Getting The Tensions Right

strategy + business Autumn 2010 issue
strategy + business Autumn 2010 issue

“Every business faces the opposing forces of the pull for more growth against the pull for more profitability; the demand to show profit today against the need to invest in the company’s future; and the call for optimizing the whole against the tendency of individual parts to maximize their own performance. The three performance tensions — growth versus profitability, short term versus long term, and whole versus parts — provide fundamental energy that can be harnessed to deliver superior, sustainable results. ”

So writes in a remarkable new article by Ken Favaro and Saj-nicole Joni in the Autumn 2010 issue of strategy + business

Each of these tensions is archetypal in business. Growth and profitability speaks to the conflict between costs and benefits, and head and heart. The conflict between optimizing between the short-term and long-term is about competing priorities. The need to optimize the whole organization so that it is more than the sum of the parts bumps up against many core dilemmas within the firm–most especially, change versus stability or the tension between the need to integrate versus the need to adapt and grow. For more on dilemma archetypes, see our taxonomy and article on the subject.

The authors recommend that executives maintain a productive tension among the executive team–tense enough to force these key dilemmas to the surface, but trusting enough so that groups can tackle their challenges with openness and honesty. It’s well worth a read.

Weekly Reading: 10 Reasons To Leave Facebook

There’s plenty of reason for genuine concern over internet privacy. Not one of the servers that contains your personal data is completely impregnable if it is connected to the Internet (though certainly some–like your bank’s–are safer than garden variety web sites).

It’s not surprising then that Facebook has come in for tremendous criticism for its privacy policies. The company is either audacious in its vision or contemptuous of its users, or both. Each month brings news of another way the company has conceived to share your personal data widely with potential marketing partners. Clearly, Facebook management feels that the tradeoffs between security and convenience, which we described in a recent column here will work themselves out in the company’s favor. Customers won’t want to give up the convenience of having photos, birth dates and tools for communicating all in one place. The company may be right. For many users, being off Facebook would feel like exile or ostracism.

I like to think of it in terms of Maslow’s hierarchy of needs. Facebook feeds the need for love and acceptance. Privacy concerns, for most people, are theoretical at this point, stuck in the realm of morality at the top of Maslow’s pyramid. Unless sharing personal data on social media sites becomes a common threat to physical safety, a more fundamental need, it’s unlikely that it’s popularity will diminish soon. In the meantime, many pundits are finding good reasons to leave Facebook anyway. Here’s Ten Reasons to leave Facebook now.

The Best 2 x 2 Matrix Of All Time?

“What’s your favorite 2 x 2?” is a question we receive frequently. But it is by no means the only one. Readers also want to know such things as:

Why not use 3 x 3’s ? The answer is that they aren’t as helpful as 2 x 2’s for our purposes. As Stephen Covey told us, “Important questions always get reduced to two options.” A matrix with more cells may be useful for mapping the territory or analyzing decision criteria, but is too broad for crystallizing core issues.

What’s your method for analyzing dilemmas? Is there a taxonomy? The answer to that is yes, but it’s lengthy. When we wrote the book The Power of the 2 x 2 Matrix we analyzed nearly 300 2 x 2 models, looking for underlying archetypes and patterns. We’ll explore some of that methodology in a future article.

But “what’s your favorite” is still the champ. And, not surprisingly, we have a favorite, sort of. It’s the Product/Market matrix, a 45-year old workhorse that Igor Ansoff sprang on the world in 1965.

This tool is so effective because it cuts very closely to what we call the archetypal strategy dilemma—the value proposition. As we say in the book, “The visible strategic act of corporate leaders is making choices that advance the goals of the firm in the best possible way.” In the diagram, the archetypal dilemma is between Context and Value. Context is the way you go about the business—the who, where, when, and why. Value is what you produce—the what. How these issues are framed is the job of a leader.

Ansoff’s matrix is a product of the 1960s, when conglomerates were in fashion. Companies such as ITT, Litton, and TRW, owned businesses in a variety of industries. Sticking to the knitting, in Tom Peters memorable phrase, was not yet in vogue among the Fortune 500. Ansoff’s experience with diversification helped him propose a simple taxonomy of strategies. (Later strategic taxonomies, such as those of the BCG Grid, and Michael’s Porter classification of forces and strategies, are equally insightful and useful, and explore dimensions of strategy that Ansoff overlooks, including market share, financing needs and strategic advantage in the supply chain. But it is the simple utility of Ansoff’s matrix with its focus on offerings and customers that make it valuable.)

The matrix explores two key dimensions:
Product: Businesses are defined by their product and services. Modifying them is a key strategic decision.
Market: Companies are know equally by their current customers and the markets in which they are known for competing. Choosing to enter a new market is a fundamental strategic issue.

Upper left: Product Development. The reputation of a brand enables it to sell new products to existing customers. Dannon, for example, grabbed acres of shelf space in grocery stores by continually pushing out new extensions to its yogurt line (fruit on bottom, no-fat, probiotics, etc).

Lower left: Market Penetration: Selling more of the same product to existing customers. A classic orange juice campaign proclaimed “It’s not just for breakfast anymore.” The effort to get existing customers to consume larger quantities, or consume more frequently, is the essence of market penetration.

Lower right: Market development. Selling more of your current product or service is ideal when the offering is well developed and some markets are underserved. Exporting is a common market development strategy. Apple provided a great example when it expanded its iTunes software to Windows, opening its products to a much larger customer base.

Upper right: Diversification. Sometimes mordantly referred to as “the suicide quadrant” by consultants, diversification is the most costly and risky strategy. Going after new customers with a new product means that a firm must establish new relationships and simultaneously perfect a new offering, taxing its skills and resources. Ideally, firms diversify gradually into areas that are somewhat complementary. It would make more sense for a company that makes earthmovers to get into farm implements than it would to open a chain of restaurants.

In the real world firms often combine Product/Market strategies. Dell started with PCs, then expanded into monitors and other equipment (product development). At the same time, the company also began hiring consulting engineers to service top corporate accounts (market development).

Using The Matrix
The ideal time to use the matrix is at the start of a planning cycle. It offers the advantage of being a great brainstorming tool that can easily be used by any team or group of employees. It quickly spurs conversation and engagement. The matrix prioritizes the four basic investment options. Try the method below.

1. Diagnose Define the product/service area for analysis. If you have multiple products or departments, define them separately.

2. Envision Ask the following questions for each of the quadrants, beginning in the lower left. Should our offering stay the same of should it change? Should we focus on current customers or new ones?

3. Discuss Ask questions such as “How would we change the product? What else would our customers like to buy from us? What customer groups are we not reaching today? Assess the attractiveness of the options that arise from the discussion. In most instances, the option that is easiest to obtain is the right priority.

4. Design Build a clear plan of action.

Security Versus Privacy

CEOs occasionally say things they wish they could take back. Eric Schmidt of Google must have felt that way after causing a firestorm in early December when his comments about privacy came to light. When asked by reporter Maria Bartiromo of CNBC if users should be trusting Google with increasing amounts of personal data he responded, “If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.”
That’s fine advice coming from your grandmother but not from someone who may control vast amounts of private information. Security expert Bruce Schneier wrote in a 2006 essay about the inherent right to privacy. Without it, he said, “we are constantly under threat of correction, judgment, criticism, even plagiarism of our own uniqueness. We become children, fettered under watchful eyes, constantly fearful that — either now or in the uncertain future — patterns we leave behind will be brought back to implicate us.”
The current threats to our privacy are very real. Our purchases, movements, phone calls clicks, and location increasingly are documented each second of each day. If that data is used and destroyed, fine, but as storage prices plunge, it hangs around for the value it may offer banks, marketers, phone companies, the police…practically anyone. How many of us would survive having every action or offhand remark we’d ever made scrutinized? Consider that for a second and you get a feel for how life is lived in societies where privacy does not exist.
The dilemmas for individuals, governments and corporations are many, as Schmidt is now learning. In the US, privacy rights are not as controlled or explicit as in the EU. Banks, in particular, have been very successful at getting Congress to stay at arms length in defining privacy rules. This allows them to share your personal financial data with departments and partners who may use it for marketing purposes.
As consumers we’ve also been complicit in the slow loss of privacy. Both in the financial sphere, and now in the personal sphere, thanks to social media sites such as Facebook, individuals have been willing to part with personal information in return for value received. But we may be paying too high a price. Interestingly, while I was conceiving this post, a colleague—a web-savvy guy who runs a blog agency—wrote to say he was curtailing his Facebook usage due to privacy concerns.

privacyversussecurity-240In the diagram the political argument roughly takes place within the oval. The left claims that security efforts imperil privacy; the right claims privacy protections imperil security.
What’s at stake in our privacy battles? Is it a tradeoff between security and privacy, as the US government positioned it during debates of the Patriot Act? Or privacy and convenience, as the banks would have it?
And, how would we synthesize a solution in which we achieve both aims? Schneier wrote in 2006 that security versus privacy is a false choice and “the real choice is liberty versus control.”
Ideally, sensible privacy protection is combined with adequate convenience for commerce.”

privacyversusconvenience-240No matter what the cause, a society with no privacy is in a state of tyranny. Imagine this scenario: One day you wake up to discover the government has been investigating your background, going back several years, with no cause. They’ve talked to people you know, examined your transactions, and tracked your movements. You’d be justifiably upset. But this is precisely what the Googles, Facebooks, banks and telcos of the world are already doing. We should not make it sound more ominous than it is but also we should be free from oversight by Google or Facebook or anyone else, just as we should be free from government control. The principle is that privacy is important, whether we have something to hide or not.

What do you say? Is the issue Privacy versus security? Privacy versus convenience? And, how might we model this question so that better options become available to us? I’ll explore the implications of this dilemma for public trust, and for corporate strategy, in the next post.