Why strategies don’t work – Part 1

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The pressure is on, and Mike’s post of CEO is threatened: Over the past ten years he has been constantly strengthening the market position of his company and continuously improving all areas within the enterprise. On the whole, all had been going well and the business owners had always been more than satisfied with his achievements.

However, for about two years business figures have been moving in the wrong direction: first sideways and then downhill, the downward trend having become more and more obvious lately. His strategy no longer worked although Mike had started several counter-initiatives and implemented as planned. Why was it that a weathered strategy that had been used and approved of for years suddenly flopped?

The answer is simple and does not only hold true for Mike’s company but in almost any cases where strategies do not render the desired results: The strategy misfired because it failed to take into account the whole strategic landscape of the business. Mike has made a mistake which according to a current study by David J. Collis is rather common among established companies.

 

The strategic landscape

A company’s strategic landscape is characterised by five elements: set of opportunities, value-creation potential, value capture, value realisation and business performance. A successful strategy has answers and approaches that harmonise these five areas reasonably well.

Set of opportunities

The set of opportunities describes the external environment of the respective company. They comprise, among other things, the political and legal framework or technological developments, but also demographic trends or changes in our natural environment.

These opportunities define the frame within which values can be captured – plus what is to be seen as “value”. This frame will change over time, thus causing answers given and approaches chosen to be adapted to these altering general conditions. A useful tool to take into account these changing conditions is scenario planning.

Value-creation potential

A company’s value-creation potential depends on the chosen business model: How can a company, based on current and future opportunities, generate value for potential customers? What payment models are chosen for products and services?

This sector of the strategic landscape has the potential to transform whole industries, as was the case when video shops were supplanted by streaming services or when pay-per-call contracts were replaced by flatrate phone call offers.

Value capture

While the business model describes what creates value for potential customers, value capture is about how this value for the company can be measured. Here topics like market attractiveness, the best positioning of one’s own company or possible reactions of competitors have to be assessed and taken into account.

All these questions can be tackled with classic strategic approaches, like positioning, Michael Porter’s five forces model or SWOT analyses. An unorthodox, but interesting way of designing a strong strategy is to make use of game theory.

Value realisation

Value realisation comprises anything generally called strategy implementation. It intends to build capabilities and resources needed for long-term success and to re-adjust structures, so that they be more adaptable to change.

Having identified suitable and necessary measures, questions of timing and deadlines need to be taken into consideration. In this way the respective organisation can be guided into adopting a new strategy without straining its capacities.

Business performance

The fifth feature of the strategic landscape is represented by the actual outcome. Often within the scope of controlling, here current developments are observed and compared with intended targets, objectives and goals. If necessary, corrective measures are being implemented.

However, measuring performance must not be the end of a process chain, but merely a single building block of a company’s strategy.

A common mistake of established companies

A robust and successful strategy equally takes into account all five components of the strategic landscape. Established companies, like Mike’s in the introductory example, often make the mistake of focussing too much on value capture, while at the same time they tend to neglect changes in opportunities and to overlook new value-creation potential.

Often these enterprises have for years been successful in one specific business model and have made themselves at home there. Turnout and profits have been stable or are even increasing, so there seems to be no reason to change the running system.

When things have become a habit, change is frequently seen as unnecessary: “We’ve always done it this way – and it always worked!” is what you will hear all too often. But this approach will only work on the condition that the external environment will basically stay the same or that no competitor will start to satisfy customers’ demands in a different, more effective way.

When external conditions will change after all, CEOs like Mike more often than not seek to make up for a worsening outcome with new or better answers in the area of value capture and value realisation. It is all too clear, though, that this will prove unsuccessful in the long run.

Robust strategies for incumbent companies

A robust strategy which can be successfully implemented is holistic, i.e. when it comes to planning and implementation, it takes into account all five elements of the strategic landscape. Established companies in particular have to keep analysing their set of opportunities and value-creation potential and not only to pay attention to pursing a specific business model.

A first step can be questioning the way things have always been done:

  • How is the environment of my business currently changing?
  • Are customer demands changing as a result as well?
  • What new approaches are there to satisfy customer demands?
  • What do these changes mean for the business model I have adopted?

This reactive approach helps companies realise when it is necessary to adjust their business model. In this way enterprises can be prevented from clutching to outworn business models and, as the proverb has it, beating a dead horse.

Better still would be a pro-active approach that anticipates future developments and predicts customer needs and business models not having yet been identified. This is how enterprises can say goodbye to outdated strategies and business models while there is still time and also actively shape the market, hence strengthening their own market position.

Contact us when you want to lead your company into the future with an active strategy.

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Tool Box Talks: Risk Matrix

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.
In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on the Risk Matrix.

What is a risk matrix and when should it be used?

A risk matrix is a tool which helps you to deal with risks. This device visualises a risk assessment by taking account of its probability, its consequence severity and its level or priority.
To support risk managers in their work, risk matrices are often incorporated into risk registers, which they represent in a condensed and visualised form. Also, they have become customary in reporting, where they show the amount and distribution of risks in a project or in a specific operational unit

How do you use a risk matrix?

Before you can apply a risk matrix, you first have to identify and assess the risks for your project or your operational unit. Evaluating these risks works in three dimensions: probability, consequence severity and priority. The first two values can be assessed either qualitatively (high / medium / low) or quantitatively (in % or €), whereas the priority of risks is typically categorised into high / medium / low.
Depending on this assessment you then plot these risks on a two-dimensional matrix, with the x-axis representing the probability of occurrence and the y-axis corresponding to consequence severity. Priority can be visualised by the choice of different colours

Beware of pitfall

However, it is in particular due to this manner of visualising priorities that certain risks are neglected. The most frequent reaction to traffic light colours – the most often used colour for high / medium / low is red / yellow / green – is to focus on the red items by ignoring the green ones.
While it may certainly be right to prioritise some risks as ‘high’, classifying a risk as ‘low’ still does not necessarily mean that it “does not have to be dealt with actively”. So take a closer look at every single risk and double-check, no matter what the priorities, what measures you can take and which of them is suitable and should be put into action.

What is the use of a risk matrix?

A risk matrix is a tool to visualise all risks and their individual assessment. Thus it helps to quickly identify the most relevant risks – both in terms of their individual probability and consequence severity, and with regard to their priority.
This visualisation is particularly useful if you have to handle a great number of risks as it will make it easier for you to identify the most important issues at a glance and to tackle the most crucial ones first.
Furthermore, this form of graphical representation is ideal for reporting as this intelligent system of visualisation offers a valuable insight into the total number of risks and their criticality without the necessity to go through or analyse huge amounts of data.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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5 Dimensions of Successful Innovation

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Innovation seems to be the buzzword in today’s world of business: Innovative business models which, through novel products and services, cause disruptive changes of markets, this is the subject matter of which dreams – or nightmares – of many entrepreneurs, politicians, lobbyists are made.

The question here is: What are the characteristics of successful innovation and how can it be deliberately brought about? The answer is astonishingly simple: by focusing on the company’s value creation and the expected added value.

Features of successful innovation

What is innovation?

The Duden defines innovation as “a deliberate and systematic change or reform in a social, technical, economic or other system by applying new ideas and technologies. Two aspects are striking in this description:

First, innovation is not simply a new idea or a new technology but results from using them. This means that you do not have to generate groundbreaking brand new ideas to be innovative. All you have to do is to discern and apply suitable approaches that help you to make a difference.

The second interesting point in the above definition is that it talks about a “deliberate and systematic change”. In other words, innovation is a carefully planned and controlled process and not just the result of an ingenious flash of inspiration – even if such a brainwave often does spawn a new invention or innovation.

What are the characteristics of successful innovation?

In other words, innovation involves deliberate decisions that cause modifications or reform. This, however, does not mean that any carefully planned change automatically is successful innovation. Rather, any change will have to create a value for the company of some kind.

If something adds value in this context depends on two factors: first, the actual improvement made by this change; and second, how this improvement captures financial value.

Any innovation, if it is to create added value for the company, has to be an improvement on the approaches used so far. This improvement can either mean that additional value is brought to potential customers or for production or distribution.

Note that this improvement has to result in financial value, like the realisation of higher sales prices, lower manufacturing costs, increased sales or bigger market shares. Moreover, financial value can also be created by strengthened customer bonding, an improved public image or just the opportunity of selling alternative products or services.

Point of departure for innovation ventures

If innovation is understood as a process that is carefully thought out and planned, the next question will be what methodology will enable a company to identify and pursue successful innovations.

Attentive readers will already have recognised Porter’s “Five Forces” in the above description of successful innovations. Following this standard model, there are five anchors – or dimensions – that help to explore innovation in its true sense.

1. Substitution

How can I meet customer demands in a way that differs from how it was done so far and is better than before? To find answers to this key question, which is addressed by the first dimension of innovation called “Substitution”, you have to get to know the actual needs of your customers really well as it is these needs that induce customers to buy your product or service in the first place. Only then can you try to find out how you can satisfy this demand better than previously.

Many disruptive innovations of the last decade which revolutionised whole markets made use of this approach. A good example is arbnb, which meets customer demands for inexpensive lodging without the need to pay for hotels or holiday flats.

2. Added value

The second dimension of innovative thinking focuses on the question of how you can provide added value to your customers, either in the form of extended functionality or by improving product performance. This approach is particularly useful for areas in which a product is offered alongside a certain service.

It can mean that, for example, mechanical engineers offer for their machine’s interfaces containing a predictive maintenance concept, hence providing an optimised capacity utilisation and lowering service costs for clients.

3. Efficient production

Making production processes more efficient is another starting point for innovation. In addition to mere process optimisation, innovative value is created by radically transforming the patterns in which products are generated. For an ideal result, both process optimisation and process innovation should go hand in hand.

A classic example of innovation aiming at higher efficiency is the automation of production processes, but also the employment of artificial intelligence to optimise capacity utilisation of a haulage company’s lorry fleet.

4. Alternative production methods

While the focus of the previous dimension is on efficient production, where the underlying patterns remain the same, alternative production involves a completely different approach to production. Here new materials and technologies come into focus which allow to deliver the same result in a different but better way.

An example of this kind of innovation is the 3D printing technique, making it possible to produce complex structures efficiently, even in small numbers.

5. Alternative raw materials

The last dimension of innovation comprises using alternative raw materials, something that is definitely worth the effort if these are expensive, rare or hard to get by.

For instance, whereas solar cells in their early years hinged on big monocrystallines and, as a result, proved rather costly, today’s manufacturers use polycrystalline materials, which has essentially raised cost effectiveness in this sector.

To keep long matters short, you don’t have to be a genius to innovate, nor is innovation a matter of pure luck. Rather, it can be brought about systematically and make a positive contribution to your company, be this value big or small. Contact us if you feel the need of more stimulating ideas or support.

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Tool Box Talks: 5 whys

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.
In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on 5 why.

What is 5 whys and when should it be used?

5 whys is a quality management tool developed by Toyoda Sakichi. It helps to reveal causal links and to understand complex cause-and-effect relationships. This method is mostly used in root-cause analyses in the context of failure analyses or optimising processes. Apart from this, it is suitable for any kind of cause-and-effect relationship, particularly for linear ones with no or only few ramifications.

How is 5 whys used?

The starting point of a 5 why analysis is an observed deviation from the norm, i.e. the “effect”. This is where the first “Why?” is asked: “Why has the problem occurred?”
The answer to this question is the cause of the observed effect. This cause can again be understood as another effect of another cause, which is explored by means of a second “Why?”. This process is repeated five times until the cause of the cause of the cause of the cause of the observed deviation is discovered and its origin – its root cause – is detected.

Beware of pitfall

Make sure that, when using the 5 whys technique, that you do not only identify a possible cause-and-effect relationship, but also verify it, in a way that each of the “Why?” questions undergoes a process of examination checking if

  1. the shown causal link is possisble and plausible, and
  2. if under the present conditions the alleged cause is really responsible for the effect

Only if both requirements are fulfilled, the next “Why?” should be asked.
Besides, do not be a stickler with the number “5”. As a rule of thumb it is usually appropriate to ask for the cause five times to identify the actual source of a problem; still, you should check individually and flexibly if a sixth of seventh level might give you valuable information after all, or if you can end the process after the fourth question.

What is the use of the 5 why method?

A 5 why analysis brings to light the details of the cause-and-effect chain having led to the (mostly undesired) incident. This will help you to prevent this problem from occurring again.

Here a distinction is made between corrective and preventive measures. The latter are applied in the upper layer of the causal chain, thus addressing one specific issue, whereas preventive measures are used in the deeper levels of the cause-and-effect relationship – tackling the root cause. They usually have a greater, further-reaching impact, also making it possible to avoid other negative results originating from the same weakness.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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Knowing how to identify risks

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When in spring 2020 most countries imposed a lockdown to tackle the onset of the Corona pandemic, plunging a lot of companies into economic problems, it was often said that “nobody could have foreseen this crisis!“. At the same time, there are plenty of standards and legal requirements providing the framework for companies to anticipate risks and threats and to take adequate precautions. But none of the existing guidelines has so far helped to answer the question of how a company can spot all relevant risks.

While there is no universally valid answer to this question – and probably never will be, still a couple of tried and tested useful devices and methods can help recognise risks.

Brainstorming

A classic and widespread approach to risk identification is brainstorming. It is a simple question like: “What could happen if …?” that will give you enough information to fill your risk register. As, however, the number of identified risks will depend very strongly on the experience and the perspective of the involved person in question, you should remember two things if you intend to reach good results using this method:
First, you should bring together people with backgrounds as diverse as possible. The involved people’s feedback will be strongly influenced by their individual experience and preferences, particularly when it comes to identifying possible risks. If you engage a great range of different participants, their feedback will reflect this diversity, too.

Second, you should guide the debate during the brainstorming in different directions. Here various approaches will be useful, for instance 4Ss or 5Ms or PESTLE.

Process Analysis

Another way of facilitating the group process while identifying risks is process analysis. Here you first divide your project into clearly defined smaller, separate units of activities. For each unit you then think up risks that might occur and analyse how they might affect your target achievement.
This approach is ideal if your project consists of a sequence of clearly defined process steps and if you can easily show how the actual activities correspond with the final result. If, however, your task is more complex or if mulitple interdependencies are involved, this approach, which in fact very much resembles the design tool FMEA, is less suitable as it is extremely difficult to assess risks with it.

Case Studies

A third approach is investigating reference cases. Here comparable projects and ventures are scrutinised for unforeseen events and the impact they had on target achievement. To identify a valid list of risks in this way, you have to make sure that you have a sufficiently high number of past cases. Also, you should check if the found risks are relevant for your case in question.

We recommend this technique of recognising risks for situations in which you regularly carry out several rather similar tasks or projects – for example if you have to make adjustments to machines according to your client’s wishes or if you design software modules for a plant control system. Here you can detect standard risks relatively quickly and take measures appropriate to the corresponding project.
This method is less suitable, however, for situations with few or no reference cases. Further, this approach is unfit to consider novel hazards or rarely occuring extreme events.

Pre-Mortem Session

To take such extreme events into account, you should make use of so-called “pre-mortem sessions“. Here the team in question imagines that their project has already been completed and tries to come up with reasons for the project’s presumable failure.

At first glance this approach seems hardly different from the brainstorming method detailed above. However, the change of perspective, shifting from thoughts like: “What might happen?” to the hands-on question: “What has caused the failure?” will help to change your set of mind and explore new ways of thinking. This is particularly useful to identify those risks that are different to those people have encountered so far.
Which approach will you be using to spot risks in your next project?

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Tool Box Talks: Stakeholder Mapping

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.
In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on the Stakeholder Mapping.

What is the use of stakeholder mapping and when should they be applied?

Stakeholder mapping by means of assessment grids is an important tool for managing different groups of interest. It helps to subsume individual persons under predefined clusters, making it possible to deal and communicate with stakeholders effectively and appropriately.

Visualising stakeholders is particularly useful in project and change management processes, but also whenever different interests of various individuals and groups of persons have to be considered, for instance when it comes to strategic planning or preparing projects, events and workshops.

How do you create a stakeholder assessment grid?

To build an effective stakeholder assessment grid, you need to go through the following three steps:

  1. Identify the stakeholders
  2. Assess the stakeholders’ interests
  3. Rate the stakeholders’ influence.

First you need to make a list of all groups of interest that is as comprehensive as possible. These groups can include both individuals and bigger groups. Classifications into groups should only be carried out if they really share the same interests (e.g. team members of a specific department) or if, from the project’s perspective, they can be regarded as a unified entity (e.g. residents living next to a factory plant).

Having determined who your stakeholders are, you need to assess their level of interest in your project. Here a simple distinction between “interested” and “no interest” will be sufficient. A valuable additional piece of information to be added to your matrix as well is whether a stakeholder is supportive of or hostile to your goals.

Finally, you need to assess how much invidual groups of interest can impact whether or not your reach your goals. Here as elsewhere you should use the simple characteristics of “high level of impact” and “low level of impact” as the stakeholder mapping intends to provide a qualitative comparison and not a quantitative ranking.

The assessment having been finished, the stakeholders can be plotted on a matrix, thus visualising their qualities relevant to the project in question. To do so, you build a two-dimensional assessment grid, with the x-axis representing the stakeholders’ impact. Their attitude towards the project’s aims can be additionally highlighted by a suitable colour (green = same goals; red = competing goals).

Beware of pitfall

Be careful when establishing different groups of interest. If too many people are classified as stakeholders, the grid will be confusing. To prevent this from happening, you should cluster people into groups. Make sure that the attributes you attribute to a group are really shared by all of its members. If in doubt, it is better not to categorise people into groups until you have assessed the relevant stakeholders individually.

Another trap you can fall into is if you overestimate a stakeholder’s real power. Here you need to distinguish clearly between somebody’s official position and their actual impact on the project. This is particularly true for change processes, where ordinary team members in key positions (so-called “key players”) can often impact an initiative to a much greater degree than many managers, even if these hold a much higher position in the company’s hierarchy.

What does a stakeholder assessment grid actually show?

A completed stakeholder interest-power grid shows you four groups of people and how you should deal with them if you want to reach your goals effectively and efficiently:

The first group, which has a high level of interest and considerable power, has to be actively managed. This set of people is crucial for whether or not you will achieve your goals.

You should equally keep an eye on stakeholders with a low degree of interest but high power. Make sure, with as little effort as possible, that they remain satisfied.

Those with a high level of interest but little power should be kept informed. The rest should stay on your mind – but, if possible, at very little or no expense.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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What good planning has to do with process optimisation

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It can’t have been the team responsible for the preparation. They had found a suitable place for the event, had given a thorough thought to its structure and prepared a well-structured agenda. Still, after only two hours, the department workshop got off track and at the end of the day they had failed to come up with any reasonable outcome. How could this have happened? Despite the effort put up by the team in charge, the answer is: it’s the planning, stupid.

The easiest way of using time and resources is, more often than not, planning things well. This rule holds particularly true for designing workshops and similar business events. Three simple steps help prepare them by ensuring that eventually the desired result is being reached.

Balancing expectations

In the first stage in terms of planning business-related events, you should match the participant’s expectations with what will actually happen in the workshop. This will guarantee that all participants have the same idea of what the event is to achieve.

Identifying relevant stakeholders

However, before you deal with actual expectations and demands, you have to identify relevant stakeholders. In this context, this is anyone interested in the results delivered by the workshop. Stakeholders for the project described in the initial example will be, for instance, the project management and their superiors, maybe also including further persons like interface partners or key team members within the relevant department.

The following questions can help you to identify major stakeholders:

  • Who has a rightful interest in the results?
  • Who has enough power to influence the results?

Dealing with assumptions

Once you found out who your stakeholders are, you have to check out their expectations to the workshop. To match your planning to their needs as best as possible, you should make the interview questions you ask them in advance as specific as possible. This means that a hesitant inquiry like “What do you expect …?” will in most cases not do the trick.

A good question targeting the expectations of the customers can be, for example: “What results do you expect the workshop to come up with?” Or: “What do you intend to do with the workshop’s results?” While the first question aims at the expected output of the event, the second focuses on its intended use.
When it comes to interface partners or participants, it is usually questions about the workshop’s content that will be helpful. Their expectations can be pinned down by questions like: “What aspects do you wish to be addressed?” Or: “What issues should be tackled in the workshop?”

Managing expectations

Queries about expectations have two functions when it comes to planning an event. First, the scope of the project can be better described in terms of objectives, results and its use. Second, with a view to preparing the workshop’s details, this information can be used to respond adequately to existing expectations.
As soon as the event’s objectives have been finally established, it is clear which stakeholder expectations will be likely to be met and which won’t. To make sure that, right from the start, the workshop will be greeted by a mood of widespread acceptance, participants and others involved should be proactively be prepared for what to expect (and what not to expect).

Defining results and input

The second important step in successfully planning an event comprises defining the results and the necessary input.

Outlining the results

Having identified both stakeholder expectations to your workshop and the results your workshop is expected to deliver, you should now specify the exact nature of the desired output:

  • What exactly is to be the event’s result?
  • In what form is the result to be available?
  • Who is the result intended for?
  • …

As describing the result is the basis for the whole further planning process, it should be as precise as possible.

Deducing the necessary input

The result having been written down, now you have to ask what input the participants need to achieve the desire result. When answering this question, you should go beyond the usual categories of reports, numbers and other data, and explore alternative ways of working your participants’ minds. Here are some examples of what this could imply:

  • Bring to the surface diverging views on one and the same issue to create awareness of exisiting diversities and, by doing so, make it possible to negotiate common ground.
  • Use creative approaches to go against ingrained ways of thinking and communicating. Or:
  • Set team tasks to create a sense of community.

Structuring the event

Having defined input and output, now the actual process of planning the event is ready to begin.

Determining key elements of the event

Here you should concentrate on the content-based issues to be dealt with in the workshop. The two basic questions you have to answer in this phase of planning are:

  • What do the participants in the workshop have to do to reach the desired results with the given input?
  • What elements – and in what order – can help them do this?

Once you have answered these two questions for yourself, you will have decided about the key elements of the workshop and their sequential order.

Planning the form of the event

Planning the way a business event is carried out is crucial in that it supports the participants in their effort to reach the event’s ultimate goal. To do so, three dimensions need to be addressed:

  • First, there is the physical working material (flipcharts, beamer, desks, breakout rooms etc.) necessary for the workshop.
  • Second, the structural sequence of the workshop runs through the event like a common thread, connecting its different key elements in a way that makes sense and is logical.
  • Third, the workshop’s emotional dimension affects its perception by and the subjective well-being of the participants, as does, for instance, the choice of setting, the type of catering and maybe also an entertainment programme.

Here, as elsewhere, form should support content and, if possible, not be a mere end in itself.

Planning facilitation

The final step in planning a workshop or a similar event is preparing its facilitation. The facilitator should know the event’s aims and structure really well and be well aware of what points are essential and where it will be possible to digress from the original setup when necessary. By the same token, this role requires foresight as to the participants’ personalities and a possible potential for conflict, which should be duly considered in advance.
If you follow these guidelines for planning your next business event, you can be sure that your efforts will be well spent and that, at the end of the day, you will have reached your goals. If we can support you here, do not hesitate to contact us – free of char

e and without obligation.

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