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Strategy

Strategy: What Wouldn’t You Do?

In many ways, strategy is simple. Yet we often want to make it more difficult and more complicated than it really is. We want it to sound powerful and provocative. We want to inspire our employees and investors with eloquent phrases and motivational messages. But strategy, in itself, is not inspirational. You can create inspirational messages about your strategy but the strategy itself simply says, “we do this; we don’t do that”.

Be sure to separate the messaging (and the inspiring) from the strategy per se. A simple way to clarify your strategy is to focus on what you don’t do. By clearly defining what you don’t do, you can save yourself a lot of time and grief. You can invest that time into doing a better job of what you do do. That’s inspirational.

Learn more in the video.

Strategy: Seeing What You Can’t See

How do you evaluate whether a given company (or product) will be successful or not? Clearly, you’ll want to study the business plan, interview management, talk to customers and competitors, and get an unbiased evaluation of the product. But is that enough? Unfortunately, it’s not — you’re only looking at those things that you can look at. You’re looking at the known knowns but omitting the known unknowns.

So how do you see what you can’t see? Instead of just looking at the individual case, look also at the category that the case derives from. If you’re evaluating a start-up company, look at all the details of the company. But also look at the category called “start-up companies”. What’s the success rate there? Studying the category won’t always tell you why companies succeed but it will tell you how often they succeed. That can provide you a “base rate” with which to compare your individual case. For a balanced view, always look at the case and the category.

Learn more in the video.

 

Group Behavior – The Risky Shift

If you’re shot down behind enemy lines, would you rather be alone or in a group of colleagues? According to research from the U.S. Air Force, your chances of survival are better if you’re alone. That may seem counter-intuitive but groups — especially temporary groups with fluid leadership — often shift toward riskier behavior. Individuals tend to make fact-based decisions that often result in better outcomes.

In other words, an individual makes more conservative decisions. Operating alone, he or she focuses on and assesses the situation. In a group, members assess each other as well and may make decisions based on group dynamics rather than facts and evidence. This is what Robert Cialdini calls “social cues” — we look to each other for cues on how we should behave rather than making a hardheaded assessment of the situation.

To effectively lead groups, you need to understand how group dynamics and social cues can change your behavior. You may “go with the group” even if you feel uncomfortable with their decision. Watch the video — you might be surprised at what you would do if you find a man lying unconscious on the streets of Manhattan.

Prediction Markets and Obamacare – Intrade Got It Wrong

In my classes on strategy, I like to discuss how to prepare for the future. I’m careful to say that nobody can predict the future (though we often think we can) but we can prepare for it. In class, we look at various ways to think about the future, including scenario planning and prediction markets.

Prediction markets operate much like sports betting “lines”. In sports betting, the bookie simply wants to divide bettors into two equal camps. The amount bet for a team to win should equal the amount bet for the same team to lose. If the line is “Team A wins by 7 points” and too much money accumulates on one side, then the line moves up or down to even out the two sides. No matter which team wins, the bookie pays off the winners from the losers’ bets and keeps the service charge, known colloquially as the “vig”.

Prediction markets work essentially the same way, except you’re betting on the likelihood that something will happen or not happen. What’s the likelihood that Republicans will capture the Senate in the November election? What’s the probability that Greece will exit the euro before the end of the year? A number of prediction markets exist, especially in Britain where they seemed to first gain popularity. I tend to consult Intrade, which is probably the most popular prediction market in the United States.

Until recently, Intrade had a great track record in predicting political events in the U.S. It predicted, for instance, that the Republicans would not win the Senate in 2010, even as a number of pundits predicted exactly the opposite. This week, however, Intrade made a spectacularly wrong prediction. It suggested that there was a 75% probability that the Supreme Court would invalidate the individual mandate in the Affordable Care Act, also known as Obamacare.

So, if you can’t trust the crowd, whom can you trust? Should we turn back to the pundits?  The New York Times says experts may be a better source for confidential, closely held decisions. Bloomberg points out that this is not the first time that Intrade got it wrong. Additionally, the blogosphere went wild — just google “Intrade got it wrong”.

What does all this mean? Perhaps it puts us back to the original point: you can’t predict the future, you can only prepare for it. By the way, as of this morning, Intrade says there’s a 56.2% chance that Barack Obama will be re-elected. Anybody want to place a bet?

 

Culture Eats Strategy for Breakfast

A new CEO sweeps into your company and announces a new strategy. Your company hasn’t been doing too well so you think it just might be time for a new strategy — the old one wasn’t working, maybe a new one will. Unfortunately, the new strategy doesn’t fit well with your existing culture, which focuses on quality. The new CEO wants to focus on speed — “Let’s get to market before our competitors do — the first mover has the advantage”. Yet your fellow employees think, “There’s always a market for quality. Quality wins in the long run.”

When strategy and culture are at odds with each other, which one wins? Culture wins every time. In fact, Peter Drucker said that “culture eats strategy for breakfast.” Changing strategy is fairly easy — it’s just an announcement. But if the new strategy doesn’t fit the culture, it’s simply an announcement of prospective failure. First, you have to change the culture.

Watch the video for more information on culture versus strategy.

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