insigniam quarterly fall 2013 - strategy & growth
TRANSCRIPT
VO L U M E 1 , I S S U E 3 | FA L L 2 013
PLAYING THE GAMEPepperidge Farm’s Irene Britt says strategy is like a chess
game. You have to be prepared to react to the unexpected.
STRATEGY & GROWTHPLANNING AND EXECUTING FOR SUCCESS
Keeping the faithduring uncertaintyWhen failure is not an
option, believe in your
people to succeed.
Strategy during a downturnThree approaches from
high-performing enterprises
In my over 30 years of experience leading people and organizations,
one truth has held fast no matter what the circumstance or situation. Give
people a game worthy of their personal commitment and you will catalyze an unstoppable force for performance.
— SUZANNE GRUGANPARTNER, INSIGNIAM
INSIGNIAM QUARTERLY 1FALL 2013
LListening to Irene Britt talk about strategy you realize that for her it all comes
down to one thing — questions and answers.
Britt has spent her career taking on the tough challenges, helping grow
a company that may be stagnating, or transforming a good business into a
great one.
It’s the challenge she faces now as the new president of Pepperidge Farm,
a good company that has the potential to be great. And what takes the brand
— home to iconic products like the Goldfish cracker and the Milano cookie
— from good to great starts with a question: What does Pepperidge Farm want
to be?
The answer to that question will determine the strategy Britt and her team
build to take Pepperidge Farm where they think it should go. It’s deep insights
that come from asking questions that Britt says go into any effective strategy.
That’s one of the reasons that we featured Britt on the cover of this issue of
Insigniam Quarterly. Our focus is strategy and as the former chief strategy officer
at Campbell’s Soup, Britt has plenty to teach. Like the three questions she asks
when she begins the strategy creation process.
• What are the points of pressure?
• Where are the balances of power in any of the relationships on the value
chain?
• Where are the pools of profit?
Britt offers great insights into building a winning strategy, but she’s not the
only one who has something to tell you. Our own Nathan Rosenberg shares
his thoughts on building and executing on a strategy, and he agrees that it all
starts with a question, but his is much more foundational. What is the purpose
of your business?
It’s not enough to take the strategy that’s working now and recycle it. You
can’t just take last year’s document and change the date. Chances are something
in the marketplace has already made that strategy obsolete. Strategy takes work.
It takes looking at your market, at your company, at your opportunities, and ask-
ing tough questions or you’ll soon fall behind.
So, what questions are you asking?
Shideh Sedgh Bina
Founding Partner, Insigniam
A GREAT STRATEGY STARTS WITH GREAT QUESTIONS
LETTER
FALL 20132 INSIGNIAM QUARTERLY
20BUILDING STRATEGY. BUILDING BUY-INNathan Owen Rosenberg, Insigniam
It takes a lot of work by a lot of people to build a
successful strategy. It takes just as much work to
execute that strategy successfully.
24WHAT IS YOUR STRATEGY’S NORTH STAR?Shideh Sedgh Bina, Insigniam
Strategic planning is an evolving process. The best-
laid plans can unravel quickly. The strategic frame
can help your enterprise stay focused.
38GROWTH DURING A DOWNTURNIt is possible to grow even when the rest of the
economy is not. These three companies are proof
of that. Here’s how they did it.44
FAITH IN THE FACE OF UNCERTAINTYDr. Philip Neches, founder of Teradata
When failure is not an option for you or your team,
believe in your people and their abilities.
FEATURES
FINDING YOURPOOLS OF PROFITFor Irene Britt, plotting a
course for Pepperidge
Farm — home of the iconic
Goldfish cracker — is all
about asking the right
questions and envisioning
a radical future.
COVER STORY32
TABLE OF CONTENTS
FALL 2013 INSIGNIAM QUARTERLY 3
EDITOR-IN-CHIEF Shideh Sedgh Bina
EXECUTIVE EDITOR Nathan O. Rosenberg
CHIEF FINANCIAL OFFICER Ralph Gotto
DIRECTOR OF WORLDWIDE Karen Turner
CLIENT SERVICES [email protected]
DIRECTOR OF SPECIAL PROJECTS Alexes Fath
PUBLISHER Gordon Price Locke
MANAGING EDITOR Jarrett Rush
CREATIVE DIRECTOR Kyle Phelps
GRAPHIC DESIGNER Emily Slack
PRODUCTION MANAGER Pedro Armstrong
IMAGING SPECIALIST John Gay
ACCOUNT SERVICE MANAGER Jas Robertson
EDITORIAL QUERIES
750 N. Saint Paul Street
Suite 2100
Dallas, Texas 75201
www.dcustom.com
214.523.0300
For advertising information, contact Jas Robertson at
214.937.9811 or [email protected]
Insigniam Quarterly is published by D Custom, 750 Saint Paul Street, Ste. 2100, Dallas, Texas 75201. Copyright 2013 by Insigniam. All rights reserved. Letters to the editors may be sent to Insigniam Quarterly c/o D Custom, 750 Saint Paul Street, Ste. 2100, Dallas, Texas 75201. No part of this publication may be reproduced in any form or by any means without prior written permission of the publisher and Insigniam. Printed in the U.S.A. Magazine patents pending. For subscriptions, please visit www.insigniamquarterly.com.
Q U A R T E R LY
VOLUME 1, ISSUE 3 | FALL 2013
“You can’t come from what you have as a strong point and say ‘I
can eke a little bit more here. I can eke a little bit more here.’ You
have to actually create a future that articulates something that
isn’t a linear, rational path from where you stand right now.”— IRENE BRITT, PEPPERIDGE FARM PRESIDENT
THE TICKERGrowth stories, books, and great ideas
TOP LINEStrategy and growth by the numbers
BLOOD, SWEAT & TEARSIT needs a seat at the strategy table
BOARDROOM POVKeeping their eyes on the future can help board
members withstand shareholder dissidence
THE IKEA EFFECTThe fact that you created it may be blinding you
to holes in your strategy that are holding you back
ARE YOU BEING HEARD?How your strategy is communicated to your employees
can make the difference between success and failure
LEADING THROUGH UNCERTAINTYGordon Price Locke, D Custom
Healthcare executives must reshape their world
IQ BOOSTScott W. Beckett, Insigniam
Culture must be a part of the strategy planning
discussion
04
08
10
12
16
28
48
DEPARTMENTS
On the coverPepperidge Farm’s Irene Britt says
strategy is like a chess game.
VO L U M E 1 , I S S U E 3 | FA L L 2 013
PLAYING THE GAMEPepperidge Farm’s Irene Britt says strategy is like a chess
game. You have to be prepared to react to the unexpected.
STRATEGY & GROWTHPLANNING AND EXECUTING FOR SUCCESS
Keeping the faithduring uncertaintyWhen failure is not an
option, believe in your
people to succeed.
Strategy during a downturnThree approaches from
high-performing enterprises Insigniam and its publisher, D Custom, distribute this editorial magazine to share the opinions and insights of companies and their leaders on impactful global business issues. Insigniam Quarterly’s inclusion of a company or individual does not indicate that they are a client of Insigniam. Remuneration is not provided for editorial coverage. Individuals appearing in Insigniam Quarterly have done so with direct consent, or provided consent by a designated authorized agent in addition to being disclosed on the magazine’s audience and purpose.
52
THE TICKER
FALL 20134 INSIGNIAM QUARTERLY
THE TICKER
HomeAway, a vacation rental service has grown to a $2.6 billion global company through 18 disciplined acquisitions, as well as organic growth.
In finding targets for buys, the Austin, Texas-based
company only seeks one of the Top 2 players in a
region or country.
And before making a deal, HomeAway execs
make a point to develop a relationship with the
leadership of the company it is targeting. In doing
so, HomeAway learns what’s important to its future
partner, how the company will fit with its strategies
and what it will take to make a deal work. Founder
Carl Shepherd also said in a panel at the South by
Southwest festival that it’s important to have the best
advisers and to encourage the seller to hire the best
M&A attorneys and investment bankers it can afford.
And perhaps most importantly, HomeAway makes
certain it has a plan for integrating and growing the
newly acquired unit even before the deal is complete.
KNOW YOUR TARGET HAVE A PLAN
Find more homes at www.homewaway.com
Com
pile
d by
Cha
d W
att
FALL 2013 INSIGNIAM QUARTERLY 5
Interstate Batteries more than doubled its revenue in the past nine years by moving beyond the car battery and its traditional distribution channels.
While Interstate is best known for its replacement automobile batteries, it has changed the way it sells those batteries by opening up its own franchise retail division in 2004. It now has more than 200 stores nationally.
In the past decade, Interstate also has expanded to sell all manner of “portable power solutions” from its stores and elsewhere. The privately owned company now has revenue of more than $1.5 billion.
GROWTHCHARGING UP FOR
Yahoo! Inc., a fast-growing search engine in the early days of the Internet,
has turned to a new generation of young, growing companies to reinvigorate
its own growth. In buying Tumblr for $1.1 billion, Yahoo! is vowing not to
“screw up” the deal and leaving Tumblr alone.
Yahoo! plans to allow the social media site to continue to run as it has been.
That decision played a key factor in Tumblr selling to Yahoo!. News reports
indicate that many prior offers were rejected by Tumblr and its 26-year-old
founder David Karp because of what a more mature owner might try to do
with the site.
As Karp wrote on his blog the day Yahoo! announced the deal:
“Our headquarters isn’t moving. Our team
isn’t changing. Our roadmap isn’t changing. And
our mission – to empower creators to make their
best work and get it in front of the audience they
deserve – certainly isn’t changing.”
As some critics have pointed out, Yahoo! is taking
risks with the deal, paying more than $1 billion for a
company that hasn’t produced profits, but it needed
something to spark its growth. Yahoo!’s revenue has
been flat, in the $5 billion range for two years after
drifting downward during the Great Recession.
TUMBLING FOR GROWTH
1.5 BILLION
ADVOCATES OF THE DEAL SEE THE TWO COMPANIES AS COMPLEMENTARY: Yahoo! gets access to a younger audience focused on different niches from its current audience. Tumblr, which has a small sales force, gets access to Yahoo!’s sales force of more than 2,500.
THE TICKER
Campbell’s Soup CEO Denise
Morrison has made selling the company’s
canned soup and juice products outside
the United States a priority since taking
the helm in 2011, but making that
happen the right way is a process that
takes a patient strategy.
Rather than build out in new markets
on a green-field basis, Campbell’s has
looked to buy local food businesses as a
way to enter markets in Latin America
and Asia.
Because a number of those businesses
are family-owned enterprises that aren’t
ready to sell immediately, Campbell’s
has focused on developing relationships
and striking partnerships to introduce its
tomato soup, sauces and vegetable drinks
to new consumers.
In February, Campbell’s announced
two deals in Mexico: one with Mexico’s
Grupo Jumex to distribute its V8 line of
products throughout the country and
a second with Conservas La Costena
to manufacture and distribute its soups,
broths and sauces there.
In both deals, Campbell’s will be
responsible for marketing, research and
product development, while it leaves
the in-country production and logistics
concerns with established local partners.
CANNED SOUPGOING GLOBAL
FALL 20136 INSIGNIAM QUARTERLY
Annual budgets and staff growth aren’t the only things you should be
planning for. A good content strategy can focus your company’s marketing
efforts and generate the kinds of leads that help boost both your bottom
line and your brand reputation.
Do you want to get three times the customers? You need a better plan.
Learn how you can transform your marketing at
dcustom.com/contentstrategy.
If you want to generate more revenue, maybe you need a new plan.
3X CONTENT MARKETING PRODUCES THREE TIMES THE LEADS PER DOLLAR THAN TRADITIONAL MARKETING AND ADVERTISING.
“...in 2008, facing rising prices and a global recession that hit its core markets... especially hard, Ikea set out
on a new strategic path: to offer even lower prices to consumers, while positioning itself for long-term growth.
It accomplished this through the simplest of methods... separating “good costs” (productive investments)
from “bad costs” (unnecessary expenses). The company then invested 100 percent of its net savings on
building up the essential qualities of its business or lowering the price of its products... The results to date
have been impressive: about 10 percent annual top-line growth and stable margins...
From the May 7, 2012 article, How Ikea Reassembled Its Growth Strategy, at strategy-business.com
“There’s only one growth strategy: work hard.”William Hague, British Foreign Secretary and First Secretary of State
TOPLINE
FALL 20138 INSIGNIAM QUARTERLY
BY THE NUMBERS
FALL 2013 INSIGNIAM QUARTERLY 9
The earnings growth, revenue growth and total return for Silver Wheaton, which enters into silver-purchase agreements with miners. It was the world’s fastest growing company in 2012, according to Fortune magazine.
“The best CEOs I know are teachers, and at the core of what they teach is strategy.”Michael Porter, the Bishop William Lawrence University Professor at Harvard Business School
“I became painfully aware that the most important thing is to keep growing at a sustainable pace. Expanding vehicle volume does not equate with growth, because fixed costs also increase.”Toyota president Akio Toyoda, speaking in a May 8, 2013 Reuters article
FOUR
ICBCIt stands for the Industrial and Commercial Bank of China, and it is the world’s biggest company by business scale, according to the Forbes Global 2000 list, released in April 2013. China Construction Bank is the second largest. JP Morgan Chase is No. 3.
High-growth firms make better strategic use of data, according to an Economist Intelligence Unit Survey released in May 2013. Companies in which the average EBITDA growth over the past three financial years is more than 10 percent are more likely to change the way they handle strategic decisions due to having more data.
KEY APPROACHES TO GENERAL MOTORS’ GROWTH STRATEGY
10%340%EARNINGS GROWTH
76%REVENUE GROWTH
49%TOTAL RETURN
The IT Department must be part of the discussion if you want to maximize your potential for growth.
FFrom the beginning, Nike has been aggressive. The company
was founded by a former University of Oregon runner and
his track coach, a man who was so focused on winning that
he built shoes for his athletes. And in 2010, the company —
already a global sportswear giant — announced an aggressive
plan to achieve $27 billion in revenue by the end of 2015.
How are they doing? It closed the 2013 fiscal year with
$25.3 billion in revenue, up 8 percent over 2012.
And how did they do it? By making sure every department
has a seat at the strategy table, including IT.
ELIMINATING AN “OUTSIDE LOOKING IN”
APPROACH TO IT
Depending on the industry, companies will spend between 3
percent and 8 percent of revenues on IT. For Nike that number
FALL 201310 INSIGNIAM QUARTERLY
BY JEFF BOUNDS
TECHNOLOGY NEEDS A SEAT AT YOUR STRATEGY TABLE
is approximately 2.7 percent. But too often, says Roland
Paanaker, IT is the one area of business left on the outside
looking in when it comes to strategy development. A bad
idea, says Paanakker, Nike’s chief information officer and the
vice president of Nike Technology.
“If you don’t include technology, it might become a
roadblock,” he says. Aggressive plans could slow or stall
because they may not be feasible technologically, or the
technology can’t be configured fast enough.
BENEFITS REALIZATION
Nike’s aggressive focus on growth is part of everything
the company does, even for Paanakker and the rest of the
IT department — an operation with thousands of people.
“What we’ve done in technology is a lot of emphasis on
BLOOD, SWEAT & TEARS
Making sure that all departments are part of the strategy development process has contributed to Nike’s continued growth. P
HO
TO B
Y N
IKE
INC
.
INSIGNIAM QUARTERLY 11FALL 2013 INSIGNIAM QUARTERLY 11
benefits realization, as we call it,” he says. “You have to be able
to look at technology and say, ‘What did I get out of it? What’s
the hard benefit?’”
By holding itself responsible for producing a return on the
investment that Nike pours into it, Paanakker’s IT operation
has seen a steady rise in its stature in the organization — and
that ensured its seat at the strategy development table.
“We continue to have more adoption, embracing, and
elevation of IT,” he says. “Through 30 or 40 years, it’s produced
a high return on investment. That makes it more palatable to
continue to do that investment.”
Also making it palatable, Paanakker says, is a disciplined
IT governance that’s aligned with corporate strategy and
direction as well as an active executive technology steering
committee.
CALIBRATE INVESTMENTS IN ESSENTIAL
VERSUS NEW TECHNOLOGY
Part of Nike’s IT investment is in new technology,
something that Paanakker has increased five-fold since being
named CIO in June 2005. At the time of his promotion to
information chief, roughly 70 to 80 percent of Nike’s IT
budget went toward tech that helps run the business’ basic
operations, he estimates. The remaining spending was on new,
cutting-edge technology.
Today, Nike’s IT budget is almost 180 degrees different.
Forty percent goes toward operational needs and 60 percent
is spent on innovative new technology, such as consumer-
facing applications such as the Nike+ running app or the new
FUELband app for iPhone and Android.
MAKE OTHERS INVEST IN IT
It’s those companywide efficiencies Paanakker and his
team help facilitate that contribute to Nike’s continued
growth and ensure that IT is an integral part of strategic
conversations.
Paanakker has three tips for how enterprises can keep IT
front and center when devising and implementing strategy:
Make technology part of the vision. “In the right
companies, there is a strong vision of what the corporation
needs, that being more than a bunch of targets for where they
will be in three to five years,” he says. “If you stay in the line of
sight into how technology is enabling the corporate vision, it
gives you the right guardrails.”
Embrace the right partners. The technology
landscape is changing so rapidly, corporate IT departments
must evolve as well. That means being open to using third-
party providers, Paanakker says, then finding the right
NIKE’S INFORMATION TECHNOLOGY BUDGET BREAKDOWN
40%OPERATIONAL
NEEDS 60%INNOVATIVE
TECHNOLOGY
partners. For Nike that means teaming with companies like
Xerox and HP for data center operations and development
service providers like Infosys, Cognizant, and WIPRO.
Paanakker also believes that it’s necessary to tap into
entrepreneurs who have produced important technology
through start-ups.
Focus on execution: Strategizing is great, but the rubber
meets the road when IT departments must execute on
the planning. Paanakker says the big question is: “Will the
organization be able to absorb change?”
FINDING THE RIGHT PEOPLE
While keeping technology front and center is important,
so is finding the right people. You have to have leaders who
embrace the challenges of benefits realization and understand
the importance of investing in new technologies. They see
IT as something more than a service department that helps
the company run, but as a vital part of a growth strategy.
Paanakker is obviously one of those people.
“Roland is the consummate mixture of bold visionary
and enthusiastic leader, pointing out new mountains to
climb and getting people moving to accomplish what some,
at first, deem highly unlikely or even impossible,” says Scott
W. Beckett, a partner at Insigniam. “At his heart, his belief
in and love of people provides a context for leadership that
lifts people to levels of energy, enthusiasm, execution, and
results that few executives could ever dream of realizing.”
PH
OTO
BY
NIK
E IN
C.
AFALL 201312 INSIGNIAM QUARTERLY
WITHSTANDING SHAREHOLDER DISSIDENCE
Anyone who’s experienced life inside of one can tell you
that the myth of the corporate boardroom — a group of
men (yes, unfortunately in both myth and reality woman are
still grossly underrepresented in the boardroom) cut from
the same cloth arriving at quick decisions after discussing
financial and strategic matters in terse, measured and
confident tones with a wise shogun-like chairman sitting at
one end running it all — is just that, a myth.
BY JARRETT RUSH
Strong communication and a critical focus on a company’s long-term future can help a board withstand pressures
THE BOARDROOM
We asked Steve Odland, the former CEO and chairman
at Office Depot and AutoZone and the current president
and CEO of the Committee for Economic Development, to
give us his point of view on managing boardroom dynamics.
Odland’s core message? Life in the boardroom is just like it is
in any other meeting in any other office. Board members are
colleagues. They are friends. And almost all of the time, they
are operating with the same goal in mind. And, just like in
FALL 2013 INSIGNIAM QUARTERLY 13
any other group, communication skills are critical to having
functional dynamics.
Yet if it is all a matter of simple communication then
why do the business headlines from this year make it seem
like boards all over the world are hotbeds of squabbles and
competitive intrigue?
• After a weeklong very public disagreement with
fellow board members, hedge fund billionaire
Bill Ackman’s multi-year campaign to transform
department store J.C. Penney came to an abrupt end
on August 13 with his “decision” to step down from
the board.
• George Zimmer the former CEO and very public
face of Men’s Warehouse was booted in June from
the board of the company he founded after publicly
complaining about the direction the board was
taking the company then taking steps to put himself
back into the position of sole decision maker.
• A management shift at struggling bookseller Barnes
A LOOK AT THIS YEAR’S BUSINESS HEADLINESMAY LEAD YOU TO BELIEVE BOARDROOM
DISSIDENCE IS MORE COMMON THAN IT IS.
FIVE INGREDIENTS FOR EFFECTIVE BOARD DYNAMICS
Boards of Directors are no different than
any other group in the animal kingdom,
Steve Odland says. They are no different
than families. They are no different than
sports teams. In order to run well there
needs to be:
1 Understanding
2 Camaraderie
3 Trust
4 Open communication
5 Mutual respect
FALL 201314 INSIGNIAM QUARTERLY
months, six months, or a year later. Their motivation is in
conflict with the board that has the duty to drive value over
a long period of time.
Often these shareholders want to dismantle a company,
come in and split off those pieces that may not be making
much money now but have potential for innovation and
growth. Take those pieces and separate them from those
others that are cash cows.
“You come in and say lets split it off and get rid of all
this unprofitable stuff,” Odland says, “usually what you end
up with is no growth. And then how does that position the
company for the future? These are the judgments that the
board and management teams need to make. And sometimes
that’s at odds with people who want to make a quick profit.”
CREATING UNITY
Obviously, to keep a critical focus on the long term and
not get swayed by the sirens call of short term profits, you
need a board that’s a cohesive unit — one that can withstand
disagreements and differences of opinion, because those are
going to happen.
“If you’ve got really smart people and you’ve got
differences of opinion, usually it’s because they are working
from a different set of facts or information,” Odland says.
“And so whenever you have that, whether it’s in a board
room or a family situation, the best bet is to take a step
back, take a breath and say let’s go through this again and
make sure we have all the facts on the table and that we’re
all looking at the same thing. Because reasonable people
looking at the same thing rarely come to radically different
conclusions which would split the board.”
Companies and boards and management teams with
a history of producing results, being willing to try things,
and Noble in July put founder Leonard Riggio
back in charge as executive chairman of a company
without a CEO. Riggio has previously said he
would be interested in buying the rest of the chain
if its Nook division was separated from the parent
company.
• Michael Dell struggled for most of the year with a
leveraged buy out of Dell Computers. Even though
it had made $2.3 billion in the first three quarters
of its 2013 fiscal year, Dell still wanted to take the
company he started in his college dorm room
private. Board members pushed back, and the two
sides continued to struggle throughout the summer.
WHEN DISSIDENCE ENTERS THE BOARD ROOM
Odland asserts that boardroom dissidence is actually more
infrequent than we are led to believe by the headlines, and
that most dissidence is more a product of shareholders who
attempt to shape direction to meet their agenda.
Differences with shareholders are usually a matter of time
frame, Odland says. It’s a matter of looking at the short-
term future of the company versus its long-term future. It
is critical that the board and management of the company
remember that they are running the organization for the
longest term — forever. They have an obligation and the
duty of care for not only today and tomorrow but for the
shareholder of the future. And sometimes honoring that
duty takes tremendous fortitude.
Lone shareholders — at times with significant ownership
— will come in with different motivations and, because
of their ownership, demand board seats to represent their
interests. These shareholders may have bought into the
company six months earlier and have a plan to sell three
THE BOARDROOM
Michael Dell struggled for most of the year with a leveraged buy out of Dell Computers.
FALL 2013 INSIGNIAM QUARTERLY 15
adjusting, being reasonable and being transparent are going
to naturally have more trust, Odland says. But if there’s poor
governance, the company is opaque, or there is a history of
not being committed to the external shareholders, that tends
to drive dissidence in. And effective business relationships have
always depended on trust.
EFFECTIVE GOVERNANCE
It may seem that trust is antithetical to the concept of the
independent board member, but it’s not. Board members don’t
have to trust that they will strive to think the same things and
be in lock-step with one another. They must trust that other
board members will act in the best interest of the company,
with the long-term future always at the front of their minds.
Business Roundtable’s 2012 Principles of Corporate Gover-
nance notes that “effective directors maintain an attitude of
constructive skepticism; they ask incisive, probing questions
and require accurate, honest answers.”
In Enhancing Board Oversight: Avoiding Judgment Traps and Bi-
ases, a March 2012 publication produced by the Committee
of Sponsoring Organizations (a coalition formed to elevate
boardroom ethics) authors Steven M. Glover and Douglas F.
Prawitt propose the following model to build independence
and trust for boardroom discussions:
1Define the problem and identify fundamental objectives.
2Consider alternatives.
3Gather and evaluate information.
4Reach a conclusion.
5 Articulate and document the rationale.
IT COMES DOWN TO …
Really, Odland says, the key to a well-functioning
board is the same thing that’s key to so much else in life.
Communication.
“People need to sit down and talk, engage, compare, make
sure they’ve got all the facts, and try to align objectives,”
Odland says. “But at the end of the day the board needs to
oversee the company and the strategy for the benefit of the
long–term shareholder.”
Companies aren’t monoliths. They are made up of a board,
executive teams, shareholders — all groups of people. It’s
something that board members need to remember, because it
can, at times, get lost in the discussion of strategy and revenue
and profit margin.
“Like every sports team, government agency, company,
family, if you’re missing that trust and open communication,
you’ll have a dysfunctional situation, and winning teams are
not formed from dysfunctional situations.”
Steve Odland says don’t be surprised if,
in the coming years, the role of “CEO and
Chairman” disappears.
It’s the natural evolution of things, and the
switch may already be starting.
“There’s a movement out there that says let’s
split the chairman and CEO roles so somebody
who is a lead director or nonexecutive
chairman has the chairman role,” Odland says.
“That may happen. It won’t change anything as
long as there isn’t any confusion.”
Lack of confusion is the key. It’s the reason
companies tied the chairman and CEO roles
in the first place. When one person holds
both titles then it’s clear who is running the
company. Over the last dozen years, though,
that seems to be shifting.
“Most boards and most CEOs say lead
director is a very clear title. You are the lead
independent director. You are going to lead the
sessions. You are going to be the key person
that the board can go to or management can
go to, but you’re not going to run the company.
I’m not hearing a lot of people saying ‘We’re
going to drop the title of chairman,’ but that’s
what I would do.”
THE END OF THE CEO AS CHAIRMAN?
FALL 201316 INSIGNIAM QUARTERLY FALL 201316 INSIGNIAM QUARTERLY
INSIGNIAM QUARTERLY 17
YOUR STRATEGY IS NOT AS BRILLIANT AS YOU THINK
BY GEOFF WILLIAMS
The Ikea Effect may be keeping you blind to the flaws in the plan for your enterprise
If you’ve ever made anything with your own hands
— maybe a book case or you baked a birthday cake
from scratch — and thought your creation was pretty
amazing, only to later learn others were too polite to
point out the crooked shelves and misshapen roses, you’ve
been under the spell of what academics call, the Ikea Effect.
And, the truth is, it could be affecting your enterprise.
FALL 2013
FALL 201318 INSIGNIAM QUARTERLY
In 2009, three business professors from Harvard,
Yale and Duke University published the results of their
Ikea Effect research, in which they studied people who
made things, like origami, which weren’t always of the
best quality. The professors — Michael Norton, Daniel
Mochon and Dan Ariel — concluded that people often
overvalue their creations, even when poorly constructed.
In their report, they warned the business community that
the IKEA Effect can affect more than just customers.
Even executives at companies as big as, well, Ikea can fall
blindly in love with their own business strategies, even
when poorly conceived.
Despite the research and warnings of the Ikea Effect,
the message hasn’t gotten out. For instance, in 2011,
Netflix, the DVD rental and streaming service, raised
prices and attempted to separate its
services into two companies and lost
millions of customers and saw the
share price fall from $298 to $52.81.
They have since rebounded.
Last year, JC Penney, the $2.64 billion
department store chain, unveiled a bold
pricing plan concept, in which they
did away with sales and tried to offer
straightforward low prices.
It didn’t work, says Michael
Roberto, a business management
professor at Bryant University in
Smithfield, Rhode Island. “He clung
to it despite horrible results,” Roberto
says of Ron Johnson, the CEO who
lasted at JC Penney from November
2011 to April 2013. “It cost him his
job in a very short period of time.” The retailer has not
rebounded.
So, could you fall under the spell of the Ikea Effect?
Possibly, if you think any of the warning signs describe
your business.
YOU HAVE TOO MUCH CONFIDENCE.
“If you’re at the top of your game, your skills have
been well documented. And the higher you go up in the
company, the more faith you have in your own judgment,”
says Rita Gunther McGrath, an associate professor of
management at the Columbia Business School, who has
consulted numerous corporations, including Coca-Cola
Enterprises and General Electric. She also is the author
of four books, the most recent, The End of Competitive
Advantage: How to Keep Your Strategy Moving as Fast as Your
Business (Harvard Business Review Press, 2013).
The problem? Nobody is infallible, and McGrath warns
that if you’re surrounded by too many yes-men or haven’t
implemented a system where bad ideas — even yours — can
be tested, your strategy could be in for a world of hurt later.
YOU’RE TOO CLOSE TO THE PROJECT.
“One thing that often happens within an organization,
you’re so close to it. It’s almost like raising a child. You
don’t necessarily see things the way outsiders do,” says
Mac Clouse, a finance professor at the Daniels College of
Business at the University of Denver.
That’s why Bob Funk, CEO of Express Employment
Professionals, based out of Oklahoma City and the
nation’s largest privately held staffing
company, hired David Lewis to be the
Vice President of Franchising in 2011.
The year before, things were down
at EEP. “In 2010, we awarded just 13
offices,” Lewis says. “Thirteen offices.
We’re a $2 billion company. We weren’t
growing enough to keep up with the
retirement of owners. So while our
individual offices were doing well, we
were losing market share.”
In 2011, Lewis was able to turn the
company around so that it opened 23
offices in 2011 and another 40 in 2012,
plus reselling seven franchises. In 2013,
so far, EEP has sold another 43 and
appears to be on pace to open 90 or 100
offices before the year is up.
The problem, says Lewis, was with the six-people
franchise team, some of whom had been around for
20 years. “They built the strategy, and 20 years ago it
worked,” Lewis says. “But nothing had changed.”
Lewis was able to look at the company’s strategy with
completely fresh eyes, revamp just about everything
and still keep the original franchising team gainfully
employed. But does Lewis think he might fall into a trap
into the same trap 20 years from now?
“Forget 20 years,” Lewis says. “If we’re still doing the same
things three years from now, we’ve already fallen into the trap.”
YOUR COMPANY CAN AFFORD TO SCREW UP.
One reason international conglomerates can find
themselves in a losing strategy is that the strategy isn’t all
FALL 2013 INSIGNIAM QUARTERLY 19
encompassing but focused on improving, say, a part
of the infrastructure. The financial pain may not be
immediately obvious. McGrath says that she and her
students worked on one big industrial company as
a student project and they were able to diagnose a
problem that had limped along, under the radar, for
eight years.
“The price of getting big is that these things
can hide in the shadows for a long time,”
McGrath says.
DECISIONS ARE BASED ON EMOTION.
This is tricky territory. Corporations
get in trouble all the time when they
strip emotions out of all decisions. That
a corporation is run by living, breathing,
emotional human beings is a good thing.
But emotions can, nonetheless, trip up
corporations. A.J. Khubani, CEO and president
of TeleBrands, a billion dollar marketing
behemoth in New York City that’s behind the
“As Seen on TV” products, says that he sees it
all the time when inventors pitch him products.
“The inventors get so attached to their own
ideas, that they’re unwilling to walk away from
them, even when it’s completely clear that it isn’t
going to work,” says Khubani, who adds that
buyers in his company also occasionally have a
tough time accepting that a product has failed in
all of its test markets. Khubani admits to hiring
people he was certain would be a great fit for the
company — and taking far too long to terminate
them because he didn’t want to be wrong.
It isn’t easy but somehow, says Khubani, “You
need to put aside the emotions and focus on
the facts. It’s never a good idea to spend an
extra $50,000 to realize, ‘Yes, we were right the
first time — it was the wrong strategy.’ ”
Sticking with his strategy of eliminating sales in favor of everyday low prices cost former JC Penney CEO Ron Johnson his job.
FALL 201320 INSIGNIAM QUARTERLY
Aequaling three. It’s creating
value, not merely adding
value. A good business
strategy isn’t the finishing
touches on a house, but the
foundation on which the
structure must be built.
Too often businesses approach strategy planning with
the attitude of “If it ain’t broke …” Those businesses are
walking the line between failure and success. Yes, things may
be running smoothly now. Numbers are up. Revenues look
good. Why wouldn’t you keep doing the same things? Because
creating a strategy is more than changing the date on last year’s
document. It’s stepping back — even when things are going
well — and looking for new opportunities and new threats.
It’s making sure the business environment hasn’t changed so
drastically that last year’s strategy — even though it’s working
now — has been made obsolete.
A fluke of construction may have given us the perfect example
of what a great business strategy can do for you.
There’s a spot in Newport Beach, Calif. that’s loved by
bodysurfers. It’s called The Wedge, and what happens there
is pretty amazing. It’s a little complicated, but a number of
factors — including a jetty built in the early part of the 20th
century and an abrupt rise in the ocean floor — combine to
turn two waves into one massive wave that is bigger than both
of the original waves combined.
And that’s what a good business strategy does. It creates
something more than the sum of its parts. It’s one plus one
BUILDING STRATEGY AND BUILDING BUY-INIt takes work to create a strategy, and just as much work to execute it successfullyBY NATHAN OWEN ROSENBERG
FALL 2013 INSIGNIAM QUARTERLY 21
CREATING A STRATEGY
WHAT IS A STRATEGY,
AND WHY DO I NEED ONE?
A good strategy answers the question, “What future are we
committed to?” It’s a set of outcomes that fulfills a couple of
intentions.
A strategy fulfills the purpose of a business. For
example, Johnson and Johnson has been in the business of
caring for people for more than 100 years. That’s its purpose,
and the purpose of a business isn’t as rapidly changing as the
business environment that it’s a part of. Strategy needs to be
focused on the longer term.
It enables the company to exploit opportunities
and overcome threats both inside and outside of
the company. Of those things,
what seems to change the quickest
are opportunities and threats in
the external environment and
marketplace. For example, when
Hostess closed its doors earlier this
year it left a void for other snack
food companies to fill. It was an
opportunity they could exploit.
Opportunities and threats inside an
organization do not typically reveal
themselves so quickly and can often
stick around for years, even decades.
WHAT EYES ARE YOU USING
TO CREATE YOUR STRATEGY?
One of the things rarely considered
when developing a strategy is the predisposition you bring to
the strategy-creation table. Or, put another way, with what
eyes are you looking at the strategy? How you see the world,
the eyes you use, will color what kind of strategy you create.
People look at the marketplace and the context through
which they see the marketplace tells them what the
opportunities are, tells them what is possible and impossible
in that marketplace. It tells you the future of what you can
do and what you can’t do. For example, one global healthcare
company with a 76 percent market share in a mature category
needed a strategy to generate $500 million of growth in a five-
year period. Even with one of the premier strategy consulting
firms behind them, the most they could identify was $150
million in opportunities. When the lens with which they
identified their category was abandoned and replaced with a
new frame of reference based on the outcomes their products
produced, a new world of $1 billion of growth opportunities
emerged and four new businesses were created.
Every strategy takes a look at certain things — the future
social environment, the future technological environment,
the future economic environment, the future political
environment. But what is rarely considered are the eyes with
which you are examining all of those things.
Too often it’s those blinders — your frame of reference for
your business — that hold you back from creating a strategy
that opens up the largest world of possibility.
THE NEEDED CONTENTION BETWEEN
STRATEGY AND OPPORTUNITY
For many companies, the tendency is to say, “We are
strategic” or “We are opportunistic.” The reality is that you
need to be both. There needs to be a
contention between being strategic
and opportunistic.
Opportunities show up in the
marketplace all the time that are either
inconsistent with our strategies or
weren’t even contemplated when the
strategy was developed. If you’ve got
good contention between strategy and
opportunity you can take advantage of
the right opportunity without blindly
chasing every opportunity that presents
itself.
Again, we come back to Hostess. It’s
exit from the marketplace left market
share up for grabs. Its competitors likely
did not consider that an iconic brand
like that would disappear when they created their strategy,
but leaders needed to be ready to take advantage of filling the
gaps when it happened. They needed to be be prepared to be
opportunistic without getting away from their strategy.
STRATEGY CREATION IS A CREATIVE EXERCISE
There’s a quote that’s been attributed to the German writer
and politician Johann Wolfgang von Goethe. It says roughly
this: Dream no small dreams. They don’t move anybody.
It’s a quote that business leaders and strategy creators would
be well-served to memorize, because for too many companies
it’s those small dreams — or small strategies — that are holding
them back.
In a real sense, strategy creation is much closer to poetry
than it is to engineering. You aren’t necessarily building a road
FOR MANY COMPANIES, THE TENDENCY IS TO SAY, “WE ARE STRATEGIC” OR “WE ARE OPPORTUNISTIC.” THE REALITY IS THAT YOU NEED TO BE BOTH.
FALL 201322 INSIGNIAM QUARTERLY
where each piece is a mathematical fit to the other pieces. You
are building a plan to win by creating something that inspires,
something that motivates, and something that challenges. You
are building something that will mobilize and align the actions
of the people in the company, and that demands the best of
your executives. If it’s too small, your strategy is not going to
inspire anyone. If it’s too large, it will be a pipe dream and
written off as unachievable.
Finding the sweet spot is where the art lies in strategy
creation. It all starts with conversations. If you are going to
try and inspire and challenge and move your people then you
need to know what does that. Unfortunately, that’s something
rarely taught in business school. The focus is on numbers and
theory. The creative aspect of what can emerge when people
are engaged in discussion and debate is too often ignored.
And there are very few executives who can lead this kind of
discourse and yet it is an essential and requisite competency
for building strategies that drive great growth.
EXECUTING STRATEGY
COMMUNICATING A SHIFT TO YOUR PEOPLE
In the way a lawyer would make a case to a jury, you
have to make a case for change. And, really, the “how” of the
communication should be part of the strategy. Not to sound
like a broken record, but you have to determine how you are
going to communicate your strategy in a way that moves and
inspires and challenges and activates your people.
Admittedly, that’s not easy, but it’s part of the executive
function. It’s part of what executives get paid for. Far
too many executives ignore this part of their role. They
have concluded that motivating is not a strength they
possess, and we tend to ignore things we struggle with.
Some executives are brilliant at motivating and inspiring
— Bill Boisture with Beechcraft is a great example. He
knows that it is part of his job. But many executives
will say “I’m not good at the soft stuff. I’m really good
at running the numbers.” Running the numbers is
important, but, other than a few people in the finance
department, the numbers won’t inspire anybody. The
people of the organization are inspired by the effect
the products they are providing will have on the lives
of their customers or the customer experience. Or
they are inspired by doing something great, like great
engineering or great science or great marketing. That’s
what has them run to work eager to do their best —
growing earnings per share by 15 percent isn’t going to
do that.
START WITH THE IMPLEMENTERS
Typically a strategy is developed then it’s turned over to
the people who have to implement it. It’s a process that is, at
best, backward. The first question that needs to be asked when
developing a new strategy is “Who is implementing this strategy,
and how do they see a new strategy at this time?” Do we really
understand the perspective of the people today who are going
to wind up implementing the strategy tomorrow? How do we
get their input as the strategy design is proceeding?
All these questions get at the same point. If your strategy is
developed with no thought about who is going to implement
it then you are exponentially increasing the chances for failure.
Your strategy needs to be a match to your people.
Leaders need to consider whether the strategy they are
developing will require a fundamental transformation in the
core competencies of their people. Will it require a shift in the
core processes? Will who hires and trains these people change?
EVALUATE THE PROCESSES AND PRACTICES
Every organization has unwritten rules. These are the way
things really get done in an organization. First, leaders need
to accept that fact, then they should look from a human
resources perspective at how those need to be changed in
order to accomplish the strategy, keeping in mind that there
are some processes and practices that may have to be retired
completely. And, in the same vein, there are processes that may
need to be created.
It’s the same process that companies got through when
transforming their IT departments. They want to move from
legacy systems — mainframes, outdated programming —
and move to a future state focused on scalability, security, and
efficiency. It will not only make them run more smoothly, but
can also save them millions in unnecessary software licenses
and hardware maintenance costs.
The first thing the company does is take a hard and honest
look at how they operate currently. What systems are they
using? What software? What function do each of those serve?
Are there redundancies? Once they have all of that laid out
they can then start finding the efficiencies, the things they
should change, the things they should keep, and the things
they should eliminate.
The same goes for executing strategy. Companies need to
take that hard and honest look at how they operate and find
those processes and practices that are holding them back and
keeping them from executing on strategy.
ENROLLMENT
A lot of people talk about change management, but what
FALL 2013 INSIGNIAM QUARTERLY 23
they are really talking about is reducing resistance. Change
management is getting people inspired and feeling like
they’ve been called to action. Your organization needs to be
emotionally committed to the future that you see and your
plan on how to get there.
Employees want more than a paycheck. They want to be
inspired, to know that they are working for something. A
recent Gallup survey revealed that 70 percent of American
workers are disengaged or actively disengaged from their jobs.
A lot has been written on the survey, but one aspect that has
not received as much notice is that even great benefits can not
make employees happy and engaged. It takes more than extra
vacation days. It takes inspiration. It takes enrollment.
What people do every day at their desk, what they do out
with their customers, what they consider to be possible or
impossible, the effectiveness of the actions they take and the
results they produce have everything to do with the future
that people see in their organization. And that is the true value
of having a strategy. It gives people a future that calls for their
best thinking, action, and results day to day.
WHEN IS IT TIME TO REASSESS?
Consider Levi, Strauss & Co. At the turn of the century
the iconic American apparel company was trying to pull up
a sagging brand. Too many years following a strategy that
had the company trying to be too many things to too many
people left Levi being nothing to just about everyone.
Levi had lost its focus. Sales slipped. Reputation started
to erode. And even though it was
iconic, the brand wasn’t seen as cool.
Luckily for Levi — and for us
since it’s always tough to lose a brand
that’s that much a part of American
culture — leaders realized they had
gotten away from what they do best. They refocused on their
customer, their brand, brought the two together and created
one plus one equals three, which — as we said before — is
what good strategy always does.
But how do you do what Levi did? How do you recognize
when a strategy isn’t working and when it is time to look at a
strategy shift? There are four markers.
What is the nature of your marketplace? The industry
you are in will be a big factor in determining when you need
to reassess your strategy. For example, a technology company
should be looking at its strategy annually because that’s how
fast the market is turning over.
Has there been a significant change in your
marketplace?
Have you accomplished what you set out to
accomplish?
Are your people unmotivated or uninspired?
If the answer to any of the last three questions is “Yes” then
it’s time for you to look at reworking your strategy.
IN THE END, IT’S ALL A GUESS
The thing to keep in mind regarding strategy is that, in
the end, you’re placing bets. Nobody knows the future, and
nothing ever goes to plan. That doesn’t mean you shouldn’t
do the plan. Like Gen. Dwight D. Eisenhower said, “Plans are
nothing. Planning is everything.” The benefit of the planning
is that you are able to anticipate challenges and opportunities
and develop ways to meet them.
LEADERS AT LEVI, STRAUSS & CO. REALIZED THEIR STRATEGY HAD THE COMPANY GOING IN THE WRONG DIRECTION.
24 INSIGNIAM QUARTERLY FALL 2013
WHAT IS THE NORTH STAR FOR YOUR ENTERPRISE STRATEGY?The strategic frame can help you chart a course to record growthBY SHIDEH SEDGH BINA
SStrategic planning is an evolving process. Just as our
products and services have changed over time, so too have
the ways we sell, foster growth and anticipate challenges.
The economic crisis of 2008 put every strategist’s weakness
on display, demonstrating that even the best-laid plans can
quickly unravel.
The ensuing business fallout led one leading consultant
to proclaim in a 2010 Wall Street Journal article: “Strategy,
as we know it, is dead.” It’s a provocative statement that
begs for refinement. Strategy as it was is dead. Predictability
is dead. Rigidity is dead. But innovative strategic planning
is very much alive. We refer to the product of that process
as the strategic frame.
The strategic frame — a concept proposed by Allan
Cohen in the Strategy & Leadership article “The Strategic
Frame: Making Decisions the Produce Results” and
further refined by Insgniam — offers a revised approach
to planning that accounts for your company’s competitive
assets and core beliefs about the future, charts a course
toward success, but also allows you to respond to shifting
conditions as they happen. If you’re thinking, “That’s what
we’ve been doing,” I disagree. The strategic planning of the
past attempted to do all those things, but failed for a few
reasons.
SUMMER 2013 INSIGNIAM QUARTERLY 25
26 INSIGNIAM QUARTERLY FALL 2013
HOW WE GOT HERE
Traditional strategic planning plotted a course between
point A and point B, with the latter often representing a
more lucrative version of the former. Its fundamental
purpose was to understand the past and the present
external environment in your market or enterprise space
and use that insight to predict the future, thereby allowing
executives to consistently generate reliable business
performance.
That plan’s fatal flaw is that once changes in the external
environment render the predictions obsolete, the strategic
plan becomes obsolete as well. Organizations felt this
acutely when the Great Recession firmly took hold of
the economy and consumers’ dollars (and jobs). At the end
of the 2008, no one could have predicted the depth and
length of the economic crisis. No longer could businesses
hang their success on continued economic growth, they
had to suffer the blow without a plan to bounce out of it.
There used to be a belief that you could stand in the
present, look at what you’ve learned from the past, and
extrapolate a desired future position. In reality, things are
not linear. In these days of high technology innovation,
political transitions (some peaceful and some not), and
lightning-fast communication, the only certainty is that
there will be unexpected disruptions and changes in the
future. As any element in the system changes, it in turn
changes the environment in ways subtle and substantial.
Huge events can have negligible effect and small events
can have catastrophic effects.
It’s the difference between driving through a parking
lot with lots of signs and very clear instructions and lanes
and navigating your car around traffic that’s traveling
A HISTORY OF STRATEGIC PLANNING
1950 1960 1970 1980 1990 2000 2010
DOM
INAN
T TH
EME
MAI
N FO
CUS
AND
ISSU
ES
Budgetary planning and control
Financial control, especially through operating budgets
Corporate planning
Planning growth, especially through operating budgets
Strategic positioning, analysis of industry and competition
Selection industries and markets, positioning for market leadership
Strategic competitive advantage
Focusing strategy around sources of competitive advantage, dynamic aspects of strategy
Strategic and organizational innovation
Reconciling size with flexibility and responsiveness
Complexity and rapid change
Creating a strategy that can be sustained in times of sudden market shifts, global considerations and disruptive innovation SO
URCE
: ENO
TES.
COM
exponentially faster and faster in all different directions
In the first instance you follow an orderly, stable path, in
the latter instance you maneuver to your desired end point
through the variability with some key levers—steering
wheel, mirrors, gas pedal and brakes. The distinction
between a strategic frame and a strategic plan is analogous.
A strategic plan has a prescribed, set of goals and tactics
to accomplish objectives that are reasonable given the
past. With the frame you have your eye on your ambition,
a bold, inspiring and often unprecedented objective
derived from your purpose; your key levers with which to
maneuver are your purpose, your promises, your guiding
beliefs and your competitive weapons.
THE STRATEGIC FRAME
The strategic frame takes all of the above into account.
The idea is to identify the organization’s overall purpose
and ambition — the North Star by which it is navigating
— as well as stakeholder promises, guiding beliefs about
the future, and strategic assets (often called competitive
weapons).
It forces leadership to acknowledge things like
disruptive technology and add it to the contingency plan.
Think about Blockbuster for a moment. Was the adoption
of streaming media a flash-in-the-night kind of event? No,
we all knew it was coming. Yet the company that owned
the market on video rentals wasn’t able to overcome it.
The shopping center down the street still has the shadows
of Blockbuster’s iconic blue and yellow logo etched
in the stucco, a somber reminder that even kings of the
marketplace can be dethroned.
SUMMER 2013 INSIGNIAM QUARTERLY 27
Crafting a strategic frame requires introspection, creativity, and a profound curiosity about your business and the market in which it competes. Just as a picture frame has four sides, so too does the strategic frame. Once you address each area, you’ll have a cohesive playing field on which to focus your business choices as the external environment goes through its machinations and gyrations. For example, outsourcing might have been a valuable proposition for your competitors in the past, but does it make sense in your organization to win in the future? Your strategic frame will help you determine that.
PURPOSE AND AMBITION = VELOCITYEvaluating this segment of the frame will define the playing field and the game in which you’re competing. What’s the point? The purpose is expressed as the “why” of your business — the raison d’être. Enterprise purpose is expressed in many ways, some poetic and some pragmatic. Sam Walton’s intention to make quality products available to ordinary folks, George Merck’s commandment to “bring the best of medicine to each and every person” and Apple’s drive to disrupt the status quo are all examples of companies that achieved great success by having a clear understanding of the originating intention of their enterprise.
AMBITION is how you define winning in the next leg of your enterprise journey. Firms often pick a five-year horizon, although I have seen ambitions expressed as far out as 20 years. What
ambition is worthy of our resources? Measurable outcomes are imperative. They may be financial, related to the organization’s size and sales figures, global reach, brand influence, customer segments and impact, or something else altogether. One food company expressed their ambition in terms of a number of occasions consumers eat their products in one day. Taking that ambition and calculating the population in their segments, the occasions, etc. they arrived at a five-year gross revenue number target. However, the execution attention, the firm’s “North Star” is now aimed at having a portfolio of products that captured the desired number of eating occasions. Any changes in the market space are evaluated in the context of the purpose and ambition.
02
04
03
STAKEHOLDER COMMITMENTSWhen an enterprise fails to satisfy its key stakeholders, its existence becomes jeopardized. It’s difficult to meet those expectations if you don’t have a firm grasp of who your stakeholders are. Ask yourself: Who are our primary stakeholders other than our customers? What promises to them are we unwilling to compromise? Stakeholders may be employees, employee families, shareholders, and in one case, a firm chose to commit to “our grandchildren.” Stakeholder commitments are the promises you will keep, no matter what as you are realizing your purpose. You may even retreat from an ambition in order to honor a stakeholder commitment.
GUIDING BELIEFSGuiding beliefs are assumptions that govern your decisions. These are not based on predicting the future, but rather identifying threats to overcome and opportunities to exploit in pursuit of your ambition and on the journey of your purpose. This is where you scan the external environment for key trends, movements, and developments in your elected time horizon. It is critical to look at the future in multiple key external domains, such as the future for your industry, business in your key geographies, etc. Consider, too, the futures of your buyers, your industry, your customers, and your competitors. In each domain you examine and research the future — positive and negative, likely or merely possible. Which beliefs are most crucial to your enterprise successfully fulfilling its purpose and ambition? For example: “Proactively anticipate and lead any potential move for consolidation in the relevant value chains” or “That there will continue to be an increase in the use of advanced materials that require hi-temp processing”. As you move along in your journey and realize your ambition, these guiding beliefs need to be consistently monitored and adjustments made as reality emerges.
COMPETITIVE WEAPONSA competitive weapon is a strategic asset that sets you apart from the field. These are assets that have strategic value and are relatively unique to your organization. To discover them, you’ll need to know: Who are our competitors? Who do our customers consider our competitors? What are our assets? What differentiates us from our competitors — assets, talent, intellectual capital, strategic partnerships, etc.? And most importantly, which of these assets are of high value to our customers and unique to us? A $23B global FMCG company identified one of their weapons as “A global company acting locally.” In the crowded market space they played in they realized that they had far surpassed any competitor in their global agility. One other company realized that their “iconic smallness” could actually be a weapon to use against much bigger, and harder to move, competitors. Competitive weapons rank very high on the list of assets that merit further investment. When an unexpected disruption happens in the marketplace, the strategic weapons are most often leveraged as a response.
THE FRAMENow that you’ve created the structure — with the inside representing market-facing strategies — undertake all short and midterm strategic decisions within that framework. Developing a set of outcomes will lead you to realizing your purpose and ambitions, leverage your competitive weapons, and help you honor your promises. When market conditions change you’ll have a well-defined frame to help you create a new roadmap.
HOW DO YOU BUILD
A STRATEGIC FRAME?
01
01 PURPOSE AND AMBITION = VELOCITY 02
STAKEHOLDER COM
MITM
ENTS
03GUIDING BELIEFS04
COM
PETI
TIVE
W
EAPO
NS
ARE YOU BEING
HEARD?How your strategy is communicated
is the difference between success and failure
BY JEFF BOUNDS
FALL 2013
hink you’ve got communications challenges in your
job? Consider what Bob Boulanger faced in his
roughly 10 years in various roles — including as
finance and operations chief — at Samsung Telecommunications
America, the Texas-based arm of the Korean technology giant.
30 INSIGNIAM QUARTERLY
Language barriers? Check. Cultural peculiarities?
You bet. Time zone differences? Major.
As any expert will tell you, strong communication
is a necessity for executing on corporate strategy. If
you can’t effectively get the word out on what your
business is trying to do, expect the road ahead to
be bumpy.
How bumpy? Consider that a Gallup survey
released this year
found that 70 percent
of workers were not
engaged or actively
engaged, a number
that has not effectively
changed in more than a
decade. And what may
be even more troubling
for leaders, the same
survey found that only
41 percent of employees felt that they knew what
their companies stood for and what differentiates
their brand from their competitors. That means
that nearly 60 percent of workers did not know
what goal they were working toward.
THE POWER OF STRONG
COMMUNICATION
Samsung experienced rapid growth during
Boulanger’s tenure at its U.S. unit between 1998
and 2008. Strong communication internally and
with the outside world was instrumental in helping
make things run more smoothly during that time,
Boulanger says. “You get very in tune to being a
good listener.”
Where Boulanger and Samsung succeeded on
the communications front, many other companies
fail. Putting out messages that are confusing,
inconsistent, or flat-out incomprehensible is a
recipe for problems as your business tries to turn a
plan into results, experts say.
THE DANGERS OF SOFT COMMUNICATION
Oftentimes communication is only considered
when it is time to execute after the strategy is
developed. That is setting yourself up for failure, says
David Lei, an associate professor of strategy at the Cox
School of Business at Southern Methodist University.
Clear and forthright communication is
required in every step of the development process.
Otherwise, problems can crop up even during the
early stages of strategizing.
“The planning process often becomes a
masquerade for internal political divisions in the
company,” he says. Different parts of the company
may be competing for resources, and “will position
themselves at the expense of their sister units.”
THE LESSON
Companies need a system for hammering out
strategy in which people can express differences of
70%OF WORKERS ARE NOT ENGAGED
OR ACTIVELY ENGAGED
41%OF EMPLOYEES UNDERSTOOD THEIR
COMPANY’S GOALS AND BRAND
DIFFERENCES VERSUS COMPETITORS
* ACCORDING TO 2013 GALLUP POLL
IF YOU CAN’T EFFECTIVELY GET
THE WORD OUT ON WHAT YOUR BUSINESS
IS TRYING TO DO, EXPECT THE ROAD
AHEAD TO BE BUMPY.
T
FALL 2013
opinion in an honest but non-threatening manner.
Once a strategy has been forged, the next step is
to clearly communicate it to all interested parties, be
they employees, vendors, customers, or anyone else.
THE LESSON FOR THE C-SUITE:
Boil down the strategy into words and phrases
that are simple and easy to understand, and use that
language consistently and frequently.
“A lot of times, as leaders, when they get to
be blue in the face, that’s the time people are
understanding what [the plan] really is,” says Jay
Carson, an assistant professor at the Cox School
who specializes in leadership and teams. “There
must be persistence in [communicating] the
strategy.”
An issue that comes up frequently in Carson’s
research is that companies lack strategies everyone
can understand.
“Problems are brought to me at companies
suggesting difficult personalities [are to blame]. I
start with the question: Does your team have a clear
direction?” Carson says.
The answer from the CEO, inevitably, is yes.
But when Carson talks to the team, he may
get 10 different answers on what direction the
business is heading. That, Carson says, means
the company lacks a transparent plan for where
it wants to go. The CEO and the C-suite may
understand what the strategy is, but the rest of
the world does not.
“A lot of vision statements begin to sound the
same,” he says. “The better ones are clear, simple,
and help employees know what we’re about.”
Carson points to Dallas-based Southwest Airlines
as an example of a business that not only has an
effective strategy — being the low-cost air carrier
— but it communicates that strategy well.
“They’re going to try to excel at customer
service, but only in ways of being the low cost
provider,” he says. “If customer service involves
raising costs, that’s not consistent with being the
low cost carrier.”
Ergo, if you want a steak on your flight,
Southwest isn’t the place to go. “They celebrate
peanuts,” Carson says. “Everything is consistent
with that.”
RECOGNIZE CULTURAL DIFFERENCES
Being a good communicator also boils down to
having strong interpersonal skills, including being
sensitive to how people from other parts of the
world try to get their point across.
For instance, during his Samsung days,
Boulanger removed colloquialisms and slang from
his vocabulary when he was speaking to anybody
whose native tongue was something other than the
U.S. form of English.
Another favorite technique: Delivering a message
face-to-face, and then asking the person to whom
he was talking to provide their understanding of
what he had just said.
“You’re dealing with a multicultural,
multilinguistic environment. You must listen to
every word and understand exactly the intent of the
person you’re communicating with,” he says.
Another key to good communication is
understanding and respecting not just language
differences, but differences in what’s culturally
acceptable.
Boulanger found that out when internal auditors
from Samsung’s Korean headquarters pointed out
that, in reconciling financial statements, they had
found an unexplained difference of one penny.
This in a $7 billion corporation.
Boulanger tried to explain that U.S. accounting
follows the principle of
“materiality,” meaning
auditors here concern
themselves only with
significant differences
in finances. The
Korean auditors looked
horrified.
What Boulanger
had failed to grasp was
that in South Korea, a
country that rebuilt itself from the rubble of a 1950s
war into an economic powerhouse, “waste is viewed
like a sin,” he says. “In their culture, our concept of
materiality doesn’t exist.”
The solution? Boulanger assured the auditors that
he’d take steps so the problem didn’t crop up again.
“It taught me to be very sensitive,” he says. “That
bit of miscommunication could have alienated
them.”
INSIGNIAM QUARTERLY 31
THE PLANNING PROCESS OFTEN BECOMES A MASQUERADE FOR INTERNAL POLITICAL DIVISIONS IN THE COMPANY.
FINDING YOUR POOLS OF
PROF I T
For Irene Britt, plotting a course for Pepperidge Farm is all about asking the right questions
and envisioning a radical future
BY JARRETT RUSH
FALL 2013 INSIGNIAM QUARTERLY 33
Fall 201334 INSIGNIAM QUARTERLY
The former chief strategy officer at Campbell Soup
Company and current president of Pepperidge Farm has
spent 28 years leading transformations and turnarounds. That
includes serving as the Vice President and General Manager
of Sauces and Beverages for Campbell’s and leading that
business unit to three consecutive years of top- and bottom-
line growth, with consistent gains of net sales, market share,
and profit in the U.S. beverages business — an industry with
annual revenues of roughly $400 billion.
That sort of growth is Britt’s charge again as the leader of
Pepperidge Farm — a position she took in August 2012 —
and Senior Vice President of Global Baking and Snacking.
With annual net income from global baking and snacking
in excess of $2 billion, bread and crackers account for a
substantial slice of Campbell’s overall portfolio. Those are the
exact products in which Pepperidge Farm specializes.
PLoTTING A fUTURE
The iconic brand — home to both the Milano cookie and
the Goldfish cracker — has been part of the Campbell’s family
since 1961, and with annual revenues topping $1.5 billion,
Pepperidge Farm is in a good position. The company is strong,
and business is good.
Britt said in a late July analysts meeting that the introduction
of a new line of soft cookies called Dessert Shop has
contributed to a turnaround in the company’s sweet portfolio.
Pepperidge Farm was also well-positioned to fill the void
created by the departure of Hostess from the market. Britt
told analysts that Hostess’s exit left seven points of market
share up for grabs. Pepperidge Farm’s fair share of that should
have been less than a half of a percentage point. Instead, the
company claimed more than double that.
Still, even with a promising year and numbers that are
looking up, Pepperidge Farm remains a premium player in the
United States. While there is nothing wrong with being nimble
and profitable, Britt is asking what else is there? Is Pepperidge
Farm OK being a part of a consumer’s life once in a while
because it is not a frequent part of consumption patterns? Or
should the brand be more relevant in people’s lives?
“We don’t have the answers yet,” Britt says, “but that’s the
challenge we’ve given ourselves.”
It’s asking hard questions like these that have served Britt
well throughout her career. Whether it was her time heading
up sauces and beverages or as president of North American
food service for Campbell’s, Britt and the businesses she has
run have succeeded by building a winning strategy — a
process that starts with insights.
DEvELoPMENT of STRATEGY:
MAcRo AND MIcRo
Britt says she starts the strategy process by going to 30,000
feet and looking at a company or brand’s business model and
its entire value chain. This macro-level inspection should
result in three things — understanding of:
3 Where are the points of pressure?
3 Where is the balance of power in any of the relationships
on the value chain?
3 Where are the profit pools?
When Irene Britt took over as president of
Pepperidge farm in August 2012, she became
only the second woman to head up the iconic
American brand. The first? The company’s
founder Margaret Rudkin.
A connecticut homemaker, Rudkin started
baking bread during the heart of the Depression
— not as a result of trying economic conditions,
but because her young son was allergic to many
of the ingredients in store-bought commercial
bread. When she brought her loaves to a nearby
grocer and asked if he could sell
them, she was told the price (25
cents a loaf versus 10 cents for
commercial bread) would only
put off customers who were
already cash strapped. By
the time she returned home,
there was a phone message from the grocer
asking her for more loaves—they had already
sold out, and the premium stamp of Pepperidge
farm was off and running.
A storied history
For irene Britt, greAt strAtegy is Born From greAt insight.
“STRATEGY DOESN’T OFTEN FAIL SPECTACULARLY. IT ENDS UP FALLING
APART IN PIECES IN EXECUTION.”
FALL 201336 INSIGNIAM QUARTERLY
Once those insights are in hand, leaders must determine how and
where they can make shifts to gain sustainable, competitive advantage.
At a consumer-driven company, like Campbell’s, it’s also necessary
to address the consumer proposition — having consumer behavioral
insights and an understanding of how to shift those insights to get to
a broader vision of where to push the brand.
“When I enter into a situation in any new business unit or
company that I’m taking over, it’s helpful to go in that order,” Britt
says. “From a very, very high level ‘What does the value chain
look like?’ all the way down to ‘Then let’s get deep into consumer
behavior’ and have the two of them match.”
TAKING ADVANTAGE OF A CRISIS
Britt took over Campbell’s North American food service
operations the month the U.S. government declared that the
economy was officially in a recession. There was a panic in the food
service industry because of consumer reaction. People were cutting
back on discretionary spending. They were packing lunches. They
were eating dinner at home.
Food service is already a tougher industry for manufacturers. They
are ingredient suppliers with no forward-facing brands and little
control in the value chain. The balance of power is with the operators
and distributors.
So coming into food services, Britt did what good leaders do. She
pounced. If food service already disadvantages the manufacturers,
then do not let a good crisis go to waste. A recession that’s causing a
panic in the industry is the perfect time to restrategize.
Britt and her team ripped apart the value chain. They found the
points of pressure. They identified the balances of power.
“We figured out the bulk of the benefit was with distributors, a
few big ones, that controlled a lot of the access into the marketplace
and to the operators,” Britt says, “the operators being the Applebees
and McDonald’s of the world.”
With their weak position in the marketplace, manufacturers like
Campbell’s did not have a basis to go in and say, “I’m taking back
margin.” But that’s what Britt wanted to do.
“So we said, ‘What can we give to have that get?’ because we need
more profitability back so that we can reinvest it in our products and
our service and all the rest of it,” Britt says. “So how do we wrestle
that out?”
Here’s how. Campbell’s talked to distributors. They presented them
with a set of propositions, including category management skills
that could be leveraged from the Campbell’s retail side. There were
product improvements that could be made if Campbell’s could get
some of the margin back.
Campbell’s acknowledged that everyone had objectives they were
trying to achieve. They all had margins, but they needed to grow.
Campbell’s proposal was that the distributors and operators could
Prior to taking over as president of
Pepperidge Farm, Irene Britt served as
the Chief Strategy Officer for Campbell’s.
She says that the principles of strategy
development do not change whether you
are working on a plan for a single brand
or its parent company. It all comes down
to gathering insights.
“A good corporate strategy is based on
a full analysis of your portfolio,” Britt says.
“We are talking about a deep portfolio
analysis with the end goal of ‘How do
I run this portfolio and its component
pieces with the potential interaction
between them in both revenue and
resourcing, and how do I create the most
value out of that?’ ”
For Campbell’s that means looking
at the world and the markets where
the company was already present and
the places where there is opportunity
for growth. It also means looking
at everything from geopolitical and
economic trends to shifting eating habits.
Then internally the company has to
look at its individual businesses and do
a value creation analysis. What is the
current profitability? What are the capital
resources each business takes up?
What are their trajectories? Where is the
potential for growth?
The corporate strategy is born from the
marriage of the macro view and the micro
view. Once the goals are in place, each of
the individual brands are plugged into the
strategy. Some businesses will need to
focus on higher growth, others on cost.
“It’s not the same from business to
business, and that’s where you get the
beautiful marrying of an overall trajectory
for the company that’s based on the
very studied roles of each of these
businesses,” Britt says.
CORPORATE STRATEGY AND MULTIPLE BRANDS
FALL 2013 INSIGNIAM QUARTERLY 37
not do that by buying better. They had to do it
by growing their customer base, and working
with Campbell’s would allow them to do that.
“We had these conversations,” Britt says.
“They were rather tough conversations with
customers in general, but that’s where we
ended up going. We were able to understand
that entire value chain, how to shift some of
the profit pool, but be able to reinvest that
shift to get overall growth, which benefitted
everyone.”
MAKING ADJUSTMENTS
It was not a benefit that everyone was
sold on, however, and Britt wasn’t surprised.
Strategy is not something that is set in stone.
It is a chess game that requires preparation and
the ability to adjust.
“Strategy doesn’t often fail spectacularly,”
Britt says. “It ends up falling apart in pieces in
execution. You have to be able to bob and weave enough to
say ‘OK, it’s not working here. That person is not motivated
by growth, obviously. We’ve got to get back at that in some
other way.’ You have to start adjusting, sometimes using
the relationships you built in other parts of the customer
world, sometimes saying ‘I’m going to take a pass on that
and make up the rest of what I expected out of this initiative
somewhere else.’ ”
A RADICAL VISION OF THE FUTURE
Execution on strategy not only requires flexibility, it
also requires people buying-in to a future that may look
impossible. This is where Britt excels.
“When Irene steps into a business she immediately
elevates the level of engagement from her organization,” says
Insigniam co-founder Shideh Sedgh Bina, who has a long
history of working with Britt. “No one can get away with
‘just coming to work,’ they are expected to show up and
bring new, critical thinking and high levels of collaboration.
She is relentless in mobilizing her leadership team to
articulate a winning vision. And then she is relentless in
making sure they execute.”
Building that winning vision is where Britt and her
Pepperidge Farm team are now, and the challenge could
appear daunting. But, listening to Britt talk, you can tell that it
is also an exciting time.
“You can’t come from what you have as a starting point
and say ‘I can eke a little bit more here. I can eke a little bit
more here’,” Britt says. “You have to actually create a future
that articulates something that isn’t a linear, rational path from
where you stand right now.”
After that vision is developed, a broad, cross-section of
leadership must plot a way to get there.
“Once you get that future imbedded with everybody’s
help, then you empower people and let them free to run in
that area that says ‘But we could do this, but we could do this,
we could do this, we could do this,’ ” Britt says.
That’s where the buy-in comes. When people are allowed
to create that vision for the future, the place where strategy
will take the company, then it makes the execution of that
strategy that much easier.
“If I can articulate and inspire people with that vision that
they’ve helped create themselves, they so truly believe it that
they can taste it in their mouths, then the unleashing of that
incredible talent toward that goal is a multiplier of what you
can do as a leader,” Britt says.
FREELANCE WRITER JEFF WUORIO CONTRIBUTED TO THIS REPORT.
For Campbell’s, building a strategy
is about knowing where in the plan
each brand fits.
FALL 2013 INSIGNIAM QUARTERLY 39
FALL 201340 INSIGNIAM QUARTERLY
FConsider the most recent reports reflecting a lowered opti-
mism from previous numbers:
• The World Economic Situation and Prospects report
by the United Nations projects that the global econo-
my will grow at 2.4 percent this year, and 3.2 percent
in 2014.
• The World Bank’s most recent forecast calls for global
GDP to expand by 2.2 percent in 2013, improving
slightly to 3 percent growth in 2014 and 3.3 percent in
2015, mostly in developing countries.
• The International Monetary Fund forecasts that the
world economy will grow 3.5 percent this year and
4.1 percent in 2014.
Despite anemic growth in the world’s economy, business
leaders are still executing winning strategies during these slow
times. Indeed, many businesses have already hit on inventive
ways to expand their businesses even during the global slump.
Here are three ways they’re doing it.
1. IMPLEMENT CORPORATE CULTURE THAT
INVESTS IN PEOPLE
When leaders strive only for results — getting a new
product to market in 10 months, for instance — they be-
come directive. And although directives get things done,
they’re not a sustainable solution, especially during periods
of slow global growth.
The best companies inspire the best performance from
their people by creating the conditions where people want
to do their best. This requires a mutual commitment between
employee and employer. The employer must commit to the
employee’s happiness and the employee must, in turn, commit
to the employer’s strategic goals.
Zappos is one such company that’s had success doing just
that even during the global recession.
The online retailer puts people first; even to the extent
that when it announced plans to move to a new headquar-
ters in downtown Las Vegas, it also committed to spending
$350 million to upgrade the surrounding neighborhood.
The idea: Give employees a better community to work in,
and more options for dining and socializing after work. “I
want to be in an area where everyone feels like they can
hang out all the time and where there’s not a huge distinc-
tion between working and playing,” Zappos CEO Tony
Hsieh told The New York Times.
That’s just one example of Zappos’ people-first policy. The
company’s 20 core values guide every activity at the company
and form the heart of the company’s business model and cul-
ture.
So how’s that working out for them? In 2007, before the
global downturn, Zappos’ revenues were $840 million. In
2010, they were $1.6 billion. Last year the company was ac-
quired by Amazon, which has allowed Zappos to continue to
operate as an independent entity. And revenues? $2.2 billion.
HAPPY EMPLOYEES ARE A BRAND EXTENSION
Wegmans, a privately owned grocer in the U.S., is another
people-first enterprise that’s expanded substantially during
this slowdown. The company now employs 42,000 people.
“Our employees are our No. 1 asset, period,” Kevin Stick-
les, the company’s vice president for human resources, told
The Atlantic magazine this year.
“The first question you ask is: ‘Is this the best thing for
the employee?’ That’s a totally different model. We want our
employees to extend the brand to our customers. When you
think about employees first, the bottom line is better.”
Is it? Well, here are the numbers. Wegmans’ revenues be-
fore the downturn were $3.8 billion. Today it’s $6.2 billion
company.
INNOVATION FOR A BETTER FUTURE
Of course, it’s easier to stick to your people-first corporate
culture when revenues are going up. But what about when
they aren’t? That’s the situation a lot of leaders find themselves
in today. Nucor, a U.S. steelmaker with operations in 11 dif-
ferent countries around the globe, is among them.
Nucor’s culture calls for paying for performance. Two-
thirds of employees’ pay is in bonuses tied to daily produc-
tion. That means pay per day can fluctuate anywhere from
or executives ready to emerge from a years-long recession, disappointing global economic forecasts for the remainder of this year and into 2014 pose significant challenges to business leaders.
FALL 2013 INSIGNIAM QUARTERLY 41
$12.50 to $24 an hour for some line workers, depending on
how much steel comes off the production lines at their par-
ticular workplace.
In a slowdown, of course, that means employees are at risk
of major pay cuts. But Nucor’s policy requires that executives
must take pay reductions before line workers when sales fall
companywide. Then again, there aren’t that many executives
at Nucor. The company operates with an excessively flat man-
agement structure — just five layers of management to over-
see nearly 12,000 employees worldwide.
As Nucor puts it, “Teammates — not managers — drive
our success. We promote the importance of equality for every-
one. And when times get tight, we believe in “pain sharing,”
where top management takes a pay cut before anyone else.”
So how’s the pain being shared right now? It’s not. Nu-
cor executives say almost no employees have left the company
because of the global slowdown. Why? As
just-departed CEO Jim DiMicco told the
Charlotte Business Journal, it’s because the
company is continually investing in produc-
tivity and technology, even when business
isn’t robust.
“Employees benefit from how well they
do in good times,” DiMicco says. “And they
are improving the operations so they can
do even better when the good times come
back. We’ve got them doing constructive
things. But we’re also spending money at
our plants to put in new technologies and
improved technologies and get our plants
ready for when things do get better.”
And the results? Even though revenues
have fallen from $23 billion to $19 billion
since 2008, the company remains profitable
and has not laid off a single worker. Not one.
2. GROW WHERE THE
CUSTOMERS ARE
Leaders are always on the hunt for
growth, whether it be in an individual
employee’s performance or in their busi-
ness as a whole. During times of slow eco-
nomic growth, it’s more important than
ever to find the pockets where business is
expanding and maximize growth there.
For instance, companies headquartered
in Europe that are experiencing declining domestic markets
should think twice before they contract their business around
the world. Don’t lay off workers in China, for instance, if
there’s growth in Asia. Invest more there.
It’s what French food products multinational Danone is
doing. Last year, the company cracked €20 billion in revenue
(€20.9 billion, or $26.7 billion) for the first time. A significant
part of that growth came from emerging, non-European mar-
kets. In 2012, the company saw 51 percent of revenues from
these non-European countries. For 2013, Danone is shooting
for worldwide sales growth of at least 5 percent, and to keep
cash flow steady at about €20 billion.
Danone is not alone.
Wynn Resorts is another example. When the property and
travel market tanked in Las Vegas after the financial sector col-
lapsed in 2007, Wynn pumped more money into growing
its operations in Macau, China. It then used that money to
TONY HSIEHZappos.com, CEO
WYNN’S REVENUES HAVE INCREASED FROM $909 MILLION TO NEARLY $1.4 BILLION.
FALL 2013 INSIGNIAM QUARTERLY 43
support its Las Vegas operations and more aggressively market
them to high-end consumers. The result: Revenues are now
up in both places. Over the past three years, Wynn’s revenues
have increased from $909 million to nearly $1.4 billion.
Subway restaurants are another example. The company
now has 33,749 restaurants worldwide — more than Mc-
Donalds’ 32,737. And much of its growth has been overseas.
The sandwich giant now has operations in 95 countries.
But for Subway, it’s not just a matter of opening businesses
in cities and countries where they weren’t operating before.
It’s a matter of looking for unusual locations to do business
within every city and country where it’s already based.
Consider this: In just the past couple years, Subway has
opened shops on 330 college campuses worldwide. It also has
a sandwich shop inside an appliance store in Brazil, on a riv-
erboat in Germany, and in a car show-
room in California.
As Subway CEO Fred DeLuca has
put it, “There’s value in tapping into
the mass market and being a business
that thinks of and sells to everyone.”
To be sure, not every global en-
terprise is able to meet its customers
on those kinds of terms. So, maybe it
pays to look at Apple, instead. The iEv-
erything giant has added 1.1 million
jobs since the global slowdown, most
of which were outside the U.S. Why?
Because that’s where the bulk of Ap-
ple’s revenue growth has been. Apple
met the customers where they were.
You probably know how that’s paying off for Apple. But
how about Subway? Well, its revenues have grown from $15.2
billion to $17 billion over the past two years.
3. PUMP UP PRODUCTIVITY
During rocky economic times, workers tend to focus on
every negative — on the things that aren’t working. So leaders
need to show them what is working, to trumpet every victory,
even small ones. Revenues are down, but market share is up?
Successful companies celebrate that.
Profits are off, but productivity is up? Effective leaders keep
pushing for more gains. And there are plenty of effective lead-
ers doing just that today.
After digging into corporate financial reports and other
numbers, The Wall Street Journal found that some of the biggest
firms on Standard & Poor’s 500-stock index are besting their
2007 performance levels for sales, profits, and employment.
That gain, The Journal says, is in large part due to in-
creases in efficiency and productivity. For example, com-
panies in 2007 generated $378,000 in revenue for every
employee on their payrolls. By 2012, they were generating
$420,000 per employee.
That didn’t happen by accident. Not at Ford Motor Com-
pany, anyway. Ford was on the brink of bankruptcy after the
global financial crisis hit in 2007. Yet it was the only one of
Detroit’s Big Three carmakers that avoided Chapter 11. Ford’s
strategy: Instead of making massive cutbacks, it invested heavi-
ly in innovation, hoping to improve its product line and boost
employee productivity. That worked. With an entire new fleet
of cars and light trucks, Ford is selling 200,000 more cars per
year than it did in 2007.
A COMMITMENT TO IMPROVEMENT
Another example: Actavis, formerly known as Watson
Pharmaceuticals, did contract, closing several North Ameri-
can manufacturing facilities during the economic downturn,
laying off people and moving some operations to India to be
closer to its Asian customers.
However, it then made major investments in the plants it
kept in North America. As a result, productivity skyrocketed.
The Wall Street Journal reported that before the company made
its commitment to productivity improvements, an Actavis
factory in Florida needed 866 workers to make 1 billion pills.
After a review of the production process and investments
in new technologies, the plant was able to produce 1.2 billion
pills with 937 workers. And, the bottom line? Actavis’ reve-
nues have shot up from 2011 to 2012 by 29 percent, reaching
$5.91 billion.
Subway has opened shops on 330 college campuses worldwide. It also has a sandwich shop inside an appliance store in Brazil, on a riverboat in Germany, and in a car showroom in California.
When failure is not an option for you and your team, believe in your people and their ability.BY DR. PHILIP NECHES
Whether you are Instagram, the photography app purchased by Facebook for $1 billion less than two years after it was launched; Myron Ullman, the returning CEO of $17 billion iconic retailer J.C. Penney; or Michelle Peluso, the new CEO of the growing $600 million online luxury retailer Gilt Groupe, you face one of the toughest challenges in management: working through uncertainty to drive success. Uncertainty dogs the strategic imperatives of just about any enterprise. The question is, are they the right imperatives?
The story often goes like this: your team is trying something new and important — implementing a new store design, revamping a strategy, running a number of projects to fix an earnings slump, rebranding, launching a groundbreaking online experience, or perhaps starting a new division. The problem is, it is only sort-of working: not failing completely, but not really succeeding.
FAITHIN THE FACE OF UNCERTAINTY
BEFORE IT WAS A
PHOTO EDITING
APP, INSTAGRAM
TRIED TO BE A
PHOTO-BASED,
LOCATION CHECK-
IN SERVICE.
FALL 201346 INSIGNIAM QUARTERLY
Teams tasked with strategy execution are naturally inclined
to believe they are on the right track. All that is needed to
correct course is to continue doing the same things, just
with more intensity, more dedication, and more resources.
That only digs the hole deeper. The project runs later, and it
costs more. At some point, the time and money exceed the
organization’s tolerance, and the project is canceled.
More often than not, people recover from such failures,
but the project is not so lucky. Now tainted by failure, it is
unlikely to be revived. Watchful competitors learn a valuable
lesson on the cheap: they know what to avoid.
UNCERTAINTY: DANGEROUS PREDATOR
OR DELICIOUS MEAL?
How can projects that support strategic imperatives get back on
track — or find a better track — before spending themselves
into the proverbial ditch? The team involved will already be
frustrated and on the way to being angry and exhausted. That
is what makes these kinds of situations so difficult.
To begin, leaders have to recognize that human beings
have a remarkable ability to get things more right than
wrong, even when first attempting something new and
difficult. With a combination of experience, information,
and intuition, the leader’s team made a very plausible plan at
the outset of the project.
The problem lies in how people deal with uncertainty.
We are programmed to freeze in the face of uncertainty.
When our hunter-gatherer forebears heard strange noises
coming from deep in the bush, they froze. Was the noise a
delicious meal for the tribe, or a dangerous predator looking
for its own supper?
In a three-part Forbes’ article from January 2012 titled
“The Rise of Gilt Groupe,” Matthew Carroll outlined
Gilt’s need to combat a full frontal assault by competitors.
Founded in 2007, the online retailer found fast success
offering exclusive deals on luxury items directly to its
subscribers. Early on, Gilt had few competitors. But as
the exclusive-deals space became more crowded, Gilt was
forced to shift its strategy.
Originally focusing on women’s clothing and accessories,
Gilt added other channels — menswear, travel, home goods.
The brand’s leadership is still dealing with the uncertainty
of the online luxury retail market. It has had to scale back
some of its offerings. But it has a new CEO in Michelle Peluso.
The former CMO at Citigroup and CEO at Travelocity
moved from the board into Gilt’s CEO seat earlier this year.
She’s stated recently that the company is looking at how it
works with brands and that an IPO is a possibility.
UNCERTAINTY: THREE APPROACHES
There are only three ways to deal with uncertainty.
2 The first is to design a program to learn something new
that will reduce the uncertainty. One of our ancient
ancestors might have hurled a rock into the bush to see
if anything trotted out. Modern businesses do prototype
development or focus-team studies for the same reason.
2 The second way is to aggregate a lot of individual
uncertainties into a calculable risk. Our forebears might
have known that there are far more tasty warthogs than
man-eating lions in the bush. In modern times, we use
statistics, insurance, and hedging.
2 The third way is to proceed on faith. When the first two
methods have been exhausted, faith is all that remains.
Religion is always a matter of faith, because observation,
logic, and statistics cannot explain it. But every key
decision in secular life is a leap of faith: who to marry,
what job to take, what investments to make. Faith gives
us the capacity to act, even if we cannot completely
dispel uncertainty.
A TEST OF FAITH
Strategy execution requires an interlocking number of
orchestrated projects and tactics to succeed — to get the
breakthrough(s) desired. When a team struggles with a
project, it becomes a test of faith. But blind faith almost
always leads to disaster in business, if not in the rest of life.
There were troubles at J.C. Penney before failed CEO Ron
Johnson arrived in 2011. An Apple alum, Johnson tried to
dramatically shift the strategy of the retail giant. Gone were
the discounts and coupons that the long-time customers had
grown to love. In were everyday low prices. Also new was
the store’s organization. Specific brands were organized into
“stores” inside of each J.C. Penney location. Johnson wanted
to recreate the experience of shopping in an Apple store at
J.C. Penney. None of these changes took hold with either
longtime customers or longtime employees. After less than
two years, Johnson was out.
J.C. Penney brought back Ullman, the previous CEO.
He has stated his love for and belief in the brand and what
it stands for. He is trying to bring back lost customers and
reassure devoted employees. So what must leadership do in
these types of circumstances?
The answer is to suspend, but not discard, faith. The team
needs to do something different. The market says it is not
FALL 2013 INSIGNIAM QUARTERLY 47
what they were doing
before, and it is not what they are doing
now. But that is the uncertainty. In assessing the strategy,
the path of execution, and how projects were constituted,
something must be wrong and must be fixed. But there will
still be many elements that are right and should continue.
GET THE RIGHT PEOPLE TOGETHER
The team accountable for execution must re-examine its data
and assumptions. The results of the many initiatives so far
provide a trove of information not available when the project
began.
The first and most obvious thing to look for in the new
information is the thing the team did not know that it did not
know at the outset — the unknown unknowns. Anything
anomalous or unexpected can hold a key to solving the
problem.
A more difficult but often a more effective path is to look
for “what you know that just ain’t so.” That is the flawed or
missing data, or the bad shared assumption. This is why is it
so important to suspend faith while doing this kind of work:
faith blinds the mind while it binds the team.
As in any act of human creativity, there is no algorithm.
But some things work. Get the right people together. Get
away from regular routine — go off-site if possible. Use
a facilitator from outside the team. Listen to everybody,
especially those “in the trenches” with closest contact to
customers or technology. Allow no personal criticism, but
criticize every piece of data and every assumption. Take as
long as needed. People already understand the urgency.
Finally, keep faith in the people. They will find the answer,
if there is one. They will re-coalesce around the revised plan,
with even stronger faith.
ANSWERING THE $1 BILLION QUESTION
It worked spectacularly for Instagram. The company set out
to develop a photo-based, location check-in service, a sort of
Foursquare with pictures, called Burbn. But when traction
eluded the team, they discovered that the photo editing and
sharing features meant more to users than location sharing.
Not every redirection will be as spectacular as Instagram’s early
$1 billion exit, but many a project can either be salvaged — or
turned into something even better than the original vision.
So, let your people try something new. Let them innovate.
Let them push forward. And let them fail. It’s what will help
them learn, because success is forged through the fires of
struggle. When things are not going well is when we figure
out what does not work, and, like Instagram, we figure out
what will.
A military leader will tell you that a bunch of soldiers do
not become a real fighting unit until they are under live fire
together. In the same way, a bunch of people in a business
become an effective team when they solve an existential crisis
by working together, creating a new path, and restoring the
faith in the times when failure is not an option.
Dr. Philip M. Neches has more than 30 years of leadership experience. He
is a Trustee of the California Institute of Technology, a member of the National
Academy of Engineering, and the founder of Teradata Corporation.
FALL 201348 INSIGNIAM QUARTERLY
FALL 2013 INSIGNIAM QUARTERLY 49
WWith the Affordable Care Act making the healthcare waters
murky, industry leaders are being asked to do something that, if it
is not impossible, it is very close. They are being forced to navigate
rough waters toward a destination that is uncertain.
“The essential challenge is creating a path forward when many
of the new regulations under the Affordable Care Act have not
even been written yet,” says Allan “Bud” Shivers, the chairman
of the board of the Seton Fund and member of the Seton
Healthcare Network board of trustees. “You have to anticipate
how do you deliver better care and be in the business of making
people healthier — keeping them out of the very hospitals that
also need to be there for them when they are in need of care”.
Part of the Ascension Health Alliance, the nation’s largest
Catholic health system with 72 hospitals, the Seton Healthcare
Network has 12 hospitals and clinics and 12,000 employees.
Shivers says the way forward comes down to five ingredients
that executive teams, their board of directors, and stakeholder
groups need to align around: leadership transformation, speed of
change, education, consolidation, and technology.
THE LEADERSHIP CHALLENGE
Shivers said changing the game when all the rules aren’t written
takes the relationship between the C-suite and boardroom to a
LEADING THROUGH UNCERTAINTY: A LOOK AT THE HEALTHCARE INDUSTRY
BY GORDON PRICE LOCKE
Healthcare executive teams must reshape their world and build new facilities amidst evolving affordable healthcare regulations
Insigniam has identified 10 forces disrupting
the healthcare industry. Leaders will need to
address these in their strategies if they want
to continue to grow.
1. Transition from fee-for-service
to value-based reimbursement
2. Shifting volumes and lower
reimbursements
3. Moving from caring for sick individuals
to managing the health of a population
4. Advances in Health Information
Technology (HIT)
5. Acceleration in introduction of digital
health tools, advanced medical
technology and new medical models
6. Shifting demographics
7. Provider shortages
8. The more informed and involved patient
9. Increasing government regulation
10. Shrinking availability of capital
INSIGNIAM’S 10 DISRUPTIVE FORCES IN HEALTHCARE
FALL 201350 INSIGNIAM QUARTERLY
new center, and not on providing efficient and affordable
care. Eventually, the board had to let the CEO go. The
damage had been done.
And speaking of building hospitals, for about every 1
million people in a population, a Level 1 trauma center
is needed. Hospitals cost about $1 million a bed to build
and need about $1,000 a bed per night to operate. The
ultimate objective of healthcare is to keep people healthy
and in their own homes, yet operating a hospital — or
network for that matter — means intensive staffing and
finding operational economies of scale.
This, Shivers says, is why consolidation
is happening.
TECHNOLOGY ADOPTION
“The healthcare industry is
slower than most in its adoption of
technology,” Shivers says. “It has always
just been a volume business. The more
patients you get, the more money you
can make.”
Enter the technology equation,
and you have a whole new set of
considerations, decisions, and expenses
that are new to most leadership circles.
Shivers is not referring to only certain
medical technologies, but also the vast
amount of technology needed to run
the operational and administrative
aspects of a healthcare network. One of many examples
is electronic medical records, the complexity of new
health-related data and records that follow a patient, while
new level. It has to move from the traditional advisory role
to one that is more hands-on.
In a March 2013 article by The Advisory Board
Company, Anthony R. Tersigni, president and CEO of
Ascension, said he is embracing the invaluable role of a new
style of hands-on leadership. “The first thing I do [when
visiting a health ministry],” Tersigni is quoted as saying, “is
to let the CEO know I’m coming. Then, about a half hour
before my appointment, I walk through the hospital and
talk to employees, patients…really any people that I come
across.”
It’s that talking that Shivers says is
so important. It builds trust between
the people in the C-suite and those
handling the day-to-day care of the
patients. Only when that trust is
established can you have conversations
that are needed to move the
organization forward.
“The conversation is not just
about administrative matters and
committees,” he says. “Sometimes you
have to be willing to be the skunk at
the garden party and not be willing to
go along with the status quo.”
As an example, Shivers shared the
story of a hospital system building
a new medical center in Houston.
The CEO so mesmerized the board
with his vision and plan that the board failed to do its
due diligence. Without any checks in place, project costs
spiraled up. The plan was more focused on building the
ENTER THE TECHNOLOGY EQUATION, AND YOU HAVE A WHOLE NEW SET OF CONSIDERATIONS, DECISIONS, AND EXPENSES THAT ARE NEW TO MOST LEADERSHIP CIRCLES.
FALL 2013 INSIGNIAM QUARTERLY 51
SETON’S COMMITMENTS TO PATIENTS AND THE COMMUNITYAllan “Bud” Shivers, Jr. is a prominent force in the
healthcare leadership arena. He is the founder of the
Seton Fund and has been its chairman of the board
for 31 years. He also serves on the board of trustees
of the Seton Healthcare Network and the board of
the Institute for Rehabilitation and Research.
The Seton Healthcare Family was recognized as
the top-ranked health system in Texas by Modern
Healthcare magazine and healthcare data
consulting firm Verispan. It was also among the
year’s Top 100 integrated healthcare systems in
the nation for efficiency and performance.
A not-for-profit organization, the Seton Family
is the leading provider of healthcare services in
Central Texas, serving an 11-county population of
1.9 million. The organization operates:
» 5 major medical centers, including the region’s
only Level I Trauma Centers for adult and
pediatrics and dedicated children’s hospital.
» Two community hospitals
» Three rural hospitals
» An inpatient mental health hospital
» Several strategically located health facilities
that provide rehabilitation and medical care for
well patients
» Three primary care clinics for the uninsured
As the region’s largest community service
organization, Seton contributed more than $419
million to care for the poor and community benefit
last year.
following regulations for the safety, security, and use of the
records.
There are technologies that can also help the doctor-
patient relationship become more efficient and improve
patient experience. This future isn’t just about the physical
nature of visiting a clinic or hospital. We are evolving
from a model where patients making a visit was the norm.
There are healthcare options now for remote monitoring,
wirelessly connecting the patient with a doctor’s office.
$100 MILLION FOR BETTER HEALTHCARE
EDUCATION
Shivers says that changing the way healthcare leaders
thing and lead actually can start where they are bing taught
— at an educational level. The Seton Family of Hospitals
collaborated with The University of Texas at Austin to
create the $100 million Dell Pediatric Institute, a measured
step in establishing a state-of-the-art, academic health
center, which includes a new medical school. Additionally,
Seton entered into a partnership with The University of
Texas System Board of Regents and The University of
Texas Southwestern Medical Center in Dallas, one of
the nation’s leading academic medical centers, to increase
the amount of medical education and medical research
conducted in Central Texas.
SCARY BUT POSITIVE CHANGE
Shivers has spent 31 years connected to and serving
healthcare. He says the industry faces many other issues it
needs to address, such as increasing patient satisfaction and
care while also transforming, working through mergers and
consolidation, hospitals that are closing as needs are growing,
cuts in Medicare, deep changes in Medicaid reimbursements
and processes, not to mention emerging advanced healthcare
practices. Still, he sees the industry changes in a positive light.
Evolution in healthcare was needed, and the complexity is
leading to innovation and change for the better. It just may
mean a few headaches along the way.
ALLAN “BUD” SHIVERSChairman of the board of the Seton Fund and Seton Healthcare Network board of trustees member. He also serves on the board of the Institute for Rehabilitation and Research
IQ BOOST
BY SCOTT W. BECKETTPARTNER, INSIGNIAM
Of the many companies pushing innovation today, more than a few are doing so while neglecting their corporate cultures.
For those firms, a strategy that pushes innovation is valued, but the corporate culture is not. To them, culture is a historical artifact — something that is left over from a corporate founder who probably wore a pocket watch instead of carrying a smartphone.
Peter Drucker said it well. “Culture eats strategy for lunch.” He meant that organizations must have a culture — loosely defined as “the way you get things done” — that aligns with the business strategy — or “what you want to get done.”
In other words, if your strategy is to push innovation, your culture had better be designed to value and produce innovation. Otherwise, innovation will just be devoured.
CONSIDER CULTURE WHEN DEVELOPING STRATEGY OR POSSIBLY PAY THE PRICE
Our speed-to-results process will transform your employees into an unstoppable innovation force. Learn why partnering with Insigniam helps your organization repeatedly produce dramatic results from within.
Change the game.
Speed to results is a game-changer.
Insigniam.com
Download Our App.Get To know Insigniam.
Getting a product to market isn’t enough.
U.S. Postage
PAIDLiberty, MO
Permit No. 441301 Woodbine AvenueNarberth, PA 19072
Change Service Requested
NYC
OCTOBER 1-2, 2013RADIO CITY MUSIC HALL®,NEW YORK CITY
JEB BUSH
CARLOS BRITO
GORDON BROWN
BEN ZANDER
JACK WELCH
SAM PALMISANO
NANCY KOEHN
CLAUDIO FERNÁNDEZ-ARÁOZ
S.D. SHIBULAL
BOB MORITZ
SUSAN SOBBOTT
MAGGIE WILDEROTTER
DENISE MORRISON
CLAYTON CHRISTENSEN
ALEC ROSS
STEVE LEVITT
STEPHEN DUBNER
TH
The 10th-annual World Business Forum addresses the challenges you, as leaders, face today.
INVEST IN / INVESTIR AU
CANADA
Call 866 711 4476 / 212 317 8454 Web wbfny.com E-mail [email protected]
Final chance to register! Special offers available through September 27th.