The Story – Part I

When I first read about McKinsey‘s watershed 7S Framework, I felt that it is missing something crucial. The framework lists Structure, Strategy, Systems, Skills, Style, Staff and Shared Values as the 7 S’s behind the organizational effectiveness of a business. But what brings them together is that missing 8th “S” – the Story!

Stories come in different shapes and colors. Take an example of the Story we have heard so many times about one of the most iconic businesses of our times – Apple! Apple’s story narrative points us to its “Founder’s Vision”.  Think for a moment … how else can we distinguish Apple from other mobile device companies without mentioning Steve Job’s vision? Another successful Global business, IKEA, also uses a similar “Founder’s Vision” story. Read the story narrated on their website:

The IKEA story begins in 1926 when founder Ingvar Kamprad is born in Småland in southern Sweden. He is raised on ‘Elmtaryd’, a farm near the small village of Agunnaryd. Even as a young boy Ingvar knows he wants to develop a business …

There are many other kinds of stories that mythify the very existence of an organization. Amazon uses “customer-paradise” story, Walmart too narrates similar “customer-paradise” story: “What started small, with a single discount store and the simple idea of selling more for less, has grown over the last 50 years into the largest retailer in the world”. And then, there are “innovation” stories. Tesla states “Tesla was founded in 2003 by a group of engineers who wanted to prove that people didn’t need to compromise to drive electric – that electric vehicles can be better, quicker and more fun to drive than gasoline cars”.

Story & Shared Values

McKinsey puts “Shared Values” at the core of an organization. Shared Values represent corporate culture and work ethics. It is one of the 4 “soft” elements of the 7-S model (Skills, Style, Staff being the other three). An article describes it as follows:

Shared values are the pinnacle of the [7-S] model and therefore in any organisation. They form the underpinning culture, strategy, effectiveness and performance, linking to every other element in this framework. They link all that is of the organisation: how people behave, the structure, its systems and so on.

Indeed, Shared Values should form core of any organization. History has many instances when value-driven rebel armies have won battles against better equipped salaried armies of the monarchies. However, in spite of all the virtues of Shared Values, in my career I have seen more “salaried” organizations than “value-driven” ones. One of the major obstacles in instituting a value-driven organization is defining core values that the entire organization will relate to. It is just not enough for a bunch of C-level executives to drum up a list of values and slap them on the organization. Employees have their own perceptive filters. Dry and emotionless list of Shared Values is like a desirable yet bitter medicine that is hard to swallow for most of the employees.

Lending Emotions to the Values

That is where Story becomes important! Story provides that colorful and flavorful emotional cover to the otherwise dry and tasteless list of corporate values. It lends theses values a meaning. Human mind is shaped to learn through stories from childhood. In every sphere of human existence, we narrate and hear many Stories; be it politics, religion, or family.  Weaving Values in interesting stories makes their ingestion easy. Many a times, Stories give Values a human face making it easy for the employees to relate their own lives to them.

Values become relevant to employees through – the missing 8th element of the Organizational Effectiveness Model – the Story!

My next blog “Story -2” will tell you more about the storytelling and the role of the Believers. Stay tuned …

Hiring, Firing, and Everything In Between!

We live in a capitalist society that prioritizes collective efficiency (often, short term measurement of it) over individual wellbeing. One can argue endlessly where this unbridled capitalism stands on the scale of morality. But, the fact remains that it has survived its alternatives and we are living in a reality defined by it.

In this context, the biggest moral dilemma that a corporate entrepreneur faces is while deciding to lay off one or more of his or her colleagues. Every entrepreneur who has taken such decisions knows how traumatic they are – not just for the affected employee but also for the organization and the entrepreneur.

At times, these terminations may be prompted by macro economic trends that are beyond control of the entrepreneur. But often, the need to bid adieu to a team-member arises when his or her inefficiencies affect the overall team-performance negatively. I have seen that in such cases, the moral dilemma surrounding the firing decision is relatively low. In a way, doesn’t the inefficiencies of the fired team-member justify the action taken?

That is where the entrepreneur needs to step back a little and think: “Wasn’t it me (or my organization) who hired this individual at the first place”? When an entrepreneur hires an employee, he or she enters into a unwritten moral compact with the employee, in addition to a written formal offer or an employment agreement. Even though, the written agreement is an “employment at will” agreement, the unwritten one, in fact, states the following:

“We select you to be part of our team after careful scrutiny and would do the best you would expect from us, to make you a successful member of our team.”

When an entrepreneur comes to a stage where it seems imperative to ask someone to leave the team, he or she needs to revisit not only the obligations as per the written employment contract but also as per the unwritten compact. The review of moral obligations in the unwritten compact will (and should) raise at least 3 fundamental questions:

1. Who is accountable for the insufficient scrutiny at the time of recruitment?Did we define the job appropriately? Did we do a good job at testing the candidates for their fit regarding skills, culture, personal ambitions and organizational set up? 

2. How much organizational energy was spent on onboarding and training? How well did we define the processes that a new employee will need to deal with? Did we impart enough training on and off the job so that the new employee will be adequately tooled to deliver expected performance?

3. Did we periodically and regularly inspect the employee’s output and offer required feedback for him or her to improve performance and course-correct wherever needed?  Indeed, you cannot expect what you do not inspect. When you noticed that things aren’t going the right way, did you ask yourself as to why the anomalies were not noticed earlier? Were you sleeping at the wheel?

It is easy in a capitalist economy to fire an employee but if you do not address above issues, you may have caused considerable trauma – for the employee, the organization, and for yourself; but would not have addressed the decease that is at the root of the symptoms of organization’s inefficiencies.  Addressing these issues positively, on the other hand, will remove the contradictions between morality and business. Sadly, this does not happen in most of the cases.

Not Disruption … Positive Value-Price Quotient Is The Prerequisite For An Entrepreneurial Success!

I have attended numerous investment pitches in my career and one of the most overused word used by entrepreneurs is “disruption”. Everyone claims that their idea disrupts the market status quo and hence automatically qualifies to make a lot of money for its backers. Isn’t disruption an overblown prerequisite for a blockbuster entrepreneurial success?

Disruptive innovation is a term of art coined by Clayton Christensen. He describes it as follows:

A process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

The following chart captures the essence of the idea of disruption quite succinctly.  A graduating disruptive technology infiltrates the bastion held by an incumbent technology at the bottom of the “value chart”, at which time  the incumbent fails to take notice of it. However, unless the incumbent  technology reacts to counter the disruption, the disruptive technology betters itself over a period to climb up above the prevailing technology’s best application.

Obviously, such a disruptive technology can capture all the value so far cornered by the incumbent technology and the backers of the new technology are rewarded with enormous returns! But, do we need a business to be disruptive to achieve spectacular entrepreneurial success?

I think not! There are so many glittering examples of entrepreneurial success based on such disruption (Microsoft, Amazon, AirB&B to quote a few) that we mistakenly take it to be an absolute prerequisite for a winning entrepreneurial play. But, in reality, what one needs is to have a positive value-price quotient. If the differential value you offer is higher than the price differential you demand, you are in business!  I view value as being three dimensional – Quality, Ease (of use or access), and the Breadth (of customer experience offered). We will talk about these three dimensions at some other time & place. But, let us talk why a positive value-price quotient is more critical to a business success than having a disruptive idea …

A positive value-price quotient: [Value(m) – V] – [Price(m) –  P] > 0

where, Value(m) & Price(m) refer to value and price of a significant (not necessarily the best) market alternative and V & P refer to value and price offered by you.

Market disruption allows you to (eventually) offer value (“V”) better than the value offered by the best alternative (“V(b)”) in the market and hence, gain the most. But, you can build a successful business without beating the best.

Firstly, you can win smaller battles by having a positive value-price quotient compared to a significant alternative (rather than the best) and begin gaining the market momentum. Secondly, value is just one part of the equation. You may also win (at least temporarily) by offering lower prices instead of offering a higher value! Numerous entrepreneurs succeed in commodity businesses, where there is no incremental value to offer, by focusing on the price. Volume plays a big role in getting the price low enough to generate a positive value-price quotient. Sourcing from a low cost economy or building competitive barriers too can give you a price advantage. And, it’s not just the commodity business owners who use pricing to get to a positive value-price quotient. Even, some of the trailblazing disruptive startups like Uber and Amazon eat up large losses to make a price play till such time that value play is clearly evident to their customers!

So, next time people talk about being the harbinger of the disruption, ask them how their business propositions create a positive value-price quotient – answer to that question is even more fundamental to an entrepreneurial success than being disruptive!

Are Large Companies Better at Entrepreneurship than Startups? Depends on the Founder’s Mentality … and the Builder’s Vision

Recently, I came across a very informative HBR blog on corporate entrepreneurship written by Chris Zook, partner in Bain & Company’s Boston office and co-head of the firm’s global strategy practice. The blog based its narrative on Chris’s research focused on how large companies find their next wave of profitable growth. Here is an excerpt from the blog:

Bain’s analysis shows that large companies that leverage the strengths of their strong core business have on average about a 1-in-8 chance of creating a viable, large-scale new business. Compare that to the typical entrepreneur incorporating a start-up. Bain’s research concludes that of all new businesses registered in the US, only about 1 in 500 will reach a size of $100 million—and a mere 1 in 17,000 will attain $500 million in size and also sustain a decade of profitable growth.

The author also cites a Bain research paper that he co-authored “Harnessing the power of the Founder’s Mentality” that states the prerequisites for the corporates to achieve such a growth as:  (1) a sense of insurgent mission, (2) obsession with the front line (an intellectual curiosity about every detail of the customer experience and of how everything in the business works), and (3) an owner’s mindset (antipathy towards bureaucracy and bias towards speed and action).

Indeed, during my own encounters with many entrepreneurs – individual and corporate alike – I noticed many facets of what Chris calls the founder’s mentality. But I have also noticed that this needs to be backed by a builder’s vision for an enterprise “to sustain a decade of profitable growth”. Business leaders can be vastly different in their approach towards building a business based on the timeframe they attach to their insurgent mission. I call it the depth of entrepreneurial vision. It is the depth of vision that dictates many of the strategic choices that a business leader makes. These choices may relate to making long term investment in people, building a strong organizational culture, or investing in technology & information systems. Some business leaders are builders – they believe in building a long sustaining business and some are riders – they target to ride on a wave in pursuit of a quick market-pleasing growth spurt or a profitable exit. Many of today’s technology start-ups tend to be the riders but there are many examples of riders in the large-cap corporate world as well.  Financial meltdown of 2008 would not have happened had the Big Banks decided to build instead of ride! Leaders with the longer depth of vision – a builder’s vision – tend to build viable, large-scale businesses such as Hewlett Packard, GE, Microsoft, Apple, and Facebook.

Without judging whether one approach is better than the other, it is safe to say that if entrepreneurial success is to be judged on the basis of a long sustaining valuable business, both, the Founder’s Mentality and the Builder’s vision, are equally important.