The DIY Leader

Would you agree to be operated by a great doctor whose rate of fatality in a surgery is 90%? Then how is it sound advice to join organizations or invest in companies that only achieve 10% success in implementing strategies?

In their book “The Balanced Scorecard” authors David Norton and Robert Kaplan note that 9 out of 10 companies fail to execute their strategies.

It’s important to note that the statistic does not say that 90% of organizations have bad leaders or underperforming employees. So, if it’s not the capability that’s under question here, then what is it?

Take this into consideration, 2 candidates competing for a promotion. A is a proven employee with 5 years of experience and B, who is much more creative but has only been with the company for 2 years.

If A gets promoted it would be because of the length of his service, and if it's B, then it would be because of creativity.

The objective of that example is not to help us decide who is more “promotable” it is to see whether it makes us feel that we had enough information to make that decision.

If “length of tenure” was enough of a characteristic on its own, then why aren’t the oldest organizations in the world the most profitable. If “capability of ideation” was enough, then why did Ask.com, a website where your questions get answered by experts fail, even though it started 2 years before Google did?

Does the cause behind that massive rate of execution failure then lie in things that we do not think have obvious value? Things like how colleagues like working with A and how B’s team, even though the most successful, has the highest attrition rate in the company.

 

Therefore, is it then the combination of the leader’s capability and how they allow their directions to be shaped by the organization and the people in it? Can that be called the “art of execution”?

 

For me and my mentor, it’s definitely that and beyond, we call it “Orchestration”, thanks to our love for music. 

 

Here are few things to consider from this style:

 

1)  An orchestrator may not necessarily compose but she understands every element of the composition.

 

JF Kennedy may not have created the spaceship to send a man to the moon, but he made sure that everyone at NASA, including the man who was responsible for sweeping the floor, knew that their job was to “Help put a Man on the Moon”.

 

Similarly while building a plan, a leader may not have the right answers required for the same, but she will ask the right questions to find out from all the right sources, and will do enough to understand each and every assumption of the plan. This gives her the ability to share the plan with many more people and get them to believe in the big picture or future.

 

2) She has the ability to break down the composition into individual score sheets.

 

When Louis Gerstner decided to transform IBM from a legacy hardware business to be the “Solutions for a small planet”, it was not just an idea on paper. There was a well thought out plan on how this one common brand theme will be for all IBM products and services around the world. Which SBU will focus on which technology solutions, how people will be rewarded for getting things done and what will be the top priorities across teams in the organisation. Without a clear breakdown of the plan, transforming IBM from ‘survival to success’ would have been a far-fetched dream. Don’t you think so ?

 

Unless the big plan is broken down into clear granular and manageable components, it will never become a reality because it can’t be handed over to people for taking the ownership of making it happen.

 

3) She has a brilliant understanding which score sheet must be played when and by whom

 

This is one area where many leaders think it is too operational for them to be involved. But wouldn’t we expect an orchestrator to ensure that everyone is playing to the same tune and getting in and out of the composition at the right time to create the desired impact? Similarly, it is very much the responsibility of a leader to focus on how specific things are getting done, questioning whether they are being done on time, tenaciously following through to make sure reviews are done and feedback is getting implemented.

 

While Steve Jobs’ ability to think, intensity and single mindedness is often cited as the reason behind where Apple is today, without Tim Cook’s focus on getting ‘people and operations right’, would it have been possible to achieve the status of the world’s most valuable brand?

 

The most important (and special) thing about Orchestration is that it is based on identifying the best musician for each score sheet.

Just imagine someone who is trained to play the keyboard is being given the job of playing the guitar, what a disaster it would be. He may still manage the job, but will he give his best, will he enjoy the job, will he continue to do it again and again? Each person has his own strengths, things that they are good at and are genuinely interested in.

 

At EQUiTOR we call this as ‘focusing on the 5%’ , the ability to understand what is intrinsically good about a person or an organisation and using that as the basis to help them build a different version, rather than fixing the existing flaws.

 

Outstanding leaders always have a very good idea about the strengths of the people they lead and therefore can very quickly see what they can become in the future. And once an individual sees where you take them, they NEVER give up on you till you are strong and confident enough to reach that destination.

Co-authored by Ekta Das and Tarun Chakraborty.

The futility of "Plan B"

A net not a hammock. 

What if Martin Luther King in his legendary address back in 1963 said, “I have a second favorite dream”? What if Kennedy said “We choose to go to the moon, if not, we’ll settle for a sub-orbital flight”? Do you think all of the individuals who rose to the challenges that followed these great speeches would have bothered with any of the endeavors that was required off of them?

The biggest reason behind why these speeches were so empowering is because they never interested themselves with “what if we couldn’t?”. They never bothered with a Plan B. 

Take a regular occurrence from the lives we lead today for example, a zoom call. The moment we realize that the meeting is being recorded, our attention span with regards to the conversation going on in the meeting drops like a soap from a wet hand, just because we know there is a backup, which we never watch anyway. 

Having an alternative to the central goal, is effectively the first step towards not achieving it. A research conducted by the scientists at Wisconsin found that people who had a backup plan had a “lowered desire to achieve their primary goal”. Business coaches note that the professionals with a well-prepared plan B failed more frequently than the ones who went all in with plan A. An easier example of how plan B is detrimental to plan A becomes evident when we see that just preparing a backup plan emerges out of an opportunity cost on the resources that could have been implemented in the further advancement of the primary plan. 

Plan A is more impacted by a Plan B if it is something that requires a lot of sheer effort. A plan where it is essential to venture far out of our comfort zones to achieve success. That however is the truth behind all of our biggest of endeavors like scaling up a business, acquiring a new skill, reorientation of organizational goals etc. So now what do we do? Abandon the concept of a plan B? Not get on a plane which can emergency land itself in case of a pilot error assuming that since there is a technical support for pilot error, the airline therefore must be recruiting sub-par aviators? As investors, not invest in businesses with founders who have well plotted back up plans? How is that sound advice? 

To answer this, let’s draw a parallel from motor racing. Almost all global race regulations restrict every team to a single race car. So, do the teams just come with whatever they think is the best possible car, put a driver in it and fly back home? No, what they do, and what has always been the biggest expense of every race team is “preparing for an eventuality”. A race manager ensures that there are layers upon layers of fail safes, vast stocks of replaceable parts and a large team of mechanics to keep the single race car, the Plan A, going till the end of the line. The team that wins is always the one which had the best combination of a Plan A and the preparedness for the eventuality that a component of the plan A may fail. There is a fundamental difference between a “backup” that diverts from the achievement of a goal and a “contingency” that further ensures it.  

Two ways to ensure we are preparing a supporting contingency rather than a backup are as follows: 

• De-risking plan A: The steps that are being added should be towards keeping plan A pointed in the direction it was aimed for. If the steps are pointing it increasingly away, then it is plan B and not a contingency. 

• Test of Absence: How far is the end goal changing in absence of the supporting steps that have been added? If the change is significant then the steps subconsciously are taking you towards a different, mostly an easier goal. 

So, is there an alternative course of action that can provide some degree of safety without it being deteriorative to plan A? Yes, and that is if the outcome of the secondary plan is the least favorite, the bare minimum. This supporting plan may not justify the effort to outcome ratio at all but it’s only objective is to be a rung above the worst case scenario, and in some cases this course of action ends up in increasing the desirability of the plan A itself. 

That said, the combination of plan A + plan “bare minimum” is only better than that of A & B, and like we saw in the historic speeches in the very beginning, nothing ensures the achievement of the highest of goals than having just one plan and going all in. 

The best example of how successful is the strategy of not having anything, except a contingent proofed plan A, are we ourselves. For what is the human race if not dependent upon one body with our entire medical science advancements to contingent proof it.  

Co-authored by: Amarjeet Ghatak, Tarun Chakraborty and Ramesh Jude Thomas.

The curious case of the missing CMO

A recent Korn Ferry study suggests that the average tenure of the Chief Marketing Officer (CMO) is the lowest in the C-Suite: 4.1 years versus 8.0 for the chief executive officer (CEO) and 5.1 for the chief financial officer (CFO). Even the chief information officer (CIO) is slightly higher at 4.3 years. Other global research suggests that the churn could be even higher. Now, unless we seriously believe that this is accepted reality, it cannot be good for any value-seeking firm. The last time we met here, we had explored the importance of having board representation for brands as arrowhead assets for any business. Irrespective of category. If we agree, at least by test of absence, that a brand is a key strategic asset, how can we have uncertainty around the custodian of this asset? A decade-old global survey suggests that 80% of CEOs do not trust or are unimpressed by their CMOs. This is against 10% for their CFOs. On the other hand, 74% of the CMOs in that study believed that their job design did not allow them to maximise their impact on the business. I don’t know how you feel about these numbers, but over two decades of conversations on both sides suggest that these trends are not unfounded. We have often found ourselves mediating between the CMO and CFO, and in some cases even explaining the need for a top flight CMO, as a business imperative. This seems counter-intuitive. If the CMO is indeed responsible for our most valuable relationship, i.e. our customer base, and what she/he believes about us, how can we let this situation prevail in our C-Suites?

So who’s to blame? Is it the CEO—unclear about his or her expectations? I’m not so sure, particularly if the CEO is running a good ship, producing results, and understands revenue, finance and share performance. Is it the human resources chief—bringing in the wrong talent? Again, not if the rest of the organization is well resourced and running to plan, including the C-Suite itself . Or is it the CMO—generally at cross purposes with the CEO’s expectations? Remember, at one time CFOs were referred to as bean counters because they always seemed to put quarterly numbers above our ‘evolved consumer lingo’. This is clearly not a simple find-and-fix issue. It’s just that for decades, our inability to transition out of an industrial-age, asset- heavy approach to capital efficiency was blindsiding us. As a consequence, the ability to look beyond supply chain performance for creating value was impaired. Our ‘Smile and Belly Curve’ offers an insight into the problem and its solution. ‘Belly’ firms typically focus on procurement, production, logistics, and distribution, and are bloated in these mid-value-chain functions, while ‘Smile’ firms pay far more attention to R & D, retail, marketing and customer relations, at either end of the value chain.

In a value appreciation workshop for a top travel company, I once asked the leadership two questions: If I wake you up at 2.00am and ask for three options for a Bengaluru-Toronto return fare, how long will you take to respond? Most said under 3 minutes flat. Right. Now If I ask you at 11am in your office to share the last three customer complaints that you resolved, how long will you take? Silence in the room. The point sank home.

Most legacy firms in developing markets tend to be supply-side experts. They are ‘Belly’ companies, with margins typically wired to supply-side efficiency. Whereas ‘Smile’ firms tend to mark their margins from demand-side advantages, such as innovations and consumer (brand) equity. Here’s a fun fact: In the league table of the world’s top 100 most valuable brands, only nine countries are represented. These countries also control close to 70% of the world’s economy!

So what does this have anything to do with our missing CMO? Twenty years in business has harshly underscored one truism: You can only manage what you measure. Every time we have put the CMO out front and at the centre of the value creation imperative, the company has flourished. This, however, will imply a few fundamental changes in the way we structure our thinking. Here are some pointers for your consideration:

One, financially recognize and disclose the material role of your primary brand (however small you are) in driving performance. As we discovered in our last conversation, there are 34 discrete areas of brand impact on performance .

 

Two, align the company’s leadership to think about your brand (and its value drivers) as the arrowhead for business planning, organization structuring and performance management.

 

Three, appoint your CMO as the brand’s custodian, from asset protection to return on brand capital. Let his or her bonuses be constructed around these metrics.

 

Four, ensure that the CMO is a permanent invitee to board meetings, along with the CFO. If the CFO is the top guy’s right hand man, the CMO should be his left hand, at the very least. I would really love to see our CMO cross double digits in tenure and collect a massive bonus in each one of those years.  Just for delivering outstanding shareholder returns.

Would love to know what you think! rjt@equitor.com 

(This column was first published in Mint in the issue dated 03-06-2021)

Brands are missing from the Board room

Did you know that 94.6% or 19 out of 20 of listed firms in the world do not have a board representation for marketing? I have  forever wondered why the 21st century CMO is not a permanent invitee on the board.  In 2019, global businesses spent USD 614 bn to establish or strengthen brand assets. These are nothing but assets, because they have a direct and material impact on performance. 

This is not some clever compliance arithmetic at work. It's not nice to not have reporting, and I will explain why. Imagine that (God forbid) there was an injunction in a court which prevented your firm ( or  NGO )  from using your trademarks for at least a few months. Would it be business as usual? How many different ways might the firm have been impacted, only by the loss of trademark usage?  We have isolated 34. 

Last month, I did a CII  masterclass for 50 odd CMOs  on brands as core business assets. And given what we saw in the previous paragraph, the fundamental question we debated is why the brand was missing a permanent representative on the board. 

 

It will come as no surprise to anyone reading this piece that balance sheets represent less than 30% of the average firm’s value today. This is irrespective of category. It is not an fmcg or luxury goods bias.  Carborundum Universal, an abrasives firm, trades at a price to book value of 6.73. In fact, the Sensex 30 is on average valued at 5 times its book value. 

 

So where is the rest of the value sitting and why is it not captured or reported with the same granularity as the items on the balance sheet? Over the last three decades the world has come to accept that the two primary intangible asset groups hidden outside the balance sheet are intellectual property ( Literally the ‘recipes’ of the firm) and brands ( ‘reputation’ of its offerings )

 

Why is this relevant now ?

 

If the largest and most influential assets ( i.e. property of shareholders ) are sitting hidden in plain sight outside the books, then it is obvious that we are not cognisant of how they can contribute to performance or value creation. And hence by implication, we are governing an underperforming firm, nine times out of ten, Or 19 times out of 20, to be more precise. It’s a bit like saying that a pilot is running a plane on one out of four engines and then wondering why it is underpowered. 

 

Therefore, wouldn’t you agree that giving these assets their rightful place at the top table is just good governance? But what does governance of intangible assets actually entail? Over the last thirty odd years, some enlightened countries ( France, Germany, Sweden, Japan and Denmark )  had decided that the least they could do was to provide clear guidelines to capture the value of these assets outside of the financial statements. Some individual firms have gone further.

 

Overall, our own interventions have led up to four clear board priorities for brands: 

Board oversight : An independent director/committee accountable for brand assets. Consisting of brand professionals who have led businesses. This implies both a strong understanding of the asset, as well as its impact on business performance. 6% representation is a joke.    

                                                  

Information symmetry :  A well laid out mechanism for impairment testing and asset value reporting, separately for brands. Shareholders should have clarity on the position of these large assets just like they do with tangible assets.

Return on brand capital: Set up clear and convergent metrics for a return on these assets in particular. The gross return on capital tells us nothing about how individual assets are contributing to performance and value creation.

Brand due diligence: That the board and its appointed investment committees demand, and have access to due diligence on brand assets of acquisition targets. Most of the time we are buying companies at many times the value of the books, with little or no idea of what that premium is supposed to contribute to future performance. How does that make for a sound investment logic? 

For my money these are the four basic essentials for getting brands to where they belong, namely, into the boardroom. For any business category, anywhere in the world.

 

Does it really make sense that most of a firm’s value lies undisclosed, unaccounted for and underleveraged? Especially in a world where value seems to be moving further and further away from land, infra and stash? 

Would love to know what you think! rjt@equitor.com 

 

(This column was first published in Mint in the issue dated 06-05-2021)