Connecting the Head to the Feet

Published in Hebrew in Status - Management Thinking Magazine, January 2004 (issue 151)
By Amnon Danzig, Senior Facilitator and Consultant at ZOOZ, the Israeli Manager of Stren Stewart & Co.

In our competitive world it is important to remember: success is the progenitor of failure. Therefore, one should make a brave and systematic examination of the organization's battlefield, and build competencies that will enable the organization to produce value on an ongoing basis. In order to ensure this, the organization must focus on a chosen strategy and invest all its resources on implementing and sharing this strategy.

Introduction

The extensive discussion of strategic issues in various organizations takes on a problematic form: usually unproductive meetings leading to banal statements that result in a feeling of frustration - "Oh well, what did we get out of it?" Furthermore, the failure of a strategic process sets up a tremendous obstacle for future attempts on the subject. Often, such a process is "the responsibility of senior management" and so it remains - the desire to be a part of this process in the organization as a whole is not easily achieved. Still, the tough competition demands a different way of thinking. The board requires such a process, so "something must be done". This article looks at the weaknesses and problems of strategic processes through different lenses.

Let us begin by defining the desired process. We examine the way to instill it to all levels of management. This is an important note: a process that fails to take into account the ability to apply it throughout the organization loses a considerable part of its potential effectiveness.

Actually, the problem that leaders face is somewhat larger in scope: a manager wishing to embark on a strategic process has to choose the suitable methodology out of countless approaches. Moreover, strategic consultants themselves have a hard time keeping up-to-date in light of the plethora of professional literature of the late 20th century; Literature dealing with strategic processes has grown exponentially in recent decades.

Older generation CEOs are repelled by the process as if it was fire. Obviously, they always provide an appropriate intelligent explanation: "The character and pace of changes make strategy redundant. I have a gut feeling of what has to be done. I don't need academics teaching me." Up-to-date CEOs often make an error of a different kind: boasting the implementation of a whole array of managerial approaches. And what should the reasonable CEO do? Where should he turn to? What should he choose? With whom? How would he decide? The article before you deals with these questions and more.

We will attempt to lay out an organized CEO agenda by presenting a complete picture of the required process, efforts and outcomes. We will not go into a review of existing literature and management methods. We will try to stick to a model that may be implemented with practical and inexpensive resources.

Part A deals with the desired process at the senior management level. Part B examines the optimal route to drive the process and insights to middle management. Part C discusses the most difficult issue of all - training, educating and coaching people in the organization; How to translate strategy to a daily language for each person, every day, the whole day through. How to build a strategy-focused organization.

A. The desired process at the senior management level

Each organization must work around a strategy that reflects its understanding of reality and its ability to change. Strategy is currently defined in management literature as "a direction and agenda". The aim of our work is to sharpen our understanding of: 1. The direction
2. The agenda
3. The consequences of both to all areas of management
4. The change - as an ongoing process of building organizational abilities

Here are some basic terms:

• Info : In a time of increasing competition the "value zone" will shift or migrate.
• Money making: Profit rather than profitability. Whether daily activity produces more money at the end of the day, and how much.
•  The goal: Producing value on a continuous and long-term basis.
• Strategy: The way we attain our goal.
• Tactics:How strategy is implemented.

There are two models of strategic thinking:
1. Tunnel Vision Model (or Core Business Capabilities)
2. Radar Vision Model

The Tunnel Vision Model is common among experienced and veteran professionals of the field. It is characterized by a focus on the core products, clients, transformation processes within the organization and known competitors. These people are the professional "heart" of each business. Without them the business loses its ability to produce cash. Their responsibility is tremendous: supplying fuel and power to steer the ship ahead. However, a strategic danger may arise when they take over the determination of strategic direction and the organizational agenda. It is worthwhile noting two dimensions: one qualitative and the other quantitative.

The qualitative dimension:

• What do my clients make money from?
• Who are their clients?
• Why do they buy from us?
• Why do they have to buy from us?
• Why do some of the clients no longer buy from us?
• Why do some of the clients no longer buy from us?
• What activities have to be done within the organization (Core Business)?
• What should be done out of the organization (outsourced)?
   

The quantitative dimension:

A preceding analysis should be performed in order to focus the discussion on the major clients from whom we make most of the money ("produce value for the firm"), the major product groups producing the greatest value for the firm, and a cross-analysis: within the major clients group, which product groups make most of the profit (not turnover!). Such an analysis may take the form of an 80%-20% representation. It is important to keep the discussion on the essential matters. The following questions should be answered:

• Who are our major clients today?
   i. Why?
   ii. Why do they stay with us?
   iii. How much money do I produce thanks to them?
• Who should we not sell to?
• What should we not sell?
• What should we not sell to our major clients?
• What should we not produce?

Questions and decisions in these areas are at the heart of today's business activity. According to BCG, one should be milking the "cash cow" in the most effective and efficient way possible.

The Radar Screen Model is characterized by a strategic way of thinking, taking into account that "all is game and permissible". Searching all of the threats and opportunities in the field in a dynamic fashion:
1. Direction
2. Agenda
3. The consequences of both to all areas of management

This subject ought to be tackled by people from various disciplines. The gravest danger to an organization is its current success. Success makes leaders blind, and "crowns" Tunnel Thinking people.

Three patterns should be searched for:
1. Changes in client preferences
2. Alternative business structures as an answer to changing client preferences
3. Ways of reorganizing in view of "value migration"

1. Changes in client preferences

• Who is the client? Are decision makers and powers changing? If so, why?
• How do client preferences change?
• Which clients and market segments are growing more important? What are the preferences of these clients / market segments?
• How do clients develop? Do they gain power? Are they becoming more sophisticated? Acquiring better capabilities? How is their business structure changing?
• How do external events influence the priorities of these clients? Which new benefits may this give rise to?

2. Alternative business structures as an answer to changing client preferences

• Which dimensions of the business structure are critical to changing client needs?
• Where is new business activity coming from: New business initiatives? Existing industries working in other segments? Firms on different levels of the market's "value chain"?
• What are the basic characteristics that enable different business structures to respond to Value Migration? Is it the firm's economic structure? Managers' behavior? Ability to cope with change?
• External events: what are the response capabilities of each business structure?

 

3. Ways of reorganizing in view of "value migration"

• Which various models of business structure suit client preferences?
• How many extra advantages may be produced for clients? How much profit may be retained by the service supplier?
• How is value distributed among the (business) models? What is the direction and force of the "value migration"? Can the value provided to the client be increased? Can some of the value be kept for the benefit of the supplier?

 

This chapter may be summarized by the following list of questions. A systematic reply on these issues will produce a new reality in the eyes of the beholder:

• Who will be our clients?
• What will they be making money from?
• What will we be making money from?
• What will we be making money from?
• How do we adjust it to "the new world"?
• How do we supply our client needs while making a profit?

Issues and problems to be considered include:

• Value migration today occurs in incredible directions and rates.
• The daily operation of a business takes up most of the organization's management resources.
• Thus, many organizations remain in an ever-shrinking "value zone". This causes higher pressure on leaders to focus on the well known value area. Money in the bank is running out and tension rises.
• Therefore, how may one prepare for a continuous search of the organization's broad business environment?
• Decision makers have to allocate time and management capabilities for:
  1. Ongoing operation ("Cash Cows").
      Requires the development of Tunnel Thinking abilities.
  2. Strategic thinking ("Rising Stars", "Dead Dogs").
      Requires the development of Radar Screen abilities.

 

B. Implementing Insights In Middle Management

Great! We have a Strategy. It is well-phrased. The board is satisfied. Seemingly, all is well. In fact, we haven't even started. The reason is that so far those involved in preparing the strategic infrastructure haven't considered how to make the entire organization "sing the chorus". Simply put - whoever made up the plan knows its logic and details inside-out. How does one go about sharing that knowledge? It may be compared to brewing an intricate dish: the written recipe does not reflect the depth of knowledge necessary for cooking it. This is the exact difference between the chef and the novice cook. Worse yet - in cooking, the basic assumption is that the novice cook wants to make the dish. Unfortunately, the business reality within the organization is such that the amateur cook is not always connected to the chef's agenda.

A substantial number of organizations have realized that the biggest problem is implementing the chosen strategy at all levels of management. Each firm's strategic process requires the investment of considerable management time. The result should be a clear vision and tools for realizing it.

B. Know the competition

You need information from relevant databases, retailers or reps regarding market size, prices, competition, strategic alliances, IT and all other category entry barriers.

Which are the relevant category retailers? How big is the category and is it saturated? Examine the competition as if it was about to face you head-on or buy you out. This information must serve as your starting point for defining the field of operation. Cross-checking information is vital. 

C. The local connection

You should identify local people you trust, with whom you may work, and which will provide guidance to you or the people working for you on this project. If you do not know the person, convey a clear message to him that it is in his best business interest to do everything in his power for the success of the business.

D. The "Mix"

Once you have decided on the category you wish to enter, you should learn about the product mix, that is - which products are a "must have" in the category, where is the major business being conducted, and what could get you a second meeting with retailers.

A good local representative should be able to set up a meeting with anyone that is relevant to you, especially an initial meeting. What have you got to offer - good prices? An exceptional product? A convincing and innovative presentation?

In today's reality it is impossible to compete in some of the retail markets with Far Eastern manufacturers. Therefore, don't even try to do so. 

E. What next?

Find a local person to help you get data on the most competitive retailers. Consider whether you can sustain the expected price levels. Offer a relevant and attractive price in market terms and perceived value for money.

Find a good and ethical assets attorney (expect the fees to be high), learn the rules, strengths and limitations of the arena you are about to enter.

Force yourself to be innovative. Use one of the available means of concept testing and introduce innovation to your defined product line (some of these methodologies are subsidized by the Nitsos Program).

Launch a category mainstream product rather than a marginal one. With time, your product should redefine the mainstream for the chosen market niche. 

F. Feedback

When you have a clear idea, and you know its competitive aspects and have the appropriate (or at least the affordable) legal protection, as well as a general product design, it is time to ask for feedback from relevant category retailers. These may be general retailers, drug stores or home improvement stores, but your first "shot" should be aimed at at least 2 out of 5 major objectives. Take these meetings seriously and prepare your idea, presentation, price and excitement-generation well.

Remember that until you reach the end of the process, you'll be at least $100,000 poorer, and will have replaced at least one or two retailers. Depending on market size and segmentation, all you need is considerable activity with one large retailer in order to fulfill your dreams. 

G. What? No orders?

Your American partner will help you set up meetings and analyze the results, apply some of the tips from retailers and assist in planning the next stage in terms of schedule, initial launch and follow-up. He should advise on the desired frequency of updating retailers on developments. At this stage you will not receive any orders, as development is based on connections and talks.

H. Product management

Assuming you get a positive response, and still have the resources to continue, when you land back home you should hire an Israeli product manager to help with the final stages of industrial design, models, standards, approvals, packaging, points-of-sale, MarCom, production schedule and budgets.

One must plan to ensure a smooth product line penetration, marketing and production. The product must be attractive and convincing at the point of sale in order to ensure commercial success.

Finally, nine to twelve months later, the presentation of the final product, all "dressed-up" and ready for sale, is important for settling the accounts and getting extensive feedback. Hopefully, this time you should see three out of five major target retailers and several lower-level retailers.

I. Logistics

Logistical considerations depend on the category norm, the identity of the major clients and the important forces in the category. Some prefer to import and enjoy favorable prices, while others choose a local solution, providing a broader service. You should provide solutions for both types, enabling import but also supplying a local product, whether through your own logistics or with an American distributer. These issues should be determined before sales begin, with accurate and acceptable answers provided to your sales team for all major questions.

J. Sales infrastructure

The U.S. sales team should establish itself and be involved well before sales begin. The American partner should locate, train and prepare them for the beginning of the process. Do not exclude Canada.

These guidelines do not include "dos" and "don'ts" in working with reps, although one cannot efficiently manage 7-10 sales representatives via long-distance control. An on-site sales manager is essential, for working with your reps, or the product will never take off. 

K. Sell, Sell, Sell

Now you are ready to sell, you have a great product, launching was successful, one in three Americans wants your product and retailers love you.

In spite of the temptations and distractions - do not rest. Continually seek ways to increase market share, broadening coverage and diversity. Make sure that you now determine the follow-up plan, if you haven't already done so, while considering strengths: a top-notch local sales force and an innovative product line.