Ministry

Making Strategy Stick (Part Four)

By jgiroux ⋅ September 16, 2008 ⋅  Print This Post ⋅ Post a comment

WARNING!! This is a pretty long article.

Barrier 3: Lack of a common language
In the classic 1950s models of communication, a “sender” communicates with a “receiver.” The metaphor suggests that the message that is passed is a kind of package—wrapped up on one side and unwrapped on the other. There is certainly a lot of communication that operates in this way—professors lecturing to college students, ministers preaching to their congregations, etc. Should strategic communication work this way?

Absolutely not. Good strategic communication is like Esperanto. It facilitates communication among people who have different native languages and carves out a shared turf that people can share. Employees rely on leaders to define the organization’s game plan. Leaders rely on employees to tell them how the game is going. For this dialogue to work, both sides must be able to understand each other. This is easier said than done.

It’s easier for frontline employees to object to management decisions—and vice versa—when everyone can use the same language to communicate.� 

Strategy is often articulated in a way that makes it hard for employees to talk back to leaders. For instance, imagine if Cranium’s stated strategy had been “To be the #1 provider of engaging tabletop entertainment.” Now imagine that you are the Chinese manufacturer, and that you are displeased with the design of the new game piece. On what grounds do you state your objection? The strategy is so high-level, so abstract, that it would make you feel foolish to talk back. What are you going to say? “Using this glued-together piece will threaten our #1 provider position”? Doubtful.

One interesting case study in creating a common language comes from British Petroleum (BP). In 1991, BP set out to reduce exploration costs dramatically. Traditionally, the costs of unsuccessful drilling—or “dry holes,” in industry parlance—were thought of as the inevitable costs of doing business. It was a mindset akin to that of venture capitalists—you invest in 10 companies in the hopes that 1 or 2 of them will be mega-successes that provide a nice return on the fund as a whole. But the costs of drilling were high. A small well might cost $4 million to drill, a large one $40 million.

When explorers discovered a new drilling opportunity, they were asked to predict the chance of success. BP did an internal study to assess the accuracy of these predictions historically. The study found something interesting—opportunities with a predicted success of well below 20% rarely hit—for instance, wells with a 1 in 10 estimate actually paid off only 1 time in 100! At the bottom end of the prediction curve, explorers were systematically overestimating the chance of success. To BP execs, this looked like a chance to avoid a lot of wasted expense
on drilling.

Ian Vann, the head of exploration at BP at the time, hit upon a way to articulate a new vision for exploration: “No dry holes.” Instead of a dry hole being a normal and acceptable part of doing business—indeed, a cost that was expected in the great majority of expeditions—a dry hole should be considered a sign of failure.

Initially, explorers were irate when they heard this idea. Traditionally, explorers had been salesmen for opportunities. As Vann recalls, early in his career he was once told by a supervisor, “It’s not your job to make the decision. You sell the prospect to management. They decide.”

Explorers liked to explore. They treated drilling as a way of pursuing knowledge. The way you really found out what was down there was to start drilling. And explorers justified their drilling by talking about learning—you could use what you learned from drilling one well to hone in on the next one. But Vann said these beliefs bred unnecessary complacency, “I can give you 100 examples where people made a mistake because they didn’t use knowledge
they already had, for every one example where we learned something that was valuable for the next time.”

But as explorers started talking about “no dry holes,” they started taking off their explorer hats and putting on their geologist hats. Lots of things had to go right to create a productive oil field and geologists had previously devised various tests to evaluate each feature: Was the right substrate available to form oil? Was there a basin to contain the oil if it formed? Could subsequent events have degraded the oil? The conversation around “No dry holes” prompted them to become more systematic about aggregating the information they had. They started color-coding maps—green for features that might support an oil field, amber for areas where information was missing, and red for clear counter-indications. Then they would overlay the maps and only drill in regions that were green on every conceivable dimension.

The language of discussions also shifted. Before “No dry holes,” BP tended to rely on Expected Monetary Value (EMV) to talk about decisions. As an analytical model, EMV is flawless, but the assumptions feeding the model were not flawless, they were subject to manipulation. Crafty explorers who wanted to drill a high-risk well would just increase the numbers assessing the potential payoff of the field. And the best number crunchers were not necessarily the savviest geologists. “No dry holes” created common ground that brought more people into the conversation—it shifted the strategic conversation from numerical risks to geological risks. “Before ‘no dry holes,’” said Jim Farnsworth, the current head of exploration for BP, “People were hiding behind the probabilities.”

“No dry holes,” then, was a great example of strategic communication. It was formulated in order to create a competitive advantage for BP against other energy companies. And it was communicated in a way that made it effective as a guide to behavior. Notice the concreteness of the phrase and the way it easily overcomes the first barrier to talking strategy, the Curse of Knowledge.

But “no dry holes” also had a more subtle, perhaps even unintended positive effect—it established a shared strategic vocabulary that allows employees to talk back to leaders effectively.

David Bamford, BP’s Chief Geophysicist during much of this period, said, “I can think of several examples of where technical teams ‘knew’ a proposed well would be dry and yet senior management wanted to drill it because of pressure from government or business partners.” Previously it was hard for front line people to object to these decisions. When your manager is the only one who knows what the “partner pressure” consists of—how do you raise a redible objection? The information asymmetry works to your disadvantage.

The “no dry holes” idea brought front-line employees back to the table. The “Exploration Forum”—the peer group accountable for exploration decisions—became more confident and began to push back on these “strategic reasons” to engage in low-probability explorations. After all, the strategy was “no dry holes,” not “no dry holes unless drilling a dry hole helps someone important.” The strategy had changed in a way that gave them an equally credible voice in the decision. It’s easier for frontline employees to object to management decisions—and vice versa—when everyone can use the same language to communicate.

Before ‘no dry holes’, people were hiding behind the probabilities.

“No dry holes” allowed BP employees to share a common, concrete purpose. The strategy paid off: By 2000, BP’s hit rate was an astonishing 2 in 3. This created a formidable strategic advantage for the company against its competitors, and the savings in the cost of exploration went straight to the bottom line.

Check back next Friday for Part Five!

About The Authors: Brothers Chip Heath and Dan Heath are the co-authors of “Made to Stick: Why Some Ideas Survive and Others Die”. Chip and Dan have spoken and consulted on the topic of “making ideas stick” with audiences from organizations such as Microsoft, Nissan, Fannie Mae, and West Point. Chip Heath is a Professor of Organizational Behavior in the Graduate School of Business at Stanford University. He lives in Los Gatos, California. Dan Heath is a consultant at Duke Corporate Education. A former researcher at Harvard Business School, he is a co-founder of Thinkwell, an innovative new-media textbook company. He lives in Raleigh, North Carolina.

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