This is Part 2.
Keith McFarland was CEO of a breakthrough company taking Collectech Systems from revenue of $10M to $150M in three years. He then decided to study why some small and successful companies like his, think Inc. 500, “breakthrough” to become much larger successes. His mentor-guru-muse is Peter Drucker, the famous management consultant and professor.
Aside: The Daily Drucker is on my shelf. I’ve thumbed through it. Mental note: READ IT.
McFarland’s book, The Breakthrough Company was inspired by a question from Professor Drucker:
Make a list as short as possible but as long as necessary of the things that determine which businesses win or lose.
The answer forms McFarland’s central thesis: There are really only three disciplines that will make a difference with your company (speaking to Vistage CEOs):
Strategy – vision, mission, etc.
Execution – the steps to get stuff done
People – who execute the strategy
And these are the three disciplines of “Breakthrough Companies”: strategy, execution, people.
So, if you are not on your way to becoming a breakthrough company, you probably have some routines that need to be broken. Leadership’s job is to break routines. Routines are dangerous b/c they don’t change as the world is changing. First and foremost, if the routine isn’t working, change it.
Aside: This is another way of describing the definition of insanity.
So, one by one, McFarland dives deeper into each discipline describing how to break the routine.
Discipline 1 – Dynamic Strategy
With the right people and process, a company can build a strategy in 48 hours that is 90% as good as one we build in two months. I like this. What he is saying is that “good enough is good enough” and we saved a month and 28 days.
McFarland offer a new definition of strategy: a collection of ideas on how we are going to win. Whatever “win” means to your individual company.
So, how can you create your individualized strategy? Employ a Strategy Wheel cycle where anytime there’s insight that gets converted into a decision and the decision gets converted into actions, you have created a strategy. You don’t wait until the annual or semi-annual strategy summit. It’s a cycle and winners get this cycle going fast. The Strategy Wheel has to move quickly.
Strategy planning – how do you do it?
McFarland answers this question by setting up the problems with how most companies plan today and offering a fix.
Problem: Strategic Planning is too infrequent. Some might say things nowadays happen too fast so strategic planning is dead. Hogwash. Strategy has never been more important.
Fix: Use a 90-day cycle and change the way you do it. For example, do a retrospective every 90 days so you get iterative -ability.
Aside: I wonder if McFarland is familiar with Agile programming processes. This description of planning is analogous.
For the first session, spend 48 hours locked in a room to start, then 2 hrs every 90 days to see what is meeting expectations, working and not working.
Problem: Planning is too exclusive. Too often it’s the boss and direct reports. This is not good. These folks are too in bed together, same data points, all reporting to same people.
Fix: Bring more minds into it. Illustrating this point, McFarland gives a brief summary of an integral aspect of the hit TV show “Who Wants to be a Millionaire.” He details the success rate of the three lifelines:
1) Phone a friend – right 60% of the time, which is
2) better than the 50-50 option, but
3) Ask the Audience is right 87% of time.
Ask the Audience is like inviting more to the Strategic Planning process. The idea is to get more minds working on it so “democraship”, a combo of democracy and dictatorship, occurs. When it comes time to figure out where we are going and how get there get as many people involved a physically possible because it’s two layers down at a minimum that really knows what is going on. Then build systems and processes that are rigorous enough to get us there.
Democracy – good at generating good ideas, but terrible at getting anything done. Consider bringing these groups in:
1) two layers down from CEO,
2) smart sales people,
3) young up and comers and lastly,
4) Eeyores those that are hyper critical that things won’t work. They may be annoying, but their commentary is valuable.
Dictatorship – terrible for good ideas, none of us is smarter than all of us.
Problem: Too often, strategic planning process is too CEO-centric. One person’s ideas, viewpoints. It’s too limited.
Fix: Need “insultants.” People who are insiders at the company but are willing to tear ideas apart and take full swings at issues. This solves the problem of having too much deference to authority. One rule with Insultants: Limit them to only introducing metrics that someone can speak to without notes to prevent analysis paralysis.
Aside: I like the double entendre: Insiders who insult. But in a good way.
So, how do you get started on strategy? Ask these three questions (the right way) and every 90 days.
1) What are our 3 most important strategic accomplishments? Real way to ask this question: How have we changed the field of play in last 90 days?
2) In last 90 days what are three most important ways we fell short of our strategic potential? Yes, you are asking them to complain. Everyone has a complaining quotient biggest complainers are 10s. That’s okay. Try to influence what they complain about. – How we’ve fallen short of our strategic potential? Encourage productive complaints. Figure out top four. Which would leadership most want to eliminate from list.
3) In last 90 days what are three most important things we have learned about our strategy? Emphasize last three words. The answer can’t be focused on externalities. Takes a long time to get good answer on this one. The answer should focus on the strategy.
Aside: He never really defines this discipline, but I like that he appreciates that WORDS MATTER. Why is this discipline “dynamic” strategy? Because it needs to be iterative, not static or set in stone.
Discipline 2 – Embed Execution
McFarland notes here that if given a choice, he would take execution over strategy. At least you are doing something, not just talking about it.
Problem: Too many companies have a loose link between strategy and execution
Fix: Every 90 days, review strategy to see if there needs to be a reset.
Problem: no “after action” discipline.
Fix: Need to constantly discuss what went well, not well, what would you change. Make it an iterative strategy.
Problem: Too often companies are rife with departmentally-driven priorities that sabotage achieving the strategy. An example is people who safeguard their budgets to the detriment of company.
Fix – consider the breakthrough ladder – ultimately want to get to a sovereign organization where everyone is committed to the vision of enterprise. In the sovereign organization, everyone understands the 20% activities making up 80% of results. Everyone focuses on the 20% that must get done first.
If you don’t get the big rocks in first, they never get in. Emails and fires are the gravel and sand. The big rocks are the execution items.
Some definitions McFarland uses to get everyone on the same page:
Mission: what hill will we take in three years.
Strategic focus: what 20% of activities do we need to focus on
Goals: items for this year we need to accomplish to hit three year plan that will help us identify what initiatives we need to focus on
In such a system, a strategy manager breaks down output by goal, initiatives and tasks.
One way to define goals: What are the four or five things we have to do to meet our breakthrough mission. These can be macro profit or revenue goals or micro ones by channel or market segment.
For each, ask: What is the one thing to do to impact a detailed strategic goal? Do this instead of covering bets with too many initiatives. Once they figure that out, ask for another. These are your initiatives.
Initiatives – how are we going to meet goal?
Deadline for an initiative is 6-18 months. Initiatives are the big rocks.
Tasks: what are we going to do task by task to meet initiative? 90 day deadline at most for tasks.
So, a well-embedded execution breaks down strategy into the following buckets:
Purpose, Mission, Strategic focus, Imperative goals, Initiatives and Tasks
Discipline 3 – People
Truly breakthrough companies take a Special Forces approach to people. McFarland relates that we are fuzzy headed about people and performance.
Problem: We too often deploy the “hire the great people” myth. Well, sad to say, that’s impossible. There are not enough of them. McFarland’s favorite business question to ask, “What’s your biggest business challenge?” Too often, he says, the answer: “We cannot get the right people on the bus” – it’s a quote from Good to Great. McFarland suggests that this answer is, well, cow manure. There is no such thing as the “right” people. Everyone has strengths and weaknesses. Also right person at one stage may not be the right person at a different stage.
McFarland’s follow up question to these business folks: “You are referring to Good to Great, so what are you doing differently after reading?” He gets crickets. Nada. Nothing. So, it’s an excuse. Who hired these not right people, who is keeping them? They are.
Aside: I never got around to reading Good to Great. I probably never will after reading about The Halo Effect.
Fix: Instead consider leaving the position vacant until you find a good person, and then coach them. Also, use executive development milestones. Think ahead about how to develop people to be what you want them to be at the next stage of your company.
Problem: Too much focus on climb-a-rope and Kumbaya team building. When dept heads aren’t working as team, it’s really a strategy problem, not team building issue. It’s likely that folks are not getting along because they are frustrated with their secret or unheard concerns about the CEOs strategy or execution.
Fix: Make sure you are linking team performance to strategy and execution.
Problem: Too often leaders are not using science in thinking about their teams.
Fix: predict errors. What sort of errors might occur in fulfilling the strategy? Then set a culture and training regimen to anticipate them.
Big Lesson: It’s not how you are wired, it’s how you wire your organization. It’s not just about getting the right people, it’s about getting the people right. McFarland offers stories about the Fastenal Company and Polaris as instructional. The Fastenal CEO said he has tried to build a company where ordinary people can do extraordinary things.
Tip for interviewing: Use a long form interview process as the best way to figure out if the candidate is the right person. Everyone can seem polished and right in 30 minutes. Try doing it for 120.
I guess you can tell, I thoroughly enjoyed McFarland’s presentation. Yes, I am now into the first chapter of his book to see how I can help each of my clients become a “Breakthrough Company”.