Five Reframing Questions Every Strategy Leader Should Ask

“Five reframing questions every strategy leader should ask”
Quick: Imagine it is three to six years in the future and your proposed strategy has been unsuccessful. Why did it fail? It’s a lot easier to see what went wrong looking backwards using 20/20 hindsight. It’s likely that current company leadership has some clues that would enable it to complete the sentence, “If only we had . . .”

This is the “Pre-Mortem Question” one of five exercises in strategic review that Alex Lowy recommends in the article “Five Reframing Questions Every CEO Should Ask,” in the lastest CEO Advisory from Emerald Group Publishing. Download the article here.

Alex Lowy (alowy@sympatico.ca) teaches Critical Thinking at the Schulich Executive Education Centre and Strategy Execution at the DeGroote School of Business at McMaster University in Toronto. He is co-author of The Power of the 2 x 2 Matrix (Jossey-Bass, 2004, with Phil Hood) and Digital Capital (Harvard Business School Press, 2000, with Don Tapscott & David Ticoll). His last book, No Problem, addresses the challenges of effectively reframing business issues.

The Republican Party Power Versus Principle Problem

“I never believed in costly frontal attacks either in war or in politics, if there were a way round.” –Lloyd George

David Lloyd George, was famous for his political flexibility. He changed positions on major issues during his career and was willing to compromise with a shifting cast of political partners in order to gain strategic advantage. And, he was very successful. He was England’s Prime Minster from 1916-22 and perhaps the UK’s most influential 20th century politician.

In the battle between holding fast to principles or occasionally bending one’s beliefs in order to acquire power, you could say that Lloyd George bent. His career points to a crucial political dilemma, one that challenges all parties and candidates, and especially today’s Republicans. It’s the dilemma of power versus principle. Strong principles are a virtue but a party that cannot gain power cannot enact its principles into laws.

Voices inside and outside the Republican party are now saying it needs to be a bit more like Lloyd George. It needs to moderate its positions–or take new ones–on a wide range of issues such as women’s rights, gay marriage, immigration, guns, regulations, and budget tradeoffs. They fear that principled intransigence on these issues may alienate women, minorities, young people, and recent immigrants. They want an inclusive “big tent” party. Without those voters the party risks becoming too white, too old, too male, and too rural to lead in the future. Rand Paul recently said “I think Republicans will not win again in my lifetime for the presidency unless they become a new GOP, a new Republican Party,” during a speech in which he advocated an end to the war on drugs.

The Battle Rejoined
The tension between power and principle, and between Republican pragmatists and conservative true believers , has gone on since at least the end of World War II. Republican Presidents Eisenhower, Nixon, Ford and Bush I are generally considered more pragmatic, appealing to the middle of the political electorate. Reagan and Bush II are generally the icons of those who argue for more principled party positions and less compromise.

A political party needs principles, and a vigorous vision, but it also needs to win elections. Lloyd George avoided head-on ideological assaults on his opponents, dismaying fans of unyielding principles. But by the time his career was over, his liberal welfare state vision for Britain, as well as numerous other legislative and foreign policy initiatives, had become reality.

Fig. 1 Power versus principle.

Examining Power Versus Principle
Power: The ability to affect the course of political events or more specifically, the degree to which a party can elect enough people to make key parts of its platform into law.

Principle: The fundamental truths that serve as a political party’s foundation. The degree to which a political party (or candidate) adheres consistently to a set of inviolate principles and positions.

Upper left: Power without principle. Political parties and individuals are prone to pursuing and using power for it’s own sake, ultimately undermining their voter support and themselves. Richard Nixon took positions as an antiwar candidate in 1968, when he had zero plans for ending the conflict in Vietnam. By the end of his term in office his administration was exposed as unprincipled, and even criminal.

Lower Left: Low Principle, Low Power. Parties whose platform is unclear or that latch on to a galvanizing issue without a strong underlying philosophy may last for an election or two but will soon fade. George Wallace, who tapped into anger over racial integration in the US in the 1960s, was such a candidate.

Lower Right: High Principles, Low Power. Presidential candidates Barry Goldwater (R-1964) and George McGovern (D-1972) both suffered landslide defeats at the hands of pragmatic candidates who were seen as less extreme and more centrist in their views.

Upper Right: High Power, High Principles. Parties that win consistently do not merely reflect the midpoint of the electorate. They redefine it. They reposition the middle. This is what Reagan did in the 1980s and what Roosevelt did in the 1930s. They had great skills at working with others and sometimes compromising, but they also had a distinct vision, embedded in core principles, that drove their base of supporters. As with Lloyd George, their skill was reaching out to enough voters in the middle to gain effective power, while keeping true to a set of core principles that animated their most loyal supporters. By doing so, they reset the boundaries of the political middle for decades after they were in office.

Coda

Archetypally, power versus principle is often described as a contest between means and ends. Do the ends (power) justify the means (watering down the party’s core principles)? Conservatives such as Senator Ted Cruz (R-Texas) say no. They believe that by holding fast to principles they will succeed like Reagan rather than fail like Goldwater. Republican primary voters in the next election will provide the answer.

Want More Info?
Here are two interesting debates on this issue.
1. GOP Must Seize The Center
2. PBS commentary from David Brooks and Mark Shields

Overcoming The Capacity Constraints Of Small Business

The most venerable 2 x 2 strategy tool is the Product-Market matrix. Conceived in 1965 by Igor Ansoff it defines four archetypal growth strategies, ones that define the broad categories of options available to firms. It looks like this, and asks the question: “Should you expand by focusing on new markets or new products?”

  • (Starting in the upper left) Product development: Developing spinoff products that appeal to your existing customer base.
  • Market penetration: Selling more of what you offer to existing customers.
  • Market development: Selling more of what you currently produce to new customer groups.
  • The fourth strategy, diversification, is essentially different from the others, in that it requires a firm to create new products and appeal to new customers simultaneously. Specialized strategies for diversification include internally developing products for new markets, buying another company to enter new markets, distributing another company’s products, licensing new technologies, and allying with other companies to go to market.

The matrix is a great universal tool that always provokes fruitful discussion when it’s employed. But I think it has [at least] one drawback. In particular, because it was designed for a 1960s conglomerate, ITT, it is biased toward large companies with diverse product offerings and deep pockets.

What About Small Business?
In the entire world there are less than a thousand private firms with 50,000 employees, but tens of millions with fewer than 50 employees. These firms tend to have narrow product offerings and not very deep pockets. For them access to financial and human capital, and production capacity, is limited, sometimes severely so. Large firms with sound fundamentals can line up money for growth under most economic conditions. But when lenders talk to small firms, they frequently ask owners for personal guarantees, and keep them on a short leash. Even when money is not the main issue smaller firms typically lack the necessary skills and support staffs to place multiple bets on new opportunities. And, they lack information and knowledge assets that are crucial to growing the company. In short, they lack the financial and intellectual capital that large competitors may enjoy. As a result, when they invest in growth, their survival may be at stake. Small firms do not have the luxury of taking a portfolio approach, absorbing failures in order to find a few hit products. The question of how and where to invest is much tougher to make in this situation, as the downside risk seems greater.

Examining Constraints As Well As Opportunities
These thoughts about the product/market matrix came to mind while talking with Jim Carlson, a facilitator for The Alternative Board (TAB for short). It’s an outstanding organization that brings together groups of small business CEOs who meet monthly work on their core business issues. The CEOs function as an “alternative board” for each other. Jim, a former Hewlett-Packard marketing executive, now works with TAB boards full time, helping firms in fields ranging from retail to law, construction trades to software.

One day he said to me, “After working a few years with TAB companies I see they all have one of two problems. Either they have product capacity and need to figure out how to sell more, or they have sales capacity and need more product development and delivery capability.”

“Eureka,” I thought, “This is a new spin on an old idea.” This is similar to the Product-Market matrix, but viewed in a new way. The original focuses on the best direction for future growth, but this one looks at growth barriers, the capacity constraints small firms face.

So we discussed how to think about this new way of looking at the challenges of small business growth. Jim identified the two dimensions of the dilemma:

Sales and Channel Capacity: The sales aspect defines a firms ability to market and sell to customers. The channel aspect identifies market demand. Does a firm have the ability to market and sell more? And, is there demand waiting to be filled by its new sales initiatives?

Product Capacity: A firm’s product capacity is defined by its ability to produce and deliver. If sales expanded, could the firm produce enough to meet demand?

Consider Some Examples
1. Imagine you are a small family winery—in California there are more than a thousand of them, and competition is intense. You have good products and do a good business in your local area restaurants. And, there are select wholesalers across the country that stock your product. However, sales and product constraints are in delicate balance.
There is an old saying in the wine business though that goes “If the wife runs the tasting room and the husband is the winemaker, you can make money.” Meaning that while the winery is small, it may be able to sell out a limited production. But if it adds the overhead of professional staff and tries to grow, finances become challenging. In an industry characterized by a few very large firms and many very small ones, growth invokes all the constraints of money, people, and knowledge. Can the company maintain quality while increasing output? Can it afford to ramp up production since it will increase inventory and material costs, both in growing and bottling. Do the owners have the talent to break into new markets repeatedly, or innovate in existing ones to fuel sales?

2. A small cabinet manufacturer operates with 20 employees in a metropolitan area. Up to now the business has been supplying building contractors, architects, and designers with cabinets for high-end home and office products. The company’s founder has purchased good machinery over the years and calculates that he could double or triple his output if he had the demand.

He’s faced with the Sales and Channel Capacity problem. There is a clear need to invest in marketing and sales? But where is the capital to hire new salespeople? What kind of marketing support will they need? And, if the firm decides to invest can it stick to its current geography, selling more cabinets to existing customers? Or will they expand by perhaps selling to new customers in cities 30, 40, or 50 miles away? What impact does that have on current delivery and service costs?

3. A civil engineering firm provides structural engineering reports, environmental reports, and other services to cities and private firms in architecture and construction. The company has a small staff of highly specialized experts. And, it has the ability to sell to more clients but is challenged by the ability to produce the work. Given the cyclical nature of private construction they may not want to take on additional staff in good times. The President is sure the company needs more product capacity, but not sure of the best approach to providing that? Should she add lines that current staff can sell to existing customers? What are the financial, managerial, and other risks of taking on more staff?

We can plot businesses, and even product lines, on the graph based on the degree to which they are more constrained by sales or by production capacity.

  • Upper Left: The Salesman. This firm finds it could sell more if it could produce or acquire more product at the right price. It has established good selling programs and relationships that lead to a more or less steady flow of orders.
  • Lower Left: The Startup. Firms that are constrained in both production and sales may be actual startups, or they may be longtime small businesses that have developed neither channel or product capacity depth over time. For some small businesses this is the owner’s lifestyle choice. More sales, or more product capacity, might lead to more work and growth the owner would really prefer not to take on. But for all others, there is a need to develop both sales and capacity scenarios and strategies.
  • Lower Right: The Producer. Firms that are production constrained are challenged to consider a wide array of options. Yes, they have product capacity, but before cranking up the output they need to align it with new sales and channel capacity goals and initiatives. They must ask the key questions of the product-market matrix. Do they want to sell more of existing product to new customers? Or line extensions to existing customers? And, if the capacity exists they could also wrap more services around their existing products, potentially making each current customer more valuable.
  • Upper Right: The Star. This firm has some overhead in both channel capacity and production capacity. It has great growth prospects. Smaller firms in this position are still challenged, sometimes precipitously so. The key questions here are what are the internal competencies and management skills that will support growth along both capacity dimensions. Are the founders up to managing this process? Growth is often a proxy for capital needs in the business, but it is also a proxy for management and leadership development needs.

Obviously, firms that are strongly constrained on either the product or channel dimension need to create strategies that harmonize those capacities at a higher level of revenue and profit.

Small Company Thought Exercise
Step 1. Examine the Product/Market Matrix: Define how your company might grow in terms of Market Penetration, Market Development, and Product Development.

Step 2. Now examine the Capabilities Matrix: Which constraints do you face for each of the Product/Market Matrix strategies you chose in Step 1?

If you face sales constraints answer these questions:

  1. Have you developed the processes and tools needed to boost sales? Do you make sales a number one priority in our daily activities?
  2. Is your current market capable of buying more from you? Or do you also need to diversify offerings and the customers you target, thereby supporting the creation of more channel capacity?

If you face constraints of product and capacity answer these questions and then list the implications of each answer:

  1. Can you produce more of your existing product or service or can you expand your offerings by reselling what others produce?
  2. What products are complimentary to your existing offerings?
  3. Do you have a strategy to differentiate as you grow capacity? Can you keep costs in line?
  4. What is the latency of your product supply? For example, if you sell digital downloads you can add more capacity in seconds. But if you sell wine, your inventory pipeline might take three years to fill.
  5. If you sell some of your products through others can your distribution channel ramp up for an increased flow of product?

Leaving Oz On Rubio-Colored Slippers

The Republicans face a dilemma and it’s a big one. During the 2012 election, Obama won over Hispanic voters by better than a 70-30 margin. Though Democrats always win the majority of Hispanic voters in national elections, this was quite a comedown for Republicans from the 44 percent of Hispanics who voted for Bush in the 2004 election. After the election, consensus quickly built among party insiders and strategists that without a plan to appeal to this growing demographic, Republicans would find the White House out of reach.

“We could have won this election if the party had a better brand name with Hispanics,” said Al Cardenas, chairman of the American Conservative Union, speaking to Nicolas Riccardi of the Associated Press. “I don’t believe there’s a path to the White House in the future that doesn’t include 38 percent-40 percent Hispanic support.”

Ideas have consequences, and this meme-that the White House would soon be beyond reach-quickly found its way into Republican orthodoxy. Immediately, the party began promoting its young immigrant and non-white stars, and Republican members of Congress turned nearly 180 degrees on the immigration issue. Senator Marco Rubio of Florida proposed a comprehensive immigration bill that accomplishes much of what Democrats have sought for a decade, and he did it without much pushback from the party. It’s astonishing really, since in the spring of 2012, most of the primary candidates for the Republican nomination tried to outdo each other in how tough they could be on restricting a path to immigration, particularly for undocumented Hispanics. Rick Perry’s campaign really came apart after he told the other candidates “they didn’t have a heart” on issues related to undocumented Mexican immigrants!


Heads They Win, Tails We Lose
But coming around to reality on immigration doesn’t solve the party’s electoral woes. It’s just the start of a long and overdue rebuilding process. As a recent cartoon by the Washington Post’s Tom Toles illustrates, Republican’s lose either way in the immigration debate. [Ed. The cartoon shows a donkey and an elephant discussing an immigration bil. The donkey says “If you don’t sign, you’ll lose votes.” And, the elephant responds “If I do sign, you’ll gain votes.” ] If Republicans don’t sign a bill they lose Hispanic votes in the next election. If they do agree to allow more immigrants into the US and naturalize some of those who have resided here illegally, they may still lose because newer immigrants tend to vote Democratic.

Given all of this, what is the right strategy for the Republican party – hang in with traditional positions and values? Soften on this set of issues to “buy” Hispanic votes? Promise changes in return for support (i.e., sell the future to win the present)? The correct answer of course is none of the above. US democracy depends on there being two party options available. By available we mean able to win and capable of governing. This takes issue-leadership and broad appeal. Both parties need to be able to represent the needs of the vast majority of the country’s citizens. Rehabilitating credibility and capacity is needed – it’s overdue. This is substantial, long-term work, not a set of cosmetic touch-ups packaged and positioned by marketers. The right strategy for the party is one that respects and leverages core Republican values while simultaneously re-establishing itself as modern and open to today’s young people and immigrants. That won’t be done overnight.

The Installed Base Problem
One concept we can borrow to examine the Republican dilemma comes from the world of technology: the installed base. An installed base is the set of individuals who have adopted your product. Many products exhibit “network effects” i.e, the product becomes more valuable as more people use it. Political parties exhibit a form of this that market researchers call “social effects”: adoption by others updates or validates your self-image or opinion, and increases your social utility. In short, as a political party becomes stronger—has a larger installed base—a positive feedback loop is created. It becomes easier to pass legislation and more voters may want to identify with that party. But in technology there is a down side to having a huge installed base – with growth comes resistance to change, as long-time users become accustomed to the status quo and reject efforts to improve or update features, creating an opening for competitors.

A highly inflexible installed base hampers a political party’s ability to make timely policy changes. Before long, strength becomes weakness, and the same things that lock in a loyal core, lock out a growing majority of voters. Republicans have a strong, installed base who historically have been opposed to social changes from women’s liberation to liberalized immigration policies to gay marriage. But, like Microsoft in the ’90s when the company had to satisfy both legacy DOS users and those who wanted a faster modernization of Windows, Republicans need to hold onto current voters while reaching out to new ones. They are already taking the first tentative steps down that road, recognizing that there is no inherent conflict between Republican tenets and openness to the latest generation of immigrants. But any significant influx of new Hispanic voters will probably help Democrats in the short term.

The strategic necessity to change the party’s position on immigration becomes clear when you plot the relationship between possible legislative outcomes against changes in the historic Republican position (see diagram). If the Republicans take a hard-line position against immigration reform, they are handing elections for the foreseeable future to the Democrats, with very little prospect for gains, regardless of what happens with new immigration legislation. Ironically, the impact on the party’s fortunes appear worse if they succeed in scuttling legislation, which now appears unlikely (lower left). Only if they make the position change now can they set themselves up to gain a larger share of immigrant votes in future elections and contribute to a sense of national unity on this key issue.

Four Types Of Digital Marketers

Nearly all large firms today have developed ecommerce, digital advertising, social media, and content marketing capabilities. But there is wide variation in how effective companies are at leveraging the digital domain to make real-world profits. Now, researchers at Booz & Company have put together a great diagnostic tool for firms to evaluate their digital maturity. It appears in the article “The Four Types of Digital Marketers“* by Matthew Egol, Christopher Vollmer, and Klaus Hoelbling in the latest issue of strategy + business.

Customer Centricity 2 x 2

The perceptual map plots what the authors call customer-centricity, a term that describes the “new marketing orientation made possible by digital media.” The map describes two key aspects of customer-centricity. On the vertical axis is customer insight and analysis, measures of how well the firm knows its customers and their online behavior. The horizontal access measures platforms and capabilities, the digital technology that provides the ability to act upon customer insights to increase sales and profitability in both the online and physical world. The four evolutionary levels of digital marketers are:

Quadrant 1 Scholars: These are firms that have gathered customer information but have yet to turn their insight into profitable products and services that can be delivered via ongoing customer relationships.

Quadrant 2: Novices are still learning about digital marketing. They lack the deep technology platforms and the customer knowledge to begin integrating real world and online efforts.

Quadrant 3: Pioneers may have robust e-commerce offerings but they are not integrated well enough with customer insights. Pioneers lack some of the highly personalized features presented by sites like Amazon or the ability to turn customer interactions into information that will drive all aspects of the business.

Quadrant 4: Leaders. Companies such as Apple and Nike are creating robust end-to-end customer relationships that span both physical and retail environments as well as customer needs and experiences in daily life. Their offerings and interactions are informed by customer insight at each step of the development, sales and service process.

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*”The Four Types of Digital Marketers” by Matthew Egol, Christopher Vollmer, and Klaus Hoelbling, strategy + business, 2012.