Six Strategic Machines

We are overwhelmed with the proliferation of management, innovation and strategy frameworks in business.  Is it time to step back and generalise, creating a “stack” for business thinking?

Over the past few years working in strategic consulting I’ve become a firm believer in the benefit of thinking apparatus and tools when developing strategies for organisations.  However, most of the strategy tools we come across are in some way or another “propriety” or branded, we analyse industries with Porter’s five forces or Kim and Mauborgne’s blue ocean framework, we might look at our company’s value chain, we’ll measure performance with a Balanced Scorecard™, or look at innovation with a StageGate innovation system.

While understanding these frameworks is an incredibly important skill for the strategist (and particularly the consultant) as they are usually backed up by years of research and development and practical application through consulting, but the danger with following these frameworks is that they can encourage a  lazy way of thinking about problems and they don’t encourage strategists to develop primary problem-solving skills.

What strategists need is  a toolkit to develop strategy that doesn’t tie them into one proprietry view of their organisation.  I’ve spent a bit of time unsuccessfully looking at whether anyone out there has developed an alternative to off the shelf frameworks but I couldn’t find one.  So I propose a prototype strategy stack (in analogy to the Linux, Apache, MySQL, PHP “LAMP” stack) providing the neccessary machinery for strategists to explore strategy.  This prototype stack comprises of 6 strategic machines, namely:

  • Portfolios
  • Prisms
  • Funnels
  • Cycles
  • Networks
  • Differentials

The Six Strategic Machines

The concept is that when you are looking at a strategic problem within the environment, a corporation, or some sub-section of an organisation you can use these tools individually or in some combination to frame your thinking, explore and develop options, make decisions or develop strategy. In this way, we bypass the rote thinking that is encouraged by proprietary frameworks and develop customised tools for the problem at hand.  Bear in mind this is very much an alpha test of this idea which I’m pretty excited about developing further and I’d love some comments.

I’ll go through each of these components in a little more detail.

Portfolios

The Portfolio: Manage limited resources

One of the primary questions that strategist have to answer is deciding what an organisation is going to do with the limited resources it has at hand.  For example, a corporation will have to choose between operating a number of businesses (and/or developing new ones), developing or maintaining a number of products, and running a suite of potential internal projects.

The portfolio looks at a number of options (businesses, projects or anything) and provides a framework for systematically evaluating these options in relation to each other.  It may be a simple metric such as NPV or IRR that is used, or portfolios may be developed that compare products on multiple dimensions (BCG Matrix is an example here).  The advantage of portfolio thinking is that it encourages businesses to think objectively about multiple options simulteneously, care must obviously be taken to ensure that you are comparing like for like.

Examples. The easiest way to find the fundamental portfolios in an organisation is to look at it from different levels (macro to micro), some examples are:

  • The business portfolio – what businesses does your corporation want to be involved in.
  • The product portfolio – what products do we want to provide in each market
  • More proprietry portfolio models are the BCG Matrix and the GE/McKinsey Grid

Prisms

The Prism: Bring multiple perspectives

The prism machine looks at an issue from a number of set perspectives to improve understanding of the whole, break a problem down, force opposing views and/or deal with compromise.  The classic BCG consulting trick of breaking a problem down to a 2×2 matrix is the beginning of many useful strategic analyses, and many management  and strategy frameworks look at the world through multiple perspectives and can be classified as prisms.

Examples. Some classic prisms are:

  • The Strategy Diamond or Integrated Choices framework looks at strategic options from an arenas, differentiators, vehicles, timing and economic logic perspective
  • The Performance Prism (surprise surprise) looks at performance from a stakeholder satisfaction, stakeholder contribution, strategies, processes and capabilities perspective.
  • SWOT analysis is something of a two layer prism, looking at internal and external perspectives simulteneously with positive and negative attributes developing SWOT (strengths, weaknesses, opportunities, threats)

Funnels

The Funnel: Reduce, filter, prioritise

The funnel machine represents the reduction of some quantity, for example people, products or prospects over some other dimension usually time.  The funnel thinks about these problems in discrete stages, which may mirror some internal process, have some barriers or “gates” that need to be qualified before the quantity in the previous stage makes it to the next.  The great advantages of thinking using a funnel metaphor is that it encourages you to think systematically and process like about things which are probabilistic in nature (although be aware in radical innovation plays) and encourages you to invest in developing a funnel infrastructure that will allow you to get whatever you want out of the end (products, customers, good staff) in a consistent manner.

Examples. There are a few classic examples of how funnels can help strategic thinking:

  • The Innovation Funnel, how products are selected, weaned, developed and commercialised
  • StageGate Product Development process is a proprietry innovation funnel that looks at NPD through a series of stages
  • The marketing funnel – how opportunities are selected, developed and capitalized upon.
  • The HR recruitment process can easily be thought of as a funnel.

I’m going to save talking about three horizons models for another day.

Cycles

The Cycle: Focus on awareness, process and speed

Businesses run to a number of internal and external cycles as they operate and understanding these cycles can be the basis of excellent strategy and operations.  Certain industries (notably construction/property and retail) have strong cyclical tendencies at different time frames and entire industries turn on a cycle of creative destruction.  Internal to organisations there are a number of controllable cycles, where modelling and understanding of these cycles can improve the performance of an organisation.

Examples. some of these examples will be a little operational:

  • The cash-to-cash cycle is one example of a bunch of organisational frameworks that are incredibly important for the profitability (and liquidity) of an organisation.  The inventory cycle is another.
  • Looking at business or economic cycles as a component of competitive and strategic analysis.
  • Porters Value Chain (I’m still unsure whether to put in “process” in this framework/stack as another machine)
  • The product development cycle
  • PDCA or Deming Cycles (Plan, Do, Check, Act)
  • The OODA (observe, orient, decide, and act) loop.  Made famous by fighter pilots and scenario planners alike.

Networks

The Network: Connect, analyse and direct

Networks are one of the primary keys to understanding strategy in the modern era.  The network metaphor has always been present within organisations in the form of hierarchies, and organisations need to learn how to shift past these simple structures to drive connectivity.  Taking the tools of graph theory and network analysis (or simply a whiteboard) the network can be used to discover, design and exploit connections and gaps within organisations, systems, markets and industries and can be effectively applied to many aspects of organisations.

Examples. Some applied strategic examples of a network based framework are:

  • Stephan Lindegaard’s Three Circles for Open Innovation.  Admittedly this one could also be looked at as a combination of a network and a prism (I’ll talk more about combinations at a later date).
  • 5th Gen Innovation actually looks at the evolution of the innovation network (though from a primarily prismatic perspective).
  • Causal Mapping, or in the case of the Balanced Scorecard community, Strategy Maps are a network of associated strategies (this could be combined with the differential below).

There are people out there who know a lot more about SNA and network mapping than I do, I’d love to learn about more network based frameworks.

Differentials

The Differential: Look for and understand tension

Many business problems are associated with tension between two or more states and looking for the most appropriate way of dealing with this tension  The simplest application of the differential is in the application of a gap analysis to a particular problem, resulting in a “we are at A, what is required to get to B”.

The differential, which may be the most challenging machine to use effectively, encourages bimodal or ambidextrous thinking about problems (if someone says cognitive dissonance I may throw something at them).

Examples. Some frameworks I’ve seen which I would classify as a differential are:

  • Marty Neumeier’s Knowing, Making, Doing (here the making is the differential)
  • Gap Analysis (as above)
  • Grenier Curve (crises of growth) could be thought of as a bunch of differentials in a row.
  • Porter’s Generic Strategies (which could also be thought of as a prism, but I think the tension between the three makes it an interesting differential example)

Conclusion

I hope this proposed strategic “stack” will allow a strategist to improve how they think about strategy, make interesting conclusions and perhaps break their dependence on proprietry frameworks.  I should point out that while each of these individual components is useful by itself, they really come into their own when combined together to examine complex problems.

I’m interested in developing this idea further (on this blog hopefully) so I’ll be adding to the framework with new ideas, more elaboration and examples.

So, do you think a strategy “stack” comprising these six machines is a useful tool for thinking strategically?

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The other competitor for your app

In a world of hypercompetition, (almost) everyone is used to the art/science of competitive intelligence, but I can’t help but thinking there’s one competitor that a lot of app developers forget.  Let me explain:

I spend a lot of time looking at the massive stream of webapps being produced by today’s software entrepreneurs.  Usually, I try and focus on apps that can help you or your business work better, smarter, faster etc (gDocs, basecamp, etc).

If you’re developing apps for business, there are a lot of packages that do contact managment, project management, email newsletters, invoicing, cashflow, diagramming, everything!  So, when you decide what you’re going to build (scratch that itch!) you’re probably look at crunchbase or do some googling and come up with whatever 37signals are currently peddling or whatever.  You imagine that you can compete on features, or price, or connectivity or style, and against those guys, who knows you might be able to, but there’s one competitor you’re (probably) not thinking about, Microsoft Excel.

The unfortunate reality of the situation, is that Excel, and similar spreadsheet metaphor programs like OpenOffice Calc, Numbers (which is attractive, but kind of useless), and Google Spreadsheets have some genuine advantages that your app doesn’t, namely:

  1. They are ubiquitous – I can’t remember ever being in a situation where I didn’t have access to excel, and if not, OpenOffice is just a download away, likewise Google Spreadsheets takes about 20 seconds to set up and has all the features 99% of the population use.  What does this mean, spreadsheets (even excel at $300 a pop) is free.
  2. Everyone understands the spreadsheet metaphor – Training is expensive, and although I can pick up most applications in an hour or so you can bet that Bob down the hall who still uses Windows 95 on his home machine doesn’t give a hoot about folksonomies;
  3. Spreadsheets handle mess – your data doesn’t have to be perfect, you don’t even really have to understand what you are doing to get yourself out of trouble.  As a geek, I’m terrified by that concept, but most people aren’t geeks, they just want to achieve outcomes as fast as possible.  The other side of this is that requirements change all the time, and the infinitely customisable spreadsheet is always relevant (messiness is another reason twitter is so successful).
  4. When you know what you are doing, excel is scary powerful – there are things that I’ve done using excel that I couldn’t do with any other program short of Mathematica or another scientific program (language really), try building a gantt chart in basecamp (without an add on).
  5. Finally, businesses are heavily invested in spreadsheets – I would guess that globally there is more business rules, data, and intelligence embedded in excel files than every other technology (language and data) combined moving those items out to a webapp (if it’s possible at all) would be a massive task and IT support for cloud APIs is only just taking off (assuming the company is big enough for in-house IT, and 99% of companies aren’t);

So, basically, on top of all your webapp competitors you have the spreadsheet monster on your back.  So what do you do?  I usually thing a good thing to do is look at both what your competitors suck at, and beat it, and what your competitors are good at, mix it up with what your customers value, and go for it.  There are a few things that spreadsheets aren’t so good at, that custom apps just can’t be beaten for:

  1. collaboration – gDocs is pushing back here with multiple editors and a pretty useful form editor, but for the most part spreadsheets are used by people one at a time, and are versioned (poorly).
  2. integrity – excel is really notorious for having one bad user screw up everyone elses hard work.  Custom apps can have both complex security models, and data protection that excel can’t.
  3. interoperability – beyond mail merging, getting excel to talk to anything else takes a lot of VBA, or a lot of copy-pasting

As a first step, make sure that any webapp you develop can hit it out of the park in these three dimensions (or something else that’s awesome and remarkable).  I’m rambling a little (still getting used to blogging), so I’ll try and summarize: businesses need to see a big (and risk adjusted) benefit before investing on new systems; people go with what they know; and finally, just because someone doesn’t run MS Project (or basecamp), don’t assume they don’t have project management software.