Neutrality Can Sniff Out Bad Strategy

I was listening to a radio interview with David Cohen, an experienced Special Master. You are probably familiar with the title as it has been in the news lately. But, in case not, a Special Master is essentially a judge’s proxy, charged with ensuring the court’s orders are fulfilled, and doing it with utter neutrality.

As he described his approach to the job, Cohen talked about the challenge of avoiding bias. It’s incredibly difficult. We all have opinions about things we experience. Even as we overhear mundane conversations around us, we stack up evidence and render a judgment against one side or the other.

A Special Master can’t allow that to happen. Instead, in Cohen’s words, he must “refresh his neutrality” every day. Perhaps every moment.

The interview got me to thinking about the ways in which leaders become biased toward their own product, service, expertise, or strategy. Of course, if you are a founder who created a novel solution, you are bound to feel preference toward your own “baby”. But, that bias can blind us to strategic changes. We become like parents who are certain that their noticeably average children are brilliant.

When I talk to leaders about developing strategy I always ask about their competitors. Inevitably, they will dismiss the competitors as having an inferior product or service.  Now, unless I have miraculously cornered the market on only truly one-of-a-kind solution-creators, this is hubris or self-delusion.

The same thing happens with respect to our current strategies. And this is problematic because by failing to “refresh our neutrality” we can miss indications that the strategy is flawed.

But again, this is a difficult assessment to make. On the one hand, once you have invested the time in a rigorous process of developing a strategy, you need to execute it and give it time to work. If a strategy doesn’t produce the desired outcomes, we look first to execution. Leaders blame their salespeople for not closing deals. Salespeople blame the product for being inadequate. Engineers blame the salespeople for selling features the product doesn’t have. Operations blames everyone for not executing processes.

Any or all of this can be, and often is, the source of a failing strategy.

But it’s easy to forget that strategy is, itself, theoretical. Theories are not sure things. So, we need heuristics to distinguish between poor execution and poor strategy. Usually, we only create metrics to track execution and the lagging indicators of success. But we need to track the relationship between those in order to test the strategy itself .

Plus—we must refresh our neutrality on a near constant basis.

That means living in two different perspectives as you assess progress.

One perspective is that of execution. Why is the roadmap delayed? What is blocking the new marketing initiative? Why haven’t we hired the head of data science?

If those processes they are not on track, then you can’t assess the strategy for validity.

The test of a strategy is whether it delivers –when it’s executed. [click to tweet this thought.]

If it isn’t executed, then there are few data available to assess it. Sometimes the problem is an obvious change in conditions—supply chain slowdowns, technology change, a war.

While generally, the execution is the problem, sometimes, the strategy is wrong.

For example, I had a client company with an interesting product that provide AI-enabled Facebook Messenger chatbots for large ERP systems.

Their new strategy called for penetrating the public sector as an adjunct to 311 non-emergency systems. All the data and market research seemed positive. And Facebook Messenger was perfect — with permanent threads and all the technical essentials: GIS location, security, and customer ID. The focus groups were enthused.

For 18 months the company tried to get their first city client. The CEO was sure that the fault lay with the salespeople.

Ultimately, the problem was the strategy.  It assumed cities would seize upon the benefits they loved in focus groups. But, when decision-makers confronted the overwhelming manpower to implement it, they balked. There was no way to square the ratios between value, manpower and pricing. The strategy was flawed.

This was not a fatal error. But it was a strategy issue, not an execution problem.

In far less subtle cases, leaders ignore obvious market changes or continue to drive the existing strategy in the face of its obvious failure. That’s where a loss of neutrality is fatal. By becoming overly attached to a current direction, you can sail off the face of the Earth.

Leaders who take their organizations to the grave fall prey to many of the most well-known cognitive biases: The sunk cost fallacy; Optimism bias; Personal identification coupled to the misguided notion that quitting is for losers.

The last—personal identification –is often the most insidious. We identify ourselves with our creations — whether a product or the strategy to sell it. That puts ego above reason. We are unwilling to retire the strategy because we feel it’s tantamount to admitting that we, ourselves, are also obsolete – or that we’d be guilty of the greatest sin of all, quitting.

Business history is littered with leaders persisting in obviously fatal strategies. When digital photography became ubiquitous and smart phones put it in everyone’s pocket, Kodak doubled down on its film strategy.

Iridium was convinced that there was a strong market for $3,000 satellite phones. There wasn’t. But even after it was clear that cellular networks were obsoleting the need for satellite phones, the leadership persisted and even increased their investment in marketing. They went bankrupt almost exactly two years after launching.

eBay acquired Skype expecting it to bolster the core auction and payment businesses. They wrote it down by $1.54b just two years later; then lost an additional $700m on its sale; and then watched Microsoft acquire it for $8.5b only 2 more years later.

There are tactics we can use to objectively determine when we need to revisit strategy. They give us a better chance to overcome our innate biases:

🔘 Craft decision rules when we develop the strategy. Decision rules are objective “lines in the sand” that have binary directives. Stop/Continue. Buy/Sell, Review and Iterate.

That was what we did with the Messenger system client. There were several milestones which, if unmet, would trigger a strategy review.

There were also “drop dead” rules. One of them was an 18 month deadline. With one signed contract we continue. With no signed contracts we end the strategy. Had there been no rule, the client would have persisted with the flawed plan.

🔘 Include alternatives in your original strategic planning conversation. This ensures that the strategy you select won’t become like religion. If it is selected as best among options, and then if it proves flawed, it’s already cognitively conceivable to choose an alternative.

There are many more ways to avoid losing neutrality about your strategy –but most of them are ways of framing the original work of crafting the strategy. Encouraging dissent, performing pre-mortems, red team blue team –and many more. I won’t go into them here (you can find them in many earlier articles), but the goal is always to reinforce the context of hypothesizing. And cap all of that with decision rules that you surrender to!

When we lose sight that we are conducting an uncertain experiment, insidious bias wins. So do whatever you can to continually refresh your own neutrality.

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