Monthly Archives: March 2018

Understand 80 vs 8: Do You REALLY have a Competitive Advantage?

McKinsey & Company’s February 2018 magazine included an important article, Strategy to Beat the Odds, with interesting implications.

Most CEOs know the fundamentals of business strategy, including Michael Porter’s “5 Forces” model and the concept of Competitive Advantage which arises from a set of conditions that makes your company superior to rivals and facilitates greater profits.  The article notes a study which found that “80 percent of executives believe their product stands out against the competition – but only 8 percent of customers agree”.

WOW! Peter Drucker said that “the purpose of a business is to create a (profitable) customer”; therefore, it’s their opinion –not that of the executives – that really counts!

Why the discrepancy?  The reason that the article focuses on is what they call “the social side” of strategy. First, when people make decisions, there are inherent biases, such as overconfidence and cognitive biases, (e.g., anchoring, loss aversion, confirmation bias and attribution error), as Daniel Kahneman described in Thinking, Fast and Slow. While they help us filter information in our daily lives, they can distort the outcomes when we make big, consequential decisions infrequently and under high uncertainty – as we do with strategy. Also, affecting the process is the “agency” challenge: presenters who want to get a “yes” to their proposal may exclude contrary information; knowing that proposals are compromised often, executives may overstate requests; and people’s decisions are often influenced by other factors including their own egos and career aspirations.

Another reason stems from Drucker’s perspective: who are your customers? Do you really know who they are and what they want? For instance, what’s really important to potentially-loyal customers who:

  • Use the product infrequently because they are not enamored with it
  • Choose not to use it for reasons the company may not know
  • Never even considered it.

We all know the limits of what rivals can do selling similar customers, similar products for which none have a real Competitive Advantage: (e.g., McDonald’s, Burger King and Wendy’s who fight over “dollar” meals.) Kim and Mauborge propose executives get out of the “bloody” red ocean and service new customers with a “Blue Ocean Strategy” (e.g., Shake Shack). Using value innovation, companies like Cirque do Soleil, NetJets, Curves, Salesforce and Lyft) companies can deliver REAL competitive advantages to targeted new customers.

What does all this mean for you?  Check whether your current customers really perceive your service/product as having a Competitive Advantage. If not can you fix it? If not, does it make sense to:

  • Identify the needs of potentially profitable new customers
  • Build new profitable service/product models that can offer a (sustainable) Competitive Advantage.

 

 

Less is More: Meet Customers’ Attention and Retention Spans

This week, I ran into a number of different situations where the same rule concerning “Audience-driven” needed to be mastered: “Less is More” when it comes to customers’ attention and retention.

  • Starbucks just announced (Fortune, March 1, 2018) that it was removing 200 items or 30% of the types of merchandise that it sells in front of the counter. The goal they say is to simplify operations, declutter shelves and not saddle customers with decisions between products they like and those they don’t like.  Two other retailers, Target and Kohl similarly are shrinking the number of sizes, flavors and brands on its shelves.

Years ago, I heard that Macy’s once offered over 24 different irons; yet the top four accounted for 80% of sales. Also, a study was done in which youngsters stood behind a “traditional” street lemonade stand – selling home-made jams.  The study found that passers-by were more likely to make purchases when the selection was halved from six to three.

In other words, to stay profitable, companies need to provide a manageable amount of choices – from both the perspective of operations and customer selection. As former P&G CEO,A.G. Lafley  notes: you’re wasting their time”.

  • Two companies sought help with presentations where the same rule had to be driven home. One was raising millions of dollars from investors for early stage investors. He spent over half of the presentation discussing a new (and exciting) new model for scaling an early stage fund in many different ways; only then did he discuss the specific venture investors could buy into; by then people were lost. From an audience perspective, the presentation focus should have been reversed: here’s a great venture opportunity and the extra benefit of working with us, is that it’s offered by a company with a model that can grow quickly to fund many other ventures.

The second CEO was presenting his company to a group so they could speak about it with greater insight and expertise and provide referrals. We decided that the focus has to be on its unique software consulting strategy that has delivered incredible success for many years. The initial draft followed the traditional presentation mistakes: 6-8 bullets on each slide (the best slides are “5+/2”, with 3-5 being best) and a focus on process, (the black box people buy), and not enough on proof of success: case studies with great ROI.  Less is more: When you hear a company had an IRR over 20 years of 23.2%, you’re hooked on wanting to learn more and have something easy to share with other people who might now buy from a company.

  • A billion dollar company is making a pitch and the presentation is focused on all the details of the special product they offer. Our client, who’s mastered our ADAP formula, realized that it will never maintain people’s attention. When given a chance, he proposed a different frame-work, explaining how social/technology trends have changed, are changing and will change, and then how some key elements of the company will drive future trends. As Antoine De Saint-Exupery said hundreds of years ago: “If you want to build a ship, don’t drum up men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.” 

The bankers got it and the result is a vastly superior presentation with supportive details.

In sum, use the ADAP formula: focus on the needs and wants of audience members to pay attention, absorb information and retain it so they can share it with others. Then you, too, can achieve “presentation excellence!” and close more deals and advance your career.

What to Look for When Selecting Leaders

As a result of the work I do with Vistage CEOs and Age Brilliantly, I encounter many people who realize they don’t plan to work for every and need to start planning for their next 7-10,000 days. For many company owners, this starts with doubling-down on having the best possible leaders within the company to take over when the CEO plans to leave. Effective succession increases the value of the company whether employees, outside managers or Private Equity firms are the ultimate buyer.

In “What Sets successful CEOs Apart” (Harvard Business Review, May, 2017) the authors report on a PWC study of the world’s 2500 companies that identified four essential behaviors that helped the CEOs get the top job and thrive in it. From a succession planning standpoint, looking for these behaviors in future successors is key to success, since they are likely predictive of future success.

The four behaviors are:

  • Deciding with Speed and Conviction. High-performing CEOs don’t necessarily make great decisions all the time; they stand out for being decisive. They make decisions earlier, faster, with greater conviction and more consistently – even amid ambiguity. People described as decisive were 12 times more likely to be high-performing CEOs. (Note: Highest IQ is not an attribute! People who relish intellectual complexity struggle to get the “perfect answer: and as a result, they often bottleneck decision-making, which frustrates their teams. 94% of executives who scored low on decisiveness, did so because they decided too little, too late. One one-third of CEOs were fired for making bad decisions; the rest were ousted for making decisions too slowly.) In other words, it’s better to make a well-considered, but wrong decision, which they be changed, than to delay a decision when it’s really needed.
  • Engaging for Impact: One a decision is made, the CEO must be able to get buy-in from other employees on and off their teams, and other stakeholders. As Google and others have found, the key to effectiveness is communication, alignment, collaboration and teamwork .(See prior blog on this topic).
  • Adapting Proactively. In this VUCA (Volatile, Uncertain, Complex and Ambiguous) word, we need to adapt quickly. The most successful CEOs scan future trends on an ongoing basis so they can do so proactively. The study found that CEOs who excel at adapting are 6.7 times more likely to succeed. Further, these CEOs spent significantly more time (50% vs. 30%) thinking about the long-term. They regularly plug into broad information flows; they scan wide networks and diverse sources of data, finding relevance in information that at first glance might seem unrelated to their business. Finally these CEOs had, what Carol Dwieck calls a “growth mindset: they offered matter-of-fact-accounts of where and why they came up with the wrong decisions and gave specific examples of how they would tweak their approach to do better the next time. Non-high-performing CEOs saw setbacks as signs of failure.
  • Delivering Reliably. Executives who scored high on reliability were twice as likely to be picked as CEOs ad 15 times more likely to succeed in it. the study found that 94% of the strong CEO candidates sampled, scored high on consistently following through on their commitments. In other words: making delivery of commitments a habit really matters.

Are you looking for these qualities in your senior executive team? Would they enable you to have a superior team of A+ players? Would you feel comfortable grooming them as a senior management team when you’re ready to leave? If so, that will translate into an easier way to move on – and to get a higher sales multiple for your company!

To Win: Focus on Results, not Activities.

 We have a saying in our office:  “Don’t Confuse Activities with Results”. We find it applies to so many different aspects of our work, because many of us fall back to old habits thinking that larger size papers, more hours put into a project, higher costs for a project, etc.  necessarily make it better.   It doesn’t.

As a teacher, I have countless students who graduate college and start jobs for large consulting firms, investment banks, etc.,, where interns and junior associates are encouraged to work sometimes between 12-18 hours (or even longer), because the “culture” reinforces spending time of the project rather than measuring the quality of workmanship/productivity throughout the process. These young people later confess that they feel they make more mistakes and spend more time trying to check for and correct errors, because they’re sleep-deprived and not able to think things clearly.

Recently, one such person, after several months of “killing himself” and getting little positive feedback voluntarily choose to reduce his workload slightly, in order to focus on quality of results, not just throughput. Within two weeks, he received kudos from team members for offering new perspectives and insights making the work more valuable for the client and team; these results could not have been accomplished under the old regime.

Morten Hansen arrives at the same insight in his new book Great At Work: How Top Performers Do less, work Better and Achieve More. While working at a large consulting firm for several years, he often worked as many as 80-90 hours per week. One day,  he noticed that a colleague’s presentation “contained crisper insight, more compelling ideas” and wondered why. Talent might seem like an answer, but both had similar education and experience and had been selected for skills through the same rigorous screening process. One key difference is that she worked from 8 Am to 6 PM, no nights no weekends.  Was she doing better because she worked less?

This led to lots of research including a five-year survey of 5000 managers and employees in a wide-range of industries. What differentiated highest-rank performers? Top performers mastered selectivity. Whenever they could, they carefully selected which tasks, customers, meetings, ideas to undertake and which not. They applied “intensive, targeted effort on those few priorities in order to excel….Rather than simply pile on more hours, tasks, etc., they cut back.”

The researchers discovered that “just a few key work practices related to such selectivity, accounted for two-thirds of the variation in performance about the subjects. Talent, effort and luck undoubtedly mattered as well, but not nearly as much.”

The results make two points: (1) individually, we can change our work habits to perform at a higher level and (2) the organizationally, we should change our cultures to not focus/reward those who engage the most hours in the most activities, but enable those who, within accepted standards of performance, produce the most excellence results.

What’s your experience in this area?  Have you ever tried to change such a culture? What tips do you recommend companies adopt to cha shift cultures focused on maximizing people’s activity time to ones  focused on excellence in results.

Another Stereotype Hits the Dust

Working with Age Brilliantly and teaching the Psychology of Aging, I have the opportunity almost weekly to see current data destroy a stereotype. This week, I read one that affects the workplace – an increasingly important part of this industry  — as people plan to keep working in current jobs or new (full-time, part-time or volunteer) ones into their 70s+.

Harvard Business Review (February20, 2018) reported on a study conducted by Adam Grant and members of the Facebook to discover basic motivators for people at work. Focusing on three big “buckets”: career, community and cause, they found that Millennials, GenXers and Baby Bookers had the same core-values – and in the same order.  In other words, Millennials “want essentially the same things as the rest of us.”

What surprised the authors was that “contrary to the belief Millennials are more concerned with meaning and purpose”, there were virtually no differences among age groups. They actually found tiny differences: Millennials cared slightly less about cause, and slightly more about career than “older” people. In fact, adults 55 and over were the only group at Facebook who cared significantly more about cause than career and community.

For those of us focused on how our sense of purpose and passion changes as we age, all of this makes sense. Most prior studies reporting contrary data on Millennials, did so years ago, when they were in their late teens and early twenties. At that time, they were in school, lived in parents’ basements, and  had fewer obligations making it easier to focus on the bigger social issue. Today, they enter their thirties, more often buying apartments and houses, and getting married. Not unexpectedly with greater financial and social responsibilities, comes a shift in motivators.   Similarly, as older adults start shedding some of their responsibilities (e.g., kids through college, mortgages paid down further, sometimes completely, they can focus on the bigger picture.

So the stereotype of generational differences needs to be dropped; the more accurate approach is to understand the life-stages of people and their priorities. As the authors conclude (and we concur), when it comes to an ideal job, most of us are looking for a career, in which we’re hoping to find our what, who, and why.

What are your thoughts? Share them!

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