Keeping a Strategic Dialogue Moving
The name of the company in this article is fictional, but the data are real. They come from an audio-taped meeting in which ten executives explore fundamental strategic questions. The data from that meeting and additional interviews illustrate how pervasive impediments to strategic choice can be understood and altered. Only minor contextual facts have been changed to disguise the company. If you think you know which company it is, you aren't alone; most everybody else thinks so too -- about a different company.
Scene: It is early morning. A group of ten executives, nine men and one woman, come together to figure out how Elite Appliances -- a company that once set the standard for excellence -- could be losing more and more market share to its competitors. Dressed in fashionable slacks and sweaters, the group sits in leather chairs around an exquisitely designed glass table with an arrangement of rare flowers at its center. Modern paintings splash three walls with color. A fourth is covered with awards commending Elite for its well-designed products and its innovative management of people. In the back of the room, two large picture windows look out on an overcast day somewhere in the northeastern United States.
The scene opens as Frank Tuafolt, the president of Elite's successful mail-order subsidiary, leans forward and turns toward Ian Dyrec, the senior vice president of Elite's foundering core business. Frank, an athletic forty-two, is impetuous and protective of his subsidiary's independence. From his perspective, Elite's future lies in going after the low to middle segments of the market, as his subsidiary does, providing well-designed yet affordable products through a cost-effective mail-order process. Ian, a fit forty-nine, is cautious and protective of what he considers to be the corporate good. From his perspective, the future doesn't lie in abandoning the core business but in turning it around, an effort that has captured his attention and energies for two years.
Frank and Ian's dispositions are a study in contrast. Whereas Frank blurts out his views, his frustration or his enthusiasm bubbling up and spilling over into his voice, Ian closely manages his reactions and measures everything he says, punctuating his carefully constructed statements with a nervous cough. Despite these differences, their tenacity is well-matched.
Frank breaks into the conversation just after Abel E. Knuff, Elite's CEO, emphasizes the importance of improving their financial performance and their longer term competitive position.
Frank: (Speaking emphatically and quickly, his face revealing impatience): Look, when we did that study that broke the market down into the high, mid, and low segments, one of the most interesting things we did was look at each segment's growth potential. And the estimated growth potential of the high end was 0 to 2 percent, the middle was around 10 percent, and the bottom was projected at around 15 percent plus. And so the growth is very much at the low end, and as somebody mentioned earlier, our subsidiary had a tremendous year.
I think this reflects a general dynamic in the market. The customers' desires are changing, and so the opportunities for us to serve them are changing, and all of it's moving down-market. And the thing that fascinates me -- and I've said this before -- is the possibility of using technology combined with products that are less complicated than we're used to. These advances in technology point to some very interesting opportunities, especially in the growth segments, as opposed to the ones that are already saturated, where competition is established and you're in a slugfest. It's just very difficult to maintain any kind of competitive advantage there for very long.
Ian: With the same information, I would go in a different direction. Because you would ask: "Is that a segment I'm still going to pursue, if the segment itself isn't growing?" And I would say, "I know I can't sell the same way to that segment anymore; I've got to do something different. But I can grow, if what I'm offering is strong enough. I don't need the market itself to be growing in order for us to grow."
So sometimes when we get into these discussions, we end up debating, and we keep throwing the facts out there. And I wouldn't so much dispute the facts, but it never seems quite logical that therefore we abandon the high end. Not that yours is wrong -- that's one avenue -- but I'd say, "Boy, I think this is still viable, because maybe I don't really believe that that segment is fully satisfied now."
Frank: Let me just clarify a little bit, because I know it comes across as "put all your money in my segment." All right. You know it's clear that, relatively, the core business is by far in the no growth segment. The challenge is to find some way to find a competitive advantage in that segment that makes it still worthwhile to do it. But to do it within the context of the old paradigm, to keep throwing money against it, which is what I think we've been doing, that is not a good idea.
Ian: (Coughs) I'm not trying to do a point, counter-point, because that has trapped us a couple of times. In looking at market opportunities, you could make a case that there are great opportunities at the low end, but then one has to ask the question: "What's your capability of accessing that market within a period of time?"
So we can get trapped in a discussion about what the market opportunities are when the question is, "Are we really capable of serving the lowest tier of the market as a company?" "Do we really want to go down-market? Is that where we want to take the company? How far down do we want to go? Do we want to fight with the other people down there, or not?" Most of us have already decided in our own mind what the answers to those questions are.
Frank: (Leans forward again, elbows on his knees): Could I just try it again though? (Hands gesticulating): To me, we're missing a competitive advantage in the core business. The one we had is all worn out, and we need a new one to justify continued investment. I think it deserves thought, work, and study. I don't know the answer, but it's worth finding out.
Ian: (Coughs) We made conscious decisions to broaden our product line in the core business so that we wouldn't continue losing share. That was not an accident; it was a set of decisions made very carefully. And we have been doing that. So now the question is, "Do we want to change that? Should we deal with something as fundamental as that decision?"
Frank: My assumption is that the strategy is on the table here. We're here to discuss what the strategy ought to be. And I'm not advocating that you go invest in my strategy. What I'm advocating is, "Don't invest in your segment until we have a very clear competitive advantage in terms of what we expect to get out of it." And I think that's missing.
Ian: And the point I was trying to make, perhaps overstated, is that I believe that we did make a decision in the company to say that the core business per se was getting a little bit tight and competitive, and we needed to have a broader base (coughs). So we may be in a period of time in which the investments in those decisions have not yet paid off, and so I'm just trying to be sensitive to the fact that some things may not be in a payoff mode.
Frank: (Sits back) It sounds to me like you're trying to take certain decisions off the table.
Ian: No, I'm saying that the competitive advantage of the core business -- or at least part of it -- was to have a broader line. And embedded in that is the assumption that a broader line is important to customers. At least that was the assumption we made at that point in time. Now, it may not be a correct assumption today --
Frank: -- I'm suggesting that making the decision to broaden our offering was a recognition of a failing on our part. One could go back to the same point in time and interject the question of competitive advantage, not competitive parity, and suggest that perhaps we made the wrong decision. And that plays to the question of whether we should continue the investment we're making --
Ian: -- And I suspect that if asked, all of us might have a somewhat different view of why we actually made that decision to broaden the line -- and some of the assumptions might be --
Frank: -- I'm not trying to pass judgment.
Ian: -- No, no. I'm saying if we look at how we got to that decision to broaden the product line, I think that today people would give different reasons why they think we did it, and why we're still doing it.
Frank frowns as if exasperated, the person next to him cracks a joke, someone sitting across from him changes the subject, and the curtain closes on the conversation.
* * * *
How many times have you been an audience to such a scene? Or worse yet, how many times have you unwittingly played a starring role? Put aside the particulars and the personalities for a moment and ask yourself: "How many times have I experienced this kind of circuitous and repetitive dialogue about things that really count?"
If my observations of executive teams are any indication, I suspect it is more often than you would wish. In fact, when I and my colleagues use this case for training purposes, almost all of our participants think we got the transcript from their company. At first we were bewildered, but then we realized that the case captures something that occurs again and again across a wide range of companies. Yet clearly no one would ever choose to author such a scene, and so the question is: How does it happen and what can we do to change it?