To win today you need to change faster than the world around you – but in a world moving faster than ever, how?
The answer isn’t sexy, its counterintuitive, perhaps a bit dull and ultimately comes down to some basics… but executing them brilliantly is anything but basic.
The businesses winning today are those changing faster than the world around them. This isn't change for the sake of change, jumping from trend to trend. These aren't companies running around with their hair on fire faster than everyone else. These are businesses that know the role they want to play in their customers’ lives, stay focused on creating long term value and foster a culture that systematically generates ideas and drives change.
The obvious examples are today’s iconic tech and software businesses. Alphabet, Tencent, Adobe and their like don’t just embrace change they set the pace – from the early days of Google where engineers created Gmail and Adsense bottom-up off the product roadmap, to Netflix’s reinvention from content platform to content creator. Whilst the advantages of being an asset light software business helps, it’s still possible to achieve in very different sectors. Let’s look instead at a 130-year-old, French tyre maker.
Over the last 5 years, Jean-Dominque Senard, the outgoing CEO of Michelin has reinvented the traditional slow moving, change resistant manufacturer, into a market leading innovator. Today Michelin has changed everything from the materials they use to creating smart tyres, cracking the tyres as service business model, retraining tens of thousands of employees, and investing in numerous start-ups…
“Everything we do is connected with the purpose of Michelin: to enable people and goods to travel in a better and more sustainable way,” Chief Digital Officer, Eric Chaniot
The results have been impressive, with the share price doubling in 5 years. Even more impressive, that growth has not been at the expense of employee engagement or environmental impact. In fact keeping a broader view on success has been critical. For example, the business famously flew in the face of the highly competitive and discount driven market by creating a new generation of tires that are roadworthy for far longer. An idea not driven top down, but one that emerged through teams working together across the business with clarity about the direction they were heading in.
“With decisions like this, you do good for the company, for your reputation, for the environment, for the customer, and for your workers. Last but not least, you encourage the whole industry to be better.” CEO, Jean-Dominque Senard
Senard and his team focussed not on delivering a one-off transformation, but on creating the conditions for ongoing change. As Senard himself recognises, this is not rocket science, this is about the fundamentals. Businesses that sustain a higher internal rate of change, from Facebook to Michelin, share 3 qualities:
- A simple, stretching, purpose driven strategy (living in the business)
- Every team pulling hard (and in the same direction)
- A culture of continuous rapid improvement
Whilst each factor is a powerful accelerator, it is the combination that really propels businesses forward. And the evidence is clear, those that get it right deliver steadily improving margins over the long term, consistently higher returns from innovation and ultimately greater shareholder and stakeholder value.
Sounds good, right? The critical question is how do you do it? In this two-part series we explore each of these factors in turn, to understand what really makes the difference and how to get started.
A simple, stretching, purpose driven strategy (living in the business)
Traditional strategies fail because they are complex, dull or more likely both. The result is they never make it beyond the boardroom, or if they do they are forced down on the organisation through the infamous strategic PMO – and the teams required to deliver them simply don’t care enough.
In either case execution is painfully slow, assumptions quickly become irrelevant and the strategy dies or constantly flips – leaving everyone running around in circles.
In the absence of a clear strategy, businesses operate with less confidence, making slower decisions, under-investing in innovation and over time become more complex and resistant to change. The 2017 study, Measuring the Economic Impact of Short-Termism, shows that leaders feel under increasing pressure to deliver short-term financial goals at the expense of long-term value creation – and yet the evidence that this is self-defeating is clear.
Companies with a clear strategy that remains consistent over a longer time horizon (3-5 years), respond faster to change, keep investing ahead even when times are hard and consistently outperform over the same time period. On average they grow their revenue 36% more and deliver 81% higher annual economic profit.
So, the key to moving faster than the world around you is to have a strategy that gives you a platform to cut through the noise and accelerate change. This seems counterintuitive in a world of agile and experimentation etc. when strategy has been declared dead.
So how do you create a strategy that lasts, that people will care about, and that accelerates - not stifles - innovation and change?
I. Purpose driven strategy: stretching, compelling and with commercial edge.
Too often purpose becomes a generic statement of good intentions; a commitment to do good that is disconnected from what the business actually does. Or in some cases it ends up as a bland description of what the business does do and its commercial ambitions. There is a big difference between simply having a purpose and having a purpose that propels your business forward.
A great purpose:
- Speaks to the unique relationship you want with your customers and the role you play in their world
- Stretches you; it should be aspirational, always just over the horizon, challenging you to innovate beyond today’s business and opening up new profit pools
- Is worthwhile; a call to action that your people feel is worth running through walls to achieve
Airbnb’s purpose is “to create a world where anyone can belong anywhere”. It’s good because it simultaneously feels true to what Airbnb does and yet goes beyond what they do today. It challenges them to be more than just a short term rental platform, and to reimagine itself as an experiences business, one that is invested in the local and global communities it serves.
This is worth getting out of bed for, and whilst it focuses on the differentiated relationship Airbnb wants with its customer, it demands we think not only about our relationship with them, but go beyond that to think about our customer’s world, and the broader role we play in it. Recently, I received an email from Airbnb:
Purpose plays an important role in connecting the social and commercial interests of your business, not just your responsibility in the world, but your unique role in it and your relationship with customers. That is why it is meaningful, and that is what people want.
Yes, humans are self-interested (even those ‘woke’ millennials and gen Zers), we do put what is best for ourselves and our families first. However, what we really want is to know that our selfish interests are aligned with doing good in the world. What is shifting today is that we are finally realising that these interests do align.
The Just Business Index identifies companies who define success in broader terms beyond immediate shareholder return, making explicit commitments to customers, communities, employees and the environment. The businesses in the index are from diverse sectors and include companies such as Intel, Biogen and 3M.
Whilst it is clear that that there is plenty of room for all businesses to keep improving, the top 100 not only outperform their peers on customer and employee engagement – they translate that into commercial results, delivering 8% higher return on equity.
Analysts and investors are jumping on board, as they realise that responsible capitalism isn’t just a fad but delivers results. And not only that, but who wants to invest in businesses who are blindly following strategies that will only accelerate their own failure? If the payback on major infrastructure investments is 15-20 years, then you better still have a market for the products and services you are going to be offering. Anyone want to build a coal plant?
But well-intentioned purpose and broadly defined goals ultimately count for nothing if they aren’t integrated with a strategy that shapes the actions of your teams. Campaigns such as Airbnb’s referenced above are good… but if purpose only stays at the brand level then cynicism amongst employees and customers will return - and with a vengeance.
The real question is where are you going to take pain and personal risk? Not at the expense of long-term success, but so that you can in fact focus on long-term success. For example in June 2019, Unilever CEO Alan Jope announced they will;
“dispose of brands that are not able to stand for something more important than just making your hair shiny or your skin soft, your clothes whiter or your food tastier.”
Jope went on to make clear that the decision will be evaluated not on good intentions but on concrete commitments to back up the words with actions, and laid out a timetable within which this change must happen. In doing so Jope is not only accelerating change. He is doing so by creating strategic continuity following on from Paul Polman’s tenure – resisting the urge to reform the strategy and stamp his own ego on the next phase of Unilever’s future. And anyone following Unilever’s steadily increasing share price will understand the benefits, particularly if you compare them to other FMCGs, like Kraft Heinz, whose short-termism continues to drive them into the ground.
II. Just enough strategy, in ruthlessly simple terms
A few years ago, I worked with the executive team of a FTSE 100 insurer. The team had recently worked with one of the usual strategy houses to define a strategy. They showed us a 200-page PowerPoint, full of analysis, much of which was useful and in it were some good ideas too. They had also made a nod to the new age of business, including a story on the front page… the issue was, the story was in size 9 font, 100’s of words long, and made little or no sense.
The net result was half the team agreed they had a strategy, but had very different interpretations of what it was, and the other half didn’t realise they had a strategy at all.
Analysis is not strategy. Detailed plans are not strategy. Strategy in our definition is the clear choices you make about where you want to focus your time and effort (and critically where you won’t), the things that will propel you towards a goal that’s worth achieving. It lives not in 200-page PowerPoints, but in the hearts and minds of your teams as they make decisions on a daily basis.
Far too often leaders stray from giving strategic direction, into defining plans and priorities right the way down through their organisation. Not only does this disempower teams, the ideas are weaker and at this level of detail, the world is changing too fast for the insights and ideas to remain relevant for long. This is the world in which strategy is dead, and agility rules.
A good strategy should create a 3-5 year framework that provides stability and consistency in your decision making - ultimately allowing you to move faster. We challenge you to set just enough strategy, in 40 words or less – clarifying the 3 or 4 drivers, that will propel you towards your goals and purpose, calling out the specific outcome you are going for.
In our business we know that if we want to realise our purpose “to turn every employee into a person on a mission”, a critical driver for our next 3+ years will be marketing ourselves better. We could have landed on a driver called “Excellent marketing” or some such drivel. But what would that mean? Ultimately for our business success is less about the number of people who know us (brand awareness) and more about the quality of relationships we are developing in our network.
We therefore defined our driver as “Friends not fame”, making it crystal clear not only to those driving the bulk of our marketing efforts where to put their time and budgets, but also setting a tone to all of our team as they represent our brand out in the world.
iii. Is it really living in your business?
Satya Nadella, the CEO of Microsoft, talks about the responsibility to be boring as a leader. The more senior you get the more you have to keep repeating the same things, and the more tempting it is to deviate away from those things. But your task as a leader is to create clarity and consistency so that the rest of the business can crack on and do what they do best.
Embedding a purpose-driven strategy is the most valuable time you'll spend if you want to accelerate change in your business. You are not too busy to do it properly, and doing it properly isn't about forwarding an email or walking your team through that infamous PowerPoint.
All humans, no matter where they sit in the hierarchy, need the same things if they're going to commit. They need to understand the unvarnished context and the challenges we’re facing; really understand our response to that and the intentions behind our words; have had a chance to kick the tyres on the thinking with their peers and leaders, and look them in the eye to see if they’re really in; had space to reflect on what it means to them, and ultimately if they really care.
This is about conversations not comms. This is not about being indoctrinated but about engaging you to think and challenge. This is not a one off process but is ongoing.
A strategy that lives in the business is a framework that people use to make decisions about where they focus their time and what they are really shooting for.
That’s why embedding it is more than sticking it on a wall. It’s about making it into tools that live in the conversations we have in the work:
- Does your purpose live in your recruitment process?
- Do performance and development goals anchor back to the strategy?
- Are onboarding and training materials aligned?
- Is it embedded in toolkits from financial modelling to innovation gates?
 interview with Jean-Dominque Senard in Strategy+Business