Analogy #173: Vote for your Favorite Pi

THE STORY
When I was younger, I tried to memorize pi out to a number of digits. I ended up memorizing pi out to seven digits to the right of the decimal point: 3.1415926.

There is an urban legend that the state legislature in Alabama passed a law decreeing that henceforth pi would be equal to three. In reality, it was a hoax posted on the internet back on April 1, 1998 (which is April Fool’s Day, not to be confused with Pi Day on March 14th, for those of you always looking for another excuse for a celebration). Once it got on the internet, the story got into all sorts of people’s hands without the warning that it was a hoax.

What is true, however, is that the Indiana legislature back in 1897 tried to pass a law to make pi equal 3.2. Apparently, there was this mathematical quack named William Goodwin who came up with the faulty logic. Goodwin had this notion that he could charge a royalty whenever people used his version of pi. To give his idea credibility, he got House Bill No. 246 introduced into the Indiana legislature, which would make pi equal 3.2 throughout Indiana.

The Indiana House of Representatives didn’t know what to do with the bill, so they gave it to the Committee on Swamp Lands to review. They couldn’t see anything wrong with it, so it was placed to a vote and passed in the house by a vote of 67 to 0.

The next step was to take the bill to the Senate. They gave it to the Committee on Temperance to review. This committee also found no fault with it and approved it for passage. However, by this time, a credible mathematician named Clarence Waldo got wind of what was going on and set the records straight on the truth about pi. As a result, the Indiana Senate postponed indefinitely any action on the bill.

For more information on this story, see here and here.

THE ANALOGY
In a democracy, there is this idea that if you can get enough people to vote in favor of something, it can become a reality. Well, let me tell you. It wouldn’t matter how many democracies passed a law to make pi equal to 3 or to 3.2. Pi would still be that long and complicated number which I memorized out to seven digits. The natural laws of Euclidian mathematics cannot be altered by the vote of some state senators.

As silly as it sounds, a lot of businesses act like this example of the Indiana legislature. Forces within the company try to convince the leadership to accept a particular point of view. The leadership votes to accept this point of view and then builds a strategy around it.

However, just because the executives declared this point of view to be truth does not make it so (just as declaring pi to equal 3.2 does not make it so). When reality settles in, the strategy’s flaws come to light and it fails.

THE PRINCIPLE
The principle here is to be careful about placing too much confidence in your assumptions about the future. Just because you may all believe it to be so does not automatically make it so. Here are some points to keep in mind.

1) Nobody can be absolutely certain about what the future holds.
Through proper research and analysis, one can become more accurate about predicting the future. However, you will never be 100% accurate about the future because it is an unknown. A venture capitalist once told me that when evaluating a project for investment, he primarily looks for two things.

First, does the business space being entered look big? The bigger the space, the more tolerance there can be for a little inaccuracy in the other assumptions. You know that the assumptions will be off a little, and if the market potential is small, being off a little could mean the difference between success and failure.

Second, are the people running the business smart and adaptable? The ultimate goal is not to be 100% correct at the beginning but to be correct at the end. People who continue to monitor the situation and adapt will have more success than the ones who blindly continue down the same path regardless of new information.

2) The most persuasive voice may not be the most accurate voice.
Just because an executive can persuade someone to believe something does not make it so. We all come with our own biases. For example, career aspirations can cloud our judgment. Other factors can also bias our thinking. As a result, we may push for an agenda which is wrong (such as making pi = 3.2).

It is important not to let shear force of persuasion rule. Be skeptical at first and listen to other viewpoints.

3) Other people outside your company also get a vote about the future.
As it turns out, your votes are not the only ones that count. The competition and the consumer also get to vote on how the future evolves. When building scenarios of the future, be sure to accurately reflect how consumers and competitors would react to your strategy. They won’t just stand still. They will react. And it may not be the way you expect them to react.

For example, Ford now touts the fact that its cars have similar quality levels to that of Toyota. This may be true to an academic scientist, but to the average consumer, they do not believe this. They have voted to believe that Ford is not a good as Toyota, regardless of what Ford executives believe.

Similarly, even though Target stores have very competitive prices, consumers have voted to believe that Wal-Mart has significantly lower prices. Target is not getting credit in the marketplace for its pricing strategy.

4) There are some basic economic principles that are rarely broken, regardless of your confidence.
Just as the Indiana legislature cannot break the laws of Euclidian mathematics, businesses cannot break the laws of economics. Here are a few points to keep in mind when examining points of view:

a) If your strategy has the potential for success, assume that those businesses being threatened will do everything they can to stop you. In addition, they (or others) will try to imitate your successful move, thereby reducing the potential market share available to your firm. For more on this, see my blog “Bombs Start Wars.”

b) Eventually, market forces will create enough competition that returns on investment will fall to levels near the cost of capital. Above average returns are temporary. Don’t count on them for a long time.

c) Being first to market does not automatically lead to success. Fast followers often win in the long run. For more on this, see my blog “Gimme Shelter."

When someone tries to tell you that the old laws of economics no longer apply, be very nervous. Bubble economies, such as the dot-com bubble of the 1990s and the housing bubble of the 2000s, were based on faulty assumptions which defied the laws of economics. Eventually, the laws will win out and the bubble will burst.

So where does that lead us? Should we give up on making predictions? Of course not. Total ignorance is never the best alternative. Here are a few pointers:

1) Don’t assume you have perfect information. Even after starting down the strategic path, continue to collect information and adapt.

2) Don’t wait for perfect information before taking action. You will never have perfect information about the future until the future becomes the past. The goal is not perfect knowledge, but knowledge good enough to point you in the proper general direction.

3) Don’t abandon the laws of economics in your assumptions.

4) Have healthy debates in the beginning and consider minority and outsider points of view. The best strategy may not always be the one that first comes to mind (just as the best point of view on pi did not come from the first mathematician to approach the Indiana legislature).

SUMMARY
Actions are based on assumptions. The more accurate the assumptions, the greater the likelihood that your strategy will succeed. Although the idea of achieving total accuracy on assumptions about the future is a myth, thoughtful and adaptive organizations can get accurate enough to have an advantage.

FINAL THOUGHTS
Although new information could lead to a need to adapt a strategy, it should rarely lead one to abandon a strategy. If you find yourself continually making radical changes to your strategy, then either you are not doing enough homework up-front, or you have not done an effective job of applying knowledge to strategy creation.

Target’s overall strategy is to “Expect More, Pay Less.” Depending upon conditions, they will sometimes adapt to put a little more emphasis on the “expect more.” At other times, they adapt a bit more in the direction of “pay less.” But they do not abandon the overall thrust behind their brand. Strategies (like Target’s) should transcend minor changes in the environment.

Analogy #172: Don’t Read the Label

THE STORY
Associate Professor Robert Austin of the Harvard Business School issued an interesting article today. It is the story of Thorkil Sonne and the company he founded, called Specialisterne.

Sonne is a Danish businessman. When his son was three years old, Sonne found out that his son had autism spectrum disorder, also known as ASD. He was told that ASD was a lifelong handicap, with no cure or treatment.

Although labeled as a handicap, Thorkil Sonne did some research and discovered that even though persons with ASD had limitations in some areas, they tended to have strengths in other areas. This was particularly true for those with a form of ASD known as Asperger syndrome.

Many of these ASD people prefer routine to novelty, exhibit a steady focus and are good with repetitive behavior patterns. As an entrepreneur, Sonne then tried to figure out how to put those skills to effective use.

Sonne knew that many software companies are good at developing software, but poor at testing software. Software testing requires an entirely different skill-set from software devlopment. As it turns out, many people with Asperger syndrome are ideally suited for software testing.

Therefore, Sonne created Specialisterne, a company to help others with their software testing. About 75% of the software testing consultants at Specialisterne have Asperger syndrome. The company is doing well and starting to grow internationally.

THE ANALOGY
Most people label those with ASD as having a “handicap.” They see it as something bad—a limitation which has to be overcome. Sonne ignored the label and looked for the unique benefits which come from the condition—the ability to concentrate on repetitive tasks. He then turned this into a unique competitive advantage in the marketplace.

In the business world, we are often confronted with many situations which are quickly labeled as bad. However, as Sonne discovered, sometimes those labels are misplaces. Trait’s characterized as “bad” can actually be a competitive advantage.

Therefore, when designing a strategy, be careful how you initially label something. It may lead you astray and cause you to miss out on the hidden advantage within that negative label.

THE PRINCIPLE
The principle here is to avoid rapid labeling of a situation as “good” or “bad.” In the initial phase of strategy formulation, it is better to just identify the condition, without adding a label. That way, you are not biased in your examination of the usefulness of that condition.

Items initially labeled “good” are not always that advantageous, and items initially labeled as “bad” can have strategic advantages. The longer we avoid these labels the more we can determine the true worth of a situation.

For example, there was a time when Heinz was receiving criticism about its Ketchup. People were upset because it was so thick that customers had difficulties getting the ketchup out of the bottle.

Heinz could have quickly labeled thickness as a bad thing and worked on making their ketchup runnier. Instead, they embarked on an advertising campaign to tell people that thickness in ketchup is synonymous with quality. The ads told people that thickness was an asset, and since Heinz was the thickest, it must therefore be the best.

Since it was already well known that Heinz was the thickest ketchup, it was a small leap for consumers to now bestow on Heinz ketchup an image of extreme quality. /This stroke of strategic genius further distanced Heinz from the competition and greatly strengthened the brand. The attribute which was originally labeled as bad (thickness) had suddenly become one of the brand’s greatest assets.

In an earlier blog, we looked at many other firms who turned things normally labeled as bad into something good (see “It’s in the Bag”).

In spite of all these examples, we can still fall into the trap of missing opportunities due to labeling items as bad too early in the process. Early labeling can blind us from looking for these type of opportunities. The strategic process itself can help contribute to this problem. For example, many people use the SWOT methodology early in their strategic planning. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The goal in the process is to quickly label characteristics with one of these four terms.

Once something is labeled as a “Weakness” or a “Threat,” strategic thinking moves to eliminate or diminish that trait. However, as we saw with Asperger syndrome and thick ketchup, items often called weak can provide a competitive strength.

Therefore, instead of using the SWOT tool, I would recommend something which delays the labeling until later in the process. So instead of putting things up on the whiteboard under one of these labels, just put them up on the board as a situation or characteristic. The initial goal is to get a complete picture of the situation you are dealing with.

Once you see the complete picture, one can think of a variety of strategic options (or scenarios) under these conditions. In some scenarios, a characteristic can be good. In other scenarios, that same characteristic can be bad. The best strategic option wins, and that option then labels the condition.

SUMMARY
If one labels a characteristic too quickly as either “good” or “bad,” it may lead to sub-optimal strategy development. It is better to get the complete picture first while one still has an open mind. Then you have the flexibility to consider more options. This will typically increase the likelihood of choosing an optimal strategic option. So don’t rush quickly to a SWOT analysis.

FINAL THOUGHTS
Sometimes we can fall into the trap of thinking that because a trait can be bad for one company, it is bad for all companies. However, something that is bad for one firm can actually be good for others. For example, Wal-Mart tends to get into trouble whenever it aspires to be too upscale and fashionable. However, other firms have been extremely successful being upscale and fashionable. The idea here is not to label things in a generic sense, but to eventually label them as they specifically apply to your particular strategy.

Analogy #171: Super Job

THE STORY
Superman is a very busy guy. First of all, he has a full-time job working as a reporter under the name of Clark Kent. Second, he has a full-time job solving crimes as a superhero.

Having two full-time jobs like that doesn’t give Superman much time to do all of the other tasks involved in everyday living. And because he isn’t married, he doesn’t have someone to share those everyday duties with. So when does he have time to do all those mundane chores like cooking, cleaning, doing taxes, laundry, and so on?

So if there was anyone who could use help outsourcing some of his tasks, it would be Superman. But there is so little he can outsource.

It would be difficult to outsource any of the tasks which require his super powers. First of all, there aren’t very many people qualified to take on that task. Second, he couldn’t afford to pay for them on a reporter’s salary. Third, all the other people with super powers are already using them to fight crime. They, too, don’t have time to take on extra duties.

Superman would have difficulty outsourcing his job as a reporter as well. That’s his cover identity. In addition, it is a good source to learn about crimes needing a superhero’s help.

So the wise move for Superman would be to outsource those mundane tasks. However, what would life be like if he outsourced the crime fighting and did the mundane tasks himself? While Superman is at home doing laundry, he hires some person from a temp agency to go out and fight the crimes for him. Not exactly the type of drama that makes for good comic books.

THE ANALOGY
Outsourcing can be a very effective part of an overall business strategy. However, as we saw in the story, it is important to make sure you outsource only certain items. In general, it is wise to keep in-house those differentiating points of expertise in which you excel and which give you your strength.

On the flip side, most experts recommend outsourcing the more mundane things which are a less critical element of your success or which do not provide much of a differentiating advantage.

Using this logic, Superman should continue to do the crime fighting, for which his super powers give him a distinct and unique advantage. However, he could easily outsource some of the mundane tasks for which super-human powers do not provide much of an advantage, like doing the laundry

Although this sounds pretty obvious when applied to Superman, it can sometimes be less obvious for businesses. To apply this principle, you first have to understand your business success model well enough to know what your distinct expertise is. In other words, you need to know what your super powers are that give you an edge.

Not all companies think this through. This applies not only to the companies thinking about what to outsource. It applies to the outsourcing specialists who are looking to get some of that outsourcing. For example, what temp agency in its right mind would try to send crime fighting temps to Superman? To be an effective outsourcing specialist, you have to understand what it is that you do so well that people will be willing to outsource tasks to you.

THE PRINCIPLE
The principle here is that if you do not understand which areas are most appropriate for outsourcing, you can get in trouble. In this blog, we will look at an industry that is suffering, in part, because of this principle. The industry will look at is the advertising industry.

The advertising industry is long past its glory days of the 1950s and 1960s. Things have been a bit tough for the industry for awhile. Now it’s true that there are a lot of factors behind this problem. However, one of the problems is that advertising agencies and the companies that use them are not following the proper principles of outsourcing.

Advertising agencies are essentially placing where companies outsource a portion of their marketing. So the question here for the brand companies is how much marketing should be outsourced to the agencies. For the ad agencies, the question is how they can out-market their clients.

Back in the 1950s and 1960s, this was a relatively easy decision. It was the era of manufacturing. The manufacturers were experts in knowing how to manufacture something. That was their super power. Although they were masters in knowing how to make something, they were less skilled at knowing how to sell something.

That is where the ad agencies came in. They were experts in knowing how to sell something. It was the era of mass marketing, and the agencies were the masters of it. They could apply that skill to all sorts of products quite well.

Hence, it was a successful outsourcing arrangement. The manufacturers stuck to their superpowers of making things and outsourced to the marketing experts the art of selling what they made.

Now, let’s fast forward to today. Manufacturing is no longer much of a source of differential advantage. It doesn’t take the same level of super powers to run a factory. Lots of people all over the world can do it. In many cases, they can do it cheaper than the owners of the brands being manufactured. Therefore, manufacturing is now what is being outsourced to places like China and Vietnam.

So if the branded companies are outsourcing the manufacturing, what becomes the new differentiating super power? In many cases, the new differentiating factor becomes the ability to out-market the other brands competing in the same space. In other words, the new super power for branded companies is marketing.

So where does this put the advertising agencies? Their specialty now is not that dis-similar from the required super powers of their clients. For an owner of branded products today, it makes about as much sense to abdicate responsibility for marketing to an outsider as it would be for Superman to outsource his crime fighting.

Since both the agency and the client claim expertise in the same field (marketing), it is no surprise that there are more frequent and more contentious arguments between the two sides. The brand owners don’t value what they get from the agencies as much as before, since they are also experts in the field. The agencies feel like they are getting less respect than they used to and are tired of the higher churn rate in clients switching agencies.

In addition, mass marketing is losing out to niche marketing. Niche marketing tends to vary more depending on the particular niche. Therefore, the generalized marketing expertise at the agency may not be as effective as the specialized marketers at the brand company.

If advertising agencies want to see the “glory years” return, they have to stop competing with their clients and instead offer something which is more appropriate for the clients to outsource.

SUMMARY
A good outsourcing arrangement is when the client keeps in house the key differentiating super powers and outsources to the agency the less critical factors. Right now, the super powers of the ad agencies and their clients are too similar. Until that changes, there will be continued problems with this arrangement.

FINAL THOUGHTS
If manufacturing can be outsourced and marketing is the key for brands, why don’t the ad agencies become owners of branded products? In other words, why don’t they become their own clients?

Analogy #170: Night Light

THE STORY
Over the years, I’ve spent a lot of nights in hotel rooms. After spending all of those nights in hotels, I’m convinced that the designers of hotel rooms intentionally try to hide the light switches. They are never, ever where I intuitively think they should be.

When I first enter a hotel room, it seems like the door immediately shuts behind me, leaving me in total darkness. I stick my arms out to feel for a wall. Once my hand touches a wall, I feel around for a switch for what seems like forever. Three thoughts cross my mind. First, why do hotel doors close so quickly, before I have a chance to find a light switch? Second, why isn’t there a light switch within arm’s reach of the door? Third, I sure hope those walls I’m feeling with my hands are clean.

Usually, I am forced to fumble around until I find the hotel room door again (hopefully I find the door with my hand, rather than my knee or my head). Then I prop my luggage in the doorway so that the door cannot slam shut. This allows a little of the hallway light to peek into the room. That hallway light is just enough to help me find the unusual place where the light switch is placed (often nowhere near the door).

The problem repeats itself if I wake up in the middle of the night and need a glass of water or the rest room. It is so dark that I end up stumbling all over the place—stubbing my toes and crashing me knees into furniture—all because I cannot find a light switch. By the time I finally feel my way to the rest room, my eyes are starting to get used to the dark. Therefore, when I finally find the light switch in the rest room, the brightness blinds me so that I still cannot see. So I crash and stumble some more.

One time I had the opposite problem. There was a nice painting over the top of the headboard of the bed. It had a bright light shining on the painting to show it off. Well, I found it impossible to sleep that night with that bright spotlight shining right over my head. It felt as if there was a huge semi truck coming my way all night with its headlight aimed over my head. It wasn’t until the next day that I found the switch to turn it off. It was near the ceiling on a wall nowhere near the painting or the light. I had to get on a chair to turn it off. Is that a logical place to put the switch?

THE ANALOGY
Few things are more frustrating than being in an unfamiliar place and having no light to see what you are doing. As in the story of the hotel, one ends up fumbling around—getting bumps and bruises along the way. If only the hotels had made it easier to find some light, things would go a lot smoother.

Strategies often take your company to places which are unfamiliar as well. The process of innovation or repositioning can lead your people into unknown territory. Because strategies can often have a goal of being the first to own a particular position, you may be going to places where nobody has gone before. There are no maps. You can feel totally in the dark.

In the unknown in the dark, one can end up wandering aimlessly, hurting one’s self bumping into the furniture. Many strategic initiatives can also lose their way in the dark, as people get tired of bumping into unexpected obstacles and give up.

To succeed, one needs to give people handy access to a source of light. With light, the unknown becomes known, so that you can successfully navigate around the obstacles. Your roll, as a strategic leader, is to help people find that light switch.

THE PRINCIPLE
The principle here is that strategic planning does not end when the journey begins. It must stick around for the entire journey, providing the light so that people can see into the unknown. It must illuminate by being both the long range beacon (the North Star) and the close range flashlight (the Illuminator).

1. The North Star (Beacon)
When sailors tried to navigate ships in the dark when on the ocean, there was very little to guide them. The ocean looked the same in all directions. To stay on course, they used the positioning of the distant stars. By knowing that the North Star is always to the north, they could navigate by positioning themselves relative to that known northerly light.

Similarly, when the slaves in the southern US wanted to escape to the north to find freedom, they relied on the phrase “follow the drinking gourd.” The Big Dipper constellation looks like a drinking gourd. As long as one is traveling in the direction of the constellation, one is heading north, because it is always in the northern sky.

This same principle applies to strategies. If properly designed a strategy should have a beacon which—like the North Star—can always be seen and help orient people in the proper direction.

For example, everyone at the Four Seasons hotel group understands that excellence in personal service is a strategic beacon for their company. Therefore, whenever a Four Seasons employee is confronted with an unknown situation and feels a bit lost, all they have to do is look for that beacon (excellence in personal service) and they can quickly reorient themselves to sail through the unknown. Just sail towards the light of providing that excellent service, and you will help move the company towards its strategic goal.

At Wal-Mart, the beacon is “low prices.” When Wal-Mart is confronting the unknown, it just needs to find the light of low prices and the proper path will become apparent. The problems at Wal-Mart during 2007 were due in large part to drifting away from that low price beacon and moving too far into the choppy waters of upscale and fashion.

At Google, the beacon is to organize the world's information and make it universally accessible and useful. Thus far, that beacon has helped them find many great new opportunities in the unknown without getting lost or without losing time stumbling around in the dark.

As a strategic leader, one must continually point out to everyone and remind them where your particular North Star is, so that people can intuitively find it when the unknown occurs.

2. The Illuminator (Flashlight)
The beacon provides the long range light. Looking up to that light, you see the big picture. But sometimes one also needs some short range light so one can look down to make sure that one’s knee is not about to bump into something. That requires a flashlight.

Flashlights illuminate a small area in front of you so that you can know what is directly ahead. In strategy, this is done via knowledge gathering. The more you know, the more you understand what is right in front of you. That allows you to avoid those near-term bumps on the way to your strategic goal.

It is quite common for companies to spend a lot of time and money on research prior to embarking on a strategy. This includes research on the consumer, the competition, the environment, and so on. However, it is not that uncommon for firms to significantly cut back on strategic research once the journey begins.

Once you move down the path of your strategy, changes will occur. Your new actions will cause competitive reactions. Consumers may react to your strategy in a different way than you expected. If you stop the research once the journey begins, your knowledge of the environment will quickly become obsolete. That would be like driving with outdated data in your GPS navigational system. It may have been correct at one time, but if you rely on it now, you may end up crashing into a ditch.

Before Tesco entered the United States with its Fresh & Easy retail concept, it spent considerable time researching the marketplace. It spent months with families, going grocery shopping with them, watching them prepare meals, and taking inventory of their refrigerator contents. This research provided the illumination behind developing the Fresh & Easy strategy.

However, after getting a handful of these stores up and running long enough to have impacted the consumers and the marketplace, Tesco had a preplanned breather in their growth strategy to reassess the marketplace. They wanted to gather new knowledge so that they could illuminate the path in front of them and make the proper adjustments.

There will always be a need for strategic adjustments. Therefore, there will always be a need for strategic research.

SUMMARY
Being in an unknown environment in the dark can be unproductive. Like a dark hotel room, all you end up doing is bumping into things. To be productive, one needs light. Strategic planning can provide two kinds of illumination. First is the long term directional illumination from a simple, universally understood vision statement. As long as that major goal is known, it can act like the North Star to orient your actions in the proper direction, even when in unknown territory.

Second is the near term directional illumination which comes from research and data gathering. All along the journey, strategic information can help update people on what the environment right in front of them looks like. This is like the flashlight that you can point at your feet to make adjustments along the way to avoid obstacles. Flashlights are not just needed in the beginning. They are necessary for the entire journey.

FINAL THOUGHTS
Some hotels have gotten smart and incorporated a night light into their light switches. That way, you can see the light switch in the dark. Don’t forget to put night lights into your strategic journey.

Strategic Planning Analogy #169: Get on Board

THE STORY
I once worked with a company that was concerned about how knowledgeable its outside board members were about the industry we were in. Well, as it turns out, unless an article on the industry happened to turn up someplace like the front page of Wall Street Journal, they wouldn’t see it.

As a result, we got all of the board members subscriptions to the various industry trade magazines. The good news was that the magazine subscriptions were free. The bad news is that I’m not sure if the board members read the magazines.

THE ANALOGY
Almost all of the strategy pundits say that if you want effective long range planning in your organization, you need top management support—all the way up to the board of directors. (Of course, to do almost anything well, it helps to have top management support, as we saw in the blog “Top Management Commitment.”)

It’s hard to get top management or board members actively involved in long range planning if they know very little about the industry dynamics. As seen in the story, not all board members have a full grasp of the industry in which a company competes. Until the problem of insufficient knowledge is taken care of, the problem of good strategic thinking cannot be taken care of.

THE PRINCIPLE
The principle here is context. Good planning does not take place in a vacuum. Strategic planning is designed to optimize within a context—the marketplace in which you compete. If you don’t understand the context, how can you know if the strategy is the best for your organization (or if it will even work)?

Context includes knowing such things as the competitive landscape, the consumer mindset, the regulatory environment, technology innovations, and other such issues. Many of these issues are specific to the particular industry one is in. Knowing about these issues in one industry may not apply to another.

It’s admirable that board members desire to get more involved in long range strategy. But if the board members are unaware of the total context in your industry, their “help” may not be very helpful. In fact, it might be harmful.

The McKinsey organization recently issued the results of a survey on this subject. In February of 2008, they interviewed 596 corporate directors from around the world. One of the findings of this study was an interest by board members in long range strategy. Even though strategy work was one of the items which boards spent most of their time on (about 24% of their board time), 50% wanted to increase the time spent on strategy work. Talent management was the only other category where a larger number of board members said they would prefer to spend more time than those saying they wanted to spend less time. Hence, the desire to do long range strategy is there.

Although the desire was fairly universal, the effectiveness was not. Only 43% of the respondents to the McKinsey survey felt their board was highly influential in creating corporate value. When comparing the highly influential board member responses to the little influence members, McKinsey saw the following differences:

1) The board members on influential boards are more likely to have expertise in sector and functional knowledge, performance management, and talent management.

2) The board members on influential boards are more likely to spend time with management in substantive debates about strategy. On low influence boards, they do little more than comment on strategies already fully developed by the organization.

3) The board members on influential boards have significant or unlimited access to executives beyond the most senior level. On low influence boards, about the only executives they talk to are the executives who are also on the board.

4) The board members on influential boards have much greater access to leading industry indicators and internal company data.

In other words, effective board members need to understand the context in which the company operates. They get that context through internal expertise, spending time interacting with a broad spectrum of company executives, and by having access to lots of relevant data. Without that context, it is difficult for them to have any influence.

In our last blog (“Blind Confidence"), we saw that when executives do not anchor their strategic goals in practical reality, they become hollow and not very effective. The same principle applies to boards. They also need context in order to be effective.

How much context are you giving your board? Are you giving them sufficient time with all of your executives? Is their time spent with executives interactive, or are they just being given “dog and pony” shows? How much information are you sharing with them about your company, your industry, your customers?

SUMMARY
Effective strategies are built around optimizing performance within the marketplace. Unless you understand the context of the company and that marketplace, you cannot create effective strategy. Board members need that context in order to effectively do their job.

FINAL THOUGHTS
Now you might be thinking that you do not necessarily want an effective and influential board. You may be thinking that the more influential the board is, the less influential you are. You may think that keeping the board in the dark is not necessarily bad. After all, it is hard for them to argue against you if they have no point of reference to argue from.

However, consider this: If the board has little actual or emotional ties to the strategy development, then they will place all of the responsibility on you. Later, if there are any hiccups or missteps along the way, you will receive all of the blame. They will be more likely to demand a quick change in the strategic course (which may be the wrong move), and more likely to want to replace the senior “C Level” management (who are blamed for the bad strategy).

By contrast, if the board members are actively involved in the strategic process, then they are more emotionally tied to the strategy. They will be more likely to support it and fight for it during the tough times. Also, since the strategy is developed by a larger circle of people, it is harder to just blame the CEO if things go sour. If the board is actively involved in the strategy formation, then for them to admit the strategy is bad is to admit that perhaps the board is partly to blame. Getting the board "on board" can be a good thing.

And hey, if you give them enough context, perhaps they can help give you a far superior strategy than if you worked without their expertise. Wouldn’t that be nice?