This is the title of Robert Heller's book which I found to be ponderous and confusing. The takeaway I got from this is that not all decision makers are right all the time (Duh!). Examples are Akio Morita's decision to go with the Walkman (success) and Betamax (failure). If he had kept the stories to a narrative instead of trying to reduce them to case studies it would have been a more interesting book. Instead it is just downright confusing. I would not be surprised if he is now a management consultant. As the book stands I could barely read it much less skim it.
The best part of the book turned out to be the beginning:
pg 26:
The basic question is: What kind of decision am I considering? With that answer in hand, at least fifteen other questions follow:
1. What decisions am I, consciously or unconsciously, not taking that I ought to take?
2. (Very Important) What is the question that this decision will answer?
3. How many realistic alternatives are there as an answer to the question?
4. Does this decision have to be taken at all?
5. If it is not taken, what consequences will follow?
6. What objective is the decision intended to achieve?
7. What results if that aim is not achieved?
8. What is the perfect infrmation that will enable the decision to be taken in near perfectness?
9. How near can I et to that perfect information?
10. Is the degree of imperfection so great as to undermine the basis for rational decision?
11. How is the decision to be executed? By whom? Monitored in what way and against what criteria?
12.What can go wrong?
13. In the event that Murphy's Law operates, and what can go wrong does, what will be the response?
14. What can go too well?
15. If the results of this decision flow broadly to plan what further decisions will have to be taken - and when?
pg. 45
1. Involve all relevant people from the start.
2. Have a single, fully-worked-out objective in view - aim to kill one bird with many stones, not two birds with one.
3. Having obtained thebest possible information and counsel in concert, act on it in concert.
4. Be governed by what you rather than what you fear.
5. Embody the decisions in a comprehensive plan that everybody knows and that wil cover the expected consequences of setback or success.
6. Entrust execution to competent people with no conflicting responsibilities.
7. Leave operational people to operate.
8. In the event of serious failure, start again to review and renew the decisions.
9. Only abandon the decision when it is plain to all that is objective cannot be achieved.
These rules more or less end each chapter (there are 8 chapters in all) yet as I went along these rules are sometimes consistent across the book and depends on the situation the decision maker finds himself to be in - e.g. is this an expansion, a salvation, an innovation, an attempt to outcompete, etc. While these can be useful rules of thumb they seem
Showing posts with label Strategy. Show all posts
Showing posts with label Strategy. Show all posts
Friday, January 1, 2010
Wednesday, September 17, 2008
Not all CEOs and their strategies are best all of the time
But the trick is to figure out what is best when. Did Citigroup CEOs follow the best strategies?
1. Sanford Weill (empire building)
2. Chuck Prince (cleaned out legal and regulatory mess, inherited no doubt from 1.)
3. Vikram Pandit (reorganize unwieldy institution inherited from 1., clean up subprime mess inherited from 2.)
I'm thinking Citi is going to break up.
Story here. Here's my story (or a parable of capitalism, regulation, and why competition is inherently unstable).
I run a lawn mowing business and I start by canvassing many different neigborhoods for business. Soon I have some customers and begin mowing lawns. Then I find out that it would be more efficient if I have most of my customers in one neighborhood. My costs would be lower since I don't have to drive around as much. As an incentive, I offer those who can recommend me to their neighbors a discount on mowing if they can round up some neighbors. Soon I can focus on just a few neigborhoods. My costs are lower and my profits are higher even though I am charging less. I'm making up on volume what I'm losing on margins.
Business is good and I notice that some new entrants are trying to break into my territory. I go on a two pronged strategy: 1. I woo them to become my employees, promising them a steadier income. 2. I start buying up other lawn mowing companies to discourage competition as well as to grow into new neighborhoods.
Things work out well and soon I am mowing the lawns of local politicians. I treat them like a VIP by offering them lower prices on cuts but with additional teasers such as planting. My competitors become envious and attempt to introduce legislation that regulates the size of lawn mowing companies. My friendships with VIPs become useful and I try to persuade to vote against the legislation.
I point out that there are economies of scale in my kind of business and my growing big is good for the consumers because I pass the savings on to them. Meanwhile, my company is growing through aquistions and mountains of debt as I branch into landscaping and retailing (selling lawn mowers, shrubs, mulch, etc.). I contemplate going public.
Growth sputters and I start to raise prices to increase earnings. The company becomes unwieldy as I try to make all its parts move in sync. My attempts at stopping legislation are only partially successful. Different agencies start to look into my operations. My growth which has been exponential resulted some flaws in my bookkeeping. Legal costs mount as I try to meet new legislation requirements. While my landscaping business is doing okay, my retail operations are bleeding red ink. I start laying off people.
I hire new managers but it is too late. Retail operations are sold. Other lawn mowing divisions are divested to pay off debt. I'm soon back to mowing in a few neighborhoods.
1. All small companies want to grow.
2. The process of growth sows the seeds of its own destruction.
3. Stakeholders view growth enviously and try to undermine growth.
4. Competition is good as long as I was doing well, not otherwise.
5. And this is why capitalism is fragile. Economists would say that this is efficient.
1. Sanford Weill (empire building)
2. Chuck Prince (cleaned out legal and regulatory mess, inherited no doubt from 1.)
3. Vikram Pandit (reorganize unwieldy institution inherited from 1., clean up subprime mess inherited from 2.)
I'm thinking Citi is going to break up.
Story here. Here's my story (or a parable of capitalism, regulation, and why competition is inherently unstable).
I run a lawn mowing business and I start by canvassing many different neigborhoods for business. Soon I have some customers and begin mowing lawns. Then I find out that it would be more efficient if I have most of my customers in one neighborhood. My costs would be lower since I don't have to drive around as much. As an incentive, I offer those who can recommend me to their neighbors a discount on mowing if they can round up some neighbors. Soon I can focus on just a few neigborhoods. My costs are lower and my profits are higher even though I am charging less. I'm making up on volume what I'm losing on margins.
Business is good and I notice that some new entrants are trying to break into my territory. I go on a two pronged strategy: 1. I woo them to become my employees, promising them a steadier income. 2. I start buying up other lawn mowing companies to discourage competition as well as to grow into new neighborhoods.
Things work out well and soon I am mowing the lawns of local politicians. I treat them like a VIP by offering them lower prices on cuts but with additional teasers such as planting. My competitors become envious and attempt to introduce legislation that regulates the size of lawn mowing companies. My friendships with VIPs become useful and I try to persuade to vote against the legislation.
I point out that there are economies of scale in my kind of business and my growing big is good for the consumers because I pass the savings on to them. Meanwhile, my company is growing through aquistions and mountains of debt as I branch into landscaping and retailing (selling lawn mowers, shrubs, mulch, etc.). I contemplate going public.
Growth sputters and I start to raise prices to increase earnings. The company becomes unwieldy as I try to make all its parts move in sync. My attempts at stopping legislation are only partially successful. Different agencies start to look into my operations. My growth which has been exponential resulted some flaws in my bookkeeping. Legal costs mount as I try to meet new legislation requirements. While my landscaping business is doing okay, my retail operations are bleeding red ink. I start laying off people.
I hire new managers but it is too late. Retail operations are sold. Other lawn mowing divisions are divested to pay off debt. I'm soon back to mowing in a few neighborhoods.
1. All small companies want to grow.
2. The process of growth sows the seeds of its own destruction.
3. Stakeholders view growth enviously and try to undermine growth.
4. Competition is good as long as I was doing well, not otherwise.
5. And this is why capitalism is fragile. Economists would say that this is efficient.
Struggles of entrepreneurs
Interesting read from Meg Cadoux Hirsberg, wife of Gary Hirshberg, the founder of Stonyfield Farms yogurt:
Gary often quotes Winston Churchill's famous remark that "success is the ability to go from one failure to another with no loss of enthusiasm." We certainly became practiced at ricocheting from failure to failure. It's hard to say when we had our darkest hour. There are so many that could qualify. Was it in 1987, when my desperate husband asked me to lend the business the only cash we had left? A year earlier, I had told Gary that we were going to pretend that the $30,000 my father had left me in his will didn't exist; it would be the down payment on our home, if we could ever afford one. But our new co-packer had suddenly gone belly-up, and we had to start making yogurt at the farm again. "I need the cash to buy fruit," he said simply. Numbly, I pulled out the checkbook.
Or perhaps the worst moment occurred the following spring. A large dairy had agreed to partner with us and retire our debt -- Gary had worked with the company for months on a detailed agreement. I was excited and relieved on that day in April when he and Samuel drove to Vermont to sign the deal; in our recently completed fiscal year, we had burned through $10,000 in cash each week and lost $500,000 on sales of about $2.3 million. ...
I shared Gary's vision, but not his method or his madness. I admired -- and still do -- his passion and determination. I wanted to believe that we could expand this business and make a difference in the world, but over time my confidence faded. The level of risk that Gary and I (along with our partners) had assumed was way beyond my comfort level. We had come perilously close to losing the business dozens of times. Frankly, there were many times I wanted to lose the business -- anything to be put out of our misery. ...
From 1983 to 1991, Gary raised more than $5 million for the business, all from individual investors, none from venture capitalists. He raised $1 million in 1989 alone to build the plant that he and Samuel had cost out on that car trip the previous spring. We eventually had 297 shareholders, even though we had never closed a quarter with a profit. We didn't see our first profits until 1992, when Stonyfield's revenue reached $10.2 million. You can do the math -- it took us nine years to break even. Gary and Samuel's gamble on the promised efficiency of the new facility, located in Londonderry, New Hampshire, was, in fact, the turning point.
Frankly, I was amazed that Gary was able to persuade so many investors to write a check, given the bleak history of our little company. I'm certainly grateful that none of them ever asked me about my own confidence level in our enterprise. My sense is that they were investing in Gary -- his smarts, his persistence, his commitment, and his confidence. They were also persuaded by the quality of our product (though my mother, Doris, the third-largest shareholder at the time, didn't even eat the stuff). ...
Just when I had begun to think that my husband was not so crazy, I found myself begging him not to do something that was patently insane. Gary and Samuel made several trips to St. Petersburg and set up a small facility there. Everything went wrong. Finally, after someone was shot and killed in Gary's hotel while he slept, and an American colleague was briefly held hostage, Gary called it quits. "I lost half a million dollars and my innocence," he says now.
At that point, even Gary started to wonder if it was time to bring in some bigger guns to move the company to the next level. In 1997, he began to hire professional managers in sales and marketing. Corporate people from Kraft (NYSE:KFT) and Harvard M.B.A.s now started to populate the company. By and large, these new hires did not work out, and Gary and I both learned important lessons about the company's culture. I had been vastly relieved to see the infusion of what I termed "grownups" into our company, but now we both came to realize that a mission-driven business requires employees with more than flashy resumés; energy, spirit, and dedication to the work are essential.
Gary started looking for a way to get the shareholders an exit, to give them a well-deserved high return on their risky investment and allow him to focus on expanding the company. He often spoke with Ben Cohen of Ben & Jerry's during this period and eventually soured on the idea of going public after Ben was forced to sell his company. In 2001, when sales were $94 million, Gary sold 40 percent of Stonyfield to Groupe Danone (owners of Dannon yogurt); it bought an additional 40 percent in 2003. The deal, finalized in 2001 after a two-year negotiation, gave our shareholders a highly profitable exit, allowed Gary to retain control of Stonyfield, and provided us with financial security.
But I was mistaken in believing that the deal would bring with it some measure of calm. Gary doesn't reach a plateau and then stop. Financial security was never his ultimate goal. There's always that next venture, that new new thing, that (in Gary's case) will reach more people with important messages about organics or climate change.
After we got some cash, Gary created and invested heavily in what is possibly the only business riskier and more likely to fail than yogurt-making: restaurants. He conceived of and co-created O'Natural's as a healthful, organic, and natural fast-food alternative. The concept is excellent, as is the food, but its fate, like that of all restaurant start-ups, remains uncertain. Gary has poured a lot more money into it than I expected. Once again, I try not to ask. Gary also co-founded the nonprofit Climate Counts, which measures the climate change commitments of major companies. Recently, he has been busy promoting his new book documenting how businesses can make more money by going green. People say they don't know how he does it all, and the truth is, neither do I.
It's all exciting, but I'm a slower, more deliberate, and (as Gary would say) "evidence-based" person. Gary is a consummate multitasker, while if there are more than four things on my plate, the fifth slides off. The person who runs faster sets the pace; usually, I am the one who must adapt.
On a more personal note:
Our wood stove could not compete with the farmhouse's leaky windows -- my hair would ruffle in the winter wind, indoors. Unidentified furry creatures often skittered over my slippered feet as I loaded laundry in our dirt-floor basement. One winter, when my brother Bob was visiting, the Dumpster caught fire and nearly incinerated our barn, which contained all of our nonperishable inventory. After Gary dealt with the fire, Bob headed up to his freezing bedroom and deemed Stonyfield Farm "a hard place to crash." The moniker stuck.
Even the coming of spring heralded problems. The effluent from the yogurt plant was piped into the leach field adjacent to our bedroom. As soon as the weather warmed, the sickening odor of fermenting curds and whey wafted through our windows as we tried to sleep. When I was nine months pregnant with our first child, Gary and I laid polyethylene tubing through an overgrown field to direct the effluent away from our bedroom window so the stench would not be drawn in with our newborn's first breath. The field turned out to be overrun with poison ivy. I went into labor a couple of days later, my skin itchy and red.
This read made me think or formulate some hypotheses about the characteristics of successful entrepreneurs:
1. Risk takers
2. By all accounts, constrained by existing capital, until an infusion mainly by friends and family.
3. Desire to retain control
4. Visionary
Now the opposite side - "entrepreneurs" who ride on the coat tails of earlier successors (i.e. imitators). Here I am mostly thinking about the dot-com boom
1. Imitators which implies no vision
2. Small startup hoping to be bought up or taken public
3. Looking to cash out with no desire to retain control
4. By extension, imitators are more risk averse than the "real" entrepreneurs.
Gary often quotes Winston Churchill's famous remark that "success is the ability to go from one failure to another with no loss of enthusiasm." We certainly became practiced at ricocheting from failure to failure. It's hard to say when we had our darkest hour. There are so many that could qualify. Was it in 1987, when my desperate husband asked me to lend the business the only cash we had left? A year earlier, I had told Gary that we were going to pretend that the $30,000 my father had left me in his will didn't exist; it would be the down payment on our home, if we could ever afford one. But our new co-packer had suddenly gone belly-up, and we had to start making yogurt at the farm again. "I need the cash to buy fruit," he said simply. Numbly, I pulled out the checkbook.
Or perhaps the worst moment occurred the following spring. A large dairy had agreed to partner with us and retire our debt -- Gary had worked with the company for months on a detailed agreement. I was excited and relieved on that day in April when he and Samuel drove to Vermont to sign the deal; in our recently completed fiscal year, we had burned through $10,000 in cash each week and lost $500,000 on sales of about $2.3 million. ...
I shared Gary's vision, but not his method or his madness. I admired -- and still do -- his passion and determination. I wanted to believe that we could expand this business and make a difference in the world, but over time my confidence faded. The level of risk that Gary and I (along with our partners) had assumed was way beyond my comfort level. We had come perilously close to losing the business dozens of times. Frankly, there were many times I wanted to lose the business -- anything to be put out of our misery. ...
From 1983 to 1991, Gary raised more than $5 million for the business, all from individual investors, none from venture capitalists. He raised $1 million in 1989 alone to build the plant that he and Samuel had cost out on that car trip the previous spring. We eventually had 297 shareholders, even though we had never closed a quarter with a profit. We didn't see our first profits until 1992, when Stonyfield's revenue reached $10.2 million. You can do the math -- it took us nine years to break even. Gary and Samuel's gamble on the promised efficiency of the new facility, located in Londonderry, New Hampshire, was, in fact, the turning point.
Frankly, I was amazed that Gary was able to persuade so many investors to write a check, given the bleak history of our little company. I'm certainly grateful that none of them ever asked me about my own confidence level in our enterprise. My sense is that they were investing in Gary -- his smarts, his persistence, his commitment, and his confidence. They were also persuaded by the quality of our product (though my mother, Doris, the third-largest shareholder at the time, didn't even eat the stuff). ...
Just when I had begun to think that my husband was not so crazy, I found myself begging him not to do something that was patently insane. Gary and Samuel made several trips to St. Petersburg and set up a small facility there. Everything went wrong. Finally, after someone was shot and killed in Gary's hotel while he slept, and an American colleague was briefly held hostage, Gary called it quits. "I lost half a million dollars and my innocence," he says now.
At that point, even Gary started to wonder if it was time to bring in some bigger guns to move the company to the next level. In 1997, he began to hire professional managers in sales and marketing. Corporate people from Kraft (NYSE:KFT) and Harvard M.B.A.s now started to populate the company. By and large, these new hires did not work out, and Gary and I both learned important lessons about the company's culture. I had been vastly relieved to see the infusion of what I termed "grownups" into our company, but now we both came to realize that a mission-driven business requires employees with more than flashy resumés; energy, spirit, and dedication to the work are essential.
Gary started looking for a way to get the shareholders an exit, to give them a well-deserved high return on their risky investment and allow him to focus on expanding the company. He often spoke with Ben Cohen of Ben & Jerry's during this period and eventually soured on the idea of going public after Ben was forced to sell his company. In 2001, when sales were $94 million, Gary sold 40 percent of Stonyfield to Groupe Danone (owners of Dannon yogurt); it bought an additional 40 percent in 2003. The deal, finalized in 2001 after a two-year negotiation, gave our shareholders a highly profitable exit, allowed Gary to retain control of Stonyfield, and provided us with financial security.
But I was mistaken in believing that the deal would bring with it some measure of calm. Gary doesn't reach a plateau and then stop. Financial security was never his ultimate goal. There's always that next venture, that new new thing, that (in Gary's case) will reach more people with important messages about organics or climate change.
After we got some cash, Gary created and invested heavily in what is possibly the only business riskier and more likely to fail than yogurt-making: restaurants. He conceived of and co-created O'Natural's as a healthful, organic, and natural fast-food alternative. The concept is excellent, as is the food, but its fate, like that of all restaurant start-ups, remains uncertain. Gary has poured a lot more money into it than I expected. Once again, I try not to ask. Gary also co-founded the nonprofit Climate Counts, which measures the climate change commitments of major companies. Recently, he has been busy promoting his new book documenting how businesses can make more money by going green. People say they don't know how he does it all, and the truth is, neither do I.
It's all exciting, but I'm a slower, more deliberate, and (as Gary would say) "evidence-based" person. Gary is a consummate multitasker, while if there are more than four things on my plate, the fifth slides off. The person who runs faster sets the pace; usually, I am the one who must adapt.
On a more personal note:
Our wood stove could not compete with the farmhouse's leaky windows -- my hair would ruffle in the winter wind, indoors. Unidentified furry creatures often skittered over my slippered feet as I loaded laundry in our dirt-floor basement. One winter, when my brother Bob was visiting, the Dumpster caught fire and nearly incinerated our barn, which contained all of our nonperishable inventory. After Gary dealt with the fire, Bob headed up to his freezing bedroom and deemed Stonyfield Farm "a hard place to crash." The moniker stuck.
Even the coming of spring heralded problems. The effluent from the yogurt plant was piped into the leach field adjacent to our bedroom. As soon as the weather warmed, the sickening odor of fermenting curds and whey wafted through our windows as we tried to sleep. When I was nine months pregnant with our first child, Gary and I laid polyethylene tubing through an overgrown field to direct the effluent away from our bedroom window so the stench would not be drawn in with our newborn's first breath. The field turned out to be overrun with poison ivy. I went into labor a couple of days later, my skin itchy and red.
This read made me think or formulate some hypotheses about the characteristics of successful entrepreneurs:
1. Risk takers
2. By all accounts, constrained by existing capital, until an infusion mainly by friends and family.
3. Desire to retain control
4. Visionary
Now the opposite side - "entrepreneurs" who ride on the coat tails of earlier successors (i.e. imitators). Here I am mostly thinking about the dot-com boom
1. Imitators which implies no vision
2. Small startup hoping to be bought up or taken public
3. Looking to cash out with no desire to retain control
4. By extension, imitators are more risk averse than the "real" entrepreneurs.
Subscribe to:
Posts (Atom)