The role that experience and exposure plays in strategic instinct and risk perception

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Recently I read an article titled ‘Execution as Strategy’. The title fooled me into thinking that authors are talking about a new approach to strategy. Fortunately, to my understanding, there wasn’t any such attempt in the article because execution is not strategy. In fact another good article that I read this week, ‘Strategy or Execution', which is more important’ clearly explains why execution is not strategy. I am still puzzled over the choice of title to the first article I mentioned above. It nevertheless is an intriguing and insightful article.

From a research, covering 18 companies (in emerging economies), across Asia, Latin America and Middle East, the authors present cases of three companies and their approach to business growth. They all focused on execution as strategy, authors claim. I do not agree with them that execution is the strategy or that these companies do not have a strategy. But those cases presented an interesting picture. They highlighted the difference in strategic make-up and the relevance of it in strategy formulation.

What is the role that experience with respect to stability / environment / economic conditions play in the minds of people who strategize?  The way they perceive risk? The way they operate? A business that has roots in a country known for instability and environment hardships and handled all of them would in all probability be better positioned to take on risks that a western company would hardly be prepared for. The article, 'Execution as strategy' presents the case of Orascom Telecom's, which is from Egypt, entry into turbulent hotspots like Jordan, Lebanon, Yemen, Tunisia, and Algeria and to places like North Korea to capitalize on business opportunities to grow the business. How many western telecom players would consider these countries as potential market for entry? These countries do present business opportunities and some of them with huge markets, yet not all who are capable would enter these markets that too straight away  It requires experience of handling things in similar markets or terrible guts. Not just that, but readiness to compromise on some of the proclaimed corporate values. That begs a question whether companies from the developed world are at a disadvantage, irrespective of their strategy and operational capabilities and sophistication, compared to companies from emerging economies in capturing business opportunities in emerging countries?

It’s not just entering turbulent / unstable economies that emerging economy companies have advantage in but also they can decide and act quickly as exampled by Grupo Bimbo’s case, as given in the article ‘Execution as strategy’. Businesses for which stability is not a given and grew up in fluctuating environments would move faster to seize opportunities. They would probably not go through tedious strategic planning exercises to vet numbers and then decide on entry. Planning an entry in five years’ time or even in two years’ time, as would many western companies plan, would be foreign to them.

Strategy is about choices but how aggressive are those choices and how quickly a business can strategize and move are determined by the background of a business or the people who lead the business if we go by the cases presented by the authors of ‘Execution as strategy’.  In the article they claim that businesses from emerging economies have a higher appetite for risk and higher tolerance for failure. So the strategic make-up  if I could it term it that way, plays a vital role in the strategy of a business. How aggressive is the strategy and how quickly a business decides and acts is hugely determined by the strategic make-up of the company. 

What is strategy?

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I have been studying a lot on strategy of late and recently compiled my thoughts on strategy. My readings, rereadings include, Competitive strategy by Porter, Porter's famous HBR article What is strategy?, Strategy Safari by Mintzberg besides other titles. These readings have shaped up my understanding of the topic and sharing them all below for those who may benefit from it and for those who will enlighten me further with their comments and thoughts.

Strategy is a combination of choices that a business makes and implements to achieve its guiding purpose. This may include

• choosing customers / segments
• choosing products and/or services and varieties within them
• choosing geographies
• choosing the value proposition
• choosing how the value is configured
• choosing how the value is delivered

Strategy need not be an explicit exercise. A professional who goes about his job in a chosen way and manner and consistently winning customers with the value he delivers and expanding his business does have a strategy even if he hadn’t thought about it or spent hours analyzing his competitors / industry.

Strategy exercise need not be an annual event or for that matter occupy one’s calendar periodically. As the situation demands or as foreseen, strategy exercise should kick start. In a happening industry / environment companies may be forced to re look at their strategy every six months. In a sedate or mature industry, strategy can even be a once in two or three year’s affair. The determinant for the timing of strategy exercise is the ground situation (either real or forecasted) and not the calendar. However nothing stops periodic review of business strategy to confirm assumptions / choices made and that the performance is on desired lines.

Strategy should be flexible to accommodate changes as may be necessitated by changing (either real or forecasted) situations. This requires feedback systems that track how well, strategy originally formed is implemented and serves its purpose.

·      Every business must keep learning about its business / customers / performance / competitors / suppliers / substitutes / any factor that impacts its revenue and the very purpose for which it exists

Strategy may be formally formed at the top but the inputs for the same should come from all interested sources from within and from all corners of a business / company. Feedback systems play a huge role in strategy formation.

Strategy = Thinking + action. Strategy is “an elaborate and systematic plan of action” is how the dictionary defines it. Strategy sans action is not strategy but just a theorization of how an organization should move forward.

Critical factors in strategy formation are capabilities, environment and strategic insight.  Capabilities involve both internal and partner capabilities while environment refers to industrial, regulatory and social environments. Strategic insight (customer insight + market insight + feedback) refers to the knowledge that a company develops by observing and learning about

• how well it’s products / services are received by the market
• customer experiences and what is missing in that experience
• changing tastes / preferences of customers
• how substitutes and complementary products / services are shaping up
• how various players and their capabilities threaten / complement the businesses’ position
• how the business has performed in meeting the demands of the customers / market, where it has failed, where it succeeded and what it needs to achieve
• gaps in capabilities, resources and infrastructure

A business needs to formulate / reformulate strategy under following situations.

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Happy New Year

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Wishing you all a happy and prosperous 2012. 
May this year and years that follow bring joy and success in all of your endeavors. 
Wish you all the best

N.Balajhi

Corporate Mission & Vision Statements

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Most of us know what is a mission and vision, yet struggle to articulate one. To assist my client, a year ago, in setting corporate mission and vision statements, I drew a diagram using a mind map software. Posting them here as it could be of help to people looking for 'how to prepare Mission & Vision statements'. Also I can learn from their feedback.

Mission Statement

Vision Statement

If you have any queries or like to discuss on these post them under comments.

Competitive Performance - Use knowledge & Innovate

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Competitive Performance

The term competition refers to a situation where two or more parties fight it out in the market for better share and gain. To get the better of the other, a business has to be proactive, dynamic and nimble. To out think, to act and adapt faster a business must acquire and harness its knowledge resources. When knowledge answers, businesses often innovate. Innovation well supported by knowledge help companies raise the bar and be competitive. Hence it is imperative, for companies that aspire to grow their businesses, to embrace knowledge and innovation.

Let’s dwell a bit on achieving competitiveness in an established market. We all know that a company can gain an edge over its competitors by achieving one or more of the follow viz., superior quality and service, Cost advantage, Ease of use and Aesthetic design. The following mind map captures various requirements for achieving each of these aspects of competitiveness.

Take a closer look at each of the requirements in the above map and try to figure out the role of knowledge in achieving them. A company that is aware of its knowledge repository and makes full use of it would keep delivering on all fronts and continue to grow.

Knowledge

Knowledge has its roots in learning. It is through learning that one builds up and strengthens his or her knowledge base. An encounter with a customer in an airport can open up a new way to serve and expand business. A business should identify all the available channels and points of learning to tap and convert that learning into a knowledge resource. Some can be accidental but many can be by design.

A company accumulates knowledge through its people, who learn and gather knowledge through various sources, in various ways and for various purposes. Knowledge thus gained should help a company to sharpen its competitive edge by improving processes, technology and the overall business performance. However not all willingly share knowledge for the greater benefit of an organisation. Two big challenges of knowledge management are making people share and use knowledge.

People, behind technology, beside machinery, in the cubicles, and those in the field make things happen in this highly competitive world. The knowledge they accumulate is vital for a company to grow. They learn and accumulate knowledge by doing, observing, questioning, reading, listening and brainstorming. The onus is on a company to make the best use of its knowledge assets.

A knowledge focused organization

Knows that knowledge acquired for business does not automatically translate into knowledge used in business. Like a plant, knowledge requires a conducive environment to thrive.

Knows what it knows, tracks & builds its knowledge repository

Puts in place a system that acts as a breeding ground for knowledge

Rewards and more importantly recognizes people for their contribution and making use of knowledge

Knowledge Management System

Any effort towards knowledge management must keep the major stakeholders (employees) of knowledge into consideration. A mere installation of knowledge management software won’t suffice.

Men distinguish themselves from the rest with the knowledge they possess. Asking them to share that knowledge with others to the common benefit requires greater commitment and a genuine system. Even after that it will be a tough task. The following question can stop one on his tracks. Who is responsible for the outcome, if I use other’s knowledge? This is where a comprehensive and well communicated KM system comes in handy for a company.

The following are imperatives for a successful knowledge management system.

• Well articulated knowledge strategy
• Firm commitment by the top and middle management
• Clearly defined roles and responsibilities with regard to KM system
• Strong and committed knowledge management team
• Clear reward and recognition system
• Comprehensive knowledge capture, transfer, storage, channelling and usage system
• Open work culture that encourages knowledge sharing and usage
• Facility for people to track and know the fate of their knowledge contribution
• Last but not the least, absence of blame culture and a clear accountability structure

Innovation

Innovation is an act of starting something for the first time; introducing something new. By innovating we bring something new to the environment. This is how innovation is defined in dictionaries. In business, innovation often is associated with new products and services. However it can also be associated with new processes, practices, methods etc. that improve core operational parameters viz., cost, quality and time.

To innovate one needs to think and capable of thinking differently. It’s a combination of attitude and knowledge that breeds innovation. Innovation needs right climate and support. It cannot happen in a choked environment.

I will post later on supporting innovation in a business environment

Catch your receivables young

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A sale is complete only after the customer pays. Yet in client places I have come across people in sales function act as if their sale is complete with the purchase order from the customer. This is a familiar situation in many companies. Many may think that it's got to do with the attitude, and they may be right. But it is also a fact that performance assessment systems and definition of roles have contributed to it. If you ask sales guys on how their incentive system is structured, chances that 9 out of 10 would say it is 'sales volume' is highly likely. Collections are always an afterthought in assessing a sales person's performance.

Jobs performed, either directly or indirectly, generate revenue or focus on cost control. Revenue is generated only when your banker ticks up your bank balance and not when your customer signs the purchase order.

Pillars of Receivables management

It is important to assess sales performance in a balanced manner but receivables management is much more than that.

Seamless and smooth sales order processing (SOP)

SOP is initiated at the receipt of Customer purchase order and ends with the delivery of product or service to the customer. Every activity along the line must support speedy processing of work along with the required quality. Any activity that holds up the process even for a brief period must be thoroughly examined and its purpose validated. I have come across businesses where the quality of a order is checked by people in production function. This kind of activity is often referred to as a control activity, to ensure that the interests of the business do not suffer. But in reality these types of activities often hurt customer interests and cause resentment among sales ranks, which in turn affect business interests.

It is the job of salesmen/women to ensure that the order they bring in matches with the quality expected by the business and its policies. The buck stops with them. Any order that they accept and receive must be processed without any hiccup or delay concerning the quality of the order. The interest of the business can be protected by making sure that the performance of the sales managers is evaluated based on the quality of orders that they bring in and not just by the volume of orders.

Quality of an order

Evaluate the quality of an order based on the volume of the order, the price, payment promise and the terms of the order.

 There was an occasion when a company accepted a big order (around 150 pump sets) at Rs.1140 / unit. I was working on an assignment there and advised them against it since I had every reason and data to prove that it was not even covering their variable costs. It some how did not register in their minds and eventually they did sell at that price and recovered the payment after more than 3 months. It was a struggling company and execution of this order only added to their woes.

  Payment promise is another aspect of a quality order. It refers to both the track record and the current expectation. It is difficult to validate it pre-sale, however a company must evolve a system whereby payment track record of customers is captured and linked to performance of respective sales people.

  Terms of sale refers to other things including delivery and any other offers and concessions. A sale that results in lesser net revenue for the company must get lesser performance rating compared to other normal sales.

Assess the performance of sales managers and sales men based on the quality of orders they bring in. As long as their performance meets with the expectation on all the fronts, allow them a free hand in accepting orders of all quality. If the performance is not desirable then constrain them from accepting lower quality orders. Also link the incentive system to this performance rating. Rest assured your business interests would not be hurt by your sales men. No one would like their wings (freedom to accept orders) to be cut and not especially when their colleagues merrily flap around. Secondly incentives structured around proper sales performance would make them think twice before accepting an order.

Timely and quality customer service

It's a well known aspect of receivables management. If you service bad, you would not get your payment in time. Don't mess up with any customer and definitely not with your regular customers. Give them what you promise and Promise what you can give. See related article keeping your customers.

Payment follow-up and collection intelligence system

Your sales order processing is excellent, and your customer service is impeccable yet your receivables may get delayed because of customer financial troubles, bureaucratic customers and customers who want to delay for their own benefit. Develop a system and automate it to help speedier collection.

1. Draw a matrix with age and size of receivables on the two axis
2. Develop 4 or 6 pools of receivables based on the age and size of receivables
3. Devise follow-up system that changes in tact and  approach with the movement of the receivable through various receivable pools
4. Increase the intensity and level of executives involved for various receivable pools
5.  With the help of technology capture information generated by the system (like customer feedbacks, dodgings, remarks and intelligence of people following up etc.). They help in understanding different customers, their ways and in evolving the follow-up system. In the long run patterns emerge and give better understanding of various things that delay collection and how to over come them.

Customer rating system

It is always important to know how profitable a customer is to a business and where he costs and where he benefits it. Comprehensive customer rating systems would help a company avoid and if necessary qualify customers at Pre-sale and treat them accordingly. By improving the quality of customers, a company can easily control the age of its receivables. More importantly link them all, SOP, Customer service, PFCIS, and Customer rating system.

Addressing Operational Issues and Problems in Business

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Businesses want to create and deliver value to its customers and stakeholders. But not always things go as per plan. Operational issues and problems (OIPs) often derail many a plan and affect business performance. They render a business less profitable.

In any business the following, which we may refer to as core pillars of a business, form the basis of its existence, performance and growth. 

1. Mission, Vision, Strategy & Alignment
2. Investment, Infrastructure and Resources
3. Leading and Management
4. Structure, Systems, Processes and Policies
5. Execution of Work

Core pillars provide what a business requires. Right from defining business purpose to support and work, these pillars lend strength to the business. When these fall short of requirements they may then give rise to causes that cause operational issues and problems.

OIP Categories

Operational issues and problems fall under following five categories. The first three of them are primary and direct, while the last two are contributing to the first three.

1. Wastage issues
2. Delay issues
3. Quality issues
4. Control & Management issues
5. Work cultural issues

Though containing OIPs require constant efforts, companies cannot work on same issues again and again over their life time. Often symptoms attract more effort than the real problem. To remedy it and address core operational issues and problems we need to understand them better. OIP Framework is an effort in that direction

OIP Framework

The OIP framework helps businesses to identify and understand operational issues and problems in an effective manner. It helps businesses to understand and analyse OIPs before trying to resolve them. With the help of OIP framework companies can identify, understand and contain issues and problems that affect their operational performance in an effective manner. The structure of OIP framework is as follows

1  Categories of OIPs

1.1  Types of OIPs

1.1.1  Causes of OIPs

The general OIP framework contains 5 categories, 21 different types of OIPs and 54 different causes. OIP framework help businesses improve their operational performance 

How OIP framework works?

What may not be clear to people at the top may be clearer to people near the surface due to their proximity to action and other people. They often see, hear and perceive the happenings but not always air them. Not often they take it beyond their level, even if they air them. OIP framework ropes in these very people to capture the types and causes of OIPs and how significant and big they are in affecting the operational performance of the business. People are involved and facilitated to contribute in the following manner.

• Key people are identified (Managerial up to supervisory level)
• Orientation on OIPs and the method 
• Defining OIPs
• Discussing various categories and types of OIPs
• The OIP Framework diagram will be introduced and explained
• Understanding each of the listed causes and how they cause OIPs
• How to contribute using the framework?
• Workshop
• Identification of OIPs, their causes along with significance and contribution ratings
• OIP framework worksheet will be used

Combating the OIP virus

The identification of OIPs and their causes using the OIP framework is only a beginning. For a business to rein in OIPs it takes further efforts to win over them. The following diagram represents various stages in an OIP fight, which may have to be repeated periodically to keep the business OIP free.

Fig.1 - Stages in combating the OIP virus

Conclusion

A business free of OIPs would appear in every business leader’s wish list and may even top it. It may not be possible to get rid of OIPs completely but surely businesses can work towards achieving that dream state. Realistically companies can keep improving in their fight to eliminate OIPs. With every ground gained, and every inch protected, OIPs can be kept at bay and may even be eliminated eventually. The important thing is ‘constant fight against OIPs’. Never accept any part of it as given or acceptable. Always consider it to be something that should be done away with even if it is there for a very long time.

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To know more about the OIP framework and to avail the services of N.Balajhi, Business Consultant, you may contact him at nbalajhi@gmail.com

Sustaining Business Growth

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Businesses grow but not all business grows continuously. In fact continuous growth is elusive even for the ones led by the best of business minds. There may be periods of flatness or even temporary slump due to external environment but as long as a business turns up in quick time and resumes its growth journey, we may deem a business as growing continuously.

To grow, a business has to perform. Continuous performance ensures continuous growth. The word performance has different meanings to different people. To some it may simply mean more money generated. To some it may refer to quality of product or service. And to some it may mean return on investment. None of it are wrong but even all of it do not capture what performance is all about in a business context, especially when we talk about business growth. An all encompassing business performance would mean performance at all the three levels viz.,

• Strategic
• Competitive
• Operational

Strategic performance involves articulating vision and formulating strategy. Competitive performance involves harnessing knowledge and innovating to achieve operational excellence. Operational performance involves delivering quality product / service on time at effective cost. The picture given alongside captures three layers of performance in a pyramid.

Mostly people relate performance to operational performance. As long as the external environment is conducive and friendly to the business then efficient operational performance alone may suffice. However competitive pressures are part and parcel of today’s business environment and add to it the side effects of globalisation, companies can no longer rest on their operational laurels. They have to transcend competitive and strategic performance levels successfully in order to grow and maintain the growth momentum.

Operational Performance vs. Competitive Performance

Operational performance involves successfully delivering on three traditional yardsticks viz., Time, Quality and Cost. The operational mantra is to consume optimal resources and delivering high quality of work in the least possible time.

A company sans operational issues and problems would deliver on operational yardsticks 24x7. In the absence of any changes in the environment this performance would suffice for a company to be competitive. However changes in the environment induced by the market / competition / economy / regulation / society etc. can derail even the best of companies priding in efficient operational performances put up yesterday. It would not be suffice to deliver efficiently (by yesterday’s standards) when the environment is constantly changing. In a changing environment, what is efficient yesterday is not efficient today. A company needs to learn, know, adapt and innovate in order to remain competitive and lead the pack. It has to evolve and dump work practices, policies, systems, products, services, technology etc. that were rendered obsolete by the environment.

Companies that harness knowledge and foster innovation enrich their operations and constantly raise the bar. These companies will remain competitive and often capture the best of the market. The competitive performance factors viz., Knowledge and Innovation become a source of improvement for performance on operational yardsticks viz., Time, Quality and Cost. An operationally efficient company achieves operational excellence by managing and exploiting its competitive performance factors. A strong Operational performance means operational efficiency. A strong competitive performance means operational excellence.

Happy new year

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Dear Reader

Wish you a very happy new year and a decade full of success, profits and happiness.

I look forward to be more active on this blog and share my thoughts and ideas on lead

ing and managing businesses, with you all. I am planning a series of posts on this blog under the theme 'Sustaining business growth'. I will be starting soon. Look forward to your interest and participation.

Happy new year

Transferring Knowledge & Managing the time aspect

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Comment : by Anonymous

These are the three challenges I see:
1) transferring knowledge (better teachers, better learners)
2) time (no one has the time to do it, or learn how)
3) disliking teaching/mentoring.

I think the last two might be overcome if people saw great results from their efforts to teach/learn, but I know that in my organization there is no system in place to help senior people become better teachers, and junior people become better learners. Senior people know what they do in each situation, but don't know how to articulate why they do what they do, and how junior people can translate it into any other situation. Thoughts on any resources for this?

Article : Two big challenges of Knowledge Management

I agree with the challenges mentioned the comment and in fact it was the first point 'Transferring knowledge' that I highlighted in my above mentioned article. To transfer knowledge, it must first be available then shared and shared knowledge must be used for an organisation to benefit from it. The difference is, said article deals with the cultural and system angle of an organisation while the above mentioned comment highlights the capacity and ability of people to share and use knowledge. To some extent the work culture of an organisation deals with the learning aspect. In a progressive work culture people would want to listen and learn. Their dislike to teaching and mentoring would be low to nil. But surely making better teachers and learners out of people working in an organisation is a tremendous challenge unless they are natural teachers and learners.

About Better Teachers

We do not need teachers in the traditional mould (class room teachers) to share knowledge. We need people who are willing to share knowledge (their ways, methods, wisdom, ideas etc.). If an organisation succeeds on this front then the next challenge is to help people articulate what they share. This is more of a glass ceiling than a concrete slab to break through. First, help people to share knowledge. Capture and channel appropriately that shared knowledge reaches people who may benefit from it. Let them pick the brains of the one who shared and learn from it. This way the person who shared gets better with his communication, those who need become better learners and the shared knowledge gets further enriched. Remember, learners can help people become better teachers.

About Better Learners

People learn when they are driven. Not everyone is self-driven and an organisation needs to play a big role in driving people to learn and achieve more. Create 'work challenges' that drive people to learn and raise the bar. Do not tolerate sub-optimum performances. Keep raising the bar of optimum performance with improvements in overall work performance. Leadership must set an example in learning. They cannot repeat their mistakes and close their eyes to knowledge available with the organisation when they want their employees to learn and use knowledge. Provide a learning environment where people are encouraged to learn. You cannot expect a person to learn from work when his request for a library is denied or for that matter executive / higher education is denied. Last but the most important incentive for learning is Respect, Recognition and Reward for knowledge shared. Absence of R-R-R will keep people far away from learning as not much is going to happen even if they learn and share their knowledge.

Related article link Supporting Ideation in a work environment

Integrate KM with business applications

The need for time will be felt when knowledge is shared in the traditional way. We can have daily / weekly sessions of knowledge sharing but then less will be learnt at those sessions compared with knowledge provided as the need for it arises. People at work would want to know what to do or how to do at a point of time. If they can be provisioned with the required knowledge at the click of a button or two there will be no need to push for knowledge usage or for that matter learning. But the challenge is in enabling it.

I was implementing my recommendations to improve 'Receivables' performance for one of my clients. We designed and developed a software that would double up as an intelligence system besides providing transactional and MIS support. We provided a field(s) for people to share their knowledge at various stages of the process flow and tagged them as 'Knowledge fields'. People can choose from standard text or type their own. They can share their ideas and views on what transpired and how they handled it. They could also say what they think or feel about a situation or how they expect things to go, especially with collections. These were stored for people to use in similar situations. Anyone who is performing a required activity can access knowledge stored specific to the activity being performed. People can also share general thoughts on how the work is performed and how they can be improved. This system was received with lot of skepticism but eventually turned out to be a beneficial one for the client. It helped people to learn how different customers respond and when they do what it means especially in the light of their subsequent actions. It's not always possible to do it the way I described. There could be work activities that involve no software yet demand involve knowledge acquisition and usage. How do we share knowledge in those cases and how do we use knowledge?

Knowledge management systems integrated with business applications help knowledge usage better than standalone KM systems. This however does not preempt knowledge sharing outside business applications. Corporate Blogs and Forums always provide good platform for people to share and learn especially in the absence of a software to input knowledge acquired. But KM fields in business applications help capture knowledge that is vital and critical for performance improvement.

If after all of the initiatives there still are people unwilling to learn or dislike learning then the organisation will be better off without them. You can work on people unwilling to share but not much can be done with people who are unwilling to learn.

Hope it helps. Good luck.