How the Very Best Strategists Decide - HBR Special

This Article really hit me, I had to share it. Sorry, could not connect you with the source.

When it comes to setting strategy, which is more effective: one great thinker or a wise crowd?

To find out, I turned to my ongoing Top Pricer Tournament, in which 884 people — managers, consultants, professors, students — make pricing strategy decisions for a generic business competing against other generic businesses. The decision options available to each person work out to 14,739 possible strategies in each of three generic industries.

About half of the 884 strategies entered in each industry were chosen by two or more people; some were picked by two dozen. We’ll call these the popular strategies. The other half were chosen by only one per­son. They are the loner strategies.

If the wisdom of crowds applies to strategic thinking, popular strategies should out­perform the loners. If it doesn’t, the loners should outperform the crowd.

I ran a billion simulations and saw that the crowds’ strategies worked pretty well. In general, the more people who chose a strategy, the better the strategy performed. (The largest crowds, though, rated about average.) The simulations also showed that loner strategies usually performed below the crowds’ popular strategies.

But the strategies that performed the very best were also loners.

If you want to outperform the crowd, you’ve got to do something the crowd isn’t doing. That means learning two key skills:

To do something the crowd isn’t doing, you must think something the crowd isn’t thinking. You can generate ideas by broadening your decision frame.

No one proposes a strategy thinking it will fail, so you must be able to tell the difference between good and bad loner strategies. You can evaluate those ideas by embracing critical thinking.

Broadening the Frame

I conducted a business war game for a company in the food industry. We had teams for their business, competitors, customers, and government regulators. I asked each team to list key changes they might make over the next few years, and then I calculated the number of possible scenarios. In 15 minutes they’d identified 3.9 million scenarios. That quashed the idea that they could plan for a definitive fu­ture.

We narrow our decision-making frame when we believe we know what the future will look like. We implicitly assert that everything is locked in except for what we will do, and so we ask this simple, efficient question: “What should we do?”

Should asks people to spot and advocate the one right decision. It treats decision making as a debate. It drives toward closure. We need should, but not when we first address a decision.

We broaden our decision-making frame when we consider multiple futures, with shifts and disruptions in our environment interacting with shifts and disruptions we can introduce. We ask this illuminating question: “What could we do?”

• Could lets one idea stimulate another. It asks what if, what else, and why not. It’s energizing and educational. For example:
• Imagine it’s the future and you’re saying “I wish we’d thought about X.” What is X?
• Ask what would be the equivalent in your industry of something that’s working well in another
• Ask what you’d do if you were entrepreneurs preparing to enter your market de novo
• Ask what you’re afraid your competitors might do
• Notice your favorite metaphor for business: chess, war, making deals, doing good, enriching share­holders, satisfying customers. Switch to another.
• Apply humor — it opens up the brain. In my workshops I ask people to create as many ideas as they can to prevent a bathtub from overflowing. My favorite: Call the water company and tell them you won’t pay your bill.

Embracing Critical Thinking

A petrochemicals company planned to disrupt a century-old distribution channel. Their plan passed every internal review. My colleagues and I ran some simulations as their final check.

They quickly discovered competitors would have no choice but to emulate the disruption. 

Their loner strategy would attract a crowd. That, we calculated, meant the disruption would cause cash to gush out, not in, relative to the status quo. They abandoned the plan.

How did the plan get so far? The company didn’t have a death wish, and its strategists weren’t deficient. The problem was that their strategy development and internal reviews, like those in many companies, didn’t account for competitive dynamics.

Strategy development and internal reviews often focus on precedents, trends, and due diligence. They implicitly address “what will happen.” Unfortunately, what will happen is susceptible to cognitive and analytic biases.

Just as we broadened should with could, we can challenge “what willhappen” with “what may happen.” How?

• Role-play other parties. “If I were a key competitor or typical customer or government regulator…”
• Have people take turns as designated contrarians
• Listen for assumptions in the way a strategy is supposed to work, and ques­tion them as Murphy’s Law incarnate. What could go wrong? How badly will it hurt?
• Learn about and watch out for confirmation bias, overconfidence, survivor bias, and groupthink

Forecast your competitors’ results as well as your own. What will they do if those forecasts come true?

Beware of missing pieces in the tools you use. Financial analysis isn’t designed for nonfinancial factors such as competitive dynamics and customer loyalty. Extrapolating trend lines into the future assumes the future will look like the past.

It’s not bad, wrong, or lazy to pick a popular, crowd-approved strategy. Those strategies are good, safe bets, and there’s a reason most loner strategies are so lonely. On the other hand, you can build your skill at developing good loner strategies if you can improve your ability to think strategically. With skills, processes, and tools to generate and evaluate ideas, you can spot risks worth taking.

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Mark Chussil is the Founder and CEO of Advanced Competitive Strategies, Inc. He has conducted business war games, taught strategic thinking, and written strategy simulators for Fortune 500 companies around the world.

 compilation:  Saverio Manzo

Inflation Around the Corner? Know Your Implications.

As much as I try to, I can't seem to get away from the economist (wannabee) in me.

I picked up on the most recent release of US wage rate increases, current to Sept, 2016. See chart below.
You will notice a nice uptick thru 2016. Yes, great news for us all - this means raises on on their way.

However, the other side of the equation presents higher inflation (price increases), because when wages rise - the number #1 cost/expense to most Canadian businesses - comanies offest higher wages with increases prices on all goods and servioces.

The next stage in this process is usually higher interest rates.

So if this wage increase trend continues into Canada for the next little while, well in to 2017, expect to see higher mortgage rates coming at your local bank.

(Sorry for the eco over simplification!)

Saverio Manzo

Your Company's Business Ethics: are you doing what’s right?

Having recently been challenged by a business situation where I believe the competing party was playing “outside of the rules”, I thought to reassess my own prospective on ethics and morality, as it applies to my business.

What we learned from Business School:  Ethics Refresher

Capitalism is believed to reward ethical behavior. Unethical corporate behavior often drives away customers.

Ethics are generally defined as “Rules of conduct recognized in respect to a particular class of human actions or a particular group, culture, etc.”

Ethics are rooted in a standard of what is right and wrong, based on what society thinks people ought to do. They consider our obligation to society, what benefits society rather than the individual, and being fair to others.

Business Ethics are further defined, subjectively as:

Employer-employee relations—how you relate to your employer or employees, with fair and honest communication being the goal.

Investor relations—the relationship with those who give financial support to your business.

Customer relations—how you take care of and relate to your customers.

Vendor relations—pertaining to suppliers.

Regulatory Authorities exist to protect the public. In our case, we are a member of OCP (Ontario College of Pharmacists) and as such, much of our ethics pertains to how we treat our patients.

What’s your ethical climate?

A positive climate leads to happier, more productive employees; harassment, aggression, and discrimination generally result in a hostile work environment. There are five types of ethical climates in workplaces:

Instrumental—actions by management are taken out of self-interest, with decisions made entirely to benefit the company or managers, with little or no consideration given to employees, customers or other stakeholders. This includes outright lying for personal or corporate gain, and actions to sabotage competition. It’s considered the highest level of immoral and unethical behavior.

Caring—the company is very concerned about employee well-being and fairness, with extensive support for employees and excellent leadership. The downside of the caring environment is that there can be a tendency to overlook rules to help friends.

Law and order—there are precise codes of conduct for employees and management, and laws are adhered to strictly. Employees follow rules out of fear of repercussion. This inflexible environment tends to ignore employee issues.

Rules—the organization has internal professional codes of ethics or policies. This system can stifle creativity, with employees afraid to bend rules even slightly.

Promoting Independence—employees have a great deal of latitude, allowing them to think “outside the box” to solve problems. Employees may drift toward unethical behavior if they feel there are no ramifications.

Most organizations are a blend of two or more environments. Punishment is threatened for any excursion from written policies, sometimes regardless of the reason.

Open communication between regulatory bodies, management and employees is essential to prevent ethical problems. Employers must ensure that self-interest is not the main thrust of corporate decisions. Ideally, employers have created a self-audit system to quickly detect and fix any issues, preventing the poisoning of the work environment with damaging unethical behavior.

To prevent ethical problems in the workplace, it’s important to have clear guidelines and education regarding the ethical rules that must be followed. Managers should consider themselves important role models on ethical issues, as leadership sets the stage for what is acceptable for employee behavior.

“Herd mentality”  refers to individuals taking behavioral cues from others in the workplace. An entire organization can easily take on the culture of the people within it, particularly that of the leadership.

Different ethical points of view, referred to as “ethical theories” can influence what an individual considers ethical versus unethical in the business world:

Deontology—following the rules, no matter what.

Consequentialism—believing that the end justifies the means.

Ethical relativism—right and wrong depend on norms in one’s culture.

Moral absolutism—believing that the same standards should be applied in all situations, regardless of culture or other factors.

Virtue ethics—the individual’s character, not actions, determines morality and should be considered when making judgments.

Care ethics—people are relational beings and require care in relationships. Consider not only rules, but people’s feelings.

One can readily see that it is difficult and perhaps unfair to rely on one moral code for all. Basic morality, formed through life experiences, is not the same for everyone. Laws and regulations give better standards that can be more consistently followed, with ethics being, not a replacement for laws, but guiding principles for our lives and professional practice.

Ethical behavior in business means acting in ways that are consistent with how the business world views moral principles and values.

It’s believed that ethical problems are caused by four main factors:

Lack of integrity—not showing fairness; using intimidation, harassment or lies. Customers, co-workers and employers must be treated with the highest level of respect and honesty.

Organizational relationship problems—a clear mission, goals and objectives are needed, and individuals must keep these above personal goals.

Misleading advertising—misrepresenting a product or service in order to secure benefit personally or for the company.

Conflicts of interest—when anyone takes advantage of a business situation for personal benefit. This includes accepting bribes and gifts in exchange for influence or favours, or taking any action whose purpose or end result is personal benefit at the expense of the company or another person.

To avoid ethical problems in business, experts recommend employers create a code of behavior, establish expectations and reasonable goals, and set up a system of rewards and punishments for ethical and unethical behavior. Setting clear and attainable goals for employees will prevent them from feeling pressured to conduct unethical activities to achieve quotas.

Employees, owners and managers all benefit from having a clear understanding of the types of actions that might be considered unethical in the business world.

Reviewing ethical expectations as part of employee performance reviews will help to educate individuals in the behavior that is acceptable in the workplace before it creates a problem, and would give employees the opportunity to discuss any ethical concerns they have with management and co-workers as well. It’s a conversation that all sides would benefit from.

This post has been adopted from Jeannie Collins Beaudin

Citation: canadianhealthcarenetwork.ca,   Jeannie Collins Beaudin