WIN WORLD INSIGHTS | ISSUE 09 | YEAR 02

Issue 09 | Year 02 | August | 2014

In conversation with Freek Vermeulen

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This month we chatted with Freek Vermeulen, Associate Professor of Strategy and Entrepreneurship at the London Business School. He writes, consults and speaks across the world on topics such as strategies for growth, strategic innovation and making strategy happen.

His work has appeared in the most reputed academic journals, such as Administrative Science Quarterly, the Academy of Management Journal, Organization Science, and the Strategic Management Journal but also in various managerial publications such as the Harvard Business Review, Sloan Management Review, the Financial Times and the Wall Street Journal.

The theme of our conversation? Strategy, of course.

CAN WE MOVE STRATEGY FROM WORDS TO DEEDS?

CAN WE RESPOND TO SHORT-TERM PRESSURESWITHOUT JEOPARDIZING THE LONG-TERM GOALS?

IN THIS MONTH’S ISSUE WE PROVIDE YOU SOME FOOD FORTHOUGHT ON STRATEGY.

WHAT IS STRATEGY?

STRATEGY, LEADERSHIP AND THE FUTURE

Some authors point out that having a strategic thinking is one of the skills that distinguishes a leader from a manager. I surely believe that. And I consider that leaders should indeed accept the plea of being strategists.

The origin of the word strategy helps us to better grasp onto this concept. It goes back to the Greek word strategos, meaning a general or someone who had an army (stratos) to lead. The word was used for the first time in the year of 508 BC, in Athens, to describe the art of leadership used by the generals of the war council. These generals had to develop an effective leadership that allowed them to achieve their goals, which included finding the best approach to war and a way to motivate their soldiers.

Carlota’s column

Inspiring thought

Kofi Annan

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Book of the monthCREATIVITY | This Is How Vancouver Responded to London’s Anti-homeless Spikes

Accelerate:Building StrategicAgility for aFaster-Moving WorldAuthor: John P. Kotter

Post of the month

Being a strategist requires a unique set of skills. Strategists have to define and bear in mind their ultimate goal. They have to think and ponder all paths and possible choices that are available to them in order to pursue and achieve that goal. They have to dive into strategic planning and make choices. They have to be able to convey their mission to their soldiers, telling a good story based on the goals, the way and the steps to achieve those goals, involving all – as heroes – in an incredible journey to win.

Intuition, astuteness and agility are three other fundamental skills because throughout battles, leaders must remain flexible, adaptive and willing to learn - in order to face turbulence and unexpected changes in a clever, efficient and prompt way, making the best out of every circumstance.

Another tremendous ability is, of course, the capacity to balance the short term pressures with the long term efforts. In fact, a strategy is designed to achieve great long term goals but the volatility of the present context, the unexpected external factors or some surprising behaviors may affect business results, execution plans and consequently the accomplishment of the most important goals. Determination, commitment and discipline, as well as a great sensitiveness, are imperative to balance short and long term focus.

But there is more to share about strategy. As Freek Vermeulen says: “We have to be experts on our mission if we want to set a strategy and succeed.” Meaning that a strategist conducts a purpose-driven company and has a logic of continuous value creation which takes us to say that being a strategist is a challenging art but also an immensely rewarding one.

To conclude, strategy may take your company from today to where you want it to be in the future. Do you have a strategy?

Carlota Ribeiro Ferreira, CEO

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In your opinion, what is strategy?

First of all, I would say that strategy is about making choices. About a precise set of choices, deliberate choices: what are you going to do in your market, who are you going to target, and so on.

I would however say that my view of strategy also has to do with choices about how you are going to organize internally. And that's because making different choices in the market also means that you have to organize your firm differently internally and, most of all, that these different choices have to fit. You have to see a logic so that you will say "Ah! They have organized themselves internally in this way, and run certain processes in this way, because of the choices that they have made in the market."

Thus I would say strategy is composed by two elements: one, making choices; and, two, having a logic of how these choices stick together - both in the market and inside your company.

Does strategy require an emotional component or should it be strictly rational?

I definitely don't see them as two different things, in the sense that strategy should be rational. As I said, there should be a logic - why you are making your choices and why these are good choices. But I would say there has to be some emotion involved - in terms of your organization being able to rally behind these choices, having people believing in them and people working hard to make them come true.

There has to be emotion, there has to be identification with the organization and with the strategy. But I do think - and that's why I think emotion and rationality are not separate at all - people can only understand and believe in choices if they are rational, if they understand them, if they see the logic.

I see that over and over again in companies: if companies have a very clear rational and logical strategy, then people can understand it, they can share it, they can all believe in it and that is when it becomes emotional.

Companies with bad strategies always have trouble, of course, getting their people behind the strategy emotionally - simply because people don't understand it and then of course they don't believe in it. So I would say that rationality is a necessary condition to be able to evoke the necessary emotion.

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As an Associate Professor of Strategy and Entrepreneurship at London Business School, in which strategic aspects should one be focused on while aiming to launch a new venture?

The answer is almost in the question itself. Namely, the most important thing is that they should be focused. Especially in entrepreneurial ventures, I find that often entrepreneurs, in the initial stages of the process, cannot resist the temptation to do all sorts of things. And then they divert their attention by trying to do a lot of small things that don't make a bit of revenue.

So what I see entrepreneurs struggle with is actually to discipline themselves and say "Hey, we're going to focus on this. Yes, that might be a wealthy customer or that might also be an interesting product - but if we really want to become successful we have to figure out a focus and actually be very disciplined on following that focus".

Of course it might require a bit of searching and a bit of trial and error. One might end up doing slightly different things for a while, but eventually an entrepreneur should be focused on figuring out a focus.

What are the biggest competitive advantages of today’s thriving companies?

Backed up by some research, although it is certainly my personal observation and opinion, the real competitive advantage comes from people, from employees. I don't know any company who doesn't say that. Most companies say "Our most valuable resource is our people" and those types of things.

They say it but I know very few companies that actually do it. Because even when I ask executives in London Business School who is the ultimate responsibility of your company, they will all say "shareholders", occasionally someone might say "customers" but I've never heard anyone saying "it's actually employees". But I strongly believe that. And there is several research on this.

For instance, research by Alex Edmans, a colleague of mine at London Business School, shows that companies that made it unto these lists of the best employers and best companies to work for greatly outperformed the stock market in the subsequent years. This tells you two things: one, that being a very good employer actually translates in profit in the long-term; but, two, that the stock market actually underestimated the effect of being a very good employer.

I'm finishing a case study about a company called Eden McCallum - a consulting firm set up in London (although they are now also in Amsterdam and are expanding to New York). Clayton Christensen already said they are a disruptive innovation in the consulting industry. The peculiar thing about Eden McCallum is that they do not employ consultants - they only work with independent freelance consultants. But the key question that they ask themselves is "how can we attract the best independent consultants?" And they tailor themselves to each consultant. So if any of these consultants says "I only want to do strategy projects" or "I only want to do projects three days a week, eight months a year" or whatever that is, they will figure it out for them.

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Because they say their primary focus is finding the best people, they figure out how they can attract that people and they keep them happy - and then customers and profits will follow from that. And I definitely believe that that is the ultimate source of competitive advantage: being able to attract and continue to be attractive to your employees.

How should leaders better succeed with the balance of short-term pressures with long-term goals?

I think this is the key question for leadership. In fact, every CEO to whom I talk to (or at least the best CEOs to whom I talk to) probably says that that is the key question which they are responsible for: balancing long-term and short-term. Because there's always a lot of short-term pressures and everyone in the organization is focused on the wrong performance - the short-term performance -, and it is the role of a CEO and of the leadership of an organization to bear in mind the long-term.

Of course that is very problematic and usually companies struggle with that and they focus on the short-term, at the expense of the long-term. Of course it is difficult to balance these two things but there are concrete things that you can certainly do.

One, which I've seen in various companies, is to have measures or performance indicators or KPIs or whatever people want to call them - monitoring certain indicators about the long-term and monitoring them continuously to sort of bring the future to the present. For instance, you should have certain indicators about your long-term pipeline of new product innovations. What early stage product innovations do you have in the pipeline at the present? If you develop indicators like that, you can sort of bring the future to the present and you can make it concrete and manage the present so that you can have something to profit from in the future. So, to sum up, you have to think of how you can bring the future to the present.

A second one, drawn upon the work of Daniel Kahneman, is that one way to think about the long-term and about the future is indeed simply to pretend that you are in the future. That is actually quite a good exercise to do in a management team: to really imagine that you are now indeed 16 years from now and think of scenarios. So, for instance, imagine 15 years from now your company is completely dominating the market - what could happened on those 15 years that could make that work? Or, the other way: think of a scenario and imagine that 15 years from now you're struggling and you're near bankruptcy. What sort of things could have happened in those 15 years to get you there? So what Daniel Khaneman says is that you have to imagine placing yourself in the future and then think back in time. Because humans find it very difficult to think ahead, so one mental trick is to place yourself mentally in the future and then think back. Those type of exercises can sometimes help to bring a bit of the future to the present.

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Peter Drucker is usually credited for the phrase “Culture eats strategy for breakfast”. Which of these do you think is higher up on the food chain - Culture or Strategy?If you interpret strategy as strategic plans and what are you going to do in the market - which is indeed the way Peter Drucker interpreted it - I absolutely think he is right. Culture is much more influential than strategic planning.As I said earlier, with respect to your question about the emotional component, that's actually necessary. And also back to the question about what is the ultimate source of competitive advantage - having very good people - that all has to do with that element of culture. If you create a strong culture, a strong identity, emotional commitment of people, that's in a way much more valuable than strategic planning by itself.However, precisely for that reason, the way I look at strategy is that culture is very much part of strategy. Culture is of such strategic importance that if I talk about strategy, and I teach strategy or speak about strategy, I also mean culture. Because you can't have a strategy without a culture.So the question about what sort of culture do we want to have, what we don't value, what we don't want to see in our company, how we can build such a culture and so on - that is an extremely important strategic aspect and therefore a key component of strategy. So, in that sense, yes, culture eats strategic planning for breakfast but therefore I would say culture is very much part of the meal that we call strategy. It is a key component of strategy.In your point of view, how would you characterise an agile leader as opposed to a “lethargic” one?

This also relates to your question regarding short-term versus long-term. Very often we think of "agile leaders" as leaders who respond very quickly to all sorts of external developments, as things happen in the market and they easily jump on opportunities. We think of the more lethargic leaders as the ones who don't do much and don't respond to external circumstances.I want to caution a little bit against that view. For the reason that, what we know from research, especially about very turbulent markets, it's actually very dangerous to respond to everything. So actually responding to all sorts of external developments all the time can actually much harm a company. And sometimes, as a leader, you have to say "oh I am not going to respond to that" or "that development I'm going to ignore".So "agile" to me is not doing a lot while lethargic is doing very little. What agile certainly is to me is having the long-term in mind all the time and thinking about what are the really important developments that I need to respond to. And I think that's an agile leader - one that has continuously the long-term trajectory and strategy of the company in mind.And a lethargic leader is one that, well, maybe thinks about the long-term once a year at a strategy retreat, or whatever it is, but then the rest of the days it's just busy with short-term things, operational issues. And people can be very busy with everyday tasks and traveling around the world and meeting people and solving all sorts of problems. That's a lethargic leader. They keep themselves busy with short-term things.An agile leader is one that continuously has the long-term developments of the company in mind. And then weighs whether they should respond to something or not. So continuously having the long-term strategy of the company in mind when accessing different developments - that to me is an agile leader.


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WIN WORLD INSIGHTS | ISSUE 09 | YEAR 02