Friday, 18 November 2016

StratML and the StratTech revolution: use cases in the private sector

Sample StratML

What is StratML?

Strategy Markup Language ("StratML") is an XML-based vocabulary and schema for representing the information commonly found in business strategy and performance plans. Part 1 is an ISO Standard (ISO17469-1), whilst Parts 2 and 3 are still under development.

What is StratTech?

Technology has transformed almost every aspect of business: CRM for customer relationship management, ERP for records management, email and social media for communications, etc. by contrast, consultants and strategy departments continue to rely on email, spreadsheets, word processors and presentation tools for developing and executing strategy.

However, new tools, like StrategicLearningApp (disclaimer: I am the founder of StrategicLearningApp) are emerging which use technology to improve collaboration, traceability/auditability, security, and, ultimately, scalability in the processes supporting the development and execution of strategy.

Open standards, like StratML, provide an important foundation on which such StratTech tools can be built.

Use cases for StratML in the private sector

Much of what has been published regarding StratML to date focuses on the public and charity sectors. However, I believe that the implications within the private sector are far more wide-reaching.

I can imagine several use cases for StratML (or future extensions or variations of it) in the private sector.
  • Consolidating strategy and performance plans in large organisations / conglomerates.
  • Submitting strategy and performance plans / prospectuses in the private equity and venture capital sectors.
  • Submitting strategy and performance plans / prospectuses to rating agencies and stock markets.
  • Submitting commercial loan applications.
  • Submitting strategy and performance plans to third-party certification agencies. (Such as Corporate Social Responsibility ("CSR") and other standards bodies.)
  • Submitting fund mandate and performance data to investment platforms.
  • Making strategy and performance plans directly available to fund managers and investment analysts.
Each of these processes requires the creation, transmission and processing of information typically found in strategy and performance plans. As such, StratML could improve them by increasing consistency and making it possible to transmit the information directly from one computer system to another, eliminating the need for people to resort to time-consuming and error-prone cut-and-paste.

StratML remains immature - for now - but should prove to be an important pillar of the StratTech revolution.

I invite you to contact me if you would like to discuss how StratTech and/or StratML could help your business.

See also:

Wednesday, 16 November 2016

Getting the most out of KPIs

There are two old adages, "You can't manage what you can't measure" (from Peter Drucker) and "What gets measured gets done" (provenance unknown) which apply as much to strategy as to most other things.

That is why I always advocate that you articulate your strategy all the way through to measurements (and targets).

A simple wat to do this is to translate your strategy and vision into goals, break those goals down into SMART objectives, and create measurable KPIs and targets to describe those objectives.

What sounds simple in theory can be extremely difficult in practice, and I see a lot of companies give up altogether, or build dashboards out of the data that is readily to hand whether or not it describes their strategy.

Type of KPIs

In addition, not all KPIs are created equal.

For example, you get:
  • Quantitative KPIs: represent things you can measure using some unit of measurement. Examples include Sales (measured in units sold) or Sales Revenue (measured in monetary terms).
    • Synthetic KPIs: are a subset of Quantitative KPIs where instead of measuring something, you create a score which may be a composite of a range of measureable phenomena. For example, Google's PageRank is a synthetic score calculated for a web page based on the PageRank of every page linked to it combined with an authority score for the author of the page. Net Promoter Score (or "NPS") is another example calculated using a defined formula determined from customers' answers to a simple question.
  • Qualitative KPIs: represent things you can categorise and rank. Examples include high, medium and low or variants thereof, or initiatives which are recorded as moving through stages (initiation, analysis, design, development, testing, deployment live, etc.)
  • Binary KPIs: represent things that either are or are not. Examples include initiatives which are shown as being on track (or not), or complete (or not).

Information Content

Different KPIs provide different amounts of information content. Quantitative KPIs, especially very granular ones, tend to have the highest information content. Qualitative KPIs have less information content: if a KPI is high, how high is it? If it still high in the next measurement period, is it higher or lower than it was the previous time? Likewise, if a KPIs shows a stage in a process, how close is it to moving to the next stage? Unidirectional binary KPIs contain the least amount of information: for an example, an initiative is not done, right up until the point it is done, after which it can never be not done again - it will ever only yield exactly one bit of information.

For this reason, I always prefer quantitative KPIs over qualitative KPIs, and I avoid binary KPIs, especially unidirectional binaries, as much as is humanely possible. Invariably, I find that qualitative KPIs and binary KPIs can be translated into quantitative KPIs, but that is perhaps a subject for another post.

Objectivity and verifiability

A second consideration in selecting PKIs is how objective and verifiable they are. For example, quantitative KPIs which come directly from a business's independently audited financial statements tend to be quite objective (although not always very strategic).

Subjective measures can be made more objective (and often more quantitative at the same time) by average the opinions of large numbers of people (this is how Net Promoter Scores work, for example).

Qualitative or binary KPIs based on one person's (or a small group's)  opinion, on the other hand, are much more open to bias. I am sure we have all seen initiatives declared as complete by politically motivated sponsors when everyone knows that key outcomes have not been delivered.

Including projects on strategy scorecards

As a category, KPIs for the completion of projects deserve special mention. I am personally not a fan of including these in strategy scorecards because (1) the usually have low information content (as outlined above), (2) quickly become political and subjective (also as outlined above) and (3) you either clutter your scorecard by including every initiative in the organisation, or are forced to make subjective choices about which to include and which to exclude.

Much better I believe, is to focus the strategy scorecard on the strategic outcomes to be achieved by the projects. This has the added benefit of rewarding agile projects which deliver some benefits early, over higher risk 'big bang' projects which backend all of the benefits and which are problematic in their own right. As a side note, if part of the organisation's strategy is to improve its execution / project delivery capability, then I think there are more than enough quantifiable capability metrics that can be aggregated across all projects.

Conclusion

KPIs are powerful enough to make or break a strategy, and they are notoriously difficult to get right. They can be used to minimise the interference from (corporate) politics, and drive execution. Extreme care and diligence should be applied when setting them.

Thursday, 10 November 2016

How should strategists respond to the US election result?

Yesterday (Wednesday), we learned something very important that we didn't know on Monday. We learned who will be the next resident at the Whitehouse.

You may have hoped for, anticipated, predicted or even expected either this outcome or the alternative outcome, but that is now in the past. Irrelevant. What was a possibility is now a (near) certainty.

As strategists, it is not our job to happy, sad, fearful or even angry at such outcomes. But it is our job to help our clients / employers / stakeholders to understand and respond to such developments in the most constructive way possible.

How can we do that? Here is a 4-step playbook:

Step 1: Update your PESTEL analysis

The first step would be to update your PESTEL analysis, particularly the P element which represents the Political trends, threats and opportunities your business faces (and maybe also the E element which represents the Environmental trends, threats and opportunities).

We know from president-elect Trump's campaign speeches what policies he would like to enact. The probability of those policies being enacted has now increased significantly. Note, that they are still not certain. Trump would not be the first political to fail to deliver on his campaign policy pledges and so our strategies should allow for political failure and compromise. But they are definitely more likely. At the most macro level, these changes are likely to impact free trade, energy and environmental policy, and minority groups' rights / diversity.

Your PESTEL analysis should include the possible macroeconomic consequence of implementing or failing to implement these policies in terms of trade, foreign exchange, GDP growth, employment, interest rates, etc. You should take into account not just direct action by the US government, but also how other US institutions and other nations might respond.

STEP 2: Update your competitor and business model analyses

Having considered these macroeconomic impacts, the second step would be to consider the microeconomic impacts. How might your competitors, suppliers, distributors and customer respond or be impacted by the policies and macroeconomic consequences outlined above. This should cause you to revisit your competitor analysis as well as your business model analysis.

STEP 3: Update your scenarios

Thirdly, your should review your scenario analysis to take into account the macro- and microeconomic insights generated above. It may be that your existing scenarios just need fine-tuning, or you may find that the changes are significant enough to warrant the development of completely new scenarios.

STEP 4: Review your open strategic decisions

The fourth and final step is to re-evaluate, and where necessary change your strategic goals and plans. The plans you have today were based on the analysis you did before this new information became available. It is, therefore appropriate to refresh your decision matrices and re-evaluate your decisions. For example, a European wind-turbine manufacturer with plans to expand into the US may now consider it more prudent to focus its investment elsewhere.

In re-evaluating your strategic goals and plans it is important to consider the sunk costs incurred since the decision was already made. If the European wind-turbine manufacturer has already committed 90% of the investment required to enter the US market, it may still make more economic sense to spend the remaining 10% than to start from scratch in another market.

BONUS: Don't wait for your annual planning cycle

Too much strategic thinking and planning is tethered to organisations' annual planning cycles. You may have just completed yours for 2016. But events of significant strategic importance follow their own timetables. That is why strategy should be a continuous and fluid process. If you wait until your next annual cycle you may find your competitors have stolen a march on you.

The largest economy in the world has elected its next leader. He has made it clear that he plans to change much. This will have consequences for all of us, wherever we are in the world. As strategists, it is our job and our professional responsibility to understand those changes and how to take them into account in helping our clients, employers and other stakeholders. So, let's crack on.

PROMOTION: StrategicLearningApp is designed to make it easier for you to do strategy on a continuous and collaborative basis. If you've not already done so, why not try it now?

Monday, 10 October 2016

How (and why) to fit your strategy on a page

Your strategy should clearly communicate direction and priorities. Whilst it may take a lot of detailed analysis and discipline to develop and execute a strategy, once it is done it is important to be able to clearly articulate it in a way that people who've not been involved in the detail can easily understand.

The strategy-on-a-page (SOAP) is a good technique for communicating a strategy more widely. By sticking to the one-page discipline, it forces the architects of the strategy to really boil it down to its essentials.

Of course, it must still include all the basic ingredients:
  • Underlying insights / rationale
  • Purpose (vision / mission) and values
  • Themes / priorities (often referred to as the 'pillars' of a strategy)
  • Initiatives, including some explanation of time and sequence
  • Outcome measures and targets
Here is a template I've used to good effect before.


Here are some tips for completing your own SOAP:

  • Summarising the analysis underpinning your strategy into a small number of pithy facts about the current situation will help to ground it in a world your audience already understands. Between 4 and 6 statements should provide sufficient clarity without losing focus.
  • You probably don't need a vision and a mission on your SOAP. Either will do. Just pick the one most likely to capture galvanise people into action. 
  • Whilst brand values describe how you want customers and partners to experience your business, staff values describe how you want your team to behave towards each other and customers. You may feel these should be the same and only one set of values is enough. If you do have two, make sure they are clearly aligned.
  • The strategy ambitions describe at the highest level what you want the strategy to achieve, and provide an organising framework for the detail so that it is clear how the individual parts go together to make for a greater whole. Again, between 4 and 6 should provide sufficient narrative whilst retaining focus. 
  • Organising the initiatives into "First...", "...then...", and "...and finally" allows you to express the detail of your delivery plan in story-like language without getting overly hung up in the detail. This detail must still be tightly managed, but not on your SOAP. I often see these initiatives chunked up into large programmes. That is fine as a management technique, but it does make the strategy delivery harder for people to relate to. Resist the temptation to fall back on patterns like "First analysis, then design, and finally delivery", as this adds no narrative value. Focus instead on phasing and sequencing of delivered changes.
  • Select a small number, say 2 or 3, KPIs to represent each theme. Use visual icons to indicate, for example, whether you intend for the KPI to be increased, reduced or kept the same. Combine KPIs which represent the change in behaviour of the organisation (e.g. operational changes) with KPIs which show the result of such changes (e.g. growth and financial outcomes).
  • Update your SOAP periodically to reflect progress with the initiatives and KPIs, as part of a programme of celebrating small successes within the context of the overall plan.
A SOAP is a powerful tool when used as part of a larger strategy communication programme. It should never be your only communication, though! It can serve as a useful leave-behind. Hang copies around the office immediately after a town-hall or roadshow presentation on the new strategy as an ongoing reminder.

Contact me if you'd like this template in Powerpoint format, or need help developing your own SOAP.

Monday, 26 September 2016

The annual home insurance dance - Or - how to rebuild consumer trust

I renewed my home insurance over the weekend. I do it every year, of course, and every year it is pretty much the same.

Here is how the conversation typically goes:

Ins Co: (automated voice) Your call is important to us. We're experiencing unusually high call volumes at the moment, so it may take us longer than usual to answer your call.

Me: (under my breath) You're always experiencing 'unusually high' call volumes. Maybe you should start to call this level of call 'usually high' and staff your call centre processes appropriately. On the other hand, if you're process worked properly, I wouldn't need to call you and  we wouldn't be here in the first place.

Ins Co: (answering the call quite quickly, leaving me wondering why they'd wound me up about having to wait a long time first place!) Hello, this is ..., how can I help?

Me: I've received your renewal quotation, and I'd like to not accept it.

Ins Co: (after completing ID&V) Of course. Do you mind if I ask why?

Me: Because it is much cheaper (16% this year) to take out a new policy with you than it is to accept your renewal.

Ins Co: Oh. Would you like me to see if there is anything I can do to reduce your renewal?

Me: No, don't bother thanks. You try every year and even though you do reduce it, it is always still higher than the new policy cost. I don't know why you don't give me your best price in the first place? Anyway, I've taken out the new one already over the internet, so can we please just not renew the old one?

Ins Co: OK, that's done now, is there anything else I can do for you?

Alright, that's not the exact conversation. I am less blunt than that with the operator. I know it is not her fault.

But a simple renewal has been turned into a much more complex cancellation and new policy, with a phone call and twice as much paperwork and postage. Why I can't do the cancellation over the internet (perhaps you can, but I couldn't figure it out) and why there is any paper and postage involved in this day and age is a completely different question. The whole process is quite simply annoying.

So why do I stay with this insurer? Quite simply because, hassle factor included, it is still the best deal I can find (every year, I cross check the deal with a few other insurers).

Now I am pretty sure I know what is going on here. By taking out a new policy, I benefit from a much more attractive rate designed to attract new business. The renewal, by contrast, is much more expensive as the insurance company is relying on customer apathy to claw back the profits they sacrificed in the first year, despite the fact that a renewal must surely be cheaper to process than a new policy.

And I am guessing that enough people simply accept the higher priced renewal to make it worth the insurance company's while. I also suspect that, because I take out a new policy with the same insurer every year instead of renewing, that they make much less profit from me as a customer than they otherwise would.

It is a process which is broken on many levels. As a customer I face two choices: (1) pay more than I need to at renewal, or (2) go through a convoluted and annoying cancellation and new policy process. Neither options seems like a win from my perspective.

I've been with the same insurer for many years now. I should be a loyal customer - even an advocate. Instead, I tolerate them grudgingly.

As an industry, we spend a lot of time talking about rebuilding consumer confidence and trust. It is in fixing broken processes like these that we need to start.
photo credit: BAM BAM via photopin (license)

Tuesday, 13 September 2016

Transparency versus democracy in decision making

One of the key lessons of the Brexit vote was that important decisions should not be made by direct democracy. On the one hand, the referendum showed that voters had lost confidence in 'the experts'; on the other hand, it showed that they were ill-equipped to make the decision themselves.

That is the very reason why most democracies are representative democracies and not direct democracies. (In a representative democracy, the people vote for 'experts' to represent them in making the important decisions. In a direct democracy, the people vote directly on the important decisions themselves. The challenge, in a representative democracy, of course, is for the representatives to retain the confidence of the electorate - which they clearly failed to do during the Brexit referendum!)

It is the same in organisations. Whilst much has been written about increasing employee participation in order to increase engagement, it remains management's responsibility and prerogative to make the important decisions.

Where does that leave employee engagement? A better way to increase employee engagement is through transparency. That is, by explaining to employees how and why important decisions are made, both before, during and after the fact.

Of course, this assumes that management is making high-quality decisions in an informed and reasoned basis in the first place. If this is not the case, then increasing transparency will just expose these flaws to employees, which will decrease engagement and confidence.

The models we typically use in strategy development and execution play two roles in this regard.

Firstly, by using the appropriate models well, decision makers are able to increase the quality of their decision making. The models help decision makers to develop richer pictures of the organisation and its competitive environment, to ensure that a wider range of alternatives is considered before making a decision, and to ensure that the alternatives are evaluated against all of the appropriate criteria before a final decision is reached.

Many leaders continue to make important decisions based on intuition. This is appropriate for less critical decisions: intuition is, after all, the sum of all of our experiences. However, research has shown the importance of visual cognitive artefacts (such as mind maps, SWOT analyses, and decision matrices) that extend the capacity of the brain to process information (see Stop jumping to solutions!). That is, clearly articulating your thinking on paper (or a screen) using models improves everyone's abilities.

Secondly, the models facilitate communicating those decisions to employees, and therefore promote transparency. Because the analysis has been both thorough and explicit, it is more easily revealed to employees. Employees in turn will see that management really has understood the issues and evaluated all of the alternatives and will be less likely to assume that decision makers are living in ivory towers, out of touch with what is really going on in the business, and pursuing their own hidden agendas for personal gain at the expense of the organisation as a whole.

For example, almost all options have both pros and cons. An important part of transparency is revealing both the cons of the alternative selected, and the pros of the alternatives not selected (rather than simply presenting the selected alternative as being unambiguously positive). By understanding the cons of the alternative selected, employees will be better able to recognise and minimise any downsides as they arise.

Of course, there will be some decisions where management cannot be transparent. This might occur, for example, where there is market sensitive information in a complex negotiation. However, if decision makers are transparent wherever they can be, employees will be more likely to accept where the decision makers explain that they cannot be.

The judicious use of models can significantly improve the quality of decision-making whilst also improving transparency and employee engagement. StrategicLearningApp.com, the purpose-built online environment for collaborative strategy development and execution was developed with just that in mind. Why not give it a try now?

Post-script: I have used the terms 'management', 'employees', and 'decision-makers' rather loosely as if they are discreet groups of people. In truth, most organisations exhibit some form of hierarchy and specialisation with  at least some devolution of decision-making. That is, the same individual may be 'management' and a 'decision-maker' with regard to some decisions, whilst simultaneously being an 'employee' with regards to others. Whilst this may make the flows of communication and transparency more complex, the principles outlined above will still apply.

Monday, 8 August 2016

Understanding 4 different types of growth with Ansoff's Matrix

Most businesses are obsessed with growth. Growth is by no means the only strategic objective worth pursuing, but it is certainly one of the more common ones. Growth creates economies of scale, creates employment, generates shareholder returns, bolsters executives' egos, and of course means more customers getting more of the products and services they want. In a very real sense, a business which is growing, especially one which is growing relative to its competitors, is seen to be winning.

Ansoff's Matrix
However, as H. Igor Ansoff showed with his now famous matrix in 1957, there are at least 4 different types of growth.
  • Market Penetration is achieved by selling higher volumes of the same products and services into existing markets.
  • Product Development involves developing new products or services to sell into existing markets.
  • Market Development involves finding new markets to sell existing products or services to.
  • Diversification involves selling new products or services to new markets, and is considered the most risky strategy on account of it having to deal with two unknowns at the same time.
There is more to these four growth strategies than meets the eye, so we will look at each of them in turn.

1. Market Penetration


For most businesses, market penetration is the default strategy. Of course, if the market itself is growing, then, all other things being equal, the business will grow along with it - they say that "all ships rise with the tide".

Normally, however, market penetration would seek growth relative to the market. There are a number of ways that this can be achieved:
  1. Volume-selling: selling larger quantities of the same product to existing customers - perhaps by increasing distribution and/or offering volume discounts.
  2. Up-selling: selling higher value products to existing customers - perhaps a more expensive model.
  3. Cross-selling: selling additional products to existing customers - such as add-on or complementary products.
  4. Competition: convincing customers who would otherwise have bought from your competitors to buy from you instead.
  5. New customer development: finding customers within the market who are not already using the product or service at all, and convincing them to start.
Market penetration can be achieved by tweaking the marketing mix (reducing price, increasing promotion and/or distribution, tweaking product features or packaging, etc.), or by acquiring a competitor.

2. Market Development


Market penetration can involve developing new markets in a number of ways:
  1. Entering a new geographic region - such as a new region or country.
  2. Targeting a new customer segment - for example, the youth market, or small-to-medium enterprises. Success in this strategy depends on how insightful and nuanced your customer segmentation is in the first place.
  3. Developing new distribution channels - for example, expanding from wholesale into retail distribution, or targeting a different type of distributor.
  4. Expanding from the consumer to the corporate or public sectors, or vice versa.
The exact means of entering those markets will depend on numerous factors, such as different regulatory regimes, different socio-economic norms, and whether a competitor already exists in the market or not.

3. Product Development


Product development may take the form of:
  1. New product development, which typically involves research and innovation in order to create something which the world has never seen before.
  2. Product licensing, which involves acquiring the rights to manufacture a product developed by someone else.
  3. Product sourcing, which involves selecting products which already exist elsewhere (in other geographies, or through other distribution channels) and making them available to your customers. Amazon is a great example of this approach.
Which of these two are most suitable depends on many different factors, key of which are whether the business is fundamentally predicated on technical product or service development expertise and innovation (like Apple), on manufacturing expertise (like Capita), or on customer intimacy (like Amazon).

In practice, new products exist in a continuum from completely new and novel products, through products which are reconfigurations of existing products, to products which are merely incremental improvements to existing products. The resulting products may be own-labeled, co-branded or white-labeled.

4. Diversification


Diversification is the most risky of the four strategies as it involves all of the complexity and risk of Market Development and Product Development at the same time. For this reason, businesses often pursue diversification through acquisition. That is, by acquiring a business or team which already has a track record of selling those products or services in those markets. Even then, the acquirers ability to understand and oversee the acquired business may be a challenge.

Application


Ansoff's Matrix can be used to understand strategies in hindsight. However, it is more powerfully used to help businesses generate a complete list of strategic options for subsequent evaluation. As we have shown, Ansoff's Matrix provides not just the four options shown in the diagram, but a range of variations within each of the four.