Monday, January 28, 2008
Strategic Planning Analogy #150: Where’s the Groom?
About 6 months ago, my daughter got married, so I know a bit about all of the time and effort that goes into preparing a wedding. Imagine for a moment that you are the bride-to-be and are preparing your wedding.
A lot of time and effort and money go into preparing a wedding. There’s arranging the ceremony, the reception, the flowers, the videography, choosing the wedding gown, preparation for the honeymoon, and so on. It’s not something thrown together in a day. It can often take 18 months to prepare for.
So let’s say you went through all of this preparation for your special wedding day. Finally, the day you have been preparing for is here. You arrive at the church. Everything looks just right.
You walk down the aisle in your beautiful wedding dress. Then, as you are standing at the altar, it suddenly occurs to you…there is no groom. You were so busy preparing the wedding that you did not take time to seek out a marriage partner.
It seems foolhardy to think that someone would go to all the trouble of planning a wedding without spending time to find a marriage partner. However, businesses do something similar all the time.
In the business world, there are all sorts of partnerships. Some are strategic alliances, some are outsourcing arrangements, and others are joint ventures. To a large extent, your success is dependent upon the success of your partners.
Businesses can spend a lot of time in strategic planning, similar to the time and effort which goes into wedding planning. Yet, while it seems unconscionable to plan a wedding without the marriage partner, businesses often go through their entire strategic planning cycle without inviting their business partners to the discussion.
How can you optimize your performance if your planning is not in sync with your partners?
The principle here is that strategic planning needs to incorporate its partners into the process. This is even more important now than in the past. We have moved into the networked economy, where ever fewer companies internally control all the aspects of their business. Instead, many aspects of the business are farmed out to others.
For example, a US company in the networked economy may:
1) Outsource manufacturing to a company in China
2) Outsource its call center to India
3) Pay a licensing fee for the cartoon characters which appear on the box
4) Have distribution outsourced to a 3rd party distribution company
5) Use a strategic partnership to obtain a European sales force
6) Form a joint venture with a local firm in Japan in order to penetrate that market
As more of one’s business falls into the hand of these various partners, the less direct control one has over his/her future. Three major areas where less control can create problems if not planned for properly revolve around capacity, conflict, and contribution.
You may have a desire to grow at a particular pace. However, your partners may not have the capacity to grow with you at that same rate. Taking the US company mentioned above, it may have a strategy for very rapid growth. However, what if:
a) Its partner in China cannot grow its manufacturing capacity at that rate, or
b) Its distribution partner does not have capacity to grow distribution at that pace, or
c) The European partner does not have a large enough sales force to handle your planned growth there.
If your partners cannot grow at that pace, then perhaps you cannot, either. Your strategy may be flawed in its expectations, because your partners cannot support it.
Perhaps these partners could have geared up to support your growth if you had given them more of an advanced notice of your intentions. That is why you need to not only consider the capacity of your partners in your planning, but also get them involved in your early planning discussions so that they can have time to mesh your capacity needs into their own planning process. And if you cannot resolve the capacity issues, there is time to seek alternative sources of capacity.
Now let’s assume that your long range plan calls for you to expand into new adjacent product categories. However, what if:
a) The manufacturing partner in China already manufactures this new type of product for someone else and is restricted from manufacturing it for anyone else.
b) The call center in India already has a US partner in this new space, and is prohibited from doing business with anyone who also competes in this space. Hence, not only can’t they help you on the new business, but they would no longer be able to work with you on the former business.
c) Your partners in Japan already have a position of their own in this new business, so they are unwilling to also support your effort in this area.
d) Your new product appeals to customers which your European partner’s sale force do not call on, nor have any desire to call on because of non-compete arrangements they have with other European sales forces.
e) The company which owns cartoon characters you license does not want their characters associated with your new product for fear it will damage the image of these characters.
As you can see, the diversification may make perfectly good strategic sense for your particular business, but it may not make any sense for your partners. They have strategic interests which are in conflict with yours. It is important to understand potential conflicts early in the planning process in order to either:
1) See if you can iron out the conflicts with your partners;
2) Seek out alternative partners for the diversification; or
3) Alter your diversification strategy.
Just as there can be problems if you keep your partners out of your planning process, there can be missed opportunities if your partners exclude you from their planning processes. Going back to our US business example, what if:
a) The Chinese manufacturing partner had developed new technological capabilities which would be useful in your plans, but were not included because you did not know about them.
b) The distribution partner has just expanded into Mexico, which could have had an impact on the timing of your planned entry into Mexico had you known about it in advance.
c) Your Japanese partner is looking for distribution of one of its products in the US. This is the same product that you wanted to diversify into. Had you known about this in advance, perhaps you would have sold the Japanese product under your name in the US rather than separately develop a competing product.
d) Your cartoon licensing partner is releasing a new movie. Had you worked more with your partner when the movie in its development stage, perhaps you could have gotten involved in movie tie-ins which would have been superior to the marketing plan you had devised.
e) Perhaps there are things you are doing in-house which can be done less expensively if they are outsourced. By not examining new outsourcing opportunities in the planning process, one plans cost cuts in another area which otherwise would not have been needed.
The more you know about what your current (and potential new) partners are up to in their planning, the greater you can take advantage of that information in your own planning. There may be many more contributions available from your partners which you had not dreamed of, but would have come to light if you had been a greater part of your partner’s planning.
In today’s networked economy, planning can no longer be done in isolation. The planning process needs to include your partners. This way, you can avoid some of the problems of a partner’s lack of capacity or strategic conflict. Not only that, one can benefit from additional partner contributions which come from knowing more about how a partner can help you. Just as weddings are rather meaningless if only one of the partners shows up, planning sessions can lose a lot of their power if your key partners are excluded.
Sure, the greater inclusion of partners into the planning process may require more trust, openness, and transparency. However, is it not true that marriages tend to be more successful if there is more trust, openness and transparency?
The pace of change in business seems to be getting faster. Time lost creates ever increasing opportunity lost. By incorporating your partners into your planning process sooner, one can resolve issues sooner. Less time is lost. If you wait until your planning is over to bring in your partners, you may find a need to plan all over again. More time is lost.