Don't Forget the Competition - A Leaders' Reminder

April 2019

By Ben Gilad

 

 

The External-Internal Divide is killing your company

Open any leadership magazine; turn to any HR blog; read any number of LinkedIn posts, all hail the doctrine of managing in a progressive, humanistic style. They focus on diversity, equal pay, internal communication, breaking silos, transforming cultures, promoting flat organizations, empowering and engaging employees, and so on. These are great concepts except for one, tiny problem: they are so much easier to deal with then pesky competitive dynamics.

 

Martin Arusalu on Unsplash

 

Competitive dynamics refers to the fact that a company’s success depends to a large degree on the interactions of other high impact players in the market. From distributors, to customers, to competitors, to regulators to suppliers to disruptors, a company’s success is never, ever a matter solely under its control.  Therefore a prerequisite to staying in business is a clear understanding of this dynamics. It is called external focus. 

The External-Internal Divide is a new concept describing the lack of balance between ‘paying attention to internal operations’ and ‘paying attention to competitive dynamics’. External focus is magnitudes more difficult than achieving greater productivity inside via better management. 

Consider the following: Sears was among the first large retailers to adopt big data analytics for its marketing. So its merchandizing was better targeted, its ads reached the right audience, its promotion was so much better calibrated. The problem, of course, was first Walmart, then Amazon and other online merchants were eating its lunch; and then its breakfast, and lastly, its dinner. Without insightful systematic external focus first, better management is useless. It corresponds to improving performance on a stationary bike: you go nowhere but you get there faster.  

The myth of execution

Some tools that purport to address this External-Internal balance, such as the Balance Score Card favored by large companies, are nothing more than more internal control tools. They have little to say about external focus. 

Companies assume that employees in “sensory units” – marketing, sales, business development or R&D - who come in contact with the external environment, are naturally paying attention to what others are doing, i.e., competitive dynamics. That ignores two factors: first, managers are overwhelmed with busy work on executing a given strategy, not strategizing themselves. Their ability to follow external developments is at best limited. Second, the interpretation of external developments is not intuitively easy. How would you interpret the fact that Tesla is worth more than the venerable German car manufacturers? Does it mean they are done, and the future automotive sector belongs to Tesla, Google, Uber and others like them?

The solution for most Fortune companies regarding this imbalance is to turn to the large consulting firms. Let the consultants determine which trends are important, which opportunities are out there that others do not see (and hopefully the consultants didn’t talk to them too), which competitors, suppliers, disruptors and regulators are breathing fire. That execution is so much harder than strategy is a prevalent belief among executives of large companies, even though failure of execution can almost always be traced back to unworkable strategy. By surrendering external focus to consultants, moreover, companies fall victim to the formulaic thinking of the large consulting firms, and lose the one element of competing strategically defined by Michael Porter as “being different.”

Learning to compete

Who teaches employees and executives to develop external focus? No one. They don’t learn it in business schools, corporate universities, or HR’s developmental programs. In my practice of running war games for large multinational companies I am often confronted with “lip service” to other players in the industry. The attitude fluctuates between superficial ignorance to envy “they can do everything better than us,” but realistic focus on high impact players in one’s markets as the determinant of ultimate performance is as rare as an HR manager who thinks strategy is more important than people. 

But strategy is more important. The best people can’t save strategy that is not a winning move against other players in your market. General Electric has transformed itself more times than a chameleon, employed an army of the most famous consultants since Jack Welch left, has been the model company for performance-driven culture for decades, and ended up having the wrong strategy on several fronts from power generation to mortgage-lending to long-term-care insurance to software. Jeff Immelt, the CEO who inherited a great company from Welch had a tendency to jump late on “hot trends”, the opposite of smart external focus. Some pundits (including his successor Flannery) blame bad execution which misses the point entirely. You can’t blame execution (internal focus, again) for lack of a winning strategy. 

HR provides lots of good development opportunities for managers but none deal directly with competitive dynamics. Even though there are tools to increase external focus, such as competitive simulations, they are rarely used as assessment tools for latent executive talent. It is assumed that those who have the “neck” for competing smartly will rise up through the ranks. They often do. The process however is probably the most expensive trial and error process in our Western corporate world.  

Instead of focusing on buzzwords, focus on listening

The natural tendency of executives is to deal with internal issues, cultural issues, leadership issues, and other buzzwords.  Time-wise, the amount of time they devote to managing is in my estimates 10X bigger than the amount of time they dedicate to the simple question of: What’s our winning move(s)? How are others going to react? How do we outsmart them? How do you answer this question at your company? 


There is anecdotal evidence that one feature of great external focus is allowing different perspectives to reach the top. At GE, famous for its “pushback” culture under Jack Welch, the pushback disappeared under Jeff Immelt. “Jeff just didn’t listen to his subordinates,” says a former finance executive. “Pushback went away under Jeff,” says a former staff member. “When the top guy is the smartest guy in the world, you’ve got a real problem.”

Pushback means debating strategic moves based on deeper appreciation of reactions and counter reactions in the market. If your management team is focused inward, it will dismiss the perspectives of other parties in the market as marginally relevant. “What’s important is what we do,” they will say, “not what others are doing. We need to focus on better execution via teamwork, collaboration and agility.”

Then come the Chinese…

The focus on western values of life-work balance, equality, diversity, respect towards the individual appeal to all of us. It doesn’t appeal to the Chinese. “There is not much weight given to individualism” says a westerner who has been working in China for several years. “..instead personal loyalty and group or organizational success are the overarching goals. The Chinese traditionally believe that inequalities amongst people are acceptable, and therefore work relationships tend to be hierarchical. Employees should not have aspirations beyond their rank, and respect for authority is paramount.”

The idea that western management style with all the latest buzzwords is superior is either childish or wishful thinking. It is not only wrong empirically but it is wrong in theory. There is no formula for market dominance that follows Jim Collins and other western gurus’ simplistic advice. As Phil Rosenzweig shows in The Halo Effect, circumstances (i.e., the competitive dynamics) dictate a lot of successes and if a company does not understand the competitive circumstances (industry economics, competitors’ differential capabilities, social trends and technological drivers, planned moves and countermoves), no amount of enlightened internal focus will help. Internal focus should always come second to finding first and foremost how to win in the market. Then companies should feel free to spend a fortune on the organizational change agents, making every employee feel valued, etc, etc. The reverse lead to these “valued” employees being on the unemployment line. Just ask Ericsson.   

If HR people do not pay attention to external focus, they may find themselves working for a Chinese company. To judge by reports from China, that’s not so much fun. 

 

Ben Gilad is Founder and President at the Academy of Competitive Intelligence and the author, with Mark Chussil, of the new book, The New Employee Manual - A No-Holds-Barred Look At Corporate Life (Entrepreneur Press, 2019).
 

 

 

 

 

 

 

Death of the Expert?

 

July 2017

 

 

 

In our previous editorial, published below, we discussed how the long-standing practice of relying on the views of experts has recently been dramatically turned on its head. But on reflection, were the outcomes really that shocking? And in the continuing tumult, caused at least in part, through the actions of people - feeling frustrated, not listened to and refusing just to go along with 'the establishment line' - having their say in a rather more authentic voice than before and perhaps being surprised at their new found influence, what are the implications for leaders – does this indeed herald the ‘Death of the Expert’?

 

Trust has Broken Down

With the rise of populist movements, one of the first casualties appears to have been the long-standing reliance on experts, be they financial analysts, politicians, pollsters or scientists. The 2017 Edelman Trust Barometer reports that the ‘trust gap’ has widened and that, increasingly, people are rejecting established authority – which is happening alongside a steep decline in trust in business, government and media. Leaders in both the public and private sectors have been challenged, not just through scandals causing individual reputational damage, but also a more systemic questioning of their suitability and ability to lead at all. This has changed attitudes towards leaders from a previously healthy scepticism to a current position of suspicion or even hostility. This has led to an increased engagement at ground level by objectors, which is strongly driven by social media.

 

 

 

To compound this decline of trust, people are more likely to believe online sources over traditional media and critically, facts matter less, hence the ‘post-fact’ culture we find ourselves in. Central to this paradigm shift, is that be that content ‘real’ or ‘fake’, people increasingly gather their information from online sources that confirm their existing opinions, so they receive a narrower set of perspectives than edited ‘old media’ tended to present and accept it without question because it aligns with and supports their own views of the world.

 

The Disconnected Expert

How has this happened? One factor is the on-going emergence of a growing disconnect between corporate leaders, experts and politicians compared to other sections of society. These groups – the ‘ruling cadre’ if you like – are often highly inter-connected and when making decisions they tend to take a macro-view and are data reliant, looking at largely impersonal quantitative information as opposed to qualitative attitudinal information.

By contrast, individuals will make decisions on a highly-localised basis, influenced by their immediate environment and shaped by personal experience. So, even though experts may be fundamentally correct, one unforeseen outcome is that their analysis may be rejected out of hand when it is seen to contradict personal experiences.

If, as suggested, experts appear to be disconnected from such ‘local think’, no wonder they are bewildered when people make decisions that appear ‘irrational’ and contrary to all the data-based evidence available – a dilemma Vincent Bryant at WBS describes as a “lack of critical reasoning”. The disconnect is not only about the quality of any particular expertise, but a failure by experts to account for the personal factors that fundamentally determine how these groups make decisions and an increased volatility in people’s views.

The Return of the Expert?

There appears to be a growing tension or cognitive dissonance amongst broad swathes of people. They seem to be looking for radical solutions albeit set in the context of the stability of the status quo. Fast news provokes a more immediate response, which is not necessarily thought through. Rational decisions are making way for emotional ones; the challenge is more complex and fundamental than proving who is ‘right’ or ‘wrong’.

Despite the complex, post-truth world we find ourselves in, evidence-based research continues to be valued and demand for independent expertise and trustworthy leadership is as high as ever. In these tumultuous times, it is vital that leaders find a way to bridge the ‘trust gap’ and ensure their voice is heard above the din. And at a time when the tumult is growing ever more intense, Ideas for Leaders continues to ‘ride the wave’ of this tumult, by ensuring our research and work is not just contemporary, but anticipatory.

 

Five Steps to Bridge the Trust Gap

 

 

Do you know if there is a trust gap in your organization? Read our new, two-minute Prompt to see how leaders can take affirmative action.

 

1. Assess and understand: ensure localised qualitative research is undertaken, rather than relying purely on quantitative surveys. If trust issues emerge, explore in detail why that is and formulate plans with the group concerned about how they can be resolved. Restoring fractured trust is not a quick or easy job.

2. Stay open to different sources of information: informal channels have an important role to play. If we receive information that challenges our assumptions or surprises us, we are likely to gain valuable insights into how other people think and what concerns and motivates them.

3. Do not assume your analysis will be trusted: present your evidence and rationale: there will always be more than one way - what are the other options? Share, discuss and test out. Can you trial different alternatives?

4. Communicate, communicate, communicate: brief, to the point communications are effective. And keep them straightforward. Never assume explaining something once means it is understood – run regular focus groups to check the key messages have got across - and been understood. Because you have said it once does not mean it has hit the mark – don’t be afraid of repetition.

5. Keep seeking feedback: Keep measuring progress and maintaining dialogue. This is a continuous process; be open with your findings. Having a published trust gap monitor can provide a great indicator of group health and maintain a clear focus on the issues.

 

 

 

 

Leading Through Tumultuous Times

 

March 2017


Many commentators, in recent years, have talked about the chaotic times in which we live. Whilst chaos may initially appear random, analysis often shows there are patterns that can be identified and a certain logic emerges behind the chaos.

A vast wave is formed from a variety of elements, such as pressure and wind speed, which combine to drive the energy and power of the wave. To the human eye, a roiling ocean may seem chaotic, but its origins are never random.

When we look back at the financial crisis, it is clear that a conservative banking sector had evolved into something that proved to be very high risk. The cause, though, was readily identifiable and journalists and commentators have since established the origins behind the crisis and measures have been taken to try to prevent a recurrence.

To navigate a course through change and help inform the way forward – business, politicians and the public at large have tended to rely on the advice of subject matter experts. These experts may sometimes get things awry, but experienced analysts and forecasters continued to be seen as highly reliable. However, and in contrast to predictions made on the eve of recent plebiscites, we have seen startling outcomes.

What makes these results particularly interesting, is that in comparison to previous electoral upsets, voters seemed to deliberately ignore the professional forecasts and the prevailing ‘establishment’s ruling consensus’. As a final twist, many experts have since questioned the validity of their own predictions.

Were these outcomes a result of unforeseen chaos? Should we have been that surprised? In Western Europe and North America, there has been a gathering sense that the model of social democracy is being challenged by a populist clamour eager to be heard. As an example of a growing rift exposed by recent events, we have the whole issue of globalisation and nationalism and still wait to see how this will play out. As part of this, fresh political and territorial disputes continue to emerge.

It’s as if we have moved beyond chaotic times – where there may be no discernible pattern, into tumultuous times.

 

If we can’t rely on experts, who do we turn to?

Like so many of us, analysts have been confounded, even bewildered, by recent events making the future harder than ever to predict. If we can no longer have confidence in expert analysis and forecasting, how do we – whether as individuals or organisations, make informed decisions and identify clear direction?

So, what does all this have to say to organisational leaders and strategy makers? Perhaps little - if we view organisations as closed systems with impermeable barriers to the environment in which they operate. However, although many top teams apparently still work on the basis of a closed system approach, the reality is that organisations are open systems, which are buffeted about in an increasingly globalised and seemingly unpredictable world. And if our world is highly turbulent and prone to unforeseen shocks, corporate leadership has no choice but to be ready to Lead through Tumultuous Times.

That is why Ideas for Leaders has chosen this topic for 2017.

Ideas for Leaders will be drawing on its vast and contemporary library of cutting edge content to inform debate and raise issues and options designed to support C-Suite members in their thinking and planning for the year ahead.

 

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