Tuesday, September 12, 2017

Strategic Planning Analogy #572: Outcomes Vs. Objectives


THE STORY
There is a company I know of that desired two outcomes. First, they wanted a product mix skewed towards new products. Second, they wanted high returns on their investments.

So this company turned these desired outcomes into their goals. Then they set metrics around these goals in order to encourage compliance in new products and high returns.
Here’s what they got:
  1. In order to meet the metric of having a high percentage of their products being new, the management discontinued a number of very viable and profitable older products, merely because they were old.
  2. When they looked at the risk profile of their portfolio, they discovered that the riskiness had skyrocketed. As it turns out, high returns tend to come from high risks. By bypassing wonderful projects that would have exceeded their capital to focus on only the highest return options, they horribly skewed their riskiness.

So even though the company tried very hard to focus on the right outcomes, they created an environment which ironically created the wrong outcomes.

THE ANALOGY
Desiring great outcomes is a wonderful thing. There is nothing wrong per se in wanting lots of new innovations and having high returns on investments.

The problem occurred when this company turned their desired outcomes into company objectives.
Objectives are the things you want people in the company to do. Outcomes are net results of what happens in the marketplace based on what you did.

Objectives and outcomes should not be the same thing. When companies try to make them the same thing, they end up like the company in the story: They get lousy objectives and undesirable outcomes.

This distinction is critical for strategic planning. Strategic Planning tends to have a great deal of influence on what are the outcomes and objectives pursued by the company. If strategic planners get this wrong and make them the same, the company is doomed to repeat the errors in the story.

THE PRINCIPLE
The principle here is that if you want great outcomes, you need to have objectives which are different than the outcomes.

Why it’s Wrong To Make Higher Profits an Objective
Let me give you an example. Let’s say you want an outcome of higher profits. In most cases, that is a good outcome to desire. However, the best path to higher profits is rarely to make higher profits your objective.

Here’s what typically happens when you make profits your objective.
  1.       A group of managers go crazy on cost reductions. They’re so busy cutting costs that they ruin your quality or ruin your service or stop investing in the future or have product shortages or miss deadlines, etc.
  2.       Another group tries to get incremental sales at any cost. This usually results in unprofitable price wars, actions which alienate core customers, trying to be a one-size-fits-all solution which results in being a never-the-best-solution-for-any-customer solution, etc.

The problem is that higher profitability is too abstract and too numerical. It leads people to work on moving the numbers rather than doing the things that actually lead to higher profitability. In most cases, enduring higher profits come the following types of activities:

  1.        Having a superior solution to what is being offered in the marketplace.
  2.        Having a unique business model which produces this solution in a way that is both better than other people’s business models AND is difficult for the competition to imitate.
  3.       Having superior access upstream to suppliers/partners and superior access downstream to distributors/customers.
  4.       Having the best employees.
  5.       Having a clear and simple message as to why your offering should be preferred as well as an organization focused on being the best at delivering on the promises of that message.

You don’t see the word “profitability” in any of those activities. However, if you want enduring profitability, these are examples of the types of activities you should be focused on. Therefore, if you have higher profits as your desired outcome, don’t also make it your objective. Instead center your objectives around tasks like those in the second list.

Have the Metrics Match the Objectives, Not the Outcomes
It is a well-known fact that people tend to focus on achieving the metrics which trigger their rewards. If your metrics are focused on the outcome, then you will get the mess we saw in the beginning story. However, if you focus the metrics on the objectives, then you will get people working on the very activities which lead to your desired outcomes.

Yes, I know that outcome-related metrics are typically much easier to set and to measure. Profits are a lot easier to measure than the superiority of a business model. But just because it is easier to do doesn’t make it right.

As we saw in the story above, when you measure “% of product sales that come from products less than 5 years old” you get people eliminating great products merely because they are more than five years old. Although this metric sounds like your outcome, it does not achieve your outcome.

To get the desired outcome, you may need measurements focused more on objectives. It could be something like “the number of products in the innovation pipeline today that are successful launches over the next two years.” Yes, that is a much messier metric, but it gets closer to the core of what you really want people to do to ultimately achieve your outcome.

I worry about this point a lot, because these days a lot of strategic planning departments are housed in finance. Finance people have a natural inclination to want to measure outcomes. That is what a CPA is trained to do. But is the absolute wrong thing for a strategic planner to do. They need to measure the inputs—the things that create the great outputs.

If you are measuring outputs as your metrics, not only are you measuring the wrong things, you have the wrong time frame. By the time you have the outcomes, it is too late. You cannot have any strategic impact on them. Once you know the profits for the year, it is too late to improve them. That’s why you need to measure the tasks or objectives which impact profits.

Wells Fargo
Wells Fargo recently got into a lot of trouble because they did not heed the advice of this blog. Wells Fargo desired the outcome of having a lot of customers with multiple accounts. There are many reasons why this can be a very good outcome. It creates economies of scale and it makes customers a lot stickier (harder for them to leave).

The problem occurred when Wells Fargo made getting customers into multiple accounts the company objective. By placing the major incentives around creating multiple accounts, employees did whatever it took to get those accounts established, including the creation of millions of accounts without the authorization of the customer. The end result was executives losing their jobs, destruction of the quality of the brand name, significant losses (customers and profits), etc.

Instead of having an objective be to create a lot of multiple accounts, the objective should have been to so be in tune with their customer’s needs and desires that the customers willingly want to sign up for those multiple accounts. That could include measuring activities like:

  1.       Finding out what types of additional products the customers want.
  2.       Coming up with more efficient ways to create and deliver these products than other alternatives.
  3.       Making sure the benefits of bundling for the customer are clearly superior to the customer getting these services from multiple suppliers.
  4.       Making sure the portfolio of offerings is consistent with the brand and improves the brand (and does not confuse the customer as to what the brand Wells Fargo stands for).
  5.       Making sure people are not turned away from Wells Fargo due to heavy pressure sales.


SUMMARY
Outcomes and objectives are both important to a business. But that doesn’t mean they are the same thing. Objectives are what you want people to do. Outcomes are the results in the marketplace based on what you have done. Ironically, if you want to achieve your outcomes, you need to develop objectives which are different from your outcomes. And this includes developing your metrics around objectives rather than outcomes. If you don’t, people will chase the wrong numbers in the wrong way and destroy the business.

FINAL THOUGHTS
Getting a company to properly grasp the difference between outcomes and objectives may be the single most important thing a strategic planner can do. I guess we can put that on their list of objectives.

Wednesday, November 30, 2016

Strategic Planning Analogy #571: Creators Vs. Craftsmen



THE STORY
Back in the early 1970s, pianist and composer Claude Bolling had the original idea of recording an album that was a mixture of classical and jazz music. It was to feature Bolling on piano accompanied by someone on flute (with drums in the background).

Bolling was fortunate to get Jean-Pierre Rampal to play the flute part. Rampal was considered to be one of the very best (if not THE very best) classical flute players of his generation.

Bolling showed Rampal the basic music and asked Rampal to do some jazz improvisation around it, like bending the notes or modifying the rhythm. It was reported that Rampal was a gasp at the suggestion and replied something like this:

“I am the world’s greatest flautist and will play your music to perfection. But I do not improvise. If you want me to play in such a manner, you will have to write it into the music.”

So Bolling meticulously incorporated “improvisation” into the musical score. Rampal played it as written and it sounded like improvisation, even though it was anything but.

The album was released in 1976, called “Suite for Flute and Jazz Piano Trio.” It topped the charts for about two years and stayed on the Billboard sales list for 530 weeks (nearly 10 years). It became one of the largest selling albums ever released on a classical music label. Little did most people know that the great jazz parts on flute were not improvisations, but just excellent technical reproductions of a musical score.


THE ANALOGY
You’d think that all great musicians would be great creative artists. After all, what is more creative than music? Well nothing could be further from the truth. Jean-Pierre Rampal was not creative with his flute. He could only play what was put in front of him.

Yes, Rampal was the best at playing the classical flute, but that does not make him creative. It just meant he was a great craftsman. He mastered the craft of playing the flute. That was an excellent skill..but it was not creativity.

Compare Rampal to Ian Anderson, the flute player in the band Jethro Tull. Anderson may not have had the same level of technical craftsman skills as Rampal, but he had extreme levels of creativity. Anderson can get creative sounds out of a flute that virtually no one had done before him. Anderson also wrote all the original music he performed. Anderson was a true creator.

I’ve known many musicians over the years. Many of them are great at their craft, but only a few are what I would consider to be musically creative.

The same is true in cooking. There are people who are excellent at the craft of cooking and can prepare great meals. However, all they can do is follow a recipe. Yes, they follow it to perfection, but they have no aptitude for creativity in the kitchen. Others, can go into the kitchen without a recipe, look at the ingredients in front of them and invent a marvelous new dish from their creative mind. This second type of cook is harder to find.

The point here is that we should never assume that just because someone can do a job at high levels of perfection that they are naturally creative. He or she might just be a great craftsman. Creativity is something very different and the most creative ones may not have the best skills at performance.
This is especially true in the world of business. Top performers in their fields—like operations, sales, accounting, and personnel—may have excellent skills in their particular craft, but in all likelihood, they are not the most creative ones in their organizations.  

Part of the strategic planning process requires creativity. If you load up the strategic planning team with your top performers, you may only end up with a bunch of craftsmen…great people, but not the ones that can invent a truly creative strategy. They could all be like Jean-Pierre Rampal, ready to execute with perfection, but waiting for a creative Claude Bolling to put the notes in front of them. 

Make sure you look beyond excellence at a craft and enlist some of the more creative ones in your organization to help with strategy.


THE PRINCIPLE
The principle here is that the complete strategic planning process requires a variety of skills. Therefore, you need to seek out a variety of people to work on the process. Otherwise, you may not get all the skills you need.

One of those skills is creativity. Your most creative ones are not necessarily your best performers. They may just be great craftsmen.

Instead, the truly creative ones may be hidden in your organization. They may not even look like your best performers. Rather than wearing formal apparel like the craftsman Rampal did when performing, they may wear shabbier clothing like the creative Ian Anderson did when performing.

The most creative ones may be among your youngest employees, without much experience. After all, your most seasoned employees may be so wrapped up in the status quo that they cannot see anything new or different. Instead, it may be the fresh face that is most likely to question the status quo and see a different way to approach the business.

Indeed, the employees at the top with the most experience are probably the ones with the most to lose if the status quo (which they have perfected as a craft) is replaced by something new (and requires new skills to execute). Therefore, if you load up your strategic process with only older, experienced people, you may end up with the opposite of creativity—resistance to change and barriers to new ideas.

No, it is the younger group that has more of a vested interest in the future and may be closer to understanding what the next generation of customers want.

As Gary Hamel says in his book, “Leading the Revolution”, if you want a revolutionary new strategy, you have to have revolutionaries on the team. Or, in Hamel’s words:

“Most companies are not led by visionaries; they’re led by administrators. No offense, but your CEO is probably more ruling-class than revolutionary. So don’t sit there staring at the corporate tower hoping to be blinded by a flash of entrepreneurial brilliance. Administrators possess an exaggerated confidence in great execution, believing this is all you need to succeed in a discontinuous world. They are accountants, not seers.”

If your corporate tower is full of craftsman administrators, you may need to look outside the tower to find your creative revolutionaries. They may be out there in some remote outpost far from corporate headquarters. They may not even be employees. Wherever they are, find them and put them on the team. The level of creativity in your strategy depends upon it.

This is not to say that unconventional creative young people are all you need to do strategy. No, you need both the Claude Bollings and the Jean-Pierre Rampals to create success.

My point is that you need a variety of skillsets to pull off a great strategy, and the skillset of revolutionary creativity may be the hardest to find. They are probably not the person in the office next door. They may not even have an office or cubicle at headquarters. In all likelihood, you probably don’t even know their names.

Therefore, if you do not take pro-active effort to seek them out, they will not be found. And that will be to your great loss.

Don’t think you can avoid the hard work of finding the creatives by hiring one of the big strategic consulting firms. My experience in working with them is that the big consulting firms probably have even fewer creative types than you do. These big consulting firms may be the most skilled craftsmen at running the process, but I wouldn’t rely on them for the big, new idea. That’s your responsibility.

Take your responsibility seriously and seek out the right mix for your strategic team.


SUMMARY
It is a mistake to load up your strategy team with only your top performers. Top performers may only be great at their particular craft. They may be lousy at out-of-the-box creativity. The truly creative revolutionaries are probably hidden in your organization. If you do not take the time to seek them out, you will miss out on their insights. That will probably result in a poor strategy. And no matter how good your top performers are at executing their craft, great execution of a poor strategy rarely leads to success.


FINAL THOUGHTS
I received an autographed copy of Leading the Revolution directly from Gary Hamel. To reciprocate, I gave him a copy of my book Fast Forward. Hamel just threw my book into a pile of old boxes, presumably to be tossed out. I guess he was not seeking to hear new voices to help with the revolution. So much for practicing what he preaches. Don’t do the same. Please put the ideas of this blog into practice.

Saturday, November 12, 2016

Why Most Strategies Fail: Reason #3

BACKGROUND

I recently saw a blog by the Cascade strategy software company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it here.

Since I disagree with their conclusions, I decided to write my own blogs on why strategies fail. I came up with three major reasons. The first reason why most strategies fail is because they are too internally focused at the expense of an external orientation. I covered that topic in the first blog.

The second major reason why strategies fail is because they focus too much on “doing” rather than “being.” That was covered in the second blog on this topic.

The third reason I feel most strategies fail is because they fall victim to the “Tyranny of the Immediate.”

PROBLEM #3: FALLING VICTIM TO THE TYRANNY OF THE IMMEDIATE
I feel so strongly about the evils in the tyranny of the immediate that on my blog site you can see links to 15 other blog entries I have done on the topic. In fact, I wrote an entire book on the topic which you can download for free here.

What is the Tyranny of the Immediate
So what is the tyranny of the immediate? Think of it as the daily fires at your business which demand your immediate attention.  It could be something like an angry customer, or a production line mistake, or a disgruntled employee, or a bad report in the media. Not a single one of these types of minor crises will permanently cripple your business. So why see them as a major source of strategic failure?

The reason is because there are so many of them. Executives typically encounter at least one of them a day. If the executive is not disciplined, he or she will find themselves totally consumed with putting out the fire of the day.  And therein lies the tyranny. We become captive to their demands on our time every single day. If getting the immediate crisis resolved captures too much of our time, then there is no time left for long term strategy.

In a sense, any strategy is worthless and bound to fail if people in the organization are such a prisoner to the tyranny of the immediate that nobody has enough time to adequately put the strategy into practice.

Successful Strategies Take Time
In the classic strategy book “Competing for the Future,” Prahalad and Hamel say:

“As a benchmark, our experience suggests that to develop a prescient and distinctive point of view about the future, a senior management team must be willing to spend about 20 to 50% of its time, over a period of several months. It must then be willing to continually revisit that point of view, elaborating and adjusting it as the future unfolds.”

Unfortunately, Hamel and Prahalad’s research found that most executives spend less than 3% of their time to building that corporate perspective of the future. It is no wonder that strategies fail when so little time is devoted to them. And in my opinion, the tyranny of the immediate is the biggest culprit causing so little time to be devoted to this core act of strategy.

Tripped Up By Distractions
That is why I wrote the book “Tripped Up by Distractions.” I wanted people to see all the subtle ways in which time and effort are stolen away from doing the work of strategy. They may only look like minor distractions, but when you add them up they can rob us of the time needed to do strategy properly. Until we tackle the distractions, we cannot build successful strategies.

In the book, I identify five major sources of distractions:
  1. Having our head down looking at individual numbers so much that we lose sight of the big picture; 
  2. Sending so much time trying to produce perfect documents or in trying to check off the items on the documents that we don’t have time to anticipate and adjust to realities surrounding us.
  3. Putting the wrong people in the wrong places doing the wrong things.
  4. Getting so focused on accumulating money today that there is no time left to strategize about how to build an enduring money-making enterprise.
  5. Spending so much time reacting to change that there is no time to anticipate change and build a strategy to take advantage of change.


Some of these look at first like innocent activities. But when you add these issues to the normal crises of the day, you can see why companies have a tendency to spend insufficient time on building and executing a good strategy.

The book then has three major recommendations of better ways to spend one’s time:
  1. Spend more time asking questions. If you ask the right questions, you can more efficiently get to the root of what is strategically important.
  2. Spend more time on broad issues rather than narrow crises. If you get the big issues right, a lot of the daily crises disappear.
  3. Change your actions. Not all activity is equally productive in tackling strategy effectively. If you keep doing what you did before (falling victim to the tyranny of the immediate), don’t expects your outcomes to get any better.

Warning Signs that Your Strategy is on a Path to Failure
So, what are the warning signs that one is falling victim to the tyranny of the immediate?
First, do a time study of what your executives do. Is core strategy work closer to Hamel and Prahalad’s ideal of 20 to 50% or is it closer to their findings of less than 3%? The lower the number, the harder it is to build and execute a successful strategy.

Second, look at what your company chooses to put as top priority regarding where time is spent. What do people get most in trouble for if they don’t spend time on it? What are the consequences if someone spends too little time on strategy? People will spend the time on that which they perceive management wants them to spend time on. Send the right message. Reward good strategic behavior. 
Punish those who fall victim to the tyranny of the immediate.

Third, is strategy work treated like a real job or more like a hobby you do on the side in your spare time? If there is never enough time in the day to do your day job, how can you expect much from tasks relegated to doing in your spare time? If you truly believe that designing and executing the right strategy is the difference between long-term success and failure, then intentionally carve out time for it. Have people on staff for whom this is their full-time responsibility Make at least some of the strategic work the day job of people.

Finally, how well do your executives delegate the little crises so that time is freed up for the work of strategy? If delegation is not occurring, then strategic work is not occurring either.

SUMMARY

Depending on which study you look at, somewhere between 60% and 90% of strategies fail. If we don’t address the deep-seated reasons why strategies fail, we will not be able to raise the percentage of strategic successes. I believe that there are three major reasons why strategies fail and my reasons do not always agree with conventional wisdom. The third reason I believe most strategies fail is because not enough time is being spent on the subject. Real success occurs when a company takes the time to get strategy right and keep it relevant. Without a proactive commitment to spend the time it takes to get strategy right, the tyranny of the immediate and a whole host of other distractions will get in the way. If your strategy is a half-hearted effort barely worked on to accomplish, you will get what you deserve: failure.

FINAL THOUGHTS

Thomas Jefferson said, “All tyranny needs to gain a foothold is for people of good conscience to remain silent.” As a strategist, it is your responsibility to be noisy and fight so that the crisis of the day and other such distractions do not become tyranny to your organization.


Friday, November 11, 2016

Why Most Strategies Fail: Reason #2


BACKGROUND
I recently saw a blog by the Cascade strategy software company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it here.

Since I disagree with their conclusions, I decided to write my own blogs on why strategies fail. I came up with three major reasons. The first reason why most strategies fail is because they are too internally focused at the expense of an external orientation. I covered that topic in the first blog.

The second major reason why strategies fail is because they focus too much on “doing” rather than “being.” That is the topic of this blog.


PROBLEM #2: STRATEGIC FOCUS ON DOING RATHER THAN BEING
In an earlier blog I started by looking at children. Children don’t talk about what they want to “do” when they grow up. No, they talk about what they want to “be” when they grow up. Strategists need to imitate children by asking what their companies want to be in the future rather than what they want to do in the future.

“Being” Keeps You Relevant
Why is a focus on “being” so important? One reason is because the world is full of change. Technology changes, competition changes, social norms change, and so the list goes on in so many areas. The cumulative impact of all of this change causes behaviors and actions which used to be right and normal to appear quaint and obsolete.

Just think of all the change resulting from the internet or the smart phone. They have turned many conventional behaviors on their head. The right behaviors before the internet and the cell phone now look so add and out of place. This is one reason why many millennials cannot tolerate watching old movies and TV shows. The activities in these old shows seem so wrong or odd from the millennials’ modern perspective that they cannot relate to them.

This is why a strategic focus on “doing” can lead to failure. If you do the “right thing” for a long enough period of time, the changing world will eventually make it the “wrong thing.” Your strategy becomes obsolete and you fail.

Just look at Kodak. It didn’t matter that Kodak perfected the way to do analog film. Digital imaging made that type of doing obsolete. A strategy that finds the best way to do something is worthless when customers no longer want you to do it.

That is why focusing on “being” is so much better than a focus on “doing.” “Being” transcends a changing environment. For example, if instead of focusing on “doing” film, Kodak had focused on “being” the best solution for capturing memories, it could still be a thriving company today.

There is always a need to capture memories. The best solution may vary over time, but a solution will always be needed. If you focus on the big picture of what you want to stand for in the marketplace (your choice of what to be), you will remain relevant. By contrast, if you focus on what you want to do, you will become irrelevant.

Example: Wal-Mart
Over the decades, Wal-Mart had had a relentless focus on what it wanted to be. It’s founder, Sam Walton, wanted the company to be the best at offering retail value, starting first in rural communities.  Back in the 1950s the best way to “do” that was with variety stores. So Sam Walton operated Walton’s variety stores.

By the late 1950’s Walton could see that discount stores were becoming a superior solution for being the best at offering retail value, so he abandoned doing variety stores and began to do Wal-Mart discount stores.

In the early 1980’s it looked like warehouse clubs could be an even better way to be the best value provider, so in 1983 the first Sam’s Club was opened. By the late 1980’s Walton could see that supercenters had the potential to be a better value than either discount stores or warehouse clubs, so he stopped doing discount stores and started doing supercenters.

Now, shopping by smart phone appears to consumers as the best value, so Wal-Mart is pushing very hard to become a major player in that space.

Through it all, Wal-Mart has changed many of the ways they have done things. But it has stayed true to what it wanted to be: the best value in retail. By focusing on the being rather than the doing, it has survived around seven decades, whereas most of its competitors (who focused on doing) during that time have disappeared.

“Being” Increases Preference
Nearly every wildly successful brand creates a meaning and purpose which transcends the current product offering. It is this added purpose which causes customers to want to identify with the brand. 

As we talked about in the prior blog, successful strategies create natural preference without resorting to bribes. When your company becomes something grander that customers want to be identified with, they will prefer your brand and pay a premium to do so.

Think of Nike. It does not make shoes. Others own the factories and do the work.  Nike focused instead on being the embodiment of what is aspirational in athleticism. Anyone wanting to identify with that aspiration became attracted to Nike and was loyal to them.  That strategy allowed Nike to successfully expand into many athletic areas beyond shoes while charging premium prices.

BMW’s success is not due so much to “doing” automobiles as to “being” the purveyor of “the ultimate driving machine.” Everything BMW does is focused on this higher level of being. Those desiring to be associated with that type of being flock to BMW and pay a premium for the privilege.

Apple’s success has far more to do with the being it represents than the products it offers. It became the essence of coolness and hipness. Those who also wanted to be seen as cool and hip flocked to Apple.

This is not just a consumer products thing. Back in the days of the big mainframe computers, IBM won the day. It was not just because IBM was good at doing mainframe computers. It was that they created this aura of professionalism and service which transcended the product. It impacted everything all the way down to the professional-looking dress code of the service technicians who came to the customer’s building for repairs.

IBM executed becoming this sense of being professional and reliable so well that there was a saying back in those days that “nobody ever lost their job recommending IBM” for their company. It was the brand IT professionals wanted to be identified with.

Being Needs to Influence Everything
As IBM and other successful brand show, strategy focused on being is a lot more than just a clever slogan or public relations. It has to become a consistent way of life for the entire organization. The corporate culture has to have a similar sense of being. Every facet of the business has to reflect that sense of being, from product design to customer service to how the brand interacts with society.

Steve Jobs made sure everything in every area of what Apple did lived up to what the brand wanted to be. Similarly, there is no tolerance at BMW anywhere for something that is not driven towards being the ultimate driving machine.

These companies show that success comes not from a completing a list of tasks but from an integrated approach aimed at becoming something with a much higher purpose that permeates the essence how a company sees itself. This goes well beyond just a check list of tasks. It is an exercise in identity management.

Dire Consequences When Strategy is more about Doing than Being
When doing dominates strategy, activities are drawn towards performance metrics rather than how a company is perceived. As long as you do what it takes to meet the performance metric, you are rewarded. Unfortunately “what it takes” can destroy who you are.

For example, Wells Fargo got so focused on the task of doing more multiple account activities that it lost sight of its role to be a financial institution preferred by its customers. The result was that Walls Fargo angered its customers by opening many accounts in the customers’ names without their approval. Now they have a big mess to clean up.

Similarly, Volkswagen got so hung up on doing whatever it took to get good diesel mileage ratings that it resorted to lying and cheating. This severely damaged Volkswagen’s ability to be the type of company customers want to identify with. And now they are paying a steep price (in both money and image).  

Warning Signs that Your Strategy is on a Path to Failure
So, what are the warning signs that one is more focused too much on doing rather than being?
First, how seriously do you take your business mission? Do you even know what you want to be? Does your mission explain a higher reason for being that customers will want to identify with or is it just some clever phrase? Does the company try to live out the mission or is it just meaningless rhetoric?

After the collapse of Enron, I talked to many former employees looking for a job. They all said that Enron had a business mission paper explaining the essence of what Enron wanted to be. It was called RICE and it stood for Respect, Integrity, Communications and Excellence. However, they also said that Enron totally ignored this paper.

Instead, Enron became one thing: a place for doing whatever it takes to increase short-term stock price. The incentives all hinged on doing that one thing. So that is what people did. At the extreme, it became illegal stock manipulation.

This leads to the second warning sign: what do you measure? Wells Fargo, Volkwagen and Enron were measuring an activity (adding cross accounts, increasing fuel economy, raising stock price) rather than measuring how their being was perceived in the marketplace. This destroyed their strategy.

That is why I see KPIs as a necessary evil rather than a salvation for strategy. KPI’s tend to focus on doing, because doing is easier to measure and attribute to an individual. Too many and too much focus on these doing-related KPIs lead to the problems at Enron, Wells Fargo and Volkswagen.
Instead, we need more measurement tools that look at how we are managing our image and sense of being that we want customers to identify with.

The third warning sign is how a company reacts to the changing environment. Does it change with the environment so that its being remains relevant (like Wal-Mart) or does it stick with improving the old process and become obsolete (like Kodak)?

A fourth warning sign is a strategic process where corporate culture is not integral. As the saying goes, “culture eats strategy.” Ignore culture at your own peril.


SUMMARY
Depending on which study you look at, somewhere between 60% and 90% of strategies fail. If we don’t address the deep-seated reasons why strategies fail, we will not be able to raise the percentage of strategic successes. I believe that there are three major reasons why strategies fail and my reasons do not always agree with conventional wisdom. The second reason I believe most strategies fail is because the strategic effort is too focused on doing rather than being. Real success occurs when everything about a company reflects the reason why customers would want to identify their sense of self-worth with the identity of your brand. This requires a strategy that is rooted in knowing what your represent (your sense of being) and what type of culture is needed to personify it. Otherwise, employees will do the activities that boost personal gain and destroy the brand and the strategy behind it.

FINAL THOUGHTS
If you don’t look in the mirror, you won’t know how attractive you are. A key role in strategy is to be the mirror, so that the company can see how attractive it is becoming to its customers

Thursday, November 10, 2016

Why Most Strategies Fail: Reason #1


BACKGROUND
This week, I saw a blog by the Cascade strategy software company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it here.

The title lured me in. However, after reading the article, I was completely dissatisfied. I so fundamentally disagreed with almost everything said in the blog that I wanted to write back as to why I felt the blog totally missed the point.

However, because we approach strategy in such fundamentally different ways, I couldn’t find any common ground from which to start. It was as if we were from different planets speaking a different language.

Therefore, I will just write my own set of blogs on why I think most strategies fail. It boils down to three things. I will devote a separate blog to each reason.


PROBLEM #1: STRATEGIC FOCUS IS TOO INTERNAL
For a strategy to succeed, it must succeed in the external marketplace. It is out in the world, where the customers and the competition are, that you have to win acceptance. If the consumers vote for your competition, you lose—no matter what internal goals you have achieved. Too much internal strategic focus at the expense of external focus misses the point and often leads to failure.

The Most Important Question
Therefore, strategy needs to start in the external world by asking this question: Do you have a reason why customers should naturally prefer you over the competition? In prior blogs (here and here) and in a book, I referred to this as The Most Important Question.

There are three key concepts in this question. The first is the idea of “preference.” A good strategy provides a reason to be preferred by a meaningful segment of the population. This means that you perceived as providing a superior solution to an important problem faced by the customer—a solution worth choosing over other alternatives. Does the foundation of your strategy start with a compelling reason for being preferred by the external marketplace? Do you even know what problem your offering is even trying to solve and what others are doing to solve that same problem?

The second key concept in this question is “natural.” A natural preference is a preference rooted in the attributes of the value proposition. It is not artificially added on top. It is naturally embedded in who you are and what you offer. If you do not have a natural reason to be preferred, then you will be perceived as offering a commodity—no better than anyone else; no reason to be chosen over the others.

In the world of commodities, you cannot create preference naturally. Instead, you have to add incentives—or what I like to call bribes—in order to create artificial preference. These bribes can be lower prices, free add-ons, or other gimmicks to create the excitement that your commodity offering cannot do on its own. The problem with these bribes is that they suck the profitability out of your offering. And since competition can usually copy these external bribes, you end up in a downward spiral to bankruptcy.

So, if you have to resort to bribes to create preference, you strategy is a failure from the very beginning.

The cell phone networks in the US are a perfect example of this. The top firms (Sprint, AT&T, and Verizon) have not done a very good job of creating a natural preference for their network over the alternatives. To many, they are pretty much the same commodity, offering similar phones, similar coverage and similar services. The fact that there is so much switching between the firms indicates a lack of reason for preference.

Since there is little natural preference, these mobile network firms use a lot of bribery tactics to win customers, such as with price incentives and free features. These bribes often have only a temporary impact on preference, since the others copy the incentives. The only long-term impact is a reduction to profitability potential. Without the profits, long term success is threatened.

This is why AT&T is trying to buy up all the content companies. It is an attempt to create a natural preference rather than a preference via bribes.

One way to know if you have created naturel preference is to ask the market if your offering would be missed if removed from the marketplace. If alternatives work so well that you are not missed, then you have built a strategy that has no reason to succeed, no matter how well it is executed. I dare say that most companies fail because they never created a strategy that gave the market a reason to want you to succeed.

The third key concept in the most important question is “consumers.” It doesn’t matter whether or not I like my product. It doesn’t matter if independent testing says my product is superior. What matters is the consumer perception of my product. Theirs is the only opinion that matters. Strategies succeed or fail in the mind of the customer. How much of your strategic plan is focused on the mind of the consumer?

The Rise of the CMO
In my opinion, the beginning of the demise in the prominence of strategy was when businesses created the position of Chief Marketing Officer (CMO). The CMO was given responsibility for the external marketplace factors. It was snatched away from strategists. This created a number of disastrous outcomes.
  1. It forced strategists to only work in the realm of internals—things like financial outcomes, project management and maintenance of the metrics of performance measurement. These are all a waste of time if your strategy is not rightly rooted in building natural preference in the marketplace. So the strategists could no longer control the key to strategic success.
  2. CMOs really only have significant influence over bribes, like pricing and advertising and consumer gimmicks. They really don’t have much influence over how the company fundamentally functions in order to create a natural preference. Therefore, instead of focusing on natural preference, CMOs turned the company’s focus towards bribery. This ruins the essence of strategic success.
  3. Although CMOs have lofty job descriptions with long-term goals, if you look at what most of them spend the majority of their time on, it is short-term advertising. Short-term advertising so consumes their schedule that they never get around to giving the long term marketplace the attention it needs. Because traditional strategists were almost exclusively long-term oriented, they were able to do a better job of making sure the long-term strategy could overcome short-term concerns (more on this when we get to the blog on reason #3 for why strategies fail).

Warning Signs that Your Strategy is on a Path to Failure
So, one of the first places I would check to see if your strategy is likely to fail is the balance in the strategy between internal and external orientation. If your strategy (and the process behind it) has too much of an internal focus, your strategy will probably fail. By contrast, winning strategies tend to be far more externally focused on the marketplace.

Here are some clues that your strategy is too internal:

First, are most of your strategic goals focused on “What’s in it for me?” or are they focused on “What’s in it for my targeted consumer group?” “What’s in it for me” goals are things like:

1.      Profitability Goals
2.      Growth Goals
3.      Shareholder Return Goals

These all may be nice things, but they are outcomes, not strategies. They do not tell you how to achieve them. There are lots of ways to increase profits or growth in the short term that will destroy a company in the long-term. In fact, often the fastest way to achieve internal goals in the near term is to screw your customers and give them no reason to prefer you over the long term.

As a general rule, if you get the external marketplace issues right, the internals tend to take care of themselves. However, if you only look at the internals, there is no guarantee that the externals will survive. A lack of external orientation in your goals often leads to failure.

A second warning sign is how you are measuring success: Are you mostly measuring what is going on inside your buildings or are you measuring what is going on in the minds of your customer?   Keep in mind that the perfect internal execution of a strategy which is seen as irrelevant in the mind of the customer is a waste of time and a certain path to failure. So measure what really matters.

Look at your KPIs (Key Performance Indicators). Are they mostly measuring internal achievements or external marketplace achievements?  Unless your strategy is making an impact on the marketplace, your strategy is worthless. Therefore, load up on KPIs that measure what’s happening out in the market where results really matter the most.

A third warning sign is to look at what your strategists focus on. Are they mostly focused on internal issues like financials or project management or KPI management? Again, these are nice things, but they are not the essence of what makes a strategy successful. Successful strategies put a company in a position where they can win in the marketplace.  If that is not job #1 for your strategists, then why should you expect to ever win in the marketplace?

I could say more on KPIs, but I will save that for the next blog, which will focus on the second reason why most strategies fail.


SUMMARY
Depending on which study you look at, somewhere between 60% and 90% of strategies fail. If we don’t address the deep-seated reasons why strategies fail, we will not be able to raise the percentage of strategic successes. I believe that there are three major reasons why strategies fail and my reasons do not always agree with conventional wisdom. The first reason I believe most strategies fail is because the strategic effort is too focused on internal issues. Real success occurs when a company is properly positioned to win in the external marketplace. This requires a strategy that is perceived by the customer as providing a superior solution to one of their problems in a natural way. If these external concerns are not met, then all the internal manipulations are a waste of time. So, if you want to have a successful strategy, put the emphasis on the issues which have the largest bearing on success. These start with getting the externals right.


FINAL THOUGHTS
I am not trying to imply that the internals do not matter at all. They do matter…just not as much as the externals. We will be addressing the internal issues more in failure reasons #2 and #3 (the next two blogs).