Collaborative strategy formulation beats isolated strategy formulation everytime. The problem is orchestrating the process: harmonizing the diverse inputs, triaging the outputs, and maintaining buy-in throughout the process. LeverSource solves this problem
Below are the guiding principles that frame our approach and philosophy of management. Collectively they explain why our method works.
The Majority of business issues are self inflicted
Studies of over 600 firms by Rumelt in 1991, and subsequently refined by McGahan & Porter in 1997 suggest that internal management decisions outweigh external factors 2 to 1 in explaining firm performance. This conflicts with the typical management behavior of blaming external events for performance issues. The root problem is not seeing the cascading and time lagging connection between internal management decisions and their consequences.
For example each department sets policies that are locally rational but when aggregated across the organization become globally irrational. What they think is optimal turns out to be suboptimal for the whole organization. Without feedback these suboptimal local choices will continue.
LeverSource provides this feedback by surfacing the cascading implications of individual decisions based on how things are actually connected. Moreover, the LeverSource process enhances organizational learning by transparently buiding a shard understanding of how everything really fits together based on everyone’s input.
Finally everyone can literally be on the same page!
Insight can be structured
Chess was once considered too complex for a computer to ever challenge a professional level player. There were too many combinations to evaluate as quickly as the human mind could intuitively “know” the best move. Then it happened. In 1997 “Deep Blue” out played grandmaster Gary Kasparov. Brute force computing power finally matched the speed of human insight. So insight can be structured.
In our context structuring insight means using computing power to overcome our short term memory limit of 5-9 concepts at any one time. The LeverSource approach enables you to perform one-to-one comparisons between an unlimited number of suggested changes, then simultaniusly evaluate them all by their leverage potentials. The good news is organizations will typically only have 30-85 unique suggested changes to evaluate so the brute force, one-to-one comparision exercise is very managable.
This holistic evaluation structures leverage insight that isn’t possible otherwise.
Structure drives behavior
While you may think we all have freedom of choice, our decisions are actually constrained by emotions, policies, assumptions, and percieved sources of information. Taken together these form the containing “structure” that limits your decision options and ultimately your behavior.
Emotions, of course, can overide any decision if strongly felt.
Policies come in two forms: stated and in-use. Stated policies are documented and can be referred to. In-use policies are undocumented but generally taken for granted and built into your assumptions. In-use policies significantly outnumber stated-policies. These in-use policies form the true “culture” of your organization, the default decision bias.
Perceived sources of information refer to the factors that weigh into your decision. The important point is they are subject to being interpreted or filtered by your perceptions and might not be accurate due to time lags or other forms of distortion.
So even if you replace significant parts of your organization, if these structures are left in-tact your performance and culture will not change. To affect actual change you must surface, examine, and challenge this containing “structure” that keeps reproducing your issues.
Every decision has unintended consequences
There are no isolated decisions.
Just like 6 degrees of separation where complete strangers can find common connections within 6 relationships, so do the effects of one decision as it cascades through your network of people, processes and technology.
In some cases the cascading effects end up back where they started and begin cycling through again. These circular effects form feedback loops that perpetuate out into the future and shape organizational behavior in one of two ways: amplifying or dampening some aspect of performance.
Amplification means building momentum, either positive or negative for the business. For example the word-of-mouth effect can rapidly build new customers if the news is positive or rapidly deplete your customer numbers if the news is negative.
Dampening means lessening the distance from a goal either positive or negative for the business. For example the effect of peer pressure on novel behavior when the status quo is challenged.
LeverSource enables you to surface and take advantage of these amplifying and dampening circuits.
Collaborative strategy formulation beats isolated formulation
Obviously the more perspectives you include in the planning process, the richer the planning picture becomes. Richness in this context equates to surfacing more potential intended and unintended consequences based on having a greater number of perspectives involved.
Conversly the more folks involved in the process the harder it is to keep the process under control. The solution is individual involvement through brief one on one interviews to capture each participants top of mind input. Then collectively review all suggestions simultaneously but focusing on how they are related to each other vs. making a deep dive on any one suggestion. By taking this “whole system” perspective everyone is literally on the same page and understands the leverage potential of their inputs vs. the leverage potential of eveyone elses suggestions (alignment operationalized!).
LeverSource orchestrates the process, helps harmonize the diversity of input, helps prioritize the output, and helps maintain buy-in a long the way.
Business and IT planning cannot be separated
Back when IT was considered an “Ivory Tower” function (nerds with ties) it made perfect sense to keep them out of the business planning meetings. IT’s main function at that time was automating accounting processes and other mundane back office functions. Then database marketing
started creeping into the planning conversation. CRM
then solidified a seat at the planning table. Social networking
now seems too visible to ignore. Now Big Data
is promising to deliver leading indicators for game changing insight.
So the question isn’t if IT should participate in business planning but where else can you embed IT to elevate strategy formulation and execution.
Balanced scorecard is necessary but not sufficient
The Balanced Scorecard is certainly an improvement over only using financial indicators. What’s missing is the causal connections between upstream resource accumulations and changes to these scorecard indicators. Specifically how do you get from where you are to these desired/balanced outcomes?
Each organization has unique resources that interact to drive overall performance. Until these resource accumulations are surfaced and their interactions understood the specific management actions needed to improve performance are hopeful guesses at best.
Finding the actual number of potential resource levers in any organization depends upon the number of unique perspectives you involve. Harnessing these viewpoints and insights in a repeatable way can lead to sustainable advantage. Just having this higher level of control granularity enables greater precision in execution.
LeverSource enables the creation of a tailored dashboard that includes not only leading and lagging indicators but the intermediate leverage points between them.
Big data applies internally as well
Big Data has become a hot topic. The concept is sound enough: sift through large amounts of data points and some trend or correlation will become apparent. What’s been missed is the fact that if you connect enough internal perspectives/data points insight will surface as well. Just having more granular management feedback enables a finer level of control. This finer control positions your organization to better match the variability of the demand signal and out perform your competitors. LeverSource manages the collection and connections between internal perspectives then triages the whole picture into different leverage potentials.
Focus on development not only on growth
While every organization watches how many new customers are added each period most can’t tell you how many were lost over the same period. From my conversations with executives this isn’t an intentional oversight rather the consequence of being held accountable for short term tactical performance measurements. Most publicly held firms seem to live or die by such “growth” metrics. What’s being overlooked is the opportunity for “development.” Developing your products, processes, and customer relationships so that customers become loyal and increase your most critical metric: sustained cash flow.
LeverSource enables you to move beneath the surface of “continuous improvements” to untangle the complex web of internal constraints facing your enterprise.