Distillations in this newsletter: Five strategy lessons from Amazon that we can all learn from. The VACU model for strategic risk assessment. What is Confirmation Bias and why is it important in strategy work? Leadership lessons from Buurtzorg. How digital should your strategy be? Innovation environments must be safe-to-fail.

STRATEGY DISTILLED:

A monthly concoction of insight, learning and things you might have missed for anyone who works on strategy, works with strategy or just loves strategy.

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This month …

A new model (the VACU Model) released from Goal Atlas on Creative Commons.
Five strategy lessons from Amazon.
A mistake we all need to avoid in strategy work – ‘confirmation bias’.
Three snippets related to strategy you might have missed on leadership, digital strategy and innovation.

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A new strategy model from Goal Atlas, released on Creative Commons …

The VACU Model

The VACU Model* analyses strategic risks in terms of Volatility, Ambiguity, Complexity and Uncertainty and demonstrates that future possibilities, with different degrees of understanding and predictability, present different challenges and are therefore best managed using different solutions.

Download the VACU Model as a pdf or see all 16 strategy models released by Goal Atlas so far.

Released under Creative Commons License, all our models are free for you to use in your strategy documents and presentations (attribute to Goal Atlas 2021).

*The VACU Model is an adaptation of the VUCA framework, often attributed to General Maxwell Thurman, and cited in published sources as far back as 1987.

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Standing on the shoulders of giants …

Five strategy lessons from Amazon that we can all learn from.

Lesson 1: Single-mindedness Strategic decision-making is a lot simpler if you are optimising for a single factor (e.g. the customer) rather than trying to optimise around three or four competing factors (e.g. customers, shareholders, employees & suppliers). By being single-mindedly obsessed with the interests of the customer, strategic focus stays sharp, the need for strategic compromise diminishes and the evaluation of strategic success becomes clearer. Here are two examples.

‘I almost never get the question: what’s not going to change in the next ten years … It’s impossible for me to imagine a future ten years from where a customer comes to me and says, “Jeff, I love Amazon but I just wish the prices were a little higher.” or “I love Amazon, I just wish you’d deliver more slowly.” … you can build a business strategy around the things that are stable in time’.
Jeff Bezos Interview 2012

In July 2000, the fourth Harry Potter book – Goblet of Fire – was published. Amazon offered it with a 40 percent discount including express delivery so customers got it on publication day. It lost Amazon a few dollars on each of the 255,000 books they sold, yet customers were waiting by the door for their Amazon delivery to arrive and “some seven hundred stories about the new Harry Potter novel in June and July that year” mentioned that Amazon deal.
From Brad Stone’s book on Amazon, The Everything Store.

So, single-mindedness gives strategy clarity and focus. It makes clear to everyone across the organisation that if you have a tricky decision to make, especially if it involves a trade-off, always put the interests of the customer first. Single-mindedness also gives you a strategic advantage over competitors who are less single-minded.

Lesson 2: Long-term thinking ‘Our first shareholder letter, in 1997, was entitled, “It’s all about the long term” … If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people … At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow. We say we’re stubborn on vision and flexible on details.’
Jeff Bezos interview in Wired magazine, 2011.

So, long-term thinking enables you to think grander and build bigger competitive advantages than shorter-term thinkers.

Lesson 3: Flywheels and platforms So what does all this customer-obsessed long-term thinking lead to? The answer, from Amazon, is a quite distinctive approach to innovation that can be characterised by flywheels and platforms. Here is one of Amazon’s flywheels: “Lower prices led to more customer visits. More customers increased the volume of sales and attracted more commission-paying third party sellers to the site. That allowed Amazon to get more out of fixed costs like the fulfillment centers and the servers they needed to run the website. This greater efficiency then enabled it to lower prices further. Feed any part of this flywheel… and it should accelerate the loop.”
From Sam Seeley’s post on The Amazon Flywheel.

And the platform part? Three of Amazon’s transformative innovations involved turning an internal process or asset into a platform that people outside the company could access and make money from. The first was providing access to the entire Amazon catalogue of products via an API in order to facilitate massive scale affiliate-sales. The second was enabling third party merchants to sell their own goods on the Amazon e-commerce platform via Amazon Marketplace. The third was to provide access to Amazon’s technical infrastructure via Amazon Web Services. From Zack Kanter’s post on Amazon’s platforms.

So, building a strategy flywheel enables multiple inputs to build momentum, turning the flywheel faster and faster – it is a form of compounding of strategic impact. Opening up your products and services by means of platforms enables others, outside of your organisation, to add their effort to turning your strategic flywheel. That’s what makes flywheels and platforms such a great strategic combination.

Lesson 4: Culture – made visible Many organisations have a set of values, intended to define what sort of organisation they are, or aspire to be. Amazon goes much further.

According to Doug Gurr, UK Manager of Amazon, they have had a “very clear set of operational principles … from the start”. These are: customer obsession, a passion for invention, commitment to operational excellence and long-term thinking.
Doug Gurr was quoted in BBC Radio 4’s Inside the Brain of Jeff Bezos.

Over several iterations, Amazon developed these into 14 leadership principles – described as the company’s living breathing constitution. Here are three to give a flavour of their content and level of detail:

1. Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say, “That’s not my job”.

2. Leaders are right, a lot. They have strong judgement and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.

3. Deep dive. Leaders operate at all levels, stay connected to the details, audit frequently and are skeptical when metrics and anecdotes differ. No task is beneath them.

So, recognising that culture is notoriously difficult to get right, Amazon makes it clear that certain attitudes and behaviours are expected from everyone in a leadership role. What they do brilliantly is to do this in an inspiring and expansive way, not in a controlling, constraining way.

Lesson 5: Painstaking planning and measurement Amazon’s planning cycle is designed to provide precise goals to align the independent plans of a multitude of their famously autonomous teams with the company’s over-arching goals. This ‘painstaking process requiring four to eight weeks of intensive work for the managers and many staff members of every team in the company’ begins with the senior leadership team creating high-level objectives for the entire company. Then each group produces an operating plan, which comprises a bottom-up response to the higher-level company-wide objectives. Finally, any gaps between the top-down and bottom-up objectives are reconciled. Read more on pages 17 – 23 of Bryar and Carr’s 2021 book Working Backwards: Insights, Stories and Secrets from Inside Amazon.

So, in the debate about how much strategic planning is too much, Amazon leaves no doubt about their position. They do a LOT of planning – four to eight weeks of intensive effort for every team in the company, every year. Wow! How much time do you set aside for strategic planning in your organisation?

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Mistakes to avoid …

Confirmation bias – one of many findings from behavioural economics we need to know about as strategists.

What is it? Confirmation bias is the tendency to search for, interpret, favour, and recall information in a way that confirms or supports one’s prior beliefs or values. People display this bias when they select information that supports their views, ignoring contrary information, or when they interpret ambiguous evidence as supporting their existing attitudes. The effect is strongest for desired outcomes, for emotionally charged issues, and for deeply entrenched beliefs. Confirmation bias cannot be eliminated entirely, but it can be managed, for example, by education and training in critical thinking skills.

How important is it? “If one were to attempt to identify a single problematic aspect of human reasoning that deserves attention above all others, the confirmation bias would have to be among the candidates for consideration” Nickerson RS, 1998. Confirmation Bias: A Ubiquitous Phenomenon in Many Guises. Review of General Psychology 2(2): 175-220 Quote from p175.

Why does it matter for strategy? One of the great risks in strategy is that someone, usually one of the organisation’s most senior leaders, thinks of a plausible strategic idea and is then blind to any alternatives for the rest of the strategy development process.

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Snippets related to strategy you may have missed …

About leadership from Buurtzorg

If, as has been widely claimed, command-and-control leadership is dead, what is going to rise up and take its place? One answer comes from an unlikely source – a Dutch company called Buurtzorg that provides home-care for ill and elderly patients. What has made Buurtzorg both internationally renowned and a commercial success across many countries is it nurse-led holistic approach to home-care. Self-governing teams of 10 to 12 nurses are empowered by Buurtzorg’s central systems, processes and logistical support to take full responsibility for assessing, planning and delivering the care to clients in a given neighbourhood.

Could your next strategy step-change the level of autonomy given to your teams? Asdrid Vermeer and Ben Wenting’s book Self-Management: How it does work might help you decide.

About digital strategy from McKinsey and Dan Hon

How digital should your next strategy be?

Recent survey data from McKinsey shows that the pandemic accelerated digital transformation in businesses by between 3 and 7 years. Almost twice as many people thought these changes would stick as those who thought they wouldn’t stick. Only 11% of businesses thought their current business model would remain economically viable through to 2023. 64% thought they would need to have built new digital business models by then. 51% saw competitive pressures as the main driving force behind digital transformation.

So, although digital transformation has been on the strategic horizon for almost a decade now, maybe the next few years is the time for leaders to think deeply about how ‘digital’ their next strategy needs to be. And hopefully, our thinking about digital transformation has matured sufficiently to recognise, as Dan Hon points out that digital, on its own:
doesn’t change your process,
doesn’t increase capacity,
doesn’t change how people work,
doesn’t make things more transparent,
doesn’t improve customer service,
doesn’t improve collaboration,
doesn’t change policy and
doesn’t make you more efficient.

About innovation from Steve Blank

Innovation lies at the heart of strategy but how many books do you need to read before you understand how to do it well? Maybe none if more writers came up with pithy summaries of the ingredients of innovation success like Steve Blank did earlier this month.

“Execution environments are designed to be fail-safe.
Innovation environments are designed to be safe-to-fail.

Steve Blank on Twitter (22 May 2021)

The reason I love this is that it made me take two steps backwards; the first was the idea of innovation environments. How many leaders have given careful thought to what this means within their organisation? Don’t just think of a physical innovation lab – they often fail, and this 2019 Harvard Business Review article explains why. My second step backwards was, once you’ve worked out what an innovation environment is, how do you make it safe-to-fail? What are the rules? How are participants persuaded of its safety? How do you incentivise success without punishing failure? All very thought-provoking!

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Goal Atlas runs workshops and sprints to help your strategy work better across your organisation. Get in touch if you think we might be able to help.

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One small favour – spreading the word by forwarding this newsletter to a friend or colleague is a great way to say thankyou for the time and effort invested in producing it.

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