All the right moves

The simpler ideas are, the higher value there is to them. It is the simplicity and clarity that amaze readers about the book All the Right Moves, which made it really hard for me to think of questions for this interview: I could find the answer in the book to any question I came up with. But finally we managed to go beyond the book and focus on other concepts that our readers are interested in.

Let me introduce Constantinos C. Markides, Professor, the Chairman of the Strategic and International Management Department at the London Business School.

– What are the signals that help managers to evaluate effectiveness of a chosen strategy? How not to miss the moment when the strategy has to be changed or adjusted?

– To assess the effectiveness of a company’s strategy, one must examine not only the company’s financial health but also its strategic health. The financial health of a company could be easily measured using the financial results. But these results are only a good indicator of a company’s past, not its future. To correctly assess a company’s future, we must go beyond financials and examine the indicators of a company’s strategic health.

Indicators of a company’s strategic health:

employee morale (as measured by employee turnover); customer satisfaction; new products in the pipeline; quality of the management team; financial results relative to the past and relative to the best competitors; distributor feedback.

Examining these indicators every 6 months or every year should give the top management team an idea as to whether the strategy is working or not. Even though nobody knows when it is the right time to change a strategy, the important thing to note is that a strategy must be continuously questioned. There is always something more that you can learn from the market and something more that you can do for customers. No strategy is perfect. Therefore, a company must strive to continuously improve its current strategy.

– How can one understand that a strategy is understood and implemented at the operational level?

– For real implementation to take place, a company must do two things:

First, it must put in place an organizational environment that supports the chosen strategy. Keep in mind that strategy has no life of its own—it is nothing more than a grand plan on a piece of paper waiting for people to put it into action. For successful implementation to take place, we must first put in place the appropriate organizational environment that would generate the day-to-day behaviours from our people that support (rather than undermine) the chosen strategy.

The organisational environment is made up of four key ingredients: the measurement and incentive systems of the firm; its culture, values and norms; its structure and processes; and its people, including their skills, mindsets and attitudes. It is the combination of these four elements that creates the firm’s organisational environment which, in turn, supports and promotes our strategy. A company that wants its strategy to be implemented properly must ask the question: “What organisational environment must I create internally to elicit the employee behaviour that will support my chosen strategy?” Without first putting in place these four elements of the organisational environment, the strategy will almost certainly fail.

I cannot emphasize this point strong enough. Company after company send their executives on courses to help them change their attitudes and behaviours, to make them more innovative or more customer-oriented or whatever. What they forget is that training does not change people’s attitudes or behaviours. People will not change what they do because we tell them to. They will only change if we put in place the right incentives and the right culture and values—in short, the right organisational environment.

The second thing that a company must do to achieve implementation of its strategy is to sell the strategy to its employees. Even the most brilliant of strategies will fail unless we actively seek and win our people’s emotional commitment to our strategy.

Emotional commitment is not the same as rational acceptance. Even if people accept at an intellectual level the logic of your strategy, it does not mean that they will do anything about it. Nor does it mean that they will change their behaviours to support the strategy. For real action to take place, you must win their minds and hearts. The physical signs that emotional commitment from employees has been achieved are passion, excitement, energy and pride. For such a dramatic change of attitude to occur, people must not only accept and agree with the strategy— they must buy into it. The question is: How?

To effectively sell your strategy, you must take your people through four distinct stages:

In the first stage, you must communicate what your strategy is in enough detail for your people to say, “Ah, I understand our strategy clearly; I know what it is all about.”

In stage two, you must explain why you have decided on this particular strategy. By the end of this stage, you want your people to be saying: “I know what the strategy is and I understand why we need it. I understand why it is important for my company and for me.” Understanding why this particular strategy was chosen is fundamentally different from simply knowing what it is.

In stage three, you need to make the strategy believable to people. You need to make them feel that the strategy is achievable so that by the end of this stage they say: “I know what the strategy is, I understand why it’s important and, you know, I think I can do this. It’s not an impossible thing.” Many tactics could be used to achieve this, but probably the best one is early victories and success. Actions speak louder than words. You can stand in front of your people and talk to them until the cows come home, but that alone won’t make a difference. At the end of the day they’ll want to see you winning something with this chosen strategy. So you have to generate a few early victories. That’s stage three.

Then, in the final stage, you really have to win your employees’ hearts so that they end up saying: “I know what the strategy is, I understand why we need it and I will personally contribute to its successful implementation.” This is emotional commitment! To achieve it, you could again use a variety of tactics but the two that always work are: make your people feel special and make them feel that they are all part of a winning team. You also need to create a feeling that you’re all in this together – we win together or we lose together.

I should add that if you really want your people to believe in your strategy, you may want to involve them in developing it. There are different degrees of involvement, but if they feel they were part of the team that put the new strategy together, it’s easier to gain their commitment.

– What was not included in the book? What issues are you going to focus on now, after this book has been published and started a life of its own?

– In “All the Right Moves”, I focused on how a company could develop a good strategy and how it can differentiate itself in the market. I emphasized the need for a company to continuously strive to become better than its competitors. But what I did not write about (and this is something that I am working on right now) is how to not only become better than your competitors but also become different from them. This is what I call strategic innovation.

Strategic innovation is the discovery of a fundamentally different way of competing in an existing industry. For example, the way Amazon competes in the book retailing business is fundamentally different from the way Barnes & Noble plays the game. Similarly, the way Charles Schwab, easyJet and Dell play the game in their respective industries is substantially different from the way their competitors such as Merrill Lynch, British Airways and HP (or IBM) play the game.

It is important to note that strategic innovators do not discover new products or services—they simply redefine what an existing product or service is and how it is provided to the customer. For example, Amazon did not discover “bookselling”—it redefined what the service is all about, what the customer gets out of it and how the service is provided to the customer. Similarly, Swatch did not discover the watch—it redefined what this product is and why the customer should buy it.

Most established companies find it difficult to think of something new or different. What they are really good at is improving (i.e. doing better) what they already do. Yet, that may not be enough. Especially in “mature” markets, strategic innovation can be a major source of tremendous growth. My new book is exploring this topic, describing how companies could strategically innovate in their markets.

– If it is possible, could you pass my last question over to your brother George, who, as you say in the preface, read all the versions of the draft and definitely did read the final one - his own printed copy: How would you formulate the main direction of this book’s development? Or, in other words, how is Costas Markides’ personal strategy expressed in this book?

– My brother George says the following: “The first draft of the book tried to identify some of the major strategic issues that companies faced at the time and provided answers to these problems. Over time, the emphasis of the book shifted from this to an exploration of the underlying principles that every successful strategy is built upon. There was an understanding that every successful strategy, (in small or big companies, national or global firms, now or 100 years ago), was built upon certain key principles. The final draft of the book explores these principles and gives advice to any company how they can build their strategy upon these principles.