Hacking Strategy: Balancing Control and Flexibility

balancing control and flexibilityIn today’s discussion on hacking strategy, I’d like to focus on the tradeoffs inherent in balancing control and flexibility. From today’s discussion, I hope you’ll gain an appreciation of:

  • Why you need flexibility and control to reach strategic goals?
  • Why you give up control to gain flexibility and vice versa?
  • How to make the rights strategic decisions for your organization.

Why, you ask, is a marketing person spending so much time discussing strategy (if you missed my last few posts on the topic, read this on exponential organizations, and here’s another on strategy palettes).

The answer is simple.

Marketing is much more than advertising and sales. It’s strategic and whenever businesses meet to consider strategy, marketing deserves a major place at the table.

Why you need flexibility and control?

Hacking strategy by staying flexible

In his book entitled Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it)*, Salim Ismail argues for flexibility as a key element of exponential growth in organizations.

And, he’s not wrong. Nimbleness is a key strategy for surviving in turbulent, fast-changing environments like computers, gaming, and even hotels (Airbnb), taxis (Uber), and other industries. BCG (Boston Consulting Group) calls these environments Adapting and Shaping environments in their new book Your balancing flexibility and controlStrategy Needs a Strategy: How to Choose and Execute the Right Approach*. Fast-changing environments NEED flexibility. Five-year plans (maybe even 1-year plans) are ridiculous in these environments and force firms into narrowing strategic thinking that considers only further penetration of existing markets or product improvements serving existing markets (product development) — the bottom half of the Ansoff Matrix or Product/ Market grid shown to the left. True innovation, which often requires creative destruction, is anathema in organizations with long planning horizons.

Rapidly changing environments need the flexibility to change products and market quickly — maybe even moving into diversification.

Google is a great example of a company adept at flexibility. Drawing on the vast resources that come with being the biggest search engine out there, Google constantly scours the environment for opportunities to capitalize on the future. It’s no wonder Google is a major force behind Singularity University, a self-driving car, virtual reality, the internet of things, and many other forward-thinking businesses.

Flexibility isn’t something that comes from the top down in an organization or something you simply will into existence. Flexibility evolves from hiring a flexible workforce, leasing not owning, distributed decision-making and processes that promote agility.

But, flexibility isn’t a panacea solving all organizational problems the way Ismail seems to think. Flexibility only comes at the expense of control.

Hacking strategy with control

Many of the same things that create flexibility decrease the amount of control an organization has over its internal workings, its ability to ensure product quality and safety, and meeting customer expectations on a consistent basis.

Like a petulant child railing against a bedtime, current fashion eschews control. Sometimes control is necessary and severe consequences ensue when control is too lax or lacking altogether. Consider problems facing Uber as reports surface of drivers molesting passengers, killing a 6-year-old girl, and stalking. Yeah, yeah. I know. The same thing could happen with cab drivers hired by a traditional cab company, but the vast number of part-time drivers necessary to meet Uber’s organizational promises to customers means the chances of some type of problem increase. And, in a traditional cab company, a supervisor sees the person every day and has a better grasp of their character.

Other problems emerge when you lack control over the resources necessary to meet your organization’s goals. A contract manufacturing facility provides flexibility, but the lack of control might mean when you need to expand, you can’t because someone else wants the machine time.

And, what happens when there’s a problem with product quality or not meeting delivery schedules? In the short run, you’re just screwed if the contractor isn’t willing to determine the cause of product failure or advise in advance of projected delays. Sure, you can break your contract and go somewhere else or hold the threat over the contractor’s head, but that doesn’t solve your short-term problem. There’s also the issue of finding someone to replace the current contractor, which, in some verticals, is challenging and time-consuming.

And, contractors don’t work for free. They have to make a profit, which means it costs you more than hiring or buying machinery in the first place.

classic versus visionary strategyWhat we have here is a classic make versus buy decision many of us learned in introductory finance. Buying decisions are based on both financial considerations, as well as desired control and quality issues. But, one thing is clear — control is much more important in classic strategic situations where the environment is reasonably stable and the firm has little control over the market.

Hacking strategy: balance

A hacking strategy means you don’t have to decide between flexibility and control, but you can balance the two.

How? You might ask.

Goal alignment.

The real danger of outsourcing is the threat of the parties acting out of self-interest rather than communal well-being. By aligning goals so that the actions of all parties satisfy the self-interests of each party, you’re able to exercise control without sacrificing flexibility.

An example might help.

Let’s say you want to create autonomous units within your company — each deciding on their own actions, yet all supporting the overall health of the company (Virgin is organized in this fashion). An autonomous unit might be a subsidiary, a business unit, or an individual or team.

The first step is to structure rewards that align the goals of the two groups — the autonomous unit and the organization. Generous profit-sharing is one way to get this goal alignment or you can tie resources in some way so that goals align.

In addition to rewards, when the organization lacks bureaucratic control non-coercive forms of influence are necessary to ensure compliance and cooperation. Requests, open, bi-directional information exchange and recommendations comprise non-coercive influence. Using threats and legalistic pleas are counterproductive to achieving a balance between control and flexibility because they exert control that limits flexibility.

Metrics are an incredibly important part of balancing control with flexibility. So, you’ll need to create a system for capturing metrics representing how effective the autonomous unit is and how efficiently they deploy assets. Control seeks to enforce collaborative behavior through monitoring outward signs of compliance (such as time cards, units of production, etc), while flexibility uses monitoring to observe performance (such as customer satisfaction, speed to market, etc). It just proves the old adage: You improve what you measure.

Hacking strategy: making the right strategic decision

I think the first step in making the right strategic decision is to determine what the environment looks like using the concept of strategic palettes. Are you in a position to be a visionary or are you in a classical environment? Do changes in the environment require renewal?

Your environment controls your strategic options.

Next, create a balance between control and flexibility. The closer you are to a classical environment, the more that balance needs to shift toward control because profit margins are razor-thin and mistakes are costly.

You’ll also need a system for constantly re-evaluating your environment. Look at Kodak and Blockbuster. In their heyday, these firms were the market leaders with secure positions in their classic environments. Then digital cameras (for Kodak) and Netflix (for Blockbuster) made their business models obsolete overnight. Arguably, both innovations should have started with the big players; Kodak and Blockbuster, not with some upstart that lacked funds and expertise, as well as trusting relationships with the market.

Kodak and Blockbuster failed because they failed to appreciate the change in the environment brought about by new technology and it was left to others to appreciate the opportunity and reap the rewards.

Every company needs a few crazy geeks representing diverse backgrounds and expertise, who are given some money and left alone to their own devices. Their job is to play around with stuff and if they come up with something interesting, management must be open to the notion of turning their entire operation over to the new idea. That’s what keeps your organization relevant and keeps the cash registers ringing.

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