PTW/PI All-Stars Book Club – Chapter Twelve

The Role of Management Systems in Strategy

Welcome to Chapter Twelve of the Playing to Win/Practitioner Insights (PTW/PI) book club. In the spirit of a book club discussion, I have responded to all previous comments and will continue to do so. Of the 37 all-star pieces out of the 260 in the series, the randomizer picked as the twelfth chapter The Role of Management Systems in Strategy. This one takes us back to the biggest category – practical advice on an element of either the Strategy Choice Cascade (SCC) or Strategic Choice Structuring Process (SCSP). You can find the whole PTW/PI series here.

My Reflections on This Piece

Well, this was the one that started it all. It wasn’t my first Medium piece. Over the previous two months, I had published ten across a wide variety of topics. They were modestly received – even today the best-read has only 3,100 views and 1,500 reads.

Then I did this one – and the response was huge. That surprised me because I thought of it as a nuts-and-bolts topic – practical advice on the fifth box of the Strategy Choice Cascade. But folks loved it, so I decided to do another one – Is the Opposite of Your Choice Stupid on Its Face? They loved it too and went on to make it a PTW/PI All-Star (to come later as Chapter Sixteen) as well. The response to the first two pieces convinced me to make it a series and the rest is history!

I wrote the original piece because I was tired of people giving the fifth box second shrift – if they included it at all. In general, people love doing Winning Aspiration (WA), Where to Play (WTP), and How to Win (HTW). WA+WTP+HTW feels to them as real strategy. But their enthusiasm tends to wane with Must-Have Capabilities (MHC) – and then drops off even more for Enabling Management Systems (EMS).

In fact, it is sometimes dropped off and replaced with something utterly inconsistent – like a list of initiatives. Or even just merged with MHC to make it a four-box cascade. Drives me nuts to be frank.

In my view, EMS is as important as the other four boxes because the Strategy Choice Cascade is a system. While each has a different purpose, it operates as unitary system and if you change one box, the system is, at a minimum, destabilized and at worst, ruined.

The fundamental role of EMS is to build and maintain the MHC. If the MHC aren’t built and maintained, there is no real HTW, and then you don’t have a useful strategy. And if you think that MHC build and maintain themselves on their own, then you are smoking something that used to be illegal.

In fact, one test for strategy is whether your EMS look different than those of competitors. If they look the same, chances are you don’t have a distinctive strategy – because they are probably building similar MHC and converging on your WTP/HTW. This is why I refer to the combination of MHC and EMS, the reality check for strategy.

Key Roles for Enabling Management Systems

I have noted over my many years of strategy practice that distinctive EMS drive competitive advantage by playing one of three roles. I am eagerly looking for additional value-creating roles to emerge, but these three are the ones that I have seen: 1) they drive disproportionate resource investment; 2) they specify novel allocation of decision rights and/or obligations; or 3) they mandate unusual measurement or tracking of information. If you have seen additional roles that EMS have played in supporting MHC to drive HTW, I am all ears. Remember, this piece is almost six years old.

The following is a brief summary of each using Progressive Insurance to illustrate, with more in the original article…

1) Management Systems that Drive Disproportionate Resource Investment

The first category contains the management systems that drive the disproportionate resource investment that is required to build and maintain a distinctive capability, which is critical to winning.

For example, Progressive Insurance seeks to win, in part, by getting settlements to its customers so quickly that lawyers don’t get into the middle of the process because Progressive knows that on average when a lawyer is involved, it costs Progressive more and the customer gets less due to the high fees charged by the lawyer. To be in a financial position to pay claims quickly, Progressive has a management system for its investment portfolio that invests disproportionately in short-term liquidity at the cost of earning higher investment returns.

2) Management Systems that Specify Novel Allocation of Decision Rights and/or Obligations

The second category contains the management systems that specify novel allocations of both decision rights and decision obligations that are required to build and maintain a distinctive capability that is critical to winning.

Progressive Insurance, as described above, differentiates itself, in part, by getting more cash to customers by cutting out the lawyer as ‘middleman.’ That entails having a management system that empowers mobile Progressive claims-people to make settlement decisions and cut checks for customers at accident sites rather than having to go through a time-consuming head-office claims processing ritual.

3) Management Systems that Mandate Non-Standard Measurement/Tracking of Information

The third category contains the management systems that mandate non-standard measurement and tracking of information.

Progressive Insurance, in addition to winning based on getting bigger settlements to customers faster, seeks to win with more effective underwriting based on a huge database that enables it to create tens of thousands of pricing categories based on many more risk variables than its competitors. To build and maintain that database, it has a management system that mandates the ongoing collection and processing of a volume and breadth of data that exceeds industry practices and standards.

Reader Comments

Since this was the first piece in the entire series, there weren’t many comments – eight in fact. It has garnered a high level of views, reads, and claps over time. But it appears that when readers go back to an old piece, they don’t leave a comment. It probably makes sense because authors probably don’t often go back to old pieces to leave responses to new comments.

But the comments were fun. My favorite quoted Jerry Garcia, which was happy making for me as a Grateful Dead fan: “You do not merely want to be considered just the best of the best. You want to be considered the only ones who do what you do.” Cool quote. Didn’t know Garcia was a strategist at heart! And without question, the Dead were the only ones who did what they did.

Another summed up the whole piece succinctly and well:

“Distinctiveness in Management Systems isn’t normally considered as essential as distinctiveness in your Where to Play or How to Win choices. But it’s just as important, if not more important, or your strategy can be easily copied as soon as it succeeds with customers.”

Two put forth interesting questions, the first of which is this:

“If a company has a winning ambition (and even WTP/HTW) too big for its capabilities and systems…then what should the company be doing about strategy? Scale down its aspiration? Stage its strategy to build robust basic systems, then critical ones for distinctiveness? Keep the aspiration, ignore the misfit systems, and only focus on the critical ones for the WTP/HTW?”

It is a great question because it nicely highlights the fact that the Strategy Choice Cascade works as a system and this commenter is asking about what you need to do when you work your way back up the Cascade and find that your EMS doesn’t support your MHC, HTW, etc. The question does not have a singular answer and each of the commenters suggestions could be a good answer depending on the circumstances. How long is it likely to take to build the critical systems? If it will take a long while, then staging is probably necessary because strategy is what you do not what you say. So, it doesn’t matter if you say you are pursuing the strategy now if you don’t have the required EMS in place because that strategy won’t exist until the EMS are in place.

And having the basic systems in place is an operating imperative (i.e. where the opposite is stupid on its face) and the strategy won’t work as planned if those and the critical EMS are in place. This is the tricky thing about real strategy. You can’t fake it until you make it. It is what you do not what you say.

The second interesting question was the following:

“According to my interpretation some of these examples are not systems but functional processes. Are they the same? Or they should be treated differently?”

I hadn’t previously thought about the distinction between a management system and a functional process. Upon reflection, I would say that they are certainly linked. Many management systems are either led by a single function or entirely within a function. For example, the system for keeping investments liquid in the Progressive Insurance example above would exist entirely within the investment function, and the system for empowering drivers would exist within the claims operations function.

In essence, the strategy decision on EMS provides specific mandates for functions to operate a system that produces the requisite MHC for the strategy to be effective. Oftentimes it will be imbedded in one function, but other times functions have to collaborate to make an EMS work.

Without further ado, the original article…

Chapter Twelve

I have frequently been asked by Playing to Win aficionados for more clarity on the Management Systems, the last box of the five-box strategy choice cascade. So, I thought it would make sense to provide more detail and clarity on my thinking on this important box in what will be the 1st piece in my Playing to Win/Practitioner Insights series. (Links for the rest of the PTW/PI series can be found here.)

While many observers don’t actually see the choice of management systems as part of strategy itself but rather a lesser choice, I see management systems choice otherwise, as integral to the practice of high-quality strategy. It is positioned at the bottom of the cascade only because the logic starts from the upper left and flows to the lower right. However, the flow goes both ways so no box is really at the start or finish. Great management system choices help confirm that the logic also flows from management systems back up to winning aspiration.

Click to continue reading the original article…