that large, well-established businesses in stable markets are frequently the victims of disruptive strategies from new, low-end competitors, seizing their markets with a lower cost, often technologically-enabled, service or product offering. Christensen argues that well-managed businesses are doomed to fail eventually, and that 80% of the corporations studied in business schools therefore teach students the secret of eventual failure.

The Innovator’s Solution: Creating and sustaining successful growth

The Innovator’s Solution was published in 2003. It built upon its predecessor and set out to answer the threat of disruptive insurgency by smaller upstarts. Christensen set out three ways:

  1. the corporation can spin-off a new, smaller, more agile, but well managed and resourced upstart of its own
  2. the corporation can acquire an existing innovative upstart business and nurture it
  3. the corporation can create a sand-box business i=unit, free of existing constraints, within which to build its own upstart

Seeing What’s Next: Using the theories of innovation to predict industry change

Seeing What’s Next was published in 2004 and took the story one step further, identifying three ways to spot the trends that will lead to disruption:

  1. identify the signs and portents that change is coming
  2. analyse the competitive environment and the conflicts it creates
  3. understand your strategic choices

Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns (2008), and The Innovator’s Prescription: A Disruptive Solution for Health Care (2009) followed. These extended Christensen’s ideas into the realms of education and healthcare respectively. He returned to the more generic thinking with…

The Innovator’s DNA: Mastering the five skills of disruptive innovators

The Innovator’s DNA was published in 2011 and  sets out the five skills we need to develop if we want to be innovators:

  1. Associational thinking – synthesising new ideas by combining ideas and knowledge from multiple sources
  2. Questioning – asking the questions that less innovative minds fail to recognise
  3. Observing- noticing the world around them
  4. Networking  – seeking new people with new ideas, and testing out their own ideas with a wide variety of people
  5. Experimenting – seeing pilots, prototypes and experiments s the way to learn, develop and innovate more

It is important to note that, although Christensen is the leading thinker behind all of these ideas (as far as an outsider can tell), on all but the first of the books listed above, he collaborated with co-authors.

Postscript

Recently, there has been a somewhat public spat between New Yorker journalist Jill Lepore and Clayton Christensen. Lepore wrote a highly critical analysis of the idea of disruption in general, and of Christensen’s work in particular: ‘The Disruption Machine: What the gospel of innovation gets wrong‘. Subsequently, Drake Bennet interviewed Christensen for Business Week and published a lengthy article with Christensen’s response: ‘Clayton Christensen Responds to New Yorker Takedown of ‘Disruptive Innovation’‘.

Make your own judgement.

 


 

* On his website, 23 June 2014.
The World's Top Management Thinker

Share this:
Posted on

Kenichi Ohmae: Irrational Strategy

Kenichi Ohmae is notable as the first internationally-known Japanese corporate strategy thinker, for fresh thinking on how corporate strategy thinking should be conducted, for the essential concerns of a corporate strategy, and for one of the first people to do some serious thinking about the strategies that need to arise from modern globalisation of commerce.

He has an awesome intellect, and holds a PhD (like Karen Stephenson, whom we met recently) not in business, but in another topic: in Ohmae’s case, in Nuclear Engineering.  Like me, he is a physical scientist at heart, but if you think that makes him a pure rationalist, you’d be wrong.

Kenichi Ohmae

In Ohmae’s best known book, The Mind of the Strategist, he sets out how Japanese business went about creating corporate strategy, arguing that the strategy creation process should not be a rigid, linear process, but instead needs to involve creative and intuitive thinking, flowing from a structured analysis. His book is filled with powerful tools to help us do this analysis, some of which were familiar from earlier works. What was new was the way he set out that Japanese companies go about the process, placing the customer at the centre of their thinking. Central to his approach is ‘The Strategic Triangle’ – or the three C’s.

Kenichi Ohmae's Strategic Three C's

Brief Biography

Kenichi Ohmae was born on the southernmost Japanese island of Kyushu, in 1943.  He studied chemistry as an undergraduate and then nuclear physics at the Tokyo Institute of Technology, before moving to US to earn his doctorate in nuclear engineering at MIT. His first job was a brief one, at Hitachi, but he quickly found his natural milieu, moving two years later to McKinsey & Company in 1972.  He stayed there for 23 years before stepping down to run for public office as Governor of Tokyo. When he was beaten, he moved into academic life and private consulting. His first book, The Mind of the Strategist, was written in 1975 and his other particularly influential book, on globalisation, The Borderless World, came out in 1990. In total, he has written eight books and contributed to others.

His Ideas

Central to Ohmae’s early work is the strategic triangle of corporation, customers, and competition, and his injunction that we place customer focus at the heart of our strategic thinking. Another key point of his, against which many global corporations have swung in recent years, is the criticality of strategic business units. These are quasi autonomous businesses within a large corporation, capable of serving a discrete customer set with products or services that they need. He argued that this is where the corporation is closest to its customers, so it must give these SBUs freedom to operate as they see fit, in service of their customers. The role of the strategist in this is to match the capabilities of the corporation to the needs of the market. Sadly many of the global corporations I work with now see fit to centralise so many functional decisions that SBUs are no longer able to serve their customers as they would like.

Ohmae identified four sources of competitive advantage:

  1. Concentrate resources on the business’s key factors for success
  2. Exploit the difference between your business and that of competitors to harness relative superiority
  3. Develop a disruptive strategy to shake up the status quo with an aggressive initiative
  4. Innovate to create change in your marketplace and exploit these strategic degrees of freedom

Ohmae’s later work, starting with The Borderless World, focused on the effects of globalisation. He advocates two more C’s: Country (nation states) and Currency (the impact of exchange rates and volatility). These become ever-more important considerations in a corporation’s strategy. It is the attempts to leaven the risks and harness the opportunities of these factors that have lead major corporations to subordinate Strategic Business Units to global-level corporate strategies and business planning.

 


You might enjoy:

Share this:
Posted on

On Competition: Internal Forces and the 7-S Model

Tom Peters is a maverick thinker with a provocative style and use of language.  We introduced his work in October 2011.  However, far earlier in his career, while he was still at international consulting firm McKinsey, he co-developed a tool that rapidly fell into the mainstream.

Like last week’s Five Forces Model, the McKinsey 7-S model is provocative in a conservative sort of a way: it can provoke deep insights into your organisation, but is far from revolutionary.  It is radical in the true* sense of the work, rather than in the ‘way out’ sense it has come to adopt.

* Radical, from radix, meaning root.  As in radish.

The Origins of the 7-S Model

The 7-S model was created by Tom Peters and Robert Waterman (and, I am sure I read once, somewhere, another colleague, un-credited in the book) and was published widely in their business best-seller, ‘In Search Of Excellence: Lessons from America’s Best-Run Companies’.  The authors do credit Anthony Athos and Richard Pascale for their help in developing the model.

They acknowledge its ‘obviousness’ but rightly, I think, assert its great utility.  In last week’s Pocketblog, I suggested that Porter’s Five Forces Model needed an additional element to account for the forces within a business.  I think this is a great model for that purpose.  It also serves very well for non-profit organisations in the public and charitable sectors.

The Seven Ss

Okay, the authors also recognise that, at times, they needed a shoe horn to force the model into Seven Ss, rather than, say 4 Ss and a few other letters.  But it works very well, and the alliterative nature makes it memorable and therefore more useful.

McKinsey7S

The fundamental tenet of the model is that, for an organisation to succeed, it must bring seven dimensions into good alignment.  Gaps and mis-alignments will be sources of failure or, at least, internal tensions and therefore performance challenges. Let’s illustrate this with an admired company.

Shared Values

At the heart of the model is the need for shared values.  Apple’s whole business is aligned around the values of design and user experience.

Style

Led by  Steve Jobs, the business had a style that combined ruthless attention to detail, with an entrepreneurial flair that encouraged ideas.  People have been free to innovate – as long as they met Jobs’ exacting standards.

Staff

Consequently, Apple is able to attract the very best staff, and is very demanding of them.

Skills

Staff come with passion and a lot of skills, but Apple invests massively to keep staff at the peak of product knowledge and technical excellence.

Structure

I can only speculate about the business structure, but I would expect it to echo the style – loose in the sense that alliances and collaborations are promoted in the development arena, but tight around the operational details, like supply chain and retail.

Systems

Apple’s procurement and supply chain systems have become legendary as they have built capacity for launching and supplying huge new market-dominating products.

Strategy

Under Jobs, the strategy was to focus on a small number of products and to make them innovative and excellent – enabling the business to capture a huge market share relative to its size, and build a loyal customer following.

The 7-s model is represented by seven inter-connected circles arranged with six spaced around the seventh (Shared Values) in the centre.  This networked ‘Atomium-like’ image illustrates well, the network nature of these dimensions and their inter-relatedness.  There is also a big © symbol attached to it so, notwithstanding the numerous reproductions in derivative books and websites, we’ll settle for our alternative representation and a picture of Brussels’ Atomium!

Atomium

The Atomium
by o palsson

Rights granted under Creative Commons Licence

Share this:
Posted on

On Competition, again: Porter’s Five Forces

Back in the summer of 2011, we did a couple of blogs on the work of Michael Porter – one of the most serious-minded academic thinkers in the realm of corporate strategy.

In the first, ‘On Competition: Five Forces’, we surveyed his five forces model from a high vantage point and also introduced his three sources of competitive advantage.  We then, in ‘On Competition: The Far End of the Value Chain’ questioned whether there are not, in fact other sources of competitive advantage.

The Five Forces

I think it’s time to take a closer look at these five forces, and maybe question the adequacy of that model too.  So what are Porter’s Five Forces?

1. The Bargaining Power of Suppliers

If your business is dependent upon the supply of materials, assets, or people, then your suppliers have power over your business – which is increased as the market dominance of your supplier increases.  You need a strategy to keep your suppliers’ interests aligned with yours, by being as important to them as they are to you.  Dependence on a monopoly or near monopoly supplier is a route to doom.  Consider creating alternative supply sources, alternative inputs, or vertical integration to control your own supply source.

2. The Bargaining Power of Customers

It would be great to be a monopoly supplier of a commodity product.  Few are although, if you can differentiate your product sufficiently – for example, as Apple did with the launches of the iPhone and iPad – then you can simulate that position for a while.  Ultimately, the customer is king or queen: without them, you are doomed.

3. Competitive Rivalry

Existing players in your market will be jostling for customers’ attention and preferential deals for suppliers.  For most people, this is where their conception of competition ends.  Porter knew differently . . .

4. The Threat of New Entrants

When Sea and Atari were slugging it out for dominance of the games console market, who would have predicted the arrival of the Sony Playstation?  Answer: anyone familiar with this model.  They would not necessarily have known it would be Sony or that it would be successful, but the threat was there… As it was some years later, when, Atari gone, Microsoft entered the market to challenge Sega and Sony, with the X-Box.

5. The threat of Substitute Products

Somewhere in my stationery cupboard, I have a bottle of Tipp-Ex (probably set solid) and a pack of acetate sheets.  Is there a better supplier of correction fluid or a superior priced transparent paper?  Who knows?  Who cares?  I don’t use either: I print drafts from my PC and re-print when I’ve made corrections, and I project straight from my PC when I need slides.  I doubt many of my clients retain a working overhead projector (OHP).

Are there More Forces?

There you have it in a nutshell: five competitive forces that allow a business to evaluate its competitive strategy.  It is one of the most successful and widely used management models.

The last fifteen years have emphasised the rightful role of regulation as a competitive force or, rather, sometimes the failure of regulation to curb competitive behaviours (Enron, anybody?) I think we would now have to add regulatory forces to any complete analysis.

But I also have to ask, what about internal forces.  How do the social, cultural, political, operational, technological… forces within the business affect strategy.  To me, this is a big gap.

If only someone could plug it . . .

Happily, they can.
But you’ll have to wait until next week’s Pocketblog for that.

Management Pocketbooks you might Enjoy

Share this:
Posted on

Crazy Times again

FW TaylorFrederick Winslow Taylor was the first management thinker to try to analyse an organisation, test his ideas with experiments, and document the results.

Today we recognise him as the father of ‘Scientific Management’, a term coined by lawyer Louis Brandeis and used by Taylor in the title of his book, ‘The Principles of Scientific Management’.

Taylor became famous for one experiment – and at the same time, invented the ‘piece rate’ – payment per item made or task completed.

Midvale Steel Works

Taylor was working at the Midvale Steel Works in Philadelphia when he realised that factory processes could be optimised from the fairly random state he found them in. If he could find the ‘best’ way to fulfil a task, he could maximise efficiency.

The first problem he directed his attention to was the cutting of steel. At the Midvale Steel Works, Taylor tried out a whole range of experiments to find the best way to cut steel, and to shovel coal. Later, at the Bethlehem Iron Works, he took up the challenge to increase the amount of 32 inch iron bars a man could shift in a day.  He measured the rate of work before starting his experiments at 13 tons per day.  As well as suggesting alternative methods, Taylor offered ‘piece rates’ to the men.

Midvale Steel Works

The Victory of Incentives

One worker, called Henry Noll, was particularly motivated by incremental payment, because he was also building a house. Noll shifted an astonishing 47 tons of iron a day.  As a result, he got to take home 60% more in his wages: $1.85 compared to $1.15 which his fellow workers got.

The Story Shifted

Of course, Scientific Management was not the last word, and researchers like Elton Mayo – who set out to provide further evidence for Taylor’s theories – were to counter it powerfully with a radical alternative: ‘Democratic Management’.

‘The change which you and your associates are working to effect will not be mechanical but humane.’

Elton Mayo

And now we are in Crazy Times… again

One modern management thinker has done more to rail against Scientific Management than any other.  And he does so with a charisma and a showmanship that eclipses any of his peers.  Love him or hate him (and many do each), it is hard to ignore the influence of Tom Peters.

Tom PetersTom Peters has come to speak and write in demotic, didactic, explosive language that makes it hard for some to take him seriously.  Academic and dry, he is not.  So many criticise what appears to be his flippancy and glibness.  However, he has been way ahead on just about every management and organisational trend in my lifetime. [21 years? Ed]

Tom Peters is capable of solid research and a more dusty style, and has written much in that format, but his more recent works have adopted a distinct style of challenging his readers and audience to think.  He will stretch your concepts beyond breaking point and hope that, when you mend them, they have given up a measure of slack.

One of his most astonishing seminars and books was Crazy Times call for Crazy Organisations – in the mid 1990s.

Well, things are going crazy again folks.  Time to dust off some Tom Peters, and challenge today’s orthodoxy, if you want to stay ahead for tomorrow.  Here’s some classic Peters…

[youtube=http://www.youtube.com/watch?v=0UyvJgOCS1w]

Share this: