diagnostic exercise

Managers and employees spend much of their time in discussions, but too often conversations bog down in an endless series of unproductive meetings in which the usual suspects cover the same ground without making progress. Frustration mounts as participants “spin their wheels” or “talk in circles.” This frustration often occurs when managers lead the wrong kinds of discussions at the wrong time in the wrong way.

My last post introduced the agility loop as a simple framework to helm managers and employees structure and lead discussions in a more effective manner. The first step in structuring and leading discussions through the agility loop consists of deciding which discussion to have when, who should be involved, and how to lead these conversations. The following questions can help managers improve their discussions.

1. What are we talking about? This simple question often surfaces a disturbing lack of focus about the objective of a discussion. Discussions, particularly those that take place in large groups, often derail when participants pursue multiple strands simultaneously and end up talking past one another. To focus their brainstorming discussions, the design firm IDEO enforces a rule that a team can only discuss one idea at a time.

2. Are the right people in the room? Conversations often fail before they begin, when team leaders fail to bring

Firms do not pass through a life-cycle, but individual opportunities do. To thrive in turbulence, organizations must rapidly shift resources from stagnant businesses to the most promising opportunities for future growth, a capability I refer to as portfolio agility. Unfortunately, reallocation of resources is easier said than done.

Opportunities at different stages in the life-cycle vary in objectives, appropriate management style, performance metrics, and predictability. A venture in the start-up stage should focus on milestones that validate customer demand and technical feasibility, for example,  while success of a mature business can be measured by financial metrics.  Many companies, however, apply a one size fits all management style to all businesses in their portfolio, regardless of their stage in the lifecycle.

In turbulent markets, firms need portfolio agility–the ability to quickly and effectively remove resources from businesses that have stagnated or no longer fit a company’s strategy and reallocate them to promising opportunities. Before shifting resources among them, executives often  categorize units within a portfolio using frameworks such as the growth share matrix. Despite its widespread use, this framework gives a static snapshot of a portfolio at a point in time and overemphasizes the benefits of scale.

An alternative approach to mapping a portfolio begins by dis-aggregating an organization into components that correspond to opportunities, recognizing that these units vary by life-cycle stage-i.e., start-up, scaling the business, maturity, and decline. Opportunities begin 

Contrary to the conventional wisdom in management, companies need not pass through a life-cycle. Rather, individual opportunities pass through a life-cycle beginning with the start-up stage, followed by scaling the business, maturity, and decline. It is more accurate to view firms not as a monolithic entity, but as a portfolio of opportunities at various points in their individual life-cycles.  How can executives visualize the businesses in their portfolio to manage them more effectively?

The standard method for evaluating a firm’s portfolio is to array them using a two-by-two matrix, such as the Boston Consulting Group’s popular growth-share matrix. The vertical axis of this matrix measures the growth rate of the market, and indirectly cash usage, since faster growing markets typically require more investment to keep pace. The horizontal axis measures market share, and indirectly cash generation, under the assumption that businesses with a higher share of the market tend to throw off more profits. Combining these axes generates the familiar quadrants of the matrix, including the cash cows (low growth, high share), stars (high share, high growth), dogs (low on both dimensions), and question marks denoting businesses with low share of a growing market.

The matrix provides executives with a snapshot to consider resource allocation among units, identifying cash cows, for example, that could fund investments in rising stars, while looking to disinvest from dogs and puzzle over question marks. Although portfolio planning using the BCG and related matrices took hold in many companies, laboratory experiments and empirical studies find no evidence that these tools improved performance, and suggest on the contrary they lead to sub-par

During the boom, many managers assumed their companies excelled at execution. In fact, much of their success arose from strong economic tailwinds. Now that the winds have shifted, executives discover to their chagrin that their company’s execution engine is less powerful than they imagined. This post lists five of the top obstacles to execution in volatile markets.

5) Rely exclusively on process to execute. Many managers equate execution with standardized processes.  They re-engineer key procedures and employ process disciplines, including six sigma, or total quality management to ensure continuous improvement. These approaches work well for activities–such as processing transactions or manufacturing cars–that can be laid out in advance and repeated thousands or millions of times per year with minimal variation. Process tools work less well for activities that consume much of the typical knowledge workers time, including coordinatinating work across a matrix or generating innovative solutions to unique problems. A study by Professors Mary Benner of Wharton and Michael Tushman of Harvard Business School found greater investment in process disciplines decreased innovation (beyond incremental improvements in their existing processes). Managers need a broader range of tools to manage non-routine work.

Much has been written about enhancing co-ordination across organisational silos, a topic that sits near the top of most executives’ to-do list. A search of business and investing books on amazon.com for the keyword “collaboration” turns up nearly 37,000 books. Do we really need another one?

Companies often respond to market shifts by accelerating activities that worked in the past, a tendency I call active inertia. Like a driver whose car has its back wheels stuck in a rut, managers press on the gas hoping to pull out, but instead dig themselves deeper.  Hardened commitments mark the well-worn grooves that channel behavior into historical patterns.

Companies fall prey to active inertia when their hardened commitments channel their response to market changes into existing grooves. Below are some warning signals that indicate executives at your organisation may be locked into their historical commitments and susceptible to active inertia, should the environment shift.

In today’s paper, I have written about why good companies decline.

Many people tell a simple story of corporate failure. Success breeds hubris which leads to overreach and triggers decline. After studying the causes of corporate failure and helping companies avoid it for two decades I have discovered a more profound dynamic that drives corporate decline. The commitments required to succeed harden over time and prevent companies from adapting effectively when circumstances shift. Organisastions often succumb to active inertia – they respond to disruptive changes in the environment by accelerating activities that worked in the past. This post describes the dynamic in finer detail.

The downturn has exposed flaws in business models, such as newspapers. Identifying basket cases after they have collapsed is easy, but by then it is too late to save them. The trick is to spot the weak spots in a damaged business model before it collapses, while management has the resources and time to fix it.

Long immersion in an industry can blind executives to flaws in their strategy and business processes. Managers can use a simple exercise to counteract the tendency to take an industry’s practices for granted.  Imagine ten years from now, your industry’s dominant business model has collapsed. You write a cynical blog post explaining why the business model collapsed. Don’t shoot for balance but instead emphasize the weak spots that killed the industry.  Below are a few examples of this analysis for some business models that look healthy right now, but collapse from dry rot in the future.

Leading in turbulent times

This blog is no longer active but it remains open as an archive.

Don Sull is professor of management practice in strategic and international management, and faculty director of executive education at London Business School. This blog is dedicated to helping entrepreneurs, managers, and outside directors to lead more effectively in a turbulent world.

Over the past decade, Prof Sull has studied volatile industries including telecommunications, airlines, fast fashion, and information technology, as well as turbulent countries including Brazil and China, and found specific behaviours that consistently differentiate more, and less, successful firms. His conclusion is that actions, not an individual’s traits, increase the odds of success in turbulent markets, and these actions can be learned.

Don Sull’s blog: a guide

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FT Business School videos

Managing in an Unpredictable World
A series of video lectures by Professor Don Sull

Part 1: Fog of the future
Part 2: Future reconnaissance
Part 3: The strategic agility loop
Part 4: Executing with commitments
Part 5: Leading into the fog

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