Tipping-Point Leadership
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| Renée Mauborgne is an affiliate professor of Strategy at INSEAD, The INSEAD Distinguished Fellow of Strategy and International Management, and co-director of the INSEAD Blue Ocean Strategy Institute along with her colleague, W. Chan Kim. | |
Your Blue Ocean Strategy’ book and concept -- which encourage firms to stop fighting their rivals in ‘bloody-red oceans’ for a shrinking pool of profits and instead create ‘blue oceans’ of uncontested market space– has been wildly popular. How does the current finance crisis affect this theory?
In the past few months, the impact of the financial crisis has been felt around the globe. The turmoil has been eroding business confidence, contracting both investments and consumer spending, and increasingly trapping the real economy into recession. As we know, a recession or depression is typically marked by a decline in overall demand, which will further exacerbate the situations of companies that are already facing intense competition and shrinking profit margins. Under such conditions, competing within a contracting market and dividing existing-and-shrinking demand will only lead to the path of doom.
It is therefore more imperative than ever for companies to shift their attention and efforts from the competition to buyers, and from dividing existing demand to creating new demand in order to embark upon the path of profitable growth and lead themselves and the world out of the crisis. The effort to create new market space and generate new demand at the micro level, which is at the core of Blue Ocean Strategy (BOS), serves to complement and reinforce government efforts worldwide to stimulate demand at the macro level.
Describe your theory of ‘tipping-point leadership’ and its relation to achieving blue ocean strategy.
My colleagues and I see strategy execution as an integral part of strategy. No matter how brilliant the strategic thinking is, without effective execution a strategy is never complete. In order to venture beyond a red ocean to execute a blue ocean move, a firm’s leaders must overcome four key hurdles to minimize organizational risk and make execution happen: the cognitive hurdle, the resources hurdle, the motivational hurdle and the political hurdle.
Key to overcoming these hurdles is what we call Tipping Point Leadership. The theory of tipping points, which has its roots in Epidemiology, is well known; it hinges on the insight that in any organization, once the beliefs and energies of a critical mass of people are engaged, conversion to a new idea will spread like an epidemic, bringing about fundamental change very quickly. Tipping point leadership builds on the reality that in every organization there are people, acts, and activities that exercise a disproportionate influence on performance. Our book identifies the disproportionate influence factors that any organization can leverage to tip all four hurdles and move from thought to action in the execution of BOS. In short, leaders who want to overcome the hurdles must learn to make unforgettable and unarguable calls for change, concentrate their resources on what really matters, mobilize the commitment of the organization’s key players, and succeed in silencing the most vocal naysayers. Tipping point leadership, along with fair process, helps leaders build strategy execution into strategy making.
The first important hurdle, the cognitive hurdle, keeps employees from seeing that change is necessary. How can managers go about removing ‘cognitive blinders’?
To get an organization ready for strategic transformation, waking employees up to the need for a strategic shift is an absolute necessity. Red oceans may not be the paths to future profitable growth, but they feel comfortable to people and may have even served an organization well to date. If employees are not fully convinced of the need for change, or if they do not fully understand the new strategy they are tasked to execute, their lack of attention, drive, and commitment will add substantial costs to a the strategy execution. Leaders can break through the cognitive hurdle by quickly making people aware of the need for a strategic shift and obtaining agreement on its causes. With employees in line, understanding the need for change and armed with a clear direction towards the future, execution speed and efficiency will increase, which will drop the cost of implementation substantially.
I should mention that tipping point leaders let people see and experience harsh reality first hand. While numbers are disputable and uninspiring, coming face-to-face with poor performance can be shocking and inescapable, but actionable. The direct-experience approach exercises a disproportionate influence on tipping people’s cognitive hurdles fast. Leaders may put their key managers face-to-face with the worst operational problems so that they see the need for change and are convinced that a turnaround not only is necessary, but achievable.
The second hurdle to achieving a blue-ocean strategy involves dealing with resource constraints, which have become endemic in today’s economy. How can managers succeed in doing more with less?
In order to jump over the resource hurdle, managers should abide by a basic principle of tipping point leadership: the key to creating change fast, at low cost, is concentration, not diffusion. They should then identify and leverage disproportionate-influence factors to free unproductive resources and multiply the value of such resources so that instead of asking for more, they are able to execute their strategy by essentially getting more ‘bang’ out of each buck they have. Leaders must ask questions such as, Are we allocating resources based on old assumptions, or should we seek out and concentrate resources on hot spots? Where are our hot spots – that is, those activities that will have the greatest performance impact but are resource starved? Conversely, where are our cold spots – those activities that have scant performance impact but are consuming significant resources?
The key is to redirect resources from cold spots to hot spots to maximize the return for each dollar. Lastly, leaders should consider appointing a ‘horse trader’ to trade the resources that aren’t needed for those that are. Basically, the principle behind jumping the resource hurdle is in line with the logic of value innovation, i.e., pursuing breakthroughs in value at low costs.
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