Thursday, May 29, 2008

Analogy #181: Criticism Vs. Creation

Sometimes, I find it difficult to get customer service. It doesn’t always seem like the sales help want to volunteer the service. Therefore, I sometimes have to take actions into my own hands and create a reason for them to pay attention to me.

For example, one time I was at an airport and I couldn’t get a single airline employee to talk to me about a problem I was having. They kept walking away and hiding in an employee only room. Well, /I decided to react by going over to one of the locked doors leading to an airplane gate and started pushing numbers at random on the keypad on the door.

Well, suddenly one of those employees who had previously been running away from me started running towards me. Once I had their attention, I was able to explain to them my concern. (Note: I did this prior to 9/11. I’m not sure I would repeat that act in this new era.).

Other times, I have had trouble getting service in retail stores. I’ve found that if you get really, really close to their cash registers (perhaps even getting behind one and starting to randomly punch buttons), you can get some service rather quickly.

One time I was trying to purchase an automobile, but I couldn’t get the attention of any of the sales people. So after waiting about a half hour, I walked into the cubical area where salespeople’s desks were. I sat down behind one of the desks and started looking at all the paperwork on the desk. When I started doing that, it only took a few minutes before I got some attention from a salesperson.

So you see, if you cannot get people to volunteer to give you service, you can get them to quickly react to a problem. So create a problem and you can turn that into service.

As these examples illustrate, many sales people seem to have far more difficulty voluntarily creating service than in reacting to problems. Perhaps reacting to problems comes easier to them.
Strategic planning is often a creative process. One has to create business missions, goals, strategies, documents, power point presentations, and so on.
Many people struggle with starting the creative process. There may be a psychological block, or an inability to know where to begin. The people may be self-conscious about being associated with something “creative” and afraid that people will make fun of their creativity.
As a result, it may be as difficult to get a creative strategic project started as it is to get someone to start giving you service at a store. Therefore, use the trick I learned in the story…don’t ask them to create something new. Instead, give them a problem for them to solve. If you give them the right kind of problem, solving it will result in the creative outcome you were looking for in the first place.

The principle here is that, for most executives, it is easier to react to something than to create something. Therefore, instead of asking executives to do an unnatural act (e.g., creation), turn it into something like problem solving, which they tend to be good at and enjoy doing. We will now look at three ways to accomplish this, called “Butchering’” “Blathering,” and “Backing.”

1) Butchering
Although many people have trouble starting their own creation, they have no trouble criticizing the creation of someone else. Therefore, your job can be to roughly sketch out the creative part in advance—be it the business mission, the strategic intent, the targeted positioning, or whatever. Then let the crowds have at it and butcher away at what you came up with. It’s like art. Few people are good at creating it, but the great masses have no trouble criticizing it.

Don’t make it too polished. Then the crowd will feel like the content was thrust upon them. They want to feel like they had a say in its creation—they just don’t know how to create it. So rough out something that covers all of the key points which need to be addressed. Call it a rough draft. Then let the butchering begin.

People will gladly change words or phrases. Some of your word choices could spur on lively debates. In the end, the final content may bear little, if any, resemblance to the original document. But that’s okay, because in the end you got what you wanted—a creative document built by, owned by and agreed to by the group as a whole.

So don’t take it personally when your work is butchered. That was the whole idea. It was like me being a pest to get service at the store, airport and car dealer. My goal was not to be a pest, but to use that as a starting point to engage with the sales staff.

2) Blathering
Most executives I know love to hear the sound of their own voices. Getting them to talk is no problem. So take the key issues you want to be addressed in your creative strategic project and convert them into provocative questions. Then, shut up and let the group blather away in discussing the issues.

What comes out of the blathering discussion may not be very coherent or consistent. It can drift onto all sorts of adjacent topics. It will not be a polished piece of creativity. But that’s okay, because you will get a benefit from it. You’ll get the jargon the group is comfortable with, the consensus of how people feel about the issues, and a sense for how people link ideas together.

After the blathering session, you can take all of this raw material and sew it into a beautiful quilt. You take on the creative act of making sense out of the nonsense. You can create great mission statements or other strategic gems that have enough of their jargon in it that they feel they had a hand in writing it. You can prioritize things based on the priorities in the blathering.

In the end, it may not exactly mirror the discussion. Given that strategic choices must be made and more than one option was discussed, you will have to make the ultimate choices. But it will capture enough of the “feel” of the discussion that the group will buy into it as if it were their own.

This is similar to the concept I wrote in a prior blog about taking the minutes of a committee meeting (see"Minutes Last Forever”).

If necessary, after you write up the creative piece, you can subject it to the butchering process mentioned above.

3) Backing
A third approach is to give people the opportunity to vote. Provide some options and ask the group to pick one or to rank order the list. Executives are used to making these types of decisions, so it should come very naturally to them. Once the voting is in, you know what aspects the group is willing to back and which ones they would not choose to back.

Then, your job is to craft the creative document based on knowing what was backed as a priority. Once the votes are in, the decision is made, so the executives should have little difficulty accepting your creativity if it matches the way they voted.

Again, if you want, you can subject your creativity based on the voting to a butchering session.

The act of creativity can be very difficult for many, particularly the beginning part of starting the process. Therefore, instead of asking people to start creativity from a blank slate, start the process in a less threatening way. Use tools like blathering, butchering and backing to elicit opinions which can then be crafted into the final documents.

When you rely more on criticism than creativity from executives, you will feel the heat of the criticism. Don’t take it personally. It is part of the job. A dear friend of mine used to say that if you want to be successful as a strategist, you had better like pain.

Saturday, May 24, 2008

Analogy #180: Simple Grids

It’s a funny thing about choice. If you give people too many choices, they will get confused. There would be so many options, that a person wouldn’t be able to figure out with confidence which choice was the best for them. All the variations would be mind-boggling. Time is too precious to waste pondering over the merits between 50 different choices of peanut butter. As a result, most people would never be fully satisfied with a purchase in this type of situation, because of a nagging feeling that there might have been a better option among all those choices.

On the other hand, if you simplify the process and give people only one option, they typically aren’t happy, either. It feels too much like a cruel dictatorship to be told that you have only one choice. Resentment builds due to a lack of freedom of choice. People don’t like to be told what they should like. They want to feel important in the process, by having a choice in what they buy.

So people want choice…just not too much choice.

I personally discovered this principle when I was doing some consumer research on clothes shopping. I showed women a number of photographs of clothing departments and asked them which store they would prefer to shop in.

The women immediately rejected the stores showing a narrow assortment. They just assumed that a store with such few choices would not have anything they wanted in their size.

However, they also rejected the photos showing stores with a huge number of racks of clothing. That was too intimidating. The women tended to gravitate towards preferring the photos of stores with a medium number of racks.

Back in the old days of the Sears catalog, they tried to optimize the process by giving three choices for each type of product. They labeled them “good,” “better,” and “best.” It was simple. If you were most concerned about price, you got “good.” If you were most concerned about quality and performance, you got “best.” If you were looking for the optimal blend of features and price, you got “better.”

This gave people a choice without overwhelming them. It worked for many decades.

We talk a lot in business about the product assortments we provide to the consumer. We try to optimally manage the breadth of assortment. The goal is to find that optimal middle point between being a cruel dictator and overwhelming the customer, just as the old Sears catalog did.

However, I rarely hear people talk about managing the assortment level of ideas provided to the management of the business.

To move a company forward strategically, choices need to be made by top management. If too many strategic options are offered, management can become overwhelmed, just like the consumers in the story. This slows down the process and makes it hard to get a business decision.

Inevitably, with too many choices, management tends to tell the presenters to get their act together, narrow the choices and come back at a later date. Time is too precious to waste on endless strings of meetings without decisions. While your management is gridlocked with too many choices, the competition is moving forward.

Worse yet, in an attempt to get a quick decision, the company may decide to try too many options at once. This tends to lead to disastrous conclusions. The lack of a clear focus confuses employees and customers. There aren’t enough resources (especially human resources) to adequately perform well on all options at once. Hence, rather than doing one thing well, one ends up doing many things poorly.

At the same time, if you only present one option strategic option to management, you can also create problems. The top decision makers want to make decisions. If you give them only one choice, then you have robbed them of their chief role. The only choice you have given them is to agree or disagree with the strategic option. And if they disagree, there is no fallback strategy. They are left with nothing.

However, the worst result from providing only one option is that you run the risk of not offering up the best option. The option may be good, but there may be something else which is better. Without comparisons of strategic options, how can management have confidence that they chose the right one? There is always the suspicion that the presenter has “stacked the deck” in favor of their pet project instead of the right project.

This can often lead to the “strategy of the month,” where a single option is presented and accepted, only to be upstaged at the next meeting when a different single option is presented and accepted. No option is fully realized, because of the constant shifting from one proposal to the next. Each succeeding proposal of a singular option looks good, because it isn’t pressure tested against options. So the continual shifting occurs, and no strategic direction is embedded into the organization.

By contrast, if all of those options were presented at the same time, a clear choice can be made which will be adhered to longer, because it has already won the debate against opposing ideas. There is greater confidence that the choice was the right one, so it will be implemented with greater levels of commitment.

The principle here is that to achieve strategic success, one needs to present management with the optimal blend between too many strategic options and too few strategic options. As we saw in the example of the women’s apparel and the Sears catalog, a middle ground tends to be most successful.

So how do you create the impression of an exhaustive analysis of all the options (completeness) while making it easy for management to select an option to make a commitment to (simplicity)?

I like to use a two step process. The first step is to provide a simple conceptual framework. The second step it to then provide a list of specific strategic options in those areas of space most interesting in the conceptual framework.

For a conceptual framework, I try to stick to something simple like a two by two grid. Some popular 2x2 grids are variations of the ones illustrated below (the actual words on the axes will vary based on your particular situation). They include:

1. The Source of Growth Grid (Where do you want to look for future growth?)
2. The Risk/Reward Grid (How balanced is your Portfolio?)
3. The Consumer Appeal Grid (What is your point of differentiation in Targeted Consumers?)
4. The Competition Grid (What is your point of differentiation versus your competition)

Sure, modern statistical techniques and whiz-bang computer graphics can create all kinds of complicated multidimensional frameworks. The problem is that:

a) They are hard for management to comprehend.
b) They are hard for your employees and customers to comprehend.

If your position is so nuanced that it takes complicated multidimensional presentations to point it out, then your potential customers will never figure it out. That’s why I stick to simple 2x2 grids. They give enough completeness without overwhelming.

Then, once management decides on which squares in the grids to focus on, you can have a second discussion on which is the best available option in those boxes for your company.

Strategic planning is about making the right choices about strategic options. In order to get top management to decide and stick behind a choice, one needs to find the optimal blend between too many choices (which overwhelm management) and too few choices (which can lead to constant switching of priorities). I suggest a two step process of first getting agreement on which area of the conceptual space is most important (through the use of 2x2 grids. Then, once the space is agreed on, a small list of specific options can be evaluated, and a final choice made.

Presentations which focus on “special effects” may wow the audience for a moment, but may not have much lasting value. Simple, easy to grasp concepts, like 2x2 grids may not appear as exciting, but can create great long term decisions. In the end, the goal is great decisions, not great entertainment.

Tuesday, May 13, 2008

Analogy #179: Taking it to the Max

Back in the 1920’s there was a person named Max who immigrated to the United States from Poland. In 1929, just prior to the Great Depression, Max opened a grocery store in Milwaukee, Wisconsin.

That was a tough time to open a new business, but because he was a very efficient operator who knew how to please the customer, he survived the Depression. He did well enough to eventually build up a chain of 48 supermarkets in Wisconsin, before selling the business in 1970.

Along the way, the story goes that one day Max went out to buy some clothing. He went to the available department stores in Milwaukee and did not like the experience. Max came to the conclusion that the only way he would ever get to patronize a Department Store to his liking would be if he built his own. So he did, opening his first department store in 1962.

Max didn’t know much about department stores or fashion, but he did know how to build successful supermarkets. He applied those supermarket principles to his department store. He put in centralized checkouts. He put in efficient and easy to shop fixtures in an easy to navigate “racetrack” format. He emphasized extreme efficiency in operations and made sure he had depth of inventory in the most wanted brands. Finally, Max took the supermarket emphasis of low prices to his department store. He could afford the low prices because of the efficiencies he applied from his supermarket heritage.

At the time, this was all Department Store heresy. Nobody in the industry did things that way. But since Max was not from the department store industry, he did not see it as heresy. He simply saw it as the type of store he would like to shop in.

He only built a few of these department stores, because he was more interested in running supermarkets. However, by the mid-1980s, the management of the Department Stores group felt they were sitting on a powerful concept. Therefore, they started ramping up expansion. They took the department stores public in 1992 and have had quite a good run.

By the way, Max’s last name was Kohl, and the department store chain he started in 1962 was called Kohl’s Department Stores. There are now nearly 1,000 of these stores in operation, and sales for fiscal 2007 were $16.5 billion.

There’s an old saying that most new innovation comes from outside the industry. That was certainly the case for Max Kohl. It took an outsider—a supermarket man—to show the department store “experts” a new way to do department stores.

This happens in all types of industries. The inbreeding of executives and the lack of fresh insight causes the insiders to become blind to new ways of doing business. The “old ways” become the “only ways” of looking at the world.

In the long run, this can be shortsighted. Innovation is the lifeblood of growth. Innovation usually requires new approaches to the business. Outsiders, who aren’t wedded to the old ways, tend to embrace more options and different approaches. As a result, new businesses like Kohl’s, replace old established businesses like the May Department Stores.

If you don’t want your business to be replaced by an outsider, then you need to start thinking more like an outsider.

The principle here has to do with having a fresh set of eyes. Being around young children can be very entertaining, because the see the world with a fresh set of eyes. Everything is new and wonderful to them, and they come up with some of the craziest ideas.

Businesses also need fresh sets of eyes—people who are not wedded to the ways of the past. These are people who have not been around long enough to have bought into to the idea that the “standard operating procedures” are the only way to get things done. Like children, they ask “Why can’t we do this differently?”

In the department store industry, most of the insiders are “fashion” people. They approach problems from a strong sense of fashion and a keen eye for style. Max Kohl was a supermarket guy who approached problems from a strong sense of efficiency and an eye for value. By looking at the industry from this different perspective, he developed a different solution.

Even today, his legacy lives on. Kohl’s department stores tend to have an operating cost structure which is about half that of many of its competitors (as a % of sales). This allows them to provide superior and still be very profitable.

Not too long ago, I was talking to the President of a Department Store brand. He had worked in the industry for many decades. I suggested that he might be better off if he changed his store design around a bit. He looked at me condescendingly and said something like this,

“Gerald, I know you’re trying to help, but you don’t know this industry as well as I do. I’ve been doing this a long time, and let me tell you, that is not how it is done. People expect a department store to look a certain way and they will not accept change.”

Well, it’s true that I haven’t been in the department store industry as long as him. But it is also true that my experience with supermarkets, supercenters, big box retailers and discount stores gives me a fresh set of eyes that can borrow from these other related businesses and apply them in a fresh way to his business.

After he made his comment that people expect things a certain way and will not change, I started thinking about the outsiders who have been extremely successful in reinventing the way people shop for department store goods. In addition to the Kohl’s example, there is DSW, who successfully reinvented the way people shop for department store quality shoes. You can read about DSW's fresh approach in their IPO document.

If the old ways are so good, then why isn’t Sears doing any better than it is? It hasn’t changed much in decades, sticking to the old ways of running a department store. The old ways are causing it to lose market share. Yes, the new owner, Eddie Lampert, has a fresh set of eyes, but everyone is still waiting for a fresh set of ideas.

This is not to say that you want a company which only has fresh sets of eyes. You need a mix—people who have experience in the industry and understand its subtle nuances, as well as industry newbies who bring different experiences to the problems. Kohl’s really did not start to grow rapidly until it got a good blend of people into the mix. The key is diversity—diversity in age, background, experiences, and so on.

A friend of mine once interviewed at a major international retailer. When he got back from the interview, he said that everyone he interviewed with seemed like a clone of everyone else he interviewed. They were of the same gender, the same general age, had an MBA from one of the same small number of universities, and had all previously worked at the same consulting company.

Unfortunately for my friend, he was of a different gender, a different age, had an MBA from a different school and had never worked for that consulting company. As a result, he did not get the job.

This is so sad, because that company would have been better off with a more diverse employee base, with eyes that see problems from many fresh perspectives. To quote former general and US Joint Chief of Staff Colin Powell, “If you surround yourself with people who think like you, then at least one of you is redundant.”

The irony is that the company in question was not doing well at the time. It was shrinking in size and destroying profitability. Why continue to fill your company with clones if the current thinking isn’t working?

Seek out variety of thought and perspective. Bring the outsiders inside your company so that the next innovation comes from the inside, rather than the outside.

Eventually, the conventional wisdom of your industry will be replaced by an innovation based on a different set of wisdom. If you cling too long to conventional wisdom, your firm will die off and be replaced by outsiders with a fresh set of eyes. It is better to have a diverse blend in your business, so that you can exploit those fresh ideas yourself.

If you want to take your company to the Max, you need to find people like Max (Kohl), who bring a fresh new perspective.

Thursday, May 8, 2008

Analogy #178: Sinking In Quicksand

Quicksand is an interesting substance. It’s basically just a sandy area supersaturated with water. At times, quicksand acts more like a solid, and at other times it acts more like a liquid.

If you accidentally walk into some quicksand, it will start to pull you down into it. A typical reaction when this happens is for people to start thrashing around in the quicksand to try to get out. The thinking is that if I can just keep shifting my weight from foot to foot, I will be able to eventually get a foot free.

All of this activity changes the chemical bonds between the sand and the water, causing the quicksand to act more like a liquid. The process has the technical name of liquefaction. The more liquid-like the quicksand, the less the resistance and the faster one sinks into it. So the irony is that the more you fight with the quicksand, the more the quicksand will win, pulling you down faster.

By contrast, if you make no movement at all, the chemical bonds between the sand and the water stay strong and the quicksand acts more like a solid. The natural buoyancy of your body will create a sense of equilibrium with the ground and you will stop sinking. In fact, you might even float up a little bit closer to the surface.

Therefore, the safest thing to do when confronted with quicksand is practically nothing. Slow, gentle, purposeful movement will get you safely out.

Quicksand can be a symbol for all kinds of dangers and threats in the business place. It could represent an economic slowdown/recession, a new competitive threat, a changing consumer, or other such troubling events.

These events can make you feel trapped, as if you are in quicksand. Things seem out of your control and you feel like your business is starting to sink.

Just as with quicksand, one often starts to react quickly to this negative situation by thrashing around. The business undergoes a lot of activity in an attempt to break away from the negative environment “quicksand.” This could include actions like:

- Changing Advertising Agencies
- Firing the CMO
- Changing the Strategy
- Releasing a flurry of New Products
- Modifying the Business Model
- Reorganizing the Corporate Structure
- Bringing in Fresh Talent
- And so on….

Yet, as is so often the case with quicksand, the more you thrash around in a flurry of activity, the faster the business continues to sink. Although it goes against our natural instincts, we will see in this blog that often the best thing to do when your company hits a patch of quicksand is to do practically nothing.

The principle here is that frequent change can often be more damaging than “staying the course.” Even in times of trouble, avoiding change can be one of your best moves. Especially in times of panic, change can be your worst enemy, because the change is not rooted in one’s core strategy. Instead, it tends to be disjointed and counter productive.

There are four basic ways in which too much change-based activity can draw you further into the quicksand, rather than lead you to safety. These are discussed below.

1. Dilution
It is difficult to stake out a distinct position in the marketplace that is ownable in the mind of the customer. Once your strategy helps you find and achieve your winnable point of distinction, hang onto it. It is the reason for someone to prefer you over the competition. Lose that point of distinction and you lose your advantage.

Often times, a lot of actions will stretch the company in areas beyond that point of distinction. For example, a luxury brand could panic and add line extensions at the lower end, or increase its distribution in more mass channels. This could dilute your point of distinction in luxury and class. You will be seen more as a mass brand, and your core customers could abandon you.

Or, you may have a strong brand name that you start slapping on a whole slew of new products that have little to do with the original product. You have diluted what that brand stood for, weakening its power of ownership in the marketplace. Instead of standing one thing well, you now are diluted to sorta meaning a number of things, none very well.

Often times, trying to stretch to become all things to all people makes you mean less of anything to anyone.

2. Confusion
With all of the communication “noise” out in the marketplace, it is very difficult to get your message across clearly. Compound that with the fact that your customer has a lot of other things on their mind and that you are probably not near the top of their list of priorities. So the noise coming at your audience is drowning you out while at the same time your customers are not all that attuned to listening for your message, either.

The net result is that it is hard to get a new message out clearly to the intended audience. If your new message is different from your old message, then it will not serve to reinforce and strengthen your communication. Instead, it will tend to confuse them.

They had one impression of you before, and now you are asking them to take on a different impression of what you stand for. Because the messages are conflicting, the end result is often confusion. And they are often not going to waste their precious time to resolve the confusion.

The same thing can apply to your own people. They may become confused about what the company stands for and become confused about what is expected from them. Rather than having clarity of purpose and determination about executing their role to its fullest, they hold back out of uncertainty.

Creating confusion during uncertain times will just draw you deeper into the quicksand.

3. Averaging
If you currently own a point of distinction, that is a good asset to hold onto. Your competition probably owns different points of distinction that are assets for them. In times of trouble, you may become jealous of some of the advantages your competition has due to their points of distinction. As a result, you may want to make changes that help you achieve some of the points of distinction of your competition.

The problem is that when you combine all of the points of distinction, you no longer become distinct at anything. You end up averaging to the middle. It’s like mixing all of the pretty colors of paint together. In the end, you end up with none of the pretty colors and only have an ugly gray mess.

Averages are not always the best place to be. For example, if a market is 50% men and 50% women, the “average” person would be half-male/half-female. That average person does not exist. Targeting that average is not as effective as being distinctively male or female.

Of course, if you attack a competitor’s point of distinction, they will vigorously fight back. In the end, you will probably not have taken away it away. But you will have probably weakened your own point of distinction through dilution and confusion.

4. Stalling
Any change in course eats up precious time. It takes time to get a new team up to speed. It takes time to convert to a new ad agency and get a new program in place. It takes time to even dream up what the change will be. It takes time to get the message out. It takes time for consumers to react.

In tough times, one cannot afford to waste time. It’s like being in a road race and spending all of your time at the pit stop. Sure, a pit stop can help you change your tires and get more fuel in the tank, but while you are in the pit row, your competitors continue to race. Too much time in preparation at the pit stop can cause you to lose the race. The pit stop becomes your pit of quicksand.

In times of trouble, there can be pressure to embark on a slew of new activities and agendas. However, all of this activity can result in dilution, confusion, averaging and lost time. None of these results will help you get out the quicksand. They only help you to sink faster. The better route is to stay the course and reinforce whatever point of distinction you already have in the marketplace.

It’s true that sometimes one needs to change course. All strategies eventually become irrelevant. However, the time to change is not when times are tough and you feel most vulnerable. Rash decisions at a time of panic are rarely the best decisions. It is better to slowly evolve into the change while you are still on top. Think it through during calmer times. The better the fortress you build in the good times, the better you can weather the eventual storms.

Saturday, May 3, 2008

Analogy #177: Monkey Business

Back in 1940, Esphyr Slobodkina wrote a children’s book called “Caps for Sale: A Tale of a Peddler, Some Monkeys and Their Monkey Business.” It has become a children’s classic.

The story is about a man who earns his living by walking around selling hats. He kept his inventory on his head—a tall stack of caps of various colors.

One day, he was tired and fell asleep by a tree. When he woke up, the hats were gone. At it turns out, the tree was full of monkeys, who had each taken a hat to put on their head.

The peddler tried everything he could think of to get those monkeys to give him back his caps. But all the monkeys would do is imitate the silly antics of the peddler. Whatever the monkeys saw the peddler do, they would copy exactly.

Finally, in disgust and frustration, the peddler gave up trying to reason with the monkeys and threw his hat to the ground. Immediately, all the monkeys did the same. At last, he got back his hats.

Monkey business is not all the different from human business. A lot of what is called strategic action is nothing more than imitating what someone else did.

There’s an old saying—“Monkey See, Monkey Do.” In other words, whatever actions a monkey sees, it will imitate. That was the basis of the story above. It is also the basis for a lot of what happens in the business world. If a competitor does something, firms frequently respond by doing the same thing.

The good news is that this behavior is rather predictable. When behavior is predictable, it is easier to build a strategy around it. The bad news is that the peddler did not proactively take advantage of that predictability. It was only by accident that he threw down his hat in disgust. Had he been more proactive, he would have realized sooner that the way to get the monkeys to throw down their hats would be to throw down his own (for more on this concept, see the blog “Mission Unpredictable”)

Of course, if he had done that, it wouldn’t have been much of a children’s story. But our goal is not to entertain children with silly antics. Our goal is to make money.

Rather than being like the peddler, who immediately got all emotional and quickly did silly things (which did not work), we need to take some time to assess the situation and then take advantage of the patterns we see.

Similarly, rather than being like the monkeys, who blindly imitated what they saw (and eventually lost their caps), we need to stop and see if there are better alternatives than just copying someone else.

The principle here has to do with “Action” and “Reaction.” The idea is that before taking any action, we should consider what the competitive reaction will be. In addition, if the competitor acts first, we should consider all of our options before reacting and not just blindly copy them.

Unfortunately, it appears that businesses act more like the monkeys in our story than reasoning strategists. McKinsey & Company has just released results of an April 2008 survey of 1,825 executives. These executives were asked about what they do when faced with serious competitive threats. They categorized two kinds of competitive threats: a price cut and a new innovation.

Based on the survey results, the majority of the respondents tended to react as follows:

1) They did not find out about the competitor’s action until late in the game, such as after it was already introduced to the marketplace.

2) They reacted slowly, often missing a couple of purchase cycles.

3) They only considered 1 or 2 possible response options.
- Options often based on “What did we do last time?”

4) They did not do a sophisticated analysis of those options:
- They only looked out a year or two.
- They did not look at return on investment or NPV
- They only looked at a couple of income statement measures like sales or net profits

5) They tended to respond with a monkey-like “me too” reaction:
- Price Cuts were met with a price cut
- Innovations were met with a copycat innovation

6) The response was internally motivated (stop our losses to competition) rather than externally motivated (hurt the strategic intent of competition or cause them to be no longer relevant to your customers).

7) They were content with how they reacted and would do something similar the next time.

So then, what can we learn from these results? First, let’s look at this from the point of view of the initiator.

1) There are indeed First Mover Advantages
If it is true that competitors tend find out about your actions late and react slowly, then there is going to be a period of time in which you have a competitive advantage. Therefore, there are advantages to taking the initiative and making the first move. We discussed this in an earlier blog (see “Early Bird”).

2) Expect Imitations
Although first movers have a window of time for their competitive advantage, it will not last forever. Eventually, imitators will copy your actions. For example, if you lower prices, that price will eventually be matched. In the long run, all you have done is lower the profit margin for the entire industry. If such a price war goes on too long, all the profits will be wiped out of the industry. Unless you are the lowest-cost operator, you will probably not be better off in the long run.

The same applies to innovation. The initial differential advantage from the innovation will eventually be narrowed and eliminated via imitations. On a relative basis, you are back to where you started in the marketplace.

Therefore, when running the numbers on your potential strategic action, only assume a short period of advantage. Put into your assumptions the likelihood of being copied and having the advantage narrowed. We discussed this in more detail in an earlier blog (see “Bombs Start Wars”).

Now, let’s turn our attention to what can be learned for those reacting to competition.

1) Reacting is not a way to Get Ahead
In the McKinsey survey, respondents claimed that their reactions allowed them to suffer less financial pain than had they done nothing. However, they still suffered some pain. At the end of the day, they were worse off.

If you want to gain ground, you need to become more of an initiator, rather than a reactor. Initiating does not always mean being first to introduce the price change or innovation. Initiating means being the first to get credit for the action in the mind of the customers. For example, Coke rarely is the first to do anything, but it reacts so quickly and completely that it gets the credit in the minds of the customer for the innovation. Companies seen as laggards rarely instill much customer loyalty.

2) Consider More Options
Wal-Mart has a great price strategy which works very well for them. However, if you compete against Wal-Mart and do nothing more than just copy their prices, you will fail. The business graveyards are full of discount store chains which ceased to exist because they were nothing more than an inferior imitation of Wal-Mart. By contrast, Target has succeeded because it provides a distinctively different consumer alternative. It did not imitate Wal-Mart. Instead, Target chose its own path.

There is more than one way to build a compelling value package. Don’t take someone else’s. Build your own. Build such a unique and compelling value package that consumers will not be tempted to switch when the competitor does something new, because the competitor is no longer relevant to your customer.

Companies seen as weak imitators never instill as much loyalty as a company seen as owning leadership in a distinctively different value space. As long as American automakers are viewed as weak imitators playing catch-up with foreign brands, they will continue to lose market share in the US. Instead, these automakers need to break out of the pack and find their unique point of leadership.

Business leaders often tend to act like monkeys and imitate others. If you want to get ahead, stop being a monkey and chart your own path. Move from monkey business to smart business.

Imitation may be the sincerest form of flattery, but differentiation is the surest path to sustainable profitability.