The Reality of Strategy: The Case of London Business School

When Laura d’Andrea Tyson was the Dean of London Business School – some years ago – she put together a committee to examine and reformulate the School’s strategy. Several professors sat on that committee. When I once asked her, having a drink at her home, why none of them were Strategy professors, she looked at me for about 5 seconds baffled. Eventually, she stammered, “yes, perhaps we could consider that in the future….”.

It was clear to me, from her stunned silence (and she wasn’t easily lost for words), that she had never even considered the thought before.

I, in contrast, thought it wasn’t such an alien idea; putting some strategy professors on the School’s strategy-making committee. We had – and still have – people in our Strategy department (e.g. Costas Markides, Sumantra Ghoshal) who not only had dozens of top academic publications behind their names but who also had an eager ear amongst strategy practitioners, through their Harvard Business Review publications and hundreds of thousands of business books sold (not to mention their fairly astronomical consulting fees).

Today, our current Dean – Sir Andrew Likierman – is working with a group of people on a huge strategic growth decision for the School, namely the acquisition of a nearby building from the local government that would increase our capacity overnight with about 70 percent. Once more, strategy professors have no closer role in the process than others; their voice is as lost in the quackmire as anyone else’s.

If Sir Andrew had been an executive MBA student in my elective (“Strategies for Growth”) writing an essay about the situation, I would ask him for a justification of the need for growth given the characteristics of the market; I’d ask him about the various options for growth (geographic expansion, e.g. a campus abroad; related diversification, e.g. on-line space, etc.), and how an analysis of the organisation’s resources and capabilities is linked to these various options, and so on. But a systematic analysis based on what we teach in our own classrooms and publish in our books and journals has, it seems, not even be considered.

And I genuinely wonder why that is? Because it is not only strategy professors and it is not only deans. Whenever the topic of the School’s brand name comes up, no-one seems inclined to pay more attention to our Marketing professors (some of whom are true heavyweights in the field branding) than to the layman’s remarks of Economics or Strategy folk. When the School’s culture and values are being assessed, Organizational Behaviour professors are conspicuously absent from the organising committee (ironically it was run by a Marketing guy); likewise for Economics and OB professors when we are discussing incentives and remuneration. So why is that?

Is it that deep down we don’t actually believe what we teach? Or is it that we just don’t believe what any of our colleagues in other departments teach…? And that it could be somehow relevant to practice – including our own? Why do we charge companies and students small – and not so small – fortunes to take our guidance on how to make strategy, brands, and remuneration systems only to see that when our own organisation is dealing with them it all goes out the door?

I guess I simply don’t understand the psychology behind this. Wait… perhaps I should go ask my Organizational Behaviour professors down the corridor!

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ADDENDUM

Since writing the piece above – perhaps not surprisingly; although it took me a bit by surprise (I didn’t think anyone actually read that stuff) – Sir Andrew contacted me. One could say that he took the oral exam following his essay on the School’s growth plans and passed it (with a distinction!)

In all seriousness, in hindsight, I think I was unfair to him – perhaps even presumptuous. I wrote “a systematic analysis based on what we teach in our own classrooms and publish in our books and journals has, it seems, not even be considered” and, now, I think I should not have written this. That I haven’t been involved in the process much and therefore have not seen the analysis of course does not mean it was never conducted. And it is a bit unfair, from the sidelines, to throw in a comment like that when someone has put in so much careful work. I apologise!

In fact, although Sir Andrew never lost his British cool, charme and good sense of humour, I realise it must actually have been “ever so slightly annoying” for him to read that comment, especially from a colleague, and he doesn’t deserve that. So: regarding the specifics of this example: forget it! ban it from your minds, memory, bookmarks and favourites (how would this Vermeulen guy know?! he wasn’t even there!)!

That you should pay more attention to Marketing professors when considering your school’s brandname, more attention to your OB professors when considering your incentive systems and values, more attention to Finance professors when managing your endownment and, God forbid, sometimes even to some strategy professors when considering your school’s strategy, I feel, does stand – so don’t throw out the baby with the bathwater just yet. But, yes, do get rid of that stinky bathwater.

sewber

sewber

Strategy is a Story

Stevie Spring, who recently stepped down after a successful stint as CEO of Future plc, the specialty magazine publisher, once told me, “I am not really the company’s CEO; what I really am is its Chief Story Teller.”

What she meant is that she believed that telling a story was her most important task as a CEO. Actually, she insisted, her job was to tell the same story over and over again. And when she said ‘a story’, she meant that her job was to tell her representation of the company’s strategy: the direction she wanted to take the business and how that was going to make it prosper and survive. She felt that a good CEO should tell that kind of story repeatedly, to all employees, shareholders, fund managers and analysts. For, indeed, a good strategy does tell a story.

All successful CEOs whom I have seen were great storytellers. Not necessarily because of their oratorical skills, but because the characteristics of the strategy they had put together lent themselves to being told like a story — and a good one too! The most important thing for a CEO to do is to provide a coherent, compelling strategic direction for the company, one that is understood by everyone who has to contribute to its achievement. For that, a story must be told.

When I say this, I am not implying that CEOs need to engage in fiction, nor do they need to be overly dramatic. In my view, a good business strategy story has three characteristics.

First, the story must provide clear choices.
Stevie Spring’s choices were as clear as her forthright language: “We provide specialty magazines, for young males, in British.” Hence, it was clear what was out; there were to be no magazines on, say, ‘music’ (that is too broad), no magazines in German (although that could be a perfectly profitable business for someone else) and no magazines on pottery or vegetable gardens (unless that has recently seen a surge in popularity among young males in the UK without my knowing it). A good strategy story has to contain such a set of genuine choices.

Moreover, it has to be clear how the choices made by the company’s leaders hang together. For example, Frank Martin, who as a CEO orchestrated the revival of the British model-train maker, Hornby, by turning it from a toy company into a hobby company, put his strategy story in just 15 words. “We make perfect scale models for adult collectors, which appeal to some sense of nostalgia.” He decided to focus on making perfect scale models because that is what collectors look for. Moreover, people would usually specifically collect the Hornby brand because it reminded them of their childhood, and with it a nostalgic, foregone era. Frank Martin’s choices were not just a bunch of disconnected strategic decisions; they hung together, and, combined, made for a logical story.

Second, the story must tie to the company’s resources.
Importantly, the set of choices has to be clearly linked to the company’s unique resources, those that can give them a competitive advantage in an attractive segment of the market. Although Hornby had been hovering on the brink of bankruptcy for a decade, it still had some valuable resources. First of all, it possessed a valuable brand that was very well-known and appreciated by people who had owned a Hornby train as children.

Additionally, the company had a great design capability in its hometown of Margate. However, these resources weren’t worth much when competing with the cheaper Chinese toy makers. The children who wanted a toy train for their birthday didn’t know (and could care less) about the Hornby brand. The precision modelling skills of the engineers in Margate weren’t of much value in the toy segment, where things mostly had to be robust and durable. However, these two resources — an iconic brand and a design capability — were of considerable value when making ‘perfect scale models for adult collectors’. It was a perfect match of existing resources to strategy.

I observed a similar thing at the Sadler’s Wells theatre. Ten years ago, before the current CEO Alistair Spalding took over, the theatre put on all sorts of grand shows in various performing arts. Yet, the company was in dire straits, losing money evening-on-evening and by the bucket. Then, Spalding took over and highlighted his leadership with a clear story. He started telling everyone that the theatre was destined ‘to be the centre of innovation in dance’.

He did this because the company was blessed with two valuable resources: (1) an historic reputation for dance (although it had diversified outside dance in the preceding years) and (2) a theatre once designed specifically with dance in mind. Spalding understood that, with these unique resources, he needed to focus the theatre on dance again. Beyond that, he made it the spider in the web, a place where various innovative people and dance forms came together to create new art, a place where stars were formed.

Third, the story must explain a competitive advantage.
The story must not only provide choices that are linked to resources, it must also explain how these choices and resources are going to give the company a competitive advantage in an attractive market, one that others can’t easily emulate. For example, Hornby’s resources enabled it to make perfect scale models for adult collectors better than anyone else, but those adult collectors also happened to form a very affluent and growing segment, one in which margins were much better than in the super-competitive toy market. It isn’t much good to have a competitive advantage in a dying market; you want to be able to do something better than anyone else in a market that will make you grow and prosper.

Thus, it has to be clear from your strategy story why the market is attractive and how the resources are going to enable you to capture the value in that market better than anyone else. The story of the CEO of Fremantle Media, Tony Cohen, for example, was that his company was going to make television productions that were replicable in other countries, with spillovers into other media. Because of their worldwide presence, Fremantle Media were better than their national competitors at rolling out productions such as the X-factor, Pop Idols, game shows and sitcoms. While their local competitors could also develop attractive and innovative shows, Fremantle’s multinational’s presence enabled it to reap more value from them. Therefore, that’s what they focused upon: shows that they could replicate across the globe. It was their competitive advantage, and they built their story around it.

Of course, a good story alone is not enough. A leader still needs good products, people, marketing, finance and so on. But, without a good story, a leader will find it impossible to combine people and resources into a forceful strategic thrust. A good story is a necessary — although, alone, not sufficient — condition for success.

My message for leaders: if you get your story right, it can be a very powerful management tool indeed. It works to convince analysts, shareholders and the public that where you are taking the company is worth everyone’s time, energy and investment.

Perhaps even more importantly, it can provide inspiration to the people who will have to work with and implement the strategy. If employees understand the logic behind a company’s strategic choices and see how it might give the company a sustainable advantage over its competitors, they will soon believe in it. They will soon embrace it. And they will soon execute it. Collective belief is a strong precursor of success. Thus, a good story can spur a company forward and eventually make the story come true.



The Translation Fallacy

If you have ever been unlucky enough to attend a large gathering of strategy academics – as I have, many times – it may have struck you that at some point during such a feast (euphemistically called “conference”), the subject matter would turn to talks of “relevance”. It is likely that the speakers were a variety of senior and grey – in multiple ways – interchanged with aspiring Young Turks. A peculiar meeting of minds, where the feeling might have dawned on you that the senior professors were displaying a growing fear of bowing out of the profession (or life in general) without ever having had any impact on the world they spent a lifetime studying, while the young assistant professors showed an endearing naivety believing they were not going to grow up like their academic parents.

And the conclusion of this uncomfortable alliance – under the glazing eyes of some mid-career, associate professors, who could no longer and not yet care about relevance – will likely have been that “we need to be better at translating our research for managers”; that is, if we’d just write up our research findings in more accessible language, without elaborating on the research methodology and theoretical terminology, managers would immediately spot the relevance in our research and eagerly suck up its wisdom.

And I think that’s bollocks.

I don’t think it is bollocks that we – academics – should try to write something that practicing managers are eager to read and learn about; I think it is bollocks that all it needs is a bit of translation in layman’s terms and the job is done.

Don’t kid yourself – I am inclined to say – it ain’t that easy. In fact, I think there are three reasons why I never see such a translation exercise work.

1. Ignorance

I believe it is an underestimation of the intricacies of the underlying structure of a good managerial article, and the subtleties of how to convincingly write for practicing managers. If you’re an academic, you might remember that in your first year as a PhD student you had the feeling it wasn’t too difficult to write an academic article such as the ones you had been reading for your first course, only to figure out, after a year or two of training, that you had been a bit naïve: you had been (blissfully) unaware of the subtleties of writing for an academic journal; how to structure the arguments; which prior studies to cite and where; which terminology to use and what to avoid; and so on. Well, good managerial articles are no different; if you haven’t developed the skill yet to write one, you likely don’t quite realise what it takes.

2. False assumptions

It also seems that academics, wanting to write their first managerial piece, immediately assume they have to be explicitly prescriptive, and tell managers what to do. And the draft article – invariably based on “the five lessons coming out of my research” – would indeed be fiercely normative. Yet, those messages often seem impractically precise and not simple enough (“take up a central position in a network with structural holes”) or too simple to have any real use (“choose the right location”). You need to capture a busy executive’s attention and interest, giving them the feeling that they have gained a new insight into their own world by reading your work. If that is prescriptive: fine. But often precise advice is precisely wrong.

3. Lack of content

And, of course, more often than not, there is not much worth translating… Because people have been doing their research with solely an academic audience in mind – and the desire to also tell the real world about it only came later – it has produced no insight relevant for practice. I believe that publishing your research in a good academic journal is a necessary condition for it to be relevant; crappy research – no matter how intriguing its conclusions – can never be considered useful. But rigour alone, unfortunately, is not a sufficient condition for it to be relevant and important in terms of its implications for the world of business.

“Can’t Believe It" 2

My earlier post – “can’t believe it” – triggered some bipolar comments (and further denials); also to what extent this behaviour can be observed among academics studying strategy. And, regarding the latter, I think: yes.
The denial of research findings obviously relates to confirmation bias (although it is not the same thing). Confirmation bias is a tricky thing: we – largely without realising it – are much more prone to notice things that confirm our prior beliefs. Things that go counter to them often escape our attention.

Things get particularly nasty – I agree – when we do notice the facts that defy our beliefs but we still don’t like them. Even if they are generated by solid research, we’d still like to find a reason to deny them, and therefore see people start to question the research itself vehemently (if not aggressively and emotionally).

It becomes yet more worrying to me – on a personal level – if even academic researchers themselves display such tendencies – and they do. What do you think a researcher in corporate social responsibility will be most critical of: a study showing it increases firm performance, or a study showing that it does not? Whose methodology do you think a researcher on gender biases will be more inclined to challenge: a research project showing no pay differences or a study showing that women are underpaid relative to men?

It’s only human and – slightly unfortunately – researchers are also human. And researchers are also reviewers and gate-keepers of the papers of other academics that are submitted for possible publication in academic journals. They bring their biases with them when determining what gets published and what doesn’t.

And there is some evidence of that: studies showing weak relationships between social performance and financial performance are less likely to make it into a management journal as compared to a finance journal (where more researchers are inclined to believe that social performance is not what a firm should care about), and perhaps vice versa.

No research is perfect, but the bar is often much higher for research generating uncomfortable findings. I have little doubt that reviewers and readers are much more forgiving when it comes to the methods of research that generates nicely belief-confirming results. Results we don’t like are much less likely to find their way into an academic journal. Which means that, in the end, research may end up being biased and misleading.

“Can’t Believe It” (we deny research findings that defy our beliefs)

So, I have been running a little experiment on twitter. Oh well, it doesn’t really deserve the term “experiment” – at least in an academic vocabulary – because there certainly are no treatment effects or control groups. It does deserve the term “little” though, because there are only four observations.

My experiment was to post a few recent findings from academic research that some might find mildly controversial or – as it turns out – offending. These four hair raising findings were 1) selling junk food in schools does not lead to increased obesity, 2) family-friendly workplace practices do not improve firm performance (although they do not decrease them either), 3) girls take longer to heal from concussions, 4) firms headed up by CEOs with broader faces show higher profitability.

Only mildly controversial I’d say, and only to some. I was just curious to see what reactions it would trigger. Because I have noticed in the past that people seem inclined to dismiss academic evidence if they don’t like the results. If the results are in line with their own beliefs and preconceptions, its methods and validity are much less likely to be called stupid.  

Selling junk food in schools does not lead to increased obesity is the finding of a very careful study by professors Jennifer Van Hook and Claire Altman. It provides strong evidence that selling junk food in schools does not lead to more fat kids. One can then speculate why this is – and their explanation that children’s food patterns and dietary preferences get established well before adolescence may be a plausible one – but you can’t deny their facts. Yet, it did lead to “clever” reactions such as “says more about academic research than junk food, I fear...”, by people who clearly hadn’t actually read the study.

Family-friendly workplace practices do not improve firm performance is another finding that is not welcomed by all. This large and competent study, by professors Nick Bloom, Toby Kretschmer and John van Reenen, was actually read by some, be it clearly without a proper understanding of its methodology (which, indeed, it being an academic paper, is hard to fully appreciate without proper research methodology training). It led to reactions that the study was “in fact, wrong”, made “no sense”, or even that it really showed the opposite; these silly professors just didn’t realise it.

Girls take longer to heal from concussions is the empirical fact established by Professor Tracey Covassin and colleagues.. Of course there is no denying that girls and boys are physiologically different (one cursory look at my sister in the bathtub already taught me that at an early age), but the aforementioned finding still led to swift denials such as “speculation”!

That firms headed up by CEOs with broader faces achieve higher profitability – a careful (and, in my view, quite intriguing) empirical find by my colleague Margaret Ormiston and colleagues – triggered reactions such as “sometimes a study tells you more about the interests of the researcher, than about the object of the study” and “total nonsense”. 

So I have to conclude from my little (academically invalid) mini-experiment that some people are inclined to dismiss results from research if they do not like them – and even without reading the research or without the skills to properly understand it. In contrast, other, nicer findings that I had posted in the past, which people did want to believe, never led to outcries of bad methodology and mentally retarded academics and, in fact, were often eagerly retweeted.

We all look for confirmation of our pre-existing beliefs and don’t like it much if these comfortable convictions are challenged. I have little doubt that this also heavily influences the type of research that companies conduct, condone, publish and pay attention to. Even if the findings are nicer than we preconceived (e.g. the availability of junk food does not make kids consume more of it), we prefer to stick to our old beliefs. And I guess that’s simply human; people’s convictions don’t change easily.

Let’s face it: in most industries, firms pretty much do the same thing

In the field of strategy, we always make a big thing out of differentiation: we tell firms that they have to do something different in the market place, and offer customers a unique value proposition. Ideas around product differentiation, value innovation, and whole Blue Oceans are devoted to it. But we also can’t deny that in many industries – if not most industries – firms more or less do the same thing.

Whether you take supermarkets, investment banks, airlines, or auditors, what you get as a customer is highly similar across firms.

1. Ability to execute: What may be the case, is that despite doing pretty much the same thing, following the same strategy, there can be substantial differences between the firms in terms of their profitability. The reason can lie in execution: some firms have obtained capabilities that enable them to implement and hence profit from the strategy better than others. For example, Sainsbury’s supermarkets really aren’t all that different from Tesco’s, offering the same products at pretty much the same price in pretty much the same shape and fashion in highly identical shops with similarly tempting routes and a till at the end. But for many years, Tesco had a superior ability to organise the logistics and processes behind their supermarkets, raking up substantially higher profits in the process.

2. Shake-out: As a consequence of such capability differences – although it can be a surprisingly slow process – due to their homogeneous goods, we may see firms start to compete on price, margins decline to zero, and the least efficient firms are pushed out of the market. And one can hear a sigh of relief amongst economists: “our theory works” (not that we particularly care about the world of practice, let alone be inclined to adapt our theory to it, but it is more comforting this way).

3. A surprisingly common anomaly? But it also can’t be denied that there are industries in which firms offer pretty much the same thing, have highly similar capabilities, are not any different in their execution, and still maintain ridiculously high margins for a sustained period of time. And why is that? For example, as a customer, when you hire one of the Big Four accounting firms (PwC, Ernst & Young, KPMG, Deloitte), you really get the same stuff. They are organised pretty much the same way, they have the same type of people and cultures, and have highly similar processes in place. Yet, they also (still) make buckets of money, repeatedly turning and churning their partners into millionaires.

“But such markets shouldn’t exist!” we might cry out in despair. But they do. Even the Big Four themselves will admit – be it only in covert private conversations carefully shielding their mouths with their hands – that they are really not that different. And quite a few industries are like that. Is it a conspiracy, illegal collusion, or a business X file?

None of the above I am sure, or perhaps a bit of all of them… For one, industry norms seem to play a big role in much of it: unwritten (sometimes even unconscious), collective moral codes, sometimes even crossing the globe, in terms of how to behave and what to do when you want to be in this profession. Which includes the minimum price to charge for a surprisingly undifferentiated service.