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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