Patterns in Strategy

A pattern is “a reliable sample of traits, acts, tendencies, or other observable characteristics of a person, group, or institution” as well as “a discernable coherent system based on the intended interrelationship of component parts.”2 Meteorologists attempt to map weather patterns, Major League Baseball pitchers attempt to identify batters’ hitting patterns, and chess players use patterns to understand their opponents’ plan of attack. Many of the technological advances we take for granted today including magnetic resonance imaging (MRIs), speech recognition software, and DNA sequencing analysis are based on the principle of pattern recognition. Every day, we communicate using specific combinations of letters and sounds, or patterns, to get our messages across.

From a business perspective, intended and unintended patterns are all around us. An intended pattern may be the human resource department’s hiring process that creates a company comprised of a consistent type of employee with certain experience and skill sets. An unintended pattern may emerge when your sales team offers an end-of-the-year discount in a last-ditch effort to hit their numbers. The unintended aspect of this pattern is that customers now hold their orders until the fourth quarter to receive the discount, which in turn delays cash flow and lowers your profit margins.

Strategy has been characterized as . . the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals. . . .”3 This description makes practical sense as strategy is defined as how one goes about achieving their goals and objectives. The patterns of decisions your managers make regarding their strategic direction will ideally lead to the achievement of their goals and objectives. In his seminal 1971 book, The Concept of Corporate Strategy, former Harvard Business School professor Kenneth Andrews elaborates:

The pattern resulting from a series of strategic decisions will probably define the central character and image of the company. The pattern will permit the specification of particular objectives to be attained through a timed sequence of investment and implementation decisions and will govern directly the deployment or redeployment of resources to make these decisions effective.4

As strategy involves the intelligent allocation of limited resources, it’s imperative that positive patterns emerge in how those resources are allocated, and just as important, reallocated. A study of more than 200 large companies found that the reallocation of resources to faster-growing segments within a company’s portfolio of businesses was the largest single driver of revenue growth.5 Unfortunately, in many organizations the reallocation of resources generally happens only once a year, during the annual strategic planning process. Even then, how significant are the resource allocation shifts? While managers may tweak the tactics, the thoughtful redistribution of time, people, and budget from one initiative or area to another is rare. Examine your business plan from two years ago and compare it with this year’s plan. How much difference is there between the two plans? If the answer is “not much,” consider the results of another study on the effect of reallocation that demonstrates the potential size of this missed opportunity. McKinsey tracked firms’ resource allocation over a 15-year period. They found that, regardless of the industry, the firms that reallocated the most resources (on average more than 50 percent of capital) across divisions produced shareholder returns that were about 30 percent higher than those companies that reallocated the least.6

For many managers, resources stuck in dead-end projects and unproductive tactics simply stay there until the next planning process rolls around. Sometimes it’s politically dangerous to pull the plug on a lame-duck initiative, and sometimes it can be perceived that a mistake was made. No matter the cause, the strategic thinking trap of the sunk-cost effect—continuing to invest in a losing endeavor because resources have already been spent on it—can put an anvil around the effort to elevate thinking. The results can be damaging not only for companies, but also for their individual leaders. A study of CEOs with an average tenure of six years showed that those who reallocated resources the least during their first three years as CEO were much more likely to be fired in years four through six than those who reallocated more often.7

One clear indication of a lack of strategy is a random and patternless hodgepodge of decisions with no consistency in approach. Leaders who describe their strategic approach as opportunistic believe that every opportunity is considered a good one. These opportunistic leaders fail to create a disciplined pattern of focus on providing maximum value to the right type of customer. If you’ve ever felt like a bumper car bouncing randomly from one opportunity or project to the next with no real direction, then you understand the effect of a pattern-less approach to business. Advanced strategic thinkers recognize this pitfall and employ a pattern lens to their daily work. As Columbia Business School professor Rita McGrath notes, “Today’s gifted strategists examine the data, certainly, but they also use advanced pattern recognition, direct observation and the interpretation of weak signals in the environment to set broad themes.”8

Developing strong patterns of regular resource allocation should not be left to chance. As the research demonstrates, consistent patterns of productive allocation and reallocation are important barometers for long-term company and individual success. Andreas Kramvis, CEO of

Honeywell Performance Materials and Technologies, offers some practical guidelines:

To ensure that your organization is constantly reallocating resources from weak areas to promising ones, you need a systematic operating method. Most companies have a rhythm of meetings and performance reviews but spend much of their time looking in the rearview mirror: What was last month’s performance? What was last year’s performance? I believe you need to impose an operating mechanism that reallocates resources in real time and that educates your organization and instills core capabilities.9

Inherent to identifying patterns in the marketplace and within the customer and competitor arenas is the ability to understand the current business context. While most managers focus their attention using a functional (e.g., marketing) or geographic (e.g., Northeast region) perspective, there’s a need to look at the business from a holistic point of view if we’re to spot relevant patterns. As patterns develop over time, it’s important to be continually monitoring the business to detect their emergence. One method of pattern detection is to examine snapshots of the business at different points in time to identify combinations of activities or tendencies. To do so, a series of Contextual Radars can be created on a periodic basis and then examined for patterns.

Radar is a method of detecting objects and determining their positions, velocities, or other characteristics using high-frequency radio waves reflected from their surfaces. In a similar fashion, the Contextual Radar provides a visual snapshot of the four primary components of business: market, customers, competitors, and the company. At the center of the radar are any issues or activities that are at the core of changes in the business.

Figures 1.1 through 1.3 show highlights of the Contextual Radar completed for three consecutive quarters. It’s the recording and review of events within the Contextual Radar framework over time that can then be mined for patterns.

Contextual Radar—Q1

Figure 1.1 Contextual Radar—Q1

Contextual Radar—Q2

Figure 1.2 Contextual Radar—Q2

Contextual Radar—Q3

Figure 1.3 Contextual Radar—Q3

Table 1.1 Pattern Detector

Company

Market

Fourth-quarter discounts affecting sales throughout the year and conditioning customers to hold orders until that time.

Supplier consolidation reducing our profits.

Competitors

Customers

Competitor positioning at low end of the market through offerings, financing, and automation.

Competitors’ activities causing customers to aggressively seek greater levels of value.

After reviewing the series of Contextual Radars, we can then look for and record patterns using the Pattern Detector, as seen in Table 1.1.

The Pattern Detector provides a forum for transforming business insights over time into meaningful patterns. Once the patterns are detected and described, thoughtful conversation around their meaning, impact, and warrant of resource allocation can occur. Without a device such as the Pattern Detector, reactivity becomes the primary modus operandi.

 
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