Jan 21, 2025 | Leadership, Strategy
‘Strategic thinking’ is that thing most managers claim to do. Often their effort amounts to little more than scheduling next year’s budget with a 5% increase across the board. It’s like preparing for a cross-country road trip by only checking your rearview mirror. Such a view does deliver information, which makes everyone feel better, but it is probably not what you really need to know to avoid the changes in the road.
Think of strategy like a game of stud poker. There are the cards in your hand (things you control), the cards on the table (things you can see but can’t control), and the cards yet to be dealt (the unknown unknowns that keep CEOs awake at night). Most of us spend our time obsessing over our hand while barely glancing at the table, let alone thinking about what might come next. It’s no wonder most strategic plans have the shelf life of a quarterly forecast derailed by something unexpected.
These are the three perspectives you need to integrate to build a resilient strategy that delivers superior outcomes:
- Your Hand (The Controllable): This is your comfort zone – budgets, teams, processes. Important? Sure. But if this is all you focus on, you’re playing solitaire in a poker tournament. For example, Netflix’s early strategy focused on perfecting its DVD rental logistics, then moved very early to streaming. Blockbuster completely missed the streaming wave by being wedded to what they had in their hand.
- The Table (forecastable but Uncontrollable): These are the market trends, competitor moves, and regulatory changes that everyone can see. It’s like looking out the window at the weather, you can’t control it, but you’d better pay attention, or miss out as did Blockbuster.
- The Unknown (The Wild Cards): This is where things get interesting. It’s the stuff nobody saw coming. The Covid pandemic, Homos attacking Israel, and the ferocity of Israel’s response might qualify. Similarly, a competitors factory burning down, or the sudden emergence of TikTok. Tesla’s rise wasn’t just about electric cars; it was about reimagining the automobile industry in ways others hadn’t considered, and stealing a huge lead over incumbents as a result.
Roger Martin’s Secret Sauce
Roger Martin, is the strategy guru who makes other strategy gurus feel like they need to up their game. He developed a framework that’s surprisingly simple to say, but still deeply challenging to deploy well. He calls it “Playing to Win.” I sometimes refer to it as “Five Questions that might stop you shooting yourself in the foot.”
Here’s the deal:
- What’s your winning aspiration? For Patagonia, it’s protecting the planet while making quality gear. “Being the best” doesn’t count, as it does not enable anything. My eldest sons soccer team had that goal, but lacked the basic ingredient of talent.
- Where will you play? You cannot be everything to everyone, despite what your sales team may think. Targeting eco-conscious adventurers allowed Patagonia to dominate its niche.
- How will you win? This is where you need to get specific. “Excellent customer service” is not a strategy. Amazon redefined customer service with ‘free’ 24 hour shipping and no-questions-asked returns.
- What capabilities do you need? Be honest, not optimistic. Amazon’s logistics network didn’t appear overnight; it was built with significant and deliberate investment.
- What systems must be in place? The boring but crucial bit that makes everything else possible. Walmart’s supply chain system is a textbook example of operational efficiency.
Following are some tips from experience that should make deploying Martin’s framework a bit easier.
Channel your inner five-year-old
Remember your kids kept asking “why” until you questioned your life choices? That’s first principles thinking in action. Instead of accepting “that’s how we’ve always done it” (the corporate equivalent of “because I said so”), we need to channel that annoying but brilliant five-year-old curiosity.
Tesla didn’t just make better cars. Elon Musk saw the potential of an entirely new way of engineering personal transport. Ask yourself: “What would this look like if we started from scratch today?”
Customer centricity
Being customer-centric is like being a good listener at a party. Everyone claims to do it, few actually pull it off. Real customer centricity means developing almost psychic levels of customer understanding.
Apple anticipates user needs with seamless ecosystems, while Spotify curates personalised playlists that feel almost uncanny. It’s not just about asking customers what they want, but about understanding their lives so well you can see where they’re headed before they do. Amazon keep an empty chair in every meeting as a reminder that they must never forget the customer.
Scenario planning
Think of this as your business GPS, but one that shows possible future roads, not just the ones that exist today. There are plenty of mind-mapping and task recording tools around now that assist the thinking. Update it regularly, make the updating of the map a quarterly agenda item in your management meeting. In this way, you will almost certainly be more thoughtful about emerging opportunities and threats than your current opposition.
The assumption testing framework
This is where you play “strategic Jenga” carefully pulling out each assumption to see which ones are actually holding up your business model and which ones are just taking up space. Often the challenge is to identify the core assumptions, before they become so ingrained in the fabric of the enterprise that they can almost disappear. Start by listing the core assumptions about your market, and test one at a time by having conversations in key customer segments. These conversations will also serve to alert you to the stuff happening on the fringes that may evolve to disrupt current assumptions.
Synthetic market research
AI powered market research is an emerging tool that will rapidly alter the balance of power in many markets. Suddenly, you can get very accurate insights in a very short time, for a fraction of the cost of traditional market research. For smaller marketers have been excluded from extensive market research insights by cost and time. AI powered ‘synthetic’ research is like having a time machine enabling you to look forward and make those difficult strategic choices with more certainty than just yesterday. There is no certainty about the future, but the more and better insight you have, the better choices can be made.
Have a weak signal detection system
This is your business equivalent of those people who can smell rain coming before the clouds appear. Set up your organization to notice the little changes that normally occur on the fringes of every market, that might become mainstream.
- Subscribe to trend newsletters in adjacent industries.
- Conduct regular chats with customers (the kind where you actually listen).
- Build cross-functional collaborative teams who compare notes, ideas, trends they see, and insights.
- Forge partnerships with startups to stay ahead of disruption.
- Look for the small customers that the sales people describe as demanding and difficult. Sometimes that are the ones setting out to be different. Remember that every large customer started out as a prospect, and most probably a small and difficult customer.
Continuous strategic improvement.
When playing out on the edge, mistakes will happen. When they do the best companies and people learn from them, absorb the lessons, and go again. They build resilience and deep domain expertise from everything that happens to them. Continuous improvement is a mindset as valid in strategic thinking as it is in any other operational domain. Arguably it is the driver of CI across an enterprise, as the strategy plays a key role on the generation and nurturing of culture, a necessary context for CI to thrive.
Strategic thinking isn’t about having a crystal ball, although we are getting better at articulating the challenging strategic choices that abound. It’s about building an organization that can spot changes early, adapt quickly, and occasionally make bold moves that leave competitors wondering what just happened.
The trick is finding the right balance between the cards you can see and preparing for the ones you can’t. Use first principles thinking to challenge those comfortable assumptions, stay close enough to your customers to finish their sentences, and leverage new tools like synthetic research to stay ahead of the curve.
The goal is not to predict the future perfectly, it’s to be better prepared for it than the next guy. When you can do that, you can win the competitive race, and hopefully have a little fun along the way. After all, if you’re going to spend time thinking about strategy, you might as well enjoy the process.
Jan 17, 2025 | Analytics, Branding, Marketing, Strategy
Small improvements in average price drive large improvements in profitability.
Do the numbers.
The normal expectation in consumer markets is that volumes will increase when you promote. Usually they do, but that period is usually followed by a period of lower volume, as what you have done is pull volume forward. This gives those who would have bought at the full price a discount, and rewards those who only buy on price, but who will move on next time to the cheapest on the day.
Brand equity flattens the peaks and troughs of price driven demand, reducing the volatility of price driven volume.
A reduction in the volumes driven by price alone, and an upward to the right movement in average prices paid, act together to drive profitability.
The challenge is to be in sufficient control of your distribution to be able to manage the balance of price based promotional activity often demanded by distribution channels, and investment in brand equity held by the end consumer.
In Australia, the power of the supermarket duopoly together with poor management of that balance by weak minded and brand equity unaware management has resulted in the brand equity of most consumer brands being trashed by supermarkets. It has been replaced by cyclic price promotions, with mandatory participation if distribution is to be maintained.
One of the great missed opportunities to build and leverage brand equity (in my opinion anyway) is the use years ago of Al Pacino by Vittoria coffee.
I have no idea how long the campaign went, or how much they spent, but I clearly remember seeing the ad on TV, and on posters in coffee shops around Sydney. I still buy Vittoria coffee as my preferred coffee, but have been ‘trained’ and rarely need to buy it at the full price of close to $40/kilo, when it is ‘on promotion’ regularly at between $20 and $25. I drink a lot of coffee, so the low price is a pantry stock opportunity.
Unless I am highly unusual, Vittoria has missed out on many millions of dollars of profit over the decade. Heavens, they miss out on several hundred a year just from me!
The potential power of human emotion on the purchase choices they make is huge.
Most fail to leverage it to its fullest extent.
The campaign for Meadow Lea margarine that ran from about 1977 to the mid-eighties is another example. ‘You ought to be congratulated’ not only drove the brand to massive market share leadership at an average price that was a premium to its natural competitors, but it also drove the size of the whole market.
When the dopes who took over the brand failed to recognise the dynamics, and cut advertising, while bowing to retailer pressure, the brand shrunk like a balloon with a slow leak.
Nearly 40 years on, the ‘you ought to be congratulated’ positioning may retain enough equity to be revived. Similarly, I am sure Al Pacino still drinks coffee every day, but may now be a very expensive spokesman.
Maybe not. Worth a try?
Jan 15, 2025 | Communication, Marketing, Small business, Strategy
A few days ago I turned 73. Well past any reasonable retirement age, but I cannot see myself as retired. While there is not the same pressure of past years, the thought of playing golf and going to lunch a lot does little for me.
In late November last year, WordPress cut off the basic numbers that had been supplied about readership of this blog. I could no longer see which posts had been opened, how many times, and the country and source of the opener. It had been a free part of the site for the whole 15 years of the blog, and I did look at it, and once a year, do a superficial analysis of it in a post, referring to the most popular posts, but that is all I did.
It was a curiosity for me to see which post performed best, but the numbers are tiny, ridiculous in any commercial context. However, I did nothing with that information.
In contrast to my advice to all my clients, I did not bother to look at the also free Google Analytics. I stopped that some time ago when I realised I was spending time looking, and doing nothing with the conclusions.
Equally, I have made no effort to ‘monetise’ the blog, rarely touting for business, no ads, no affiliate links, none of the obvious things I knew I could do to generate some cash.
When I started the objective was to use it as a lead engine for my one man strategy consulting business, but that did not last. Rapidly I realised it was way more personal, self-indulgent, even selfish than that. I did not really care who read it, although gratified to know a few did, The purpose had become to order my own thinking, be creative in the way I thought about things, and to sate my curiosity.
Back to the numbers. My initial annoyance with WordPress, dissolved, Who cares, I don’t. The metrics did not matter to me, beyond some level of vanity, as I did not use them. Their absence for the past 6 weeks has not altered my ‘scribbling habit’ at all, a habit that like any deeply held habit is very hard to break, and why bother, it adds value to my life, and if it adds value to anyone else, that is a bonus.
We live in a world of numbers.
If it cannot be counted, it does not matter sayeth the consultant, I have said it many times, while knowing the truth of Einsteins utterance that ‘Not everything that matters can be counted, while not everything that can be counted matters’.
Rarely do I see myself as a writer. Occasionally, when someone compliments me on post, I feel that maybe I am, but I see myself as a scribbler, one who feels compelled to write stuff down in order to make sense of it, to coalesce the conflicting information and emotion banging around in my brain. The act of writing is what is important, not what comes after. Therefore why should I be annoyed that WordPress has demanded I pay for some numbers that may appeal to vanity, but I do not use.
Stick your numbers up your arse WordPress. I will scribble on regardless, and reconsider GA.
Have a great 2025.
Jan 13, 2025 | AI
‘Tokenisation’ is a term bandied about by my AI literate colleagues, commonly at least 40 years my junior. Usually, the term is used in the context of ‘it takes X number of tokens to complete this job’ or similar.
In AI, tokenization is like breaking a sentence or text into smaller pieces (tokens) so that a computer can understand and based on statistics, predict what the next word (token) will be. The process takes a paragraph and chops it into words, parts of words, or even individual letters now called tokens. This then enables the system to find patterns and make predictions of the next part of the text using probabilities derived from the context represented by the previous tokens.
All AI platforms like ChatGPT, Perplexity, Claude, and myriads of tools that have emerged from the woodwork over the past 2 years, are trained to understand and generate tokens in this manner. They ‘learn’ by examining tons of text and figuring out how words and sentences relate to each other statistically. Tokenisation is the first step in this process.
When you give text to an AI tool, it:
- Breaks the text into ‘tokens’.
- Assigns a number to each token (a kind of code).
- Processes these numbers to understand statistically the patterns and relationships.
- Uses this understanding to answer questions, summarize, or generate text or in some cases, a graphic representation of the tokens.
There are different ways to break down text, depending on the instructions given to the model. It is also why the response to instructions can sometimes go crazy, as the machine does not always ‘hear’ what you thought you said. The placement of something as simple as a comma in the instructions can, and often will, alter the output.
This breaking down of text into ‘tokens’ is an essential step in the AI process. It is all about statistics and patterns, without any meaning as we understand it being given to the words themselves.
AI is a predictive machine that gives you the next most likely outcome given the instructions you have given the model. The way those instructions have been interpreted based on the way the tokens drive the patterns and relationships, delivers the outcome.
It is also how AI can work across languages, and why it consumes huge amounts of energy to run the billions of statistical calculations underlying the response it gives.
The above is a vast simplification of the process, but it ‘sort of’ satisfies an old marketer like me, trying to understand this new world that has suddenly arrived on my doorstep. It also explains the limitations of the models, as the ‘training’ is done on existing data. The system has no capability to leverage ‘knowledge,’ that human capability that enables completely disconnected facts and ideas to be put together in entirely new ways. I can only assume that this is where the current research is directed, building the ‘neural networks’ artificially, that we have as an outcome of millions of years of evolution.
Jan 8, 2025 | Change, Governance, Leadership, Strategy
Around this time two years ago, I questioned the effectiveness and fairness of the initiatives bundled into the ‘National Reconstruction Fund.’
I am still questioning.
With an election looming in early 2025, I expect a predictable flurry of press releases from both sides of the political divide, each extolling their own recycled virtues. If we were able to fast forward to 2027 and look back, I have little doubt that the progress made will have been as glacial, if discernible at all, as it has been in the past decade.
Since my initial commentary, the updated Harvard Complexity Index has marked Australia’s further decline to a rank of 102, squeezed ignominiously between Senegal and Yemen. This is a stark indictment of the nation’s diminishing capacity to engage in sophisticated manufacturing and industrial activities.
There are no short-term fixes for this relentless erosion of economic potential.
The likelihood that our grandchildren will enjoy the same standard of living my generation took for granted grows slimmer with each passing year. Tragically, the long-term structural reforms needed to reverse this trend remain conspicuously absent from the agendas of those currently in power, and those seeking it. Beyond facile declarations and populist slogans there is little real substance.
The pack of political clowns in Canberra and beyond, hold the levers necessary to drive meaningful change. However, they seem paralysed: too timid to take bold action against the vested interests of a few, too ensnared by the trappings of power today, or, perhaps most damningly, too inept to grasp the urgency of the situation.
Perhaps it is all three?
Our past prosperity was built on the back of commodities.
For most of the 20th century it was those we grew, wool, beef, and grains. From the 1970’s that reliance evolved to those we dug up and exported for others to add the value. In parallel, manufacturing crashed from close to 30% of GDP in 1970 to 5.4% according to World bank figures in 2023.
Future prosperity will have an entirely different face.
It will be constructed of applied technology delivering globally competitive solutions to challenges only just emerging.
For those we require education, scientific discovery, application of those discoveries to global challenges, and a deep well of intellectual and financial capital generation to drive the development.
This is a challenging agenda, and we need to start the surgery now. The longer we leave it, the more painful it will be, and the further behind our competitors we will be starting.
Addendum January 11, 2025.
Professor Frank Bongiorno From ANU published a thought provoking piece back in 2021 reflecting on the erosion of Australia’s universities. It articulates my views on the topic way better than ever could, and deserves to be noted and spread. It was republished on ‘Inside Story’ here, and I reshared it on Linkledin.
