The Gun’s Loaded: Don’t Shoot Your Foot!

By Virgil Carter

We are all too familiar with well-publicized stories—“black swan” events—of highly destructive calamities that seemingly came out of nowhere, with huge negative effects on the organizations and environments involved.  Examples include oil rig explosions, automobile recalls, financial meltdowns and more.

In a recent article “How to Prevent Self-Inflicted Disasters”, published in Strategy + Business, author Eric Kronenberg writes that “when you look in more detail at these crises, you often find that they were self-inflicted to some degree…after the event, the leaders of the company often have to admit:  “we did it to ourselves”.”

Kronenberg explains, “Self-inflicted “black swans” have occurred in many industries in widely varying circumstances, but always with one common factor.  Although the initial trigger appeared to be an exogenous event, the critical decisions were largely under the control of management”.  Typically, a number of people within the company knew about the situations and saw the potential downside in advance.

Then how could such disasters happen?  “Because the perception of risk diminishes over time”, according to Kronenberg.  Companies that overlook or sidestep their risk management practices may be primed for a self-inflicted “black swan” event.

Kronenberg recommends four steps for organizations to anticipate and manage large, unrealized risks:

·         Clarify who is responsible for which decisions, taking into account the influence that informal leaders already have (decision rights and norms);

·         Align incentives and other motivators to promote awareness of potential risks and their prevention (motivators and commitments);

·         Create formal and informal communications channels to raise awareness of current conditions on the ground (information flow and mindsets);

·         Set up better reporting relationships and prevention guidelines, using work-arounds as diagnostics (organizational structure and networks)

“With a close look at the core elements of your organizational DNA”, according to Kronenberg, “you can recognize the design steps that can lead to better behavior very soon”.

Steps to Improve Your Strategic Planning

By Virgil Carter

Is your organization’s strategic planning a positive and effective process, or does it seem a frustrating waste of time and resources?  Or does your organization even bother with strategic planning?  It’s common for many organizations who utilize strategic planning to feel that sense that the process has a lack of impact on either their own actions and/or the direction and effectiveness of the organization.  What can be done to improve this situation?

First, it’s important to recognize some of the positive benefits from an annual planning process.  In addition to identifying and prioritizing some aspects of an organization’s strategy, the process facilitates budget planning and the resource allocations for the coming annual period.  This identifies financial and operating targets, which, in turn, may be used to determine compensation planning and guidance for the management team on annual priorities.

What can managers do to improve the strategic planning process?  Authors Renee Dye and Olivier Sibony offer ideas in their article “How to Improve Strategic Planning”, in a recent McKinsey Quarterly publication.  Here’s their suggestions:

·         Start with the issues:  deliberately and thoughtfully identify and discuss the strategic issues that will have the greatest impact on future business performance;

·         Bring together the right people:  include the most knowledgeable and influential participants, stimulating and challenging the participant’s thinking and having honest, open discussions about difficult issues;

·         Adapt planning cycles to the needs of each business:  not every business unit needs strategic review and re-direction every year—focus on the business units with the greatest need/impact;

·         Implement a strategic-performance-management system:  put into place teams/systems for accountability, execution and tracking of strategic initiatives;

·         Integrate human-resources systems into the strategic plan:  Simply monitoring the execution of strategic initiatives is not sufficient; their successful implementation also depends on how managers are evaluated and compensated.

Strategic planning may have a more effective role in organizations that focus both on the formulation as well as the execution of strategy.  How effective is strategy in your organization?

One Sign of Effective Leadership

By Steven Worth

One sign of effective leadership is the ability to draw out the best in others, to allow others in a team to flourish and be recognized for their talents and contributions.  Organizations thrive that are run by leaders who have this quality.  We know this; we see proof of it everywhere we look.   

One would think that vision-driven, nonprofit organizations would attract tons of talented leaders of this caliber whose first consideration is their organization’s mission and the well-being of their team—so why do we see so many examples to the contrary?  By this I mean CEOs who hog the spotlight, who terrorize their staffs, and whose perk-laden compensation packages impose sometimes unbearable burdens on their organization’s finances.

In her recent interview with AARP magazine, the actress Sharon Stone talks about her fundraising work with nonprofit organizations and “is critical of nonprofit leaders who ‘rotate in and out and blow their ego all over the place while you're really trying to get money allocated. I've stayed for a very long time because the mission was more important to me than the headaches.’” 

The job of nonprofit leader is or should be always bigger than the person.  Perhaps someday we will see a nonprofit accreditation program that will take into account such leadership skills, or the lack thereof.

Imperatives in Economic Slowdowns

By Virgil Carter

Since 2008, the economy has slowed and become highly unpredictable.  How can non-profit organizations survive, much less succeed, in such conditions?  Author Richard P. Rumelt writes in a recent article “Strategy in A Structural Break” in a recent McKinsey Quarterly that, “By strategy, I mean a cohesive response to a challenge. A real strategy is neither a document nor a forecast but rather an overall approach based on a diagnosis of a challenge. The most important element of a strategy is a coherent viewpoint about the forces at work, not a plan”.

Rumelt points out, “Although the 1930s were very hard times for the United States, not every industry or business declined. As the economy shifted massively from capital goods to consumer goods, some industries—such as steel, rubber, coal, glass, railroads, and building—suffered greatly, but consumer brands such as Kellogg’s hit their stride. Campgrounds and motels blossomed along highways. Airline passenger traffic grew robustly. Entertainment surged with the growth of the radio and movie industries, and of their audience, during the Golden Age of Hollywood”.

“The wrong way forward”, according to Rumelt, “in a structural break during hard times is to try more of the same”. The break and the hard times are sure indications that an old pattern has already been pushed to its limits and is destroying value.

So during structural breaks in hard times, cutting costs isn’t enough. Rumelt points out, “Things have to be done differently, and on two levels: reducing the complexity of corporate structures and transforming business models”. At the corporate level, the first commandment is to simplify and simplify again.  The goal of simplification is to provide lean central and support services that enable business units to be more effective. 

For the business units, the traditional moves are reducing fixed costs, scope and variety.  Rumelt cautions, “In hard times accompanied by structural breaks, you must rethink the way you manage”.  He suggests several new issues for management improvement:

·         How much extra work results from the way incentive and evaluation systems relentlessly pressure managers to look busy and outperform one another?

·         Which information flows can you omit? Information that doesn’t inform value-creating decisions is a wasteful distraction.

·         Which decisions and judgments can you standardize as policy rather than make in costly meetings and communications?

·          How can you work with customers, suppliers, and the government to simplify their processes so that you can simplify yours?

“Recessions are neither good for the economy nor morally uplifting”, Rumelt observes. “But since we are diving into a period of neck-snapping change, we had better start the process of reformation before it’s too late”.

Is your organization sufficiently reformed?

Coming to Grips with Uncertainty

By Virgil Carter

Since 2008, the economy has been uncertain at best.  Perhaps the only consistent aspect of the economy has been its uncertain volatility—up one day and down the next, with little certainty of which direction the economy may ultimately be headed.  Non-profit organizations are particularly vulnerable to such conditions, since most non-profits operate with annual budgets that are fully consumed each year and may have little financial reserves.  How can non-profits make the most of uncertainty?

Author Hugh Courtney, asks the questions in “Making the Most of Uncertainty”, in a recent McKinsey Quarterly, “Is it better for a company’s competitive position to try to influence, or even determine, the outcome of crucial and currently uncertain elements of an industry’s structure and conduct? Or is the wiser course to scope out defensible positions within an industry’s existing structure and then to move with speed and agility to recognize and capture new opportunities when the market changes?”  In other words, shape or adapt—be proactive or hunker down?

 Courtney offers the view, “The truth is that no dominant solution exists. You might argue that any good strategy should attempt to shape and adapt by specifying actions designed to increase the probability of some outcomes while simultaneously preparing for others. That approach may work in some cases. Yet the actions a company must take to shape the market are often inconsistent with those needed to adapt.”

 An essential starting point is understanding your alternatives. Shaping and adapting strategies may take many different forms. Shapers generally attempt to get ahead of uncertainty by driving industry change their way.  Other shapers try to restructure unstable industry environments by making bold mergers and acquisitions.  Adapters, by contrast, take the existing and future industry structure and conduct as given. When a market is stable, adapters try to define defensible positions within the industry’s existing structure. When high uncertainty prevails, they attempt to win through speed and agility in recognizing and capturing new opportunities as the market changes.

Whether a company should attempt to shape or adapt depends largely on the level and nature of the uncertainty it faces. To put things simply, when it faces very high levels of uncertainty about variables it can influence, shaping makes most sense. Adapting is preferable when key sources of value creation are relatively stable or outside the company’s control.

The author notes four levels of uncertainty, beginning with the least uncertainty and concluding with the greatest level of uncertainty:

·         Clear enough future:  a single view of the future may be possible

·         Alternative futures:  a limited set of possible future outcomes, one of which will occur

·         Range of futures:  a range of possible future outcomes

·         True ambiguity:  not even a range of possible future outcomes

As organizational leaders make shape-or-adapt choices, uncertainty, perceived first-mover advantages, and the company’s capabilities and aspirations play important roles. No algorithm exists to weigh each factor, nor can a one-size-fits-all answer suit all organizations in all situations. One thing, however, is certain, according to Courtney: “leaders who develop a thorough understanding of the level and nature of the residual uncertainty their organization faces can develop a richer set of feasible alternatives and make better-informed choices to shape or adapt”

Where is your organization’s level of uncertainty?  How will it shape your decision-making?