Tuesday, December 11, 2007

Strategic Planning Analogy #138: Stay the Course

I know of a retail company where the founder and CEO was planning on leaving in a few years. Therefore, the company brought in a person to act as the temporary #2 executive and eventually become the replacement CEO.

Although the company had a number of retail stores, the CEO’s favorite store was the first store. It had one of the highest sales and profitability levels in the chain.

The new #2 wanted to make his mark on the company and prove that he was worthy to take over leadership. Therefore, he set a personal goal to get the second store to have higher sales and profits than the first store.

This #2 executive spent a lot of time tinkering with the second store. He was always modifying the store layout and the merchandise mix. Every little modification was designed to help improve sales and profits.

The result? Instead of gaining on the first store, the #2 store fell further behind. Although the new executive thought the continual changes should have pleased the customers, the customers saw it differently. What the consumers saw was a store that always seemed to be messy due to the changes going on and a store where they could never find what they were looking for because the products kept being put in new locations in the store.

Eventually, the executive gave up on this project. He left the store alone and the store performed well again.

It’s not uncommon for people to want to make improvements. Change is often viewed as a good thing—an opportunity to change for the better. However, from the customer’s point of view, change can have negative consequences. It can upset the normal flow of business and confuse the customer.

This is what happened in the story of this retail executive. He wanted to change things for the better, but his changes made things worse.

The same thing can happen in strategy formulation. In an attempt to improve the company performance, there can be a desire to constantly tinker with the overall strategy. This can be especially true in companies which have extensive annual planning processes and/or elaborate annual off-site planning meetings. If you are going to that much effort, there is some pressure to come up with something new in order to justify the activity. It looks a little silly to go through all that work just to end up saying that nothing is changing and we will “stay the course.”

If you have someone new managing the planning process, there is even more of an incentive to change things. Like the new executive in the story, there is a desire to prove your worthiness. It is hard to prove your worthiness if you do nothing different.

However, it is usually the case that keeping a strategy essentially unchanged for a period of time is actually more effective than continual tinkering. As in the story above, when the second store was left unchanged for awhile, its performance improved. Customers had time to get used to what the store was trying to accomplish and understand how to shop it.

The principle here is “consistency.” It is extremely difficult in today’s society to get a consumer’s attention. They are continually bombarded by messages. The everyday stresses and hectic lifestyles make it difficult for customers to think beyond the “crisis of the moment.” In addition, with all of the multi-tasking going on, it is difficult for consumers to think deeply about any one issue.

As a result, constant tinkering with a corporate strategy can get lost in the mental shuffle. It’s hard enough making a strong impression in the mind about any particular strategic positioning and getting it to stick. If you keep modifying the position, you can easily lose that impression and end up standing for nothing. Consistency of strategy deepens the impression in the mind. Modifications weaken the impression.

An old advertising executive I used to work with called it the “shaving man” theory. His point was that the average executive is consumed with thinking about his company. When he gets up in the morning, one of his first thoughts is about the company. When he goes to bed at night, one of his last thoughts is about the company. Every time he shaves, he is thinking about the company.

By contrast, when the average person is shaving, he is not thinking about that company. It is nowhere even remotely on his mental radar. Instead, he is probably thinking about things like:

1) The presentation he is making to his boss that day.

2) The fact that he doesn’t like the new group of boys his son is hanging out with and that he believes they are a bad influence on his son.

3) He sees his body in the mirror and is concerned that he is getting fat and out of shape.

4) His car is getting old and starting to need lots of repairs. Should he continue to put more money into repairing the car, or buy a replacement?

5) He doesn’t like the boy that’s dating his daughter and he’s trying to figure out how to get that boy out of his daughter’s life.

6) Tonight his favorite football team is playing on TV and he’s thinking about what it will take to win the game.

It’s hard for your company to compete with all of that mental clutter. If you’re lucky, he will think of your company when it comes time to purchase whatever it is you are selling. Anything beyond that is very rare.

In the mean time, the executive who is always thinking about his company, even when shaving, quickly becomes bored with the company strategy and thinks its time for a change. However, for the customer who rarely thinks about the company, he may only just be starting to grasp what the company is trying to stand for. The customer is not bored with your strategy.

If you change your strategy at this time, you may temporarily make the top executives in the company happy (less bored), but you will have confused the customer who has no time to comprehend all the nuances to your tinkering. After the tinkering, the consumer may have no idea what your strategy is and abandon you for something they better understand. In the long run, that will make the top executives unhappy.

I was recently reading a story about the new President of Eddie Bauer. Years ago, Eddie Bauer was a strong brand. It was positioned as a high quality rugged outdoor clothing company for men. They invented the down-filled coat. The strategy was to be the brand of choice when men wanted to have the best functioning rugged outdoor wear, yet still be a bit stylish.

After the Eddie Bauer brand was purchased by Spiegel, they started tinkering with the strategy. They added a lot of indoor home furnishings to the mix. The apparel mix went from being predominantly for men to being predominantly for women. Although stylish was still a concern, ruggedness was being deemphasized.

Now I’m sure that if someone had time to go to all of the executive meetings and read all of the internal company documents, they could have found some of the logic behind why Spiegel did all of this tinkering to the strategy. However, to the average person, this must have seemed like bizarre behavior on the part of Eddie Bauer.

Women, who were not trained to think much about the brand for themselves, would be too busy mentally to comprehend that they should add the brand to their list of choices. Men, who had one type of impression about the strategy would see that the brand had left that strategy, so the men who used to have a favorable impression left the brand. The Eddie Bauer brand essentially died in the marketplace.

All the while this was going on, firms like L.L. Bean stayed consistent with the rugged outdoor strategy and thrived. Sure, they improved the executional tactics along the way, but L. L. Bean stayed true to the core strategy and deepened the impression in the minds of its customers. The consistency at L.L. Bean won out over all the tinkering at Eddie Bauer.

Even though it makes sense to have strategic reviews on an annual basis, this does not justify a need to change your strategy on an annual basis. Too much tinkering will confuse the consumer and weaken your bond with them. Consistency deepens the bond and increases the power of your brands.

Annual strategic reviews serve many purposes. They can help determine if you are drifting off-track from your strategy. They can help you find ways to improve the execution of your strategy. They can help find ways to improve the strength of your strategy. They can even help you know when one of those infrequent times come up when the environment has changed so much that it is time to change the strategy. However, it is not the time for an annual reinvention of the company. If you feel a need to reinvent your company every year, then it is time to get a different set of inventors.

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