Wednesday, May 30, 2007

Waffling on Research

Once a strategist was gazing at his breakfast and realized that a good strategic plan is something like a waffle. Those vertical and horizontal gridlines in a waffle form the foundational backbone of the waffle. Without them, the waffle would be thin, limp and lifeless. This grid pattern is what keeps the waffle firm and gives it substance.

This reminded the strategist of the foundational work of research in developing strategy. One could think of the vertical gridlines as research into consumer marketplace—how is the customer evolving; what are their unmet needs and desires. One could think of the horizontal gridlines as research into the external environment where the strategy must take root—trends in technology, government regulations, competition, and so on.

Within this gridwork of the waffle, one then looks for the “holes” where one can pour in the sweet syrup. The syrup represents a firm’s investment in a “hole” in the marketplace—an opportunity to serve an unmet need. Without the gridwork of the research, one cannot see the holes in the marketplace to fill.

In our last blog, we talked about the importance of preparatory work in developing a strategy. Effective strategic planning needs to be much more than just an annual off-site meeting at a resort. One needs time to do research prior to decision-making, in order to reduce risk and increase the likelihood of making wise decisions (for more information, see the blog “Strategy Takes A Holiday”).

As we can see in the story of the waffle, research is the backbone which makes it easier to find the opportunity “holes” and makes the strategy more “solid.”

The principle here is that strategy is a multi-step process based on the foundation of research. In the last blog, we discussed this on a theoretical level. In this blog we will illustrate this point with an example. The example we will use is the company Urban Outfitters.

Urban Outfitters is a retailer who builds stores around different lifestyles. It offers an eclectic mix of apparel, home goods and other items, centered around a way of life for a particular lifestyle segment. Its largest division is the Urban Outfitter brand, which serves the lifestyle needs of 18-30 year olds who are well-educated and live an urban-minded (almost Bohemian) lifestyle.

The second largest division is the Anthropologie brand, targeted towards serving the lifestyle of sophisticated and contemporary women aged 30 to 45. Anthropologie's target customers are, for the most part, focused on family, home and career, but do so in a more sophisticated fashion than many others.

After doing some research, Urban Outfitters learned that in the near future, these lifestyle segments will not be growing very rapidly. For example, they found that between 2000 and 2020, the 18-24 age segment will only grow 8.1% while the 25-44 segment will only grow 3.3%. As we discussed in an earlier blog (see “Dip Your Ladle in the Right Stew”), the best way to create a growing company is to sell growing product categories to growing segments. Since the core of Urban Outfitters is in a relatively low growth area (retailing to low growth customer segments), the firm would need to look elsewhere for growth.

One thing they found in their research was that the 45-54 age segment would be growing 35% between 2000 and 2020. Such a fact leads one to think that there may be some growth opportunities somewhere in that older segment. Therefore, Urban Outfitters decided to examine this age group in greater detail. What they discovered was the following:

1) This age group is developing a unique lifestyle, unlike the lifestyle of the younger segments and unlike the lifestyles of the previous generation of 45-54 year olds. This uniqueness is based on a combination of factors, including the fact that this is overall a much wealthier group of 45-54 year olds than in the past and the fact that these boomers are used to blazing new trails.

2) This lifestyle centers around the home. In fact, a large number of these consumers have more than one home.

3) They are interested in health & healthy living, nature & the environment, simple luxuries, and enriching experiences.

4) Nobody yet has developed a compelling retail brand offering an eclectic mix of products specifically designed to capture the mood of this emerging lifestyle.

Based on this knowledge gained through research, Urban Outfitters saw a “hole” in the marketplace—an opportunity that was not yet exploited. As a result, Urban Outfitters made the strategic decision to create a new brand to cater to this emerging lifestyle.

The research lead them to believe that the core elements of this lifestyle will revolve around a melding of an indoor life with an outdoor life. The core of the store will be an environment that evokes the feeling of being in a greenhouse. All of the senses will be stimulated. Key merchandise elements will include plants & flowers, flower pots, gardening tools, home furnishings, antiques, and food. The line between art and nature will be blurred. It will be information rich as well as inspiration rich.

The beauty of this strategic decision is that it not only found a growth opportunity in the marketplace that is underserved, but it found a segment which it can appeal to by taking advantage of the lifestyle-oriented strengths the company has mastered in its other brands. It is a great match of company and environment—a hole in the waffle perfectly designed to hold Urban Outfitter’s kind of syrup.

Of course the strategic process at Urban Outfitters is still not finished. Next comes the difficult task of bringing this idea out of concept stage into reality. Then, there is the tweaking of the concept in order to get all the details right before launching into growth mode.

However, without the basic foundation of research, this concept may have never been discovered, or it would not have been appealed to as successfully. Urban Outfitters might not have even devoted so much effort to find a new brand if they had not done the research to see the lack of growth in the core businesses. Therefore, skipping this step or research can be very problematic.

Strategy requires more than just meeting for a few days each year at some resort. It requires a number of elements including research into the external environment and one’s internal strengths and weaknesses. This research provides the foundation for a robust and strong strategy, just like the horizontal and vertical grids in a waffle provide its strength.

Although a good foundation is an essential element to a great home, it is only a small piece of the process. You are also going to need a vision of what kind of house you want to build on that foundation and method to add want walls, a roof, and so on to that foundation. I’ve known companies who are very good at gathering research data, but awful at the larger work of building and implementing a strategy.

The goal is not to see how much data one can gather, but to see how much knowledge and insight one can gain from the research. It is knowledge and insight which leads to great visions, not books and powerpont presentations full of numbers and charts. In fact, less, but more focused research may be far more valuable than reams of random data. The presentation deck to introduce the new concept at Urban Outfitters was based on research, but had only two charts in it. The bulk of the presentation was focused on the insights which came out of the research and how they can best be exploited.

No comments:

Post a Comment