Creating Value in a Transforming World

– by Marcus Degerman & Vadim Feldman.

 Stuck in constant firefighting?

In our line of work, we meet management teams at different organizations to see if we can help them evolve and become more effective. During the last few years, we have noted that more and more professionals in the tech business feel a constant pressure from a constantly evolving market, and a constant need to adapt to what is happening. At the same time, many of the employees and managers feel that all the processes and the organizational structure are actually hindering them from doing their work instead of helping them. People are stuck in constant firefighting, instead of working towards long-term goals.

The Inconvenient Question

Below you can see a screening question we have used as a sort of litmus-test. It gives us a quick idea of how well an organization is doing. When we started using it, we became very surprised by the low scores – often as low as 3.

On a scale from 0 to 10, how much do your organization and processes help you create value?

Once, when we were giving a presentation for a management team of a large organization, we could see the shock in their eyes when we summarized how they had answered the question. One of the managers literally fell back in his chair, and said: ”It is not very high!” It sparked a lot of conversation. Why were they rating themselves so low?

Organizational structures and processes are formed to help people be more effective, increase quality, and improve collaboration. But too often they seem to do the reverse. According to our observations, the general problem seems to be that the goals and strategy of organizations do not match how they are designed to produce value. Or to put it simply: there is a misalignment between what employees should be achieving and how they are expected to do it.

Three Strategies to Win

To start aligning your company strategy with your organization, you first need to define what your strategy actually is. In order to address this, we have created a triangle-shaped model based on the work of Michael Treacy and Fred Wiersema. It is one of the simplest tools we have found which can explain strategy and define what your own strategy is. According to Treacy and Wiersema, there are three strategies to win in any market: operational excellence, product leadership, and customer centricity.

The goal of all of the three strategies is to increase growth and revenue. The difference is in how they approach that challenge and what they optimize on.

  • Operational excellence is focused on increasing profit by lowering costs and increasing sales. By increasing the speed of delivery and keeping the quality reasonably high to avoid rework, the organization can produce more for less. You win by undercutting the competition, often through a pricing war.
  • Product leadership is focused on producing the best products and selling them at a premium price. The focus here is not on lowering costs, but on increasing their market share value and increasing sales through a strong brand. A strong vision for the organization’s products or services guides the company to produce better and better products, and to differentiate the products from their competitors.
  • Customer centricity maintains a long-term relationship with their customers. This strategy tries to maximize the customer lifetime value and share of wallet. The focus is not on what you are producing, but it is what your customer actually needs. If you realize that the customer needs something you are not producing, then you try to fulfill that need as well and have them buy more from you.

You need to use all of the strategies to some extent, but you can never be number one in all three at the same time; this is simply too expensive. Instead, you need to choose the one which you do better than your competitors and then remember to do a bit of the others. In most market segments today, people expect more and more from the companies. It’s no longer enough just to have a great product – it also needs to be reasonably priced (operational excellence) and in many cases customized to fit specific customer needs (customer centricity).

Getting Lost in the Strategy Triangle

Most companies are not exactly sure where they want to be, nor what their ambition is. Some companies have moved too much in the direction of one strategy, forgetting about the other two strategies.

For example, many operational excellence organizations have gone too far in that direction, killing off innovation from product leadership and the ability to deal with customer groups on a personal level. Some organizations have not gone to the extreme in any direction but are stuck in the middle of the triangle trying to balance all three strategies. This means that they will have some competitors that are cheaper, some who are more premium, and some that better fit the customer segment(s) they are aiming for.

When working with management teams we try to get them to pinpoint where they think they are, and where they want to move. The important thing for them is not to get their exact position right, but figure out in what direction they want to move in relation to their competitors. Our questions are these: ”What do you want more of?” and “At the same time, what do you want less of?”

If the arrow you have drawn is very long you will most likely fail if you try to make the change within your current organization. Smaller changes are possible, but trying to change your entire organization’s DNA from the bottom-up will most likely fail. If you need to move completely from one discipline to another, you are much better off starting a completely new organization outside your current one.

Using Five Design Principles

The big question is: “What should I change in the organization that will move us closer to our strategic ambition?” We have found five design principles to help management teams assess what they need to do more of, and what they should do less of.

An organization needs to design itself to handle growth, responsiveness, collaboration, learning, and creativity. By designing your organization to continuously improve the five principles you will get an organization that becomes more and more aligned towards creating value – a rare competitive advantage nowadays!

For example, an operational excellence organization should be responsive towards cost and quality. This means that you need to design your organization so that it reacts quickly to increases in cost or if quality start to fluctuate. A good product leadership organization should, of course, look at this as well, but its main focus needs to be on catching and launching ideas as quickly as possible, and on monitoring how the market is changing. A customer-centric organization should be most responsive to customer satisfaction and trust, but also react to changes in the customer segment(s) they are delivering to.

Working with a Strategic Change Framework

After establishing a strategy, most managers fall back on the best-practice tools and methods they have for making sure the strategy gets executed. That means starting roll-out projects and creating capability maps. We suggest another way of working with this.

Best practices can only put you on a par with the others. To go further you need to develop practices that fit both where you are now as an organization and where you want to go. We have found only one way to make sure your organization fits your strategy: start experimenting and evaluating all the changes you want to apply. You can never know before implementing something if it will work or not, therefore safe-to-fail changes are the only way forward.

All change projects within your company should start by analyzing where you are now and how you want to adapt your strategy. Based on this you need to decide on a behavior you think will support changing your strategy, and what organizational changes you want to try in order to make the change in behavior happen.

The actual rate of change will depend on the environment your business is operating in, e.g the speed of competitors and the demand for novelty from your customers. For commodity markets and industries with a high rate of change we have found it helpful to review and iterate the strategy every 6-9 months. This also means that it is extremely hard (if not even impossible) to adjust more than one to two design principles due to the natural time it takes for people to adopt a change in the organization.

The bottomline here is that you should embed change as a natural part of the work you are doing, and continuously improve the things that stand between you and your ambition. A successful organization should not see change as something separate from day-to-day business. Instead, change and evaluating the change has to be the main focus at all levels of management.

 

Marcus Degerman and Vadim Feldman are Management Consultants at Softhouse Consulting helping organizations become more adaptive to the ever-changing environment. Equipped with tools and methods from adaptive management, service design, and agile, they enable managers to navigate uncertainty and design new ways of leading adaptive organizations.