Richard Veryard

Co-Production of Strategy and Execution

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#antifragile In my post
Structure Follows Strategy?, I discussed the reciprocal relationship between strategy and structure, and discussed my friend Patrick Hoverstadt’s mission to connect enterprise architects with the strategy processes in an enterprise.

My thoughts about strategy are influenced by Mintzberg, who
sees strategy formulation as an emergent process of trial and error that
takes place during implementation. A company may start with a
broad-brush deliberate strategy, but this strategy often overlooks some
significant issues and risks.

These weaknesses need to be addressed as
part of the execution of the strategy. Thus a more complete and correct
strategy emerges out of the execution process.

Senior
management sometimes take a long time to recognize and acknowledge the
fact that the defacto (emergent) strategy is now better than the
original (deliberate) strategy.
And in some companies the original strategy is so bad, and the
senior management so pig-headed, that there is little chance of a more
sensible strategy emerging.

In order to see strategy and execution as co-evolving, we need to link both strategy and execution to outcomes. If the outcomes turn out unsatisfactory, it is surely a subjective
judgement whether this is blamed on weak strategy or weak execution. And if the overall outcomes turn out to be satisfactory then we may suppose that any weakness in strategy was compensated by excellent execution, and any weakness in execution was compensated by brilliant strategy.

This of course depends on our notion of excellence. Some people might think that perfect execution means doing exactly what it says in the strategy, no more or less. Alternatively, we might define excellence in terms of achieving the best possible outcomes, thus excellent execution may need to depart from the official strategy if that’s what it takes.

Which brings me to Nassim Nicholas Taleb’s notion of antifragility. If fragility means that something is harmed when bad things happen, antifragility means that something becomes better or stronger when bad things happen.

So let me try to apply this notion to the current discussion. A fragile strategy is one that would fail if there are any deviations in execution. A robust strategy is one that would be unaffected by the quality of the execution. And an antifragile strategy is one that would grow better with deviations in execution.

 

Partly based on my contributions to a Linked-In discussion I wonder what the EA team is doing? (One person has deleted his contributions, so the discussion as a whole no longer makes much sense.) See also Fragile Strategy or Fragile Execution? via Storify.

Carole Cadwalladr, Nassim Taleb: my rules for life (The Observer, 24 Nov 2012)

John Crace, Antifragile by Nassim Nicholas Taleb – digested read (The Guardian, 2 Dec 2012)

Showrooming in the Knowledge Economy

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In the knowledge economy, service providers often give away selected portions of their intellectual property, in the form of webinars, white papers, blogposts, free downloads or whatever. They then hope to generate revenue from other products and servi…

Showrooming and Multi-sided Markets

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As a retail phenomenon, #showrooming exposes a conflict of interest between online and traditional retailers. Many shoppers will examine a product in a traditional store, and then buy it from an online retailer or discount warehouse. The first retailer incurs costs – including cashflow, wear and tear on the product, as well as unproductive use of staff time and knowledge – while the second retailer takes the revenue.

To complete the story, there may be another class of customer, who is happy to buy the
ex-demonstration product from the first retailer at a discounted price. Thus there are five
distinct roles in this game: the product supplier, the first and second
retailer, the first and second customer. (In addition, if the customers are using their mobile phones in the stores, we should add the players in the mobile ecosystem.)

The earliest manifestation of this I can remember was buying records. You could listen to an LP in the record store, and then get a pristine copy (without the shop assistant’s fingerprints) by mail order from a company appropriately called “Virgin”.

Many retailers believe they lose out from this phenomenon, and some have attempted to prevent it. (Ever wondered why you don’t get a good cellphone signal inside a large store?) Earlier this year, both Target and Wal-Mart decided to stop stocking Amazon devices, although continuing to stock Apple devices. More recently, Wal-Mart has changed its position, and now claims to embrace showrooming.

By singling out Amazon, Target and Wal-Mart were making it clear that it is Amazon’s role as a retailer that they regard as a competitive threat. Although Apple also sells its devices online, it is presumably not regarded as an equivalent threat. In which case, banning Amazon products looks like a gesture of despair rather than an effective tactic.

Thinking of this as a multi-sided market prompts us to look at the direct and indirect flows of value between the players. It is as if the first retailer is providing an unpaid “service” to the second retailer, and the first customer is providing an unpaid “service” to the second customer. At present these are not genuine services, but it is possible to conceive of an ecosystem in which the product supplier or second retailer paid some form of commission to the first retailer. For all I know, that may already happen in some sectors.

Wal-Mart hopes to control showrooming by encouraging its customers to use its own mobile app, which attempts to steer customers towards its own online store. I wonder how many customers will accept this control, and how many will take the trouble to resist it.

Some large High Street retailers seem to have given up the idea of stocking goods: if you like something on display, you can order it. This has long been true for large furniture items such as beds, but is becoming more common for smaller items, as Simon Heffer complains.

Meanwhile, showrooming can work both ways. Last week I ordered a book from my local bookshop, having previously looked it up on Amazon. It was 5pm Friday when I placed the order, and they phoned me at 11am on Saturday to tell me it had arrived. (If I’d ordered it from Amazon, paying extra for 48 hour delivery, when would it have arrived? Monday, Tuesday?) So that’s showrooming in reverse.

Finally, instead of selling individual products, the showroom itself can become the experience. @KBlazeCarlson sees IKEA as a prime example, and quotes Alan Penn, professor of Architectural and Urban Computing at UCL, describing the IKEA experience as “psychologically disruptive”. “Part of their strategy is to take you past everything,” he says. “They get you to buy stuff you really hadn’t intended on. And
that, I think, is quite a trick.”

Chris Petersen adds, “Instead of product centric merchandising, IKEA’s showroom is perhaps the ultimate place merchandising, where the consumer solution is focused on the most personalized dimension – the consumer’s own lifestyle and living space.” Whether IKEA can replicate this experience online in the virtual world, as suggested in Patrick Nelson’s piece, is another matter.

Kathryn Blaze Carlson, Enter the maze: Ikea, Costco, other retailers know how to get you to buy more (National Post, June 2012)

Simon Heffer, My futile hunt for a lamp in John Lewis reveals why the High Street is doomed (Daily Mail 15 January 2013)

Brett Molina, Is ‘showrooming’ behind Target move to drop Kindle? (USA Today, May 2012)

Patrick Nelson, Brick-and-Mortar’s Showrooming Scourge (E-Commerce Times, Nov 2012) via First Insight

Chris Petersen, To beat showrooming … change the showroom! (IMS results count, June 2012)

Marcus Wohlsen, Walmart.com CEO: We Embrace Showrooming (Wired, Nov 2012)

Amazon’s Showrooming Effect And Quick Growth Threaten Wal-Mart (Forbes, Sept 2012)

Related posts: Showrooming in the Knowledge Economy (December 2012), Predictive Showrooming (December 2012)

Updated 16 January 2013

Challenge-Led Innovation

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#oipsrv One view of innovation is that it is motivated by a series of challenges. Once upon a time, we would have used the word “problems”, and called this the “problem-solving” approach to innovation. But the word “problem” is now taboo in…

On the Cultural-Linguistic Turn

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A number of bloggers have talked about the central importance of story-telling
and sense-making in the architect’s craft. So I wanted to highlight an
interesting piece about Rowan Williams in the Guardian recently, with
possible relevance to the pra…

Categories Uncategorized Tags

Understanding Business Services

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A business service represents an agreed delivery of some parcel of capability from one agent to another agent.

Understanding services properly requires a combination of all six of the viewpoints I have defined for business architecture.

The capabilit…

Conflicting Narratives

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@queenchristina_ writes an excellent article on Google, Starbucks, and Amazon, arguing that “for these multinationals immorality is now standard practice” (Independent 13 November 2012). See also Martin Hickman, Good Bean Counters (Independent 16 October 2012).

It is much too easy for British politicians, journalists and taxpayers to get a sense of moral outrage when they discover how little UK tax these American companies pay on their UK earnings. There may be nothing illegal about the fact that the coffee beans are purchased from a Starbucks subsidiary in Switzerland, or that the UK subsidiary pays a royalty for the use of the Starbucks brand to another Starbucks subsidiary in the Netherlands. By a strange coincidence, the Netherlands charges a very low tax rate on royalty payments. Of course there are many British companies that use similar devices to reduce their UK tax bill.

The word “account” essentially means “story”. The Starbucks accountants have constructed a story in which Switzerland and the Netherlands are essential links in the Starbucks value chain. British politicians have constructed a different story in which Starbucks is ripping off its British hosts. The moral outrage comes from the clash between these two narratives.

When two narratives clash, it seems natural for us to want to impose our preferred narrative on the Other. Wouldn’t it be grand if Starbucks saw the error of its ways and started to pay a fair rate of UK tax. Or wouldn’t it be equally grand if the UK tax laws were changed to regulate against these tax avoidance schemes? Or from Starbuck’s point of view, wouldn’t it be grand if UK corporate tax rates were reduced, so it could simplify its value chain at no cost to its shareholders? (Obviously words like “grand” and “fair” depend on the narrative.)

Of course, what is more likely is that the politicians will issue some threat of tighter regulation, the companies will make some temporary gesture to alleviate public hostility, and that the media will move onto the next target. In the meantime, politicians and the media can make things uncomfortable for corporate executives in the public eye.

And here’s a slightly older example – the attempts by the US Government to hold BP to account for the oil spill in the Gulf of Mexico. One BP executive complained that “The administration keeps pushing the boundaries on what we are responsible for.” (Wall Street Journal 1 June 2010 via NakedCapitalism)

In any case, there are always going to be conflicting narratives. I was at a workshop in the City this morning discussing how externalities might affect the future of money and the future of commerce. We discussed a range of topics, from mega-cities to carbon trading. 

But what exactly are these externalities? Almost anything that one person thinks to be part of The System and another person thinks to be outside The System. As William P. Fisher, Jr points out, “If we have to articulate and communicate a message that people then have to act on, we remain a part of the problem and not part of the solution.” (Reimagining Capitalism Again, Sept 2011).

Oliver Greenfield identifies the following challenge:

“The externalities created by companies – or, for that matter, nation states – in their pursuit of self-interest can seem rational at the local, country and even regional level.  But at a global level, in a closed system, externalities are costs. What is rational at a company or nation state level is irrational at a global level.” (Green Economy Coalition, April 2012)

Thus we have conflicting narratives, which result from disagreement about system boundaries (including time horizon as a type of boundary). A true systems approach might give us a systematic way of playing contested narratives off against each other.

See also

William P. Fisher, Jr, Question Authority (Oct 2011)

José M. Ramos, Temporalities of the Commons: Toward Narrative Coherence and Strategic Vision (Nov 2012)

Linked-In discussion on Good Bean Counters

and my post on Regulation and Complexity (Oct 2012)