derek abdinor

How does strategy work when the objective is not clear? It cannot work effectively as individuals are put in situations at times where they need to act and need to be “on message”. Surprisingly, some of the everyday scenarios and key problems of our age do not have clear strategic objectives. What the public objective is may detract from the effectiveness of a constructive strategic objective. Consider the following trite maxims.

SHAREHOLDER VALUE
Does everything really boil down to this maxim? I would put it to you that the ultimate strategic aim happens like this from the top down:

If it is a public company, the market expects to see consistent returns that are growing. This is so that fund managers and other analysts can have a tactical opportunity to make money out of the company’s performance.
If it is private the owners will be wanting consistent returns that are growing. They may want to sell or increase their stake, their opportunities are therefore strategic. Both expectations of the company’s performance are the same although the intent is different

Management have performance drummed into them. It is not theirs to glimpse behind the board curtain but if they do are told that the shareholders expect value. In meetings with the rest of the staff they will repeat this order; it helps enforce unpopular decisions as they can lay the blame for them at almighty, faceless, indifferent shareholders.

Business rather aims at creating sustainable competitive advantage – a mantra drilled into a generation who receptively understand the power of the brand. In simple terms – try and do better than everyone else and keep at it. In difficult times and especially with new business development senior managers are, at least originally, content if they just see some progress.

WINNING THE WAR
The aim of war is usually to win it, especially as winning means defeat of the enemy and further advantages to be claimed from the vanquished. But what happens when there are wars with no clear linear narrative and hazy ultimate objectives? Take Afghanistan. People will generally argue over the reason to invade which may include

• to remove the Taliban as they were oppressive (left-wing uninformed view)
• to restrict the rise of Islamic fundamentalism which would endanger Western interests in the area, including access to oil (centrist uninformed view)
• to punish the country for tenous links with Al-Qaeda and therefore to 9-11 (right-wing uninformed view)
• Afghanistan is a threat to its neighbour Pakistan, who has nuclear capability. If Pakistan becomes a failed state it would create a power shift in the region as India has ties to Russia and Central Asia would not be under US/Nato influence (geopolitical strategic view)

Support for a war requires people to be “on message”. None of the above views were steadfastly denied as no strong meaning was given for the war. The closest occurred when a Taliban offensive into Pakistan in late 2009 put Pakistani nuclear missiles within a few hundred kilometres of extremist control. The seriousness escalated and this “reason” was given for Pakistani urgency. It had observers questioning if this was the raison d’etre for the entire war in the first place or simply for the battle.

What is the strategic objective for the NATO powers in Afghanistan? Options include: to oust the Taliban outright; to sue for peace; to contain the Taliban; to get the new Afghanistan powers to take over the campaign – what? At any point in time it is not possible to know if the war is being won or lost and by what standards these outcomes are measured.

REDUCING THE DEFICIT
The economies of many countries are in a problematic state. The immediate response is what is it that needs fixing? Some would say the deficit is the problem which means that the country has to pay of its debts ie. make money and reduce other costs to service the debt. But others would disagree and say that the banking and credit system was the initial problem that exposed other problems and therefore that needs to be restructured before anything else is attempted. Others say that failures of certain systems led to reduced confidence among investors generally. With money not being invested the result is that companies and countries cannot grow (even if it is lending) and therefore they need to stay at there present size. Many financial systems require constant growth to survive, and therefore failure leads to unemployment and divestment which leads to less money going around etc.

My point is that it is not clear what the strategic aim of any recovery plan is. You cannot discount the tactic of “Wait and see” as the global economy is so fine-tuned that a financial crisis in one country (eg Greece) immediately affects a slew of other countries and financial institutions around the world.

CLEAR STRATEGY
When you have pressing problems there is a need for people and process to be aligned with the ultimate strategic objectives. While that sounds glib I’ll ask you to imagine a person in the organisation who is presented with a unique scenario and has to act with no recourse to a higher decision maker. This happens every day in the following environments:

• call centres in cities
• foot patrols in third world villages
• politicians in front of the media and behind closed doors
• religious leaders in day to day administering
• market traders
• all levels of management

I would venture the problem of giving out unclear strategic objectives is an outcome of diffusion of message. Give a press conference in neutral “safe” language in front of the various media and they will misinterpret the message by accidet or by design. Leaders often now this and then resort to PowerPoint which displays the overview which leaves the detail open for interpretation.

Communication is a hollow term in all of these aspects of organisational life. As it is not quantifiable it is regarded as a “soft skill”, but I warrant it is the cause of more system failure than anything else.

Why strategies of change, leadership and organisation structure are highly important once power has been consolidated by a leader. While stability in the organisation and environment are key they are largely uncontrollable factors by the time of ascension.

EARLY DAYS
Having been put in power, the leader is first given a period of grace. This is as much to find his or her feet as it is not to embarrass those that put the leader there or for rivals to identify their attack. With the first few challenges comes the risk and therefore the opportunity to define the leadership. Problems will always crop up and the more successfully dealt with by the leader, the more people they will sink into the subconscious. The leader therefore needs a goal that is easily marketed and that will define the strategy of the group as well as come to judge the legacy of that time. It is critical to get everyone “on message” but more critical to get it to succeed, as any sign of failure will become a brickbat to be used against the leader.

ENTRENCHED LEADERS
When a leader has seen off more than one considerable challenge and the viewpoint of rivals is not considered, one can consider that entrenched leadership. Everyone is on message. Everything runs smoothly. The leader’s wish is a mission statement and makes things happen. This has to coincide with a period of stability in the environment. Very few dynasties have been forged in unstable times unless that has been of their own making. The markets have to be stable, the city has to peaceful, the company has to be growing.

RIVALS
There are not often rivals to leaders in an organisation, but they are rife at the executive level (political level) and at the operational management level (merit level). Internal conflict can be positive but when one explores the nature of employees who leverage political power one gets to the logical conclusion that the best ideas and people do not rise to the top. It is argued that those who implement best rise to the top instead although I posit that those implemenations are, again, accomplished through personal political relationships and not rational business processes and practices.

STRUCTURE
The organisation begins along functional lines which is easier for the leader to manage. The leader will be behaving tactically and therefore needs vertical chains of command. Over time, this silo structure develops into a divisional structure to adapt to markets and operational requirements speedier. The division may also become an asset or a dog that the leader can sell off without disruption to the rest of the organisation. The leader can then pull back and adapt a strategical approach.

WHEN THE LEADER DOES NOT PULL BACK
If he or she chooses to micro-manage and the market is stable or favourable, then the window of innovation and strategic forecasting can not occur because the second tier of management is behaving tactically and the third tier of management operationally. No-one is thinking strategically which is a problem. In an unstable market it is more forgiving although when the leader has a council of between 10 and 20 members and the organisation is rife with “dotted lines”, execution can only happen slowly.

In unstable times (recession, need to diversify, external change) the leader requires management to think differently. But they cannot as they have been solidified into silo mode. Those who desired change have probable left the organisation. The leader has only tactical tools to address a large strategic problems. The consequences can be identified in:

1. executive level managers stay because they smell change at the top which could be beneficial to them
2. groupthink is endemic
3. middle managers need to load-balance between directionless employees and a tactical leader
4. thought-leaders are entertained as they appear to bring strategy, but the executive level snuff the threat
5. the leader sees the divisions as assets and is undecided which to sell and which to consolidate around
6. market share is lost
7. talk of a management buy-out increases. The leader does not deny this as it provides an exit strategy
8. a problem arises, operational or environmental, as they always do. This time the response is weakened and everyone does notice the failure
9. the only thing worse than groupthink, randomthink, now occurs as distrust has pervaded all levels of decision-making

What tends to happen after this is a visceral call is made to retreat to a defensible position. Divisions are culled and the core is defended, even if it is in a declining market. Why? Becauses goodwill exists with the brand and it can carry the organisation for a few years as it diminishes. Attack always wins over defence, and the organisation can only defend and therefore must lose.

A folksy look at putting thoughts on one of my accidental hobbies down.

1. You’ll make mistakes until you find out what your garden is able to be
2. You’ll lose plants through things that are out of your control. You’ll lose even more flowers as they are more delicate. But you’ll gain through windfall and pleasant surprises, so it all balances in the end
3. Until you figure out where the sun shines on your garden and where the rain falls in it, you’re going to be losing
4. Some plants are made for your environment. A half-hour’s drive away and they struggle
5. Weeds are tough. Weeds try to look like plants, grow rapidly and will take over your garden. You have to decide if you are willing to recognise and fight weeds or let them flourish and pass them off as flowers
6. Some favourite parts of your garden have to be sacrificed. You ‘ll know when that time comes, and when you have to take your secateurs to it. Making the call and living with the consequences is a decision you have to make.
7. Plants get a shock when being planted, even more so when being transplanted. Give them time and they’ll catch up
8. Many shrubs like to be left alone and get along with it
9. Harvesting your vegetables is a primal joy, to be time right. When you harvest too late, they go to seed. When you harvest too early, the taste and future growth is lessened
10. Pruning and paring back is ugly at first – but its as necessary as providing fertiliser.
11. You could fake a garden by bringing in an interior decorator and moving pots and grown plants around. However, they won’t be attuned to the soil and will suffer the usual shock of being planted – as they aren’t seedlings they’ll suffer more
12. A garden is an investment in time and tactics
13. You can’t stop the bugs. Just like you can’t stop the growth
14. Put a plant in a small container and it will outgrow it. You can cut it back for so long, but eventually it will die
15. Shrubs and trees create structure, flowers create focal points. The former can be beautiful, the latter can tie things together – but each has its primary role.

In light of the Rupert Murdoch announcement and the poor show for established newspapers around the world, the only model that makes sense to me is the paid referral:

News websites should be built so that the link to the article is not seen or copied. If you want to forward the article/email/retweet you get credits to view another two articles.
The recipients of your link get to see the article, natch. The site continues with advertising on the article page.

If you aren’t a broadcaster, you can get a widget or feed of the news into your website/facebook page. If you agree, you will get access to the site or an email digest or both.

Sound familiar? Is Googlenomics – let the crowd do the viral work for you and have a net to maximise the reach.

A bill of rights for more transparency and governance has been presented to the US Senate. With many echoes of the South African King Code on Corporate Governance it attempts to formalise risk, proxy and remuneration issues.

From Compliance Week:

May 19, 2009

Shareholder Bill of Rights Act Introduced

The highly anticipated Shareholder Bill of Rights Act of 2009 has reportedly been introduced in the Senate today and press releases opposing and supporting the legislation are already flying.

As Compliance Week has reported, the bill, sponsored by New York Democrat Charles Schumer, would, if passed, require companies to:

• Provide an annual non-binding shareholder vote on executive compensation;
• Provide shareholders a vote to approve golden parachutes;
• Give shareholder access to the proxy for board nominations;
• Split the chairman and chief executive roles;
• Hold annual director elections;
• Implement majority voting for directors and
• Establish risk committees comprised of independent directors

The Council of Institutional Investors issued a statement applauding the Act, which it says would “go a long way toward making boards of directors and managers of public companies more accountable to shareowners.”

Meanwhile, the Business Roundtable issued its own statement, in which its President, John Castellani, calls the bill “an unnecessary intrusion” into matters governed by state corporation law and matters currently being addressed by the Securities and Exchange Commission, stock exchanges, and public company boards.

The text of the bill is available here, courtesy of Davis Wright Tremaine’s Corporate Finance Law Blog.

Posted by: maguilar (Melissa Klein Aguilar)  @ 4:03 pm 

XBRL Standard could highlight financial risks
CNET News – 15 December 2008

IBM’s data council has called for a taxonomy to allow for better reporting against risk and losses. The reporting meme du jour is that risk management was missing in action the last few years which may have assisted this current crisis stay undetected for so long.
What does it mean? A special taxonomy will allow companies to report granularly those financial items that will be of interest when assessing risk and losses. This will allow internal and external analysts search financial statements rapidly to ascertain risk and risk management.

IBM Council Predicts Data Will Become an Asset on the Balance Sheet and Data Governance a Statutory Requirement for Companies Over Next Four Years
7 July, 2008

The critical nature of data in business means it need to be moved along the C-Suite to the CFO’s basket. Data integrity, security and quality will need to be reported on in asset and risk terms, I quote:

• Data governance will become a regulatory requirement in an increasing number of countries and organizations. In some countries, organizations will have to demonstrate data governance practices to regulators as part of regular audits. This will likely affect the banking and financial services industries first, and will emerge as a growing trend worldwide.
• The value of data will be treated as an asset on the balance sheet and reported by the Chief Financial Officer while the quality of data will become a technical reporting metric and key IT performance indicator. New accounting and reporting practices will emerge for measuring and assessing the value of data to help organizations demonstrate how data quality fuels business performance.
• Calculating risk will be used more pervasively across enterprises for small and large decision-making and will be increasingly automated by information technology. Today in most organizations, risk calculation is done by a select group of individuals using complicated processes. In the future, risk calculation will be automated providing greater transparency to more easily examine past exposure, forecast direct and indirect risk, and set aside capital to self-insure and cover risk.
• The role of the Chief Information Officer (CIO) will change, making this corporate officer responsible for reporting on data quality and risk to the Board of Directors. The CIO will have the mandate to govern the use of information and report on the quality of the information provided to shareholders.
• Individual employees will be required to take more responsibility for recognizing problems and participating in the governance process to facilitate greater operational transparency and the identification of risk. They will be aided by new categories of operational software that will demonstrate common data governance problems and allow employees to self- govern; sponsor and vote on new policies; provide feedback on existing ones and participate in dynamic data governance. 

Dealstream Securities traded derivatives on the JSE Securities Exchange, specialising in listed single stock futures and CFDs. Alleged problems with its trade in CFDs led to them running out of liquidity with its clearing memberand they were pulled off the markets a few days ago.

Assuming that the investment/trading community is probably griping about this topic in the Bull Run or bottling it all up is not the case anymore. Social media is mostly cheap and free, and it makes the information that only a few people have (in this instance, that offices were locked up) go viral in a short space of time.

I listened to the guys who set up TroubleAtDealStream on the radio last night. They were angry about their margins losses through the sudden disappearance of Dealstream, so they sent each other SMS messages and got together. Some of them decided to set up the website at the above address. Sure its not a blog or wiki in the true sense, but its a really helpful resource and embodies collaboration and many-to-many publishing. See also Dealstreamfraud

What do we take away from this? The investment community realises that publishing and making their voices heard is easy, too easy if you’re using existing websites or properties. Does your IR deparment have a social media strategy?

Appendix:
Other examples of chatter around Dealstream:

Twitter mentions
Fin24 blogs
Forums
Comments on news articles (Moneyweb)
Technorati tags
Customer forums (HelloPeter)

I reckon that technology-ignorant clients are a double-edged sword. The Law states that whatever sophisticated concept you manage to run by them with no resistance, thou shalt be smitten with much rebuking about low-end things, eg:

• this content management tool doesn’t accept my MS Word tabs and indents! Shriek!
• I just want to print one piece of paper off this website page, not all 20! Rant!
• Search on my site doesn’t find the document I put up on the intranet last week! Rail!

An essential point about client education was made by Dominic Jones in a different forum: XBRL. I quote:

Most US investor relations officers (IROs) are not directly involved in disclosure technology and have a very poor understanding of it. This is mostly because about 75% of investor relations sections on US corporate websites are outsourced to hosting services. IROs have generally been entirely hands off when it comes to these sites so they’ve lost out on a lot of important learning over the years. They don’t understand what HTML is, so XBRL is even more alien to them.

As much as we think of expediency and taking problems out of the clients’ hands (or outsourcing those to us in these times), it makes us party to them not knowing more about the technology issues. The cycle continues.

Taking a leaf out of the “teach a man to fish” parable, I’m going to escalate the training of clients. Not just in terms of social knick-knacks, but along the lines of: What Every IRO Should Know.

Jack Dorsey Presents Twitter from biz stone on Vimeo. Found via Jayz.