Sunday, December 2, 2007

Strategic Planning Analogy #135: "Market Smart" Strategy

When I moved to Minnesota, I found out that a lot of people loved to tell jokes which made fun of Iowans. Later, I found out that the people in Iowa had the same jokes, except they changed a line so that the jokes made fun of people in Minnesota.

When I was getting my MBA at a leading school, we used to have jokes. The people the jokes made fun of were people who went to school at Harvard. I suppose the people at Harvard had jokes, too, but I don’t know who they made fun of. Pardon me, as I tell one of these stories, the way I heard it in college.

There once was this young Harvard MBA recipient who just got his first job after graduation. Every day, he would go to the large corporate headquarters and sit at his desk. He looked the part, in a nice suit and all, but he didn’t do anything. He just sat there, nice and quiet. This went on for days.

Finally, his boss came by to see why this new Harvard MBA wasn’t doing anything. The boss said, “We’re paying you a lot of money because we want to take advantage of all that training you got at Harvard. But so far you have done nothing but just sit there. What seems to be the problem?”

The new Harvard MBA replied, “I’m waiting for someone to give me a business case study to read.”

The point of the joke was that most business schools, including Harvard, have relied heavily on business case studies as part of their education process. Students are given a sizable document describing some aspect of a company, usually with lots of words and lots of numbers. The students are then expected to read the case study and be prepared to discuss it in class.

Although many principles can be taught this way, there are some weaknesses with this approach. First, the information is pre-packaged, with pretty much all of the relevant information included, and most superfluous information left out. In reality, the world is a lot messier than that. You have to go out and collect the information, and when you start, you have no idea what is relevant and what is superfluous.

Second, business cases tend to be cold and rely on packaged information. Students are only allowed to see what is in the material. Personal observations and the ability to touch and converse are gone. In the real world, one needs to use all of your senses to go out and learn about what is happening.

The same principles apply to strategy formation. The idea is not to just sit behind a desk and wait for someone to hand you a strategy. Strategies are executed out in the field. Your customers are out in the field. If you are not out in the field observing reality, you will not really know how relevant your strategic ideas are. If you just stay in the seclusion of your office and read some edited papers prepared by others, you are limited by the biases of whoever prepared the documents.

The principle here is “to become market smart by getting out into the market.” The more you understand the marketplace, the better one can strategize about how to win in the marketplace. A key element of understanding the market is getting out from behind your desk and interacting with the market.

A few days ago (November 28, 2007), the folks at the Booz Allen Hamilton consulting group issued a paper entitled, “See For Yourself.” In this paper, they talk about the importance of having leaders get out on the front lines to get firsthand information about what is going on. Their conclusion is that firsthand observations provide insights which will never be discovered if you just sit behind your desk. They give numerous examples of companies who have benefited from this practice, including Toyota, Wal-Mart, GE, Disney, Amazon, and Home Depot. Rather than go through all the examples, I suggest you read the article at
The article makes it sound like they’ve discovered a radical new principle, but it sounded a lot to me like Management By Walking Around (MBWA). MBWA was made popular by Peters and Waterman in their 1982 book titled “In Search of Excellence.” The original idea was that if a manager walks around the various parts of the company where work gets done, they will be better managers. They will find little problems before they become big problems. More important, they will build rapport with people throughout the organization, who will then feel comfortable bringing up issues in an informal manner—not sanitized by middle managers in the formal reports they read at their desk.

David Packard of HP was a strong proponent of this practice back in the 1940s, and the Japanese auto companies have been doing it for decades. Although MBWA was first limited to walking around places where employees do their work, the scope has now been expanded to walking around the places where consumers consume your product or service.

In an article in the December 1, 2007 issue of the Wall Street Jounal (written in collaboration with the MIT Sloan Management Review), the discussion was about making sure you make your observations broadly. The article, entitled “Raising Your Market IQ,” says to not only talk to your current customers, but also potential customers. They also recommended getting information over a long period of time by setting up panels to whom you return to repeatedly over time.

If you were to google the concept of MBWA, you’ll find tons of articles praising it. Something that has lasted this many decades and is still getting praise is more than just a fad. It is a great idea. Unfortunately, the laws of technology are working against it.

Take emails. Back in 2003, the average corporate email user received about 81 emails a day. In 2007, that number has reached to 142. By 2011, it is expected to be about 228 emails per day per corporate email user. If those all occurred within an 8 hour day, that would be about one email every two minutes. Handling email is becoming a full-time job, preventing one from spending time walking around for personal observation.

We live in an era of data explosion. The internet can feed us more information than we have time to comprehend. All of the data we have access to can give us a false sense of security. It can lure us to sit behind a desk absorbing all of this data and never get out into the real world.

The problem is that all of this disjointed data has no context. One needs a relevant point of view to help filter the data and put it into a context which is useful for strategy formulation. Observations help in this regard. They help you understand what is relevant and what is superfluous.

If you don’t get a marketplace perspective, you are left with your own perspective, which is distorted because you tend not to be a normal, average individual. For more on this topic, see my blog “Sometimes the Best Path is Behind You.”

Another problem is that if the information is out in the public domain, then you have no better information than anyone else. Competitive advantage often is little more than having keener insights than you competition, which help keep you ahead in the game. Quality firsthand field observations can help sharpen those insights.

Although the lure and the pressure of technology can keep us from spending time out in the field, we must fight this pressure. We need to make the time to get out to where the action is.

Whether you call it Management by Walking Around or call it Go and See, the idea is that better decisions are made if leaders have personal interaction out in the field. This includes interaction with employees, customers, and potential customers. This firsthand knowledge can provide a context which makes all other data more useful.

No one would want to fight a war without first understanding the terrain. Military strategists typically ask for reconnaissance before developing the battle plans. Similarly, business strategists need marketplace reconnaissance before developing business strategies. Get to know the “lay of the land” out in the marketplace by doing some personal reconnaissance.

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