Julia's blog

One of the most appealing aspects of life in a small or medium sized business is that you get to play so many different roles.  But sometimes this causes abject confusion.

A common example of this happens at annual strategy days or quarterly planning meetings. Leaders often tell me that their teams find it tough to separate strategy and execution because in practice they do both. As a result the sessions become frustrating, with the team merrily flipping between the conceptual and the practical.

When this happens I often recommend to teams that they imagine they are working in a much larger organization: one that has the formal corporate hierarchy of a board, CEO, business-unit leaders and managers. I then suggest the team metaphorically put on a different hat according to which part of the planning process they are in.

I borrowed the idea of hats from Edward de Bono’s “ 6 Thinking Hats” but in my example the hats take on roles rather than perspectives. In practice when I am running such a session I bring along real hats for the team to wear; like actors at a dress rehearsal the result is even better.

If you want to try this, here are the hats the team wear, the roles they play and the questions they should ask:

The board

The first hat to wear is that of the board. The board’s role is to decide the level of risk that the business is prepared to accept: the strategic risk.

With your “board” hat on, think about these three questions:

•    What level of risk feels right for our business?
•    How much performance (ROI or whatever measure suits you) are we willing to sacrifice in exchange for lower strategic risk?
•    What level of resources should we devote to mitigating risk?

Or more simply, how much are we prepared to bet?


The CEO

The second hat to wear is that of the CEO.

The role of the CEO (and senior management team) is to formulate the strategy. Having worn the “Board” hat you now have a clear understanding of the level of strategic risk that your business is prepared to carry. 

As the CEO you need to ask two questions:

•    What strategic uncertainties does our business face?
•    What strategic options do we need so that we can cope with those uncertainties?

Or put more simply, given the amount we are prepared to bet, what should we do to maximize our winnings?


The business-unit leader

Now put on your “business-unit leader” hat.

Having already worn the CEO hat the strategy is formulated, now it’s time to bring it to life with some action.

As the Business-Unit Leader you need to ask:

•    What key activities should we undertake to implement the strategy and achieve our performance targets

Or simply, what are we going to do to create some wealth out of this strategy?

The manager

The fourth and final hat is that of the manager.

By now we have chosen our level of strategic risk, formulated the strategy, and settled on the key activities to bring the strategy to life. As the manager we need to look at the best way to execute the activities.

So, as the Manager you need to ask:

•    How can we best execute the activities?

By which we of course mean: show us the money!

I had an interesting question from the managing director of a shoe company, whose business it is to source and import high quality European shoes for the (rather charmingly described) "non-standard" foot.

The MD of the shoe business believes he is about to be squashed in the business equivalent of an F-clamp. The economic screw is turning and the top half of the clamp, the market's downward pressure on price, is about to meet the bottom half of the clamp, the upward pressure from costs.

He has explored his internal options and thinks the only course of action is to raise prices, but says" "Given we are in a recession, is it business suicide to raise my prices now?"

Not necessarily.

In times of general cost increases, customers expect a price hike and most accept the increases with good grace.  Sure, some will grumble but most customers are struggling with the same issues and understand that when costs go up, prices have to go up.

Many businesses actually don't take advantage of this, because they believe that demand will crash. But look at this example. The recently released consumer price index figures for March showed an increase in the price of men's underwear, whereas prices for other apparel remained flat.

Bucking the trend, it seems that undies maker Pacific Brands used the currency pressures in the second half of 2008 to justify a 5% to 10% price increase. Did it kill the market for men's underwear? Not at all. Demand for men's underwear actually increased.

Justifying an increase in price because of an increase in costs is a useful tactic, but if you are going to try for a price increase in today's climate, you have got to be able to convince your customers, more than ever, that it is reasonable, fair and authentic to do so.

In another underwear example, the famous British retailer Marks & Spencer recently decided to charge £2 more for bigger bras on the basis that they require more engineering and materials! This caused such a public uproar that the company was forced to reverse their decision saying: "We boobed. It's true our fantastic quality larger bras cost more money to make, and we felt it was right to reflect this in the prices we charged. Well, we were wrong."

What did Marks & Spencer do wrong that Pacific Brands got right? Quite simply Marks & Spencer customers felt that the price increase was neither fair (it didn't apply to all bras) nor authentic (larger bras have always cost more money to make so why start charging more for them now).

So, back to the shoe company. My sense is that they would have had strong grounds for increasing the price of shoes, were it not for timing.

Like many businesses, the shoe company held off putting up prices until the last possible moment. While noble, this doesn't make good business sense. For the general public to feel you are being authentic, you need to align your justification for a price increase with consumers' general knowledge. 

Today's strengthening Aussie dollar is going to make it hard for the shoe company to justify a price increase on the grounds of the exchange rate.  To be blunt, consumers don't care what exchange rate a company did business at, they just think about the world as it is right now. So as far as consumers are concerned, today imports just got a little cheaper.

 Which begs the question, will we see a drop in the price of men's undies?