Start With Why - Value Creation

Recently I shared an article, “Be Coherent, Not Visionary” The article argues vision, mission and strategy all fail, because of the way we go about making strategies. The argument made is that “having a corporate vision is of limited use in today’s complex business landscapes”, an unstable and unpredictable landscape. “What matters is being coherent rather than being visionary” argue the authors. By “coherent” they mean “acting in a manner that reinforces who you are as an organization [referring to the organisational identity], given the current environment.”

A vision precludes changes in it, they say, - unwise in an unstable world as the predictions it will be based on are going to be very weak, and reverse-engineering a strategy to achieve the goals, may reduce adaptability, and make no room for emergence.

The article then speaks of “missions” saying, “missions are cast in vision: first see a future that is virtually inevitable, and then adopt a mission to participate in that future”. Mission statements being “present-focused” ways to define “what you do to accomplish your vision”, to keep an organization “focused on its key customers, products, and services”, and helping “when evaluating new business opportunities to make sure they fit in with the scope of the company’s mission”.

The article was written in 2001, which probably explains why it talks much less about “values” and “values statements”, and little about "purpose".

The article goes on to talk about the different approaches to strategy making:

• Competitive positioning approach: how to gain a favourable competitive position
• Resource-based approach: leveraging resources to gain a competitive edge
• Emergent strategy – realising a deliberate plan by making successive responsive adaptations.

The authors note that “in the absence of serious academic guidance about how to “make” a strategy, the practising manager is left with popular advice, consulting firms and the literature on visions”. They add “these sources seem to rely on five unspoken assumptions”:

• The world is stable enough that changes that may occur are foreseeable
• Prediction is possible.
• Boundaries are clearly defined. (referring to industry boundaries and boundaries between the firm and its stakeholders).
• Identity is assumed and has no need for articulation. (Identity meaning “sense of self” as an individual and as a group)
• Outcomes are more important than processes.

All these assumptions are no longer valid, claim the authors. Instead, there needs to be “vigilant adaptations”, collaboration and cooperation in addition to competition, and a willingness to embrace constant change. They add, “Where vision emphasizes predictability and goal-orientated forecasts of the future, co-evolution emphasizes adaptive-ness, situated-ness with time, space, and opportunity, and an awareness that change within the others with whom one relates will trigger changes in self which cannot be forecast”.

In many ways, their core argument is, “from the traditional perspective, in order to survive organizations must find ways to interpret events so as to make their environments more predictable. From the complexity perspective, organizations must find ways to interpret events so as to be at one with the environment, an environment, which they choose”.

The authors argue adaptation and constant change are stressful because they challenge our sense of self-identity and self-esteem - as individuals and groups. Sensemaking is the way to achieve coherence. Sensemaking is driven by and drives our actions, being closely related to culture and identity.

Actions are determined by systems, structures, and roles. In this context, coherence is achieved by resolving conflicts. And “coherence is about acting in a manner consistent with whom you are given your present spot in the business landscape. Identity and action need to be consistent and not in conflict.”

For these reasons, “managers need to know is how to promote and encourage coherent actions throughout the organization” they argue. But they add, “The manager cannot be the one to make it happen but can play a major role in helping it come into being.” Additionally, “sense-making will occur only if the group members share a set of views…..and if they see themselves as a group.” 

Bringing their arguments together they say, “coherence cannot be produced (other than temporarily through coercion); it must be evoked, coaxed into existence from a convergence of interactions and sense-making. By setting boundaries the forces of coherence can be channelled. Intention and purpose are embodied in the channelling. The intention is expressed by purposive action”. For these reasons, “guiding coherent action is the key task of management.” And it clearly requires a very unconventional approach to leadership – coaxing and cultivating not command and control.

Explaining why this approach is necessary they argue “coherent people thrive mentally, emotionally, and physically. Coherent organizations thrive in the attainment of their purposes”.

They add, “coherence is not a rigid state, but rather is a process that reflects the ongoing alignment of identity, purpose and values. When a system is coherent, virtually no energy is wasted so as to achieve internal synchronization. Power is maximized through coherence — the power to adapt, flex, innovate resulting in a major leap in efficiency and effectiveness. Organizations, being comprised of people, operate the same way. As coherence increases within individuals and teams, a much higher level of organizational coherence and alignment is possible — coherence between the organization’s goals, its viewpoint and its actions. The presence of coherence is more likely to contribute to the accomplishment of shared purpose”.   

Finally, the authors warn “attempting to “force” coherence (through coercion) would mean turning the words into lies and would shatter the concept”.

My Comments

The article does a great job at highlighting the problem of using abstract terms such as vision, mission, purpose, strategy, cohesion. They all make for interesting discussions, but they do not help the practitioner much.

Additionally, with regards to the distinction between the three approaches to strategy making - competitive, resource-based and emergent - I would argue all three should be part of strategy making. And they are all insufficient as distinct approaches.

Regarding purpose, every executive I speak to agrees that the purpose of any organisation should be the creation of value. It describes why they exist and what they are supposed to do. The other abstract terms describe how they are supposed to do that.

For these reasons I agree with Simon Sinek, to “start with why” makes sense. First, understanding what is meant by value, if that is supposed to be the focus of all organisations.

Regular readers will know that I regularly refer to McKinsey & Co research that surveyed over 700 directors of large companies around the world and found that only 22% believed the boards they sat on had a good understanding of what value the firm they control creates.

My own research suggests the real figure is much less than 22% - probably in the low single digits. And I would love to know how many can define “value”, know if they are clear about how they create value, and whom they create it for. To-date, when I asked executives these questions, the number who have been able to answer them has been zero.

By all means create vision, mission, values, and purpose statements, and organise to achieve cohesion. But first, define what you mean by value and answer the three questions: what value you create, who for, and how?

After agreeing that the purpose of every organisation is to create value and admitting that they do not think the directors of their organisation, or they themselves, can answer the three questions, they always ask, “what do you mean by value?”

Without an understanding of how the firm defines value and answers to the three questions, of what use can any mission, vision, values, or purpose statements be? Of what value, if any, can a 'strategy' be? And how likely is it that an organisation will achieve cohesion? How can is it possible to budget and allocate resources effectively? How can incentives and reward structures be effective? How strategic can recruitment, training and development be?

The article argues, “the concept of vision has been transcended by the concept of coherence.” That was wishful thinking perhaps. My wish is that a focus on value-creation will transcend all other abstract concepts in order to focus on the practical.

Critics will argue that “value” is an abstract term, so I will define what I mean by it – “the contribution to sustainable widely shared prosperity defined in terms of human flourishing and wellbeing.”

Then critics will argue that human flourishing and wellbeing are abstract concepts, but I think much work has already been done to define these terms by organisations such as the United Nations. I would also argue that their meaning will never be static because they relate to values and values evolve.

In my view, the value created by Business must be defined in these terms. But business must additionally create value for those it depends on to create contributions to human flourishing and wellbeing. It must make profits sufficient enough to sustain itself and achieve its goals.   

A business that does not believe it should contribute to human flourishing and wellbeing risks being in breach of its social contract, the unwritten license to operate, granted to it by society. And I would argue that today many businesses are in breach of their contract with society. This explains why public trust in business is so low. But, this insight also allows us to understand how to fix that problem.

To summarise, I agree with the authors, that the way we go about making strategy is the reason missions and strategies fail, but not because of a lack of coherence. That may be why strategies fail to be executed.

I agree with them, everything needs to be adaptable in the face of continuous change, and coherence should always be sought, but constant change means it will never attainable. All that said, I believe the reason businesses and organisations fail to achieve their goals is poor strategic thinking. This is due to a failure to ensure a clear understanding of what value should be created, for who and how, or ensure any clear understanding of what value means to each group of stakeholders.

As a critique of the many other execution problems, especially the ability to achieve coherence, I think the authors offer many valuable insights.