A comprehensive study published in 1984 by Hunter & Hunter showed that cognitive ability was the number one predictor of successful job performance; experience was rated fifth. Sadly, experience is often touted as the best indicator of a person’s future success.
Expertise requires experience, but experience alone will not guarantee expertise.
Many people confuse skill with expertise. Skill and expertise are traditionally distinguished with respect to three aspects. First, the inherent complexity of real-life expertise is higher than that of a skill, that is, expertise comprises more different capabilities and task constraints to be mastered. Second, expertise by definition is attributed to but a small number of people who excel in a given domain, whereas the capabilities and accomplishments associated with the concept of real life skills are believed to be within the reach of every normal individual. Third, skills and expertise differ with respect to their presumed durations of their acquisition processes: a skill can be acquired within weeks or even days while attaining expert level performance takes years or decades.
Cognitive ability depends heavily on mental models, which are used to organize knowledge. Mental models are created through a process called sensemaking, which involves building a structure or pattern from diverse elements with the objective of creating new meaning. This is largely an unconscious process. Mental models frame the challenges we confront and affect in our thoughts, feelings and actions.
Most cognitive growth in adults involves learning new facts, skills and ways of doing things. This is horizontal development. A person’s mental models of how the world works remain basically the same, however. Vertical development is less common and refers to how we change our interpretation of experience and transform our views of reality into ones that are more differentiated and comprehensive than the old.
Hunter, J. E., & Hunter, R. F. (1984). Validity and utility of alternative predictors of job performance. Psychological Bulletin, 96(1), 72-98.
Monday, February 1, 2010
Monday, January 25, 2010
How Does One Create Strategy
A crucial question is how we can create strategies for our organization. The strategy field has many skeletons in the closet that are known and spoken about behind closed doors. Every now and then, a prominent member of the community airs this in public. Gary Hamel is founder and Chairman of Strategos, Visiting Professor at the London Business School and Thomas S. Murphy Distinguished Research Fellow at Harvard Business School. At a conference sponsored by the consulting firm McKinsey and Company, Hamel remarked:
"The dirty little secret of the whole strategy industry, from business schools to consulting companies, is that we don’t have a theory of strategy creation. We don’t know where strategies come from. And I think the fundamental question is how you increase the probability that good strategies will emerge."
Some people tell you that their strategies arise from trial and error, in other words, from reflective action. Bricolage is a word from the French meaning "to tinker" or "to fiddle." In an ambiguous, novel or complex situation, people often resort to bricolage since they may feel there is no other option but to try something out and learn from experience. This methodology can be extremely frustrating, however, and studies have shown usually results in numerous dead-ends, unintended consequences and sometimes overall failure.
Others believe that strategies can be constructed from general principles, using data analysis to weigh various alternatives and rationally choosing the alternative that is expected to lead to the best outcome. This scientific and systematic style of strategy formulation as advocated by most business schools has shown to be successful in information rich settings in mature, stable industries that are not undergoing significant change. Many executives faced with strategy formation with limited data in turbulent times with multiple forces at play report that deduction is simply not practical. In addition, the deductive approach often relies on breaking a challenge into smaller parts and tackling each part separately. There are many challenges that will not lend themselves to a reductionist approach.
Giovanni Gavetti and Jan W. Rivkin in the article "How Strategist Really Think: Tapping the Power of Analogy" published in Harvard Business Review back in 2005 state:
"In particular, reasoning by analogy plays a role in strategic decision making that is large but largely overlooked. Faced with an unfamiliar problem or opportunity, senior managers often think back to some similar situation they have seen or heard about, draw lessons from it, and apply those lessons to the current situation."
Indeed, the use of analogous reasoning to transfer concepts from one domain to another is a key cognitive process used in creative thinking. Analogous reasoning can be a source of remarkable insight and has been shown to be behind some of the most famous innovations.
We believe the significance of analogous reasoning goes even deeper and is a critical component for teaching any thinking skill – not only creative thinking, but critical thinking or strategic thinking. For a long time, educators believed that thinking skills are like any another skill, such as riding a bicycle. Once you learn it, you can apply it in any other situation. Unfortunately, this has turned out not to be the case since thinking is intertwined with the content of thought. Teachers will tell you how frustrating it is to watch students fail to solve a new problem when it is just applying a solution of another problem they can easily answer to a new context.
Gavetti and Rivkin remark: "Though analogical reasoning is a powerful and prevalent tool, it is extremely easy to reason poorly through analogies, and strategists rarely consider how to use them well. Indeed, analogies’ very potency requires that they be used wisely…Dangers arise when strategists draw an analogy on the basis of superficial similarity, not deep causal traits."
Nevertheless, there is significant evidence that real strategists use reasoning by analogy in real life where the stakes are high, information often inadequate, conditions constantly shifting and the consequences of actions uncertain.
"The dirty little secret of the whole strategy industry, from business schools to consulting companies, is that we don’t have a theory of strategy creation. We don’t know where strategies come from. And I think the fundamental question is how you increase the probability that good strategies will emerge."
Some people tell you that their strategies arise from trial and error, in other words, from reflective action. Bricolage is a word from the French meaning "to tinker" or "to fiddle." In an ambiguous, novel or complex situation, people often resort to bricolage since they may feel there is no other option but to try something out and learn from experience. This methodology can be extremely frustrating, however, and studies have shown usually results in numerous dead-ends, unintended consequences and sometimes overall failure.
Others believe that strategies can be constructed from general principles, using data analysis to weigh various alternatives and rationally choosing the alternative that is expected to lead to the best outcome. This scientific and systematic style of strategy formulation as advocated by most business schools has shown to be successful in information rich settings in mature, stable industries that are not undergoing significant change. Many executives faced with strategy formation with limited data in turbulent times with multiple forces at play report that deduction is simply not practical. In addition, the deductive approach often relies on breaking a challenge into smaller parts and tackling each part separately. There are many challenges that will not lend themselves to a reductionist approach.
Giovanni Gavetti and Jan W. Rivkin in the article "How Strategist Really Think: Tapping the Power of Analogy" published in Harvard Business Review back in 2005 state:
"In particular, reasoning by analogy plays a role in strategic decision making that is large but largely overlooked. Faced with an unfamiliar problem or opportunity, senior managers often think back to some similar situation they have seen or heard about, draw lessons from it, and apply those lessons to the current situation."
Indeed, the use of analogous reasoning to transfer concepts from one domain to another is a key cognitive process used in creative thinking. Analogous reasoning can be a source of remarkable insight and has been shown to be behind some of the most famous innovations.
We believe the significance of analogous reasoning goes even deeper and is a critical component for teaching any thinking skill – not only creative thinking, but critical thinking or strategic thinking. For a long time, educators believed that thinking skills are like any another skill, such as riding a bicycle. Once you learn it, you can apply it in any other situation. Unfortunately, this has turned out not to be the case since thinking is intertwined with the content of thought. Teachers will tell you how frustrating it is to watch students fail to solve a new problem when it is just applying a solution of another problem they can easily answer to a new context.
Gavetti and Rivkin remark: "Though analogical reasoning is a powerful and prevalent tool, it is extremely easy to reason poorly through analogies, and strategists rarely consider how to use them well. Indeed, analogies’ very potency requires that they be used wisely…Dangers arise when strategists draw an analogy on the basis of superficial similarity, not deep causal traits."
Nevertheless, there is significant evidence that real strategists use reasoning by analogy in real life where the stakes are high, information often inadequate, conditions constantly shifting and the consequences of actions uncertain.
Wednesday, January 20, 2010
Lessons From Medical Education
Most people recognize the importance of medical education as an integral cornerstone of quality health care. It is not surprising that a considerable amount of research has been devoted to how best to train physicians. For many years, medical educators believed that physicians used hypothetico-deductive reasoning in medical problem solving and arriving at clinical diagnosis [1]. Hypothetico-deductive reasoning, also referred to as backward reasoning, is a method of eliminating hypotheses (hunches that maybe either true or false) one by one through the use of various tests, such as questions from a medical history, results of a physical examination and the outcomes of various diagnostic analyses. This is the identical process used by the scientific community for generating new knowledge where the process is known as the scientific method. Since physicians were believed to use hypothetico-deductive reasoning, this was the recommended methodology for training medical students for many years [2].
Groen and Patel were one of the first to question the idea that expert physicians use hypothetico-deductive reasoning in routine medical problem solving. They asserted that the conclusion was not justified by empirical evidence but favored because it is the standard procedure of the scientific method. They believed that the evidence from research in cognitive psychology on expert-novice comparisons indicated that the use of the hypothetico-deductive method is a characteristic of novices rather than experts.
Bordage studied the evolution of knowledge organization in novice and expert medical students and found significant differences. Novice students may have abundant knowledge, but they have not developed enough meaningful connections. They typically take prolonged history and physical exams but often miss the obvious diagnosis. As students become more experienced, histories, physicals and case presentations are more focused and pertinent and these students demonstrates accurate resolution of complex problems about 75% to 80% of the time. The most sophisticated students used patterns to search for missing elements to confirm diagnosis.
An outstanding study was conducted a few years ago at the University of Calgary by Dr. Sylvain Paul Coderre and associates which used think-aloud protocols to determine the diagnostic reasoning of experts and non-experts when attempting to diagnose clinical presentations in gastroenterology [5]. Logistic regression analysis of the results showed that there was a high correlation between the diagnostic reasoning process used and the likelihood of diagnostic success. Coderre found that hypothetico-deductive reasoning was used predominately by novices. Experienced diagnosticians only used that method when faced with a particularly complex problem or when faced with clinical problems outside their area of expertise. Many experts used scheme-inductive reasoning for reaching diagnoses. Schemes are defined as a mental categorization of knowledge, often depicted as a decision tree. Decisions are made at the branching of the tree using crucial tests, to eliminate possibilities and eventually adopt the choice left. The reasoning moves in a forward direction and results in a more focused and efficient problem solving methodology than hypothetico-deductive reasoning. The most sophisticated diagnosticians, however, used pattern recognition. Their extensive experience lead to the acquisition of a repertoire of patterns that permitted problem resolution by recognition of new problems as similar or identical to old ones already solved, and the solutions are simply recalled.
All three models of reasoning require a hypothesis evoking process. However, the method used for selection of the hypothesis to be tested differs in novices and experts. The most adequate method is selected on the basis of the practitioner’s experience in that domain and the knowledge required by the method. This research shows the interrelationship between skills and domain knowledge and also implies that development of expertise can not be analyzed independently from development of a particular type of memory scheme that facilitates solution recognition. Medicine is not unique. Strategy formulation also requires a type of diagnosis based on conceptual knowledge to characterize or understand a situation and act upon it in an appropriate way. This research has significant implications for strategy education and has influenced our methodology for teaching strategy at The Strategy Praxis™ Institute.
[1] Elstein. A., Shulman. L., Spratka. S ., Medical Problem Solving: An Analysis Of Clinical Reasoning. Harvard University Press. 1978, p. 250.
[2] Kassirer, J. Teaching Clinical Medicine by Iterative Hypothesis Testing: Let's Preach What We Practice. New England Journal of Medicine. 309, 1983, p. 921-923.
[3] Groen. G. and Patel. V. Medical Problem-solving: Some Questionable Assumptions. Medical Education. 19, 1985, 95-100.
[4] Bordage. G., Elaborated Knowledge: A Key to Successful Diagnostic Thinking. Academic Medicine. 69, 1994, p. 883-885.
[5] Coderre S., Mandin H., Harasym P., Fick G.H., Diagnostic reasoning strategies and diagnostic success. Medical Education 37(8), 2003, p. 695-703.
Groen and Patel were one of the first to question the idea that expert physicians use hypothetico-deductive reasoning in routine medical problem solving. They asserted that the conclusion was not justified by empirical evidence but favored because it is the standard procedure of the scientific method. They believed that the evidence from research in cognitive psychology on expert-novice comparisons indicated that the use of the hypothetico-deductive method is a characteristic of novices rather than experts.
Bordage studied the evolution of knowledge organization in novice and expert medical students and found significant differences. Novice students may have abundant knowledge, but they have not developed enough meaningful connections. They typically take prolonged history and physical exams but often miss the obvious diagnosis. As students become more experienced, histories, physicals and case presentations are more focused and pertinent and these students demonstrates accurate resolution of complex problems about 75% to 80% of the time. The most sophisticated students used patterns to search for missing elements to confirm diagnosis.
An outstanding study was conducted a few years ago at the University of Calgary by Dr. Sylvain Paul Coderre and associates which used think-aloud protocols to determine the diagnostic reasoning of experts and non-experts when attempting to diagnose clinical presentations in gastroenterology [5]. Logistic regression analysis of the results showed that there was a high correlation between the diagnostic reasoning process used and the likelihood of diagnostic success. Coderre found that hypothetico-deductive reasoning was used predominately by novices. Experienced diagnosticians only used that method when faced with a particularly complex problem or when faced with clinical problems outside their area of expertise. Many experts used scheme-inductive reasoning for reaching diagnoses. Schemes are defined as a mental categorization of knowledge, often depicted as a decision tree. Decisions are made at the branching of the tree using crucial tests, to eliminate possibilities and eventually adopt the choice left. The reasoning moves in a forward direction and results in a more focused and efficient problem solving methodology than hypothetico-deductive reasoning. The most sophisticated diagnosticians, however, used pattern recognition. Their extensive experience lead to the acquisition of a repertoire of patterns that permitted problem resolution by recognition of new problems as similar or identical to old ones already solved, and the solutions are simply recalled.
All three models of reasoning require a hypothesis evoking process. However, the method used for selection of the hypothesis to be tested differs in novices and experts. The most adequate method is selected on the basis of the practitioner’s experience in that domain and the knowledge required by the method. This research shows the interrelationship between skills and domain knowledge and also implies that development of expertise can not be analyzed independently from development of a particular type of memory scheme that facilitates solution recognition. Medicine is not unique. Strategy formulation also requires a type of diagnosis based on conceptual knowledge to characterize or understand a situation and act upon it in an appropriate way. This research has significant implications for strategy education and has influenced our methodology for teaching strategy at The Strategy Praxis™ Institute.
[1] Elstein. A., Shulman. L., Spratka. S ., Medical Problem Solving: An Analysis Of Clinical Reasoning. Harvard University Press. 1978, p. 250.
[2] Kassirer, J. Teaching Clinical Medicine by Iterative Hypothesis Testing: Let's Preach What We Practice. New England Journal of Medicine. 309, 1983, p. 921-923.
[3] Groen. G. and Patel. V. Medical Problem-solving: Some Questionable Assumptions. Medical Education. 19, 1985, 95-100.
[4] Bordage. G., Elaborated Knowledge: A Key to Successful Diagnostic Thinking. Academic Medicine. 69, 1994, p. 883-885.
[5] Coderre S., Mandin H., Harasym P., Fick G.H., Diagnostic reasoning strategies and diagnostic success. Medical Education 37(8), 2003, p. 695-703.
Friday, January 15, 2010
Hindsight, Foresight & Insight
Hindsight, insight and foresight are critical skills for strategists. Hindsight is learning from experience in order to build expertise. Experience alone does not guarantee expertise. The United States Post Office has over 200 years worth of experience, yet still manages to damage, lose and misdirect numerous items each year, in contrast to Federal Express that only has been in business since 1973 with an on-time delivery rate of 98% plus. The United States Post Office has more experience than Federal Express, yet one can argue that Federal Express has learned more, and consequently has greater expertise.
Hindsight involves critical reflection on one's experience in order to integrate knowledge gained from the experience with knowledge already possessed. Stephen D. Brookfield has probably contributed more to the critical reflective process than anyone else in the field. Brookfield identified four processes central to learning how to be critically reflective: assumption analysis, contextual awareness, imaginative speculation, and reflective skepticism. Assumptions structure our way of perceiving reality and influence our behavior and assumption analysis attempts to unearth these taken-for-granted notions. Context is the background in which an event takes place and contextual awareness involves examining the specific context of an event in order to arrive at a correct interpretation. Imaginative speculation challenges prevailing ways of knowing and acting by imagining alternative ways of thinking about phenomena. The outcome of assumption analysis, contextual awareness, and imaginative speculation is reflective skepticism - the questioning of any universal truth claims. The goal is to learn from experience in order to build expertise.
Hindsight = Action --> Thought
Hindsight is where action informs thought.
Jared Diamond investigated the fate of past societies to see if the history would provide lessons for our own future. His research found four factors contributing to societal failure:
• challenge may not be anticipated before it arrives
• challenge may not be perceived when it does arrive
• challenge may be perceived but not addressed
• challenge may be addressed but efforts to mitigate it may not succeed
The first three of these factors – the inability to anticipate, perceive or act upon challenges – describe failures of foresight. Rather than having to experience a challenge in order to learn how best to manage it, foresight allows us to prepare for a challenge.
Hindsight, like experience, educates our thinking by the results of actions. Both hindsight and experience are actions leading to thoughts. The shortcoming is that you must experience something to learn from it. Foresight is the capacity to detect and avoid hazards, assess the consequences of action and envision a desired future. Foresight is connected to cognitive development.
"All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved."
Sun Tzu
The fact that you can observe tactics, but you can only infer the strategy is very useful if your goal is going to mount severe opposition. You simply state that your goal is something you know will not be vigorously opposed and make no mention of your strategy. For opponents to discern your real goal, they would need to monitor your tactics carefully and connect the dots to reveal a picture unlike the one you painted.
"All warfare is based on deception."
Sun Tzu
Foresight = Thought --> Action
Foresight is where thought informs action.
Sensemaking is a deliberate effort to understand reality. It is about connecting the dots and generating inferences, but it also involves identifying what constitutes a dot and how to go about seeking out new dots. Sensemaking is rooted in time and space. We interpret things based on our perceptions of the future as well as our earlier experiences. In this way the future and the past meet in the present. Sensemaking is only possible when we put hindsight and foresight together to create knowledge that can be used for present decision making. One can state that:
Insight = Hindsight + Foresight + Sensemaking
Hindsight involves critical reflection on one's experience in order to integrate knowledge gained from the experience with knowledge already possessed. Stephen D. Brookfield has probably contributed more to the critical reflective process than anyone else in the field. Brookfield identified four processes central to learning how to be critically reflective: assumption analysis, contextual awareness, imaginative speculation, and reflective skepticism. Assumptions structure our way of perceiving reality and influence our behavior and assumption analysis attempts to unearth these taken-for-granted notions. Context is the background in which an event takes place and contextual awareness involves examining the specific context of an event in order to arrive at a correct interpretation. Imaginative speculation challenges prevailing ways of knowing and acting by imagining alternative ways of thinking about phenomena. The outcome of assumption analysis, contextual awareness, and imaginative speculation is reflective skepticism - the questioning of any universal truth claims. The goal is to learn from experience in order to build expertise.
Hindsight = Action --> Thought
Hindsight is where action informs thought.
Jared Diamond investigated the fate of past societies to see if the history would provide lessons for our own future. His research found four factors contributing to societal failure:
• challenge may not be anticipated before it arrives
• challenge may not be perceived when it does arrive
• challenge may be perceived but not addressed
• challenge may be addressed but efforts to mitigate it may not succeed
The first three of these factors – the inability to anticipate, perceive or act upon challenges – describe failures of foresight. Rather than having to experience a challenge in order to learn how best to manage it, foresight allows us to prepare for a challenge.
Hindsight, like experience, educates our thinking by the results of actions. Both hindsight and experience are actions leading to thoughts. The shortcoming is that you must experience something to learn from it. Foresight is the capacity to detect and avoid hazards, assess the consequences of action and envision a desired future. Foresight is connected to cognitive development.
"All men can see these tactics whereby I conquer, but what none can see is the strategy out of which victory is evolved."
Sun Tzu
The fact that you can observe tactics, but you can only infer the strategy is very useful if your goal is going to mount severe opposition. You simply state that your goal is something you know will not be vigorously opposed and make no mention of your strategy. For opponents to discern your real goal, they would need to monitor your tactics carefully and connect the dots to reveal a picture unlike the one you painted.
"All warfare is based on deception."
Sun Tzu
Foresight = Thought --> Action
Foresight is where thought informs action.
Sensemaking is a deliberate effort to understand reality. It is about connecting the dots and generating inferences, but it also involves identifying what constitutes a dot and how to go about seeking out new dots. Sensemaking is rooted in time and space. We interpret things based on our perceptions of the future as well as our earlier experiences. In this way the future and the past meet in the present. Sensemaking is only possible when we put hindsight and foresight together to create knowledge that can be used for present decision making. One can state that:
Insight = Hindsight + Foresight + Sensemaking
Sunday, January 10, 2010
Concept Of A Dialectic
The Gestalt School psychologists investigated perception using visual illusions. One of the most famous was called the Rubin Illusion. This illusion can be seen in the image below, which shows a white vase against a black background. The contours of the vase create silhouettes of faces.
This illusion is often used to demonstrate that our conscious experience always has a frame of reference or direction. In other words, the mind imposes a frame on perception. We can either see a vase or two faces, but not simply the ambiguous pattern with which we are confronted. Some frame of reference is believed to be a necessity for perception.
The Rubin Illusion also demonstrates a dialectic – in the sense of a juxtaposition of opposing elements where the two sustain and transform one another. The two are mutually constitutive in a continual process of interaction. Without the vase one would not be able to see the two faces and without the two faces one would not be able to see the vase. For purposes of this discussion, we will use this very narrow definition of a dialectic.
In our paper "Thought, Action, Praxis", we discuss how praxis is a transformational process resulting from a synthesis of thought and action where each constitutes and informs the other through the experience of reality. We assert that thought and action are in fact dialectically related.
Another example is the infamous theory-practice gap. Should academic contributions be judged solely by the rigor of the research or instead by the relevance to practitioners? Many regard research and practice as opposite ends of a continuum. Data obtained from research is thought to be precise, controlled, and uncontaminated. Unfortunately, the questions answered are often those practitioners have little interest in. Data obtained from practice is often regarded as riddled with bias, purely anecdotal, and possibly even useless. However, the problems addressed represent real world challenges.
We assert that research and practice are in fact dialectically related. Researchers should act as designers by using existing knowledge in creating blueprints to address real world challenges. Practitioners adapt and use the blueprints in their practice, which checks the validity of the intervention and allows the intervention to be redesigned and improved. This improvement process should contribute further to theory by highlighting the generative mechanism that makes the intervention work.
This synthesis of theory and practice comes in the form of interventions that rely on scientific data whenever possible, but also recognize the inherent limits of such knowledge, and constantly strive to generate hypotheses to address practical challenges.
The phenomenon of a dialectic can be used strategically. A particularly devious stratagem is where you wish to advance an extremely unpopular agenda. The majority of people would oppose the agenda. The stratagem involves creating a false dichotomy instead. Let’s call the desired agenda C, which the majority would reject. The people are presented with the choice between A or B, which appear to the misinformed as opposites, but which are in fact dialectically related. People alternate between choosing A and B, which actually advances the agenda C that most people would prefer to avoid in the first place.
This illusion is often used to demonstrate that our conscious experience always has a frame of reference or direction. In other words, the mind imposes a frame on perception. We can either see a vase or two faces, but not simply the ambiguous pattern with which we are confronted. Some frame of reference is believed to be a necessity for perception.
The Rubin Illusion also demonstrates a dialectic – in the sense of a juxtaposition of opposing elements where the two sustain and transform one another. The two are mutually constitutive in a continual process of interaction. Without the vase one would not be able to see the two faces and without the two faces one would not be able to see the vase. For purposes of this discussion, we will use this very narrow definition of a dialectic.
In our paper "Thought, Action, Praxis", we discuss how praxis is a transformational process resulting from a synthesis of thought and action where each constitutes and informs the other through the experience of reality. We assert that thought and action are in fact dialectically related.
Another example is the infamous theory-practice gap. Should academic contributions be judged solely by the rigor of the research or instead by the relevance to practitioners? Many regard research and practice as opposite ends of a continuum. Data obtained from research is thought to be precise, controlled, and uncontaminated. Unfortunately, the questions answered are often those practitioners have little interest in. Data obtained from practice is often regarded as riddled with bias, purely anecdotal, and possibly even useless. However, the problems addressed represent real world challenges.
We assert that research and practice are in fact dialectically related. Researchers should act as designers by using existing knowledge in creating blueprints to address real world challenges. Practitioners adapt and use the blueprints in their practice, which checks the validity of the intervention and allows the intervention to be redesigned and improved. This improvement process should contribute further to theory by highlighting the generative mechanism that makes the intervention work.
This synthesis of theory and practice comes in the form of interventions that rely on scientific data whenever possible, but also recognize the inherent limits of such knowledge, and constantly strive to generate hypotheses to address practical challenges.
The phenomenon of a dialectic can be used strategically. A particularly devious stratagem is where you wish to advance an extremely unpopular agenda. The majority of people would oppose the agenda. The stratagem involves creating a false dichotomy instead. Let’s call the desired agenda C, which the majority would reject. The people are presented with the choice between A or B, which appear to the misinformed as opposites, but which are in fact dialectically related. People alternate between choosing A and B, which actually advances the agenda C that most people would prefer to avoid in the first place.
Tuesday, January 5, 2010
Competitive Advantage
Jack Welsh, former Chairman & CEO of GE, once remarked:
"If you don’t have competitive advantage, don’t compete!"
Jay B. Barney in the book "Gaining And Sustaining Competitive Advantage" wrote:
"A firm is said to have a sustained competitive advantage when it is implementing a value-creating strategy not simultaneously being implemented by any current or potential competitors and when these firms are unable to duplicate the benefits of this strategy."
When there are only a finite number of unique products and services, how do different companies sell basically the same things at different prices and with different degrees of success? Competitive advantage is simply the reason customers choose to buy from you instead of someone else.
While many business strategists emphasize the tremendous value of cultivating a competitive advantage – some even go so far to claim that a sustained competitive advantage is one of the greatest predictors of success – few business leaders have a firm grasp of the concept. A recent survey of over 1000 CEOs found only two who could clearly articulate their company's competitive advantage – the other 99.8% were only able to offer vague and imprecise generalities.
The best way to learn a concept is to understand the key critical attributes of that concept. After studying hundreds of examples of competitive advantage, one can assert that the key critical attributes of competitive advantage are:
Not Claimed By The Competition
Difficult To Duplicate
Sustainable
Matters To Your Customers
Is True
Let’s examine each one of these.
Not Claimed By The Competition
It is important that the competitive advantage not be claimed by your competitor, otherwise it is simply a strength. The difference between a strength and a competitive advantage is that a competitive advantage is something you have that your competitors lack. Many restaurants, for example, can serve fried chicken, but only Kentucky Fried Chicken has that unique, secret recipe of herbs and spices that gives Kentucky Fried Chicken its distinctive taste that no competitor can match.
Difficult To Duplicate
A good competitive advantage is difficult to duplicate – otherwise you won’t have that competitive advantage for long. Unlike the secret recipe of KFC, most competitive advantages cannot be reduced to a single item, but usually consist of a collection of items that taken together provide uniqueness and deter duplication.
Sustainable
A good competitive advantage is sustainable – this means that you can consistently deliver it over time. This rules out things like special offers.
Matters To Your Customers
An attribute of your business that is unique, but doesn’t matter to your customers is not a competitive advantage. Value is determined by the market.
Is True
One shouldn’t need to state this, since it should be obvious, but a competitive advantage must be true. Deception is not appropriate here and will backfire in the long term.
Objective And Quantifiable
While not necessarily a critical attribute, this is something that should be considered. If you say "we offer quality service", what is meant by quality? Who gets to define quality? On the other hand, if you state that "we offer a 100% money back guarantee and last year less than one half of 1% of our customers requested it" – that is objective and quantifiable.
“Our staff is very knowledgeable” is subjective and arbitrary – a cliché. Whereas, “All our staff have a minimum of fifteen years of experience, twice that of our nearest competitor” is objective and quantifiable.
Well-known examples of Competitive Advantage include:
KFC taste
Macintosh technology
Federal Express service
Entrepreneurs starting new ventures and business professionals running established ventures are well advised to develop a competitive advantage for your venture. Don’t Compete Without It!
"If you don’t have competitive advantage, don’t compete!"
Jay B. Barney in the book "Gaining And Sustaining Competitive Advantage" wrote:
"A firm is said to have a sustained competitive advantage when it is implementing a value-creating strategy not simultaneously being implemented by any current or potential competitors and when these firms are unable to duplicate the benefits of this strategy."
When there are only a finite number of unique products and services, how do different companies sell basically the same things at different prices and with different degrees of success? Competitive advantage is simply the reason customers choose to buy from you instead of someone else.
While many business strategists emphasize the tremendous value of cultivating a competitive advantage – some even go so far to claim that a sustained competitive advantage is one of the greatest predictors of success – few business leaders have a firm grasp of the concept. A recent survey of over 1000 CEOs found only two who could clearly articulate their company's competitive advantage – the other 99.8% were only able to offer vague and imprecise generalities.
The best way to learn a concept is to understand the key critical attributes of that concept. After studying hundreds of examples of competitive advantage, one can assert that the key critical attributes of competitive advantage are:
Not Claimed By The Competition
Difficult To Duplicate
Sustainable
Matters To Your Customers
Is True
Let’s examine each one of these.
Not Claimed By The Competition
It is important that the competitive advantage not be claimed by your competitor, otherwise it is simply a strength. The difference between a strength and a competitive advantage is that a competitive advantage is something you have that your competitors lack. Many restaurants, for example, can serve fried chicken, but only Kentucky Fried Chicken has that unique, secret recipe of herbs and spices that gives Kentucky Fried Chicken its distinctive taste that no competitor can match.
Difficult To Duplicate
A good competitive advantage is difficult to duplicate – otherwise you won’t have that competitive advantage for long. Unlike the secret recipe of KFC, most competitive advantages cannot be reduced to a single item, but usually consist of a collection of items that taken together provide uniqueness and deter duplication.
Sustainable
A good competitive advantage is sustainable – this means that you can consistently deliver it over time. This rules out things like special offers.
Matters To Your Customers
An attribute of your business that is unique, but doesn’t matter to your customers is not a competitive advantage. Value is determined by the market.
Is True
One shouldn’t need to state this, since it should be obvious, but a competitive advantage must be true. Deception is not appropriate here and will backfire in the long term.
Objective And Quantifiable
While not necessarily a critical attribute, this is something that should be considered. If you say "we offer quality service", what is meant by quality? Who gets to define quality? On the other hand, if you state that "we offer a 100% money back guarantee and last year less than one half of 1% of our customers requested it" – that is objective and quantifiable.
“Our staff is very knowledgeable” is subjective and arbitrary – a cliché. Whereas, “All our staff have a minimum of fifteen years of experience, twice that of our nearest competitor” is objective and quantifiable.
Well-known examples of Competitive Advantage include:
KFC taste
Macintosh technology
Federal Express service
Entrepreneurs starting new ventures and business professionals running established ventures are well advised to develop a competitive advantage for your venture. Don’t Compete Without It!
Friday, January 1, 2010
Happy New Year!
"We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year's Day."
-Edith Lovejoy Pierce
May 2010 begin and end on a high note and may every day be filled with excitement and opportunity. Happy New Year from The Strategy Praxis™ Institute to all readers of our blog.
-Edith Lovejoy Pierce
May 2010 begin and end on a high note and may every day be filled with excitement and opportunity. Happy New Year from The Strategy Praxis™ Institute to all readers of our blog.
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