Contribution to Strategy from the HHRR Department

Since McKinsey stated companies are involved in a war for talent, (1) HHRR departments are considered strategically relevant in their task of attracting, motivating and developing executive talent. Even more at strategic assignments.

Nevertheless several studies and surveys consider HHRR departments lag behind in executive capacities, and in contributing strategically and in prospective matters referred to the labor force and needs.

Some studies find boards do not really grant enough relevance to human capital matters, (as they do with other corporate aspects), for instance when setting compensation structures.

To assess the true contribution to strategy by HHRR departments, Courtney Hamilton, David F. Larcker, StepHen A. MileS, and Brian Tayan, (The Miles Group, Stanford Corporate Governance Research Initiative) recently did a survey to some 85 CEOs and CHROs, whose results we will sum up, (2). Read more…

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Board 3.0. A proposal to overcome the flaws of a formal and compliant board.

Ronald J. Gilson and Jeffrey N. Gordon from Columbia Law School and ECGI have recently published an article in which they introduce propose a new Corporate Governance model based on the way private equity and venture capital firms help manage companies from their seats at boards of their portfolio companies, (1).

They argue that the currently dominant model, Board 2.0 or “Monitoring Board”, which started its venture in 1976 after the Eisemberg book was published, (2), has very often failed to provide an effective board, as part-time independent directors were thinly informed, lacked resources and were also boundedly motivated. Which has promoted once and again a new regulatory emphasis on the same model. Moreover, since that date complexities, size, regulatory frameworks have all increased exponentially. Requiring more time and pay from/for independent directors, increasing their number and/or the number of technically specific committees are all decisions that would undermine the model itself. Faced with activist investors these uninformed directors can´t really help management, and institutional investors don´t feel happy to rely on them, and very often consider the activists proposals.

The authors state a new board made of thickly informed, well-resourced and highly motivated directors is needed to solve these failures of the current model. And also confront the impossible disclosure of strategic plans to the market so that stock prices fairly reflect value with credibility provided by these new kind of director, avoiding corner solutions to support management, (dual-class share systems etc). Read more…

How do fast growing companies do it? The case of Blitzscaling. (IV)

PART THREE.  MANAGEMENT INNOVATION

Eight Key Transitions arise during the BS process:

  1. Small to big Teams. Small teams can act spontaneously and fast in Family and Tribe, thanks to the personal and frequent contacts. That allows you to pivot as necessary until you find the business model, for example. In village and beyond, this is not possible. Teams are larger: planning and formal processes appear. And psychologically the change is huge for founders and starters who see they no longer have a broad vision nor connection with “mission”. BS firms must try to enhance their engagement. Firms also hire some different people, (marines, army and police…). Starters need to start new BS projects, etc. Also some have a concern for their career, (sometimes people specialize in certain stages: be clear and prepare people to forget title and focus on relevance of job. Don´t care of feelings if you need to separate from some starters.
  2. Generalists to Specialists. The latter are relevant in certain areas critical for the company´s growth. And leading a function in a City or Nation is not easy to access for a generalist. But don`t hire them too soon or they will have to do many things and not their best thing. It is in Village that you can start hiring specialists.
  3. Contributors to Managers to Executives: managers are frontline day-to-day tactic drafters, and executives lead managers. They worry about vision and strategy. They are still on top of managers for them to do their best. Tribe needs functional managers; in a Village you need executives; the executive VP is the one leading the different managers leading teams working on the different projects or areas; and when a company needs an executive for the first time, there is nobody having worked for any that has learnt to be one, and they come from outside. Care hiring people for today: similar size, similar growth, similar challenges, …sometimes you take from outside, and promote some for your strong areas. To avoid rejection some use three steps when hiring many people: (i) Hire somebody known to anyone in the team; (ii) give him a lower title to prove himself:;  (iii) Then consider promoting him where you wanted him or somewhere else. Finally, let them train your managers so they can later be executives, jus t in case.
  4. Dialogue to Broadcasting: you abandon informal and go on with formal push broadcasting and pull online resources. You decide what is secret and what you can unveil. In family, (raising voice, Slack, Skype or Hangouts is enough). In Tribe, (weekly meeting to pass messages; and some other still informal things). Village (meetings with technology and less frequent; video live conferences with the possibility of a round of questions of information gathering by participants; CEO needs channels to get to anyone; regular emails with thoughts on business aspects…
  5. Inspiration to Data: if opinion-based, the opinion of the boss wins, so bring and use data. To decide, to enrich information about your product, to enrich customer acquisition or engagement, ….In Family and Tribe you don´t need that, and it helps very little. You grow recklessly so seek certainty when you can, when you are already bigger. Track basic data regarding users, paying users, some engagement metric……3 to 5 metrics, but relevant. And build a data framework easy to convert in graph and useful tool for decisions. If not, you will stop using it. And you change it when needed. Metric must be relevant, nor a vanity or rosy one, (Twitter was being killed by API access even if the metric read fantastic…). In Village you need Business Intelligence (BI) and a Dashboard for all. In City and Nation, you need a BI team. It is costly but cost-efficient. What for: many companies create an Engineering, Product Marketing team (Growth team) to react to the insights. But numbers don´ lead, strategy does. So if a number shows bad and this is a number supposed to be good, what that does mean? How do we really need to do? Get the number good whatever the effort at whatever cost or turn this product or feature down? Data-driven design (Google) or Genius-driven design are the opposite views: combine adequately.
  6. Single focus to Multithreading. Scale-ups need more products or business units. Focus is good at start-up. And companies shouldn´t go for next until first one is dominated, sometimes when potential for gain with it is fading… Jump usually arrives in City, each group focusing in a different thing. Success appears within a unique organization as those exploring new opportunities are still linked to experienced managers dealing with mature ventures, and are able to coordinate resources and expertise. Of course multithreading has a cost, and you have to be conscious and restrict. For any new thread you need leadership and incentives. Also if you have entrepreneurial people: retaining them and avoid them making their own firm; avoid wars between people, make it possible to close a business that does not work.
  7. Pirate to Navy: start-ups are like pirates, centered in Attack, without procedures, flexible, willing to take risks that big companies can´t, etc. But when Village or more, you need to behave more like a navy, if you don`t want chaos. That means: (i) Follow rules; (ii) Prepare defense, lock out competition, retaining customers, etc. In City you must protect and defend your position:a) Look for a standard, turn your service in a platform for others to perform, so that you will have a multiplier; b) Offer a more complete solution and put talent after every option that has traction. In Nation navy is complete, and inorganic growth is important. Small teams that receive your resources to scale, (Android); hoards of cash allow to that; and dedicate some cash also to disturb your competitors´ positions, so that they have to spend part of their monies there, (MSN Bing for example). To become an admiral: (i) you need to change; (ii) culture and values need to change;(iii) set of executives capable of a tight control of their respective assignments, an understanding of differences and a team to coordinate everything, (crucial).
  8. Scaling your self: Founder to Leader. (i) Delegation: hire somebody to do functional jobs; (ii) Amplification: somebody helping with agenda, a Chief of Staff: codify and research info about market, competition, industry trends, etc. use of social media and a team helping. (iii) Making yourself better: you must be a learning machine, avoid being bottleneck, …read and meet other having done it; have a board of directors to consult and get feedback from.

Read more…

How do fast growing companies do it? The case of Blitzscaling. (III)

(Cont)

PART TWO.  STRATEGY INNOVATION

Blitzscaling IS a strategy innovation.

When should firms start BSing?

This is a normal question as BSing requires abandoning careful planning, investment, service, and burn rate…WHY? This is clear, in exchange for speed. So WHEN? When you notice speed is the critical factor for massive outcomes. Sometimes this happens even before the revenue model has appeared.

Being too soon: usually leads to Blitzfailure. It is when there is no product/market fit, business model does not work, or environment is against.

Some tips: Read more…

How do fast growing companies do it? The case of Blitzscaling. (II)

PART ONE.  BUSINESS MODEL INNOVATION

Innovative business model capable of exponential growth.

Since 1995 (Netscape´s IPO) until 2000, (crash) many tried to implant an existing business model into the online medium…and failed. Only those with completely new business models survived the killing. Amazon took the realm Walmart should have taken. Also start-ups focused on technology rather than on business model went bust. Real value creation comes not with technology alone, but when technology enables new products and services with innovative business models.

A Business model is: description of how a company generates financial returns producing, selling and supporting its products. Blitzscalers business models allow them to quickly get massive scale and sustainable competitive advantage. They use growth factors and avoid blockers.

THE FOUR GROWTH FACTORS. Read more…

How do fast growing companies do it? The case of Blitzscaling. (I)

We start a series of posts, some of them perhaps long, dedicated to analysing the experience of successful, fast conquerors of a (sometimes global) market share, and consequently hugely valued companies. We will dedicate the first post (several parts) to a kind of company called Blitzscaler, (name given by Reid Hoffman, (co-founder of Linkedin) and Chris Yeh, (1).

They refer to a general framework and a number of techniques that allow companies to obtain an incredibly fast and huge growth. A classic approach to business strategy would recommend you to gather information and act and decide; to pursue correctness and efficiency. But this offers little guidance to inventors, innovators and disrupters, because this approach starts thinking in a stable market, (the one General Electric thought it had, for instance).

When new technologies enable a new market or scramble an existing one there is little certainty and information. The risk is not inefficiency, but losing to conquer the identified market, (Amazon was very often criticized for losses, but gained the markets it went after).

Alternative decisions are:

(1)   Trying to do things without any risk of making a wrong decision, without inefficiencies. Sometimes the risk of being slow is greater.

(2)   Accepting the risk in exchange of moving faster. You don´t have information but you bet on the path things will follow; so in order to mitigate the downside of your mistakes you have to draft hypothesis that help you know what would drive success or failure. And more than normal effort is also necessary . Read more…

Power in the Theory of the Firm.

February 11, 2019 Leave a comment

After Coase´insight (1) on the fact that power or authority reigns within the firm, further research identified power as a mechanism to allocate the exercise of residual rights in an environment of incomplete contracts, (GHM, or Grossman and Hart, or Hart and Moore, (2)). In particular as a means to protect specific investments, (long-term investments with low valuations outside the boundaries of the firm), which is more relevant the more incomplete contracts are. The research identifies employers as the owners of physical assets. In particular “ownership” of employees even at its smallest version of loyalty, is not considered.

Zingales and Rajan, (3) in “Power in the Theory of the Firm”, state that physical assets are not the best way to make relationship-specific investments, they recognize the employees´ “belonging feeling” for instance.

They go further as they oppose “access” as an ability to use a critical resource, to “ownership”, as an alternative to allocate power. The resource can ba a machine, an idea, a person, …., and the one who gets access does not obtain residual control rights, but the opportunity to adapt his/her human capital to the resource, and make himself valuable. The control over this specific human capital is more valuable than ownership as it is often more contingent on doing the right investment. Read more…