People like heroic tales, whether in childrenās stories or business strategy. Itās inspiring to see new enterprises and business models crafted, particularly when a visionary challenges the status quo and attempts something truly ingenious with company strategy. Consider the following story. A 150-year-old utility company runs waterworks for large cities but eventually diversifies into mostly related sectors, such as waste management, energy, property, and construction. The company is profitable but boring, and more importantly, it has no spark and limited growth potential. Not the sort of firm that sparks interest in current-day investors or the international business press, it is sustainable as a business but not likely to dent the universe.
In steps the young, flamboyant, and visionary leader, who enters the stage with fresh perspective and creative zeal. He sees opportunity where others do not, attracted not only by the substantial cash this company pushes out with lunar regularity, but also by the wonderful prospects in the emerging digital media spaceāfilms, music, television, and the potential of digitally streaming all of this content to consumers. He works tirelessly to transform this boring ālocalā operation into an exciting and relevant global player, taking the reigns to fearlessly push through the new strategy. Within five years, this company is the Cinderella story of the business world. It succeeds in acquiring a film studio with plenty of cachĆ©, a giant record label, a pay-TV channel, which the company had once helped to found, along with mobile telecom services, theme parks, and educational publishing. The business media and the public give the lionās share of credit to this heroic leader who becomes a celebrity beyond his industry and is called a āmaster of the universe,ā an Ironman-like figure for the media world. The community of thought leaders in strategy and organizational leadership sleep soundly at night with yet another confirmation of the importance of visionary strategic leaders, individuals who lead from the front and are capable of ādoing,ā not just āknowing.ā
The big problem with this heroic tale of strategy development is the next chapter: itās mostly a bust. Turns out the strategy was not developed to withstand even the near-term uncertainties of a chaotic industry. The company was Generale des Eaux, effectively Franceās national waterworks, and the heroic leader was Jean-Marie Messier, a man with impressive educational credentialsāgraduate of the highly competitive grande ecoles system in Franceāwho cut his teeth in leading global investment bank Lazard Freres. The strategy seemed appealing enoughādrive the free cash flows from an old, low growth company into the fast-growing media space and exciting new industries, to seize emerging opportunitiesābut it was simply unsustainable. Generale des Eaux, now known as Vivendi, made acquisitions at the height of the dot-com boom when prices were more likely to bubble, thus saddling Vivendi with a debt mountain that not even a tried-and-true waterworks giant could pay off. But the bigger issue was how to make sense of the whole organizationāhow to execute on the strategic synergies that an integrated media company would require in order to generate new value for consumers and investors. Also, Vivendi had to figure out how to develop a strategy for this business model over time, to continuously adjust to the vagaries of the marketplace, even while retaining an appealing and visionary future. Vivendi, it seems, was unprepared to deal with these larger issues.
Not surprisingly, Messierās critics were as misguided as his early admirers, too often focused on style or other personal qualities. As Vivendi plunged (over 13ā¬ Billion in losses in 2001, nearly double that in 2002 and the largest such loss in French corporate history, debts of up to 27ā¬ Billion, and a stock price that was decimated),1 the criticisms of Messier were loud and mostly focused on the quality of his earlier investment decisions and, all too often, on the lavishness of his life as CEO. The underappreciated issue, however, was the failure to remake the firm and build the processes and foundations that would allow Vivendi to develop this bold strategy from the ground up and so that it can last. After all, others have offered outrageous visions for their industriesāsuch as Martin Eberhard, Marc Tarpenning, and Elon Musk in luxury and sport electric vehiclesābut also managed to build sustainable organizational processes, processes or strategies that donāt quickly fade away but have staying power, behind them (although Tesla is still very much work-in-progress). The foreground and frontstage strategic work was accomplishedābuy into growth, leverage steady cash flows, compel and impress the media and investorsābut the background work not nearly so.
The story of Vivendi is neither the first nor the last such story, of strategic leadership that seems to be preoccupied with what happens on the frontstage and not the backstage, the messy plumbing of strategy development. The raison dāetre for this book is to shine a light on what leaders are doing on the backstage. First, successful strategies are enacted, developed over time, with adaptations, and are never complete. They are works-in-progress, a collection of ideas on product-market scope, technology, timing, supply chain, partnerships, staffing, etc. And they require swapping and testing in order to craft the consistency and logic that amounts to a āsustainable strategy.ā Contrary to popular business mythology, strategies seldom emerge from a single epiphany of a genius, nor do they neatly fall in place through advanced strategic planning and foresight. Second, and the core purpose of this book, this ongoing strategic development rests upon fundamental processes, processes that are not media headline grabbers but that nonetheless increase the chances that a firm will achieve sustainable performance. Through research on strategy and organizations Iāll help you name and describe these processes, which operate at various levels of depth in business organizations. Third, business leaders need to appreciate the central role that they play not just as cheerleaders and inspiring āMasters of the Universe,ā but also as behind-the-scene orchestrators or architects in this work. Creating, maintaining, and integrating these processes are the key, albeit backstage, sometimes invisible, work of business leaders. Itās about putting in place the foundations, the networks and the wiring, the invisible systems and procedures that enable corporations to navigate through competitive markets, adapt and thrive. The essential work of leaders is the crafting of these processes and ensuring that there is a connecting thread of logic and emotion that runs through them. Letās consider each of these starting points in turn, but first understand something about how business strategies flow.
The Surprising Life of Strategy
The CEO of a sizeable British insurance company, Patrick Snowball, learned about the real requirements of strategy the hard way. A thoughtful and no-nonsense, commanding figure, Snowball was on stage with his fellow Norwich Union Insurance executives during an off-site conference.2 In the audience various managers and directors who had come to the end of a grueling restructuring process following several years of mergers and acquisitions in the industry. The company executives called this process ābanging them together,ā replete with cost-cutting initiatives and efficiency drives. Now, the executives thought, it was time to launch a new strategy, one so simple and clear that Patrick Snowballāa military man earlier in his careerāwas charismatic enough to instruct and sell to the troops: to focus closely on customer care and service, with āinsurance at our core and care at our hearts.ā After all, the restructuring work was showing financial results. The new philosophy had emerged through some brainstorming work of several smaller task forces, each headed by one of the executive team members and with the input of a selection of local directors.
After Patrickās speech and the announcement of the new direction, however, there was a long and awkward silence and a lot of hushed mumbling in the room, something that resembled a sketch from an episode of Monty Python rather than an executive conference of senior leaders. The audience was simply stunned. One brave manager finally uttered what everyone but the executives were thinking: āBut we donāt understand where this has come fromā¦,ā after which he was effectively told to sit down and shut up. Some managers initially thought that this was a jokeānot a silly thing to think, given the overwhelming cost-cutting and efficiency theme of recent years. How could the company now expect themābeaten by the restructuringāto morph into a caring and compassionate organization? They were unanimous, in not believing a word of what was being told to them, totally unconvinced of the new corporate strategy. The executives were equally dumbfounded and baffled, as well as angry and disheartened. Here they were, trying to do their best for the company, working tirelessly on the restructuring but simultaneously on the company strategy, for which they believed they bore responsibility. They genuinely believed they had pulled in the opinions of people below them, and now they were receiving this push-back and ingratitude?
Everyone in the room walked away thinking āwhat just happened here?ā Executives were setting strategy, simply doing what they thought they should be doing, but their senior managers did not believe a word of it. So how can we explain this? The company had conducted a cultural survey around this time and the results were discouraging. It revealed a massive disconnect between how the executives, on the one hand, and directors and lower managers, on the other, experienced the recent restructuring work. The executives were upbeat and motivated about the future, but the troops were exhausted, unengaged, and cynical. Essentially, there were two different narratives and interpretations about the restructuring. The executives told the story of heroic strategic decision-making, particularly around the puzzle of rationalizing two merging units and limiting inefficiencies. Managersā narrative was one of being asked to do too much with too little, in a process that sought very little input from the bottom, and with greater concern for the financials than the human factor. In their eyes, the experience of the restructuring cost the company dearly in terms of goodwill and go-the-extra-mile employee motivation in the lower ranks. The narratives around the restructuring, and so the positions of the executives and the rest, were, as one manager put it, āmiles apart.ā The leadership lost the pulse of the organization, was unable to empathize with the troops, and, so, an emotional gap appeared. As a result, they could no longer gauge key issues in the development of the new strategy, especially the readiness of the workforce to effect a culture change and, thus, the likelihood of operationalizing these āheartfelt,ā āauthentic,ā care ideas in the marketplace. After all, itās the people further down who ultimately needed to show such care to consumersāand the irony of being ācommandedā to show care was not lost on this audience. In other words, it had something to do with the deeper processes in the company, such as those that shape the adaptability of the company and shape the broader culture.
In addition, the executives made an assumption that many company leaders make on a regular basis but that is progressively flawed in modern business: the strategy realm belongs solely to us, the execution belongs to you, the middle managers and your teams. This is certainly a well-established assumption, backed by formal offices and roles inside of many companies (strategic planners, chief strategy officers, etc.) who support the executive in creating strategy. But itās an assumption that is losing relevance. Strategies require scanning, sensemaking, and framing processe...