Services Strategy
Recall the last time that you were involved in formulating a company, product or service strategy. Did you conclude with what you would consider a breakthrough strategy or solution? Did it create tremendous value for your customers and your organization? Was everyone committed to the resulting plan or strategy?Recall the process from a technical perspective. When going through the strategy formulation process, was the mission clear? Were all the appropriate customers considered? Were all their requirements properly captured and understood? Did everyone agree on the criteria that were to be used to evaluate each proposed strategy or solution? Were the decisions based on fact? How did the organization prevent personalities, politics, personal agendas and gut-feel from negatively impacting the chosen strategy? How did the organization prevent the chosen solution from being negotiated and compromised to the point where its value was diminished? Was everyone committed to the strategy? Was the chosen solution supported throughout its implementation? Was a large percent of the company’s collective knowledge and wisdom infused in the strategy formulation process?
Many obstacles tend to stand in the way of creating breakthrough strategies and solutions, but what if those obstacles could be overcome? What if an organization could master its ability to consistently make the optimal choices and create the optimal strategies? How much more value would it be able to create for its customers and stockholders? If an organization could consistently create the optimal strategies, it would then be able to optimize its investment decisions, deliver the optimal products and services and achieve the optimal competitive position. This, in turn, would accelerate the organization’s rate of growth and profitability.
What prevents an organization from consistently formulating the strategies and solutions that create the most value? The ability to formulate breakthrough strategies and solutions has been inhibited by what can be described as three natural barriers. They are natural barriers in that they result from limitations that are inherent to most individuals and organizations. Since they are natural barriers, they often go unchallenged and are typically accepted as insurmountable obstacles to success. These barriers were identified through qualitative and quantitative research that I conducted in companies around the world between 1985 and 1991. The barriers are defined as follows.
Structure
First, organizations often lack a structure that will enable them to filter, organize, prioritize and manage all the information that enters into the strategy formulation process. This is a complex process. It involves the interaction of people and information. When formulating strategies and solutions, organizations must consider thousands of pieces of information from multiple sources. Customer requirements, regulatory issues, competitive data, manufacturing inputs, stockholder demands, resource constraints, stakeholder requirements, industry trends and other information must be considered. Information from customers, executives, managers, engineers, sales representatives, consultants and others must be evaluated. Organizations must be able to determine which information takes precedence and how one piece of information impacts another. In addition, they must be able to determine the order in which to process the information.
What happens when information cannot be structured in a meaningful way? How does that impact the dynamics of a strategy formulation session? Have you ever tried to obtain consensus on a strategy or solution when everybody is using different information as a basis for decision making? Without a structure to organize information, individuals involved in the strategy formulation process lack a solid basis for agreement or disagreement. As a result, they often fail to reach consensus or a conclusion and limit the possibility of creating a breakthrough strategy or solution. Without a solid structure for gathering and processing information, strategy formulation and planning sessions often become a forum for argument, debate, negotiation and compromise. Solutions are often negotiated and compromised to the point where they lack both value and commitment.
Who in your company filters, organizes, prioritizes and manages the information that is included in the strategy formulation process? How is the information filtered and organized? What methods are used to prioritize the importance of the information? Does a structure exist? A lack of structure is often accepted as a barrier that cannot be overcome. Top strategists rarely address this as a barrier to success, it is simply accepted as one of the complexities of strategy formulation.
What would happen to the quality of your strategies, plans and decisions if your organization could effectively structure all the information that enters the strategy formulation process? Would this be the first step toward an Intellectual Revolution?
Information
Second, individuals often do not have the information they need, or know what information they need, to create breakthrough strategies and solutions. Sure, individuals have access to large amounts of information, much more than ever before. But they may not know which pieces of information are important, which pieces should be eliminated, which pieces are missing or how to obtain the information they need. For example, organizations often talk about providing strategies and solutions that satisfy their customers’ desired outcomes, but how often do they know all their customers’ desired outcomes? How often do they know which desired outcomes are most important? As a result of missing or inaccurate information, individuals often base their strategies, plans and decisions on an incomplete or inadequate set of facts. Ask yourself, when contemplating a business or investment strategy, defining a product or service plan or making a trade-off decision, how often do you have access to 100% of the facts? How many of your decisions are based on 100% of the facts? How often do you have access to 100% of your customers’ prioritized desired outcomes, internal constraints and competitive positioning data?
The inability to capture all the information required to effectively formulate strategies and solutions is often accepted as a barrier that simply cannot be overcome. In The Rise and Fall of Strategic Planning (1994), Henry Mintzberg points out that ‘‘much of what is considered as ‘hard’ data is often anything but.’’ He goes on to say, ‘‘there is a soft underbelly of hard data’’ typified by the fallacy of ‘‘measuring what is measurable.’’ Many organizations simply use the information they have at hand to assist in strategy creation without questioning its value or relevance. This clearly contributes to the inefficiency of most strategy formulation processes and the ineffectiveness of the strategies they produce.
What would happen to the quality of your strategies, plans and decisions if they were based on 100% of the facts? What if you had access to all the prioritized desired outcomes of your internal and external customers, all the constrainst imposed on the solution and knew what competitive position you wanted to achieve? Would an Intellectual Revolution be closer at hand?
Processing Power
Third, individuals must be able to simultaneously process literally hundreds of pieces of information when attempting to formulate strategies, define plans and make complex decisions. Unfortunately, the human mind is limited in its ability to know, remember, process and apply all the pertinent facts that are required when conducting these activities.
Psychological research suggests that individuals consider only a small number of variables when contemplating strategies, plans and decisions. Psychologists generally agree that individuals rarely consider more than five to nine pieces of information at a time. Howard Gardner, in Frames of Mind: The Theory of Multiple Intelligences (1983), for example, says that individuals often rely on ‘‘a small set of human intellectual potentials, perhaps as few as seven in number.’’
It follows that when formulating a strategy it would be nearly impossible for an individual to accurately define the optimal solution for any complex situation given that there are often hundreds of possible solutions from which to choose and over 100 different evaluation criteria that must be considered. As a result, individuals often fail to effectively process all the information that must be considered when attempting to formulate a breakthrough strategy. An analogy of this situation is as follows:
When solving a simultaneous algebraic equation, you may be asked, for example, to determine the values of x and y given that:
2x y 3, and y x 1
In this situation you are asked to solve this equation given two variables (x and y) and the numerical constants. Most people cannot solve this relatively simple equation in their head. Now consider that in most strategic situations there may be over 100 solutions (variables) and between 50 and 300 evaluation criteria (constants) that must be considered to effectively formulate a strategy. Without the assistance of additional processing power, the probability of an organization choosing the strategy that will deliver the optimal results is near zero.
Despite this fact, businesses and individuals often rely on their internal decision-making capabilities to determine which strategy or solution will work best in a given situation. Some strategists encourage this behavior. As a result, strategies, plans and decisions are rarely optimized. This is an obvious barrier to the formulation of breakthrough strategies and solutions.
In his book titled The Mind of the Strategist (1982), Kenichi Ohmae states, ‘‘Phenomena and events in the real world do not always fit a linear model. Hence, the most reliable means of dissecting a situation into its constituent parts and reassembling them in the desired pattern is not a step-by-step methodology such as systems analysis. Rather, it is that ultimate non-linear thinking tool, the human brain.’’ This sounds great, but in the complex world of strategy formulation there are few people that can meet this mental challenge. It is true that strategy formulation requires non-linear thinking, but it is also true that the human mind requires assistance in processing all the information that is required to think in a non-linear fashion.
The fact is that individuals seldom choose the optimal solution when contemplating strategies, plans and complex decisions. The structure, information and processing power that is required to choose the optimal solution is rarely available. Think back to the results of your last strategy formulation experience. How confident were you that the chosen solution was the optimal solution? Was the optimal solution ever even considered? Was the chosen solution reconsidered or changed prior to implementation?
The need to simultaneously process more than five to nine pieces of information at a time makes it difficult for any one person, or group of people, to create the optimal solution without additional processing capability. Obtaining the information that is required to uncover the optimal solution is often impractical as the required skills and resources are rarely available. Structuring all the information that is presented is difficult and time consuming. As a result, these inherent limitations are often simply accepted as insurmountable obstacles or natural barriers to greater success and inhibit the formulation of breakthrough strategies and solutions.
Strategies and plans are often formulated without an information structure, or a basis for agreement or disagreement. Their formulation is often attempted without all the facts and without the processing power that is needed to simultaneously process all the required information.
Assume for a moment that the process of strategy formulation is comprised of only the three steps that have been mentioned: organizing the information in a structure, capturing the required information, and processing the information in an effective manner. If an organization is 80% efficient at structuring the information that is entered into the strategy formulation process, 80% efficient at obtaining the required information and 80% efficient at processing the information, then its strategy formulation process is about (.8 .8 .8) or 51% efficient. If each aspect is 60% efficient, then the overall process efficiency drops to just 22%. If each aspect is 50% efficient, the overall process efficiency drops to 13%. How efficient is your organization at executing each of these aspects of the strategy formulation process? Can it afford to be less than 90% efficient?
These barriers must be eliminated before organizations can dramatically increase the amount of value they create for themselves and others. This book describes how these barriers have been overcome. It describes what organizations must do to obtain the structure, information and processing power they require to consistently formulate breakthrough strategies and solutions.
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