Strategy means saying no? Yes? Maybe?

In his book Strategy & the Fat Smoker, David Maister says that strategy means saying “no.” In fact, that is the name of an entire chapter. He says that strategy is not just about choosing a target market but about designing an entire organization aligned to the benefits sought by this particular target market. However, as the operation becomes more and more aligned to the needs and expectations of this target market, it becomes increasingly unsuitable for other target markets, with different needs and expectations. Therefore, Maister concludes, strategy is also significantly about deciding whose business must be turned away.


Of course, this is quite similar to the “Focus Strategy” described by Porter – one of his three well-known generic competitive strategies. The other two are the “Differentiation strategy” targeted at a relatively larger (mass) market and the “Cost leadership strategy,” also targeted at the mass market. However, in the service industry, given the average professional profile (highly educated, providing a specialized service, ambitious,) the Focus strategy by and large seems relatively more attractive. I think this is because success in the Focus strategy implies “superior expertise in niche areas,” which typically sounds attractive to this profile of people, and comes with the promise of a “premium.”

However, in my experience (albeit limited) in the service industry, I perceive reality to be quite the opposite. A large number of firms aim to be, as Maister puts it, one-stop-shops for clients – If you need it and are willing to pay for it, we will do it. Maybe not do everything, but definitely provide quite a broad spectrum of services.

Now I feel that this one-stop-shop strategy is not a bad idea, for multiple reasons:

• Cost of selling to an existing client is significantly lower than finding a new client, even if he is seeking a slightly different product or service
  
• Providing new, and multiple, services to a known client may be an efficient way for a firm to learn and evolve. Attempting a new offering to a known client is definitely less risky than trying it in a new and alien environment
  
• Since no one product or service will remain relevant and attractive for too long, even for the same target market, trying out such new offerings is a prudent way to diversify, and thereby ensure sustainability of the firm
  
• Such one-stop-shop diversifications are typically not fundamentally diverse. Such cross-selling usually happens at different segments of the same value chain (e.g. Consulting leading to Technology leading to Outsourcing). Such forward and backward integrations often make prudent sense

More importantly, I feel that in the service business, where sales often happens based on long-term relationships and trust, a client may be willing to trust his trusted advisor in a relatively new area rather than bring in an “expert” and start from scratch. This is especially more likely when the trusted advisor has delivered satisfactorily on multiple, diverse domains in the past. I suppose this is a corollary of the principle that it is cheaper to sell to an existing customer – It is easier (and often cheaper) to buy from an existing vendor.

I think that is why the implicit, though obvious, strategy for many consulting firms seems to be:

• Step 1: Get a project with a new client – by hook or by crook
• Step 2: Bust posterior to deliver on the first assignment – ensure that all key recommendations necessitate more “focused, in-depth and downstream” work. Oh, and do mention the happy coincidence – “We can do all of it…”
• Step 3: Cross-sell, cross-sell, cross-sell
  

Of course, how smooth the path is from step 2 to step 3 depends on how much trust has been built with the client. This “trust,” I strongly believe, is the key differentiator between honest, sincere and dedicated firms and firms that can only “faff.”

Of course, the flip side is that soon the client may start thinking that he may take any ball and throw it in any direction and the consultant will happily run to fetch. Put in a more diplomatic fashion, the consultant may feel that he is “being taken for granted and not appreciated” and eventually, even his “premium” may be questioned.

Anyway, the fact remains that there is this elusive balance between focus and diversification (related diversification, or even strategic diversification, are acceptable corporate phrases, I hear.) There are tons of strategic frameworks available which are supposed to help firms strike this strategic balance. But you know the one I find most interesting?

“Yes, it is crap work. Yes, it is not going to add any value to us or our firm. Yes, we will hate doing it. Yes, it is an insult to our intelligence and capabilities. But hey, it will help us stick on and on with this client, and maybe someday, we will get to cross sell the real stuff to them. If we do not, the wolves just across the fence are waiting – to happily wade through this crap, all the while sniffing the meat!”

And in such situations, what is done about morale, you ask – Get into a pack and howl “We’re the best, we’re the greatest, and we’re the next best thing to baked bread.” And if you hear whisperings on the contrary? Howl louder!

I hope this does not happen to me (at least as prominently as I have expressed it). And I hope it never happens when (and if) I am in charge.

Market your weaknesses!

All organizations, including business enterprises, have their set of weaknesses. Understandably so, since organizations are congregations of people who have come together to achieve a particular objective (getting rich, being one of the popular ones,) and humans have weaknesses.

Before proceeding, one must distinguish between weaknesses and what a firm chooses not to do. A pure-play strategy consultancy may choose not to do implementation. In such a situation, “strategy implementation” cannot be considered as a weakness of the firm (In fact, it may be a competitive differentiator in a positive sense.) Weaknesses are those gaps in the firm’s repertoire which actively hinder the firm from achieving its objectives, stated or implicit. For example, if the strategy consultancy in question does not have robust financial modeling skills, it may be considered as a legitimate weakness.

Please note that in this post, I will use business organizations and individuals in business interchangeably. Basically, I am going to rely on the truism – Organizations are living
organisms (Is there such a truism?)

When an organization has weaknesses that actively impede its achievement of its objectives, it has two choices – change the objective or plug the gap. While the first choice may score higher on creativity (or desperation,) most firms attempt the second when faced with a similar situation. However, that may not be enough. While battling the weakness is important, it is equally or more important to battle the “perception of weakness” among the firm’s target market. In many businesses, especially service businesses, perceptions are often equally (or more) important than the actual product. If customers continue believing that the firm has a particular weakness, even after it has been plugged, the effort goes in vain. However, if customers perceive that the weakness has been plugged, things are most likely to improve (though it may soon be back to square one if only the perception has changed and not the product.)

In my opinion, an effective way to manage this “perception of weakness” problem is to actively market this weakness among target customers. By “market,” I do not mean sell. I mean, making the weakness an integral part of marketing pitches, conversations and collaterals. I mean actively acknowledging the perception of weakness while engaging clients, and refuting it clearly and logically if it is not true or enumerating the steps being taken to plug the gap if is true. I believe that this strategy works for multiple reasons.

Foremost, it builds trust. As any salesman who sells consistently and in a sustained manner will agree, at the core of sales (or business development, if you so prefer) is trust. In both professional and personal relationships, if the choice is between the most capable and the most trustworthy, most of us will go for the most trustworthy. Trust builds the necessary comfort, bonhomie, openness and even friendship between the client and the service provider which capability alone often fails to achieve. More importantly, a serious buyer would have done his homework and will be aware of such perceptions of weakness anyway. Ignoring such obvious perceptions or trying to brush them under the carpet will make the seller appear opaque and bearing hidden agenda and will lead to distrust. Proactively admitting and discussing such perceptions will convince the prospective client that the seller is willing to go “open book” with him.

Second, it shows that the firm is self-aware, and therefore stable and secure. Like self-aware individuals, self-aware firms actively seek out their own weaknesses and plug them and over time, emerge stronger than before. Like deluded individuals, firms which do not spend time on reflection lose stability and reliability, no matter how correct their intentions may be.

Third (though this may appear crafty), by proactively acknowledging and discussing that one (or a few) weakness, one effectively implies that it is strong in all other relevant domains. Imagine a consulting pitch with five competitors battling it out for an account. Suppose the client has articulated six factors which will drive the final selection. Typically, if it is a serious client, the homework would be solid. The client would have internally evaluated each of the five competitors on the six factors already and developed an opinion on the strengths and weaknesses of each. Harping on strengths will not serve any purpose in such a situation – it will either bore the client (if he knows it’s your strength already) or confuse him (if what you are saying contradicts what he has researched.) However, if you pin down what is popularly known as your weakness, you will immediately have his attention (it will resonate with what he has researched) and his trust (since all he was interested in was how you plan to plug that particular weakness anyway.) I strongly believe that the second approach has a stronger chance of success.

Finally, such an approach usually earns full marks for humour, since it is of the self-deprecating kind. Imagine how refreshing it will be for a client to meet a consultant who can laugh at himself, instead of the stuffy, self-important, pedigree B-school types!

I want to end this post by recounting what led me to form this opinion. I work for a small strategy consulting firm which prides itself on hiring only from IITs and IIMs (with the occasional whiz from Harvard or University of Chicago thrown in.) I went to neither IIT nor IIM (I studied in BITS, Pilani and XLRI, Jamshedpur, both of which regularly feature among the top 5-7 universities, though marginally below the IITs and IIMs.) So when I interviewed with and eventually joined my present firm, I had to face quite a few jibes (all good-natured, of course) about not having “made it” to the IITs and IIMs. Over time, I learnt that the best way to deal with these jibes is to convert it into a self-deprecating joke – “Hey guys, I’m the one who didn’t go either to IIM or IIT! Ha ha!” And it worked! Not only did the jibes die down, people started trusting me more and pushing me towards greater face-time with senior clients!

I also started using this self-deprecating brand of humour to introduce my firm to outsiders – “I work for a firm where each employee has an IIT or IIM against his name, except two – One is me (BITS, Pilani and XLRI) and the other gentleman has Harvard against his name!” Almost invariably, this introduction succeeded in conveying how “great” my company is, and by extension, how “great” I am.

Looking back, I think this tactic worked because of the following reasons:

• At the outset, it showed that I studied in two top institutions
• By inverse logic, it hinted that I must have excelled in some way beyond the ordinary. Why else would such an exception be made? (I honestly don’t know why this exception was made though!)
• It shows I am secure – I am fiercely proud of both my alma mater and I met and studied with some of the best people I have met in my life there (including my wife!)
• It showed that I was aware that I would have to stretch that much extra to match up – and such stretching would often lead me to excel
• Finally, that I have a sense of self-deprecatory humour
  

An important lesson for me, in retrospect.

Impact of "Family Bandwidth"

In the last post, I have attempted to establish the importance of "family bandwidth" in family businesses. In this post, my attempt is to discuss various consequences of mismanaging family bandwidth, as I have observed in my career. A caveat - my intention is not to comment on "family capability," at least in this post.

Individuals and families, who set up large and successful enterprises, are almost invariably highly capable, ambitious, industrious, enterprising and often ruthless people. Almost all of them are driven by some form of burning passion and vision - though not necessarily the ones articulated in their corporate websites. Such people are rarely satisfied with what they have - they usually have indomitable urges to grow their businesses (or "empires"), and often as persons. Of course, in the context of business, "growth" is often a prerequisite for survival. Therefore, except in deep recessions (when the focus is on protecting what has been built), the focus of most businesses, and especially family businesses, is on growth.

Consequently, as established in the previous post, the demand on "family bandwidth" rises. And as also discussed in the previous post, family bandwidth is often a major, if not the most critical, bottleneck in the growth of family businesses. Given the challenges in expanding family bandwidth as rapidly as today's highly dynamic business environment demands, "delegation" to "non-family professionals" often emerges as the only option.

And there lies the next challenge. Delegation necessarily demands two things - Trust and the willingness to relinquish control. Both are "tough virtues" among family businesses. I am not passing a value judgment here - "clannishness" is a very natural human (and primate!) quality.

The purpose of this post is not to discuss how this "delicate balance" between growth imperatives and developing trust / relinquishing control may be identified and established. It is to discuss certain consequences that family organizations suffer from when families attempt to deliver ambitious growth without striking this balance of trust and delegation with non-family professionals. Here is a list of what I have observed:

Working at odd hours and round the clock: Now what is wrong with a board meeting at 10 p.m., you may say? Especially in India, such behaviour may be rationalized through multiple reasons:

• The family owns the business and pays the hefty salaries, so they may call their people anytime they want
• The number of hours spent at work determines how "hard" the people are working
• Professionals, especially the highly paid types, cannot "afford" personal time
• How else will mundane professionals (who often compare signing a deal with winning a battle) feel important?
• How else will we have "corporate martyrs"? - The type whose only identity is their work life?
• The pace of growth (of position, pay and girth) in the corporate jungle is determined by how much personal and family time one has "nobly sacrificed" at the altar of their profession - It is a different matter that we Indians insist till hoarse that our social and family values are distinctly superior to the decadent west, while we are five times more likely to sacrifice our family time for professional and material gain
• So many top business leaders could not be brought together at any other time of the day
• Etc. Etc. Etc.

While we may consider ourselves to be supermen (we went to IIT / BITS / IIM / XLRI, and other assorted branded institutes, for God's sake - how can we not be supermen??!!), we cannot work productively beyond certain reasonable limits. Most Indians, in my experience, choose long hours over productivity - and we just need to pause and contemplate our national productivity statistics for a moment to understand the consequences of this choice.

Sacrificing the "important" for the "urgent": The relative importance of the "important" over the "urgent" has been eloquently discussed in myriad platforms. However, this relative importance assumes that a business leader takes on only as many "important" matters as he can fit into eight (or twelve / sixteen) hours a day, while leaving some time for those urgent matters which invariably crop up without warning. An agenda cannot be prioritized if the business leader takes up more important goals than can reasonably be fitted within his working hours (which happens when there is inadequate delegation). Often, this results in frustration and despair (for the business leader's secretary, if not the business leader himself) and the easiest response becomes simply selecting the “urgent” matters without worrying about the important. Urgent matters have a “here and now” element which can provide some semblance of comfort (and even accomplishment) while important strategic matters with deferred consequences may be easily swept under the carpet.

Lower levels of performance: All “important” strategic issues, if not dealt with on time, become “urgent” (There is a limit to how much can be swept under the carpet without forming clearly visible bumps. Urgent matters rarely allow time for meaningful action and the consequent negative results often transpire within a very short period of time and are visible to everyone. As a result, deferring the important till it becomes urgent often leads to significantly lower levels of performance, often very visibly.

Passing the buck, and consequently, lower morale: As performance suffers, a natural (though unfortunate) consequence is the search for scapegoats. This, as is known to practically everyone in corporate environments, leads people to focus on covering their posteriors rather than focusing on value creation. And as this vicious cycle gathers momentum, morale plummets.
Institutionalization of “bad practices”: The worst consequence of this vicious cycle is that it gets institutionalized. When this level is reached, meetings on Sundays are considered “business as usual.” Yes, people do attend such meetings “for the money.” But can one build institutions with mercenaries?
To be honest, most business leaders (including family business leaders) in my experience are very aware of this situation. Most of them honestly and sincerely want to correct it. But the challenge is how to correct it. Actually, that is not true. There are tomes written by experts and consultants on how to correct it. The challenge is how best these methods can be implemented. As David Maister so aptly puts it – the question is not which diet is best for the fat smoker, it is which diet will the fat smoker commit and stick to.

Family bandwidth and family businesses

In a family business, the most important and valuable resource is the family's bandwidth.

There is a limit to what an individual can do in a day, day after day. And at the end of the day, the success of an enterprise is driven by the people behind it, who take the decisions, raise and deploy resources and generally do everything that the enterprise "does." In today's business, the value of "management bandwidth" is very well recognized.

So, for successful business growth, management bandwidth needs to grow both in size and productivity. Assuming that a generally successful business employs generally capable and efficient managers, there is a limit to the growth in management productivity (through systems, processes, support staff and technology interventions). Often, the only option left to drive growth is to recruit the additional management bandwidth.

And there lies the problem in family businesses. One cannot "recruit" to expand ones family. Of course, families also grow through strategic alliances (marriage!) and organic growth (procreation!), there is often a gap of 25-30 years before any significant management bandwidth can be added in a family business. This is further complicated by the emotional ties governing the family dynamics and the capability levels of the family member in question - One cannot fire ones son as easily as one can fire a CEO. Summing up, as a family business grows, the bandwidth of the family members in the business often becomes the most scarce and valuable resource in the firm.

The situation is all the more critical in countries like India. Traditionally, business in India was (and still is) largely dominated by family businesses. In a socialist, highly regulated and corrupt environment, only those few grand families which had the necessary resources, network, enterprise and luck were able to succeed in business - the common man just had no chance. Understandably, these families zealously guarded their "competitive advantage" within themselves and soon they became the pillars of Indian industry. Their resources and capabilities were enough to deliver 2-3% growth year after year - The Hindu growth rate.

While the nature of the Indian economy is drastically different today, it is still dominated by family businesses, though the number of such families has grown significantly. I suppose the inherent risk-averseness of the Indian middle class explains the lack of professional entrepreneurs in our society (tomes have been written on this subject, so I will not discuss it.) While a band of young, ambitious and highly qualified professionals are driving the 6-8% growth in this country, the overall control over the private sector resources still remains with a relatively small number of families.

Therefore, the value and scarcity of "family bandwidth," and by extension, of "family capability," is today more critical than ever before. While there is enormous focus on the training and development of professionals, the coaching and training of "family heirs," one of the most critical resources for India Inc, often remains under the radar.

Should we be worried? In my next post, I plan to discuss a few critical challenges emerging from mismanagement of family bandwidth, that I have observed.