Finding the opportunity to say ‘no’
[Editor’s Note: This article is part of a series on what causes a firm’s value to increase.]
One of the best chief executive officers I have been honored to work for was Clarke Johnson, then CEO of McGregor Sports. He told me while discussing strategy in 1990 that the hardest part of his job was to tell his people “no.” I was perplexed and asked for more insight. That insight and those of others are the topic of this article.
Once your firm’s strategy is formulated and you have started implementing it using your plan as a roadmap perhaps the hardest part takes over. This involves guiding and shepherding the strategy through all the stuff that hits your inbox every day, all the hair-brained ideas that come up at the Monday morning staff meetings, all the things your peers tell you that you ought to be doing. Add to this mix the advice from your legal counsel, your board of directors, your bankers and maybe even your spouse, and you can understand what I am trying to say. There are myriad forces everywhere, which try to divert you from your formulated strategy.
Why would Johnson say what he did?
My reasoning is the achievement orientation of work in the United States. We are raised by and large to be go-getters and to strive for higher benchmarks. Everyone wants to improve individually and be rewarded for it, no matter how much of a team player they are. And if a firm is good at new opportunity recognition, ideas bubble up everywhere. So there are lots of opportunities to “say no.”
But the established firm makes its bets via its current strategic plan and then it must work those bets to reap near term returns. Everyone understands that cash flow is the lifeblood of a company. However, unless a CEO and his or her top management team constantly monitor and guide the strategy, it has a huge chance of being diverted by many incremental projects that seem good on the face of it but can actually cause the firm harm, or at least headaches.
“Wait a minute,” you might say if you have been a reader of this column. “Last year you wrote about innovation and how firms that stick with their current strategies for too long and are not innovating have a huge chance of failing outright or merging out of existence.” True, I did write that. In fact, I used Whirlpool’s Gladiator Garage Works as an example of “good” innovation. But the truth is, the very powerful brand managers at Whirlpool found this a nuisance. The innovation team found that the garage was usually just a door away from Whirlpool’s bread and butter – the laundry room. What seemed like a no-brainer extension did not fit into the painstakingly crafted brand messages of Whirlpool’s key brands. Gladiator Garage Works was launched and it is successful, but only after some churn and gnashing of teeth.
Thus there is a huge balancing act of getting return on invested capital from your current strategy and roadmap versus milking the current strategy and roadmap too long and not changing by innovating versus changing too frequently via some form of innovation. In my experience, the balance is never perfect. Emphasis will sway to one side before it becomes apparent something is out of balance. But what if there was a way to have a good balance most of the time?
This is the stuff of the leadership of strategy, and it is not talked or written about very much. This in my view is why good CEOs are worth every penny the board has agreed to pay them – they know how to manage this balancing act through time.
So what is a way to achieve good balance most of the time? In my experience and backed by some practical academic research, a bold approach is something like this:
Make an indisputable policy that you will obsolete your products and/ or services before your competitors do this for you. WL Gore Company has the policy that 30 percent of its annual revenue must come from new products and services introduced that year. An innovation process that has a lot in the pipeline is required for this.
Instead of unbridled innovation, put a “governor” on your innovation by requiring agreement among brand managers (or marketing managers if you do not have brand managers) on new innovation projects that will go into the pipeline.
Measure the cash flow from each current product and service if you can. The first time cash flow falls by x percent (you set this policy) from the previous year, either fix the cash flow issue within three months or announce that product or service will be discontinued. Sometimes having a commitment to spare parts or something like spare parts prevents this, but it can be done most of the time.
This bold solution requires leadership and is not for every firm. But it is one approach to the balancing act discussed in this article that works if there is the discipline to stick with it.
Next Up: The Strategy of Multiple Business Units in One Company
Bill Bigler is Director of MBA Programs and associate professor of strategy at LSU Shreveport. He spent 25 in the strategy consulting industry before returning to academia full time at LSUS. He is the immediate past president of the board of directors of the Association for Strategic Planning, one of the leading professional associations in the field of strategy. He can be reached at bbigler@lsus.edu
