Strategic Planning Analogy #265: Two Stores, Two Stories

THE STORY
Ritz Camera, the largest specialty camera and imaging retail chain in the US, filed for bankruptcy in February 2009. Now, it has recently said that if it does not find a buyer soon for the chain, it will liquidate its assets in an open auction.

At the beginning of 2009, Ritz Camera had more than 800 stores in operation. It is now less than half that size.

By contrast, Best Buy is doing rather well. Its balance sheet is very healthy and it is gaining market share. Although the recession has had its impact on Best Buy, the company will survive and looks poised to thrive for quite awhile.

Why such different fates for these chains? A friend of mine used to work in the photography specialty retail business many years ago. He said that when taking good photos was very difficult, many flocked to photography as a “hobby.” These photo hobbyists carried around bags of gear to make better photos—lots of lenses, filters, light meters and shades. They would have a darkroom in their basement with lots of chemicals and enlargers, so that they could develop their own film and photos and crop them to be “just right.”

All of this took skill, knowledge, dedication and lots of practice—as well as lots of money. It was not for the average “amateur.” These hobbyists could take great pride in their unique skills and abilities. Others marveled in jealousy at the “magic” of their great photographs.

Then something happened. Technology got sophisticated enough that cameras could take pretty good pictures all on their own—just point and shoot. Now everyone could take pretty good pictures without any advanced training, skills or lots of gear. Being a photo hobbyist no longer carried the same cache. It wasn’t all that special anymore once the average Joe could do just about as well.

As a result, those who looked to their hobby as their point of pride and status saw that being a photo hobbyist no longer satisfied that ego stroking. Therefore, many quit photography and found new hobbies in areas which still held status, like electronics or computers.

Now, with the digital revolution, everyone has access to cheap and easy tools to take, edit, modify and photoshop their pictures into great works of art—and place them on the internet for all to see. And you don’t even need a camera. I was recently at the zoo—a place full of young families. I looked around me and noticed that I was the only one with a camera. Everyone else around me was taking photos with their cell phone.

It is getting harder to even think of photography as a hobby. It’s just something people do, like breathing. And nobody thinks of breathing as a hobby. Without a large hobby segment, there is no reason to for a large photo hobby specialty store like Ritz. Hence the problems at Ritz: it’s camera focus fell out of touch with where pictures evolved.

By contrast, Best buy has frequently changed its product focus. I remember back in the 1980s, when their big emphasis was on microwave ovens. It was the cool new technology, and people flocked to Best Buy because they held seminars and cooking classes on how to use this cool new gizmo. Soon thereafter microwave ovens became mature and were treated like a toaster that you replace at Walmart when they break.

Of course, by then Best Buy had moved on to the next cool new gizmo—VCRs. Then when that started to get mature, they went on to follow with computers, then DVDs, then Digital TV and now Mobile Devices. The idea was to abandon categories before they matured and replace them with the next new thing. That way Best Buy was always hot and always successful.

THE ANALOGY
As a business, companies have two strategic choices. They can either define themselves primarily by specializing in the type of products they sell (like Ritz Camera) or they can define themselves primarily by the specializing in the place in the product lifecycle where they want to be.

This is a critical strategic decision which can dramatically impact how your company evolves. How you answer this question can even be one of the major reasons why you succeed (like Best Buy) or fail (like Ritz Camera).

THE PRINCIPLE
The principle here is that the decision to focus on product versus lifestage is critical. It needs to be a conscious choice, because it will drive so many of your other strategic decisions. If done well, there are opportunities to succeed with either approach. But to do so takes hard work, tough choices and significant strategic modifications. You have to be fully committed to one side or the other. A half-hearted middle approach will tend to fail.

Let’s look at either option in detail to illustrate the particular types of risks and tough choices which apply to either decision.

Focus On Product
The biggest problem on a product focus is that products evolve and go through a lifecycle. At first, they are the cool new thing, desired by leading edge hobbyists who desire the status of taking the time to become an expert when others aren’t. Second, the experts help the rest of us “get it” so that the product achieves mass demand. It is the hot thing everyone wants. Then, it becomes just another thing that everyone already has. Your sales shift from first-timers to replacement purchases and the priority shifts from expertise/service to low price. Finally, your product becomes a lowly commodity at best, and an obsolete has-been at worst, which is replaced by the next new cool thing.

Therefore, if you focus on the product, then your greatest strategic challenge is to align your business with the changing demands from managing to the life cycle. For example, if the basic product you sell doesn’t change, then you have to change, to have the most appropriate business model for the particular period in the lifecycle where that product lies. At the beginning, you need to be creative, inventive and cool, and you have fat profit margins to pull it off. At the end, you have to think like a commodities manufacturer, with razor-thin margins and a merciless emphasis on cost reduction. That’s a big cultural change. Distribution channels can change over time, too, from dealing with boutiques to dealing with Walmart.

The second strategic challenge is to slow-down the natural progress of the life cycle, to keep it as alive and cool as possible for as long as possible. Rapid obsolescence via frequent product upgrades can help to keep it cool longer. Strong image advertising can help keep some status with the product longer. Look at the mature automobile industry. Cars can last a decade, but clever strategies like leasing and restyling induce people to want to change cars every 3 to 4 years. Relentless beer image advertising has helped beer brands keep at least some preference and status rub-off in that mature business.

The third strategic challenge is to try to outlast all the competition, so that in the end-game you have a near monopoly. That is what Budweiser has done in the US beer market. Everything has pretty much consolidated into their lap, so that they still have enough volume and clout to make a killing.

The biggest risk is that your company dies when the product eventually dies. If you’re in the newspaper business and nobody wants newspapers, you’re in big trouble.

I think the problem at Ritz Camera was:

1) They picked the wrong product (cameras instead of photos)
2) They did not try aggressively enough to own all the new places where photo status was going (scrapbooking, on-line editing software, You-Tube, etc.)
3) They did not try to develop and get an exclusive on the ultimate cool photo-phone.
4) They did not change their business model enough to win when things get commoditized and margins go away (i.e., their stores could not beat Walmart when the product matured).

In other words, they did not manage the lifecycle well because they did not realize how much of a priority that was, so they lost.

Focus On Lifestage
The other option is to be more like Best Buy and focus on staying in a particular lifestage. For example, if you focus on the early stage, when products lose their cool, you switch to the next cool thing. This is also pretty much how GE has worked over the years. As industries they were in starting to get mature, they would sell off the division and add a new division still in the early cool stage. That way, the portfolio stayed hot (and profitable). The benefits here are that a) you can focus on perfecting a management style for that life stage; and b) your lifespan is not tied to the lifespan of a particular product.

With this strategy, the biggest issues are timing and transitioning. By timing, I mean knowing when to let go of old products and when to dive into new products. If you sell off too quickly, you may walk away from a lot of profit. If you stay too long, you may not find a profitable way to exit the business.

If you enter a new business too early, it may take too long to get a return (and you are more likely to guess wrong on whether it will get hot). If you enter too late, you may have to pay too much to enter and be too far behind in the race for leadership.

By transitioning, the problem is getting people to accept that your brand has a right to be in that new space. If you are too far afield, then the customers will not give you credit in that new space. Also the farther away the transition is from your core, the less likely you will have the proper skills needed to win. For example, if Best had gotten into high end designer handbags when they were hot, it would have failed because it does not line up well with the brand customer or the brand image, and they know nothing about designer fashion. That transition would not have worked.

Best Buy has succeeded because their timing was great and they always transitioned into products that were consistent with the brand and its core customer’s desires. They were also willing to be very aggressive in the transition—killing off old categories entirely and going full-out to win in the new category. This is not a game for the half-hearted.

SUMMARY
Great strategies tend to be explicit on whether the company is going to focus on a type of product or a particular lifecycle stage. Then one needs to aggressively adapt the company over time to stay true to the chosen path. Half-hearted efforts on either path can lead to failure.

FINAL THOUGHTS
You don’t have to only focus on the early stage of the life-cycle. Pinnacle Foods has done well by purchasing the cast-off mature food brands from the food companies trying to get out of mature businesses. They own brands like Duncan Hines, Hungry Man, Aunt Jemima and Swanson. Because they are experts in running brands in their late maturity, they can make them successful when their former parents found them to be a drag on profits.

Strategic Planning Analogy #264: An Efficient Waste of Time

THE STORY
Stephanie had an overweight dog. She went to the Veterinarian to get some advice on what to do about her dog’s weight problem.

The doctor said that what the dog needed was more exercise. He knew that there was a large park near where Stephanie lived, so he said, “You should take the dog for a few laps around the park every evening.”

Stephanie heeded the veterinarian’s advice and started walking her overweight dog a few laps around the park every evening. After awhile, Stephanie found this task to be very time-consuming and very boring. Stephanie said to herself, “I’m an expert in making things more efficient in the business world. I should be able to find a way to make this task more efficient as well.”

And so she did. To make the trek around the park faster and more efficient, Stephanie decided to put the dog in a car and drive her pet around the park a few times every evening. Not only was this faster, but the dog enjoyed it more. The dog loved sticking its head out the car window much more than walking.

Everything was perfect, except for the fact that the dog did not lose any weight.

THE ANALOGY
Stephanie found a way to make the process of going around the park more efficient. Driving was both faster and more enjoyable than walking. Unfortunately, her efficiency “improvement” totally missed the point. The purpose of the trip around the park was to get her dog to lose weight. By prioritizing “efficiency of task” over “purpose of task” Stephanie failed to achieve the intended goal.

What Stephanie really created was an efficient waste of time. She got around the park faster, but without meaning or purpose…and the dog was still overweight.

As silly as Stephanie’s efficiency solution was, it is not that different from what I have seen in occur in strategic planning. Strategic planning is a process, but it also needs to serve a purpose. If all you see is the process, then you become like Stephanie, who only saw going around the park as a process. As you try to make the process of strategy more efficient, you can lose sight of the intended purpose. The result is a highly efficient strategic planning process—one that is quick and painless—but utterly worthless in moving the company forward.

THE PRINCIPLE
The principle here is that the best strategy rarely comes from an efficient process. Forming strategies is messy work, and the process usually needs to be a bit messy as well. A little sweat and aggravation is needed to get the job done. Just as the dog could not lose weight in an efficient car, but only by slogging it out the slow way in a walk, great strategic solutions cannot be rushed, either. A slick, fast approach to planning can quickly become an efficient waste of time.

There was a discussion on Linked-in recently about all the neat little strategic planning tools one can use in a strategic planning process. Tools are great, but tools can make a royal mess if used improperly. For example, if you see a SWOT analysis (strengths, weaknesses, opportunities, threats) as just a list of blanks to fill in, then you can quickly devise a way to efficiently fill in the blanks. But you may end up with just a bunch of useless platitudes.

In general, top executives don’t like to spend a lot of time on strategy. They would rather dive into the “crisis of the day” and solve an immediate issue. They will encourage strategists to find “efficient” ways to do strategy, so that it takes up less time. You must fight this pressure and temptation.

Here are four reasons why Strategic Planning needs to be a slow and messy process.

1. Planning Needs to Break Down Preconceived Notions
Most great strategies reinvent the rules. They ignore the traditional way things have always been done and try something completely different. Conventional wisdom is thrown away and a new wisdom is invented. Strategist Gary Hamel puts a high priority on the need to break down preconceived notions about how business is supposed to work. You cannot invent the next new thing if your thinking holds too dear to the old rules.

It takes time to break down the old thinking patterns. You might hold so dear to a current business rule that you think it is the only way to get things done. By closing your mind in this way, you prevent yourself from even considering an alternative. For example, you may believe that:

a) All hospitals have to have an emergency room; or
b) Only governments can own and manage highway systems; or
c) Everything on the internet has to be free; or
d) Product development needs to be fully complete before introducing it to the public; or
e) Only a small niche of people are interested in organic.

There are people today who have defied conventional wisdom like this and are making money.

It can be a messy thing to get people to release their grip on tightly held notions. Letting go of the old and embracing the new takes time. If you short-change this process, you can have a company full of doubters who will not fully embrace your strategy. This will internally sabotage your ability to achieve your strategic goal.

2. Strategies Need to Challenge Current Power Bases
Many of the people in your organization have created a strong power base under the old rules of how things were done. Reinventing the rules can weaken or destroy that power base. Naturally, the ones with the power today will tend to resist a new approach which reduces their stature and influence.

Worse yet, if the only opportunity these people have to respond to this change is in a public planning forum, then they may take a strong public position of resistance which will make it difficult to back down later.

In these cases, there often need to be private moments, when challenges can be presented “off-the record” one-on-one to the ones who might be threatened. Negotiations can take place to help them find new bases of power. Extra time can be given to help them see the bigger picture…all away from the public eye, so that they can save face.

I worked with a company that was developing a new vision which threatened the power and influence of the old base business, where over 90% of the employees worked. Because the new vision was thrust at them quickly and publically, they felt trapped. As a result, they used their superiority of numbers of people to essentially do a coup. They took over the company and threw out all of the executives who were threatening the status quo.

If you skip the messy business of delicately transitioning power bases (because it is inefficient), you can end up with a mutiny rather than a strategy.

3. Eureka Moments Need Incubation Time and Diversions
In prior blogs (see Magic Eye and Genius Sleep), we have looked at some of scientific research behind the development of great ideas. In Magic Eye, we saw that eureka moments of great discovery almost never occur inside focused, efficient efforts at idea development. Instead, they tend to occur after laying aside these efficient processes for awhile and spending time at some seemingly worthless (or at least inefficient) diversion.

It could be spending time at some recreational activity (like sports), or entertainment activity (like watching a movie), or something as mundane as taking a shower. Regardless, the brain needs time to back off from heavy, efficient processing and drift a bit into a more daydream-like mode. Science found that the great insights come during this mental relaxation/diversion time after the “efficient” thinking process is done. Skip the relaxation/diversion time and you lose the great eureka moments.

In the Genius Sleep blog we found that the one most common characteristic between geniuses is that they tend to sleep a lot—often taking naps in the middle of the day. How’s that for a seemingly inefficient process?

This combination of alternating between efficient thinking time and random relaxation (or even sleep) time tends to generate the greatest strategic insights. It is a messy and time consuming process which by its very nature cannot be made efficient.

4. Strategies Need to Evolve and Adapt
New revolutionary ideas are rarely perfect right out of the box. They tend to get adapted and modified over time. That’s why so many firms now introduce beta versions to the public to gain more insight before the product is finalized. If the strategic planning process is only at the beginning of this journey, then you are missing the richness of applying a strategic approach to this adaptation. Instead, you may end up with random adaptation which ends up weakening and destroying the revolution rather than strengthening it through strategic coherence.

Since one loses some control over the process once it is released into the public, one needs a messy strategy process to interact with this more uncontrollable adaptation. Changes will be on the schedule of how the public wants to interact, not on some internal strategy calendar. Again, this cannot be rushed for the sake of efficiency.

SUMMARY
The ultimate goal of strategic planning is to find and execute a path to a more prosperous future. Strategic planning can use some tools and processes to help achieve this goal, but one must never lose sight of the ultimate objective. Perfecting the “process” of planning to be as quick and efficient as possible almost always leads to strategic failure—an efficient waste of time. It is the time consuming and messy approach which brings better results.

FINAL THOUGHTS
Disney is known for its creativity. According to Chris Heatherly, VP of Toys, Disney Consume Products, described their success in creativity this way: “Some people want to cut to the chase. We tried it, and it just doesn't work…You have to have some decompression time to be creative.” How much decompression time is in your planning process?

Strategic Planning Analogy #263: Living in Fear

THE STORY
I knew a woman who was very curious. She liked to read all the time. One of her favorite topics to read about was the dangers and threats which could beset the world. She became an expert in understanding all the potential dangers—everything from the dangers which could beset a women walking alone in a parking garage to the dangers to the entire planet from the thinning of the ozone layer.

The more she read about potential dangers, the more fearful she became. She eventually became afraid that all of the potential dangers had a high likelihood of happening—to her. She became increasing afraid to leave the house. Her fear for the entire health of the planet (and her inability to stop every threat) became so intense that she was prescribed medicine in order to cope.

Over time, the fear so gripped her that she could no longer function in the outside world. She was a true sufferer of agoraphobia—and it was so sad to see.

THE ANALOGY
Although it is not a bad idea to become informed about potential risks, too much fear about those risks can be very detrimental. As we saw in the story, excessive fear over potential threats can be paralyzing. Too much fear leads to an inability to act and move ahead. The fear can trap us in our homes.

Business is all about taking risks. As they say, “No Risk, no Reward.” Of course that doesn’t mean we should ignore all warning signs of risk and dive into a situation blindly. That almost always leads to disaster. The recent economic collapse, for example, was due to not properly understanding the risks of the complex financial products which were introduced. Financial institutions dove too deep into these risky ventures—blind to the extent of the risk—and it almost collapsed the entire economy.

One of the key roles of strategic planning is to provide knowledge and insight so that the risks are minimized. Better, less risky moves can be made based on the discipline of strategic analysis—a solid understanding of the environment. Strategic planning makes you smarter so that you can act smarter.

However, even with the use of strategic planning, the risks do not go entirely away. If you wait until all the facts are in, it will be too late to take the lead. The market dynamics will already be set in concrete and not have room for your late entry. Therefore, there will always be an element of the unknown in every good strategy.

The key is to not become paralyzed with fear. Instead, the goal is to make risk your friend.

THE PRINCIPLE
The principle here is that risk is not to be avoided, but rather to be exploited. Don’t be like my friend who was so fear stricken that she was afraid to leave the house. To win, you have to take your business out into the marketplace and aggressively fight for success. Even in tough economic times, one cannot just hunker down in the bunker in fear and wait it out.

Market share changes hands all the time—especially when times get tough. Customers are more willing to reconsider their habitual buying patterns when their economic condition worsens. Therefore, tough times are not times to hide in your house, because your share is more vulnerable than ever. Of course, the share of your competitor is also vulnerable, so you have an opportunity to gain if you go out and act smartly.

Taking calculated risks into uncharted territory can be one of your best friends, because:

a. It allows you to get a head start in an area which is relatively uncontested (like the Blue Ocean Strategy).
b. It allows you to write the rules in your favor.
c. It increases your chance of being the leader and reaping most of the rewards.

Of course, not all ventures into new space are successful. So how can we improve our chances of success within this uncertainty? Here are four suggestions.

1. Plan the Entire Chain
Successful ventures are based on successful business models. In today’s increasingly sophisticated marketplace, it is not enough just to create a cool product. To make money, one needs to plan and control the entire value chain around it. Your business model strategy must include a way to get the rest of the value chain to work in your favor. Otherwise it can work against you.

Compare, for example, Sony versus Apply. Sony has concentrated on making cool devices. Apple has concentrated on making cool business systems—devices, apps, stores and so on.

Apple realized that a cool device can quickly become a commodity—a piece of hardware that gets the profit margin kicked out of it if you do not control the selling process downstream. Therefore, Apple has tightly controlled its retail distribution.

Second, Apple knew that if the cool applications shift to another device, nobody will want the Apple device, because what customers really want is the ability to get to the cool apps. As a result, Apple did its best to become THE place for the cool apps programmers to programming for.

Finally, devices get purchased infrequently, whereas the apps get purchased all the time. Apple knew if it was not getting a cut of the apps business, it was losing out on where most of the ongoing value in the business model was being made. Therefore, Apple made sure it was THE place for purchasing the apps, so that it could get a cut of the sales.

By planning the entire value chain, Apple was able to ensure that the value chain continued to flow through Apple and did not get diverted somewhere else. This this thoroughness and control significantly increased Apple’s ability at being a success in risky new ventures like the ipod and the iphone.

By contrast, Sony’s recent ventures aimed at cool devices only have not been as successful. They have recently suffered a large loss. Sony’s cool devices are not cool enough on their own to create a secure business model. By not controlling distribution downstream or applications upstream, Sony is more vulnerable to being bypassed in the value chain. By not having the compelling stickiness of a tight value chain, Sony has to cut prices in order to create preference, which hurts margins.

Sir Howard Stringer, head of Sony, has seen the error of this narrow focus and is in the process of transforming Sony to think more holistically about the entire value chain. So, success in new ventures goes up if you plan out the entire value chain—to build a system which is biased in your direction and makes all the players better off if they play by your rules.

2. Look for Superior Solutions
A lot of businesses get excited by a new venture when it uses the latest and greatest technology. The mindset tends to be that “if it uses the latest technology, it has to be better, so the business model should succeed.” The problem is that most people don’t care about how up-to-date the technology is. What they really want is a superior solution to a problem. Sometimes, the latest technology does not improve the ability to solve a problem. Sometimes it even makes it worse.

Take internet grocery shopping, for example. Nearly every venture into this space has been a miserable failure. Is it because they did not use the latest technology? No, it’s because internet grocery shopping is an inferior way to shop.

They claimed that internet grocery shopping would be more convenient. However, how convenient is it really when you consider that:

a) You have to sit at home for a 4 hour delivery window (which is a longer time than it takes to shop).
b) If they are out of stock on an item you want, either they may make a substitution you don’t like or they will not supply the item, leaving you with only half the ingredients needed for a meal. Is that convenient?
c) The ordering process on line is less enjoyable than shopping, and unless you like eating the same food every week, it is still time consuming.

On top of that, a lot of the things a customer does for free when shopping the store (picking out the items, checking them out, taking them home) now are done by labor that must be paid if you buy off the internet. This makes the internet process a lot less efficient and the groceries a lot more expensive. As it turns out, the minor bit of convenience is not seen as enough to justify the higher prices the new internet grocery model needs to earn a profit. So the business model fails. The moral? Just because a model uses newer technology does not automatically make it better. Only go after ventures which truly have a significant advantage over the status quo in solving the customer’s real problem.

3. Narrow the funnel quickly
Although there are risks to putting all your eggs in one basket, there are also risks to trying to venture into too many different directions at the same time. The solution? Don’t be afraid of looking at a lot of potential new ventures early in the process. This increases your chance of finding a real winner. However, quickly determine which ones have the best shot of success and stop the funding on the rest. One of the biggest drains occurs when one delays halting support for the losers. The longer you wait, the worse it gets.

4. Experiment and Adapt
Ultimate successes rarely end up looking like the original vision. They tend to morph along the way as you learn. Therefore, rather than working in the lab alone until the original vision is perfected, do some early experimentation. Let beta models out into the marketplace. Get input along the way from your customers. Be willing to flex and adapt. This increases the likelihood that the final product is what the market really wants.

SUMMARY
Even though new ventures pose risks, that is not a reason to hide and resist venturing into new areas. The idea is to use a strategic planning process which minimizes the likelihood that the risks will hurt you. This includes ideas such as planning the entire value chain, planning for superior solutions, narrowing the funnel quickly, and experimentation/adapting.

FINAL THOUGHTS
If you do the types of activities mentioned in this blog, risk moves from being an enemy to being a friend, because it gives you an edge over the competitors who do not follow this advice.

Strategic Planning Analogy #262: Blind Loyalty

THE STORY
I was listening to an interview with P&G’s outgoing CEO A.G. Lafley shortly after P&G acquired Gillette. Lafley was talking about how he uses all the P&G products at his home. He was excited about adding the Gillette products to the mix because they, too, were already products he used at his home.

Then he paused and remembered that he was currently using Edge shaving cream rather than Gillette shaving cream. Lafley then said, “Well, I guess I’ll be switching from Edge to Gillette shaving cream.”

Goody, goody…Gillette shaving cream has one more customer (Mr. Lafley), because he bought the company. I hope he has additional ideas for increasing share, since that plan (buying the products because you bought the company) is pretty limited.

THE ANALOGY
Lafley felt an obligation to always buy P&G products, for no other reason than the fact that he was CEO of the company. It became a knee-jerk reaction: if P&G owns it, then I have to buy it.

I guess that, as a leader, Lafley felt a need to show confidence in his products. He may have feared what would happen if word got out that Lafley used a competitor’s detergent. Would it damage employee morale? Would customers switch away from P&G products?

I don’t think that would have much of an impact in those areas. I remember when Brittney Spears was doing commercials for Pepsi and word got out that when she was on tour during that time, she had it in her contract that her dressing room would only have coke products. It didn’t seem to cause much of a stir. So I wouldn’t be too worried about that.

What I would worry about is how Lafley’s behavior may distort his business judgment. If you are blindly choosing P&G products based solely on whether your company owns them, then you are acting quite differently from the marketplace. Yes, perhaps a few P&G employees may switch to using Gillette products as a result of the acquisition, but for the rest of the world, the acquisition is a non-issue for brand choice.

The rest of the world needs a more compelling reason to choose your brand. Lafley’s behavior is out-of-touch with the market, which is far less loyal to the brand. This could distort his view of the P&G brand strength.

A similar situation can occur for strategists. If you become too strong of a company person, your perception of the company becomes ever more distorted relative to the rest of the world. You may give too much credit to your own brands and too little credit to the competition. This can cloud your strategic perspective. Your company bias can distort your judgment and cause you to make strategic errors.

THE PRINCIPLE
The principle here is that Blind Loyalty can blind you from the truth. How can you tell if you are superior to the competition if you never experience the competition? Sure, you can read market reports, but there is a lot to be said for personal experience.

I believe that blind loyalty can distort your perspective of the marketplace. Since strategies are designed to optimize performance within the marketplace, distorted visions of the marketplace can create useless, distorted strategies.

Think about people you have known who have gotten divorced. If you only talk to the wife, you will get a distorted view as to what went wrong with the marriage and probably put too much blame on the husband. Similarly, if you only talked to the husband, you would get a different distorted picture and probably put too much blame on the wife. Depending on which one you are most loyal to, you will have a different perspective on the divorce. If you want the truth about the divorce, you need exposure to both sides and a bit of objectivity.

Similarly, if you only surround yourself with your own products and with your own loyal employees, you will get a distorted picture of your brand. You need exposure to the other side.

I would have been more impressed if Lafley had said in his interview, “I’m a loyal user of Edge and I’m sure there’s a good reason for that. I need to find a way for Gillette to give me an even better reason to use them than Edge.”

Experience the Competition
I knew someone who had been an engineering executive at Ford. Ford put him in a program where he was given a series of competitor’s cars to drive. Every few months, he’d be given a different competitor’s car to drive as his personal car. For each of these experiences, he was to write up his impressions of the car.

This helped him to understand how the Ford engineering stacked up against the competition. He could learn from some of the superior things the competitors did. He could learn where Ford was weak. If he had only driven Ford cars during his employment, they would have missed out on these insights.

No matter where I have worked over the years, I have always told my wife to ignore that knowledge and shop as she normally would. I told her to make her purchase decisions based on what she thought was best, rather than who was paying my paycheck. Although I wasn’t always happy when she chose the competition, I was able to learn from her why she acted that way.

This helped to anchor me closer to the real world. I wasn’t distorted as much by blind loyalty. My perspective was not as overly biased in favor my employer to the point where I could no longer see all the warts on my company that the consumer could see. It made me a better strategist.

Watch Out For Brand Extensions
One place where this distortion causes many problems is in strategies surrounding brand extension. Your blind loyalty (and the blind loyalty of the rest of the decision-makers in your company) can cause you to overestimate the power of that brand. As a result, you overextend the brand into places where it doesn’t belong.

There’s a reason why most brand extension strategies turn out to be disappointments. It is because the rest of the world is not as enamored with your brand as you are, so you over-reach.

Watch Out for New Business Models & Fear of Cannibalization
You can also become so used to doing things the “company way” that you become blind to different business models. Kodak was blind to digital photography because of their infatuation with the “Kodak way” using analog film-based photography. The rest of the world didn’t care that much about Kodak magic moments. They just wanted the best way to get and share pictures. And as it turns out, the digital model was (for most) the superior business model. Blind loyalty blinded management to the need to quickly adopt a digital strategy.

A variation on this problem is cannibalization. You may become so loyal to legacy products that you do not want any type of strategy which will hurt those legacy products. At Kodak, it would have been difficult to get aggressive at trying to own the digital space without hurting the core legacy film business. The new business would have cannibalized the old.

Well guess what. Other companies got aggressive with digital and now Kodak is fighting for survival. Either you cannibalize your business or someone else will do it to you. If you do it yourself, at least you are left with a new, successful replacement business. If someone else does it, you are left with nothing.

The Solution
So what is the solution to avoiding some of these problems? First, you need a corporate culture that shuns blind loyalty and encourages more interaction with the competition. It needs to be okay to question the status quo and say an occasional nice thing about the opposition. The prized image should be that of an objective person, not an overly-loyal company puppet.

Second, spend more time listening to voices outside of your headquarters. Recent technological advances in Web 2.0 make this even easier than before. The more you get involved with your customers, the better your strategic perspective, provided you listen to more than just your most loyal customers. Listen to both the good and the bad comments.

Third, be skeptical. If we, by nature, have too much of a positive bias towards our own company, then we need to counteract that by being overly harsh in our strategic analyses. When estimating the likelihood success of your strategy, shy away from the optimistic scenarios. Be more realistic.

SUMMARY
Most leaders in a company have a natural tendency to develop a distorted positive bias towards that company. This blind loyalty can cause us to make poor strategic decisions. One needs to proactively take steps to counter this tendency, in order to help retain more objectivity.

FINAL THOUGHTS
There was an old saying that loyal IBM employees were so loyal that if you cut them, they would bleed in “IBM Blue.” I’d rather your blood was red, because then I would know you were alive and well (and useful).

Stay Connected -- A New Blog?

These are lean times for long range strategic planning. Compared to times past, it is relatively out of favor to promote long-range planning. At times like these, it helps to connect with other fellow strategists in order to prevent discouragement.

Linked In has some interesting places to connect with fellow strategists. In particular, there are some interesting discussions every once in awhile within the Strategy Professionals Network on Linked In.

A newer place to go is www.toolbox.com. Although this was originally set up as an IT profession gathering place, they have recently added a place for finance professionals. Within the finance area is a sub-section for corporate strategy professionals. Although this is relatively new, they are making an effort to make it a place worth going to, with lots of white papers, blogs, and ways to connect.

This leads to my main point. The folks at Toolbox found my blog (Planninga From Nanninga) and enjoyed it enough to ask me to write a different one specifically for Toolbox. I said yes. I call it Planninga WITH Nanninga. This new blog is shorter, more pointed towards strategy professionals, and poses questions to encourage discussion (hence the word “with” in the title). You can find it at http://finance.toolbox.com/blogs/planninga-nanninga/, although you may have to first join toolbox to see it.

Check it out. Let's get the discussion going.