| Richard: | Strategy is about the direction of organizations. We live, we work in organizations, we consume organization’s products all the time. These organizations are enormously influential on our everyday lives. And it’s their strategies that matter to us as consumers, as employees and as citizens. |
| Host: | Welcome to Season 1, Episode 6 of Delve: a podcast from McGill University’s Desautels Faculty of Management where we’ll hear from management researchers and practitioners as they explore the latest ecological, social, and economic challenges that we face as a society. I’m your host Mo Akif and today we’re talking about something that all organizations do – and that’s developing a strategy. Strategy making is becoming increasingly open – and when it’s done well it brings many advantages, like creating a shared understanding, a stronger commitment and a sense of inclusiveness among all stakeholders. Today we’re joined by Richard Whittington, Professor of Strategic Management at Saïd Business School, Oxford University and Marie Josée Lamothe, McGill Professor of Practice at the Bensadoun School of Retail Management and Academic Director of the McGill Dobson Centre for Entrepreneurship. Drawing from Whittington’s research case studies and Lamothe’s 25 years of managerial experience, they will explore the importance of coaching, communication, and coordination in the implementation of open strategy. |
| MJ Lamothe: | So Richard, why strategy? Why are you dedicating so much of your research, your time, your career to it, and mostly why is it so important looking forward? |
| Richard: | So why strategy? Strategy is about the direction of organizations. We live, we work in organizations, we consume organization’s products all the time and the organizations, these organizations I could mention Google or Facebook or such other organizations, are enormously influential on our everyday lives. And it’s their strategies that matter to us as consumers, as employees and as citizens. |
| MJ Lamothe: | So tell us a bit about the research you’ve done in the last couple of years and your methodology that brought you to write this book, so we can have a bit of the context. |
| Richard: | I started as a historian. I’m not a professional historian. I wanted to look at the way in which strategy as a practice has changed. |
| Richard: | And one of the ways I thought was to understand change, it’s great to know where it started, and it started at least in the way we think of it now, sometime in the 1960s. If you like strategy consultants might recognize this when Boston Consulting Group was founded as the first specialist strategy boutique firm, McKinsey had existed, but didn’t think of itself as a strategy boutique. In 1963, we might say around then was the beginning of strategy as we know it as a practice. So what I’ve been doing is tracing how strategy has changed over the long-run in order to understand how and why strategy practices change over time. And they do, enormously, and that’s going to be our theme. So I’ve taken a historical perspective as a frustrated amateur historian. |
| MJ Lamothe: | So you’ve had the opportunity of meeting, correct me if I’m wrong, I believe over 100 stakeholders, whether it’s CEOs of companies or even in the government sectors and et cetera. Tell us a little bit about that journey and throughout all of these interviews, when you’ve asked them to talk about strategy, did you see any differences, either cultural, generational, industry specifics? |
| Richard: | Yeah. Well, I spoke to a lot of people, strategy consultants, chief strategy officers, chief executives, founders of strategy consulting firms, middle managers, involved in strategy. What I’m going to talk about this opening up a strategy. People are getting much more involved in strategy than they were back in the 1960s, when it was an elite exclusive confidential practice, it’s changed. And one of the things which has changed, you mentioned the generational thing. The people who we work with now, managers work with now, are a different generation to the people who used to work back in the 1960s and 1970s, in the large manufacturing conglomerates, which to a certain extent, you may remember the General Electrics of this world, they define the way at one point, we thought about business and managing. |
| Richard: | There were large workforces stuck on the shop floor of big factories, removed from the head office, detached, deliberately detached from head office, often without the opportunity of a lot of education. They were not included. They’re not expected to be included. They had low expectations of inclusion. That for the millennial generation doesn’t work anymore. It’s not just a matter of not working, but to ignore them as a foolish waste of resources because they know what they’re doing. They know better what they’re doing, often than the chief executive, the chief strategy officer and the people at the top. That’s been one of the big cultural changes over the last 70 years. Clearly. |
| MJ Lamothe: | So when I think of strategic planning or strategic management or thinking, however, we want to look at it. When I was at Procter and Gamble, I would argue that it was more process driven of an approach. And I would say the three examples I’m going to give are equally as interesting to me, but very different. I’d love to get your perspective on what that’s going to look like moving forward. |
| MJ Lamothe: | Proctor and Gamble was very process driven. We had an innovative strategy to follow. We needed to check the plan, and when we product developed things, it needed to follow a certain innovation strategy process. And then that would be supported or not by our management, top down, etc. And that was in New York, whether that’s relevant or not. I’m fascinated by that because when I moved to Paris and I was heading product development worldwide for L’Oreal, it was all about strategic planning, but strategic planning was highly creative, right? And the concept there was even though it was a top down, it was a oui monsieur kind of environment, very top down and then go back 15 years, it was all about confrontation for the anecdote we had… It doesn’t exist anymore, but at the time we had a confrontation room, which was. |
| MJ Lamothe: | You had all the C-levels, call them all the management around and you little person who was going to present the next product you wanted to launch globally, would go in the middle and present your innovation and your idea, etc. And that was the step one of strategic planning, you needed to present the end result and get debated on what the outcome would be, and from the confrontation, from everyone around, brought a whole lot of innovation. It was actually really interesting, but innovation started by confrontation and confrontation was the step one of your strategic plan. You could not start without it. |
| MJ Lamothe: | Interesting enough, when I was talking to the head of Amazon this year, last week in Canada, he was saying that when they present a project, they need to present to their management the press release. So the end result, and that’s the debut of knowing if they can get the funds to develop whatever strategy they had in mind that they feel is an opportunity. So it’s an end result. Then I moved to Google and I’d say their leadership and the culture was very different. It’s no longer top down. It’s very horizontal. It’s very open. It’s very inclusive. You out of 80,000 employees, there are about 10, 11 levels. So everybody’s got the same title. |
| MJ Lamothe: | Do you think that the future of innovation and strategy is only what Google is doing? Do you think there’s still room for that vertical management, top-down authority leadership? |
| Richard: | Well, so we got three models, exemplars, if you like. PNG, process led, tick-box led. I think many of you in this audience will experience some of that. And we need some of that because don’t forget resources are being deployed, people need to be held accountable. Yeah? Budgets are being set, incentives are being offered and at the end of the year or the end of whatever, you could’ve come back and say, “Yeah, I delivered. And could I have my bonus please?” Now that’s a very reasonable thing. And that’s probably not, in some form or another is not going to go away. The Lindsey Owen Jones… What was it? Lindsay Owen Jones, L’Oreal Salle de Confrontation, is famous. I’ve been there. It’s- |
| MJ Lamothe: | He’s the one I was presenting to. |
| Richard: | It must’ve been terrifying. I’ve met him a couple of times. |
| MJ Lamothe: | You got to embrace the confrontation. |
| Richard: | But that’s wonderful too because there’s a prototype, maybe quite a brutal prototype for a more open way of engaging in strategy. So your junior product manager will go out there and talk to the C-Suite and debate. |
| MJ Lamothe: | Yes. |
| Richard: | Now in the old days that didn’t happen. |
| MJ Lamothe: | That’s very true. |
| Richard: | So that is a step I might include. I didn’t, I could have, might have included in that progress towards what I call open strategy, which sounds and I don’t think it’s totally this, it sounds a little bit like what Google is doing. Now when I talk about open strategy, I don’t mean democracy. I don’t mean a shift to decision rights. Chief executives are responsible to their investors for those decisions, they take the final decision. But whether through a consultative process or through a confrontational process as perhaps at L’Oreal, there might be debate, yeah? And ultimately then the people, the millennials, or the experts, the product managers, the people who are going to bet their own personal careers on these particular propositions, issues they’re putting forward, that they’re going to be debating it and bring their knowledge to the party. And that’s a step towards openness. |
| Richard: | I don’t believe that strategic planning is dead. I don’t believe that some of the things around choice, control and competition that strategic planning emphasized and introduced to the world in the 1960s and the 1970s via BCG and other similar consulting firms, that’s not going to go away. What’s happening is open strategy is being led on top. |
| Richard: | Strategic planning is a small step in this gradual progress towards a more inclusive and transparent way of doing strategy in the sense that even the chief executive of the 1960s began to shift strategy from their head, his head typically, and have to debate it with strategy consultants, have to debate it with divisional general managers. That was a small step. Strategic management, which tends to get people much more involved in the implementation of strategy in the 80s and 90s with large programs and projects of organizational change, that involved people, middle managers in particular, in implementation. Open strategy is getting closer to involvement, inclusion, and transparency in the formulation of strategy rather than just the implementation. And that’s where the Salle de Confrontation, that’s where the L’Oreal, that’s where the Google processes are becoming closer to this open strategy. Open strategy is a layer on top, not a replacement of the two previous notions. |
| MJ Lamothe: | I would argue that to make it to open strategy, it requires a different organization. Teams need to be organized differently within the team. So for instance at Google, if you were the leader of a project, not necessarily a manager, but the person accountable for the project, you had to surround yourself with people that were stronger than you at different topics in order to bring you their perspective and debate the strategy from all various angles. |
| MJ Lamothe: | And then from that would become the diversity of thinking that was required. We often talk about diversity and the need for diversity in teams, but what was really important to get to what you call open strategy at Google is that from diversity, you had to come to commonality. So from the diversity of thinking around the table, you had to find commonality that became your strategic way of approaching a problem to solve, which is a little bit against everything we keep hearing where we’re still pushing for diversity but at some point diversity needs to merge. |
| Richard: | So I think there are two interesting issues there. So commonality implies some consensus, final consensus after that debate, after the confrontation if you like à la L’Oreal because ultimately you’re trying to carry people with you. |
| MJ Lamothe: | Absolutely. |
| Richard: | Yeah, And that’s a great deal of the point of open strategy. One of the benefits of open strategy has both more motivated and more informed teams. So they bought into it and they understand it. They can communicate it to the people who report to them, to their own teams, and they believe in it and can convey that conviction to everybody who’s further down or wider out in the organization. So the consensus is important so diversity may mean many voices, but eventually arrival at a common voice. |
| MJ Lamothe: | Absolutely. |
| Richard: | Is that the way you were thinking about that? |
| MJ Lamothe: | Yeah I agree with that, yes. |
| Richard: | One of the things that you touched on which I am interested, you could also say that commonality implies communality or equality. |
| MJ Lamothe: | Mm-hmm (affirmative). Right. |
| Richard: | And there’s a threat because it’s from hierarchy as well as from diversity to commonality. It’s from hierarchy to some equality or communality in the organization. I haven’t thoroughly researched this, but my strong impression from some of the case studies and organizations I’ve worked with is that for many senior-ish managers, not the top management team necessarily, the shift from hierarchy to communality is very disturbing, yeah? Because instead of influence on strategy being determined by rank, it’s being shaped by expertise. It’s a market for ideas and a market which is fairly free market, fairly level playing field. |
| Richard: | And if you spent 20 years building up your career, a level playing field is not quite what you want anymore, thank you. That pushy young person who’s attracting all the internal social media interest, whereas you are stumbling with your two fingers, puts you in a very awkward position. So I don’t know whether that was what you were referring to but I think when I talk about open strategy, it’s not an unmitigated good. It’s not for everybody, not for every organization. It’s not an unmitigated good because it can lead to inadvertent unfortunate unintended consequences. And is also internally very disruptive. So there’s some issues in that. |
| MJ Lamothe: | There is. I would argue commonality brings a sense of belonging. |
| Richard: | That’s right. |
| MJ Lamothe: | That’s absolutely required among millennials today. |
| Richard: | That’s a good point. |
| MJ Lamothe: | And that as a C-level even though you have the authority to make the decision on the strategy, if you’re not inclusive enough, and that’s where I’m coming back to your point, but it’s not inclusive enough. I mean not by avoiding commonality, avoid giving the sense of belonging that I need to have a shared values and shared mission, shared reason to be with a team. So that’s the debate I would have with that. |
| Richard: | Yeah. |
| MJ Lamothe: | But, one point that you’ve made very clear throughout your book is that foundation to open strategy to you is based on inclusion and transparency. We’ve talked about inclusion not so much about transparency. So I would love to hear your thoughts on that. |
| Richard: | So inclusion simply means inviting more people into the strategy process, to use that word. And that might be within the organization or from outside the organization. So one of the things I was able to observe a little off was how Shell would do work with a consortium of large organizations, not just private sector businesses on their scenario analysis. Shell was very famous at one point for developing scenario analysis. Now it doesn’t do it on its own anymore, even though it’s an expert in the practice. It shares that practice with others because it feels it can learn more. So they share some of this early strategy formulation stuff. Inclusion is referring not just to employees within the organization, but maybe to partners, maybe to members of an ecosystem for a high tech firm, maybe for complimentary organizations in the case of Shell, inclusion’s all that. |
| Richard: | So that’s the opening doors stuff. The transparency stuff I believe in particularly and I’ve been doing some work recently, seems to me to be very important. It can come in a number of ways. There might be chief executive presentations to financial analysts in a way they didn’t use to do. Only 20 years ago, we did a study of this, of the top 100, the global 100 firms who would do strategy updates or strategy presentations, general reviews of their strategy to analysts and media. There’s only about 2% who are doing that in the early 1990s. Now every year, it doesn’t sound like a lot, but it’s a big change. About a quarter will do that thing once every year. So there’s a big change. Chief executives are talking more about their strategies formally through presentations to analysts and informally through blogs and things like that to the world. |
| Richard: | Elon Musk is of course famous for his… He’s not a model of management, but is not in every respect anyway. But in this respect, he offers an intriguing example. He releases his strategic plans, plans one and two, and so on and so forth. He is very transparent about certain aspects of his strategy in a way that wouldn’t have happened 20 or 30 years ago, at least. So the transparency is important. |
| MJ Lamothe: | So you also talk about the rise to openness. |
| Richard: | Yeah. |
| MJ Lamothe: | Do you want to tell what do you mean by the rise of openness? And then why do you see a need for that openness per se? |
| Richard: | Well, I’ll certainly take the investor argument. Investors make big bets in company strategies. That’s what they’re buying, a strategy. Ultimately, a strategy is a promise to do something in the future, a promise to make some return in the future and that’s what an investor is buying. Now, an investor faces uncertainty. Does this strategy make sense? What is the strategy? So the more a business can be open about its strategy, the less investors are uncertain and the more willing they’re going to be to make a punt on that company’s stock. By reducing information asymmetry, you increase investor confidence and you increase the value of your stock. And in fact, we did do a study of this. We looked at strategy presentations by chief executives amongst American corporations on average and there was a big dispersion. There’ll be a 4% uptake in a company stock in the two or three days following a strategy presentation. |
| Richard: | Now these were fairly large companies. 4% would be worth a billion dollars or so. That seems to be worthwhile spending an afternoon with a bunch of analysts for. Now, of course that effect might attenuate over time. But basically for investors, you’re reducing uncertainty. But there are other benefits of motivated, informed employees. And companies like Alphabet, Google or Amazon, they don’t have an unlimited license to operate anymore. They’re no longer those fresh young tech hopes who promise freedom and knowledge and information and networks and community to the world, they’re monopolists. |
| MJ Lamothe: | Yeah, they are. |
| Richard: | Useful monopolists but sometimes apparently or they appear abusive monopolists too. So that’s why I go back to the citizen point. Openness should be part of their license to operate. You’re going to be a monopoly, you’re going to be a useful monopoly. But we have to understand what you’re doing and why so that we can hold you to account. So open strategy is important as I said, perhaps before for investors, for employees, for consumers, but also for citizens. |
| MJ Lamothe: | And you also mentioned how it’s also useful in the public policy environment and you’re doing some work there. Do you want to perhaps share about that? |
| Richard: | Well, that goes to the Integrated Reporting Council work I’ve been doing. So it seems to me odd. We audit finances inadequately, of course. But we don’t audit strategies, yeah? The financial audit is a historical thing. We need to have I think some sense of how people are looking to the future. Now one could audit the process. Not so much, “Fine, if you’re pursuing a strategy of acquisition, I’m not going to ask you.” It’d be unfair to say, “Who’s on your hit list? Who do you want to acquire?” That’s not fair. But I do think it’s fair to know that that’s your strategy broadly. I do think it’s fair to ask who you’ve hired as consultants, who you’ve hired as investment banks and know this. And then I think it’s fair enough, a year or two later, one could argue about the delay period to release your original strategic plans of a year or two back. |
| Richard: | So investors can determine for themselves whether the process was appropriate and whether you did genuinely try to deliver on the strategies that you are committing to do. So in terms of public policy, I think we need to given that we do live in a world of large but very useful monopolies, I think part of their license to operate should be and indeed all companies, beyond a certain size. Companies should be a little bit more open about their strategy processes. We should audit those as well as their finances. |
| MJ Lamothe: | I actually very much agree with that perspective. But building on that, I would say strategy is not open strategy, is not only relevant to big large corporations and monopolies, sure it is. For all the reasons you’ve mentioned. |
| Richard: | In particular, yeah. |
| MJ Lamothe: | And for all the right reasons and the reasons you’ve mentioned, certainly for large corporations and we’ve said it’s important to engage your employees, give them a reason to be, it’s important to shareholders. But I would say and argue that it’s just as equally important, perhaps more so for startups and scale-ups. |
| Richard: | Yeah. |
| MJ Lamothe: | Because that’s the only way that they get an official go ahead. When you’re a garage entrepreneur wanting to be the next Google, you have to start somewhere and your vision but mostly your strategy is what sells. And when you want to go IPO… When I work with companies/startups right now, they want to go IPO and they want to go on the stock exchange in Toronto here but elsewhere. That manifest, which is the document you have to write in order to deposit to be able to go IPO. So the manifest is essentially 100 pages of your strategy to try to convince all the banks and the investors, etcetera, that you’re the next big unicorn that they should be invested so that this garage entrepreneur becomes the next Google, right? |
| Richard: | Yeah. |
| MJ Lamothe: | I wanted just to highlight the fact that not only do I agree with what you’re saying at the monopoly level or at the corporate level, but it’s just as equally you can’t get runaway from strategy because it’s that much more important even though you’re a garage entrepreneur. So your points I find… And come back to the very beginning, I think it’s extremely relevant and probably more so moving forward. You talk in your book about the three Cs and how they’re very important in order to implement effectively open strategies. Do you want to talk about those three Cs? |
| Richard: | I suggest the three things they should be concentrating on, they do them all right already. But they’re going to have to find ways of getting more involved in the coaching of junior level or people traditionally excluded from strategy in real strategy skills. They can’t leave it to the organization development people, the HR people, those sorts of people, because they don’t know strategy. |
| Richard: | So don’t delegate to those people because you’ve got skills as strategy professionals, which need to be reinforced and transferred. So, chief strategy officers have to become coaches sometimes even, this is the alliteration coming out again. Coaxers as well as coaches, because one of the things I see sometimes in these open strategy exercises, not everyone wants to join in. Participation rates, if badly managed, are low. You have to coax people into the arena to participate in open strategy initiative. Coax them, then coach them. Give them the skills, the confidence to do something, to contribute in a real way. So, coaching is a skill. Coordination is a skill, I can say, I did some work at Intel, there’s lots of initiatives going on. This was a few years back. A huge task was to coordinate these. If you’re open, if you’re inclusive, you’re letting a thousand blooms flower. Have I got that quite right? |
| Richard: | A thousand flowers bloom, but they need to be a commonality, a harmonious cultivation, not a wild jungle. That goes back to strategic planning still has its role as a control function. So coordination and control are still important, even in open strategy. And then, I, as a communications person in the room, but again, you do not want to trust and there’s one large bank I observed where they said, “Oh, this open strategy, there’s inclusion, there’s transparency, that’s all about comms.” No, it’s about strategy. |
| Richard: | They handed it over to the comms people to do the open strategy exercise. It worked quite well, but the strategy people had let the strategy go. And so, if strategy people with their skills, with their experience, with analytical abilities, let these things slip. The strategy will be diluted. It will be less effective. In other words, on top of the traditional analytical skills, on top of the strategic planning skills, strategy consultants have to do coaching, coaxing, coordination, control and communication. It’s a whole new skill set to add on to what they already have, not to dispose of what they have, but to supplement what they have. Does that make sense? |
| MJ Lamothe: | Okay. So, let me take you back to my last five years. Up until six months ago, I was managing director at Google. I would say that when I joined five years ago, we didn’t talk about open strategy. We talked about strategic planning. When we did do our strategic planning, we had a plan that was actually, the first time was five years out, which is kind of ridiculous. We dropped it really quickly to three years out, and we dropped it really, really quickly to one year out. And, I have to say that from one year to one year, and I did it five times. One plan never looked like the other one. There was such a difference in the strategies that were developed from one year to the other for within the year. Perhaps it’s because we were in a tech company, but that was mostly driven by artificial intelligence. |
| MJ Lamothe: | So, I would argue, at least from my experience in the last five years, technology has brought a lot of disruption to business models, which allowed a lot of disruption in the way we strategize, would you agree with that? |
| Richard: | Yeah. So, one of the arguments which is often made is strategic planning is pointless in a world where everything’s going to change in a year, let alone five. |
| MJ Lamothe: | But something will, everything will change. |
| Richard: | Yeah, everything will definitely change. That’s not to say it’s pointless. So, strategic planning still has its point so long as one understands the purpose of a strategic plan is not to produce a plan, but to plan together, it’s the process, not the output which matters. |
| MJ Lamothe: | If you have to leave us with two, three main key takeaways, you want to make sure we remember after this whole conversation, what would those be? |
| Richard: | Okay, to reinforce a point I made just a moment ago, open strategy is not the solution to everything. It’s not changing everything. It’s running on top of some stable core necessary organizational functions. But finally I’d say, strategy’s really important. It’s important to us as citizens. It’s important to us as employees, and it’s important to us as investors. For all those three constituencies, open strategy is something, one thing, that can be valuable. And is worthwhile examining as a potential part of the toolkit for contemporary organizations, especially to go back to where you started contemporary organizations with many millennial employees. |
| Host: | That was Richard Whittington and Marie Josée Lamothe talking about implementing an open strategy in a variety of organizations. If you enjoyed this podcast and want more insights, you can subscribe on your podcast app of choice, or visit us at mcgill.ca/delve. |
