"If you can answer "yes" to any of these questions what you have is probably a goal, or a plan, or a collection of goals and plans, or in the worst case clichés and truisms."
Today we are talking with Peter Compo, author of the new book, The Emergent Approach to Strategy
With a doctorate in Chemical Engineering from the City College of New York, and also a musical background, he spent twenty-five years at E. I. DuPont in a wide range of leadership positions including product, marketing, supply chain, and business management, and he was the corporate lead for integrated business planning. He left the company after 25 years to work full time on developing the Emergent Approach. His mission is to help organizations achieve a new level of clarity in their strategy and to fully embrace the adaptive view of the world.
Today we shall learn about the 5 disqualifiers of strategy. To learn more read the Arkaro Insights article "Have you tested your strategy recently?" on www.arkaro.com
"If you can answer "yes" to any of these questions what you have is probably a goal, or a plan, or a collection of goals and plans, or in the worst case clichés and truisms."
Today we are talking with Peter Compo, author of the new book, The Emergent Approach to Strategy
With a doctorate in Chemical Engineering from the City College of New York, and also a musical background, he spent twenty-five years at E. I. DuPont in a wide range of leadership positions including product, marketing, supply chain, and business management, and he was the corporate lead for integrated business planning. He left the company after 25 years to work full time on developing the Emergent Approach. His mission is to help organizations achieve a new level of clarity in their strategy and to fully embrace the adaptive view of the world.
Today we shall learn about the 5 disqualifiers of strategy. To learn more read the Arkaro Insights article "Have you tested your strategy recently?" on www.arkaro.com
Unknown Speaker 0:00
Hi my name is Mark Blackwell, and welcome to the Arkaro insights podcast series, where we help business to business executives deliver better results in their organisations. In each episode, we introduce you to one of our thought partners to bring you the latest ideas for change innovation in your organisation.
Unknown Speaker 0:35
If you can answer yes to any of these questions, what you have is probably a goal or a plan or, or a collection of goals and plans, or in the worst case, cliches and truisms.
Unknown Speaker 0:54
Pete Compo is the author of the Emergent Approach to Strategy : adaptive design and execution. With a doctorate in chemical engineering from the City College of New York, and also a musical background. He spent 25 years at EI DuPonteig pond in a wide range of leadership positions, including product marketing, supply chain and business management. And he was the corporate lead for integrated business planning. He left the company after 25 years to work full time on developing the emergent approach. His mission is to help organisations achieve a new level of clarity in their strategy, and to fully embrace the adaptive view of the world. This episode, we are going to talk about five disqualifiers, the new set of tests strategy.
Unknown Speaker 1:42
Hey, welcome back, Pete.
Unknown Speaker 1:44
Good to get to be here.
Unknown Speaker 1:46
So today we're going to talk about another really important bit that comes out of your new book, the Emergent Approach to strategy. We're going to talk about the five disqualifiers of strategy, can you just help us understand what are these five disqualifiers?
Unknown Speaker 2:04
The five disqualifiers are a new set of strategy tests that require less prediction and subjectivity than most traditional tests of strategy. And they consist of five questions, and they are
Unknown Speaker 2:23
Is the opposite of the statement you're trying to test absurd?
Unknown Speaker 2:28
Does the statement include numbers or dates?
Unknown Speaker 2:31
Is the statement a duplicate of the parent organisation?
Unknown Speaker 2:35
Does the statement exclude anything or anyone in the organisation?
Unknown Speaker 2:40
And is the statement in the form of a list?
Unknown Speaker 2:43
If you can answer yes to any of these questions, what you have is probably a goal or a plan. Or, or a collection of goals and plans. Or in the worst case, cliches and truisms.
Unknown Speaker 3:02
You mentioned something about the traditional trestle strategy. Can you just tell me a bit more about what these traditional tests are?
Unknown Speaker 3:11
Absolutely many, many traditional strategy. Tests of strategy are well known. For example, the tests by McKinsey and Michael Porter is associated with some and most consulting houses have some kind of testing system, Rumelt early on, wrote some tests way back in the in the 70s, and the 80s. And one common feature of all the traditional tests is that you need a yes answer to pass. So for example, do you have sufficient resources to achieve your objectives? Or does your strategy explain what not to do? Or McKinsey's, will your strategy beat the market? So in these cases, a yes means you pass.
Unknown Speaker 4:10
Hey, that will be a great one for investing in the stock market. Wouldn't you think if you knew when you're going to beat the market? You know, that's what have I been missing all of these years?
Unknown Speaker 4:19
Well, now you fit on exactly the problem. If you knew the answer to Will my strategy beat the market, you wouldn't need to do any strategizing at all, as all you'd need to do is state what it is that will beat the market and then go do it and become rich and famous. So this is the problem with many traditional tests. They're extremely subjective, they require a huge amount of production prediction. Some are better than others. For example, Porter's question Does, does your strategy explain what not to do? And does it provide clear trade offs? These are questions that make great sense. But will your strategy beat the market? Or a question like, is your strategy contaminated by bias? Who's going to stand up in the meeting with the boss? And say, Ah, excuse me, my strategies contaminated by bias? I don't, you know, I'm all in the wrong direction. And, you know, I ought to be punished. I don't know what the hell they would say. But clearly, these tests have issues, and the five disqualifiers with their no answers to pass move well beyond the subjectivity and the amount of prediction that should many traditional tests require. I do have a figure in chapter eight, where the disqualifiers are introduced in the emergence approach, where I show which tests traditionally are better than others, and how they can be used to advantage
Unknown Speaker 5:57
Ffor the audience it'd be great if we could spend a bit of time going through each of these five in a little bit more detail. So can we start with the first? The first being one of my favourites is the opposite of the statement absurd?
Unknown Speaker 6:14
Yeah, the opposite test the opposite. disqualifier is really powerful. What it says that if you take a statement, and flip the word, or words that are trying to give guidance to its opposite, if the resulting answer is absurd. What you have is, at best, an aspiration, a goal, a vision or a mission. But if it really fails, it's more likely that what you have is a cliche or a truism, with no trade offs. And it's just the statement of the of the obvious. So take, for example, a very simplistic example maximise finance, our strategy is to maximise financial return. Well, the opposite is to minimise financial return, which is, which is clearly absurd. Even a nonprofit wouldn't want to minimise financial return. So because the opposite minimise financial return is absurd. It means that the statement maximise financial return cannot be a strategy. And in this case, it is just a worthless cliche.
Unknown Speaker 7:33
Right on right on. Indeed, there are some buzzwords to listen out for. And I'm sure we've heard many of these as we've been sitting in strategy, practice presentations, words, like optimise, drive, improve. That should ring alarm bells don't, shouldn't it I guess.
Unknown Speaker 7:52
Absolutely. And don't forget some of the more sophisticated ones, disrupt our strategy is to disrupt, which could have meaning, if you're defining disrupt as Christensen, get in with a low price, low performance products, and then work your way up could be a strategy. But how much does disrupt now just mean anything that up ends, another, another business or another, or another industry. And don't forget things like advance accelerate, or the worst of all, our strategy is to transform. These are buzzwords and the opposite test will draw them out immediately and force you to start writing something more more, more meaningful. I do have a list of these words in chapter eight, where you can go see, see the problem? We should say that, why is the opposite test true? Well, it's because if the opposite is absurd. It means that a strategy statement will not satisfy the three requirements of a strategy, that it'd be a free choice, that it supply, real time guidance, and then unify all action. I can show how it derives right from those three requirements.
Unknown Speaker 9:15
I think you're not the only one who talks about the opposite test. Didn't Roger Martin come up with something similar as well?
Unknown Speaker 9:22
Yeah, I want to I wanted to mention two other points about the opposite test. The first is that this is the one test on the list that has been used by others, especially Roger Martin, who uses a little different language. He says if the opposite is stupid on its face, but this is trying to express a very similar, similar concept. He just came up with that. I don't think well, he doesn't really have a model of strategy derivation. And he defined strategy as choices. So we come at it from a different place, but he has shown great examples of the opposite. Test. There are others Fredmund Malik in Germany puts it has it in his book. And I think people naturally use the opposite test. I give examples in the military in my book. And people just naturally know that when a statement has an absurd opposite it is. It's not saying anything, and people use it naturally, it's almost, it's almost folk wisdom. The second point I want to make about the opposite is that it can reveal subtle problems with strategy statements. And one in the book that I show is test the strategy. Our strategy is to be low cost. The you know, to have low costs. The opposite of that is have high cost, which is absurd. The opposite test therefore says that low cost is not a strategy. And this will surprise many people. But the reason is, no one would aspire to high cost, it would never be something that would be desired, it would always be absurd. So to transform the intent of low cost or the spirit of that into something that's really a strategy, you need to have something where high cost would be acceptable as a trade off for something else, for example, high performance, or something you can really sell to your customers, for example, and I'll even give the example of Henry Ford many, many years ago, his strategy wasn't low cost, it was low price to customers and high availability, and low cost had to be done as part of that.
Unknown Speaker 11:45
So thanks for that. I'm much clearer now. We'll move on to the second one, which is does the statements include numbers?
Unknown Speaker 11:53
Yes. The second test the second disqualifier says that if your strategy statement, if your prospective strategy statement that you want to test has numbers in it, it is most likely a goal, some kind of aspiration and not a strategy. So for example, our strategy is to increase ROI. By 10%, in the next two years would fail it is clearly a goal.
Unknown Speaker 12:26
If I can remember something from the last time, it doesn't hit the basic requirements, the strategy, the first requirement of free choice because trials we might not have expected of us we cannot hit the number just by wanting to it's not within our control.
Unknown Speaker 12:42
Absolutely. If it were a free choice to achieve 10% ROI improvement in the next two years, well, why not pick 50% Why not? Pick 500% In one year, or one month, you know, of course it gets silly. No future event is a is a free choice. It also gives very little real time guidance. So what does that mean? I do day to day to increase my ROI by 50%. And the reason why we need the numbers disqualifier is because there's a there's a loophole in the opposite disqualifier. And that is that there is no such thing as an opposite of a number. So for so if we say the opposite of 10%, ROI improvement, there is no opposite. And therefore, the opposite. disqualifier wouldn't catch it, even though it usually catches goals that are masquerading as strategies. So we need to we need the numbers to plug this loophole in the opposite test.
Unknown Speaker 13:55
Okay, that's good. That makes sense. But I think I've got an exception. So let me just try something with you and see how it goes. We've got a business. And it's got an overloaded customer services department. So he comes up with a strategy having identified to overcome the bottleneck of a constraint Customer Services Department. Do not seek new customers with an estimated revenue of less than a quarter of a million dollars per year. This address is upon me, it's a tough choice, because there's a trade off, you're gonna probably lose some new business. But surely you need a number to help define the strategy rule.
Unknown Speaker 14:36
You're absolutely right. And what you've identified is the exception to the numbers test. In that if the number is a set point, what I call a set point versus a goal. It can be a valid rule, it can be a valid strategy rule and the example you gave is a perfect one you can know in real time, whether or not you are engaging with customers more or less of with, with less or more $250,000 revenue. It also gives real time guidance, you can know now whether or not whether you're not doing it. The issue with Set Point statements to look out for is that usually they will be tactical in nature, your example might be a strategy, because if that was the real bottleneck, if you were really addressing the overall bottleneck in that business, it could be a strategy, I just think often, strategy statements with numbers in them are tactical in in, in nature, meaning they apply to a smaller scope of the entire business or function. This applies to any function it R&D Doesn't matter.
Unknown Speaker 15:59
So the next one is, is the statement a duplicate of the parent organisation? Can you help me understand what that one's about?
Unknown Speaker 16:07
Yes. So just as background, what do we mean by parents and child organisations? The this comes from the concept of nested systems. And that's the term I use to describe the nesting of any larger organisation that has different functions within it. So in the kind of the classic sense, you've got a corporation with many business units, each of those business units is nested under the corporation, and there's a corporate strategy, and then nested strategies underneath of each of the business units. And then you have functional strategies nested under the corporation or the business, it R&D, HR, whatever, the whole concept of nested strategies is a very familiar one, the difference in the emergence approach is how the, the, how we describe the interaction between the various structures in the organisation, and the the same as the parent test. disqualifier captures that, if a, for example, a business unit says that their strategy is the same as the corporate strategy, it's not adding any information, because the corporate strategy is in fact, a constraint on the business unit not to be violated. There, therefore, just repeating it is a truism and adds no information and is not a valid strategy. The business unit needs to have a strategy that addresses their bottleneck to achieving that corporate constraint.
Unknown Speaker 17:59
I think in this regard, you've got something to say about a certain list of Jack Welch and his strategy of being number one or number two.
Unknown Speaker 18:07
Well, it's it's kind of fun to go back to the the Jack Welch example, what did he said, I, I want, I want every business in my company to be either number one or two. Now, let's put off for a minute whether or not that is a strategy statement that he put on, or whether it is just a goal, we can talk about that. However, if business unit X, I don't know, the railroad engines are the or the medical products division, or the or the jet engine says Our strategy is to be number one or number two, in our industry, it is not a strategy. Even if it were on its own a strategy. Because it's not adding new information. It's just repeating what's already a constraint on that business unit leader. For them to have a strategy, they would need to discover what's limiting them to achieving being number one or number two, in their industry. And, and it would depend on what's the bottleneck for them to do that. So maybe if, in one case, a strategy there might be become aggressive with pricing, coupled with heavy resources on streamlining the supply chain, for instance, doesn't matter. But the point is that the disqualifier the same as the parent the same as the parent, the duplicate of the parent says any statement that's in the child framework that's identical in the parent framework, you've added no information and you don't have it. It's not a strategy. And this applies for it as well or any other group as well if the head of it of a car company says Our strategy is to only use XYZ techniques. And then you look at the business unit it group and they say our strategy is only to use XY techniques. It's not a strategy. Because it's a constraint imposed on that IT group s strategy must be a free choice. It's not a free choice.
Unknown Speaker 20:20
So the fourth one is, does the statement exclude anything or anyone in the organisation? It sounds a bit obvious, but I think probably a bit more to it than it first appears.
Unknown Speaker 20:32
I guess, I think this is one where it's obvious, in principle, that if you went to somebody and said, Does your strategy, omit some of your assets and omit some of your people and organisations, they'd look at you like you were, you know, an idiot and say, Well, of course it doesn't. But when you actually get down to it, I think it's easy to violate. And the example that I think, is easy is good to illustrate this as when you think about products in a business, or corporation. Where there are businesses and product lines in dramatically different places in the product lifecycle. So you have brand new stuff that's just taking off. And it's, you know, you have all high expectations, and you're putting lots of money into improving it. And then you have mature, perhaps cash cow businesses that you're just using to generate cash. Now, what if you say your strategy is to do product performance improvement, you know, market back product performance improvement? Well, this strategy might apply to a lot of the products, but it certainly wouldn't apply to the cash cow products. Yet, I think it would be very easy for a leader to say our strategy is customer focused, product improvement, product performance improvement. So I think this is a subtle one that really requires a diagnosis, and soul searching as to whether the strategy truly does run the gamut of the whole business. And the solution would be a nested system, where you have a strategy for the cash cows, and you have a strategy for the early market, lifecycle market products. And then an overall corporate strategy above that, that links the two, for example, something about how the cash is going to be used for the early stage products.
Unknown Speaker 22:53
But this is a different issue. We're talking about the new one in the last podcast where we saw the the, the idea that people looking for their name on the chart, and strategies can grow into long lists as they try to cover every function, every item, what you're trying to get across here is not that concept, but something different. Right?
Unknown Speaker 23:15
That's, that's really excellent point. Because this is part, the diversity of needs of a product line, for example, of is what leads to is well, let's say one of the many things that leads to strategy as long lists of sub goals, we're going to generate cash, we're going to generate cash in our, in our commodity businesses, and we're going to use that cash here. And we're going to in this business, we're going to improve ROI. And in this business, we're going to improve quality. And in this business, we're going to, and so on, and so on, everything's covered, every lifecycle portion is covered. It feels great. And it's not a strategy, as we're going to talk about in a minute. But even a more sophisticated strategy statement can fail this, for example, would have been the, the example we've been talking about the business, the corporates comes up with the strategy. We're going to outsource manufacturing, and then stead put our resources into product performance improvement. That's a that's, that's a meaningful strategy statement. I don't you know, to know whether it's a good one, you have to really know the business, but that that holds water, but not one. It holds water with the opposite test and the opposite disqualifier and numbers. What it doesn't hold water for is that it would not apply to the true cash cow businesses, even though it is a very meaningful statement.
Unknown Speaker 24:55
So it's with care. So I think you know, the conversation is moving on to the last one and it's we're circling quite well here is the statement or list as the final disqualifier. So, do you have anything to say you'd like to add that we haven't said already?
Unknown Speaker 25:11
Yes, well, first thing I want to say is the opposite. disqualifier may be the most wonderful of the five, and the most generally applicable. But the list disqualifiers not far behind. If they're in only the rarest of occasions, occasions, will a strategy be a list a list of choices, a list of good things to do. I've we've all seen the paper that says a list of goals is not a strategy, Roger Martin talks about a list of laudable goals or laudable statements. Everybody knows these aren't strategies. And yet, almost every strategy I've ever seen is a list of something instead of a statement, and a list usually doesn't unify, because the statements aren't necessarily consistent as a whole. If, in fact, a list is very consistent with itself, the r&d aspects, the manufacturing aspects, the choice of channel, and product, and customer, and region are all very consistent. The list wouldn't be the strategy, the strategy would be the rule, the high level rule, the central rule, the policy that made all those things consistent.
Unknown Speaker 26:42
I think that's worth emphasising Pete, because it's an area where, you know, I can see opportunity to confusion, and maybe we can just connect a couple of ideas that we said the last few minutes. So you're the Product Line Manager, Global Product Line Manager. And as you say, I've got different groups of products. Some of them are old, some of them new, some of them are about to hit the market, and working in different geographic markets. In all of these markets, I've got different needs based segments of customers. And so I've got different tools to him in terms of price, service, product availability. And I put all of these together in a policy table something which is a very powerful tool in your book, to manage these multicomponent choices, right? And I feel that's my product line strategy that as defined in that policy table. Isn't this a basically a list in disguise?
Unknown Speaker 27:42
This is a list. And that's why a policy table that outlines things like how are we going to handle product proliferation with different customer segments? How are we going to handle things like expediting for customer segments? How are we going to handle new development for customers are customising products for them, or investing in facilities for them? People are familiar with the idea of a policy table. And these are tables of tactics. And there can be many tactics, but they are not strategies. They are tactical rules that need an overall strategy to make them consistent. How would you be able to create a manufacturing strategy? How would manufacturing know what to work on? If there wasn't some overarching strategy for the business that explains what they should work on? That's consistent with what marketing's working on our product development, our sales and whatever.
Unknown Speaker 28:51
And along with every strategy, there must be a bottleneck, you know, but you know, and that's why it's keep coming back to this point, which I think really helps differentiate your thinking. It's so closely connected with the Theory of Constraints, that if you don't have a, if you don't identify the bottleneck, you can't have a strategy. And if the bottleneck changes, or you diagnose the bottleneck to be different than ergo, the strategy must change
Unknown Speaker 29:19
that is right on. And yes, it is aligned with Goldratt's theory of constraints and that, and his work did not just apply to factories, but he might have begun it with factories and supply chains. Of course. His argument was that unless you d bottleneck the number one limiting factor, it doesn't matter what you do elsewhere to throughput or to quality of, of the of the factory. And the same goes for any aspect of a business or any any organisation. Why shouldn't it be the same unless you are changing the limiting factor?