Is your strategy what you say it is?

Rotman Management – FALL 2013

Having a clear purpose and strategy for your organization—

and for your life—entails investing your resources accordingly.

by Clayton Christensen, James Allworth and Karen Dillon

Real strategy – in companies and in our lives – is created through

hundreds of everyday decisions. As you live your life from day

to day, how can you make sure you’re heading in the right direction?

Our advice is to take a close look at where your resources are

If they’re not supporting the strategy you’vedecidedupon,

then you are not implementing that strategy. In this article we will

discuss a pervasive challenge for organization and individuals

alike:what todowhenthe rightdecision for thelong termmakesno

sense for the short term,whichwe call the ‘innovator’s dilemma’.

Getting the Measures of SuccessWrong

More than a decade ago, Seattle-based SonoSite was founded

to make hand-held ultrasound equipment — little machines that

had the potential to truly change health care. Previously, the only

thing that most family doctors and nurses could do when performing

an exam was to listen and feel for problems beneath the

skin.As a result,many problems eluded detection until theywere

more advanced.

For 20 years or so, although technology had existed that enabled

specialists to look into a patient’s body through cart-based

ultrasound, CT scan, orMRI machines, all of this equipmentwas

big and expensive. SonoSite’s hand-held machines made it affordable

and easy for primary care doctors and nurse practitioners

to see inside their patients’ bodies.

SonoSite had two families of products. Its principal product,

dubbed the Titan,was about as big as a laptop computer.The other,

branded the iLook,was less than half the size—and one-third

the price. Both machines had enormous potential. The iLook

was not as sophisticated as the Titan, nor as profitable for the

company, but it was much more portable. The company’s president

and CEO, Kevin Goodwin, knew there was a promising

market for it: in its first six weeks, the iLook generated a thousand

sales leads. It became clear that if SonoSite didn’t sell it, someone

else was likely to develop the same compact, inexpensive technology

and disrupt the sales of the more expensive machines —

and SonoSite itself.

Eager to see first-hand how customers were responding to the

new, smaller product, Goodwin attended a sales call with one of

his top salespeople. What happened taught him a critical lesson.

The salesman sat down with the customer and proceeded to sell

the Titan — the laptop ultrasound. He didn’t even take the iLook

out of his bag. After 15 minutes, Goodwin decided to intervene.

“Tell them about the iLook,” he prompted; but he was completely

ignored. The salesman continued to extol the virtues of

the Titan. Goodwin waited a few minutes, then leaned over again.

“Take the handheld machine out of your bag!” he insisted. Again,

the salesman completely ignored him. Goodwin asked one of his

best salespeople three times to sell the iLook — right in front of the

customer, and each time, he was completely dismissed.

What was going on? The salesman wasn’t deliberately trying

to defy Goodwin. In fact, he was doing exactly what the company

wanted him to do: sell the product that provided the highest return.

Goodwin knew that the hand-held innovation had enormous

long-term potential — perhaps even more than the larger

model. The problem was, his salespeople were all on commission,

and success for them was defined by the total value of their

sales and gross margin dollars. It was much easier for Goodwin’s

best salesman to sell one of the laptop-size machines than it was

to sell five of the little products. In other words, Goodwin thought

that he was giving clear instructions into the salesman’s ear; but

the compensation system was shouting the opposite instructions

into his other ear.

At SonoSite, as in nearly every company, this conflict was

not an inadvertent oversight. Rather, it is a pervasive paradox

— a problem that we have termed the ‘innovator’s dilemma’.

The company’s income statement highlighted all the costs it was

incurring. It also showed all the revenues that it needed to generate

day in and day out, in order to cover those costs — which, by

the way, it had to do if it wanted to improve the quality and cost

of health care for millions of people. Its salespeople would need

to sell five iLook handheld devices to generate the profits that a

single Titan laptop would provide. And their own commissions

were higher when they sold the more expensive device.

The sorts of problems that Kevin Goodwin and his salespeople

were wrestling with are some of the most challenging of all — those

where things that ‘make sense’ don’t make sense. Sometimes these

problems emerge between departments within a company. At SonoSite,

for example, what made sense from the CEO’s perspective

did not make sense from the salesman’s perspective. What made

sense to engineers — pushing the frontier of performance in the

next products beyond the best of their current products, making

them more sophisticated and capable, regardless of expense — was

counter to the logic of the company’s strategy.

The SonoSite case introduces a key component of the strategy

process: resource allocation. The resource allocation process

determines which deliberate and emergent initiatives get funded

and implemented, and which are denied resources. Everything

related to strategy inside a company is only intent until it gets to

the resource-allocation stage. A company’s vision, plans and opportunities

— and all of its threats and problems — all want priority,

vying against one another to become the actual strategy the

company implements.

When Individuals Cause the Problems

Sometimes, a company such as SonoSite causes well-intended

staff to go off in the wrong direction when the measures of success

are counter to those that will make the company successful.

A company can also be at fault when it prioritizes the short term

over the long. But sometimes individuals themselves are at the

root of the problem.

Apple Inc. shows how the differences between individuals’

priorities and company priorities can prove fatal. Through

most of the 1990s, after founder Steve Jobs had been forced out,

Apple’s ability to deliver the fantastic products it had become renowned

for simply stopped. Without Jobs’s discipline, daylight

began to emerge between Apple’s intended strategy and its actual

one, and Apple began to flounder.

For example, Apple’s attempt to create a next-generation operating

system to compete with Microsoft during the mid 90s —

code-named ‘Copland’ — slipped numerous times. Though it was

a purported priority for the company, Apple just couldn’t seem to

deliver it. Management kept telling everyone — press, employees

and shareholders — how important it was. But on the front lines,

senior management’s sense of what the market wanted made

little sense to the troops. Engineers seemed more interested in

dreaming up new ideas than finishing what had already been

promised for Copland. Without Jobs, people were able to get

away with spending their time on ideas they were excited about,

regardless of whether they matched the company’s goals. Eventually,

Ellen Hancock, Apple’s chief technology officer at the

time, scrapped Copland altogether, recommending the company

buy something else instead.

When Jobs returned in 1997, he immediately set to work

fixing the underlying resource-allocation problem. Rather than

allowing everyone to focus on their own sense of priorities, he

brought Apple back to its roots: making the best products in the

world, changing the way people think about using technology in

their lives, and providing a fantastic user experience. Anything

not aligned with that got scrapped, and people who didn’t agree

were yelled at, abased or fired.

Soon, people began to understand that if they didn’t allocate

their resources in a way that was consistent with Apple’s priorities,

they would land in hot water. More than anything else, the

deep internal understanding of what Jobs prioritized is why Apple

has been able to deliver on what it says it’s going to do, and is

a big part of why the company has regained its status among the

world’s most successful.

Getting the Time Frame Wrong

If you study the root causes of business disasters, over and over you

will find a predisposition towards endeavours that offer immediate

gratification over those that result in long-term success. Many companies’

decision-making systems are designed to steer investments

to initiatives that offer the most tangible and immediate returns, so

companies often favour these and short-change investments in initiatives

that are crucial to their long-term strategies.

To illustrate how pervasive the innovator’s dilemma is between

short-and long-term options, let’s examine another oftemulated

company, Unilever, one of the world’s largest providers

of products in foods, personal care, and laundry and cleaning.

In order to grow, Unilever has invested billions of dollars to create

breakthrough innovations that will produce significant new

growth. In baseball terms, however, instead of exciting new

‘home run’ products, its innovators often produce instead ‘bunts’

and ‘singles’ — year after year. Why?

After studying their efforts for over a decade, we concluded

that the reason is that Unilever (and many companies like it) inadvertently

teaches its best employees to hit only bunts and singles.

Every year, its senior executives identify next-generation

leaders (high-potential leaders, or ‘HPLs’) from their worldwide

operations. To train this cadre so that they will be able to

move around the globe from one assignment to the next with

aplomb, they cycle the HPLs through assignments of 18 months

to two years in every functional group — finance, operations,

sales, HR, marketing, and so on — in a sampling of products and

markets.As they finish each assignment, the quality of the work

they have completed typically determines the prominence of

the next assignment they receive. HPLs who log a series of successful

assignments ‘earn’ the best subsequent assignments,

and are more likely to become the company’s next senior

executives.

Think about this from the perspective of the young employees,

all of whom are thrilled to be picked for this development

program. What projects are they most likely to covet, in each of

their assignments? In theory, they should champion products

and processes that will be key to Unilever’s future success — five

and ten years ahead. But the results of those efforts, only available

many years later, will garnish the record of whoever is in that

specific assignment at that time — not the person whose insight

initiated it. If, instead, the HPLs focus on delivering results they

know can be seen and measured within 24 months — even if

that method isn’t the best approach — they know that the people

running the program will be able to assess their contribution to

a completed project. As long as they have something to show for

their efforts, they know they’ll have a shot at an even better next

assignment. The system rewards tomorrow’s senior executives

for being decidedly focused on the short term — inadvertently

undermining the company’s goals.

Misaligned incentives are pervasive. For example, the United

States is unable to change its Social Security, Medicare and

other entitlement programs — despite the fact that everyone

agrees that these programs are driving the country over a precipitous

cliff towards bankruptcy. Why? Members of the House

of Representatives stand for re-election every two years. These

representatives, rightly or wrongly, are convinced that if America

is to be saved, they personally need to be re-elected in order

to lead that effort. It is broadly known how to solve these problems.

But no members of the House will pull these solutions out

of their bags, to ‘sell’ them to their customers, the voters. The

reason is that there are so many people who benefit from the entitlements

that they will vote out of office anyone who pulls the

solution out of his or her bag. Despite the fact that senior statesmen

(who are retired and no longer need to stand for re-election)

are sitting right next to the members and, over and over,

urge the current representatives to pull the solutions out of their

bags, the elected officials simply cannot do it.

Somebody ought to organize a conference where SonoSite’s

salespeople, Unilever’s HPLs, and members of Congress can

commiserate with each other about the tug-of war between what

they’re being told are their priorities and what they are actually

being encouraged to do.

In Life as in Work

Resource allocation works pretty much the same way in our

lives and careers. The dilemma of what machine to pull out of

a salesperson’s bag is very similar to the dilemma we all face

near the end of a workday: do I spend another half hour at work

to get something extra done, or do I go home and play with

my children?

Here is a way to frame the investments that we make in

the strategy that becomes our lives: we have resources — which

include personal time, energy, talent and wealth — and we are

using them to try to grow several ‘businesses’ in our personal

lives. These include having a rewarding relationship with our

spouse or significant other; raising thriving children; succeeding

in our careers; contributing to our church or community;

and so on.

Unfortunately, our resources are limited, and these ‘businesses’

are competing for them. It’s exactly the same problem

that a corporation has. How should we devote our resources to

each of these pursuits? Unless you manage it mindfully, your personal

resource allocation process will decide investments for you

according to the ‘default’ criteria that are wired into your brain

and your heart. As is true in companies, your resources are not

decided and deployed in a single meeting or when you review

your calendar for the week ahead. It is a continuous process —

and you have, in your brain, a filter for making choices about

what to prioritize.

But it’s a messy process. People ask for your time and energy

every day, and even if you are focused on what’s important

to you, it’s still difficult to know which choices are right. If you

have an extra ounce of energy or a spare 30 minutes, there are

a lot of people pushing you to spend them here rather than there.

With so many people and projects wanting your time and attention,

you can feel like you are not in charge of your own destiny.

Sometimes that’s good: opportunities that you never anticipated

can emerge. But other times, those opportunities can take you

far off course.

The danger for high-achieving people is that they’ll unconsciously

allocate their resources to activities that yield the most

immediate, tangible accomplishments. This is often in their

careers, as this domain of their life provides the most concrete

evidence that they are moving forward. They leave college and

find it easy to direct their precious energy into building a career.

In fact, how you allocate your own resources can make your life

turn out to be exactly as you hope, or very different from what

you intend.

For those of our college classmates who inadvertently invested

in lives of hollow unhappiness, we can’t help but believe

that their troubles stemmed from incorrectly allocating resources.

To a person, they were well-intended: they wanted to provide

for their families and offer their children the best possible opportunities

in life. But they somehow spent their resources on paths

that dead-ended in places that they hadn’t imagined. They prioritized

things that gave them immediate returns — a promotions,

raises or bonuses — rather than the things that require long-term

work, like raising children. And when those immediate returns

were delivered, they used them to finance a high-flying lifestyle

for themselves and their families: better cars, better houses, better

vacations. The problem is, lifestyle demands can quickly lock

in place the personal resource allocation process. “I can’t devote

less time to my job, because I won’t get my bonus — and I need it

so we can. . .”

Intending to build a satisfying personal life alongside their

professional life, making choices specifically to provide a better

life for their family, they unwittingly overlook their spouse

and children. Investing time and energy in these relationships

doesn’t offer them that same immediate sense of achievement

that a fast-track career does. You can neglect your relationship

with your spouse, and on a day-to-day basis, it doesn’t seem as

if things are deteriorating: he or she is still there when you get

home every night, and kids find new ways to misbehave all the

time. It’s really not until 20 years down the road that you can put

your hands on your hips and say, “We raised good kids.”

In fact, you’ll often see the same sobering pattern when

looking at the personal lives of many ambitious people. Though

they may believe that their family is deeply important to them,

they actually allocate fewer and fewer resources to the things

they would say matter most. People don’t set out to do this. The

decisions that cause it to happen often seem tactical — tiny decisions

that they think won’t have any larger impact. But as they

keep allocating resources in this way — and although they often

won’t realize it — they are implementing a strategy that is vastly

different from what they intend.

In closing

A strategy — whether for a company or a life — is created through

hundreds of everyday decisions. With every moment of your time,

every decision about how you spend your energy and your money,

you are making a statement about what really matters to you.

You can talk all you want about having a clear purpose and

strategy for your organization and your life, but ultimately it

means nothing if you aren’t investing your resources in a way that

is consistent with that strategy.

Clayton Christensen is the Kim B. Clark Professor of Business

Administration at Harvard Business School. Ranked as the world’s most influential management

thinker by the Thinkers50, his most recent book is, How Will You Measure

Your Life? (HarperBusiness, 2012), co-authored with James Allworth and

Karen Dillon. James Allworth is a graduate of Harvard Business School who

has worked for Booz & Company and Apple. Karen Dillon was editor of

Harvard Business Review until 2011. This article is an excerpt fromHOW

WILL YOU MEASURE YOUR LIFE? Copyright 2012. Reprinted by permission

of HarperBusiness, an Imprint of HarperCollins Publishers.

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