Why Strategy Execution Unravels

I don’t reference a lot of HBR articles in this blog, but I came across this one, by Donald Sull (et. el) recently and it really struck a cord with me, since it talks about strategy execution first and foremost from an organizational perspective:

Why Strategy Execution Unravels – And What to Do About It

Sull and his co-authors make their case by debunking 5 strategy execution myths:

Myth 1: Execution equals alignment – alignment down the chain-of-command is a solved problem and most corporate processes to manage it (MBOs, tying bonuses to goals, etc.) are working well. The true, unsolved problem is around cross-departmental coordination:

“Only 9% of managers say they can rely on colleagues in other functions and units all the time, and just half say they can rely on them most of the time… When managers cannot rely on colleagues in other functions and units, they compensate with a host of dysfunctional behaviors that undermine execution”

Myth 2: Execution means sticking to the plan – strategy execution fails when companies “stick to the plan” too much, rather than seize fleeting opportunities  that support the strategy. Perhaps the most extreme case of this behavior, is disinvestment from opportunities that did not pan out as expected:

“Companies also struggle to disinvest… Top executives devote a disproportionate amount of time and attention to businesses with limited upside and send in talented managers who often burn themselves out, trying to save businesses that should have been shut down or sold years earlier”
Myth 3: Communication equals understanding – there’s a growing appreciation for the criticality of organizational clarity in driving strategy execution and the important role that internal communication plays in creating that clarity. However, internal communication initiatives often center around optimizing the wrong metric:
“Not only are strategic objectives poorly-understood, but they seem unrelated to one another and disconnected from the overall strategy… Part of the problem is that executives measure communication in terms of inputs, rather than by the only metric that actually counts – how well key leaders understand what’s communicated”
Myth 4: Performance culture drives execution – this issue is tied directly to the first myth. If the culture emphasized individual performance over collaboration and coordination, it gets in the way of removing the true roadblocks for execution:
“The most pressing problem with many corporate cultures, however, is that they fail to foster the coordination that, as we’ve discussed,  is essential to execution. Companies consistently get this wrong. When it comes to hires, promotions and non-financial recognition, past performance is two or three times more likely than a track record of collaboration to be rewarded
Myth 5: Execution should be driven from the top – in complex organizations, effective execution requires dealing with a constant stream of tough trade-offs: should we invest the time in coordinating with another department at the cost of losing a fleeting opportunity? should we say “no” to a client request that’s misaligned with the strategy at the cost of losing revenue? The leaders closest to the situation are the ones who can respond the quickest and are best positioned to make the tough call:
“Frequent and direct intervention from on high encourages middle managers to escalate conflicts rather than resolve them, and over time they lose their ability to work things out with colleagues in other departments. Moreover, if top executives insist on making the important calls themselves, the diminish middle-managers’ decision making skills, initiative, and ownership of results”
At the end of the day, Sull and team paint a rather grim picture of a commonly used myth-driven strategy execution approach. But if we choose to look at the glass half full, they also outline the path for a more effective strategy execution approach:
  1. Build businesses processes that strengthen cross-departmental coordination and collaboration
  2. Orient execution effort around agility, and seizing strategy-aligned opportunities
  3. Measure the effectiveness of internal communications in driving the understanding of strategic objectives
  4. Create an organizational culture that balances individual performance and collaboration
  5. Provide middle managers with the necessary technical competency and organizational clarity to make the tough decisions themselves

 

 

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Why Strategy Execution Unravels

Is “Google Commercial” Google’s Biggest Missed Growth Opportunity?

An off-center post commemorating an off-center week.

I’ve been on vacation a few weeks back, driving more than 1,000 miles in between some of the most pristine day hikes in Virginia and North Carolina. Changing your routine almost always leads to a fresh perspective on issues you’ve been spending time thinking about, and this case was no different. I was thinking about Google.

Google has been desperately trying to diversify its lines of business further and further away from its search engine cash cow. Some of its more recent +$500M acquisitions were geared towards these new markets: Nest ($3.2B, home automation), Dropcam ($550M, home automation), Skybox Imaging ($500M, satellites), and Waze ($960M, GPS navigation). As well as its Moonshots portfolio: Google Glass, Project Loon and the Self-Driving Car project.

What all of those cutting-edge technology investments have in common, is that Google continues to apply them in the domain it knows best: directly to consumers. At least for Glass, that approach did not pan out well. Home automation does not seem to be panning out the way optimist may have expected. And when’s the last time we’ve heard about a new killer feature from Waze/Google Maps?

Consider a few (imaginary) press releases:

  • Google announces a shift of its Self-Driving Car project to be focused on trucks rather than consumer cars, as well as a partnership with Wal-Mart to transition its entire truck fleet to be autonomous by 2025 (
  • Google announces a partnership with Kaiser Permanente to equip surgeons in all of its hospitals with a Google Glass version customized to assist in surgeries (this is already sort-of happening)
  • Google announces a new fork of the Android OS called Dandroid designed to become the operating system for all commercial drones
  • Google announces a new product in its Maps portfolio called Waze Commercial aimed at becoming the platform for truck navigational assistance and freight tracking.

There are some interesting advantages in going with a businesses-first approach to adopting cutting edge technologies. An autocratic/centralized decision-making process, and a profit-driven motive can be leveraged to reach scale and drive adoption much quicker than in some direct-to-consumer scenarios.

There’s already regulatory progress in the UK to enable the testing of self-driving trucks. Meanwhile, companies like Airware (drones) and TruckerPath (trucks) are starting to capture incumbent positions with products that seem like not-so-radical extension of existing Google Products.

Granted, successfully building products for the enterprise requires a different type of corporate DNA than a consumer products company. But given that these growth areas are completely consistent with Google’s “to organize the world’s information…” mission, and Google’s sheer organizational size which should probably be able to support this kind of organizational diversity, if constructed thoughtfully, perhaps it’s time for a Google Commercial division?

 

 

Is “Google Commercial” Google’s Biggest Missed Growth Opportunity?

Strategy as Heuristic (excerpt)

“Corporate leaders are expected to be bold generals who forecast the future, devise grand strategies, lead their troops into glorious battle – and then are fired at the first lost skirmish. It takes a courageous executive to push back against this mindset, admit the inherent uncertainty of the future, and emphasize learning and adapting over predicting and planning” – Eric Beinhocker

<Begin excerpt>

“We may not be able to map the perfect route to the ideal future, but we can often ascertain some orienting principles for navigation. Without trying to predict exactly what forks in that road we will encounter, we can ask ourselves what will help us to make the best decisions when we do come to a fork. When we step back to look at the broader context and the general terrain and options in front of us, we can often come up with guidelines, such as “generally head east”, or “choose the easy roads even over the most direct roads”. A rule of thumb like this really helps when we’re confronted with a choice and want to benefit from wisdom generated when we had the luxury of pulling back and analyzing the bigger-picture context. When we distill that wisdom into memorable guidelines, we can apply them more easily and more regularly amidst the hustle and bustle of day-to-day execution.

This, then, is the form that strategy takes – an easy-to-remember rule of thumb that aids moment-to-moment decision making and prioritization (the technical term for such rule is a “heuristic”). I’ve found it useful to express these decision-support rules in the form of a simple phrase such as “emphasize X, even over Y”, in which X is one potentially valuable activity, emphasis, focus or goal, and Y is another potentially valuable activity, focus, emphasis or goal. Now, to make that useful, you can’t just have X be good and Y be bad. “Emphasize customer service, even over pissing off customers” is not helpful advice. Both X and Y need to be positives, so that the strategy gives you some sense of which one to privilege, for now, given your current context. For example, one of [my company’s] strategies earlier in our company’s development was “emphasized documenting and aligning to standards, even over developing and co-creating novelty”. Notice that both of those activities are positive things for an organization to engage in, but they are also polarities, in tension with each other. Our strategy is not a general, universal statement of value – in fact, if we tried to apply it forever it would undoubtedly cause serious harm eventually. There are times when it is essential to emphasize developing and co-creating novelty over documenting and aligning to standards. But for [us], given our context at the time, and the recent history before that, and the purpose we’re serving, that was our best sense of what to privilege, at least for a while: standardization, even at the expense of pursuing new and exciting opportunities.

Of course, no one was against the creation of novelty – for me, it often feels like the most natural way to operate. For the first few years of our growth, every event or training we did was unique and special, co-created on the fly with various partners who offered to host us and help market. This helped us to explore the new landscapes we were moving into, and it generated a lot of movement and some important relationships. But soon, our penchant for creating new and exciting offerings became unsustainable for that particular phase in our growth. It’s expensive when every new offering is a custom product and each partnership requires hammering out a unique deal. We arrived at the strategy I’ve cited so as to redress the balance, to stabilize the organization and make it more efficient and sustainable. It provided useful guidance and had a focusing effect as we navigated the daily decisions we each faced. And ultimately, the strategy became irrelevant – we had integrated these two poles pretty well and found the harmony between them, and it was time to focus elsewhere.
As an example of how the standardization-first strategy helped: [since I’m responsible for] Program Design in our Education [team], from time to time I’d get an email from someone who had heard about [us], gotten inspired, and now wanted to partner to create a new type of event for his particular business sector. I get excited by opportunities like that, but out strategy reminded me that at that moment in our development, I should instead invest my time and energy in standardizing our existing programs and events – even if it means missing this new opportunity. “

</End Excerpt>

After the tough criticism I gave Holacracy last week, I wanted to use this opportunity to share something about Holacracy from a “glass half-full” perspective. This 5-paragraph excerpt from the book, beautifully describes a rather radical and unique take on what strategy can be.

Strategy as Heuristic (excerpt)

The Illusion of Product-Market Fit

Brad Feld published a very thought-provoking post about product-market fit (PMF) a few weeks ago:

The Illusion of Product-Market Fit for SaaS Companies

The piece that really resonated with me was the list of the 4 key myths about product-market fit:

  • Myth #1: Product market fit is always a discrete, big bang event
  • Myth #2: It’s patently obvious when you have product market fit
  • Myth #3: Once you achieve product market fit, you can’t lose it
  • Myth #4: Once you have product-market fit, you don’t have to sweat the competition

I believe we’re both in agreement on one other thing: companies tend to “claim victory” on finding product-market fit prematurely, but this is when Brad’s view and mine start to diverge.

Brad lays out a monthly-recurring-revenue(MRR)-based milestones, outlining when you only *think* you’ve found PMF, when you’ve actually found it, and when myths #3 and #4 start to kick-in.

Reflecting on the market the company I currently work for is in, automatically caused some red flags to pop up in my head.  In our industry, a single, “small” transaction may yield $50K in MRR. So 3-4 clients can easily get us to Brad’s “PMF sweet-spot” but I doubt it would have made sense to claim PMF victory then.  Granted our case is extreme, but it may shed some light on more industry-agnostic milestones. Looking at # of users, clearly takes us in the wrong direction, in ways far beyond the different-users-pay-for-different-product-plans argument that was discussed in the comments to Brad’s post. Perhaps a more generic way to define these milestones is as a percentage of the total-addressable-market (TAM) for that product. Without going into a lengthy debate about how to go about assessing it, I suspect this is what was implicitly set Brad’s MRR thresholds.

The part of the blog that really irked me was the discussion on valuations through a hyper-growth-centric lens. But I’ll leave opening the “growth obsession” pandora box for a different post and share some parting thoughts about PMF instead:

A good analogy for finding PMF comes from Physics: finding resonance with your customers and getting on the same wavelength as them. Note that this can be accomplished both by changing your product and by changing your customers (market pivot). Changing your wavelength is a gradual, continuous process (anti-myth #1), you know when you’re close to being on the same wavelength but it’s hard to tell if you’re exactly there (anti-myth #2). Since both your product and your customers constantly change (wavelength), it’s easy to get out of sync again (anti-myth #3) and it’s clear that your actions don’t prevent others from getting on the same wavelength (anti-myth #4).

Perhaps another good analogy from the same discipline is thinking about PMF as an unstable equilibrium often illustrated as a ball at the top of a hill (as opposed to a stable equilibrium illustrated as a ball at the bottom of a valley). You first need to roll the ball up the hill (find PMF), but then every little nudge can get easily get it rolling down the hill again.

The Illusion of Product-Market Fit

SaaS or SaaC? (The Dentist Office Software Parable)

Apparently Fred Wilson has been telling this fantastic parable for years, but just recently published it on his blog with an enhanced alternate ending:

The Dentist Office Software Story

The gist is very simple, in Fred’s own words: “This story is designed to illustrate the fact that software alone is a commodity. There is nothing stopping anyone from copying the feature set, making it better, cheaper, and faster. And they will do that.”

In particular, Fred is making a case for software companies who are taking advantage of a network effect to create a defensible competitive advantage.

When people talk about utilizing a SaaS (Software-as-a-Service) business  model, they often refer to the revenue model (subscription) and delivery model (cloud vs. on-prem). But if you’re only thinking about these two aspects, you’re not building SaaS, you’re building SaaC – Software-as-a-Commodity.

Depending on the problem your product is meant to solve, a SaaS business model can put you in a better position to pull certain defensible differentiation levers and not others. But either way, those levers are not going to pull themselves…

So what are you building? SaaS or SaaC?

 

 

SaaS or SaaC? (The Dentist Office Software Parable)

The Hole at the Bottom of the Pyramid

“Innovation ultimately winds up being, quite frequently… solving very, very hard problems”, Max Levchin, co-founder, Paypal

“Only small companies do impressive things”. Vinod Khosla, Managing Director, Khosla Ventures

A few years ago, I read a TechCrunch article that had one of the best Venn diagrams I’ve seen in years. It only had 3 circles: “Problems we can solve”, “Problems we are solving” and “Problems we should solve”. While the article focused on the intersection between “can solve” and “are solving”, I’ve found myself spending more and more time thinking about the intersection between “can solve” and “should solve”.

It’s pretty easy to rattle off the names of 5 social networking tech companies, or casual gaming, or even product marketplaces for that matter. Yet when we try to do the same for tech companies that provide better access to clean water, or democratize education we quickly draw a blank. Why?

Poor marketing prowess? Not sexy enough? Biased tech news media coverage? Perhaps.But the simple fact of the matter is that there’s just not that many of them out there. Companies in the first batch outnumber ones in the second batch by orders of magnitude.

The needs and wants that the first batch of companies addresses differ substantially from the ones addressed by the other batch. Though by no means a consensus in the academic world, it’s interesting to think about this problem through the lens of Maslow’s “Hierarchy of needs”. At its core, Maslow’s theory is based on an intuitive concept: human needs can be grouped based on their importance to human survival and development. Those groups are often illustrated as a pyramid, with the most basic, physiological needs (food, water, sleep, etc.) at its base, followed by safety needs (health, employment, resources), love/belonging (friends, family), esteem (self-esteem, confidence, achievement) and finally at the top, self-actualization (creativity, problem solving, etc.). As you move up the pyramid, needs transition into wants. Companies at the first group batch needs and wants at the love/belonging level and upwards in the pyramid, while companies that are part of the other batch address needs at the bottom two levels.

Sadly, it seems that the further you go down the pyramid, trying to address more basic needs, the number of startups and innovation seem to decline dramatically. This is a serious problem.

maslow2

Addressing needs at the bottom of the pyramid means solving really hard problems. Though not perfectly correlated, “hard” and “valuable” tend to go hand in hand, making this a worthwhile endeavor.

We should all be taking more problems from the “can solve”-“should solve” space, and move them to the “are solving” intersection. If software is eating the world, we can all help make sure that it’s eating the more important parts first.

 

 

The Hole at the Bottom of the Pyramid

Be a solution provider first, a software company second and a SaaS company third

I found myself referencing this 4-part series by Lincoln Murphy on the challenges of enterprise SaaS several times recently:

Part 1 – calls to question some of the value of a pure-play SaaS model in an enterprise market.
Part 2 – talks about some of the unique selling challenges in the space.
Part 3 – separates on-demand delivery mechanism (SaaS) from on-demand licensing model (Utility) and calls both to question in some settings.
Part 4 – Provides a shorter summary of Parts 1+3 and briefly touches on the “unnecessary” requirement of absorbing all support costs.
Addendum/fallback – clarifies a few key points around the distinction between hybrid SaaS and hybrid licensing and source-code escrow.

Though these posts are more than 7 years old by now, the content still holds true. The reason for that, and why I thought it’s worthwhile to mention it in this blog, is because of the core of Lincoln’s arguments there’s a powerful kernel of truth that’s beautifully captured in the title of this blog post (taken from one of the posts in his series): “Be a solution provider first, a software company second and a SaaS company third”.

Generalizing it just a bit it reads as follows: In the end of the day, we (the company) exist to solve a problem for our customers. The way we go about solving it from a functional perspective (being a software company) and from a business perspective (using a SaaS business model) are means to an end. Sometimes the means that we choose can get in the way of solving the problem for our customers, and then they need to change. Often times companies forget this basic truth and stick to their functional/business approach at all costs, finding themselves in a situation where they’re trying to jam a square peg into a round hole and setting themselves up for failure.

So be a solution provider first 🙂

Be a solution provider first, a software company second and a SaaS company third