Don’t Invest In Initiatives, Invest In Strategies

Few companies recognise the power of investing in strategies rather than initiatives. Most companies I know demand detailed discounted cash flow statements for all proposed projects. These projections must show significant payback before the initiative is considered for investment.

So what’s the problem with this approach? Why is a focus on detailed initiative appraisals unhelpful? There are two major problems:

  1. There is no explicit link to strategy.

    An initiative may make money in itself, but it can also divert focus and resources away from the company’s core strategy. This is one reason why Herb Kelleher of Southwest Airlines would respond to apparently profitable initiatives (for example introducing in-flight meals) by demanding “And how does that help us become the low fare airline?

  2. They are open to “creative” management assumptions.

    Managers can tweak assumptions to create acceptable financial proposals even for dubious initiatives. For some managers, this has become an art form!

A better way is to focus investment decisions on your overall strategy. It is far more difficult for managers to manipulate the financial forecasts of an overall strategy than it is to influence the projections of individual initiatives.

More importantly, focusing investment decisions at a strategic level requires you to make clear and consistent choices. Strategy is, at heart, about creating a system to support and deliver a distinctive proposition. In other words, it is not the individual elements or initiatives that create value, but the combination of those elements working together that determines a company’s success.

This point was brought home to me a few years ago during a meeting at Walgreens, America’s leading drugstore chain. I asked their senior managers how they could possibly get a decent payback on their drive-thru pharmacies (“Don’t they lead to lost in-store impulse sales?”) and their 24-hour opening (“How can you possibly get enough business to justify a pharmacist at 3am?”).

Their reply was revealing. The senior manager simply said, “I don’t know whether these initiatives make money in themselves, but they were both essential to our goal of being the most convenient drugstore in the US.”

By focusing resource allocation decisions on the overall strategy, the initiatives became essential elements of Walgreen’s agenda, whatever their economics may have looked like in isolation. Just as importantly Walgreen’s management was willing to offset investment in these elements by reducing investment elsewhere – for example, low-cost store fit-outs, and lower in-store staff service levels.

So how do you control investment in initiatives without demanding detailed discounted cash flow forecasts? First you need to estimate the overall resource levels required to deliver the strategy over the next few years. Then, you ask three key questions any proposed initiative:

  1. Is the initiative critical to your strategy?

  2. Can you afford the investment?

  3. Is this the most efficient way to fund this initiative?

Asking these questions will help you determine the best way forward for your business and not just default to allocating resources to the individual initiatives with the highest cash-flow projections.

Making investment decisions solely at the level of detailed initiatives can hinder the longer-term performance of your business. By focusing, instead, on the value and investment of your overall strategy you will make the choices and trade-offs necessary for ultimate success.

© Stuart Cross 2017. All rights reserved.

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Business Rocks – Are You Better-Than-Average?

This week’s riff: There is a psychological concept called illusory superiority. The concept explains why most people believe that they are better-than-average across many different skills and characteristics, even though that’s mathematically impossible to be the case.

Illusory superiority has been seen in many situations. Students, for example, tend to over-estimate the grades they will obtain, and I’m sure you’ve noticed that most of your team believe that they’re better-than-average during your performance review discussions. A study of convicted prisoners even showed that a large majority of criminals believed that they were morally superior to most of their other inmates!

The belief that you’re better-than-average is useful in helping you to tackle difficult tasks and overcome major obstacles. But it can also blind you to the reality of your current situation and your actual level of performance.

When Nokia’s market share started to drop in the mid-noughties, for instance, I was surprised by the level of shock of Nokia’s UK managers at the company’s decline. It seemed clear to me, and many others, that the newly-launched iPhone had the capacity to kill their business, but Nokia’s domination of the global smartphone market – it had a 50% share in 2005 – had cemented a feeling of illusory superiority that pervaded the entire organisation.

The only way to avoid this better-than-average complacency is to have an approach of critical analysis, a focus on the facts and an environment where bad news can be discussed openly.

What is the level of illusory superiority in your business? And what steps are you taking to shine the light of reality, rather than wishful thinking, on your decision-making?

 

Off The Record: Anything You Can Do by Irving Berlin

From the musical, Annie Get Your Gun, here is the perfect song for all ‘sufferers’ of illusory superiority!

Anything you can do, I can do better

I can do anything better than you

No, you can’t

Yes, I can

No, you can’t

Yes, I can

No, you can’t

Yes, I can! Yes, I can!

 

© Stuart Cross 2017. All rights reserved.

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How Meghan Markle Can Help Your Business Strategy

Embed from Getty Images

The news that Prince Harry is to marry his long-term girlfriend, Meghan Markle, seems to have created a positive public reaction across the UK and beyond. Back in the 1930s, the idea that a member of the royal family was planning to marry an older, divorced American woman caused a constitutional crisis. This time, our politicians, commentators and celebrities are queuing up to add their warm congratulations to the couple.

Even Diana Spencer, who married Prince Charles in 1981, came from a noble family with strong connections to the royal family. In fact, the change in marriage protocol and expectation for our royal princes and princesses only really began when Prince William married his university girlfriend, Kate Middleton. These changes, however, have been rapidly accepted across UK society as completely normal.

These shifts in attitude and taste reflect deeper changes in UK society. Over the past 20-30 years, the UK has changed – a lot! Here are just a few of the changes since the 1980s:

  • The population has grown by nearly 20% – almost 10 million – for a start.
  • This demographic change has been largely driven by immigration. The foreign-born population in the UK grew from 3.4 million to 8.0 million between 1981 and 2011, and foreign-born residents now make up 12% of the UK population.
  • In London, the percentage of foreign-born residents is even higher than the rest of the country, and over half of the births in London are now to mothers who were themselves born outside the UK.
  • The population is also much older. The number of UK residents aged 90 and over has almost tripled since the early 1980s and now comprises over 1% of the total population. The share of the population aged 65 and above has grown from 15% to nearly 20% since the mid-1980s and that figure is forecast to grow to 25% by 2045.
  • Over two-thirds of the UK now own a smart-phone (over 90% for 16-24 year olds), and spend, on average, 2 hours a day on those phones (far longer than they spend on PCs or laptops). The phones are used for shopping, banking, communication and entertainment.

These changes are deep and long-lasting. They are not going away and will keep on shaping the dynamics of the UK. Yet, many companies continue to find it difficult to respond to the challenges these changes create. For example:

  • Many ‘traditional’ high street retailers still operate clunky, hard to use websites. I was talking to the MD of a niche beauty brand yesterday, for example, who told me how refreshing it was to work with Amazon after having so much trouble listing and managing their product on the Boots website!
  • Most businesses I know do not have a specific London strategy, even though London is completely unlike any other part of the UK. In many ways – language and currency apart ­– London is a foreign nation in comparison to other UK regions. The different age, ethnicity and lifestyle of Londoners mean that you should be developing a London-specific growth strategy, not simply cookie-cutting your existing UK strategy.
  • While many CEOs I meet talk about the ageing of the UK population, few have done anything meaningful about it. Even M&S, the UK retailer with the biggest affinity with the baby boomers and older shoppers, continues to struggle to find a meaningful clothing offer for its core, ageing customers.

The reaction to the engagement of Prince Harry and Meghan Markle reflect deeper demographic and societal shifts across the UK. But what steps are you taking to better understand these shifts, and what tangible impact is this understanding having on both your strategy and your day-to-day management decisions?

© Stuart Cross 2017. All rights reserved.

Posted in Innovation, Leadership, Speed and Pace, Strategy | Leave a comment

Business Rocks – Scythian Speed

This week’s riff: Later today, I’m visiting the Scythians exhibition at The British Museum. I’m going with my wife, Scythia, who, via her maternal grandmother, is named after this relatively obscure ancient civilization.

The Scythians were formidable nomadic warriors. Based on the Russian Steppe, their power and influence extended from the Black Sea to China in the years 700-200 BC, and they were feared adversaries of the Persians, Greeks and Assyrians.

The Director of the State Hermitage Museum in St Petersburg has written that the Scythians “combined barbarian ferocity with exceptional talent.” Scythia, on the other hand, has only half of those characteristics!

Speed and mobility were at the heart of the Scythians’ success. Having no major cities to support or defend, these expert equestrians could move and fight at a pace which their foes found impossible to match.

Many leaders talk about how they are improving their company’s speed and agility. But improving your speed demands that you make real choices about the nature of your organization and how it operates.

As nomads, for instance, the Scythians did not allow themselves to become weighed down with unnecessary assets, such as buildings and towns, and gave their ‘generals’ total freedom to choose their battles to extend Scythian power.

What specific choices, decisions and actions have you taken in the last six months to improve the speed of your business, and what plans do you have for further improvement in the next six months?

 

Off The Record: The Scythians by Herodotus

No song lyrics this week, but a description of the Scythians by the ancient Greek historian and writer, Herodotus:

None who attacks them can escape, and none can catch them if they desire not to be found. For when men have no established cities or fortresses, but all are house-bearers and mounted archers, living not by tilling the soil but by cattle-rearing and carrying their dwellings on wagons, how should these not be invincible and unapproachable?

 

© Stuart Cross 2017. All rights reserved.

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The Unbalanced Scorecard

the unbalanced scorecard

My big problem with the Balanced Scorecard approach to strategy and performance management is that is, well, too balanced. It makes everything of equal importance.

In most Balanced Scorecard projects and reports I’ve seen, there is a general assumption that all goals carry the same weight. The end result is that the management of the business becomes unnecessarily complex and confused, with managers trying to keep on top of a dozen or more measures.

I don’t work that way.

When I work with my clients we determine what their #1 goal is, and use that goal to drive their agenda and strategy. We then identify other KPIs to counter-balance our goal and make sure that it is delivered in the right way, but we don’t give everything equal weighting.

As set out in the chart, it is like having one major weight being counter-balanced with several smaller weights. In that sense, our scorecard is purposefully unbalanced.

For example, in 2012 I worked with Topps Tiles to set a #1 goal of growing market share from 25% to 33%. Or, as the leadership team put it, the aim was to grow Topps’s share from 1-in-4 of UK tile sales to 1-in-3.

The team counter-balanced that measure with other KPIs – sales, profit margin, conversion rates, customer satisfaction and operating cost ratios – to ensure that the share growth was both profitable and strategically sustainable.

But the big breakthrough the team made was that, all other things being equal, increasing market share was the factor they wanted to pursue to drive the retailer’s ambitions. As a result of the new focus, the executive team made decisions to exit from wood flooring and other non-tile ranges, develop a new ‘boutique’ store format, and improve the offering for Topps’s trade customers.

As Matthew Williams, the CEO of Topps Tiles commented, “Among other things Stuart Cross helped us define a specific and clear goal that galvanised the entire organisation and has been a key part of our success.”

Are you suffering from an excessive number of conflicting objectives? Or have you identified your #1 goal and focused your organisation on delivering it in the right way?

 

© Stuart Cross 2017. All rights reserved.

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Business Rocks – Working Values

Please read to the end of this post to get the chance to win a copy of my book, First & Fast.

This week’s riff: Nick, the coach of my youngest son’s football team, is totally committed to the whole group’s development. Despite being unpaid, he spends hours planning the team’s two 90-minute training sessions each week, and reviews each session, as well as each game, for new ideas for improvement.

One thing he has given my son, above all, is a set of values he can use in any situation. Nick has told the boys that if things aren’t perhaps going as well as they might wish, they should focus on the team’s three core values: enthusiasm, hard work and discipline.

All the boys can tell you about these three values, and when Nick reminds them of the values during a game, their performance levels immediately improve.

I think that many lists of organizational values are either too long or too abstract to be meaningful. Interestingly, however, I find myself referring to these values in my own work as a way of keeping focus and improving performance. These values feel relevant, memorable and immediately applicable.

What are the values of your organization, and what positive impact can you see them having on the performance of your colleagues and teams?

 

Off The Record: Heigh-Ho by Frank Churchill and Larry Morey

We dig up diamonds by the score

A thousand rubies, sometimes more

But we don’t know what we dig them for

 

Competition Time: OK, here’s your latest chance to win a copy of my book, First & Fast. Heigh-Ho was a famous song from Walt Disney’s first feature-length animated film, Snow White and The Seven Dwarfs. But who wrote the original fairy tale on which the movie is based?

To answer, simply visit my Facebook page –https://www.facebook.com/MorganCrossConsulting/ – and post your answer in the comments section under the post that I’ve pinned to the top of the page. You have until midday GMT on Thursday 23 November to post your answer. I’ll then draw a winner at random and will inform them directly. Good luck!

Please note: This giveaway is in no way affiliated with Facebook or any of its subsidiaries. Open to UK residents only

© Stuart Cross 2017. All rights reserved.

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Cross Shots: The Formula For Change

In this episode of Cross Shots, Stuart Cross reveals an old formula that was shared with him some time ago. The Formula For Change. It’s an oldie, but a goldie.

 

You can view previous episodes of Cross Shots here

© Stuart Cross 2017. All rights reserved.

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Three Key Factors For Sustained Growth

Last week I ran one of my periodic “Big Breakfast” meetings in London. The topic was “How Failure Can Accelerate Growth”. A dozen business leaders attended, from companies with revenues ranging from around £5 million to £50 billion, and Tim Wright, the CEO of NPW Limited – a fast-growing supplier of fun, on-trend, impulse products to retailers across the globe ­– provided his own perspectives to kick-start the discussion.

As I listened to the various contributions, I identified three key factors that were the secret to success and growth:

  1. An environment that encourages risk-taking.

    The discussion was wide-ranging, covering education and healthcare as well as business, but there was unanimous support for the idea of prudent risk-taking as the best way to drive new growth. Equally, there was an acceptance that failures are inevitable and must be seen as an opportunity to learn and develop. What’s more, the executives around the table agreed that learning and development only happens when a real community exists. One director, for instance, told of her time at Asda in the early 1990s when, led by Archie Norman and Allan Leighton, managers running new innovation projects would be encouraged to share both their successes and their failures each Friday in a senior management meeting. The sharing process at Asda wasn’t meant to shame the project leaders, but to encourage them to experiment, try things and take some calculated risks.

  2. Systems that provide insight.

    Encouraging risk-taking doesn’t mean ignoring data. Learning requires feedback and all the executives at the meeting reported using a mix of financial, operational, customer and people feedback to understand and learn from their new initiatives. At NPW, for instance, Tim Wright and his team use external agencies and detailed social media analysis to understand up-coming trends and the business also reviews the performance of each product line from a number of perspectives.

  3. Rapid action for faster results.

    The companies that grow the quickest are those that are the fastest to incorporate new ideas and learning into action on the ground. Asda’s leadership team, for example, established weekly senior management meetings – not monthly or quarterly – to encourage rapid action. At Amazon, Jeff Bezos initiated a similar approach with a weekly leadership team meeting to review the company’s biggest initiatives, and a weekly senior-level review builds the momentum and accountability that encourages others to move at pace.

The group agreed that, on their own, each of these three factors has the potential to improve the pace of growth in any organisation. The impact of each factor is multiplied, however, by the creation of ways of working that incorporate all three factors – a positive environment, insight-generating systems and high-speed implementation.

How well does your business deliver on each of these three critical success factors for sustained growth?

 

‘The Big Breakfast’ is a six-monthly meeting in Central London for executive directors of leading businesses to meet, share insights and learn. It is held in partnership with SportsAid. For more details, contact Stuart at info@morgancross.co.uk

 

© Stuart Cross 2017. All rights reserved.

Posted in Growth, Innovation, Leadership, Speed and Pace, Strategy, Stuart's World | Leave a comment

Business Rocks – The Secret To Learning From Failure

Please read to the end of this post to get the chance to win a copy of my book, First & Fast.

This week’s riff: Earlier this week I ran a business breakfast meeting, in support of SportsAid, where we discussed how organisations can turn failure into success and growth. Around a dozen business leaders, from companies of all sizes, quickly started to focus the discussion on how best to shape the environment for sharing lessons and failures.

One marketing expert, for instance, recalled her time at Asda in the early 1990s, where the grocer’s leadership team, Archie Norman and Allan Leighton, ran a big meeting every Friday where managers were encouraged to share both their successes and failures with their colleagues and peers.

Elsewhere, the airline industry has strict procedures and protocols to report and act on defects and errors. A single issue with a 747 at Seoul airport, for instance, will lead to checks on all derivatives of this plane right across the globe. As Matthew Syed noted in his excellent book, Black Box Thinking, this highly structured approach has been hugely successful in improving airline safety performance.

What steps have you taken to consciously develop an environment in your business where both successes and failures are shared and followed up, and where failures can be rapidly turned into improvements for future success?

 

Off The Record: Everybody’s Got To Learn Sometime by The Korgis

Change your heart, look around you

Change your heart, it will astound you

I need your loving, like the sunshine

Everybody’s got to learn sometime

 

Competition Time: OK, here’s your chance to win a copy of my book, First & Fast.

Everybody’s Got To Learn Sometime was The Korgis’ only top 10 hit, but in which year did it reach Number 5 in the UK pop charts?

To answer, simply visit my Facebook page –https://www.facebook.com/MorganCrossConsulting/ – and post your answer in the comments section under the post that I’ve pinned to the top of the page. You have until midday GMT on Thursday 16th November to post your answer. I’ll then draw a winner at random and will inform them directly. Good luck!

Please note: This giveaway is in no way affiliated with Facebook or any of its subsidiaries. Open to UK residents only.

© Stuart Cross 2017. All rights reserved.

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Business Rocks – Lessons From The “Boulton Paul Defiant”

Please read to the end of this post to get the chance to win a copy of my book, First & Fast!

This week’s riff: Earlier this week I learned that during WW II, the Royal Air Force designed, built and deployed an interceptor fighter called the Boulton Paul Defiant. The plane’s job was to knock out German bombers, using a rear-facing four-gun turret that was located behind the pilot.

The plane’s only problem is that these guns all faced backwards. It had no forward-pointing guns at all!

Unsurprisingly, it took the German fighter pilots just a few nanoseconds to work all this out, and so they attacked directly from the front with devastating effect. So, with the plane so vulnerable in daylight, and after a brief spell focused solely on defending night raids, all the Boulton Paul Defiants were rapidly retired from active duty.

A 360º view is critical in warfare and is equally vital in business. Nokia, for instance, failed, with fatal consequences, to spot the critical nature of new competition to its mobile phone business from Apple, Samsung and cheaper Chinese manufacturers. Similarly, one senior US car manufacturing executive told Gary Hamel, the London Business School professor, that it took the US industry around 20 years to really appreciate the threat from Toyota and other Japanese manufacturers. By then, of course, the damage had been done!

What level of vision do you have on your market? Where are your blind spots? And what quality of vision do you have on the threat of competition from new, emerging competitors as well as your more established rivals?

Off The Record: I Didn’t See It Coming by Lloyd Cole

I wouldn’t change a single thing

Just that having been wrong so many, many times

It’s hard to believe that I might get it right

I didn’t see it coming

Competition Time: OK, here’s your chance to win a copy of my book, First & Fast:

This week I’ve used lyrics by Lloyd Cole, but what was the name of Lloyd’s 1980s backing band on songs including Perfect Skin, Lost Weekend, Brand New Friend and – my personal favourite – Forest Fire?

 

To answer, simply visit my Facebook page – https://www.facebook.com/MorganCrossConsulting/ – and post your answer in the comments section under the post that I’ve pinned to the top of the page. You have until midday GMT on Thursday 9 November to post your answer. I’ll then draw a winner at random and will inform them directly. Good luck!

 

 

Please note: This giveaway is in no way affiliated with Facebook or any of its subsidiaries. Open to UK residents only.

 

© Stuart Cross 2017. All rights reserved.

Posted in Business Rocks | 2 Comments