Strategy as an agreement

The most important agreement in a company's life

Strategy — map it out yourself

The most important agreement in a company's life

Perfect couples sometimes split up because of the same reason that some companies fail.

Strategy and changes

Many years ago, I was a CEO of a processing plant. When I joined the team, the company wasn’t in good shape, and it was losing customers, market share, and cash. The board invited me to change the situation. The first fast measures helped us stabilize the business, but stability doesn’t necessarily mean growth. We needed to find a way to regain our market position and become stronger.

The solution was found relatively quickly. All our competitors tried to find a way to increase their markup by producing and selling more expensive versions of the core product: building materials made of plastic. But when it comes to plastic, it’s hard for customers to believe that a “luxury” product can be manufactured not of natural raw materials. So, only few of them were ready to buy fancy plastic planks, whatever good they looked. As a result, the small niche of expensive materials was oversaturated, whereas the largest segment, customers who were glad to save a dollar or two, was overlooked. So, we decided to become the kings of this segment.

But it was simple but not easy. All the plants in the market bought raw materials for approximately the same price, and they all employed similar equipment. So, we needed to become champions of lean technologies and efficiency. To do so, we had to literally turn the company upside down, changing almost any process, from assortment policy and procurement to marketing and manufacturing.

And this turned out to be a pain point. My direct subordinates, C-suite executives, were on my side, but they complained that employees on the lower levels of the corporate hierarchy didn’t buy into the idea and resisted the changes. So I decided to redouble our effort by setting even tighter deadlines and reinforcing pressure on the workers. And it was a wrong decision.

Relationship as an agreement

Any relationship is based on an agreement, even if it is informal and wasn’t put on paper. And this comes from a natural law of group interactions. Our distant ancestors lived in small groups of up to 150 people, and evolution worked out a tool to keep the group members together. As a result, they didn’t only compete with one another, as any animal did, but they were also ready to help each other. This means that our life is programmed to be a mixture of social competition, friendship, and good-neighbourliness.

And good-neighborliness, in turn, means that by doing good to others, a person subconsciously expects something in return. Have you ever gotten an invitation to a Christmas party from people you barely knew? What feeling did you have if you didn’t want to accept it? I bet it was a feeling of guilt, at least a slight one. It was because the natural law made you return the favor, even if you didn’t want to. It is the law of exchange.

Any relationship is an exchange. We exchange warmth, love, and support for support, love, and warmth at home. People exchange their time and effort for salary, respect, and growth opportunities at work. In formal conversation, we try to be polite and expect politeness in return. You hope to exchange your time and money for pleasure, fun, and valuable information when you attend training courses. People who proclaim they are ready to sacrifice their time and effort, asking nothing in return, lie — they want their offering to be noticed and admired. We try to make sensible exchanges almost every minute of our lives. This is our nature.

And any relationship between two people is stable until both sides believe this exchange is fair. As soon as one of them sees that they receive less than they give, they try to re-establish the balance somehow. If they are successful, the relationship gets a second chance. If they aren’t, people may split up, be they a married couple, lovers, business partners, or a boss and a subordinate.

Strategic relationships

People in a company also are in a relationship, and the same law works for them as well. A boss can ask for more from workers, but they must propose something in return, otherwise workers won’t see this exchange as a fair one. When Elon Musk called for long working weeks in Tesla or SpaceX, he offered an opportunity to be a part of a legend, to “revolutionize” the industries, and there were people ready to follow him. But when he sent his famous email to Twitter workers demanding to “commit to a new “hardcore” Twitter or leave the company,” he didn’t, to my knowledge, specify what this “hardcore Twitter” or “Twitter 2.0” meant. And maybe it is one of the reasons why, according to the media, so many people didn’t feel happy to stay in the company.

I made the same mistake many years ago when I was a CEO. I asked my workers to change their routines, learn new things, and do unfamiliar work, but in exchange for what? What was in it for them? Of course, they didn’t ask me such a question, but it didn’t mean they didn’t have it. And I, as a CEO, was the one who had to find and provide a clear answer.

Strategy is not only a big goal and a way to it but also an agreement between employees and managers about what they will do in the future. All the sides of these agreement, from the board members to the ordinary workers, must get information about what they will and won’t receive at the end of the day when the strategy is implemented. And they should believe that the exchange is fair, meaning that they will get no less than they give.

Strategy — map it out yourself.

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