Want to create strategies that work? Nayeem Syed champions the power of a single, potent question: Is the why greater than the how?
Shareholders, analysts and the financial media demand innovation and almost perpetual growth. Senior executives are increasingly judged by their ability to simultaneously convey vision, initiate innovation, generate new projects, identify and create new market opportunities, guard against adverse market trends and react swiftly and decisively to aggressive competitor moves. The pressure to be seen to be constantly acting and reacting can be overwhelming.
As a result, too many organisations conceive and push through bold strategies that leave stakeholders and observers scratching their heads unable to make sense of the rationale. It’s frequently all but impossible far to understand the logic behind corporate decisions. The risks and inefficiencies are significant when executives can’t effectively explain their strategies to internal and external stakeholders. To be clear, this danger is not about failing to effectively market a great idea but rather, when tight deadlines and forceful sponsors or organisational structures and cultures prevent gaps in the analysis from being picked up, debated and appropriately addressed.
What does it take to sense check the strategy so that success is best assured and costly missteps are avoided? Managers can use as a constant touchstone the following simple, but powerful, question as a formal decision tool: Is the why greater than the how?
A simple and straightforward framework, built around eight questions, helps keep the focus on the key underlying issue -- opportunity cost -- and helps build a clear linear narrative that will persuade others. The ability to secure agreement is often as much about how effectively we have conveyed the potential opportunity and the benefits we will enjoy when we have succeeded but also, the reasons why we should do this specific activity, now, over all others.
1. Why do anything at all?
To begin with, we must be sure whether our proposal falls within the path and direction the organisation is heading. We should, therefore, force ourselves to invest adequate time to ensure we have fully understood our organisation’s latest strategies, priorities and targets. By doing this, we can very early on prevent fundamental errors. Moreover, reviewing the organisation’s primary sources for its strategic thinking and recent communications to ensure we’ve avoided misunderstandings could in fact lead to more positive outcomes, perhaps revealing even larger opportunities than we first considered.
Of course, this is made easier if the organisation’s leadership is good at ensuring its strategy has been effectively communicated. Even without this, we must ensure we have not misinterpreted them. For example, are they revenue or margin driven? Or, are they customer retention or market share related?
However, even if these elements are written down and accessible, they can often be quite broad and high-level and as such, need to be considered in light of the particular circumstances. We should, therefore, ensure we have tested our understanding with relevant cross-divisional colleagues.
How have we been doing lately? A good indicator of future success is an organisation’s current operational performance and recent track record executing projects. Moreover, senior management’s perception of their own success or failure in achieving their current goals will make a material difference to their mindset and appetite for risk in approving new projects.
What if we have not done as well as we would have liked, perhaps having underestimated the challenges faced? We should try to speak to the individuals directly involved as well those with unbiased knowledge to try to understand what worked well, and what could hinder the success of our proposed project. For example, were their estimates of the potential opportunity realistic and did they build in enough flexibility?
Can we manage more on our to-do list right now? A complex project or initiative may require only our very best people and a greater amount of their focus than can be spared at this time. There could simply be too many competing initiatives.
Or, perhaps while our proposed acquisition is a strong potential fit with long term potential, there are other factors that mean it is too risky to proceed with at this stage. For example, we may have purchased a few companies recently that we still haven’t integrated satisfactorily. Provided the target is not being aggressively courted by competitors, perhaps it is better to instead add it to our watch list for regular review.
2. Why do this exactly?
Will the result of all our effort be to delight our customers? This a fundamental and pretty obvious question but so often willfully bypassed.
As ever, there are three basic ways to create value: earn more, spend less or do things more efficiently. We need to decide which of these we are focusing on and be able to explain why our project will do something meaningful in moving us in that direction. For example, are we trying to rationalise our internal cost structure so we protect our operating margins? Or, are we highlighting and trying to solve a specific consumer problem?
But, it is imperative we are confident of the following: is the problem big enough? And when solved, will our solution involve us selling more to our existing customers, or require us to go and out and pitch to entirely new ones?
What if the benefits are less tangible at this stage? Proceeding in order to gain market and product knowledge as well as develop new capabilities, connect with industry partners and test possible models for future roll-outs is perfectly valid and valuable. The challenge in such cases is to articulate the compelling benefits effectively in a resource constrained operating environment. Perhaps there is an opportunity to first build low-cost proof of concepts or test use cases to demonstrate the investment thesis.
3. What does success look like?
What exactly will we gain? We really must be able to clearly articulate the ideal outcome from the project where the future presented is very bright. If this end scenario doesn’t hugely excite us we must go back and restructure the proposal until it does or defer this project until the relevant conditions become more favourable. It’s almost certain we’ll fail to sufficiently interest others unless we’re fully convinced and passionate about its potential.
Once we’ve projected all the possible benefits from the completion of the project, we must examine if those outcomes are realistic when the available financial and human resource inputs encounter some of the risk factors which threaten its success.
In many ways, the most straightforward projects to assess are those which we can use some traditional corporate finance measurement to assess return on investment. Widely used and generally accepted by finance professionals, net present value analysis allows to us to use a generally accepted approach to capital allocation.
However, confident presentations, dynamic slides and highly complex financial models very often prevent weak industry knowledge, and generic assumptions and risk weightings from being challenged and refined. Further, those with very specific and relevant knowledge are frequently far removed from the decision making process or otherwise, don’t feel confident or empowered to question or challenge senior decision-makers.
What if the benefits are intangible? If we are proposing experimentation in order to build up our capability and experience in new areas such as emerging technology, then it is much harder to use a traditional return on investment justification. While we may be able to effectively gauge the size of the potential opportunity, point to competitor moves or unavoidable trends, our ability to get internal approval will largely depend on the budgetary headroom and vision of the leadership and also, the energy and credibility of the sponsor.
4. Why not wait?
Why do we have to act right now? What timescales are we facing? We should be able to explain why failure to act now will threaten our current market position or potentially lose us valuable ground to competitors who are doubtless also analysing the same market developments.
There are often many advantages and certainly much less risk in not being first to market. Indeed, we could be overestimating any first mover advantage. Competitors can often react more quickly and effectively than we predict to neutralise our efforts and simply learn the new method and replicate the gains without having made the large investment to gain experience. The net result then could be restricted to temporary market share gains and, potentially, lower long-term industry prices.
Even if we are seeking to respond to a new functionality launched by a competitor, we must still be sure of why we can’t first wait to see their market reception before initiating action.
If the additional revenue gains on their own are not large enough to win sufficient internal support over other opportunities, we may be able to point to other reasons that compel action now.
Finally, if we can’t persuade others of the risks of not pursuing this course of action now, we should certainly be able to secure agreement to watch certain indicators and reconvene to reexamine the project if things change.
5. Who could or should do this internally?
Often, the source of the innovation, project or deal idea is not where the execution ability also sits. We should identify which internal departments need to be involved to assess the proposed acquisition and help confirm the synergies identified and the risk mitigation strategies submitted. In any event, if our project proceeds, they are likely to hear about it if it impacts their area and they will certainly volunteer an opinion. It’s better to learn from their perspective early on in the process and incorporate any insights they offer into the analysis. This is also important if we need both central corporate and local divisional sponsors for the deal, and it is unclear where the full cost should appear.
We also need to consider which teams are best placed or indeed required for the actual deal execution and post-merger integration. Who will lead the external negotiation process and do we need different individuals and teams at different stages of the deal? Do we have the necessary specialist local HR, finance and legal resources sufficiently involved to flag issues and support the commercial deal team?
6. Who externally could do this better?
We should ascertain whether we have the necessary skill-sets internally to achieve the optimum outcome within the required timescales. Further, it is very expensive and extremely risky to create an entirely bespoke platform unless the opportunity is large enough.
Can we outsource some or all of the components involved? Are there outside experts who can assist or partners who we can work with to develop this in a more cost effective way? If, instead of developing entirely our own systems, we can license certain underlying technology, it would allow us speed, flexibility and scalability. We may also immediately benefit from the networks effects that have developed around a well-established third party provider.
However, it may be that we need to develop certain internal capabilities and these can’t be delegated for strategic reasons. If that is the case, we should explore if there could be opportunities to amortise our efforts across other product areas or revenue lines.
7. What else could I do instead?
In a very competitive trading environment, with constant pressure to innovate, the project generation, review and approval process often involves only a few individuals. This may help avoid losing internal focus and external competitive edge, but it also deprives the organisation valuable alternative perspectives. A single executive evaluation team will be highly prone to confirmation bias. They should ask: Is this is the most useful thing we can do?
Project sponsors should actively seek out contrarian views and ensure that all relevant subject matter experts are actively consulted for alternative approaches.
It is highly useful if project sponsors showed they have thoroughly considered alternative organic growth strategies to buying the target under consideration. The outcome will be to better demonstrate why those are suboptimal and a purchase as now requested is necessary.
8. Where would I start?
We clearly need to have a strong project manager with a detailed plan and clear objectives to best ensure the project succeeds. However, we also need sustained senior level engagement to ensure internal cooperation, regular coaching and even direct intervention, when unforeseen challenges arise.
An internal established but flexible structure to ensure all good projects are both considered and execution is supported by the same senior managers who approved the project will help maximise the chances of success. As ever, direct sponsor and, to some extent, senior approver accountability will help ensure the project benefits are not overstated.
9. Is the why greater than the how?
Ideally, organisations should only do as many things as they can do really well. Managers should indeed ensure that they are exploring all opportunities that create value for the organisation. However, once a growth area is identified, the key as to which is the right decision (buy, buy an option, buy something else, build) depends on many variables and estimates as well as the judgments of senior executives.
For example, large entrenched firms rarely shy away from buying small dynamic organisations to build capability quickly, acquire key staff or consolidate market share. However, we are constantly reminded that it is not easy (or certain) to improve your organisation’s position simply by buying another one.
Managers would do well to use these simple questions to ensure they keep focused on what’s important and then, to help build their explanation as to why this is the best use of capital of the available options.
This should help test and refine the underlying proposition and also, help to clarify the narrative of the pitch, assist in firing up an audience’s imagination, anticipate and handle possible pessimism and ultimately persuade others why they should invest scarce resources in you and your idea.
This article is written in a personal capacity.