A high price to pay
A British toy retailer would have saved millions of pounds if it had adopted the behaviours of inquiring, encouraging and experimenting when expanding to the US. The company had incredible brand loyalty from parents in the UK, which it hoped to replicate across the Atlantic after opening 70 shops in one year. But the management opened them in the wrong part of town. The branding was also an issue, with the shop’s name sounding similar to a government social benefits agency for people on low incomes. These mistakes cost the business £70 million.
No-one suggested changing the strategy because it was political suicide, not psychologically safe, to question the decision. If they had taken an experimental approach, encouraging challenge and and inquiring in order to learn, the management could have opened one or two shops, quickly realised that the branding and location weren’t right and made changes before going ahead with a third outlet.
An execution environment
Strategy execution isn’t about following a brilliantly conceived plan. It’s the art of learning when you go wrong, correcting it and pushing on with undented enthusiasm. In the Executing Strategy for Results programme at London Business School, we use the Qi Index, a tool developed from research into the impact of cognitive diversity and psychological safety, to assess a company’s execution environment. From the results participants can identify the behavioural gap that needs to be plugged to create an environment in which new uncertain and complex situations can be confronted successfully.
The Qi Index allows us to assess the dominant behaviours in an organisation and the extent to which they support the ability to establish cognitively diverse teams for new, uncertain and complex situations. How does it work? Employees fill in a questionnaire, answering questions on how people in their company think about and interpret change. That provides insight into the level of diversity of thinking and psychological safety within the organisation.
A transformational case study
In 2011, NPI (not the company’s real name) was a €1.5 billion (£1.3 millon) turnover company, a very profitable market leader across several product categories with several years of profitable growth. By 2012, the company was seeing a flattening of sales growth and increasing competitive. Q1 2012 saw minus 15% sales growth, a severe build up of stock and unhappy distributors.
Most of the company was unaware there was a crisis. The sales team was busy on an incentive trip they had earned by loading stocks in 2011. There was no sharing of information. The organisation was very silo-driven, with each function sitting on a separate floor, in enclosed partitions and with frequent finger-pointing.
Using the Qi Index for assessing and improving organisational adaptability, managers described NPI as lacking in cognitive diversity and as a very psychologically unsafe place to challenge or express new ideas. The dominant behaviours were directive, controlling and conforming.
The leadership team set about executing a new strategy by focusing every one on the strategic choices that needed to be made, i.e. in what businesses could NPI succeed and how would they do it. Multidisciplinary teams addressed the questions:
1. What are the cumbersome processes that are tying up cost?
2. What could we do differently to grow sales, reduce stocks, manufacture just in time and get control on working capital?
The cross-functional multidisciplinary teams were empowered to make choices within the boundaries of the strategy to make decisions to increase customers’ willingness to pay and reduce the costs to produces. As a result, NPI saw the business turn around in 18 months, and thereafter achieve milestone after milestone. Five years later it was one of the best performing companies in the sector.
After the transformation, using the Qi index framework for assessing and improving organisational adaptability, managers described NPI as both highly diverse and high in psychological safety with dominant behaviours of curiosity, experimenting and encouraging.