The more good businesspeople I work with, the more I realise that effective folks are nearly always able to cut a business situation down into a single thing that matters.
How do you reconcile this desire to focus with the need to not screw up? E.g., filing taxes is not strategic, but if you donât do it, then it quickly becomes the only thing that matters.
Long time no see, Kevin!
The simple way to think about this is that if not filing your taxes will result in your company being in trouble â that if things go wrong youâll spent months getting audited by your tax authorities or, worse, hiring a tax attorney to defend you â then clearly thatâs the highest order bit, because itâs the most important thing. Why? Well, if you donât file your taxes, then your business wouldnât even exist, right? 
Now say youâve hired a CPA and theyâre going through your accounts in preparation for the tax filing, but theyâve yet to get back to you. While youâre waiting for them, there must be something else thatâs the highest order bit in your company, right? So you should be working on that. And itâs recursive all the way down.
Of course, as with all such things, one has to use some common sense. Clearly itâs not just one thing â business, like life, has periods of doing multiple things at the same time. But thereâs usually only one really important thing at any given time. This is one reason I find having business mentors or board members useful: if they ask you whatâs the highest order bit right now, thereâs usually a very clear answer, even if the answer isnât something you want to face.
Edited to add: I was talking to a friend about exactly this question, and he mentioned that one of his business mentors â who I also know and respect â told him he needed to get better at management. Now, management isnât strategic, but I think that business mentor was exactly right. You canât really be strategic if every couple of months an internal foot gun goes off and you find yourself fighting fires inside your business.
So for him, Iâd say the highest order bit is taking one or two quarters to get good at management and put in systems so these internal foot guns donât constantly go off. I suppose this is a long winded way to say that these things are always heavily context dependent.
This topic has been my obsession of the last 3 years where Iâve studied Theory of Constraints (TOC). At the heart of TOC is not batches (as in The Goal) but rather what Goldratt termed âinherent simplicity.â One of the thing he says that I like, talking about how physicists think, goes something like this:
âTo complicate things even a child can do, but to look upon the complex reality and find the inherent simplicity within requires true genius.â
I think that was borrowed from Einstein.
What Iâve learned about constraints is that often theyâre not real, in the sense that while it may seem like a particular machine is limiting flow. They arise as a result of policies focused on âlocal optimaâ where you choose to run upstream machines (which happen to have more capacity) at full blast. That in turn causes excess inventory, which causes delays.
The solution is drum-buffer-rope or Kanban or lean, but the root cause is something else altogether.
The root cause in many cases turns out to be poor decisions based on local metrics (like cost accounting), which make you focus on optimizing local efficiencies while disregarding the global optimum. Operations managers were more concerned with operating each machine at near full capacity (boasting amazing efficiency metrics) while the overall flow suffered creating delays in due-date performance.
Really interesting to think about this with a strategy lens. Hereâs what I interpret as Kiltsâ overarching strategy:
Kilts said he would do what he has always done at consumer product companies: start with the top of the profit and loss statement and focus on accelerating revenue growth. Then go to the middle of the P&L, where you control costs and get savings to invest in research, new product development and marketing. The net result is enhancement to the bottom of the P&L: earnings.
It maps to the actions he took.
I find it interesting because you can argue that this violates a common heuristic of strategy frameworks: the strategy is a list of things, and without trade-offs. Because of that, it doesnât really enforce coherence/integration. There is coherence in the result (savings in Braun presumably funded the investment into Duracell), but I think you could take the stated strategy and end up with an incoherent set of actions. There are plenty of ways to think about that:
But whatâs most interesting is thereâs a similar strategic process to Jerry Nuemannâs Strategy Under Uncertainty. First, take a hard look at the domain and generate a normative diagnosis. The normative aspect is key here⌠the diagnosis creates rules, not just descriptions. Then use those rules to form a strategy specific to your situation (or strategies if you are splitting things into multiple systems). And the end result doesnât have to be a huge template or document, and it doesnât have to fit in some particular box⌠as Neumann puts it, a strategy is just a decision making framework. In Nuemannâs case, the meta-strategy revolves around uncertainty and how they impact moats in high growth startups. For Kilts, itâs the interplay between revenue growth, costs and internal investment for mature consumer product companies. Iâm currently wondering whether this 2 step process is a generalizable methodology.
Iâve been meaning to reply to this post. Thereâs actually a really interesting observation here: with the exception of Braun, where there was an actual strategy trade-off, I donât think thereâs a thorny strategy problem to solve in the typical sense of Rumelt or Martin. With Gillette the core moat of many of the business lines were intact, and it was a high-quality business that had just been run atrociously for a number of years.
So âallâ Kilts had to do was to re-establish good execution: cut costs where there was bloat, reinvest that in advertising (which had been slashed) and in proper product R&D. Fairly straightforward stuff.
(Of course, that isnât to take away from Kiltsâs skill. He is very clearly good at what he does, since heâs done this a few times. And thereâs also a wonderful chapter in Doing What Matters where he lists all the reports heâs had who have gone on to become execs (in some cases CEOs) of other FMCG companies â he takes pride in being able to build up a deep bench of talent and explains how he builds systems of continuous training into all of his companies).
But, with all that said, I donât think this is actually thrilling as a case study of a turnaround, or of strategy.
To some degree, youâd expect this to be boring. Otherwise, why would Buffett invest in the company? Buffett typically invests in companies that âare so wonderful they can be run by an idiot, because sooner or later an idiot will run the companyâ. This is probably one of those examples.