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July 3, 1992

Eight Steps

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There is a process that leaders today can use to lead their companies toward successful strategy. Its parts are recognizable from earlier eras, but it has twists and bends and reinterpretations that come from the nature of the new business realities. You might be surprised by its starting point. You might take a while to get used to its demands upon your imagination as well as upon your hardheaded business sense. You might feel your adrenaline surging when you see the way it requires you to make quick, bold decisions to turn the ship of strategy, or issue an all-engines-stop order, or call for full speed ahead.
But literally, there’s no other way to come up with strategy effectively in today’s world (unless you get really lucky).
This is how you create 3.0 strategy for your organization.

[[INSERT DIAGRAM OF THE 8 STEPS OF STRATEGY 3.0 PROCESS]]

There are eight parts to this process (though nobody will use all eight parts for any one strategy). Together, they create an entire taxonomy or ecosystem of strategy.
• The first four parts of the process take you from gathering information to settling on and testing out a new strategy. You will need to follow all four of these steps in sequence.
• The final four parts of the process comprise a set of options you can choose from, depending upon the feedback you get to your early strategy. You’ll choose just one of these options.
Working this process will give you the clarity you want about what’s next for your organization or business unit.
Let’s take a look at the process in more detail, piece by piece. As you’re reading about this process, let it stir up ideas in your mind for how you can put it into practice within your organization for the particular strategic needs you have today.

Conversation

The old days of an executive cooking up the future for his organization by sitting alone in an office and cruising through spreadsheets are gone.
Strategy creation in a 3.0 world looks very different. It’s not solitary but collaborative. It’s not based solely on hard data. It’s derived in large part from human conversation.
In a world where change is endemic and uncertainty may be the only certainty, what you want is an insight solid enough to build a product, a service, a brand, a marketing campaign, or a whole company around. Somebody within your reach has that insight. You get to it by talking until it comes out.
Here’s why: we live in a storytelling culture. Our stories are not just fiction but also are factual narratives. And storytelling is not just for entertainment but seeps into all areas of life. In recent years, experts such as Peter Guber, author of Tell to Win, have demonstrated the value of storytelling in business.2
Storytelling is not just a gimmick or an add-on. Steve Denning writes in Forbes magazine, “The ongoing reinvention of management to transform workplaces from the boring, sterile, dispiriting cubicles of the 20th Century into the lively centers of inspiration and creativity that are needed for the Creative Economy of the 21st Century has storytelling at its core.”3
Conversation is the proper starting point of 3.0 strategy because it allows people to tell their stories. Valuable insights come out of these stories that would be most unlikely to come out of mere data.
As told to me by an executive of an agency connected with the project, Procter & Gamble found a compelling and unexpected insight about how to reach burqa-wearing woman in Saudi Arabia for their cosmetic product Oil of Olay. At first P&G had approached marketing of Oil of Olay in this Middle Eastern country by touting the traditional skin benefits of anti-aging. Sales flagged. What was needed was a conversation with these women to find out more about their lives.
The agency went exploring to find the insights. By befriending a few families and simply becoming part of their daily lives, they eventually were invited into conversation about cosmetics. During the conversation, these Saudi women lowered their burqas to reveal the beautifully painted faces that they proudly protected to share with their husbands. They confided that they “loved” Oil of Olay because it helped them create a “clean canvas.”
The epiphany about how the product was used completely changed the positioning of Oil of Olay in the Saudi market. Data and research reports alone would never have revealed this insight to P&G. The insight was revealed through conversation and led to a turnaround in sales for the brand.
Conversation is like a field where you are tilling the soil to get something to grow.
For example, recently I was advising a global nonprofit on its process for growing into the future. My suggestion to them was to hold some discussions on the topics they wanted clarity on with four key groups—leadership, lower-level staff, people they serve, and outside advisers. These aren’t bull sessions. The discussion is kept within guardrails; it’s about something.
That’s how one organization is doing it. Another company or nonprofit might choose to conduct its conversations differently. They can be formal or informal, highly structured or somewhat looser, carried out in house or out of house, involving just the team or bringing in outsiders.
The important thing is that it’s the right people talking about the right topic. It’s a guided dialogue designed to allow opinions to come out so that the strategy leaders can begin to understand what’s happening in their world and what their organization might do next. Instead of mining data, you’re mining conversation. And in the process you’re giving the participants a sense of having a say and of knowing what’s going on.
Stage enough conversations to till enough of the soil until valuable opinions and comments begin to grow.

Tips to have an effective conversation:
1. Practice active listening skills. This means using more open-ended questions, repeating, paraphrasing, and reflecting with follow-up.
2. Use the words why and how more often than you use who, what, when, and where.
3. Put meaningful dialogue into time lines and sequence.
4. Be sure to get context and back story.

Insight

Holding conversations on the right topics with the right people tills the ground so that a lot of perspectives quickly grow. The next step is to glean at least one ripe insight from the harvest that has the potential to carry a new strategy.
And just as it’s amazing how one kernel or seed can grow an entire plant, so it’s incredible how one insight can carry a product or a company for an entire season.

Insight: Everybody brushes their teeth, and many would like a spinning brush similar to the one the dentist uses on them. But back in the 1990s, the spinning brushes on the market cost at least $70—more than most people were willing to spend.
Response: Inventor John Osher put together the battery-operated SpinBrush using technology he had already created, selling each brush for a mere $5. (He soon sold the business for $475 million.)

Insight: Zeneca Ag Products had a promotion program that it thought was a value proposition for its customers. But its customers started saying they didn’t like the way the complicated program was eating up their time.
Response: Zeneca dropped the promotion and made more money.

Insight: Just about every home has a hard floor that has to be cleaned. But conversations with homeowners revealed frustration because mops are messy and difficult.
Response: P&G developed Swiffer in 1999. It’s still one of their most profitable products, with numerous spin-offs.

Would you love to have a transformative insight like these come out of your conversations? Just one could make your business.
When it happens, it may come as a sudden Aha! moment. More likely, though, it will come out of a methodical process of listening, talking, and learning.4 That’s why I encourage planned conversations. Make an epiphany happen. Don’t just wait for it.
Do you see how different this kind of insight seeking is from data mining? What you’re after is a human truth about the way people act or what they desire. This takes an ability to see inside the human heart and mind.
I have often jokingly said, “I’ll trade you three data analysts for one anthropologist.” But as a matter of fact, hiring someone trained in business anthropology (a real branch of this academic discipline) is becoming common. That’s because these people know how to read the behavioral tendencies of consumers.
Chip maker Intel hired Genevieve Bell, an anthropologist with a Ph.D., to help the company make choices about new products. She spends most of her time in homes and other places where people gather all over the world, talking to them about how they use technology. For example, according to one magazine profile, she “fought hard to get chip designers to rethink their impulse to build ever-faster processors and market them outside the U.S. For great swaths of the world the Internet is, and will continue to be, mostly text on a phone, she says. And so Intel is pursuing that market with its Atom chips, which are cheaper and consume less power than, say, Intel Core i3 or Celeron processors.”5
Of course, it’s not only anthropologists or other trained social science professionals who can find insights. Anybody with a trace of empathy can find insights. You can.
Here is where your expertise as a leader comes into play. You don’t dream up strategy alone in your office, but you do apply your experience and judgment in evaluating the insights that you gather through conversations.
Treasure them when you get them. They’re not only as growth producing as kernels—they’re as valuable as nuggets of gold.

Tips to bubble up insights in conversation:
1. Listen for emotion—phrases that indicate desire, dream, defeat, or discouragement.
2. Look for patterns, trends, and consequential facts.
3. Discern what comes naturally to someone, and where the natural momentum of the organization is, and probe around the corner from that.
4. Do an OT analysis—like SWOT but focused solely on opportunities and threats (that’s where insights often come from).6

Choice

Jim Collins and Morten T. Hansen begin their book Great by Choice by stating, “We cannot predict the future. But we can create it.”7
How do we create the future? By making choices that will get us where we want to go.
I can’t tell you how many times I’ve seen strategy processes that didn’t wind up going anywhere. The energy all went sideways. Maybe even backwards. That’s because the people involved didn’t have the guts or the discipline to make a choice and go with it.
The whole purpose of holding the conversations and gathering insights is so that you can pass through the gates of decision. So as soon as you have found an idea that you believe holds potential for success, you have to make a choice about the specific strategy you will pursue to realize that potential.
The kind of choice we’re talking about is not merely a decision. It’s also the action that follows. We might refer to it as a choiceful action.
You’re a real estate broker and you had the insight that people want to see inside the houses that are on the market before they take the time to visit in person. You decide that it’s worth seeing if you could get more business by putting video of home interiors on your website. You act by sending out a videographer to take 360-degree video of rooms in a few of your listings to see what reaction you get.
You’re a natural gas distributor and you had the insight that interest in natural gas as a fuel for vehicles is finally becoming serious. You decide that the way to get into this market is to form a partnership with a filling station chain. You act by negotiating a deal with one of these chains and delivering compressed natural gas in a limited market to gauge the reaction.
So “Choice” is the step where the strategy process becomes more concrete. You create a document outlining your strategy. You marshal your resources, develop tactics, and execute a plan to put your strategy into operation.
Whatever you do, it requires a choice. And making a choice always requires courage. So you may be nervous about committing resources to a strategy that may fail. Remember that in a fast-moving economy there are hidden costs to doing nothing and remaining stagnant. Remember, too, that good decision making is a skill you can develop through learning and practice.8
Without decision, you can find yourself marching in place or just milling about. Take a step of progress. It may be a baby step, but at least it will be forward motion.

Tips to make a good strategic choice:
1. Limit yourself to three people to run your idea by—fewer and you have a blind spot, more and you’ll be paralyzed by options.
2. Play out your theory of change—who and what will be impacted by your decision.
3. Do a cost/benefit analysis, but do it for three years down the road.
4. Sleep on it. If possible, practice the twenty-four-hour rule of waiting before taking the decisive step.
5. Push the button on the choice. Make the decision.

Feedback

You may have already discerned this phenomenon: Because you’re the boss, when you ask people whether they like something you’ve come up with, they say, “Yes, yes, yes” like an eager puppy. Is that their real opinion? It’s hard to know. (And if you’re vain or lacking in self-assurance, you may secretly crave the validation whether or not it’s reliable.)
But look, when you’ve launched a new strategy, the last thing you want is this kind of sucking-up response. You need objective, reliable data, whether it strokes your ego or not. You’ve got to let the world push on your strategy so that you can see if it holds up against the pressure.
Feedback can come from many sources. Social media. Surveys. Sales figures. Pay-per-click advertising. Focus groups. Sales associate debriefings. More conversations.
A daily deals website called 1SaleADay.com started selling a utility knife that folds into the size of a credit card. The company leaders were taken aback when one person posted on their website, “As a Law Enforcement Officer, I do not appreciate you selling items that criminals can easily hide.”9 Instead of immediately reacting to this negative unsolicited feedback, the company decided to get more feedback. In a Facebook post, they asked their large body of followers what they thought about the company selling the credit card knife. Within twenty-four hours, they had received 750 comments. The majority agreed with the decision to sell the knife. Result? A decision was reinforced. (Not to mention, a potential crisis was turned into positive PR.)
Just as you needed to conduct the original strategic conversations with the right people on the right topics, so now you need to get feedback from the right people on the right questions about your strategy.
Here is where the data analysts come into their own. There are usually numbers to crunch, spreadsheets to create, graphs to put on SlideRocket. Yet you also need “soft” analysis. You still need not just numbers but also the ability to discern human factors such as trends, patterns, and excitement levels.
One caution: Be on the lookout for false positives. It’s not just employees looking to butter up the boss who sometimes say what you want to hear. Research has shown repeatedly that respondents to surveys and similar feedback instruments tend to inflate their opinion of a product or service. Just because nine out of ten survey respondents say they like your new app doesn’t mean that will translate into nine out of ten paying money for it. Just because all your friends love your idea for a community third space doesn’t mean you will be able to raise the money.
Don’t rely on yes-men. Get some professional assistance, if needed, to make sure the feedback you’re getting is as reliable as it can be.

Tips to get feedback you can use:
1. Give employees freedom to be generous in correcting consumer complaints; this action encourages more feedback over the years to come.
2. Research your company on Google, Facebook, and other relevant sites, and see what people are saying about you. Then try to keep the conversation moving.
3. Develop an insider group of people who like you and will tell you the truth; offer them perks for their involvement.
4. Make sure someone has the responsibility for compiling customer feedback into a readable format in order to present it as fodder for insight.

Once you have a solid basis of feedback, and you believe it’s reliable, then you need to do what may be the hardest thing of all: act accordingly. I summarize the four responses you can take with four P’s. You need to decide to pause, pivot, pull the plug, or power up. This isn’t a sequence. You choose any one of these at a time.

Pause

Even though the feedback you got on your choice is encouraging, you still might decide to wait before implementing your new strategy. This isn’t procrastination we’re talking about here. This is pausing—pulling over to the side of the road for a while before moving on.
I talked with a client recently who has a promising plan for expansion but has decided to hold off on it until his cash catches up with him. In a little while his company will be in a solid financial position to move ahead with the growth strategy, and so it makes sense for him to wait until then.
That’s just one reason for pausing. There are many others. You might need to gather your human resources before advancing your strategy further. You might need to wait for conditions in your industry to become more auspicious. You might want to let a competitor blow through its marketing budget to create the market momentum you need to build on top of. Or you might need to get your personal footing with priorities in place.
Don’t be afraid to put your strategy on Pause if that seems smart to you. When you’re ready to hit the Play button, it will be all the more successful.

Tips when taking a strategic pause:
1. Make sure you are still leading through the pause phase. Pausing is not the same as going to sleep.
2. Identify the time frame or the conditions that will pull you back into the game.
3. Remember, timing is often more important than time.
4. Take stock. Look back on the road you have traveled. Pauses are a great time for reflection.

Pivot

What if your feedback tells you that your choiceful action is only a qualified success? You have to take that feedback seriously and do something about it. One obvious option is that you change your planned course and try something else. In a word, you pivot.10
Pivoting is the essence of agility. Let’s see what it looks like.
In 2011 J.C. Penney, a once-iconic department store chain that had been fading in popularity, hired Apple retail expert Ron Johnson as CEO and proceeded to give its stores a new look. Choice. Very quickly, customer complaints began pouring in and sales headed over a cliff. Feedback—definite feedback! So the board fired Johnson, rehired its previous CEO, and revisited the changes they had made to their stores. Pivot.
A J.C. Penney television commercial directly addressing the failed strategy showed that the leaders knew the value of trying again after failure. “Some changes you liked,” it said, “and some you didn’t. But what matters with mistakes is what we learn. Come back to J.C. Penney. We heard you.”11
It remains to be seen whether Penney’s pivot will work or whether this department store will go the way of Montgomery Ward and Woolworth’s. But the company deserves credit for moving fast when its strategy proved a failure.
All kinds of other companies—large, small, and medium sized, offering services or making products—have had to pivot in their own ways.
One magazine article summed up some of the most notable pivots executed in recent years:

Before Twitter became a microblogging sensation it was a podcasting business. YouTube’s founders were convinced they’d hit the jackpot with a video-dating site. PayPal’s original mission was to beam IOUs from Palm Pilot to Palm Pilot. Flickr grew out of a massive multiplayer online game as a way for players to drop photos into text messages.… Instagram’s founders created a check-in technology called Blurbn before settling on photos. Pandora was a B2B music recommendation service. Yelp transitioned from email recommendations from friends to a local search and user review website.12

If your organization needs to pivot like these companies, here’s how you do it: You return to an earlier step in the strategy process.
Maybe your strategic insight was a good one but the choice you made to act on that insight wasn’t effective. Go back to the choice box and try a different approach. Instead of left, go right.
Or if you think there’s a more fundamental problem with your strategy, go back even further in the process. You might want to review the data that came out of your conversations and see if you can come up with a better insight to act upon. You might even want to start all over with new conversations.
Go back in the process as far as you have to go in order to step onto a different course that will led a better destination.

[[POSSIBLY INSERT DIAGRAM]]

Here’s another way of looking at it. There is a time for disruptive innovation—creating an all-new playing field. And there is a time for iterative innovation—making a new play call to try to move the ball down the field better. Pivoting is a way to produce iterative innovation.
If there’s still hope for your overall strategy, don’t give up. Learn from your mistakes and keep on trying. A willingness to make a quick turn and perform on-the-spot innovation—to pivot—can help you locate the place in today’s unpredictable market where rewards are waiting for you.

Tips for pivoting in your strategy:
1. Make sure to create an agile culture within your organization. (This is no easy assignment.)
2. Think precisely. There will be some things you want to retain while other things you will want to pivot on.
3. Revisit each of the four original steps (conversation, insight, choice, and feedback) and complete this sentence: “If I had to do it over again, I would _____________________.” Pay special attention to insight and choice.
4. What piece of the business (no matter how small) is the one that has the most momentum and or makes the most money?

Pull the Plug

If the feedback you get on your intended strategy is strongly negative, there’s no point in pausing or pivoting to try to make it work. It’s better to pull the plug and move on to something completely different.
This is an obvious choice, yet I’ve found that pulling the plug is a hard call for a lot of people to make when it comes to their own business strategies.
Large corporations can pull the plug on a particular strategy easily enough, because they’ve got a lot else going on. But for small- and medium-sized companies, and especially for entrepreneurs, it’s harder, because they’ve got so much of their resources tied up in a single strategy. Even if a strategy’s prospects are looking dismal, its originators are tempted to try to make it work somehow rather than to disband the attack formation and regroup somewhere else on the battlefield.
I encourage the entrepreneurs I work with to learn the discipline of saying, “Enough!” about their unsuccessful strategies. It might feel like they’re strangling their own baby, but often it’s the right thing to do. I cite to them what is known in Hollywood as the Adrien Brody Rule.
Adrien Brody is the reedy actor best known for his role in The Pianist. In 1998 the acclaimed director Terrence Malick cast Brody in his World War II film The Thin Red Line. It’s Malick’s courage in making this film that established the Adrien Brody Rule.
After paying Brody’s substantial salary and shooting the entire movie, Malick decided to reconceive the story in the editing room. The director reviewed the footage, restructured the plot, and changed the narrative perspective. He ditched Brody the movie star for Brody the cameo actor by cutting most of Brody’s scenes. In pursuit of the best film he could make, Malick fearlessly scrapped months of work and bruised Brody’s ego.
Robert Safian, the editor of Fast Company magazine, explains the lesson of Malick’s bold move this way: “You can’t make decisions based on initial assumptions or the amount of resources extended, but solely on what best meets the needs of the situation.”13 That’s the Adrien Brody Rule.
Now, I realize that on any project a thin red line separates the decision to stay the course and the decision to abandon the chase. Sometimes courageous commitment to keep going can finally yield results. Yet equally, foolhardy stubbornness can lead to bankruptcy. After you’ve completed the analysis of your early strategy and zeroed in on an answer to how effective it was, don’t be afraid to walk away from a losing gamble even if you’ve already invested considerable time, effort, and resources.14
I, personally, have made a commitment in recent years to pull the plug on ventures that aren’t working. Just this year, I have killed off three businesses that I co-started. Each of them had been in operation about two years, and none of them had performed up to expectations, so I euthanized them. I’ve got more successful projects that I could be spending my time and resources on. So goodbye to these three businesses.
Contrary to what your high school coach might have told you, quitters sometimes win.

Tips on pulling the plug:
1. Write down the two or three nonnegotiables that mean you should shut down. These should be hard numbers (for example, “I will hit the kill switch if sales don’t reach $___________,” or “…if I don’t raise $___________”).
2. Analyze your cash flow for the past year and project out for the next year.
3. Ask yourself, What are the three pivots I could make? If none of these excite you with the possibilities they present, then pull the plug.
4. Identify the costs (financial, relational, emotional) of pulling the plug. How will you weather those?

Power Up

This is the simplest action option of all…and the most exciting. If the feedback you received for your choice is overwhelmingly positive, and if you’re in a position to make it happen, then you need to do the opposite of pulling the plug on your strategy. You need to power it up.
Bet the farm on your winner of a strategy.
Karl Stark and Bill Stewart, co-founders of the strategic advisory firm Avondale, wrote about doubling down on investments. They said,

Placing bets is part of any entrepreneurial, growth-oriented mindset. All the entrepreneurial superstars over time, from Henry Ford to Bill Gates to Larry Page and Sergey Brin, created rapid growth for their companies by making strategic bets and investing heavily. These pioneers didn’t just make one good bet—they hit the jackpot year after year. In other words, they doubled down to create growth by reinvesting the profits of the company into cementing their competitive position and developing new growth avenues.15

If you believe in your strategy, throw your resources behind it and plan to make it pay off big. Expect great things and go after them.
But remember, this is a fast world. No matter how successful your strategy is, you’ll need another one before long. Soon it will be time for more conversations, so that you can start the strategy process all over again.

Tips on powering up a strategy that can pay off big:
1. Make sure to count all of the costs in the expansion.
2. Commit to using your profits (and not just outside money) to invest in the business.
3. Clearly identify the two or three key mountains yet to be crossed.
4. Analyze the motivation and skill sets of your team. Do you need to gas up before you push down on the pedal

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