Tuesday, December 2, 2008

Analogy #224: Doing Vs. Becoming

When I was younger, I loved to work on doing maze puzzles. I even loved designing maze puzzles of my own. The objective of a maze is to find the one route that will get you all the way from the beginning to the end without reaching a “dead end.”

One thing I learned about mazes is that it is a lot easier to finish a maze if you work backwards, rather than forwards. In other words, starting at the end and seeking out the beginning is easier than starting at the beginning and seeking out the end.

The reason for this is simple. At the beginning of a maze, there are usually a multitude of options. Even though they all look potentially desirable, only one option leads all the way to the end. As a result, one can waste a lot of time choosing the wrong option and going down the wrong paths.

By contrast, at the end point, there is usually only one viable path. This makes it a lot easier to find the right path backwards to the beginning.

One of the goals in a strategic process is to find the right path into the future. Finding the right strategic path is similar to trying to find the right path in a maze. At first, many strategic paths into the future may appear desirable. It is only through careful analyses of these options that one can determine if each option leads to a desirable future or a dead end. That’s a lot of hard work.

The easy way out is to pick the endpoint first and then work your way backwards to today. This is where business visions come in. If you choose the right vision for where you want to end up, it is easier to find the path in the maze to get there by working backwards.

Conversely, if you have no idea of where you are trying to end up, all the paths in the maze look good (and it may be hard at first to distinguish between a desired end and a dead end). So visioning should precede path choosing. (I wrote a chapter on this concept in a book awhile back. Follow this link to read that chapter.)

Although it is fine to work backwards from a vision to today, there is a problem if we may substitute tactics for visions. When we do that, the easy way out often becomes a pathway to destruction, because we lose the rigor of the careful analysis.

For example, we may say that a particular acquisition should be our goal. Acquisitions are not strategic goals; they are only potential means to achieve a goal. Tactics are more like a path in the maze than and endpoint—a means to an end. That acquisition may or may not be the right path. By committing to a tactic, we have in essence pre-chosen our path before determining if it is the right path. There may be much better paths.

The principle here is understanding the difference between “doing” and “becoming.” Doing is a process. Becoming is an outcome. For example, let’s assume that your goal is to be the low cost operator in your industry. This is what you want to “become.” This is the end point in your maze.

Now, there are lots of potential ways to become a low cost operator. For example, one might consider:

- Outsourcing
- Creating greater economies of scale through growth by acquisition
- Instituting more rigorous controls
- Backward integration
- Eliminating costly services or features
- Using cheaper raw materials/ingredients

These options are the “doing” part. Each of these options can be a potential path in your maze. Not all paths may be right for you. In fact, sometimes opposite approaches may be better. For example, outsourcing may lower costs for some, while taking more control in-house may lower costs better for others. Backward integration may lower costs for some by eliminating the middle-man, but the opposite approach of opening up sourcing to more bidders could be even cheaper for others.

The right path for you may be quite different than for your competitors. It takes serious analysis to make sure you pick the right path for your business.

The problem occurs when our goal shifts from “becoming” to “doing.” In other words, instead of saying our goal is to “become” the low cost operator, our goal is to “do” an economy of scale acquisition. Choosing the “do” too quickly may cause us to commit to the wrong path before we’ve had a chance to see if there are better alternatives.

This problem can be seen in a recent survey of over 2,000 executives by McKinsey & Company. These executives were asked to think about a recent strategic decision (good or bad) and how the decision was derived. What McKinsey discovered was that good decisions were more likely to have come out of a process which used additional rigor when choosing the path. Bad decisions were put through less rigor.

For example, good decisions were more likely to come out of a process with:

- Better assessment of internal capabilities
- Thorough, objective review of business case, even when most were already strongly in favor.
- Use of a robust fact base
- Dissenting voices were heard

The problem when you choose a path too early is that one can always find a way to justify the decision. As a CFO I knew used to say, “I’ve been in this business a long time and I’ve rarely ever seen a proposal to do something that did not come with a pro forma that had a positive return on investment.” In other words, we can make almost anything we want to do look good on paper.

However, this CFO would go on to say that although all projects had a favorable pro forma prior to implementation, a large percentage would have negative returns once implemented. In other words, the pro formas seemed to have little correlation with reality. Apparently, more rigor is needed in the decision process.

So, when faced with a strategic decision, keep the following in mind:

1) Am I making a decision on what we want to become or what we want to do?

2) If the decision is about what we want to do…

a) Does doing this get us closer to what we want to become?

b) What are the other potential options (paths) of things we could do to get to what we want to become? Why is this option better than the others? In other words, don’t make the decision isolated in a vacuum. Put it into the greater context of goals and alternatives.

3) Don’t accept the assumptions in the proposal at face value. Pressure test them and see if the proposal still makes sense under less rosy assumptions. Listen to the dissenters.

Our strategic decisions cause us to choose a particular path, as in a maze. Just as mazes have many paths with dead ends, we can choose a strategic path with a dead end. To avoid dead ends, remember two things. First, make sure the path you choose (what you want to do) leads to the end of the maze (what you want to become). Second, take nothing at face value. Pressure test the assumptions and compare your proposal to other alternatives.

Getting the job done right is not the same as getting the right job done. Spending more time upfront on making sure this is the right path to take can save a lot of grief and dead ends later on.

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