Musings on Strategic Investigation, Performance Improvement, and Rhetoric

The Next Level of Analysis - It Makes All the Difference

Malcolm Gladwell’s “Outliers” is a treat. It gives fascinating insights into what really lies behind world class performers, destroying the superficial romantic myths about poor kids defeating the odds with a combination of god-given talent, inspiration and succeeding against the odds. I’d sum up the Gladwell’s conclusion of what makes world class performance with the phrase “practice makes perfect”, though I’m sure my performance coaching colleagues would justifiably emphasise the importance of creating environments and cultures that stack the odds in favour of practising the right things.

Gladwell’s conclusions were fascinating, but what caught my attention was his method – how he got to the insightful conclusions that gave the myth to some romantic, but ultimately incorrect and misleading, received wisdom. In a nutshell, all he did was this: he took the analysis to the next level. That’s it. Here’s an example from the book.

A US study analysed the improvement in reading performance of school children from different social classes. Though the social groups had similar aptitude for the youngest children studied, the gap between wealthier and poorer classes grew as the children got older. Policy makers had concluded that the education system was failing the poorer children.

However, analysis of reading performance before and after summer recess revealed an interesting insight – that the entire difference in improvement could be explained by what happened when children weren’t in school. During the main school holiday, children from the wealthier classes improved their reading ability, whereas the poorer children regressed. In fact, during the school year, the poorer classes actually improved marginally more than the richer children. So by trying to raise the relative level of the poorer children through the traditional school system with traditional school hours and a traditional school year missed the crucial point - that they regressed outside class. A simple answer was a very popular, successful school that kept children at school for longer and kept them focused on their work.

The useful insight for me here wasn’t about schools or policy or social justice. It was that by getting under the skin of things, you get the insight that allows you to take the most effective actions.

Critics of Gladwell's book say he's superficial. But all these critics are saying is that he'd have got even more insight if he'd gone to the next level, so the importance of analysing to the next level still stands.

So what is the relevance of this to business strategy? It is the immense value of analysing to the next level, beyond the superficial received wisdom, and the risk of not doing so and missing the obvious actions. I’ve been analysing businesses and their markets for more than 15 years, with more than 200 companies, including my own. From that 200+ sample, I cannot think of a single example of a company that hasn’t understood its markets or the value of its services differently after making that next level of analysis. Some of these companies even acted on that insight and turned around their performance as a result.

So does this mean for the provider and buyer of strategic advice? I was speaking at a Chairmen’s dinner recently about the benefits of performing an external review, and the host asked me a very similar question: do I, as a reviewer of businesses and markets, provide information or do I provide advice? I bungled an answer, but I should have said this:

"If you keep asking the right questions; if you get under the skin of the issue, not being satisfied or fobbed-off by superficial hearsay, then the answer and the advice comes out all by itself."


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk
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Strategic Reviews — Typical Content and the Most Common Mistake Management Makes

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.”
Donald Rumsfeld, Former US Secretary of Defense

“Just one more question.”
Lt Columbo, San Francisco Police Department

In our last post we covered how critical it is to learn the lesson of the great detective, and treat a strategic review as an investigation. In this post, we look at the basic areas to cover in a review, and where companies classically miss valuable insights by not adopting this inquisitive mindset.

If it’s going to be useful, a strategic review should cover a minimum of five areas:

1. Positioning at a macro level—this classically consists of some measure of market attractiveness and some measure of competitive positioning

2. Positioning at a micro level—this review covers the buying process, routes to market, purchase criteria, company performance against those criteria, performance versus competitors, customer purchase intentions, and switching

3. A review of financial performance by business unit or product or geography

4. An assessment of the risks and opportunities the company faces

5. Strategic decisions about where and how to compete as a result of the investigation

In addition, management might then want to look at some specifics or angles or hypotheses it wants to test, such as market appetite for a new product. Management may also want to put together projections and a business case to support the decision making and subsequent planning process.

This list above is over-simplified, but you get the gist.

The fatal mistake to make with strategic reviews is to stay at too high a level, be too assumptive and too generic. Without asking that next question, leaving all the difficult stones unturned, you’re left with a strategy built on limited and superficial knowledge, Mr Rumsfeld’s known knowns. You never get to the unknown unknowns where the insights lie.

When management adopts this high-level mindset, our five review areas above tend to play out as follows:

1. Management defines its markets too broadly and so is in no position to understand properly the size, growth or any other measure of attractiveness of its different businesses’ markets. Also, without a tightly-defined view of which markets it is competing in, management doesn’t understand who it is really competing against for its most important business

2. With a high-level mindset, positioning at micro level is barely covered - it appears to low level for strategic work. As a result, management misses critical information about customer budgets and spend intentions, revenue security, requirements for service improvements, and other tangible, useful facts

3. Financial performance by business unit/product/geography, etc ends up being confined to Board KPIs and familiar numbers, with the consequence that some very common and vitally important drivers of economic value and returns are missed completely in analysis

4. With excessively superficial and generic information from areas 1-3, the range of risks and opportunities becomes much too broad and irrelevant. Management is then faced to many poorly-defined risks to know how to mitigate them, and has an excessively long list of nonspecific opportunities that it can only guess how to prioritise

5. With no new insights raised to challenge assumptions, the strategy ends up being very close to that inside the CEO’s mind prior to the review. Unless the CEO has incredible prescience, there is only a slim chance of this being the best strategy for the business

In the rest of this series, we cover how the investigative mindset gives us more insight and clues in areas 1-3. With this deeper and more accurate level of knowledge, management can make more valuable decisions and take more relevant actions.


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
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Strategic Reviews — Overview: “A Little More Columbo and a Little Less Sun Tzu”


Every so often the management of a business has a prompt to ask itself some big fundamental questions: What business are we in? Where and how should we compete? What are the prospects for our business and how can we change them? Which parts of our portfolio should we keep, sell, close, grow, harvest, restructure? Where do we focus our limited capital and time?

One common exercise provides the basis to answer these essential questions—the strategic review.

It requires an analysis of the attractiveness of the company’s markets, its competitive positioning, drivers of profit and economic value, a review of new opportunities and an assessment of risks. Done well, this strategic review provides management with the information and the confidence to make decisions from the most high-level (such as which businesses should we be in) to the most everyday (such as how do we improve our customer service).

But here’s the thing. A strategic review is an investigation. And in this investigation, God is in the detail. The Columbo fans out there know this already — you don’t solve the case if you act like the local cops and just take a cursory look, missing the key fact that the murdered “burglar” who came in from the lawn has no grass on his shoes. It’s the same with strategic reviews: you don’t generate insight by going through the motions and staying high level; you get it by behaving like the great detective — asking the questions nobody else thought of and noticing the things nobody else noticed.

There is a time for strategy and vision and bold moves and inspiration and big picture; but that time is later, once you know exactly where you stand.

In this forthcoming series of posts, we will cover the basics of performing strategic reviews, highlighting along the way some of the disciplines we use to generate the insights that successful reviews should produce.


Copyright Latitude 2009. All rights reserved.

Latitude Partners Ltd
19 Bulstrode Street, London W1U 2JN
www.latitude.co.uk

For the full text of this series email steve@latitude.co.uk
Comments