Business Strategy Made Simple: What Moves the Needles
When we're faced with complex problems, in our solutions we often inadvertently add complexity of our own making. Instead, we should seek to sharpen the quality of our thinking and our decision-making ability and improve our process by using simple rules.
The process to craft simple rules starts with understanding what moves the needles and identifying the bottleneck. Testing and refining through use help improve the rules by adapting them to new conditions, including how they evolve in communities.
It's a three-step process:
Figure out what will move the needle
Choose a bottleneck
Craft the rules
Say Donald Sull and Kathleen Eisenhardt in Simple Rules, starting with making clarity around future growth plans and the critical choices management will need to make in order to drive a wedge between revenues and costs to increase profits (the difference between the two). Then following by focusing on the decision or activity that stands in the way.
The final step is crafting the simple rules to apply to the bottleneck:
Managers are tempted to jump right in and begin crafting the rules, but by working through the first two steps they can ensure that the simple rules they develop are truly strategic and will help them achieve profitable growth.
Being on the same page on company goals and how each unit is contributing to their achievement is an important element of understanding the critical decisions management needs to make. And from there everyone needs to be on the same page on priorities.
To get on the same page on key priorities we can use rituals.
Getting better with structure
Rituals are useful to instill new habits. “We do not get better without structure,” says Marshall Goldsmith in Triggers, it's what we do that matters. When managers are serious about business strategy, they learn to use structure to their advantage.
Both at Boeing Commercial Aircraft where he was President and at Ford where he was the CEO for eight years, Alan Mulally instituted a weekly Business Plan Review (BPR) process with all senior management, no exceptions, interruptions, or delegation:
Each leader was expected to articulate his group's plan, status, forecast, and areas that needed special attention. Each leader had a mission to help—no judge—the other people in the room.
Alan, who had spent his entire career building jet airplanes, had an aeronautical engineer's faith in structure and process. To get talented people working together, he paid attention to details, all the way down to granular level. He began each BPR session in the same way: “My name is Alan Mulally and I'm the CEO of the Ford Motor Company.” Then he'd review the company's plan, status, forecast, and areas that needed special attention, using a green-yellow-red scoring system for good-concerned-poor. He asked his top executives to do the same, using the same introductory language and color scheme.
Starting with introductions reinforces roles and responsibilities (in a large organization it reminds everyone who everyone else is and does); it's the trigger that we mean business. The routine is especially useful to help create a new habit with the bonus that it helps instill a professional mindset.
Choreographer Twyla Tharp provides another example in The Creative Habit:
I begin each day of my life with a ritual. I wake up at 5:30 A.M., put on my workout clothes, my leg-warmers, my sweatshirts, and my hat. I walk outside my Manhattan home, hail a taxi, and tell the driver to take me to the Pumping Iron gym at 91st Street and First Avenue, where I work out for two hours [before heading to my dance studio to begin the day’s work.] The ritual is not the stretching and weight training I put my body through each morning at the gym; the ritual is the cab. The moment I tell the driver where to go I have completed my ritual.
The ritual is the cab in the same way the ritual is the introduction—they both signal what is about to happen to the brain. When we start every meeting by repeating our key priorities, we use frequency to our advantage in two ways—it helps us remember why we're here, and focus our conversation on what drives value creation.
Focusing on value
To move the needles on the business we need to identify the few choices that will either increase customers' willingness to pay for a product or service, or decrease our costs in producing and delivering it, or both—then sustain those improvements over time. Which means we need to answer three basic questions:
Who will we target as customers?
What products or service will we offer?
How will we provide this product at a profit?
“In their quest to grow revenues, companies are constantly tempted to chase unattractive customers or sell unprofitable products,” say Sull and Eisenhardt. The simple who, what, and how framework is a good decision-making tool to define a market and make clarity about the business we're in.
Once we zero in on the value to move the needles, we should identify the bottleneck or what keeps us from executing well—for example having to coordinate across corporate silos or get multiple layers of approvals, or delays between contract signing and project start, or too many projects starting at the same time. We can craft the simple rules to avert or minimize those issues.