As part of my interest in doing an Executive MBA – I came across the following article which really caught my attention. Read on if you dare!
Michael G. Jacobides feels that strategy might best be cast as a dramatic playscript that can help cope with a shifting landscape, and motivate employees far better than traditional strategic plans.
My recent academic research suggests that companies should develop strategy by describing the underlying logic, story lines, decisions and motives of the players who create and capture value in a business. Instead of drawing and analysing a map or plotting numbers on a chart, executives should create what I call a “playscript”: a narrative that sets out the cast of characters in a business as well as the way in which they are connected, the rules they observe and the plots and subplots in which they play a part, and how companies create and retain value as the business and the cast change.
The playscript isn’t just a metaphor; it’s a tool to help companies manage the complexity of the competitive landscape and facilitate analysis and action. Playscripts force companies to focus on the causes of change as opposed to the symptoms; they explicate the logic of success and the assumptions behind it. By providing a sense of how long the good and bad times will last and how value is migrating, playscripts allow companies continually to assess the relevance of their strategies.
A dramatic change
Over the past five years, I have studied businesses such as financial services, textiles, construction, and technology and have helped some 20 companies cope with change. Based on my experience, I believe executives should develop strategy by writing a playscript that captures the motives, decisions and actions of the company (the protagonist) as well as those of all other organisations connected to it. A playscript also describes roles — how companies add and capture value — and how organisations are linked. It must be continually updated as companies take on new roles or the environment changes, which keeps executives focused on the dynamics of the business. In my experience, playscripts shape boardroom sessions effectively, facilitate discussions in top management teams and allow companies to develop sophisticated strategies.
Organisations must develop playscripts at two levels:
A corporate playscript describes the logic by which value is generated and appropriated by the corporate headquarters. It consists of two subplots: the synergies subplot and the financial subplot.
The synergies subplot sets out how the business units of a corporation (as well as other ventures it has invested in) reinforce one another and how the centre adds value by managing those relationships. Developing the synergies subplot enables executives at headquarters to articulate the ways in which they can add value. This is particularly helpful when companies navigate a landscape that is changing quickly and therefore need additional capabilities to survive.
The financial subplot describes how the company uses its assets and capital to generate returns. For instance, a company could sell or buy assets or strip them for sale. It could focus on growth and create value by offering equity to executives and other employees.
The financial subplot determines how much leeway the synergies subplot has. For example, if a company’s focus is on growth, it will prefer to strike alliances with other companies rather than make equity investments. It could use stock options to induce employees to take risks and grow the company.
The financial subplot affects the business playscript. A financial subplot that focuses on selling assets will prevent the company from investing in more assets, for instance, whereas one that allows increases in the equity base will help motivate people through grants of stock options. Managing the finance plot too cleverly may hurt synergies, and focusing only on growth will hit the bottom line. But, by considering the financial subplot at the same time as the business playscript, executives can bridge the chasm between strategy execution and corporate finance.
The business playscript is the more important of the two because it results in more value generation by the company. It contains three main elements:
(1) dramatis personae and roles: the main actors in a sector, their motives and their roles,
(2) links and rules: the links between companies and the operating rules of the business and
(3) present and future plots and subplots: the story lines of how players in a sector generate and capture value.
I have developed a three-step process that companies can follow to reinvent their strategies by using playscripts.
First, write your current corporate and business playscripts. Begin by describing the wider setting in which your company operates by concentrating on three building blocks. Identify the other characters in the sector. What roles do they play? What are their motivations? What roles does your company play? How do other players perceive it? You can start with your own opinions, but it’s important to perceive every role through the eyes of others, such as consumers and regulators.
Next, identify the links among actors and the rules that govern interactions. For example, the links between a company desirous of going public, the lead merchant bank, underwriters, the stock exchange and credit rating agencies as well as the fees they earn are well established and easily understood. Companies must grasp the relationships between participants as well as government and non-profit bodies in order to predict how those links might change. They must also decipher the sector’s operating rules — some ensconced in regulation, others steeped in tradition.
Then, articulate the logic by which your company currently adds and captures value. Understanding that is essential to revisiting your company’s strategy. Think of your value proposition, in which tools such as the value curve come in handy. What can your company do that others can’t? What allows you to capture the value you create instead of haemorrhaging it to employees or suppliers?
Second, rewrite your playscript. Now you must rethink your company’s playscript and, if possible, reinvent the playscript for the entire sector. Reconsider all of the actors and roles. Can you attract fresh players to the sector? Selective alliances help a company transform itself into a central character — one that is well positioned in a web of relationships or controls a vital link in the value chain. Companies often waste opportunities to reframe sectors or to enhance the value they can grab because they have outdated conceptions of other actors’ roles. Instead, imagine how your company can change the roles of existing or would-be participants. Reordering “who does what” usually decides “who takes what”.
Next, determine whether your company can change the rules of engagement with the other players. Is there a new product or service that your company can offer that would be, in essence, a game changer? Companies can also change the way they monetise their offerings, changing how they charge customers. Finally, revisit how your company adds and captures value. Think about what the sector’s other players value and whether you can use that knowledge to increase revenues, profitability or asset value. Third, future-proof your playscript.
The third step is to make sure your playscript can cope with the foreseeable changes in your business. Consider how changes in customer needs may affect your company. There’s always a correlation between who customers are, their needs, how they meet them — and who has the power. Executives sometimes think that control of a particular part of the value chain guarantees success, yet history is littered with dominant companies that collapsed or were forced to change as their playscripts fell apart. Companies can anticipate possible counteractions by considering the incentives and motivations of other players. By developing capabilities centred around other actors, companies can embed themselves in networks of mutually reinforcing relationships.
Everyone’s on stage
If you want drama, business is the right place. And those planning the strategy for a business by using playscripts should never forget that those who will act out the strategy are the employees. The good news is that using a dramatic approach is good for the leaders of the business and all who follow them.
Playscripts mobilise and motivate employees better than other strategy frameworks. People understand words better than value curves, since a love of stories, intrigue and relationships is hard-wired in the human brain. Basing the creation of strategy on playscripts can not only improve the level of buy-in within the organisation — increasing alignment and effectiveness — but also start a feedback loop, ensuring that the organisation continually updates and modifies the playscript (by means of an internal blog, for example).
Playscripts allow employees at every level to express opinions about how and why the organisation should change. People can be asked to adopt the playscript as actors, yet they can propose changes as playwrights. In addition, playscripts offer an opportunity to structure the conversation between the corporate world and society.
To learn more
Michael G. Jacobides, “Strategy Tools for a Shifting Landscape”, Harvard Business Review, January–February 2010.
Michael G. Jacobides (firstname.lastname@example.org) is Associate Professor of Strategic and International Management at London Business School, where he holds the Sir Donald Gordon Chair of Entrepreneurship and Innovation.
He teaches on the executive education programme Developing Strategy for Value Creation.
As I move closer to taking on an MBA, several colleagues & alumni students continue to provide wholesome advice and point me to interesting articles. I’ve included one such article below.
An MBA really does help a CEO to add value. At least, that’s what a recent INSEAD study suggests. The more difficult question is why
MBA programs have taken a lot of criticism over the last year or two. According to naysayers, they are guilty of many crimes: teaching the wrong financial models, riding roughshod over risk management, sidestepping business ethics, overheating the managerial job market, hiding from the real world, and cloistering students in academe.As a result, so the script goes, we have a generation of business leaders tainted by greed and short-term thinking.Hence, the recent global economic crisis. Oh, and remember Jeff Skilling of Enron? He had an MBA, while Bill Gates and Steve Jobs didn’t even finish college.Now, we enjoy a good debate. And we’re ready to take criticism on the chin. But we also prefer analysis to anecdote.
In our ranking of the 100 best-performing CEOs in the world, published in the JanuaryFebruary issue of the Harvard Business Review, we sought to judge the performance of business leaders in a new way by focusing on objective gauges of long-term performance. That is, we measured the performance of chief executives over their entire time in office, rather than focusing on the last year—or worse, the last quarter. As part of the analysis, we evaluated the impact of having an MBA on a CEO’s overall position in the ranking. This gave us fascinating data to contribute to the great MBA debate.
Not a Necessity
Initially, we’d hoped we could analyze our whole sample of 1,999 CEOs from the world’s top companies for the effects of an MBA on their ranking position. Remember, our data was based on long-term performance—to be precise, return on shareholder investment and change in market capitalization over a chief executive’s entire tenure. If business schools encouraged short-term thinking and unfettered greed, then having an MBA would surely be correlated with a low ranking. At this point we were keeping an open mind.
While information about educational credentials wasn’t in the public domain for all countries, CEOs’ academic records were widely available in France, Germany, the United Kingdom, and the U.S. That left us with 1,109 of our original 1,999 to analyze—still a sizable sample and statistically significant enough to work with.
Fewer than one-third of the CEOs in our reduced sample of four countries had an MBA. So let’s be clear. We’re certainly not saying it’s a necessity for getting the top job. But it could still be sufficient to improve performance.
As it turns out, we found a definite correlation between holding an MBA and achieving high performance as a CEO over the long term. In our list, CEOs with an MBA ranked on average a full 40 places higher than those without. Indeed, half of our top 10 went to B-school (although, admittedly, one of them dropped out before getting an MBA).
What does that mean in terms of performance? CEOs without MBAs had average shareholder return of 81% over the course of their entire tenure, while those with MBAs averaged total returns of 93%, a substantial improvement.
Next we looked at those who had become CEO before the age of 50. The effect of an MBA was even more significant for this group. The advantage went up from 40 places to 100. Our study controlled for a great many other variables that might have explained the superior MBA performance: industry, company size, the CEO’s starting year, even prior company performance (to guard against the possibility that MBAs fared better, for example, by selectively choosing companies that were already doing well). Time and again, the MBA advantage persisted.
Magic MBA Ingredient
The big question is, why? The simple answer is that something in the MBA curriculum or experience helps a CEO add value, particularly if that executive has comparatively few years of business experience. But what exactly is this magic MBA ingredient? Here, we’re forced to part from our data and speculate.
For some graduates, an MBA simply gives them better skills. It can add right-brain creativity and warmth to left-brain logic and financial acumen. Or vice versa. It can even help get the hard and soft skills working together.
For others, an MBA is a badge of excellence. After all, top schools only accept a chosen few. And most top companies look among the elite for their leaders.
An MBA may also provide a network of other rising stars. This network offers business contacts, opportunities, and priceless advice. And it lasts for an entire career.
So far, so good. When we blogged about our findings on hbr.org, several readers suggested a less obvious but equally convincing advantage. Those who choose to do an MBA, the readers said, are opting to improve themselves. Their openness to ideas and willingness to learn is going to benefit them all the way to the top—and long after they arrive in the executive suite.
We’d like to add a final suggestion of our own. Our ranking shows that no country or industry has a monopoly on excellence. This indicates that business leaders ought to look outward—to new geographies and sectors—for role models. An MBA program, or at least a good one, gives just such a perspective, especially if it recruits a globally diverse student body. And here our speculation is backed up by research. An INSEAD colleague, Professor Will Maddux, has carried out experiments demonstrating conclusively that the simple fact of having lived abroad makes people more creative.
The most successful MBA graduates are probably those who manage to mix all of the above ingredients into a potent cocktail of excellence. Perhaps they’re the ones who made it into our top 200. Today’s MBA students should take note.
Herminia Ibarra is a professor of organizational behavior and the Cora Chaired Professor of Leadership and Learning at INSEAD, the international business school with campuses in France, Singapore and Abu Dhabi. Morten T. Hansen is a management professor at the University of California, Berkeley, School of Information, and at INSEAD. Urs Peyer is an associate professor of finance at INSEAD.