There are many ingredients required to develop and execute a successful strategy; none more important than discipline. Disruptive innovations that reshape an industry are rare. Most innovation is incremental, and successful execution is a function of hard work, time and patience.

Jeff Bezos’s insight about selling books online (which resulted in the formation of Amazon) was conceived while he worked as an analyst at an investment bank. His conversion of strategy into tactics will go down in history, as Amazon took on all the best in retailing, seemingly overnight.

Bezos remains hungry and focused. Amazon’s top 5 managers meet every Tuesday for four hours to review and rebake strategy. Not once a year, not once a quarter – every Tuesday. Twice a year his team has a two day off-site to think about “big ideas” that may require 2-3 years to implement.

Alan Kay once said, “Perspective is worth 80 IQ points.”  Where the rubber meets the road in strategy is maintaining the right perspective – the intersection of strategic thinking and tactical execution.  Business owners can easily lose perspective when they spend too much time muddled in solving day to day operational problems.

To maintain strategic discipline:

Create a strategy committee, task force or executive management team (EMT).

Each member should have a role in strategy formation and implementation and be accountable for key initiatives of the company. Meet with the EMT monthly to review progress versus goals.

Engage mid-management in strategy formation and execution

Mid-managers are often insightful in identifying latent needs as they are often closer to the customer than their senior counterparts.  Many entrepreneurial companies lack management depth. They are well served to include mid-managers in executing strategy.  Provide learning opportunities for junior managers by delegating tasks for them to complete.

Hold your teams accountable

Results oriented organizations are built from the ground up to support execution, rigorously using scorecards that drill down to individual performance. Best-in-class organizations orchestrate goal setting for individuals that align with the broader goals of the organizations.

Include outside variables in your dashboard

While most successful companies measure internal activities, few score external variables. Seek out external metrics that may be predictive of future demand. Leverage the data to plan capacity, labor, facility expansion, procurement of equipment, etc.

Bezos said, “We are willing to plant seeds and wait a long time for them to turn into trees. Every new business we’ve ever engaged in has initially been seen as a distraction by people externally and sometimes even internally.”

Great strategies convert into initiatives that become the unifying vision of the strategically successful organization. Ideas that lack resources, energy and concentration are just a distraction.

I believe this is a defining moment in our history. Our nation is in a fight for its soul. What kind of country do we want to be? I think we are the nation that takes care of its own.

Twelve percent of the 240,000 American veterans of the wars in Iraq and Afghanistan are unemployed. Thirty percent of those under 24 are jobless, double the national average [i].  This is a national tragedy of epic proportions and those reading this post are the ones who can do something about it.

We can’t begin to repay veterans for the years they served for the country, the friends and family they have lost, or the sleep lost over the horrors of war.

But we can give them a chance to have a life when they come home.

Every company in America who is hiring should put veterans at the front of the line.

Hiring a veteran is a gift, not for them (they have earned the right to work) but for us. We should hire them because:

• Veterans make great employees: loyal, trustworthy, disciplined, hard working and tough.

• The Hire Heroes Act of 2011, passed last month (517-0 in Congress) provides up to $5,600 in tax credits to employers who hire a veteran

• Veterans provide inspiration to other employees, and send a message about what kind of employer you want to be

• Hiring war heroes helps drive home corporate values and messaging that resonates with customers, investors , vendors and the communities we serve

• Veterans are capable, many having mastered transferable technical skills

As the last American soldiers return from Iraq this week, we should take pause. As we celebrate our family, friends and faith, we should be thinking about those who have sacrificed so much, and have been received so little.

Most of us entrepreneurs have been the benefactors of American freedom, and it is time for us to show our appreciation.

Below are a set of resources for searching for qualified veterans:

http://www.vetjobs.com/

http://www.militaryhire.com/?gclid=CMT4ksjyia0CFQg1hwodswjGmg

http://www.hireveterans.com/

http://blogs.payscale.com/compensation/2010/01/tips-for-employers-hiring-veterans.html

There has been the occasional business leader whose reign has been magical (Welch and Jobs come to mind).  Yet their business often fall to sustaining enterprise value after they leave. GE’s revenue and stock appreciation has been stuck in neutral since Welch’s departure, as the 20^th century’s most profitable company tries to find its way.  Apple has been trading all over the map in the last few weeks as the market tries to reconcile a world without the imagination of Jobs and his fancy gadgets.

A systemic problem for private companies is that a lack of management and bench strength.  This dearth of talent goes deeper then inhibiting productivity in the short term; it is a significant barrier to value creation for the entrepreneur.  If an exit is an objective (as is often the case), buyers generally want to see a strong management team and bench that can support future growth. If it is the business owner and his brother-in-law that possess all of the tribal knowledge (intellectual capital) about how a business operates successfully, the enterprise can lose luster with investors.

There are similar problems when one or two employees within a company are technically superior to those around them. Often, feeling their power and value, they are unwilling to teach, document, and delegate. When management and boards allow such conditions to persist, they are doing a disservice to the shareholders and are putting the company at risk.

Organizations should:

1. Require that every manager have a delegate – Identify and develop strong number twos that can eventually step in and take on the job duties of every manager. If people can’t attend conferences or go on vacation, because no one else can cover their desk, it is a sign that they have not developed the talent around them. To develop others takes time and investment including focus on performance reviews, career pathing and training.
2. Institutionalize activities, duties and best practices – Develop thorough documentation. Companies must maintain policies and procedures if they are going to be operationally excellent. When a supplier errs, it is usually because an inexperienced junior staffer doesn’t do something the way his senior counter-part would have. Often the junior staffer is criticized, even though it is their management who put them in position to fail.
3. Teach - Great leaders are usually great teachers; they aspire to develop others through daily interaction, and the sharing of information. The inability to teach is often a sign that a manager views themselves as the only person competent enough to complete certain tasks, and makes excuses as to why they can’t find other people to step up.  Great companies have development plans for every key employee, and make resources available for their continuous improvement.

Organizations that formalize these practices in their companies will maintain a long term strategic advantage over those who do. The talent war has only just begun.

I recently had a conversation with a CEO who was lamenting about the disparity between public company valuations and those of privately held concerns. As of July 2011, the S&P is trading at a multiple of 14, while private company multiples remain in the 5-6 range. Investors value public company access to capital, and scalability into large consumer markets.  Of the Top 10 U.S. companies by size, none are pure play B2B companies.

Small companies come in all forms; some compete with larger branded companies, and some market directly to them.  In the age of confluence, some do both. How can small companies survive in a land of giants?

The primary difference between Fortune 1000 companies and smaller ones is more fundamental than which markets they serve. Intel founder Geoffrey Moore makes a distinction about business architecture – the difference between “complex systems” and “volume operations”[i].

Many smaller B2B companies are built to support specialized and custom solutions, while most Fortune 500 companies are built from the ground up to serve the masses. While customization may command higher prices (per transaction) than generalization, high volume companies cross a threshold where their infrastructure promotes a lower cost per unit and the experience curve takes full affect. Thus, B2B companies face an inherent profitability disadvantage.

Where Microsoft offers its highly useful suite of Office products at around $400 per license, Apple’s B2C model (which is often utilized by small businesses and micro-businesses such as designers and the like) offers Pages and Numbers at $9.99 each. One offer is based on high intellectual capital value and the other on mass appeal and ease of use.

For smaller B2B companies to reach new levels of profitability, requires they find a path to scalability. Of course not every business wants to be big. Some entrepreneurs prefer a “family culture” and more tempered growth (with less risk).

One way to effect profitable volume is to find a balance, where products and services are “mass customized”. Mass customization is all the rage in consumer products where individuals can even build their own handbags and Nike basketball shoes to their specifications.

Smaller companies (B2B and B2C alike) should seek out solutions that allow for better utilization of existing solutions across more customers. In other words, the provider should not need to reinvent the wheel with each project. Often, optimizing margin requires leverage of a base product or service that can be replicated, at times with features configured to the customer’s individual needs. To configure from a menu of choices is considerably different than satisfying each specific whim, which may offer greater intimacy with the customer, but may also require the business to sacrifice profit. For every feature created for an individual customer, there is a resulting opportunity cost (time, money and energy that could be invested elsewhere).

The other requirement for getting big is a shift towards systems thinking, where management teams make decisions within the framework of their company’s capabilities. For a new initiative to succeed requires careful analysis of the resources required to implement it. The key for smaller companies who aspire to do business with larger ones it to utilize systems and processes consistent with the expectations of the customers they serve.

Competing against larger companies requires a unique mindset. Often small businesses use concepts like judo (where the larger opponents energy is often used against him) to beat the larger foe at the point of attack. Consider the depth and width of the market you want to serve, and scale your resources accordingly.

“A wise man learns more from his enemies, than a fool does from his friends”

Baltasar Gracian

While details of Osama bin Laden’s capture are sketchy, one thing that is clear is that the U.S. military executed a nearly flawless raid with pinpoint precision.

For me, the most interesting revelation this week was that the CIA had intelligence about bin Laden’s Islamabad hideout as early as August of last year. The intelligence was seemingly developed over years of digging, prodding and fact finding, which eventually yielded a tip about one of his handlers.

While the bravery of the team that struck the compound is absolute and unquestioned, we should be equally impressed with the methodical approach exhibited by our military command, who demonstrated remarkable patience and fortitude. It seems that every detail of the strike was planned meticulously.  With the lives of American soldiers at risk, no detail was left to chance.

Strategy and tactics are born out of military doctrine, and the ability of operatives to plan their attack preciously, and execute flawlessly should give us pause.  The operation lends credence to the notion that any strategy is only as good as that tactics that support it, and that execution of bad strategy can yield devastating results. It is often necessary to have a well thought out contingency plan in the event of a calamity, such as a helicopter being caught in a “vortex”.

Both strategy and tactics are reliant on good information, and to act prematurely without knowing the facts will often generate a less than desirable outcome. As Stephen Covey points out, part of our time we spend planning, and part of it reacting. The greater the time we invest in planning, the less total energy we must expend. Whether it is in the military or business, the cost of a failed strategy can be high.

Once strategies (which is best defined as which battles should be fought) are determined, an organization must develop core competencies and resources to support them.  While the US of A may have taken a hit in recent years, we still have the finest technology and training in the world, and our enemies should still be weary of that lethal combination.

The Wall Street Journal reported that that CIA Chief Leon Panetta thought that there was a “60% chance” that bin Laden was actually present in the compound. Clearly, the decision to strike took guts. Intelligence officials and the military developed the best information available, planned the attack and took a calculated risk.  For that, our nation is eternally grateful. We should run our businesses with a similar level of preparedness.

Being Opportunistic in a Volatile World

Last week my post drew considerable attention, perhaps because of its shock value at a time when the news was truly shocking. While the tsunami was a natural disaster, the response on the part of the Tokyo Electric Company was a human calamity. Lack of preparation will invariably lead to unintended consequences, if you are managing a nuclear power plant or any other business.

The reverse is also true. The entrepreneur capable of understanding seemingly unrelated external forces, and weaving them into a thoughtful strategy, will clearly realize strategic advantage. How might the strategist consider social, technological, economic, ecological and political factors to gain insight on how to take advantage of ever changing market conditions?

Scenario planning is a methodology whereby the entrepreneur considers converging factors that (in combination) creates a tipping point. Consider some of the following predictions, based on facts already in evidence today.

In the next decade, we are likely to see:

Predicative Modeling-Cloud computing enables the migration and cross-referencing of large institutional databases.  For example, actuaries, using sophisticated algorithms are able to model ailments based on lifestyle choices monitored in real time. They are able to calculate your risk of a heart attack based on which smoothie you tend to order at Jamba Juice, your frequency of exercise, prescriptions you use, etc. Offered as a benefit of a health care plan, the member is offered incentives to opt-in and receive preferential rates. Such tools slow down rampant health care inflation.

A Cashless Society-The majority of transactions amongst big banks are managed by exchanges where no money actually changes hands. Coins of small denomination are nearing extinction. Today, you can download an iPhone app that serves as a debit card, and can be swiped within Starbucks locations.  For most transactions, cash is already irrelevant.

Smart Infrastructure- Automobiles come preinstalled with all of the features of an iPad (the 2011 Hyundai Equus will come with one) and all the benefits of the internet. Smart grids control the flow of traffic, directing drivers to particular lanes at a given speed to optimize drive time and reduce accidents. Traffic signals are regulated based on traffic volume. Sensors predict bridge and rail failures.

Of course, rapid change will occur in every industry, and the strategist must weigh various opportunities based on an organization’s ability to take advantage of them. As a general rule, organizations should seek to achieve scale and reach within its core (at least 30% market share) before expanding into new endeavors. As Jim Collins points out in his sequel to Good to Great (How the Mighty Fall), many companies fail because of an “Undisciplined Pursuit of More”.  In their zeal for diversification they often leap too far from their core competency.

Each opportunity must be assessed within the context of the organization’s resources, bandwidth, and human capital.  For every opportunity there is a cost, and an opportunity cost. To pursue any new opportunity an organization must leverage resources which dilutes focus on the core business.  Choose your opportunities carefully.

Without question, the number one issue I wrestle with as a strategic planning practitioner is managing the tension between strategy and tactics. The classical origins of the word strategy were set in ancient Greece (strategia), which means the “office of general-command”.  In a more practical business sense, the strategy is more about the battle to be fought, and the tactics the conduct of engagement, or how the war will be won.

I have participated in strategic planning off-sites that were highly strategic and ones where tactics were more emphasized. Ironically, it is not the facilitator who fosters such a distinction. It is the preparation of the client that drives strategic thought and innovation.

For example, identifying core customers is one of the most compelling strategic topics. Through the 90’s, McDonald’s management focused on expanding their footprint. Real estate developers and franchisees became McDonalds most valued audience[i]. They became a de facto virtual sales force.  The company focused its internal resources on building stores, and providing rigorous standards that could be replicated by franchisees.  By 2003, sales began to slump as an onslaught of rivals (including regional competition) began to offer more varied menu options.

McDonalds reallocated their resources to be more consumer centric. The company organized into regions, created new store design options and varied menus based on regional tastes (even offering porridge in the U.K.).  McDonald’s same store sales have steadily increased for the last 7 years.

McDonald’s case well exemplifies the marriage between strategy and tactics. Once the war was identified (through research), the methods or tactics (including redesign of stores and menus) were well executed.

The balance between strategy and tactics is sometimes misunderstood.  Market intelligence is severely lacking in most organizations I work with.  Clients don’t know what they don’t know, and they may not be willing to make the investment required to research trends.  Success is a dangerous tonic; it leads the marketer to believe he (or she) knows his market better than any other, which can be both a blessing and a curse.

Many organizations (even McDonald’s in this case) wait until their business erodes before investing in the requisite research. Yet strategy is clearly garbage in and garbage out, and a lack of understanding about customers, and their changing needs can be fatal.

Organizations can also take more practical steps to understand their universe. Sales teams should be aware of developments with competitors, and should actively communicate their movements with management and other sales people.  Leadership teams should be intentional about debriefing what they learn at trade conferences and from customers and vendors.  Companies that are best-in-class in terms of business intelligence have more formalized approaches to gathering and sharing market information.

One of the roles of the strategist it to narrow the uncertainties, and create focus on the markets, products and methods that will yield the most likely positive outcomes. Having actionable data is the means to that end.

Regardless of the quality of the strategy, entrepreneurs need to be completely consumed with execution (tactics).  High growth companies are adept at managing corporate initiatives which build infrastructure and support the sustainability of the organization. Such companies track such initiatives (and resulting action items) and KPI’s with fervor and discipline.

Fighting off Commoditization

The authors of a recent HBR article (How to Stop Customers from Fixating on Price by, Bertini and Wathieu) reached a rather shocking conclusion; “the best tool for getting people to see beyond price may be the price itself”. 

Most executives I run across complain about the bloodletting occurring in almost every industry.  Buyers have become skeptical that there is any distinguishable difference between the vendors who serve them in terms of quality, service and price.

The fastest way to grab the attention of the buyer is to price radically. This requires that you either have a service model that allows you to provide the lowest cost, or one that is dramatically higher. It may be counter-intuitive, but the highest price products attract the most attention.

When comparing like products, we are instantly drawn to the most expensive models (even if we do not intend to buy them) so that we can benchmark why they are better than the others.  In other words, we naturally perceive a higher price product as superior. If you were shopping for a watch and looked at one with diamonds that was $2,000; you would assume it to be a better time piece than one that is $500, even if there was no distinguishable difference in its functionality.

While we always advocate for bundling, the customer must perceive a value in the incremental features in the bundle, or they will not be willing to pay for it. If a provider is in a rush to discount, they desensitize the customer to the very benefits that they are touting.  If your service is priced 20% higher because you only used licensed or certified professionals, and you then provide them at the same cost, you have diluted the perceived value of the certification (which you probably paid handsomely for in the first place).

Perhaps the most innovative pricing response to hyper-competition is to restructure your pricing model so that it is completely alien to the market place. Bertina and Watheiu point out Norwhich Union, a U.K. insurance carrier who charges car insurance premiums by “miles driven” instead of annual premiums, providing a significant point of difference to traditional pricing models.  This is clearly more clever than appliance makers offering one model number at Costco and another at Best Buy as if we are too dumb to tell the difference. To create a new pricing model requires enough differentiation that the customer can distinguish more value in the way that they use the service. Pay as you go is a more efficient application of resources (which is the premise of cloud computing-using only the computer resources and memory you actually need). I am not saying pay as you go is better, I am saying it is different and therefore not comparable.

How can you position your pricing to be completely counter to the marketplace?