DR. JOHN HILLEN

>> Craig Gould: Dr. John Hillen, thank you so much for joining me today on the podcast. John, you’re a business executive, national security expert, leadership scholar, former Assistant Secretary of State, combat veteran, former CEO of several successful companies. Currently you serve as a distinguished fellow at the Sanford School of Public Policy at Duke University. And you’re the author of a new book, the Strategy Dialogues, a primer on business strategy and strategic management. I want to talk all about your book. I just finished it. Strategy is one of my top five Cliftons drinks. You know, I’m really drawn to this topic. but I like to start all my conversations with one common question, which is, John, what are your memories of your first job?

>> John Hillen: My first job, Craig, and great to be with you, was as a newspaper boy back in the day, we still call them paper boys, and it was great. I grew up in northern, Virginia, the Washington D.C. as is common to a lot of military families ultimately. And, when I was in eighth grade, I got a paper route which was much sought after. But gosh, it taught me so much. I had to get up and be out on the driveway at about 5:15 every morning because they guaranteed hand delivery by 6:30am and sometime around 4:30 in the morning, a truck would roll by and kick a bunch of papers out of the back. And I’d have to unbundle them and put them together. And we didn’t have the plastic bags and put rubber bands around them. And so put them in a satchel, get on my bike and ride around and deliver 80 papers, eventually down to 40. I split my route with a good friend when school started. But, probably the most so, you know, persistence, attention to detail, customer service, people complain when their paper got wet and so on. but best thing about it is we then had to also go collect. This was the genius of the paperboy thing. Is they not only turned the delivery, it was a great business model for the newspapers. They not only turned the last mile delivery of their product over to locals willing to work for nothing, but they turned over collections. You know, they took several business processes and outsourced it to a, And we weren’t a unionized labor force. I wish I hadn’t been a union organizer when I was 12 years old. But you know, collecting, we had to go door to door and collect in cash. And there’s always some odd amount like you know, $5.60 a month and you have to make change. And there’d be people who would be in bad moods and people say come back later. There’d be people give you Christmas tips and people who wouldn’t. But you just had to learn customer service and every other aspect of business. I credit that paper out to just really starting to understand what makes the economic engine and the achievement engine turn in people.

>> Craig Gould: Sure. Well, I had a guest recently share that same paper boy that his route was in his apartment building and he had the highest collection rate of all the paper boys because he’s getting on the elevator every day with these people. And so they, they couldn’t run away from them. Who tells, a 10 year old to go pound dirt when they’re asking you to pay a bill?

>> John Hillen: I had some customers who had no problem. Yeah. But I had a suburban route so I didn’t have quite the concentration a good apartment building does.

So where did you start really having an affinity for strategy

>> Craig Gould: So where did you start really having an affinity for strategy. You know, you have a really amazing resume in terms of, academic pursuits, military, public service. Was it the military where you started seeing the value of having a particular plan in place?

>> John Hillen: Yeah, you know, I think to some degree it was just natural. And you know, I make the point in the book that strategy is an unnatural act for most people. And it’s because it uses a part of the brain. We’re not often asked to call into service. Everybody’s got this muscle in their brain, but we’re not often asked to call into service. Most of our brains are spent on processing information and getting things done, which is great. You know who doesn’t have a. I have a daily to do list. I don’t know who doesn’t. and strategy, which is thinking long term, big picture, connecting forces that are colliding the universe and see what they mean from understanding patterns out in front of you, discerning, the template of the future and so on. We can talk more about that, but it’s just a different way to think. And so I was just one of those kids. I remember reading Lord of the Rings as a kid and, you know, I thought, well, this seems like a lousy plan. I mean, this is fraught with, okay, thanks. And then even after it ends in triumph, I’m like, well, where does this lead to? Because I don’t know, you know, he came back last time, maybe he comes back again. How do we know? And everybody who got this stuff done is leaving. So how does that help? You know, so I’m already thinking, like, what’s the next step? And so when I went into the military and I was in an elite, you know, combat unit that I worked very hard to get into and up on the, you know, the frontiers of freedom during the end of the Cold War. And in fact, I was on the border between east and West Germany the night it came down. You know, the night the wall came down. And, it was just one of those places where you really did have to spend a lot of your time thinking about, you know, where am I going to get fuel? Has everybody been fed? What do our, you know, defensive positions look like? Are, they camouflaged correctly, the real tactical stuff? But it also give you a chance to think about, especially when, you know, the wall came down. Wow, that’s the end of the Cold War. I wonder what the shape of the world looks like here. I wonder what the place of our unit, which had guarded the iron curtain for 40 plus years. I wonder what we do now. And so, you know, it really lent itself to, thinking big and thinking about the future. So I always just had a natural predilection for it. And when I had the chance to go to grad school after the army, I naturally wanted to, you know, go in the direction where my brain already was.

Nobody can agree on exactly what strategy is, right?

>> Craig Gould: Your book, the, strategy dialogues. The dialogues part there is that you’ve crafted a narrative, a, fly on the wall perspective of a couple of consultants, meeting with, an investor and a group of portfolio companies that have kind of gathered for an off site which turns into multiple off sites. You know, we kind of help guide these companies through these strategy sessions. Right? And I think what we learn really quickly is that the general population, even these executives, nobody can agree on exactly what strategy is, right? That, you know, you ask somebody to define it, and every time they go to define it, they miss the mark by confusing it with something else. Can you kind of explain some of the misnomers or how people wrongly attribute strategy to other things that are Part of the natural business process.

>> John Hillen: Yeah. And you know, I often start with strategy about saying what it’s not. it, it’s interesting. You know, I’ve been teaching strategy, writing about it and doing these kinds of off sites and for a long time. And sometimes people come up to me and they’ll try to play a kind of gotcha game. They’ll say, okay, Mr. Strategy Guy, tell me your strategy is in 10 words or less. And I can imagine, because, you know, I use these Socratic dialogues, a book. I can imagine a kid running up to Socrates on the streets of Athens and poking fun at him, saying, tell me the nature of justice. Ten words or less, right? And, and so it’s a game and I, and I always flip it back around. I say, you tell me. and that’s where the only way to define strategy and it happens in a dialogue between two people. And what I often hear is, well, it’s a goal, right? My strategy is to grow my stock price by 8, 8%, which I recently heard from a public company client I was working with. I said, that’s not a strategy, it’s a goal. Maybe a good goal, maybe bad goal. What do I know? but it’s not a strategy. or someone will say, well, my strategy is to be agile and innovative and first to market. And I say, well, those are values, but that’s not a strategy. And someone will say, well, my strategy is to achieve such and such market share by such and such a time. and, by doing so, transform this. I say, well, that sounds like a good mission, but that’s not necessarily a strategy. And so we’ll go back and forth and back and forth. All those things are pieces of a strategy. Values, aspirations, visions, missions, all that, goals. But a, strategy is a complete blueprint, a game plan that has a series of interconnecting moves that take the enterprise from its current state to a different future state. And the future state should be one of better advantage. there’s a big debate in the strategy world about does it always mean repositioning or not. I say, put aside the word positioning. You always want to move because the world’s changing and you always want to move to a place of greater. You could even do a defensive move. You can move backwards and crouch down, but it’s a move. And you’re moving because things are changing around you and you want to move to a place where you have more advantage. Who doesn’t? It’s like if it starts raining, you get out of the rain, there’s advantage in not being soaked. And so the strategy is that journey and by m definition defining what here is and what better there might be. And so all those things go into ultimately having a full game plan for that movement and how it happens and who’s doing what along the way and how do you keep score and what kind of sustainable result can you expect if you’re successful at the end?

>> Craig Gould: There was one of the dialogues near the end of the book where one of the fictional business leaders was talking about how she was including strategic planning as part of the budget cycle and the, that year’s corporate plan. And the fictional consultant was kind of pushing back that yes, it’s I guess it’s as good a time of the year as any to do that. But that kind of precludes you to plan in a past looking methodology versus looking to the future. Because the strategy is really about not where have we been and how do we deal with that. It’s really about how do you identify opportunities that are kind of unforeseen. How do you identify things that are, you know, possibilities because possibilities are, are open ended. And so how do you have a framework for dealing with the open ended?

>> John Hillen: A lot of people confuse strategic planning and strategic thinking and not only are they not the same thing, they can sometimes even act against each other. Strategic planning can squelch strategic thinking. A couple of reasons for this. Number one is when people say strategic planning, they often mean their annual budget drill as you referred to. I get a lot of calls in September saying can you help at our October offset site, we’re going to do our strategic planning. I say great. I say do you always do it this time? They say yeah, every year, like clockwork, at an offsite at a very mysterious off site. And I say great. I, I said well congratulations. They say congratulations. What? I said this world is always changing. Things are swirling around, all this stuff is changing. You can never predict it. and all these dynamics always constantly changing. But you guys have managed to live in a world in which all the changes and everything happen perfectly on your schedule that’s such that you only need to address it at the same weekend off site every October. I said that’s amazing. It’s like taming the weather and you know. Laughs Haha. okay, I didn’t call you to be insulted. You know, all that, and when we get down to brass tacks and the brass tax is, you know, why now? Why are you doing it?

When should people do their strategic thinking? Anytime that some significant variable changes

Well, you’re really just doing your budget, which is really important. You should go in there and do your budget. But as you alluded to, Craig, when you do strategic planning, thinking about it as your annual budget drill, you necessarily start with the baseline of last year’s performance or previous performance. Known data. You want data, very data rich environment. Give me the data for that. Give me the data for that. Give me the data for that. And data is known because it’s about the present or past. So it naturally has this weird effect. It drags the background music of your mind backwards. And you want the background music of your mind to be forward because strategy is about a vision pulling you into a different future, not a modest improvement off last year’s baseline. And so when should people do their strategic thinking? Anytime that some significant variable in the environment in which your company operates changes. Technology, consumer behavior, competitive dynamics, economic. I mean, nothing could change in the economic environment, right? Think about all the people. I was out speaking with a group of manufacturing folks in Ohio and talk about their world. because even if they’re going to build factories to reshore things in the US Almost everything they build it with needs to be imported from somewhere else. And so their minds are, are broiling with how to work through this whole set of issues because things are changing so rapidly. and so, that’s when you need to refresh your strategic thinking because you really are trying to not have a perfect crystal ball for the future, but you’re trying to make an intelligent bet on where to go next. And that requires a very deliberate way of thinking. And in the book I unveil maybe 25 or 30 different frameworks for how to organize your thoughts and process that kind of thinking in order to get to a reasonable set of options that can be analyzed. And then you ultimately make a bet on a certain path to the future and invest in it.

>> Craig Gould: The more I have conversations with CEOs, the more I hear them describing how the nature of work as they ascend this pyramid, right in how, you know, you start your career as a, as a contributor and then, you know, you, you wind up being a manager. But the higher you get up, you know, the less, you know, day to day telling people what to do and what not to do. In, you know, at the top, you’re really leading, there’s less hands on and you know, I think what it was, what’s interesting is, in a way, someone in the C suite could really spend a lot of their time focusing on strategy and focusing on what this plan is, and if they communicate it appropriately down the organization, then all the management becomes easier because it all folds into the strategy. I believe one of your fictional consultants kind of alluded to something like that at some point in the, in, in the dialogues.

>> John Hillen: Yeah, yeah. Strategy can be the boss if the boss isn’t around, right? Basically, if people know what we’re trying to achieve, the scope of activities we will do or not do. And that’s been decided upon through a really exhaustive process of understanding core competencies, understanding competitive environments, and they understand what our competitive advantage is and how we manifest it. How does it come out? When you walk around the corner in your organization, you bump into your compet advantage. What did that look like? Right? Was it in design? Was it in efficiency? Was it in marketing? Was it in, you know, proximity? Was it in customer service? What did it look like? which always answers a great question. I tell people to ask their customers, why did you pick us? Do you think there’s anything special about us? Put don’t let your marketing people in the room say, go out of the room. Tell your customer, is there anything special about us? No, you’re just closest. Okay, well then I know my, you know, my core competency may be proximity. I need to be in the right places, you know, this, this sort of thing. So that’s a very involved dialogue. And if people know all that and that’s baked into the strategy, they don’t need to turn around and ask the boss all the time for which way to go left or right here. They can make good decisions because they can see how the decisions they make day to day and they’re part of the team and they’re part of the division and they’re part of the business contribute to the overall, trajectory that’s been laid out.

One of the common objections execs hear is not having time for strategy

One of the common objections I hear from C level execs when they bemoan not being able to spend time on strategy. And a lot of them, once again, think about it as taking a couple of days off to think strategically. I’m like, no, strategy is like brushing your teeth every day. You have to have daily hygiene. It’s not a secretive off site once a year, it’s something you do every day. But I still get the objection. I’m too busy, right? I work around here, Mr. Strategy Guy. You can sit off in the corner thinking big thoughts about the future. but I work, I get stuff done. and then often there’s a little bit of pride as I’m showing here in that, and so they associate strategy with a luxury activity. and, and I often push back and I tell them, I say, you know, if you have a strategy, you actually will find more time for strategic thinking because you want it to do as much you want to make as many decisions people will do, will make the decisions that feed your strategy. Say, the other thing is they see you’re, you have the corner office in the reserve parking space because you’re supposed to be working on the business, not just in the business. Right. Because who else is going to guide this enterprise into the future? So that’s the heart of your responsibilities. It’s not a distraction from getting things done.

>> Craig Gould: In the book, it comes across that there’s no magic box, there’s no simple solution to, enter in all of the things that your company is facing in outspit and answer. it’s interesting, at the conclusion of the book, the executives feel a little hollow that, you know, at the end of whatever off site they thought they would have all the answers. It’s, it’s almost like when I got my mba, I got to the end. I’m like, what I feel like I’ve really learned is that I’m not an expert in anything and I need to rely on other people who know most about their specialization. Right. There’s no silver bullet, is there?

>> John Hillen: No. And you know, a lot of times executives looks for kind of magic answers. If I just have the data, I’ll get the right answer. And in things like accounting and finance and operations management and engineering and things like that, there is a right answer. There should be. I mean, there’s only, There really only should be one answer to what’s the tensile strength of this middle span on the bridge? You don’t want multiple answers. I tell people, you know, what do we call someone with a lot of creative answers in the finance profession? We call them a felon. Right. so you don’t want that there. But in strategy, there is no right answer. There’s only the answer you give and how sound your thought process was in framing your ideas to get there. And we change the questions we ask to eliminate these perfect answers.

So, for instance, we have a problem. Every organization has problems. When I was a CEO, I had 99 a day. And, let’s say perhaps the problem is a product line or service line that is, all of a sudden declining in sales. Instead of looking at it as a problem and bringing everybody associated with it into the room and loading up guns for the circular firing Squad, you say, this is not a problem. This is a set of opportunities to do something different in the future. But let’s decide what kind of opportunities. Let’s develop options that are not what we’re doing now. And then instead of saying, no, that won’t work, we say for each option, what would have to be true for this to work? Okay. Automatically, you see, by the nature of the question, I’m, going to cast your mind forward and starts to wrestle with the ambiguity and contingency of the future. What would have to be true for us to be able to buy Pixar and distribute their movies on our terms rather than these expensive licensing agreements that we’ve been having to do at the said Disney in 2005? Right. What would have to be true? Well, they’d have to be for sale. They’d have to be for sale at a price that our shareholders would find a reasonable valuation. we’d have to guarantee we’re not going to culturally ruin Pixar having bought it.

>> Craig Gould: Right.

>> John Hillen: And you start exploring that as an option, as opposed to Disney’s other, options of building their own more advanced computer generated animation studio or buying DreamWorks or something else. So they and every other corporate decision that’s been made goes through this process. And so that just lends itself to ultimately taking an intelligent bet on a certain path, having weighed the pros and cons, that can be foreseen. But there’s a future orientation and a kind of creative mindset about thinking strategically that vaults perfect analysis. Vaults over perfect analysis. In fact, Craig, there are even different parts of the brain. I give a couple of footnotes to where the brain science is on this because I didn’t want to get it, deep into it in the book. But the analytical part of your brain, your left brain, breaks problems down, processes information, breaks problems down. The strategy part of your brain, the right brain, seeks to pull things back together and see how they interconnect, impact and fit on each other. So they’re very different ways to think.

>> Craig Gould: Is the CEO capable of doing this in a vacuum, or is it necessary that he is having dialogues with handfuls of people, actively, ongoing? And you can’t pull everybody off the floor every day, right? It seems important that these decisions can’t be made in a vacuum because maybe you aren’t able to see all the holes in your logic.

>> John Hillen: Right. And I think you had a key word there. And one of the reasons why I did the book this way is I found in my consulting work and in leading my own companies, and I’ve been a CEO of both public and private companies, that the organizations that get into an intelligent dialogue about strategy are already in the 95th percentile. Doesn’t matter what the outcome is, right? Instead of just thinking, like, in project management terms, how do I get this done by the end of the month? Somebody somewhere, maybe a lot of somebody somewhere says in one of the meetings in and around that, once that done, where does this go? Will this shape how we’re trying to do? Do you think it puts us in a better competitive position? Because have you noticed what these guys are doing over there? They’re really changing the way things are happening in this industry. and how does this impact us in a constrained economic environment? Or how does this, accelerate those plans we talked about last year to perhaps go international with this product and so on. And then that conversation starts. And all of a sudden people are exercising this strategy part of your brain. Once you know where it is and you feel what it’s like when it’s activated, then you know how to work it out. It’s like a, you know, a muscle your trainer may show you how to activate and use in the gym. So, the most important thing is that the right people in the room are having the right conversation or parts of conversations. It doesn’t. Every conversation doesn’t need to be about something. Strategic organizations do need to get things done on the day. But, a lot of times organizations can go through having no strategic nature to their daily flow, their processes, their conversations, even the highest levels of leadership. So how do you work that in as, as part of an organization so that it’s always got part of one eye? Not one eye, but part of one eye is on the horizon.

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There’s increasingly the C suite role called the Chief Strategy Officer

>> Craig Gould: Well, I know that there’s increasingly the C suite role called the Chief Strategy Officer. What is your experience with what that job description looks like? I mean, are they somebody that the CEO can, you know, whenever is faced with that kind of offload and say, think about this and let’s have a conversation, or is that person constantly thinking about the future and what’s. What’s on the horizon? What. What is the CSO role look like from. From what you’ve seen?

>> John Hillen: Yeah, there are very different models for this. I don’t think there’s one perfect template. I always tell people the only answer you can ever give to any strategic question is it depends. so you can never be wrong with those two words. And I said it depends. Right. Some of it’s personal preference. You know, you mentioned strength Finders when we’re talking before we came on the air. And you know, one of the key insights of cliftonstrengths or Strength Finders is, that the complete executive is a team of people whose strengths are complementary to each other. So I think that matters. Personalities matter. The mission, the kind of the organization. I have seen some strategy shops and chief strategy officers in companies where they’re. They’re just a, they’re a kind of an internal think tank. They do a lot of the analysis, you know, right on up through, you know, writing speeches for the CEO and stuff like that. I’ve seen some that are really, corporate strategy places where it’s just the M and A people, right, if they’re into doing deals and, and I’ve seen some that truly, have the role of working with everybody else in the company, the P and L leaders, the rest of the C suite and everybody just to make sure that strategy is lived and exercised in the course of, the day when I, at, one company that I took public in 2009 at a brilliant chief strategy officer, and he was both my alter ego in terms of strategy, but he was also the M and A guy because we probably did four acquisitions in that. In that company. And so, you know, and that hit a skill set there. And so those. I. I think it just depends on how things match up. What I do tell CEOs is you can never outsource this entirely. You can have a chief strategy officer, you can have these fancy, very expensive, famous, strategy consulting firms walking around. If you can afford it in your hallways, you can do all that stuff. But at the end of the day you are responsible for the direction of the organization. And direction of the organization is a strategy question.

The book reasserts just how prevalent mergers and acquisitions are

>> Craig Gould: I think you’ve already mentioned three or four times M and A, whether that’s Disney, Pixar or your own companies. And I think it kind of reasserts just how prevalent mergers and acquisitions are. If you’re growing and you get to a point of stagnation or you need to figure out how to capture more territory or on the other side being a target of acquisition. Mergers and acquisitions are kind of an everyday part of big corporate life. Right. And that’s something that we have to be able to strategize about either being on the receiving end or on the active end.

>> John Hillen: That’s right. And you know, I dedicate a chapter in this to the book because it’s complex and it’s rich. It’s a fantastic feature, especially for Americans of our market. If mergers and acquisitions are possible and almost any combination of things is possible. You have a liquid market, which tends to reinvigorate and it’s like a controlled burn and environmental land management. It can reinvigorate the land and bring it back and it tends to do that. And I think it’s one of the reasons why our friends in Europe in the Eurozone have kind of stalled. The US and the Eurozone were the same size economically 10 years ago. Now the US is almost 80% bigger, is because they’ve chosen sort of regulation and over, you know, it’s kind of liquidity and entrepreneurial and keep moving forward, try different combination of things and off you go. And shareholders in the US are very forgiving too. I mean Microsoft bought LinkedIn for what was it, $26 billion. So LinkedIn had never made any money. Unprofitable. Right. And I still don’t think we know what Microsoft plans to use LinkedIn for. I was always assuming it’d be a, you know, to compete with like a salesforce, like a customer service software management kind of platform where Microsoft is a tiny market share but who knows? But shareholders are forgiving of it. They’re like, yeah, go experiment, you know, figure it out, keep being great. And, and so those kind of qualities allow for M and A to happen. But it’s still, you know, it’s still is a risky enterprise, is very high stakes. And the, the point of the points I try to make in the book is the easiest thing in the world is to come up with a so called strategic rationale for why you’re doing it. and for a lot of companies, it’s just cheaper than either building that, whatever they want themselves, whether it’s a new product, whether it’s more market share, whether it’s moving into a new geography or getting a new set of customers. And it’s maybe, better financial terms than if they kind of leased it or borrowed it. So they decide to buy it, they can’t build it, they can’t figure out how to borrow it, so they just buy it outright. But when you buy it outright, you have to bring something to the table as the acquirer. You can’t just take, you can’t just exploit the target and the asset. And so I just talk a lot about how you have to be a giver, not a taker when you’re in the acquiring business, having probably acquired, gosh, 14, 15 companies over my career. And you really have to bring something to the table to make that company even better than it could have been on its own. And that has to be painfully obvious in the eyes of the acquired company, not yours. It has to happen on their terms, not yours. And I think that’s the art of having a successful acquisition, which is you don’t buy something in order to, just exploit it. You buy something in order to add to its success. And making sure you and I have several frameworks in the book to help people think through how do I match up those things to see if it’s. And if you track backwards from the deals that have been disasters over time and I several in the book, they almost always never went through that drill, or if they went through that drill to see this, this matching, this complementarity, this sense of advantage each, party could bring to the other. if they did come up with something positive, it was usually, pretty thin. It was pretty thin rationale instead of a real honest wire brushing of the soul and saying, if we’re together, do we both make each other better? And how. And that still doesn’t solve all your problems. That just gets you over one of the hurdles of the many risks to M and A.

>> Craig Gould: Some of those mergers, some of those acquisitions can be real head scratchers. And you’re wondering what were they thinking? And sometimes it almost looks like, well, I didn’t have anything to report and so I wanted the market to feel like I’m doing something right. Then you wind up, a few quarters later seeing, a write off because you shut down whatever operations on that acquisition and just trying to Do a culture mesh just seems like one of the hardest parts of that.

>> John Hillen: It absolutely is. It’s almost always easy to do a surface level strategic complementarity drill, you know, and which is always going to be followed by the great cliche of M and A, which is one plus one equals three. and then you work harder to make the finances work. But usually there’s a deal in there somewhere if people are serious, right, you can get to the finances. Culture is the bugaboo. and make sure the cultures fit. And so I make the point and I use the model of framework in there. Frameworks are tools and strategies used just to organize your thinking. They don’t give you a magic answer. And it really does, you know, say if the closer you are in culture, the more likely, likely you are to be successful in integration. And if you’re far apart, leave it alone. So we’ll go back to the Disney Pixar example. Disney had lost its mojo by the late 1990s in creating animated movies, which was shocking in some ways. Disney invented the animated movie, you know, some 60 years prior, Pixar was making amazing ones. Toy Story, cars, all that Dreamworks, the Shrek series. Everybody was better than the people that invented the thing. Sort of like what happened with Kodak and film. And so Disney has to decide, can we buy and develop what is now a highly technical, different kind of creativity to regain our place at the top of this chain or do we just buy one of these studios? Because probably what we’re best at is not the content that it’s all the marketing, the post content marketing and distribution. That’s where we, where we own the world quite literally. And the merchandising and all the rest of it. And so they went through this drill. Buy a certain number, borrow, continue to license that certain number and then build it ourselves. That’s a certain number in time. And they decided to buy Pixar for the amount they did. But the great challenge to justify that 7.6 billion to the Disney shareholders was is it going to work after the deal? And these were two wildly different cultures, for all its smiles. And you know, I’ve been a Disney cast member when I was with ABC News in the past. so I know for all that and the fun factor in the Magic Kingdom, Disney’s a very straight laced, incredibly well disciplined corporate environment. And Pixar’s, you know, when Steve Jobs is running it was a freewheeling, creative, you know, fun campus near Oakland, California, and a totally different culture. And so if that’s the case, if the culture is so different, but you’re still a good fit at a business level. In this case, between the two of them, they just had this great. They owned the value chain and animated films. Then you’re wise just to give it its own space, keep its own campus, keep its own brand, which it has. Keep, its own leadership and not try to culturally kill it. I was looking at, an M and a deal I was involved with, recently, and the farmer wanted to buy the goose that laid the golden eggs, let’s put it in those terms. but the deal ended ultimately the same way that that fable ends, which was to get to the gold faster, the farmer cut open the goose instead of just letting it lay eggs on its time and thereby killed the goose. That happens a lot, unfortunately. so there’s a lot to think through there. And I try to lay this out in the book, but it’s a particularly high risk area.

In the book, Kurt has a character named Kurt who’s an investor

>> Craig Gould: In the book, you have a character named Kurt who’s an investor. And I never can, maybe you mentioned up front, but I never, really got it clear in my mind whether he was a venture capitalist or a private equity investor. In my mind he was a PE guy. And can you talk about the role of that sort of person in terms of providing strategy? Because it feels like every company is probably going to have a Kurt that they’re answering to or, has put money in and is on the board and wants to serve, as an asset. And honestly, they have skins on the wall and the experience to provide insight on topics like this and try to help provide direction. What can you talk about? You know, your experience of what that relationship sometimes look like.

>> John Hillen: Sure. So, you know, financial investors or financial sponsors are great for holding the company accountable. but it’s almost always accountable to the pure metric of financial performance, which at the end of day is the alpha and the omega. On the commercial side, amazingly, when my strategy work, and particularly with this book, it seems to be as appealing to nonprofits and government agencies as well, because Strategy. Strategy. Right. but if you have the commercial and economic motive, it’s really important that it’s going to come out in your finances. And so, what comes along with financial sponsors or financial board members sometimes is, to say, in order to make this company better, it simply needs to improve its finances. And that always starts with operating financials. And that might mean cutting cost, that might mean more efficiencies, and all the rest. And there are places like, like, there are investing firms like Danaher and others who buy with the presumption that they will make the company, they bought more efficient and then, and they’ll have a more efficient company and then when they resell it, you know, it’s, it’s a higher profit, you know, they make their money back that way. I get that. I understand. There’s nothing wrong with. I’m all for improved organizations. but improving strategically is different. In fact, it may require reinvestment like, like an M and A, as we were just talking about. And so, the financial investor in the book is particularly sophisticated one because he recognizes that, they probably reach the limit on how financially efficient they can make each of the portfolio companies they own. and they’ve also done, and maybe they’ve redone the balance sheet. There’s the correct debt to equity ratio, there’s the correct capital structure. All that’s great. Maybe they’ve even done another thing financial investors can do which is help bring in more experienced or better or better matched, executives to run the enterprise. Those usually the two value propositions most financial investors can offer. And not much beyond that, to tell you the truth, having worked with a number of firms. but there’s a whole other one which is say, how can I help you get to a more advantageous strategic competitive position, which is the art of strategy. And those investors, take that. They take part in that process with the portfolio companies. They don’t just sit back and say, tell me what the bill is at the end if you’re going to have to invest. but they partner with them on that strategic journey. And so that’s what I was trying to portray in the book. I happen to work with a private equity firm that’s very, it’s called Enlightenment Capital. They call it Enlightenment Capital and they symbols. Ben Franklin. Right. It’s very strategic in nature and thinks about it that way. So I think there’s an opportunity for financial sponsors or other board members to say you have a particular strategic role, either owning the company or sitting on the board or both. And your strategic role is to constantly help the management team keep an eye on the future and talk about how to get, how to move to places of advantage. Not simply drill down, go to line 37k of the spreadsheet of the quarterly financials and ask nine questions about the 13 week cash flow to make sure that people are doing their job in the organization. Right. That is a minor role of an owner or board member. I think the more major role is help that management team get to the future. They need to.

Craig: What advice can you provide for companies dealing with high uncertainty

>> Craig Gould: Well, John, I can’t remember a time in my professional career that there was more uncertainty than we have in our business environment in the United States right now. What, what can you suggest in terms of trying to craft strategy in an environment that has so much uncertainty, in that the rules seem to be changing from new cycle to new cycle? What advice can you provide to deal in this high season of flux?

>> John Hillen: So I’ll, I’ll leave two things. one is for planning. Think about scenario based planning and I talk about it. I have a lot of references in the book. It’s almost like a reference guide and stuff at the end of every chapter if we go further. But I’ve got some things in there in scenario planning because what that forces a company is particularly good for companies that are sort of engineering and logistics or operations excellence in nature because, they tend to think, because they’re amazing engineers or operators or logisticians in a kind of linear fashion. and life’s not linear. Especially we’re not, as you point out, we’re not living in linear times right now. It’s disruptive. So, scenario planning tells you to look at different scenarios about different possible futures. And the game there is not to pin the tail on the donkey of the future that happens, but it’s simply to start this conversation and expand the creativeness of your mind about how would we operate in a world in which oil goes to $40 a barrel, or if oil goes to $120 a barrel, or if tariffs are 145% or if tariffs are 30% or there’s no tariffs or whatever. Right. How do we operate in that world? Now you’re saying, okay, well here’s how we’d operate. What would have to be true for us to be able to operate that way and what would we have to do? So now you’re walking through all these things and then you can start to prioritize which ones of these offer are the biggest threats to us and therefore we must adopt some defensive tactics, perhaps even entire defensive strategy against us. And which one of these actually might be opportunities with everything in flux? Like I notice this company is particularly, distressed or feels alone in this environment. We’ve wanted to buy them forever. Maybe they’re now available, you know, who, knows. So one is scenario based planning. And the second thing folds into that, which is to take your SWOT analysis, which everybody does and turn it on its side. So it’s a toes analysis. Look at the threats and opportunities that have opened up because of the craziness of this period of disruption and align them with your strengths and weaknesses and see if any near term, opportunities there to either exploit an opportunity because your strengths line up with an opportunity that’s been opened up by this disruption in the market, or if your weakness is aligned with a threat that’s been opened up because it’s market and you need to take some defensive measures. So this could be, this could lead to all kinds of decisions from refinancing to investing to pulling in your horns until the, until the hurricane has passed, to everything else. But once again, Craig, if, if any organization is having that conversation instead of just sitting around the break room and saying, oh my gosh, what’s going on out there? But they’re having this really disciplined, thoughtful conversation like the ones in the book in and Around Us. They’re in the 95th percentile of high performing organizations and they’ll figure it out and they’ll figure out the options that are actually available to them.

The ability to think strategically is considered an executive competency

>> Craig Gould: And I guess one last question is I feel like a lot of my listeners are. They’re trying to figure out how to best navigate not just their companies, but their careers. Right. And what advice do you have on applying a strategy mindset to actively managing one’s career trajectory?

>> John Hillen: Yeah, well, start thinking strategically young and early. You know, in every executive competency model, the ability to think strategically is considered to be an executive competency. Every executive needs. And yet we almost never train for it. It’s very rare to go to classes for it. There’s no certifications in it doesn’t lend itself to certifications. Right. So how do you practice it at work? Especially when 75% of most people day is trying to get rewarded based upon getting things done, and getting them done in the right way. Be the, ask the strategic questions in the room. You know, connect activities to the long term, not just the short term. Connect them to the big picture, not just everything right in front of you. Ask how they affect other things that are operating there. Import knowledge of the outside environment that shows that you are, you are trying to understand and interpret how the world’s evolving around you and how it affects your organization. These are all the, the tells, if I can use the Las Vegas term, of the strategic mind. Right. As opposed to the getting stuff done by Friday mind, which is really important. Right. World wouldn’t run if we didn’t but, I would say to any executive, new, middle, or towards the end of their career, having been, you know, I chair three corporate boards right now. I’ve been in a lot of boardrooms. And that’s one of the things we look for at the boardroom level from executives coming through the ranks is I know people can get things done, but does this person know how to think intelligently about where we might want to go in the future? And that’s a way to think, not a, ah, what to think. So people should practice this in their career and I think they’ll find that, it’ll elevate everything else about their executive competencies. And, and, and I’ve never heard of anybody being less successful in life because they’re practicing their strategic brain.

>> Craig Gould: Absolutely.

Well, John, I really appreciate your time this afternoon. Again, the book is the Strategy Dialogues, a primer on business strategy and strategic management. available everywhere. Folks have probably already seen an ad for it on Amazon because it’s a top seller there. John, this has been a great conversation. Like I said, I have a strategic brain and, or at least my brain appreciates strategy. And so I’ve really, enjoyed our conversation here this afternoon.

>> John Hillen: Great. Likewise, Craig. Thanks.