Wednesday, April 23, 2008

Analogy #175: Trend Watching

Once there was a man sitting in the middle of the city with a shotgun. I asked him what he was doing.

He said, “I’m hunting for wild animals out in the wilderness. I’ve been doing it here for over 30 years.”

I replied, “In case you hadn’t noticed, this isn’t wilderness any more. This is an urban environment. There aren’t any wild animals to hunt here anymore.”

The hunter nodded his head and said, “Yes, our company has professional trend watchers. They’ve noticed those trends of greater urbanization and fewer wild animals. In fact, I think those trends may have something in common, since the greatest drop in wild animals occurred when the urbanization began. In my backback, I’ve got all kinds of trend charts made by our trend watchers which show that. Do you want to see them?”

“Forget studying the charts,” I said. “I can see the urbanization and lack of wild animals with my own eyes. The question here is shouldn’t you be reacting to these trends?”

The hunter answered, “Our company has been hunting in this area for over 100 years. It is what we know best. It’s risky to change from what you are good at.”

“If you are so good at it,” I inquired, “Then how many wild animals have you shot at recently?”

“Well,” the hunter said, “I haven’t really had a kill in the last decade or so. But I’ve been practicing a long time and have improved my aim. If I ever do see a wild animal here, I’ll be ready.”

External trends have an impact on performance. It really doesn’t matter how well you’ve been honing your skill and making improvements to your business operations. If the trends have made your business model obsolete, you will not be successful.

The hunter in this fairy tale was probably very skilled at hunting. He practiced to improve his craft. Unfortunately, two outside trends were making that meaningless—the transition of the wilderness into a city and the reduction (down to the point of total elimination) of the wild animal population.

It wasn’t like these trends were a surprise. Their trend watchers knew all about them and had been charting them for a long time. Yet the company did not react to the trends.

Sound silly? Well, McKinsey and Company announced the results of an executive survey today. According to this survey, 70% of the executives see external trends as increasingly important to corporate strategy. The executives for the most part also believed that these trends would have an impact on their profitability over the next five years.

Yet, for the 14 trends looked at, in nearly all cases it was only a minority of companies who actually admitted to taking some steps to address the trend. Worse yet, only 17% of the executives said that they had taken enough action regarding a trend to actually see a significant positive result.

In other words, these 1,306 executives surveyed aren’t all that different from our hunter. They know the trends. They believe the trends will impact them, but they haven’t reacted to them in any meaningful way. They haven’t exploited the new opportunities provided by the trends or avoided the pitfalls created by the trends.

The principle here is that knowledge alone is not good enough. It is what you do with that knowledge which makes the difference. If your planning process stops at just making your executives smarter, then it is incomplete. Taking pride in a backpack full of beautiful charts when the company is failing is not much to be proud of.

Sure, strategists can’t do everything. As the old saying goes, you can lead a horse to water, but cannot make him drink. However, there are things one can do in the planning process which will help increase the chances that the right action will be taken. This blog will look at some of those actions.

First, let’s add a little context. In the McKinsey survey, the ones who had taken action said they were motivated by a combination of five factors:

1) They could see a competitive advantage to taking action.

2) They felt competitive pressure to take action.

3) They had a specific growth opportunity presented to them where an existing business could take advantage of the trend.

4) Customers asked for a change based on the trend.

5) They had a specific new business opportunity presented to them which could take advantage of the trend.

If these are the items which motivate action, then one should try to incorporate them into the strategic process. I suggest three ways to do so:

1) Make it Tangible
It appears that tangible examples of specific business opportunities create more action than mere discussion of academic trends. In the list above, being able to envision specific business options was a great motivator to action (especially factors #3 and #5).

Therefore, whenever presenting trends, try to link the trend to tangible business opportunities. For example, the conversation might go something like this: “Based on this trend, it appears that a new type of business space has been created. The size of that space could be as large as $100 billion in five years. Here are five specific examples of how we could play in that space and get a share of that $100 billion...”

The important issue at this point is not that they pick one of your five ideas. The point is that the audience can now visualize how to specifically turn that trend into big profit. It can stimulate them to find even better opportunities.

2) Make it Emotional
Dry statistics aren’t nearly as motivating as an emotional appeal which stirs the soul. Two good emotions to tap into when presenting trends are pride and panic.

The pride approach looks something like this: “Our arch-enemy, Company X, is already starting to take advantage of this trend (show examples). Are we going to sit on our hands and let our enemy get the upper hand in this area? Of course not! Who’s #1? We are! Let’s become #1 in this new opportunity and show the enemy who is really the industry leader!”

In other words, pride looks a lot like a pep talk to the football team at half-time.

The panic approach looks more like this: “There are already 10 of our competitors trying to take advantage of this trend. New entrepreneurs are entering our space to exploit this trend. If we do nothing, the most likely scenario is that we will be left in the dust as a bankrupt firm while these new entries get all the profits.”

In other words, the idea is to paint a picture which makes the status quo no longer appear to be a viable option. It’s either change with the trends or die. Both pride and panic exploit factor #2 above—competitive pressures.

3) Tap the Lifeblood
Your customers are the lifeblood of the company. Without customers, you have no purpose, no reason for being. If you can show that the customers want you to change with the trends, then you can incite action (see factor #4).

Look into all of your old company records to see if you can find examples of your customers wanting you to move in the direction of the trend. Perhaps they asked for features related to the trend. Perhaps they stopped doing business with you and went with a competitor who was closer to the trend. Tangible examples such as these show the vulnerability of your lifeblood if you don’t exploit the trend.

If you cannot find any old data, create new data. Do a survey of key customers and ask them about the trend and how it impacts them and how it might change their behavior. Maybe even make a video of the conversation and show it to executives. Usually, the words are more powerful if they come from a customer rather than an insider.

Knowledge without action is not very useful. Knowledge of industry trends needs to be translated into something actionable. The strategic planning process should specifically link knowledge to tangible options, emotions, and customer behavior in order to drive the motivation for change.

Remember, the goal is not to watch trends, but to act upon them.

That hunter in the city might have changed his behavior had he been given tangible options such as mentioned in this blog.

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