Sunday, December 30, 2007

Strategic Planning Analogy #142: Strategy for the Birds

Last week I was driving to Chicago to spend Christmas with my daughter and her newlywed husband. It was a difficult drive. I was driving into a 50 mph wind with gusts that would blow the car all over the road. In addition, there were snow swirls that made it difficult to see where you were going.

It was a tiring way to drive, so I pulled off at an Indiana toll road rest stop to take a break. The wind was so strong that I had difficulty getting the car door open.

Near the car was a tiny little bird. The bird wanted to fly in the direction where the wind was coming from. Every time the bird jumped up to fly, the wind threw it back in the opposite direction. Each time it tried to fly, it was getting further from its goal.

I felt sorry for the bird, but was grateful that I had a car that was strong enough to tackle the wind.

It’s great to have goals, but goals are of little use if you cannot achieve them. Both I and the bird had a similar goal of trying to go west. However, the combination of the frailty of the bird and the strength of the wind made it impossible for the bird to achieve its goal. Although it was still difficult for me, my car was strong enough to fight the wind and successfully get me to my daughter’s house.

In every marketplace, there is a prevailing wind—the conventional way in which things get done. Typically, businesses have a desire to grow and gain market share. For you to grow and gain share, someone else usually has to shrink or lose share. In other words, you have to change the way things currently get done. Therefore, for your strategy to succeed, you often have to go against the prevailing wind in the marketplace.

Going against the prevailing wind is difficult, especially if you are weak like that bird. Just jumping up to fly won’t work. Effort alone is not enough. It takes a sophisticated strategy in order to outsmart the prevailing wind of the marketplace.

The principle here is the idea of the “indirect attack.” If you are a small player who wants to become larger, there is a temptation to directly take on the market leader. After all, that’s where all the market share and profitability is. It’s like the old story about the bank robber Willie Sutton. He was asked why he robbed banks. Willie replied, “Because that’s where the money is.”

However, a direct attack on the leader is often about as futile as that bird’s direct flight into the wind. Leaders have a number of inherent advantages.

1. People are already in the habit of patronizing the leader. Why change?

2. People believe that the leader is a leader for a reason. If you are not the leader, then you must be inferior. After all, if you were better, then you would already be the leader.

3. Leaders are already well known and accepted. Your brand, however, may be an unknown entity.

4. People rarely get into trouble for patronizing the leader. It is acceptable behavior. It is riskier to try something else. Why put your reputation at risk with a non-leader?

5. Who I patronize reflects who I am. If I patronize a leader, then I must also be a leader. If I patronize a loser, then I must be a loser.

6. Leaders tend to be larger and stronger financially. If you get into a fight with them, they can outlast you.

As a result of these inherent advantages, the leader is difficult to unseat. Even if you are every bit as good as them, you will fail in a frontal attack. Even if you are somewhat better than them, the prevailing winds of their leadership position will keep them as the victors for a long time.

So superiority over the leader is not enough. For example, in blind taste tests, Pepsi had a superior taste over Coke. Yet, when the labels are put on the products, the winds of leadership help Coke overcome Pepsi.

So, do we just let the prevailing winds helplessly blow us around? Of course not. Small players never win by going with the flow. The flow is designed only to benefit the leader. Sam Walton frequently pointed out that they key to the early success of Wal-Mart was due to the fact that he was willing to go against the flow and do things differently than conventional wisdom.

Conventional wisdom leads to conventional results. Glorious success comes from doing things differently.

So we cannot attack the flow directly, but we cannot go with the flow either. Therefore, the effective strategy in most cases is to attack the leader indirectly. When a sailboat wants to sail against the wind, it does go directly into the wind. Instead, it uses an angular indirect approach, known as “tacking.” Similarly, small companies need an indirect approach.

In general, the indirect approach works like this—become a leader in a place where the current leader is vulnerable. This could be geographic. For example, while everyone else was attacking large cities, Wal-Mart in its early days went to the rural areas that were being ignored.

This could also be about attributes. If the leader is all about owning price, then try to own something else, like service or quality.

This could also be about demographics. If the leader owns older people, go after the younger ones. This is how the UPN, WB and CW TV networks tried to gain a toehold against the leader CBS.

Or it could be about attitude. Coke had the all-American wholesome attitude, so Pepsi took the rebellious attitude.

So, the strategic task is as follows:

1) Learn the vulnerabilities of the leader

2) Understand your internal capabilities

3) Indirectly attack the leader by trying to own something where the leader is weak and you are capable of building a new leadership (co-habitation). This new leadership comes from redefining the rules and building a point of preference where one did not exist before.

4) Use this new leadership as a launching pad for further growth.

In the beginning, Wal-Mart was like the little bird against the major retail chains. It’s only hope was to go indirect and start in the rural markets which were being ignored. Eventually, it used that base to become large enough and strong enough to take on the whole retail establishment. It became as strong as my automobile, which could go against any prevailing wind. At that point, Wal-Mart took on the entire US grocery establishment and won.

The established marketplace works based on a set of rules which favor the leader. If you are small and want to grow in such an environment, you cannot usually win by directly taking on the leader based on the leader’s rules. Instead, you need to change the rules in your favor. This works best when you take an indirect approach by building a base of strength in a place the current rules are ignoring. Then you can start re-writing the rules around your base and grow.

If you want to be “king of the hill,” rather than try to knock off the person who already has the advantage of the high ground, instead go off and build your own separate hill.

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