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Strategy

Strategy versus Operational Effectiveness

As the cheshire cat once said, “if you don’t know where you’re going then any road will lead you there.” It’s certainly true of strategy. When I ask companies what their strategy is, they often say things like, “we’re going to reduce our supply chain costs.”  While that’s a good thing to do, it’s not a strategy — it’s operations. Reducing supply chain costs is improving operational effectiveness, not refining your strategy.

To refine your strategy, it’s useful to ask yourself a simple question: “… and where will that lead us?” We’re going to reduce our supply chain costs … and where will that lead us? That will lower our costs … and where will that lead us? That will help us appeal to price sensitive customers … and where will that lead us? Keep asking the same question repeatedly until you reach a logical conclusion. That’s likely to be your strategy.

(Other useful questions to ask are: “…and who would be interested in that?” and “… and why would they buy from us?”. Or simply: “So what?”).

According to Michael Porter, there are really only three strategies that you can pursue. Learn about them in the video.

Breathing and Profits

People often assume that making a profit is the purpose of business. But is it really?  There are many different ways to judge success. Long-term success ultimately comes from your customers’ response to your offer. If you make your customers better in some way — happier, stronger, healthier, etc. — you’ll probably be successful. If you don’t, you won’t. It’s like breathing. Find out more in the video.

Would you refuse free money? Hope for the euro.

Let’s say that you work in a department of four people. I’m your manager. Our group has done an especially good job on a major project. As a result, my boss has awarded me $10,000 to give bonuses to each of my employees.  She says to me, “Distribute it however you think is fair.”

Not wanting to make a real decision, I simply divide the pot into four equal parts and give each of you $2,500.  That seems “fair”, doesn’t it? Well, not to you. You think you did much more work and contributed much more value to the project than your three colleagues. You believe you deserve more (perhaps much more) than $2,500.

This can be a real motivational issue and a major team-building problem.  But, bottom line, would you turn down the $2,500 because you thought I was being unfair?  If you’re like most people, you’d still take the money – it enhances your situation even if you feel badly about it. It’s just practical.

What does this have to do with the euro? The argument – at least from Germany’s perspective – is between practicality and fairness. Many Germans believe that the south European countries have been irresponsible – they’ve avoided taxes, broken promises, and spent without thought for the future. (Whether this view is “fair” or not will be debated for many years).  Since the south Europeans have behaved irresponsibly, it’s “unfair” to force Germany to bail them out.

Putting fairness aside for a moment, the practical reality is that it will cost Germany more (perhaps a whole lot more) to not bail out their southern friends.  In fact, there’s a good chance that a breakup would turn into a runaway catastrophe.

So, what does Germany do? My guess is that they’ll demand concessions – to avoid the moral hazard of bailing out unreformed economies – but will ultimately steer toward a practical solution.  In other words, they’ll pay up because it’s in their best interest to do so — even if they feel badly about it. It’s practical.

 

Can you teach empathy?

In my last post, I asked about how one would go about teaching wisdom. It seems that we focus our attention on teaching skills and practical arts rather than wisdom or persuasion or (heaven forbid) the liberal arts. After posting my thoughts, I soon stumbled across an article in the New York Times titled “Can Doctors Learn Empathy?”

It turns out that even doctors can learn to be empathetic (OMG!) and can do so with as little as one hour of training. Empathy is certainly a significant component of wisdom, so perhaps we’re already on the road to teaching wisdom and, therefore, effective leadership.

Wisdom and Leadership

I just re-read a terrific 1998 Harvard Business Review article by Daniel Goleman titled, “What Makes a Leader?” Goleman argues that, while experience and IQ are important, it’s emotional intelligence that makes the crucial difference.  Managers without emotional intelligence tend to maximize only their own performance. Managers with EI tend to maximize their performance and their followers’ performance.

What struck me about the article was that the five components of EI are very similar to the five components of wisdom that we discussed back in April.  Here’s how Goleman defines the components of EI:

  • Self-awareness — knowing one’s strengths and weaknesses and their impact on others.
  • Self-regulation – controlling or redirecting disruptive emotions
  • Motivation – being driven to achieve for the sake of achievement, a passion for work and challenges
  • Empathy – considering others’ feelings, especially when making decisions
  • Social skill – managing relationships to move people in desired directions, persuasiveness, expertise in building teams

And here’s what we said about wisdom:

  • Willingness to resolve conflicts;
  • Willingness to compromise;
  • Recognition of the limits of personal knowledge;
  • Awareness that a given problem may legitimately be seen from different perspectives;
  • Understanding that things may get worse before they get better.

There’s not a complete overlap but the two lists are very similar.  My conclusion: it takes a lot of wisdom to be a good leader.  Now, the question I’d really like to understand is, how do we teach wisdom?

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