This month we chatted with Freek Vermeulen, Associate Professor of Strategy and Entrepreneurship at the London Business School. He writes, consults and speaks across the world on topics such as strategies for growth, strategic innovation and making strategy
happen.
1. Issue 09 | Year 02 | August | 2014
WHAT IS STRATEGY?
In conversation with Freek Vermeulen
This month we chatted with Freek Vermeulen, Associate Professor of
Strategy and Entrepreneurship at the London Business School. He
writes, consults and speaks across the world on topics such as
strategies for growth, strategic innovation and making strategy
happen.
His work has appeared in the most reputed academic journals, such
as Administrative Science Quarterly, the Academy of Management
Journal, Organization Science, and the Strategic Management
Journal but also in various managerial publications such as the
Harvard Business Review, Sloan Management Review, the Financial
Times and the Wall Street Journal.
The theme of our conversation? Strategy, of course.
read more
CAN WE MOVE STRATEGY FROM WORDS TO DEEDS?
CAN WE RESPOND TO SHORT-TERM PRESSURES
WITHOUT JEOPARDIZING THE LONG-TERM GOALS?
IN THIS MONTH’S ISSUE WE PROVIDE YOU SOME FOOD FOR
THOUGHT ON STRATEGY.
Carlota’s column
STRATEGY, LEADERSHIP AND THE FUTURE
Some authors point out that having a strategic thinking is one of the skills that distinguishes a leader from a manager.
I surely believe that. And I consider that leaders should indeed accept the plea of being strategists.
The origin of the word strategy helps us to better grasp onto this concept. It goes back to the Greek word strategos,
meaning a general or someone who had an army (stratos) to lead. The word was used for the first time in the year of
508 BC, in Athens, to describe the art of leadership used by the generals of the war council. These generals had to
develop an effective leadership that allowed them to achieve their goals, which included finding the best approach to
war and a way to motivate their soldiers.
2. Being a strategist requires a unique set of skills. Strategists have to define and bear in mind their ultimate goal. They have to
think and ponder all paths and possible choices that are available to them in order to pursue and achieve that goal. They
have to dive into strategic planning and make choices. They have to be able to convey their mission to their soldiers, telling
a good story based on the goals, the way and the steps to achieve those goals, involving all – as heroes – in an incredible
journey to win.
Intuition, astuteness and agility are three other fundamental skills because throughout battles, leaders must remain flexible,
adaptive and willing to learn - in order to face turbulence and unexpected changes in a clever, efficient and prompt way,
making the best out of every circumstance.
Another tremendous ability is, of course, the capacity to balance the short term pressures with the long term efforts. In fact,
a strategy is designed to achieve great long term goals but the volatility of the present context, the unexpected external
factors or some surprising behaviors may affect business results, execution plans and consequently the accomplishment of
the most important goals. Determination, commitment and discipline, as well as a great sensitiveness, are imperative to
balance short and long term focus.
But there is more to share about strategy. As Freek Vermeulen says: “We have to be experts on our mission if we want to set
a strategy and succeed.” Meaning that a strategist conducts a purpose-driven company and has a logic of continuous value
creation which takes us to say that being a strategist is a challenging art but also an immensely rewarding one.
To conclude, strategy may take your company from today to where you want it to be in the future. Do you have a strategy?
Carlota Ribeiro Ferreira, CEO
Inspiring thought
page02
Kofi Annan
read more
Book of the month
CREATIVITY | This Is How Vancouver
Responded to London’s Anti-homeless Spikes
Accelerate:
Building Strategic
Agility for a
Faster-Moving World
Author: John P. Kotter
Post of the month
3. page03
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4. page04
In conversation with Freek Vermeulen
In your opinion, what is strategy?
First of all, I would say that strategy is about making choices.
About a precise set of choices, deliberate choices: what are you
going to do in your market, who are you going to target, and so on.
I would however say that my view of strategy also has to do with
choices about how you are going to organize internally. And that's
because making different choices in the market also means that
you have to organize your firm differently internally and, most of
all, that these different choices have to fit. You have to see a logic
so that you will say "Ah! They have organized themselves
internally in this way, and run certain processes in this way,
because of the choices that they have made in the market."
Thus I would say strategy is composed by two elements: one,
making choices; and, two, having a logic of how these choices
stick together - both in the market and inside your company.
Does strategy require an emotional component or should it be strictly rational?
I definitely don't see them as two different things, in the sense that strategy should be rational. As
I said, there should be a logic - why you are making your choices and why these are good choices.
But I would say there has to be some emotion involved - in terms of your organization being able
to rally behind these choices, having people believing in them and people working hard to make
them come true.
There has to be emotion, there has to be identification with the organization and with the strategy.
But I do think - and that's why I think emotion and rationality are not separate at all - people can
only understand and believe in choices if they are rational, if they understand them, if they see the
logic.
I see that over and over again in companies: if companies have a very clear rational and logical
strategy, then people can understand it, they can share it, they can all believe in it and that is when
it becomes emotional.
Companies with bad strategies always have trouble, of course, getting their people behind the
strategy emotionally - simply because people don't understand it and then of course they don't
believe in it. So I would say that rationality is a necessary condition to be able to evoke the
necessary emotion.
5. page05
In conversation with Freek Vermeulen
As an Associate Professor of Strategy and Entrepreneurship at London Business School, in
which strategic aspects should one be focused on while aiming to launch a new venture?
The answer is almost in the question itself. Namely, the most important thing is that they should be
focused. Especially in entrepreneurial ventures, I find that often entrepreneurs, in the initial stages
of the process, cannot resist the temptation to do all sorts of things. And then they divert their
attention by trying to do a lot of small things that don't make a bit of revenue.
So what I see entrepreneurs struggle with is actually to discipline themselves and say "Hey, we're
going to focus on this. Yes, that might be a wealthy customer or that might also be an interesting
product - but if we really want to become successful we have to figure out a focus and actually be
very disciplined on following that focus".
Of course it might require a bit of searching and a bit of trial and error. One might end up doing
slightly different things for a while, but eventually an entrepreneur should be focused on figuring out
a focus.
What are the biggest competitive advantages of today’s thriving companies?
Backed up by some research, although it is certainly my personal observation and opinion, the real
competitive advantage comes from people, from employees. I don't know any company who doesn't
say that. Most companies say "Our most valuable resource is our people" and those types of things.
They say it but I know very few companies that actually do it. Because even when I ask executives
in London Business School who is the ultimate responsibility of your company, they will all say
"shareholders", occasionally someone might say "customers" but I've never heard anyone saying
"it's actually employees". But I strongly believe that. And there is several research on this.
For instance, research by Alex Edmans, a colleague of mine at London Business School, shows
that companies that made it unto these lists of the best employers and best companies to work for
greatly outperformed the stock market in the subsequent years. This tells you two things: one, that
being a very good employer actually translates in profit in the long-term; but, two, that the stock
market actually underestimated the effect of being a very good employer.
I'm finishing a case study about a company called Eden McCallum - a consulting firm set up in
London (although they are now also in Amsterdam and are expanding to New York). Clayton
Christensen already said they are a disruptive innovation in the consulting industry. The peculiar
thing about Eden McCallum is that they do not employ consultants - they only work with
independent freelance consultants. But the key question that they ask themselves is "how can we
attract the best independent consultants?" And they tailor themselves to each consultant. So if any
of these consultants says "I only want to do strategy projects" or "I only want to do projects three
days a week, eight months a year" or whatever that is, they will figure it out for them.
6. page06
In conversation with Freek Vermeulen
Because they say their primary focus is finding the best people, they figure out how they can
attract that people and they keep them happy - and then customers and profits will follow from
that. And I definitely believe that that is the ultimate source of competitive advantage: being able
to attract and continue to be attractive to your employees.
How should leaders better succeed with the balance of short-term pressures with
long-term goals?
I think this is the key question for leadership. In fact, every CEO to whom I talk to (or at least the
best CEOs to whom I talk to) probably says that that is the key question which they are
responsible for: balancing long-term and short-term. Because there's always a lot of short-term
pressures and everyone in the organization is focused on the wrong performance - the short-term
performance -, and it is the role of a CEO and of the leadership of an organization to bear in mind
the long-term.
Of course that is very problematic and usually companies struggle with that and they focus on the
short-term, at the expense of the long-term. Of course it is difficult to balance these two things but
there are concrete things that you can certainly do.
One, which I've seen in various companies, is to have measures or performance indicators or
KPIs or whatever people want to call them - monitoring certain indicators about the long-term and
monitoring them continuously to sort of bring the future to the present. For instance, you should
have certain indicators about your long-term pipeline of new product innovations. What early
stage product innovations do you have in the pipeline at the present? If you develop indicators like
that, you can sort of bring the future to the present and you can make it concrete and manage the
present so that you can have something to profit from in the future. So, to sum up, you have to
think of how you can bring the future to the present.
A second one, drawn upon the work of Daniel Kahneman, is that one way to think about the
long-term and about the future is indeed simply to pretend that you are in the future. That is
actually quite a good exercise to do in a management team: to really imagine that you are now
indeed 16 years from now and think of scenarios. So, for instance, imagine 15 years from now
your company is completely dominating the market - what could happened on those 15 years that
could make that work? Or, the other way: think of a scenario and imagine that 15 years from now
you're struggling and you're near bankruptcy. What sort of things could have happened in those
15 years to get you there? So what Daniel Khaneman says is that you have to imagine placing
yourself in the future and then think back in time. Because humans find it very difficult to think
ahead, so one mental trick is to place yourself mentally in the future and then think back. Those
type of exercises can sometimes help to bring a bit of the future to the present.
7. page07
In conversation with Freek Vermeulen
Peter Drucker is usually credited for the phrase “Culture eats strategy for breakfast”.
Which of these do you think is higher up on the food chain - Culture or Strategy?
If you interpret strategy as strategic plans and what are you going to do in the market - which is
indeed the way Peter Drucker interpreted it - I absolutely think he is right. Culture is much more
influential than strategic planning.
As I said earlier, with respect to your question about the emotional component, that's actually
necessary. And also back to the question about what is the ultimate source of competitive
advantage - having very good people - that all has to do with that element of culture. If you create
a strong culture, a strong identity, emotional commitment of people, that's in a way much more
valuable than strategic planning by itself.
However, precisely for that reason, the way I look at strategy is that culture is very much part of
strategy. Culture is of such strategic importance that if I talk about strategy, and I teach strategy
or speak about strategy, I also mean culture. Because you can't have a strategy without a culture.
So the question about what sort of culture do we want to have, what we don't value, what we don't
want to see in our company, how we can build such a culture and so on - that is an extremely
important strategic aspect and therefore a key component of strategy. So, in that sense, yes,
culture eats strategic planning for breakfast but therefore I would say culture is very much part of
the meal that we call strategy. It is a key component of strategy.
In your point of view, how would you characterise an agile leader as opposed to a “lethargic” one?
This also relates to your question regarding short-term versus long-term. Very often we think of
"agile leaders" as leaders who respond very quickly to all sorts of external developments, as
things happen in the market and they easily jump on opportunities. We think of the more lethargic
leaders as the ones who don't do much and don't respond to external circumstances.
I want to caution a little bit against that view. For the reason that, what we know from research,
especially about very turbulent markets, it's actually very dangerous to respond to everything. So
actually responding to all sorts of external developments all the time can actually much harm a
company. And sometimes, as a leader, you have to say "oh I am not going to respond to that" or
"that development I'm going to ignore".
So "agile" to me is not doing a lot while lethargic is doing very little. What agile certainly is to me
is having the long-term in mind all the time and thinking about what are the really important
developments that I need to respond to. And I think that's an agile leader - one that has
continuously the long-term trajectory and strategy of the company in mind.
And a lethargic leader is one that, well, maybe thinks about the long-term once a year at a
strategy retreat, or whatever it is, but then the rest of the days it's just busy with short-term things,
operational issues. And people can be very busy with everyday tasks and traveling around the
world and meeting people and solving all sorts of problems. That's a lethargic leader. They keep
themselves busy with short-term things.
An agile leader is one that continuously has the long-term developments of the company in mind. And
then weighs whether they should respond to something or not. So continuously having the long-term
strategy of the company in mind when accessing different developments - that to me is an agile leader.