Strategic Planning Analogy #293: Circus Crisis

THE STORY
Years ago, I was watching a documentary on the history of the circus. According to the documentary, the circus industry reached its peak of popularity in the 19th century. The secret to their success at that time was their image. Circuses in the 19th century had the reputation for being on the leading edge of whatever was new. Whenever the next big thing in entertainment came about, the place where you saw it first was at the circus.

Circuses were noted as places of innovation and creativity. There was always something new to see at the circus. It was forward-thinking.

But then something happened. Circuses got in a rut, doing the same thing year after year. At the same time, innovative leading edge entertainment shifted to the movies, radio, and television.

At the end of the documentary, it said that circuses were trying to survive in the late 20th century by emphasizing the “nostalgic” aspect of the entertainment. The idea was that going to the circus was a way to re-live the past and remember a piece of your long-ago childhood. It was a way to re-capture that innocence of years gone by.

In other words, the industry that became popular for being associated with everything new was now trying to survive by attempting to be associated with everything old. How’s that for a change in strategy?

THE ANALOGY
You’d think that to change your image as radically as the circus, you’d have to radically change your actions. The irony is that the image changed precisely because the actions did not change. Circus acts of the late 20th century were not that different from circus acts of the late 19th century. You still had the same animals doing the same types of tricks. You had the acrobats doing the same types of stunts. The clowns did pretty much the same antics.

The difference was that in the late 19th century, this was relatively innovative stuff. A hundred years later, it was old and out-of-date. Why watch an elephant try to stand on its hind legs when you can rent a movie with state-of-the-art special effects that place you in an exciting visit to an alien world?

This same problem can happen to your business. You may have found a path to great success. Relying on the concept that “If it’s not broken, don’t fix it,” you leave the successful formula in place. However, the world around you changes. The changing environment changes the viability of that old formula. “New and Exciting” quickly morphs into “Old and Boring.” And success quickly turns into failure.
Your success changes (for the worse) precisely because you did not change.

To save the circus industry, Cirque du Soleil needed to reinvent the circus into something modern and cool. It took a massive departure from tradition to do this. Perhaps you need to do the same.

THE PRINCIPLE
The principle here is that you do not control all of the factors which impact your image/strategy. External factors are constantly changing/evolving. As a result, your company/brand’s relevancy to that environment is constantly changing/evolving. Consequently, you have to make one of two choices:

1) Continually Update your Actions to Maintain the Same Level of Relevancy; or
2) Maintain Somewhat Similar Actions and Find New/Different Ways to Make them Relevant.

These options are discussed below.

1) Continually Update your Actions to Maintain the Same Level of Relevancy
Successful companies tend to own a desirable space in the marketplace. For example, Wal-Mart owns “low price” in the retail marketplace. As the marketplace evolves, your ability to continue to own that space can change. You may need to change in order to maintain ownership of that space.

Take Apple, for example. Apple was known as the “cool” computing company. Unfortunately, the novelty of computers was fading and just having a computer was no longer enough to be cool. Computers were progressing towards becoming a boring, commitized tool, something like a hammer.

So to maintain and grow that image of “coolness” in computing, Apple needed to change its actions. It needed to take its computing expertise to the newer, cooler places of iPods and iPhones. Owning these is really cool, and Apple was a leader in this evolving change in what constitutes a cool device.

Compare this to Dell, who is trying to look cool predominantly through just computers. It is struggling. Had Apple stayed only in computers, I suspect they would be seriously struggling, as coolness moved to Blackberries or whatever. Apple could have become like those outdated circuses had it not moved with the marketplace to maintain its cool factor.

Similarly, Wal-Mart saw that there were changes in the marketplace that could threaten their ability to own the low price space. In the 1980s, Warehouse clubs were starting to show the ability to underprice Wal-Mart discount stores, so Wal-Mart created Sam’s Club. Later, in the 1990s, supercenters were showing the potential to underprice discount stores, so Wal-Mart converted its discount stores into supercenters.

The strategy at Wal-Mart is to chase whatever shows potential for unseating Wal-Mart’s ownership of the low price space. Today, the new threat is the internet, so Wal-Mart has recently decided to get more aggressive in that space. Wal-Mart is ever-changing in order to keep is reputation for owning low price unchanging.

2) Maintain Somewhat Similar Actions and Find New/Different Ways to Make them Relevant
Sometimes, it can be difficult to do the types of changes Apple and Wal-Mart did to maintain their relevancy. Therefore, instead of changing the actions, you may need to change the way you make yourself relevant.

Years ago, I was talking to some executives at General Mills. They were telling me about the evolving relevancy of Hamburger Helper. When Hamburger Helper was first introduced, it owned the space for dinner-time convenience. At that time, the average time to prepare a dinner was about 45 to 90 minutes. Hamburger Helper took only about 20 minutes. Hence, Hamburger Helper was a huge time-saver and the more convenient way to prepare a meal.

Then the marketplace changed. Microwave cooking came about, redefining what was considered a normal amount cooking time. In addition, there was an explosion in the number of people serving meals obtained from a fast food drive-up window. Suddenly, for a large sector of society, dinner preparation was down to around 10 minutes or so. In a world accustomed to 10 minute preparation time, the 15-20 minutes it took to make Hamburger Helper no longer appeared convenient.

General Mills tried to speed things up with faster-cooking noodles and microwave versions, but for years none of the experiments met the quality levels demanded by General Mills. Therefore, General Mills had to change the relevancy of Hamburger Helper. A revised advertising campaign for General Mills stressed how the quality and taste of Hamburger was worth the extra effort. With the latest economic recession—yet another shift in the environment—Hamburger Helper is now repositioned as being the low price alternative.

Toy companies like Hasbro are finding that the older “uncool” toys in their portfolio can be made relevant again by repositioning them as movie merchandise. GI Joe and Transformers are some of the latest examples. Based on their success, all sorts of old toy brands are being licensed to movie studios, including the old board games Monopoly and Risk. If movies are where the cool entertainment factor is, then associate the toys with that movie experience.

SUMMARY
The changing environment can change the relevancy of your strategy. You can respond in one of two ways. Either change what you do in order to regain that same relevancy or find a new relevancy for what you are doing. Doing neither will eventually make your brand/company irrelevant.

FINAL THOUGHTS
When my children were little, I took them to the circus. The most exciting part of the evening was when one of the elephants decided to have a major bladder emptying right there on stage. The circus stage crew had to truck in a huge pile of sawdust in order to soak up all of the elephant urine (during the middle of the show). My son thought that was pretty cool. The rest of the circus, though, he was not impressed with. Let’s hope you don’t have to resort to what the elephant did in order to be relevant to your audience.

Strategic Planning Analogy #292: Parachuting Cats

THE STORY
Back in the 1950s, malaria broke out amongst the Dayak people of Borneo. It was serious enough to call in the World Health Organization (WHO) to find a solution. Their solution? Spray large amounts of the chemical DDT on the island.

The good news was that this effort was effective in killing most of the mosquitoes which carried the malaria. The bad news was that there were a series of negative side effects.

First, the thatch roofs on the houses started collapsing because the DDT also killed off the wasps which ate thatch-eating caterpillars. Second, many of these insects that were poisoned got eaten by gecko lizards, which ended up poisoning the lizards. Third, cats which ate the lizards got poisoned and started to die.

Without the cats to eat them, the rat population exploded. The rats carried diseases, such as sylvatic plague and typhus. With so many rats around, there was an outbreak of these diseases in the human population of Borneo.

Hence, the World Health Organization was called back in to solve this new health problem in Borneo (which, by the way, they had created). Their solution? Parachute live cats into Borneo.

THE ANALOGY
The World Health Organization was given a task—eliminate a serious outbreak of malaria in Borneo. They developed a solution which accomplished the task immediately in front of them. Unfortunately, WHO’s choice of action had negative unintended consequences.

It was not just one batch of unintended consequences, but a series of them. There were five layers in this series of unintended consequences:

Layer one: DDT killed more insects than just the ones carrying malaria.
Layer two: Lizards who ate the poisoned insects became poisoned.
Layer three: Cats who ate the poisoned lizards became poisoned.
Layer four: Without the cats, the population of rats skyrocketed
Layer five: The skyrocketing rat population infested the humans with new disease outbreaks.

Businesses have many problems to deal with, just like the WHO. In the rush to solve the immediate task at hand, businesses risk doing the same thing the WHO did—choose a path that solves the immediate problem, but has a series of negative unintentional consequences.

Just solving the problem of the moment is not enough. If we ignore the long term consequences in our decision-making, we can end up having our own version of parachuting cats.

THE PRINCIPLE
This story touches on two principles we have talked about often—the tyranny of the immediate and the law of unintended consequences. The tyranny of the immediate occurs when solving the crisis of the day is the only task you get time to work on, leaving no time for long-term thinking. You can read about the tyranny of the immediate here, here, here, and here.

The law of unintended consequences says that decisions you make often affect more than you realize, and usually in a negative manner. You can read about the law of unintended consequences here, here, here, and here.

The first point I want to make in this blog is that the more a company is held hostage to the tyranny of the immediate, the more likely it will create unintended consequences. If the WHO hadn’t been so focused on the immediate crisis of malaria, they might have taken the time to realize that heavy doses of DDT create more problems than they solved.

The second point is that unintended consequences often come in layers. If you only look out one or two layers, you can miss the serious negative side effects. Killing a few wasps and lizards doesn’t sound too bad. It wasn’t until you got to layer five (sylvatic plague and typhus outbreaks in humans) that the really bad negative consequence appears.

The same is true in business. Often, you cannot see the real disaster ahead until you look out a few layers. Look at all the layers of unintended consequences which came out of the simple decision to bundle high-risk mortgages. It didn’t just crush the housing market. Subsequent layer after layer of unintended consequences almost lead to a total global economic meltdown.

This leads into the third point. I believe that one of the most critical roles a strategist provides a company is the ability to look for all the layers of unintended consequences. While most of the rest of the organization copes with the tyranny of the immediate, the strategist can rise above the immediate and focus on the long-term implications—layer upon layer. This expertise will be an invaluable contribution to the discussion on how to handle the crisis of the moment. This contribution can help prevent a firm from going down a disastrous path ending in some version of parachuting cats.

In order to make this contribution, two factors must be kept in mind:

1. Avoid Setting Up the Strategist in a Position Where They Get Sucked Too Far Into the Tyranny of the Immediate.
If the strategist is given too much responsibility for near-term performance, then the risk is for the strategist to be doomed to just as much tyranny of the immediate as everyone else. When that happens, the strategist cannot provide that critical long-term perspective going out several layers, because they have no time to think about it.

I see this risk cropping up in two areas. The first is in the role of the Chief Marketing Officer (CMO). CMOs Officers are often given two roles. First, they are responsible for the long-term positioning/strategy of the brand. Second, they are responsible for the near-term sales and advertising promotions.

The first role is to rise above the tyranny of the immediate to protect the long-term brand strategy from unintended consequences. The second role dives deep into the middle of the tyranny of the immediate, trying to put out the fires that affect near-term sales.

From my observations, when someone has two roles like this, the tyranny of the immediate wins the battle for time. The long term suffers. It is no wonder that the average CMO tenure is less than one year. They are set up to fail because it is so hard to fulfill both of those requirements. For more on this, see CMOh, No!.

The second place where this problem can come about is if the strategist is in the Finance Department and also has responsibility for the annual budgeting process. There is a risk that so much attention will be placed on the one year budget and worrying about variances in current performance to this year’s budget, that the long-term concerns will be pushed aside.

The tyranny of trying to get this month’s/quarter’s/year’s numbers to turn out as budgeted can lead to hasty decision-making. You may find a way to get the numbers to work, just as the WHO found a way to get rid of malaria. However, the long term consequences could cause grave tragedy several layers into the future. You’ll be parachuting cats before you know it.

Therefore, I believe that strategists need to be protected from the tyranny of the immediate in their job responsibilities. You’ve got a whole company to deal with today. Let the strategist devote their time to examining all of those layers of consequences into the future.

2. Avoid Setting Up the Strategist in a Position Where they have No Influence on the Immediate.
Of course, if this isolation from the immediate is taken to an extreme, there can also be problems. The long-term perspective of the strategist needs to be applied to the decisions of today. Otherwise, what good is having that perspective?

Strategists shouldn’t be locked up in an ivory tower and only be allowed out in the spring for an annual planning off-site meeting. Not only does that make the strategist out-of-touch with what’s going on, it makes them irrelevant at the point in which operational decisions are made.

If the WHO had a strategist locked up somewhere, he could have come out in the spring and said, “I knew that DDT spraying would cause more harm than good. I knew those bad layers would occur.”

That does nobody any good. What was needed was to bring such a strategist into the room at the time the decision on DDT was being made and get the strategist’s perspective BEFORE making the move.

Don’t exclude the strategist from the core daily decision-making. Get that long-term multi-layered perspective. Use that perspective in your analysis before making the decision.

SUMMARY
To avoid negative unintended consequences, one needs to include a longer, multi-layered perspective into the discussion during the tyranny of the immediate. The best way to do that is to have the strategist participate in the discussion without being held accountable for the pressures of the immediate.

FINAL THOUGHTS
Everything is interconnected. Once you realize this, it is easier to find and prevent those unintended consequences. And the good news is that the more you eliminate those unintended consequences, the less you will be held hostage in the future to the tyranny of the immediate (which is often caused by unintended consequences).

Strategic Planning Analogy #291: The Defining Moment

THE STORY
I friend of mine who worked in the brewery business used to like to tell this story. There was a bar across the street from a factory that made beer. A lot of the guys who worked at the brewery factory would go to that bar after work. Sometimes, the managers at the brewery would visit the bar as well.

One day, one of the managers from the factory was in the bar. He saw one of the factory workers in that bar drinking a beer made by a competitor. The manager was infuriated that one of the factory workers would dare to drink a competing brand of beer. To him, that was an act of treason.

The more he watched, the more incensed he became at what he perceived as the unloyal behavior of this factory worker. Eventually, the manager couldn’t take it any longer. He went up to that factory worker and shouted “Who do you work for?”

The factory worker answered, “The local of the International Union of Brewery Workers.” So much for the disloyalty argument.

THE ANALOGY
As the story points out, how one defines themselves has a lot to do with how someone behaves. The manager defined himself as working for a particular brand of beer. Therefore, he was loyal to that brand and could not conceive of why any employee would drink any other brand of beer.

By contrast, the factory worker saw himself as working for the local brewery union. As long as he was drinking any beer produced in a union factory, he was supporting the union. His loyalty was to his fellow workers rather than to the brand of beer they made.

One of the most important strategic questions a company must answer is this: What business am I in? How you define your business will determine how you act. If you choose the wrong definition, you will wind up doing the wrong actions. This will then lead to the wrong outcomes.

THE PRINCIPLE
The principle here is that a good strategic process needs to, at some point, define what business the company is in. I call this “the Defining Moment.” Here are three things to avoid when creating that definition.

1. Avoid Too Narrow of a Definition
If you define the business too narrowly, you will miss opportunities. Back in 1960, Theodore Levitt published what is considered to be one of the 10 most influential articles in the history of the Harvard Business Review. The article was entitled “Marketing Myopia.”

In this article, Levitt claimed that a lot of business stopped growing or failed because they defined their business too narrowly. For example, he claimed that the railroad industry stagnated because the members narrowly defined themselves as in the business of “railroading” instead of in the broader business of “transportation.” Transportation grew rapidly while railroading stagnated. Had the leaders defined themselves more broadly, they could have participated in that transportation growth. Instead, they went down with their narrowly defined product.

All products and service offerings have a life cycle. If you define yourself by today’s product or service, your company’s fate is tied to that lifecycle. You will die when that product dies. Kodak’s fate declined because it spent too long defining itself as in the narrow “analog photo business”, rather than in the broader “imaging” business. Imaging hasn’t gone away. It has grown. But Kodak missed all that growth because of defining itself too narrowly.

2. Avoid Too Broad a Definition
Of course there are also problems if you take the opposite extreme of defining yourself too broadly. If you define your mission as “making a large return on investment” you have provided no guidance to the company. The definition is too broad to have any meaning or direction.

Without direction, you have anarchy. Anarchy leads to chaos and destruction, not success. Success requires a focus. A company without focus one cannot excel at creating a point of competitive distinction that will allow them to win in the marketplace. Rather than being a team focusing its limited resources at a point where it can make a real difference, you are just a bunch of individuals working at cross-purpose to each other. A company definition needs enough detail to point at where you will focus your effort in order achieve that advantage.

3. Avoid Definitions Out-of-Sync with Your True Skill-set
In addition to finding the right balance between defining yourself too narrow or too broad, one needs to address the fit between you definition and your capabilities. For example, I could define myself as being in the low-cost transportation business. However, if I have an unusually high cost structure, I will almost assuredly fail at that mission. That definition did not match up with my capabilities.

Although it is possible to change a company’s skill-set or culture, it is extremely difficult. Most attempts fail. Therefore, successful business definitions tend to look for ways to exploit the good in the current skill-set or culture, rather than trying to start all over again from scratch.

I was reminded of this need to align with skill-sets this morning as I was reading the Wall Street Journal. There was an article on page 1 talking about firms which appeared to be on the verge of bankruptcy but were saved from that fate (or at least postponed it) due to an increased availability of refinancing options.

One of the “near death” companies getting a reprieve that was mentioned in the article was Blockbuster, the leading movie rental retailer. I believe that one of the reasons Blockbuster got into so much trouble was because of how they defined their business.

Blockbuster has traditionally defined themselves as being in the entertainment business. In 2007, the revised business mission continued this entertainment focus: “To provide convenient access to media entertainment.” Sure, Blockbuster rents a lot of movies and games, but is entertainment really at the core of their culture and skill-set?

Blockbuster has shown no real skill in creating entertainment. They have no unique skill in developing forms of entertainment media. My understanding is that within the entertainment community, most of the other players hold animosity towards Blockbuster to the point where it puts them at a disadvantage versus other partners in doing media deals.

If entertainment is not Blockbuster’s core, then what is? First, it is the ability to run small neighborhood stores. At their peak a few years ago, Blockbuster operated or franchised over 9,000 stores. Most of these were in neighborhood locations.

Second, Blockbuster is a pretty good deal-maker with outside partners. One of the reasons why the entertainment industry is hesitant to do any more deals with Blockbuster is because they did not like how well Blockbuster negotiated against them when the video rental business first started.

Now, if you define yourself as in the entertainment business, you might be prone to do many of the things Blockbuster has done in the past few years (try to align with Radio Shack, try to imitate Netflix, look into non-conventional media delivery ideas, etc.). Unfortunately, these moves have not produced very good results.

However, what if Blockbuster had defined itself as being in the neighborhood retail business? Perhaps then they would have considered other ways to leverage that retail infrastructure:

1) As a convenient pick-up point for packages purchased on the internet (so that they are not vulnerable to theft off your porch while you are at work).

2) As a convenient pick-up point for groceries ordered on-line (a place that can keep the cold items cold until you can get around to picking them up).

3) A convenient drop-off or pick-up point for items like dry cleaning, shoe repair, selling things on EBAY, etc.

Blockbuster could have focused on making deals with all sorts of non-media people and converted those stores into THE place to coordinate and protect all my neighborhood needs until I am ready to pick them up. Instead, they have been taking one of their most valuable assets—their dense network of neighborhood stores—and destroying it by closing down stores by the hundreds.

I’m not positive that this new approach would have saved Blockbuster, but I do know that their choice in how they defined themselves put this type of thinking out-of-bounds. Definitions impact decisions. Be careful in how you handle your defining moment.

SUMMARY
The way you define your business impacts the way you think about your business. This thinking them impacts how you act. The best strategic actions tend to take place when that definition avoids the extremes of being either too broad or too narrow as well as matching the definition with the key culture and skill-sets.

FINAL THOUGHTS
The defining moment can often be iterative. It may start out broader until the right strategic path is discovered. Then the definition may be narrowed a bit more around that strategic path.

Strategic Planning Analogy #290: Strategy is A Location

THE STORY
What if we thought of our mental condition as being like a location on a map? Then, if someone said “I am in a state of confusion,” we could just tell them to “Get in a car and drive to a different state, like the state of Contentment.” The United Mental States of America could have all sorts of interesting states. I think we already have a lot of politicians from the state of Denial.

Just think of how much money you could make selling maps showing the best path for getting from a bad mental state (like the state of Despair) to more desirable locations (like the state of Bliss). Wait a minute! Isn’t that basically what travel agencies do? Isn’t that what all those psychological self-help books try to do? Is Dr. Phil nothing more than just a seller of maps?

Continuing with this idea, if someone said “I think I am going crazy,” you could reply “How can you be going to a place where you already live? You’ve been in the land of Crazy for years.”

THE ANALOGY
Strategic planning tends to deal with a lot of abstract concepts. This is particularly true when it comes to strategic positioning. To make these abstractions easier to understand and work with, it can be useful to follow the example in the story.

In the story, the idea was to take abstract mental conditions and treat them as physical locations on a map. In the same way, I think there are benefits to looking at the abstract concepts of strategic planning as if they were positions on a map.

THE PRINCIPLE
The principle here is that strategies may be easier to understand and create if we think of them as being a location. In fact, there are three different ways to apply this principle.

1. Strategic Success Depends Upon Locating Yourself Properly on the Consumer’s Mind Map
Consumers act based on how they think. Hence, if you desire a certain consumer behavior, one needs to first get the consumer to think in a particular way about that behavior. In other words, you need to locate your product or brand in a specific location in the consumer’s mind if you want your strategy to succeed.

Where is that ideal location in the brain? It will vary based upon your strategy, but all successful locations will address the three S’s. The first S stands for “slot.” Different parts of the brain are used, depending upon the type of problem the brain is trying to solve. One of your first strategic tasks is to decide what problem your product is trying to solve.

Perhaps you are trying to solve the problem of “what’s for dinner?” Or maybe you are trying to solve the problem of preparing the customer for retirement. Then again, the problem could be trying to lower the cost to run your client’s factory.

There are all sorts of problems to choose from. As part of your strategy, you need to choose the problem you are trying to solve. And I don’t mean an internal problem like “How can I make my company more profitable?” The problem is to be a problem held by your potential customer. This is an important decision, since if you cannot help a consumer with a problem, then you have no relevancy to that customer.

Once you have chosen the problem, you need to make sure that your brand/product is “slotted” into the location of the consumer’s brain concerned with that problem. In other words, whenever that problem turns up for that consumer, you want your name to fire up in that part of the brain. This is done by communicating in a manner which continually associates your brand with that problem.

For example, Crest has spent decades associating its toothpaste brand with the problem of cavity prevention. It is now solidly slotted in the brain, so that when the problem of cavities comes up, the brain immediately thinks of Crest.

The second S is “solution.” Your strategy needs to provide a solution to that problem. What is it about your product/brand that makes it capable of solving that problem? Again, there are often many ways to solve a problem. You have to choose one.

This solution choice includes both the process and the performance. By process, I mean the general approach to solving the problem. For example, if the problem is weight loss, the choice of process could include exercise, diet, surgery, pharmaceuticals, hypnosis, and many others. By performance, I mean the type of attribute emphasized in the process you choose, such as being fastest or cheapest or most comprehensive, etc.

The third S is for “superiority.” It is not good enough to just be located in the brain where the problem is being addressed. You need to be seen as the superior solution to the problem. In Al Reis and Jack Trout’s excellent book Positioning, they refer to this as being a rank ordering, like rungs on a ladder. You want your brand to own the top rung (the best) in the mind of the consumer. So, another role of strategy is to locate your brand on the top rung on the problem ladder. You have to have a convincing argument (both rationally and emotionally) for why you should own that location.

Whenever I work with someone on developing a strategy, I usually end up at some point asking the question “Why should a customer prefer your product over all the other options?” If you have difficulty answering that question, the consumer probably has even greater difficulty coming up with an answer. And if you are not perceived as being the best alternative, they will choose someone else.

For example, for the problem of dependable transportation, Toyota has firmly cemented itself to the top rung location. It is perceived as best at automotive dependability. Through years of effort, Toyota has created a strategy which gives them ownership of that location in the brain of most consumers. They are slotted as the superior solution.

To summarize, your strategy needs to develop a superior means of solving a relevant problem and then place that information on the top rung in the relevant problem-solving location in the consumer’s brain.

2. Strategic Success Depends Locating Yourself Properly on the Competitive Map.
A strategic position is not created in a vacuum. The position plays itself out in the competitive marketplace. You can think of this marketplace as being like a map. Each competitor has a location on that map. The viability of your strategic position depends in large part on where you are on the map relative to everyone else.

For example, let’s say that you are a retailer with a strategy is based on owning the low price solution. Your ability to own the low price position depends a lot on your location on price versus competition. Wal-Mart recently has started a number of price wars in areas such as toys, books and DVDs. As long as Wal-Mart is driven to be closer to the lowest possible price location on the map than you are, you cannot own the low price position, no matter where you set your prices.

So when creating the action plan for your strategy, do not think primarily in terms of absolutes. Instead, think in terms of relativity—where you are relative to others on the map. In other words, if you want to own quality, it is not good enough to just set a high absolute quality level. You need to have higher relative perceived quality than the competition. That can be a moving target.

Often times, it is best to locate yourself on the competitive map is a place that is relatively empty. For example, if everyone else seems to be fighting for space on the quality area of the map, you may be better off going to the price area of the map, which is more wide open. The lest contested a space, the easier it is to own in the mind of the customer.

Right now Chevrolet is trying to convince people that it has the highest quality, most fuel efficient cars available. That is a hotly contested space, already owned by Toyota and Honda. Chevy will have a hard time unseating those entrenched positions. It would have been better off trying to go after a less contested space.

Although Ford would also like to be seen as high quality and fuel efficient, its approach has been less of a direct assault on Honda and Toyota. Instead, Ford is trying to establish itself with superiority in high-tech enhancements. This space is less contested on the competitive map. Once Ford owns this space, it can use high-tech superiority as a justification for a secondary claim at superiority in quality, safety and fuel economy (caused by unique technology).

And when you are building this competitive map, make sure you include every competitor attacking the same problem. For example, if the problem is weight loss, you need to include every process aimed at that solution. You may claim to be the fastest exercise solution for losing weight, but if there is a pill you can take that works a lot faster at losing weight than any exercise, you have not really captured the “speed” space on the map.

3. Strategic Success Depends Upon Locating Yourself Properly on the Map of the Future
Strategy is often about creating a better position in the future than you have today. It is often easier to communicate where you want to take the company if you can visualize that future state on some sort of map. Then, not only can you show the desired future location, but also today’s location and the path you must take in order to get from the one to the other. The mind map or the competitive map may be good templates to show the new destination and transition path to get there.

SUMMARY
Complex concepts can often be better understood, worked with, and communicated if thought of visually—like positions on a map. In strategy, some of the more useful maps would be a consumer mind map, a competitive landscape map, and a future map.

FINAL THOUGHTS
If your strategy cannot be easily translated into a visual map, then it is highly likely that your troops will get lost in strategy execution (and you will not reach the desired destination).

Strategic Planning Analogy #289: Basic Training

THE STORY
Many people have stories about the terrible ordeal they went through in Army basic training (also known as Boot Camp). They tell about how the Sergeants yelled at them unceasingly and how the Sergeants tried to punish and humiliate them in front of the others.

When my son went through basic training, it was relatively painless. The Sergeants pretty much left him alone. I asked him how he was able to do that. His response:

“I quickly found out that there were two groups of people that got picked on. One group was the laggards, who were having trouble keeping up with the rest. They were yelled at to get them to work harder.

“The second group was those who excelled much better than average. They were yelled at to break their egos. The ones in the middle were pretty much ignored. So I tried to be in that anonymous middle at everything we did.”

Leave it to the army to make “aiming for average” a virtue.

THE ANALOGY
One of the key factors to consider in business decisions is risk. Typically, we try to develop strategies that minimize risk (relative to the reward). Even if we cannot eliminate risk, we try to find ways to manage it so that we are best prepared to withstand it.

My son found a way to minimize/manage the risk of punishment and humiliation in the army. He noticed that the risk increased the further he varied from normal, average behavior, either in a positive or negative direction. By hiding in the middle, with the masses, he could avoid a lot of that punishment and humiliation.

This same principle is true in the business world. As we will see later in this blog, many of the most dangerous risks to your business are at the points where you are the most unlike your peers. There is more safety in the anonymous middle.

THE PRINCIPLE
The principle here is that we need to keep a careful eye on those points in our strategy where were stand out from the crowd, because that can often be the source of some of our greatest risks.

Think, for a moment, about the recent financial crisis. At first, the US government thought that the crisis would only impact the outliers who were overly aggressive in the problem mortgages. Therefore, the government was willing to let Lehman Brothers fail, because it was thought to be a rare outlier. However, once it was determined that the financial crisis was going to devastate the anonymous middle of the financial world, the US government put into action a massive bailout program to try to save as many as possible.

By staying in the middle, the risk was minimized. They got a bailout. But Lehman, by appearing to be a little more aggressive, was allowed to fail.

Or let’s suppose that most of the companies in your industry are headquartered in Country A. You are unusual in that you are headquartered in Country B. In your industry, there are many transactions between Country A and Country B. As the currency exchange rate between the two countries vary, it impacts those inter-country transactions.

For the majority, who are all headquartered in Country A, the currency risk is relatively small. Since they all have the same problem, they can adjust fees to compensate and still make about the same amount of money and still be competitive with all the others headquartered there. However, because you are headquartered in Country B, the exchange rates have the opposite impact on your business. When you adjust, you are out of sync with everyone else—sometimes for the good, sometimes for the bad. Your difference in location increases your exchange risk relative to your competition.

In October of 2009, McKinsey & Company released a paper on managing risk. One of the points made in that paper was that some of the largest risks to your business [what they call risk cascades] come at the point where you are the most different from your competition. To quote the paper:

“Companies are particularly vulnerable to this type of risk cascade when their currency exposures, supply bases, or cost structures differ from those of their rivals. In fact, all differences in business models create the potential for a competitive risk exposure, favorable or unfavorable.”

This creates an interesting dilemma. Most of the writings on strategy emphasize the benefits of differentiation. They explain that it is what makes you different that provides the opportunity to become superior in some way to some segment. To quote Michael Porter, “Strategy is about making choices, trade-offs; it's about deliberately choosing to be different.” I talked about this in greater detail in an earlier blog.

Yet, this same benefit from differentiation also increases your risk. My son avoided risk in army basic training by avoiding differentiation. Yet we, as strategists, know that this is not an option for us if we want to excel.

That is why the McKinsey article goes on to say, “The point isn’t that a company should imitate its competitors, but rather that it should think about the risks it implicitly assumes when its strategy departs from theirs.”

You may currently be taking comfort in the elaborate and sophisticated strategy you have put in place. However, a small detail, such as being located in the wrong country, could create a currency risk that puts that entire strategy in jeopardy.

Therefore, when looking for points of risk vulnerabilities, don’t just focus on the grand design of your strategy. Look for the little details where you stand out from the anonymous middle.

Perhaps you are a little more labor intensive, or a little more capital intensive, or you rely on a different set of suppliers. Whatever it is, that little difference puts you at odds with the rest of the industry. That means that when there are corresponding market shifts in labor costs/availability, capital costs/availability or supplier costs/availability, you are effected more than the rest of the market, because you have more at stake.

If you are in the anonymous middle, you adjust similarly with everyone else on these issues and get by. You might even get a bailout. But if you are an outlier, watch out, because that difference can radically decrease your competitiveness when changes occur.

It is impossible to keep track of every issue that could possibly impact your business. There aren’t enough hours in the day. As a result, you need to prioritize. Near the top of that priority list should be the issues which arise out of the points of difference in your strategy.

SUMMARY
Although differentiation is a key aspect of a great strategy, it is also a key source of risk. Since we do not have the option of avoiding differentiation in strategy, we do not have the option of avoiding the added risk inherent in that point of differentiation. Therefore, a business’ risk-assessment process should prioritize a focus on the risk factors closely associated with their points of differentiation.

FINAL THOUGHTS
Although it is true that there is “safety in numbers,” it is also true that nothing great ever happens unless you go against the crowds. Hence, risk cannot be avoided if you seek greatness. So rather than avoid it, accept it and manage it.