Mission, Vision, Linkage!

Overall, we propose that the formulation of marketing strategy within an organization should include a statement of its overall mission, a clear understanding of its vision of the future and a commitment to discovering the linkages between the vision and the portfolio of strategic choices. The articulation of the mission and vision statements set the higher order of direction, values, and goals for the organization. Thereafter the linkage discovery process helps convert these abstract objectives into a set of coherent actions that collectively constitute the execution of the organization’s strategy. Linkages also generate the appropriate set of markers that can constitute a measurement and tracking system that can be used to continuously evaluate progress and assess what corrective actions are warranted. Interestingly, we find that while many medium and large organizations have formal processes to articulate their mission and vision statements, virtually none of them has even an informal process to discover the linkages between their strategic actions and short- or long-term goals. This discrepancy results in a wide gap between the mission and vision on the one hand and the set of strategic choices on the other.

We suggest that organizations can remove this deficiency by developing what we call a linkage orientation. Firms that embrace linkage orientation will be better able to understand the flow of relationships between their strategic choices and their downstream consequences. They will be in a stronger position to break down departmental silos and connect causes and effects across multiple organizational domains. Linkage-oriented firms will also be able to avoid metrics myopia and sharpen their focus on two extremities of flowprints: the strategic choice or action and the ultimate downstream financial consequence of interest. Finally, these firms will be able to bind their people more closely together because of a shared realization that the consequences of actions in one part of the organization have a web of effects on the others.

Developing a Linkage Orientation: A Ten-Step Approach

So what does it mean to have or develop a linkage orientation within an organization? As we have discussed throughout the book, data-driven discovery processes should govern strategic marketing choices and they should be relatively free from mental models and managerial intuition. We now provide a road map for firms to assess whether or not they are linkage oriented and for them to achieve such orientation.

Step 1: Challenge existing mental models. The starting point of developing a linkage orientation is the realization that entrenched mental models drive decision making within the organization or in any of its silos. A simple method of performing this check would be the process of asking your organizational mental models the 10 questions listed earlier. We believe that the resulting diagnosis might raise important questions about the use of a model beyond its half-life and about the presence or absence of reverse gears on the model or might simply validate the model for continued usage.

Step 2: Become paradigm free. The objective of developing linkage orientation is not to merely challenge existing mental models and discover alternatives but to encourage decision makers to think independently of them. Paradigms have their own limitations in terms of which firm they apply to, to what extent, and for how long. It is unlikely to be the case that one organization will discover a perfect strategic paradigm that will drive it over the course of its life or even for reasonably long periods. For example, we have witnessed several paradigms including innovation, relationship marketing, and outsourcing, and many others outlive their useful life inside organizations. Therefore, a key facet of a linkage-oriented organization is developing only loose ties to paradigms, and ultimately be willing to transition to a paradigm-free and data-driven world.

Step 3: Avoid metrics myopia. Most paradigms come with their own set of popular metrics. For example, customer centricity comes with measures of satisfaction and loyalty, while customer relationship management comes with estimates of share of wallet. Productivity-driven paradigms come with a variety of metrics, such as profits per square foot of store or shelf space or sales per employee. While these metrics have merit within the paradigm they emerge from, developing a linkage orientation involves a reduction in the emphasis on one or a set of metrics. Instead, what is important is an emphasis on flowprinting and a willingness to accept that the elements of a strategic flowprint may change, sometimes very significantly, over time and across strategic contexts. In other words, while linkage-oriented organizations are likely to deploy a set of metrics as part of the flowprinting process, they are not wedded to any of them and are willing to transition to new sets, as the data dictate and as the flowprints command.

Step 4: Shift strategic emphasis to flowprinting. A shift from metrics myopia to linkage orientation involves embracing the flowprinting process as a driver of strategic and market planning. Of course, this is easier said than done. Most organizations have embedded beliefs about causal relationships among variables that drive their business. Consequently, the shift toward a flowprint-driven planning process is psychologically difficult. However, it comes with several important advantages: First, it lets data rather than beliefs drive strategic decision making, and second, it makes the organization nimble and enables it to change and adapt as the flowprints evolve over time. For example, if increases in satisfaction are no longer the drivers of growth, a linkage-oriented organization is in a better position to make this discovery and rethink its strategic focus than an organization that is wedded to the satisfaction metric.

Step 5: Invest in the action-profit-linkage discovery process. We have discovered that one of the reasons that holds organizations back from data-driven strategy is the resource requirement. Most senior managers and C-level executives are not able to or willing to invest time, money, and human capital in the linkage discovery process. The notion of experimentation and hypothesis testing is foreign to them. The discovery of the linkages among actions and consequences is both involved and time consuming. It also requires substantial psychological resources because it often reveals relationships that are contrary to organizational beliefs and conventional wisdom. It also requires top management to have communication expertise because the rationale for changes in strategic direction, whenever warranted, needs to permeate the entire organization in order for everyone to align behind it. This is especially true when the relationships revealed by linkage analyses suggest changes in compensation structure and have a direct effect on people’s own earning potential.

Step 6: Connect left to right. As we have noted, one of the fundamental premises of the action-profit-linkage approach is that organizations should strive to build and assess the relationships between the actions on the extreme left and the ultimate consequences on the extreme right. However, we find that most organizations are stuck in the middle. They focus on connections among intermediate metrics and constructs rather than on actions and consequences. An example would be a focus on the relationship between satisfaction and loyalty. In this case, the former is not an action and the latter is not an ultimate financial objective. Both are possibly intermediate points in a strategic flowprint that would start from an action that might influence satisfaction and end at a financial consequence. Therefore, in order to become linkage oriented, it is important for organizations to flowprint the connections between the extremities. Otherwise, they may end up devoting resources to strengthen intermediate relationships that may or may not be as important in connecting actions to financial consequences.

Step 7: Break organizational silos. One of the hallmarks of a linkage-oriented organization is the ability to break organizational silos and develop strategic flowprints that span multiple departments. As mentioned earlier, flowprinting allows decision makers to recognize that their function is part of an overall organizational network, and that cross-functional coordination is necessary to move the organization forward in a concerted fashion. Specifically, managers are more likely to adopt a cross-functional perspective when they can visually observe the linkages at an organizational level and where their departments and functions fit within the larger picture.

Step 8: Focus on decision equity. Ultimately, all strategic actions should be compared based on the financial consequences that are discovered through the flowprinting process. Therefore, while we do not advocate a focus on multiple, intermediate metrics, developing a linkage orientation does require a focus on the ultimate metric. We propose decision equity to be that metric. Comparing alternate investment options on this common metric provides decision makers with a fair and level comparison system for choosing actions that are conducive to the financial health of the organization. While some of these estimates might not be as accurate as these executives might desire, the ability to provide a comparison, with finite organizational resources, is a better option than making investment decisions using noncomparable metrics.

Step 9: Compete on linkages. We have not delved much on this issue in the book, but linkages and flowprints provide a foundation for strategic differentiation in the marketplace. The notion of strategic differentiation is analogous to, but somewhat different from, the more familiar notions of product or brand differentiation. All three share one common principle, and that is an emphasis on doing what others do not. For example, firms that aim for product differentiation attempt to configure their product offerings differently from how their competition does. They emphasize a different, and potentially a unique, set of product attributes that others either do not offer or find difficult to replicate. Similarly, when firms aim for brand differentiation, they attempt to endow their brands with unique brand values that become the basis of points of differentiation relative to competing brands. Once again, the emphasis is on separation of perceptual or abstract attributes in the minds of the customer.

We formulated the proposed concept of strategic linkage-based separation along the same lines. The objective of such separation is to have unique strategic flowprints, rather than unique product configurations or brand values. For example, consider two firms in the same industry, say fast food, competing in a similar customer space. Imagine that we build strategic flowprints for a similar set of actions for both firms. Let us say we pick investing $10 million in research and development for product improvement at each firm. Now the strategic flowprints corresponding to this common action for the two firms could turn out to be vastly different from one another or very similar. We would say that the firms have strategic separation if these flowprints are different either in terms of the structure or in the strength of the relationships among its various elements. In other words, flowprint separation would suggest that the consequences of common actions are different for the two firms. We propose that the hallmark of strategic separation is where the drivers of success vary across firms and ultimately lead to them executing very different portfolio of actions. The principles of benchmarking provide the opposing perspective. When firms benchmark, they are essentially comparing their performance with their peer group on the same metrics. We expect that a benchmarking-oriented mind-set would therefore lead to strategic convergence rather than strategic separation.

Now why is this important, and what does this have to do with linkage-orientation? First, let us begin by noting that while we have come across examples of many firms adopting and practicing product and brand differentiation, we have come across virtually none that explicitly practices or formulates strategy based on linkage separation. To that extent, most do not harness the power of linkage orientation. Now let us go back to what this means in terms of practice. First, as we note previously, linkage-based separation is contrary to the principles of benchmarking. When firms benchmark, they attempt to get similar levels of scores on similar sets of metrics that others employ. While this might perhaps be useful from the perspective of independent analysts or academics who are interested in comparing firms, it has its limitations from the perspective of the firms themselves. It forces them to pursue the same levels of performance on the same set of measures as the best in class or the industry standard. Consequently, perhaps unknowingly, it puts firms on a path of strategic similarity or parity rather than strategic separation and differentiation. Just like it makes little sense to build a parity brand, it should make little sense to build a parity strategy. In our view, benchmarking promotes strategic parity, while linkage orientation promotes strategic separation.

Further, competing on linkages means charting out distinct and unique strategic flowprints rather than imitating those of competitors. Conceptually, this is what is done for products and brands. The objective is to discover strategic fulcrums that are not the same as everyone else’s so that the drivers of success and the financial returns on success are differentiated. For example, if all personal financial advisory firms execute similar actions to acquire high net worth individuals, they are not strategically separated if the downstream consequences of these actions look similar for each one of them. Along the same lines, if the downstream consequences of choosing to focus on creditworthy individuals look similar for multiple credit card issuers, they are not strategically separated. The same principle can be extended for fast food chains and actions such as promoting value menus, or cellular providers for actions such as choosing bucket cellular plans. On the other hand, firms that are linkage oriented would attempt to ensure that their linkage flowprints are separated and that their portfolio of appropriate strategic actions is different from those of their competitors.

Step 10: Learn through linkages. Finally, one can view organizational learning from the perspective of decision equity and linkage analyses. While learning is a broad-based term, we wish to highlight two critical aspects within this context. First, one aspect of learning is gaining knowledge about the consequences of specific strategic actions. A learning organization would invest in developing a repository of linkage flowprints that would help guide future decisions and assist in enhancing decision equity over time. We find that while many organizations invest in products, processes, research and development (R&D), and marketing research, virtually none invests in strategic R&D and learning the functionality of strategic levers. It is difficult for the top management to come to terms with allocating resources that can optimize the short-term and the long-term downstream consequences of strategic decisions. However, we believe that those that do will build strategically nimble organizations that will be able to make superior and quick strategic choices.

Second, as organizations evolve and as the broader market conditions and business climate changes, so do the flowprints for success for individual firms. For example, the strategic flowprints for menu redesign for a restaurant are different when the economy is in an upswing versus when it is turning down. Similarly, the flowprints for success for credit card issuers are different when the financial markets are in a strong shape versus when they are not. The second aspect of learning is understanding the sensitivity of flowprints emanating from the same action but under different external circumstances. For example, the relative importance of customer satisfaction, customer retention, and brand portfolio consolidation are sensitive to external factors. It is therefore important for firms not only to build an overall repository of strategic flowprints but also to build them separately for different exogenous conditions in order to do a strategic sensitivity analysis around the decisions in question.