Wednesday, July 30, 2008

Analogy #196: Just-In-Time Learning

I had a boss one time who would often come back from top executive meetings with a particular look in his eyes. When we saw that look, we knew exactly what it meant. Right away, we’d ask him, “Okay, what did you just promise to the CEO that we would do, which right now we have no idea how to do?”

You see, this boss had a knack for promising to deliver a result, long before he even had a clue on how to deliver it. What he promised would often require expertise in an area where we had no prior experience. My boss just assumed that the team was smart enough to figure it out in time. And you know what, he was right. We always found a way to deliver. Sometimes, however, it required learning a lot in a short period of time.

This reminds me of someone I knew in the consulting business. He used to get called in to consult with businesses on topics he knew nothing about. As a result, the night before the meeting he would be furiously tapping into whatever resources he could find so that he could at least stay one step ahead of the client. He referred to this practice as “Just-in-time Learning.”

In today’s dynamic environment, future success often requires doing something new and different from the past. That is why innovation is often the key to making great, long-term strategic gains. By definition, innovation requires venturing into unfamiliar territory.

Therefore, if we remain only within our comfort zone, we will never transform into what is necessary for the future. We will stay stuck in the past—becoming “experts in the obsolete.”

Every large and exciting business sector in existence today at one time did not exist. Somebody, somewhere had to take a risk and create that business opportunity…long before there were any experts in that sector. After all, how could there be experienced experts in an area before it is created?

As my old boss and consultant friend knew, sometimes we need to stretch ourselves and venture into areas beyond our expertise. We need to commit ourselves to accomplishing things before we have a clue on how to deliver them. We need to become comfortable implementing strategies which require working with the unknown. In other words, we need to embrace “Just-in-time Learning.”

To succeed in such an environment, one needs to find that balance between embracing the unknown and minimizing the risks and dangers inherent in the unknown. Either extreme tends to lead to trouble.

For example, the only way to totally eliminate the risks and dangers of the unknown is to wait until everything is known. Of course, by then you have an industry which is totally mature. That is typically a time for consolidation (and people leaving the industry), not typically a time to enter a business. Plus, if everything is known, then it is more difficult to achieve a proprietary competitive advantage. The rules and standards are already set, the leaders are well entrenched, and much of the profitability has already been squeezed out of the business.

Finally, with mature environments, you run the risk that some new innovation is just around the corner, which will make all that “known” knowledge obsolete and require another venture into the unknown.

Conversely, a blind leap into complete darkness is also rarely a wise idea. That leap may be a leap off a tall cliff leading to nowhere but destruction. Not all new trails lead to the Promised Land. Some are just dead ends. In fact, most are dead ends. Back during the original dotcom bubble, a lot of people ran blindly into the unknown—with horrible results. There is not enough time and money available to afford running down every path into the unknown.

As a result, one needs that balance—a way to gain insight about the unknown, yet not have to wait until early mover advantage is gone. We’re calling this just-in-time knowledge.

Here are some tips for Just-In-Time Learning:

1. Look for Parallels
Although every new industry will evolve in its own unique way, there is often a parallel industry which has already taken a similar path. If you study the parallel industry, you can gain quick insights into what may occur in the new industry.

For example, the revolution in consumer-driven health care, such as in-store clinics and consumer-driven web resources, may look foreign and unknown to those schooled in the ways of traditional health care. However, it may look fairly familiar to people from other consumer-driven or information-driven fields, such as retailing or mass media. By tapping into these parallel industries, one can gain some quick just-in-time knowledge to help understand this new field.

Dr. Leonard Berry has for decades been one of the leading academic professors in the field of retailing. From 1982 to 2000, he was the director of the Center for Retail Studies at Texas A&M University. However, he has now turned his attention to applying that knowledge to other service industries which are entering areas that are unknown to them, but familiar to someone with a retail background. In particular, he has been focused on the health care industry, but has also looked into areas like banking. These are the types of people who can help with just-in-time learning.

2. Focus on Superior Solutions
Sometimes, we can get all caught up in the new technology or new technology applications and forget about serving the customer. Yes, new technology can often open up all sorts of new business opportunities. They can also lead to all sorts of business failures. Success or failure is typically not the fault of the new technology. It is how the technology is applied.

Take Twitter, for example. Twitter is a social networking, mini-blog type of instant alert. Many people are trying to find ways to build new business models around the Twitter technology. I suspect most of the ideas will eventually fail.

The way to increase your odds of succeeding is to step back away from the technology and look at customer solutions. People have all types of problems. They currently have ways to cope with these problems. If you want people to switch to your new business model, you need to provide a far superior way to cope with at least one of these problems. If this superior solution uses new technology like Twitter, great! If not, that’s great, too!

The problems of life are all pretty well known. The ways people cope with them today are pretty well known as well. Just-in-time learning will take these “knowns” and apply them to the unknown space to see if it provides a superior solution to what is already known.

Looking for cool ways to apply new technology tends not to be as fruitful as looking for better solutions to known problems (which may or may not use any or all emerging technologies). In fact, by focusing on the problem, you may end up having to create a technology which did not before exist. How cool is that!

3. Embrace Flexible Experimentation
Sometimes, the best way to learn about something is to perform an experiment out in the real world. Build some prototypes, open up the business on a small scale on a web page, or try out the business in a limited geographic area. There’s nothing like real world activity for learning.

The keys to experimentation in unknown areas are as follows:

a. Keep the Scale Small—you can be faster, waste less money…and if you make a mistake, the whole world doesn’t see it.

b. Be Flexible—Don’t assume that you have a perfect business model from the start. Be willing to try different variations of the business model to see which resonates more in the marketplace.

c. Be Authentic—The experiment has to be run like a real, for-profit business. At best, the customer should not even know it’s an experiment, but think it is the real thing. A little test with a few college students in a business school classroom is not a true experiment of the business model. Too many of the variables have been compromised.

4. Minimize Opinion Research
Some at this point would also advocate opinion research…or even do opinion research prior to or instead of experimentation. I disagree. You are working in an area which is unknown. Not only is it unknown to you, but it is unknown to your potential customers. It is probably even more unknown to the customers, because they haven’t been thinking about it as much as you have.

Asking people opinions about business models for which they have no experience is not very insightful. Sure, they’ll give you an opinion, but it is a guess. And often their guesses are way off course.

Trust me. I’ve done lots of consumer research over the years. Much of it is very useful. However, opinion research into new areas where the customer has had no personal experience is usually a waste of time. Asking consumers about their personal experience with your experiment, however, would have value, because we’ve moved from opinions to experience.

Successful strategies usually take businesses from their current area of comfort into evolving business models which are not yet fully known. To do this properly, one cannot afford to wait until all the knowledge is known. Yet it is also risky to jump in without any knowledge. This is when Just-in-time learning is needed.

I once worked with a President of a retail brand which was going through some tough times. I suggested some changes, but he resisted them. He told me that he had been in this industry for decades and knew how things were supposed to be done. He said if you change the rules, customers would be unhappy. All I could think of was the fact that another retail brand owned by the same firm was far more successful than his because it totally rewrote the way things were be done.

Sometimes you have to go out on a limb and rewrite those rules.

Monday, July 28, 2008

Analogy #195: This Logic Smarts!

When I was younger, I loved to listen to political and social debates. Over time, I noticed that many debaters used the tactic of “Knowledge” in their debate. The tactic goes something like this. “The reason someone disagrees with my position is because they have not yet become fully informed of all the facts. Once they hear all of the facts, they will see the obvious correctness of my position.”

At first, this sounded logical to me…the more knowledgeable a person, the better their decision. But then I thought, “Wait a minute!! This logic is horribly flawed!”

I soon realized that:

1) What the person was really saying was that anyone who disagreed with them was either stupid or ill informed. I knew this was a lie. There are almost always smart and stupid people on both sides of an issue. In addition, there are almost always well informed and ill informed people on both sides of an issue. If you don’t believe me, go to any political discussion site on the web. There’s plenty of craziness (and a rare bit of factual lucidity) on both sides. Rather than using facts to form an opinion, it seems that people first form opinions, and then selectively look for facts to support the opinion.

2) By claiming the “knowledge” tactic, one no longer had to logically prove one’s point. Rather than try to persuade you with logic, they would just say that you need to learn more. They would dismiss your points as coming from the ill-informed and expect you to believe them at face value because they were the so-called “expert.” This is not debate. This is slander.

The idea that, if we could just provide people with a little more knowledge, we could eliminate poverty, war, disease and any other political/social/economic ill no longer works on me.

If you still like the “knowledge” tactic, then I have a proposition for you. I think that everyone on the planet should send me $100. If you had all the facts on the issue, you would come to the conclusion that giving me $100 is the right thing to do. If you still do not agree with me, then you need to spend more time learning the true issues. Or better yet, just trust the people “in the know” (like me) and just hand over the money.

Strategic debates in a business can often be similar to political debates. Just as there can be opposing points of view in politics, there can be opposing points of view in strategy. Different parts of your organization may have radically different visions of where the company should be heading (or how to get there).

How these debates are handled in your organization can have a large impact on the success of your strategic process (and ultimately the success of your business). The logic in political debates is often flawed. Don’t let those flaws creep into your strategic debates.

The principle here is to not fall victim to sloppy reasoning. Sloppy reasoning can lead to half-baked or incorrect conclusions. Flawless execution of an incorrect strategy just means that you destroy your company in a faster, more efficient manner. Attention to the logic behind your conclusions, then, deserves at least as much attention as the rest of the strategic process.

Although there are many ways in which a company can fall victim to sloppy reasoning, we will focus on just one of them—the knowledge flaw. The knowledge flaw is similar to the knowledge tactic mentioned in the story. In strategic reasoning, the flow usually goes something like this.

1. Management believes that they have a great offering for the consumer.

2. Objective data, such as sales, market share and consumer research show that the consumer is not giving you the credit you think you deserve for your great offering.

3. Therefore, management concludes that the problem with the company is that the consumer just doesn’t understand how great the offering is. If we can just educate the consumer to how great we are, all our problems will be solved.

This logic can also be applied to the stock price. I’ve rarely ever met a CEO who thought their stock was overpriced. Invariably, CEOs truly believe that their company is superior in value to the price where the stock is trading. Therefore, they conclude that the problem is that stock traders and analysts are ignorant about how great the company truly is. If we can just educate them and give them our knowledge, the stock price would skyrocket.

In a few cases, it is indeed true that giving the customer or the stock analyst more information will be beneficial to you. My experience, however, is that this is rarely the bulk of the problem.

The flaws with this line of reasoning tend to be as follows:

1. Thinking too highly of your own offering.
We tend to have a natural bias towards our own brand. We take pride in our company and see it in its most favorable light, overlooking its flaws. After all, the company is a reflection of us, so if there is something wrong with the company, it can feel like there is something wrong with us. Hence, we tend to exaggerate how good our offering truly is.

Well guess what…the customer has none of that prideful bias towards us. They are a lot more skeptical. They will probably not see the offer as glowingly as you do.

2. Not thinking highly enough of the competitor’s offering
Just as we tend to see ourselves too favorably, we tend to see our competitors in an exaggerated negative light. To us, they are the enemy, and we tend to develop an emotional hatred towards our enemy (even if not rationally justified).

Well, to our customers, the competitor is not an enemy…it is just an alternative option. They will see the same thing we see in the competitor, but probably not classify it in such a negative light.

As a result of these first two points, we may see ourselves as far superior to competition, but our customers may see us as equals…or maybe as inferior. Giving them more knowledge probably won’t change their mind, because they are not seeing it in the biased manner as we see it. It will be just more of the same which formed their earlier opinion.

3. Mistaking greatness with superiority
Just because you have a great offering does not mean that others will flock to your door. In most mature industries, all of the competitors are very, very good and most are pretty great.

A great offer may only give you parity with others, not superiority. People rarely change their purchase patterns just to achieve parity with what they had before. If you want people to switch to you, you need a point of differentiation where you can claim superiority. Mere greatness is not good enough.

4. Ignoring the law of entrenchment
Even if you can achieve a small level of superiority, it may not be enough if you are the challenger to the leader. Entrenched leaders have a strong brand image. They also benefit from having habitual behavior patterns in their favor. Customers tend not to switch their comfortable and satisfied behavior away from the leader unless the superiority you offer is extremely compelling. It must be a large differential.

Think of the “King of the Hill” game. If you are on top of the hill, you can usually still defend your position against people who are slightly stronger than you because of the leverage advantage from being on top. That same advantage applies to market leaders. So even if you are a little better, it might not be enough.

5. Thinking too lowly of your customers
You may think you can trick customers into preferring you. You may be able to fool them once, but after that, look out. They will take revenge. Blogs and web pages will blast away against your trickery. You will end up worse than where you started.

6. Expecting too much from your customers
Customers lead busy lives. Their minds are focused on the all the little crises in their daily lives. You’re lucky if you can get them to think about you for a few nano-seconds each day. If it takes long, serious contemplation to ascertain why they should prefer you, then you have probably lost them. They will not take the time to find those little nuances that make you special.

They may be obvious to you, but you think about them for most of the day. Your superiority needs to be immediately apparent and quick to grasp. Why is the Prius the leading hybrid car? It is because its distinctive shape makes it easy to quickly determine that it is a different kind of car. Putting a hybrid engine in a regular-looking vehicle is too subtle…not enough bragging rights for the owner.

7. Ignoring the full realm influences on behavior
We may see ourselves favorably based only on rational attributes directly related to the offering at hand. Our customers evaluate us both rationally and emotionally, and use factors which transcend just the offer at hand. They may not like us because of our carbon footprint, the nation where we come from, a bad experience their uncle had 15 years ago, or whatever. Carrefour is having difficulties in China…not because of what they have done, but mainly because many Chinese are mad at the French and this is the one way they can get back at them.

It is easy to think that everything is fine with your strategy, even if results are a little disappointing. You rationalize that the customer just doesn’t have all the facts yet. To fix the situation, all you think necessary is to help the customer learn why you are so wonderful. In reality, if you are having problems, it probably means that there are problems with your strategy. As we have seen, many things can blind you to your true position in the marketplace. Your strategy may not be as compelling as you think. Take off the rose-colored glasses and truly discern your strength as the customer sees it. Their opinion is more important than yours.

I’ve seen many leaders of companies blindly use only the products they produce. They stop buying competitor products out of principle, or a sense of loyalty, or to set an example. Unfortunately, they moment people do this, they cease to have any semblance of normalcy as a consumer. If you never experience the competition, then how do you know well you compare to them?

Wednesday, July 23, 2008

Analogy #194: A Bigger Better


Once upon a time, there were two small neighboring kingdoms: the Kingdom of Lin and the Kingdom of Bath. Because they were small, both kingdoms were afraid that a larger kingdom would invade each of their territories and take them over. The King of Lin and the King of Bath got together to discuss the issue. They decided that the best thing to do would be for each kingdom to build a giant monster to scare away their larger enemies. So each king went back to his kingdom to build a monster.

The King of Lin wanted to get a monster built as quickly as possible, so that he could scare the enemy right away. Therefore, in only a few days, the kingdom of Lin had built a huge monster-like puppet out of cloth and paper mache. The monster came with stilts. A man would climb into the puppet and parade around the castle in it by walking on the stilts. From a distance, it looked pretty scary.

The King of Bath took a different approach. Rather than just building a monster that looked scary, he wanted a monster that was scary. Therefore, he decided to build a huge, mechanized iron robot, complete with weapons. It took a lot more time and effort and resources to build this robot. As a result, the kingdom of Bath had no monster for awhile, leaving them vulnerable to attack. However, once the mechanized iron robot was completed, he was a frighteningly effective weapon. The iron robot was not as large as the paper mache puppet, but much more powerful.

When the larger kingdoms came to attack Lin and Bath, they were at first frightened by Lin’s giant paper mache puppet and stayed away. The people of Lin were so confident in their puppet that they got lazy and failed to prepare for war. Eventually, however, the enemy figured out that this puppet was not a real threat, so they attacked the kingdom of Lin and easily took it over.

By contrast, the efforts in building the iron robot taught the people of Bath much about weapon design. And because they had to go a long time without their monster, they always kept alert and prepared for war. As a result, the invading armies could not defeat the people of Bath. In fact, the kingdom of Bath became so strong that it started invading other kingdoms and enlarged its territory, including taking over the area formerly held by the King of Lin.


In the business world, a lot of emphasis is placed on speed and size. The general consensus is that good planning should help you become big, and do it as quickly as possible. Bigness is desired to create economies of scale and momentum with the consumer so that you can survive any industry shakeout. Speed is needed to get “first-mover-advantage” and keep ahead of the competition in a rapidly changing world.

Although size and speed can be good things, it is not always the case that the biggest and the fastest wins.

If you want to become “big quickly” in the worst way, you may find the worst way to become big quickly. This is what happened at the Kingdom of Lin. Yes, they were faster and yes, their monster was bigger, but the Lin creation was not a real monster. It was just a phony puppet.
The puppet gave the kingdom of Lin a false sense of security. Once reality was known, the kingdom was overrun by invaders who were not afraid of paper mache.

The output from the kingdom of Bath was not as big, and it took a lot longer to create. However, in the end it was a very powerful weapon, capable of beating its foes.

Therefore, in businesses, we must not always just rush head-first into a blind mad dash for size and speed. Not everything big is powerful. Sometimes all one builds is a big pile of junk.
Quality and sustainability must also be considered. Therefore, it is better to take the path of Bath than of Lin. We shall see a specific business example of this below.


The principle here is that size and speed are only relevant if the outcome is strong and powerful. Not all paths to quick size create this type of outcome. For example, one way to get big quickly is to go on an acquisition binge, buying every business in sight. Unfortunately, most acquisitions are not cost effective and the process of trying to integrate a lot of different businesses quickly can lead to a real mess. In most cases, this path may get you big quickly, but it usually collapses under its own weight and leads to self-destruction.

Another way to get big quickly is to try to buy market share at any cost. This is what happened at the height of the original dotcom bubble. The idea was that being big and being first would eventually pay off in the long run, even if the tactics looked foolish and expensive in the short run. Unfortunately, many of these business models were as phony as that paper mache puppet. It didn’t matter how big or how fast they grew. They were based on models too weak to survive, and eventually collapsed. Had more time been spent on the quality of the model, rather than the size, more would have survived.

Sometimes, however, the principle can be more subtle. Let’s look in detail at a comparison of two US retailers—Linens N Things versus Bed Bath and Beyond. If one went back to the years 1993 and 1994, the two companies would look rather similar. Their size in terms of sales were very similar—both having sales of around $375 million. They were both the big leaders in their industry. Their net profits back around 1993 and 1994 were also similar, at about $25 million (a fairly healthy 6-7% of sales.

On the surface, it would have appeared in 1993/1994 that the two firms were very similar…same basic store format with similar sales and profits. Both appeared to have gotten big quickly and both looked like they had a bright future. Some might have argued that Linens N Things had a slight edge. It was slightly bigger in sales than Bed Bath & Beyond and it had the strong backing of its owner, the Melville/CVS organization. Hence, it was bigger on its own, as well as the advantage of being a part of a big retail conglomerate.

However, if one moves forward to today, one would see a much different picture. Linens N Things recently declared bankruptcy and is rapidly shutting down a large number of its stores. By contrast, Bed Bath and Beyond is even more profitable now as a % of sales than it was back in 1994.

Even before the bankruptcy, one could see the vast differences in their fate. If you average the performance for 2005 to 2007, Bed Bath and Beyond had sales of about $6.5 billion, which was 2.3x the sales of Linens N Things. The gap was even larger when it comes to net profits. Bed Bath and Beyond had net profits of 8.8% of sales while Linens N Things had a loss of 3.8% of sales.

How could two companies which looked so similar in 1994 look so different in 2007? As it turns out, although both firms were similarly big in size 2004, the quality of that bigness differed significantly.

Linens N Things had built their bigness like the kingdom of Lin, out of paper mache. By contrast, Bed Bath and Beyond built its bigness like the kingdom of Bath, out of strong iron (notice the similarity in the kingdom and company names?).

Let’s look at the income statement in more detail. Although both companies had similar profitability in 1994, they got there by different paths. Linens N Things at the time had a cost structure (Selling, General and Administrative Costs) that was 14% higher than Bed Bath and Beyond. It’s sales per store were less than 40% those of Bed Bath and Beyond.

In essence, Linens N Things had terribly unproductive stores (in terms of both sales and costs). In contrast, Bed Bath and Beyond had strong and productive stores. The only reason why Linens N Things could match up with Bed Bath & Beyond back in 1994 was because:

a) Linens N Things had a lot more stores than Bed Bath and Beyond (143 vs. 61). Thus, although the stores were less productive, there were a lot more of them.

b) Linens N Things had the backing of Melville Corp., so it was able to avoid long term debt (and interest expense). Linens N Things had no long term debt at the time, while Bed Bath & Beyond did.

However, over time, the added productivity at Bed Bath and Beyond gave them the cash flow to eventually build more stores than Linens N Things (by 2007 Bed Bath and Beyond had 1.5x the store count of Linens N Things). Also, the productivity allowed Bed Bath and Beyond to get completely out of long-term debt. By contrast, the financial troubles at Linens N Things forced it into a highly leveraged privatization.

In other words, the monster of Linens N Things in 1994 was paper mache. It was a weak and ineffective business model. It only looked strong back then because they got a lot more stores open earlier (like the kingdom of Lin who got their monster built earlier).

By contrast, Bed Bath and Beyond took longer to develop a stronger business model. But when developed, it was as strong as iron (like at the kingdom of Bath). Eventually, the iron wins out over the paper mache.


Size and speed are not enough. If what you are building is weak, it will not stand—no matter how large. In the end, quality of the business model is most important. You can be a little slower, if you are ultimately better. This is not to say that superiority wins if you remain slow and small. But superiority creates a better environment for building size quickly which is sustainable over the long haul.


In planning meetings, I’ve witnessed a lot more time being spent on looking for growth than in looking for superiority. Lots of talk on tactics to improve sales or talk on expansion but much less time on molding a better business model. The irony is that if the business model is superior enough, you won’t need to spend so much time working on sales and expansion—it will come almost on its own.

Wednesday, July 9, 2008

Analogy #193: Chase or Stand

Once upon a time, there were two dogs—Bingo and Duke. Both loved to chase cars.

Bingo especially loved convertables. Whenever Bingo saw a convertible going down the street, he would chase it. Wherever the car went, that’s where Bingo went, mile after mile after mile. It was very tiring for Bingo, but he found it very satisfying. Occasionally, he would even catch the convertable.

Duke had a different approach. He would hang out at the race track. Rather than run after the cars, Duke would just stand by the edge of the track. Duke knew that he wasn’t fast enough to catch those race cars, but he also knew that because the track was oval, eventually those cars would come around and be right next to him again. Every time the car completed a lap, it had to pass by Duke. Each time the car passed by, it felt to Duke as if he had “caught” the car.

At the end of the day, Bingo would be extremely tired and have very few “catches.” By contrast, Duke would be well rested and have lots of “catches.”

For the dogs in the story, the goal was to catch a car. For businesses, the goal is typically to complete a transaction with a customer.

Each dog took a different approach. Bingo locked in on a particular type of car and chased it wherever it went. Duke locked into a particular location and let the cars come to him. Both had success.

During the strategic process, one must choose a method for creating customer transactions. One can either lock in on a particular customer segment and chase it like Bingo, or one can lock into a position and let the customers come to them (like Duke). Both can work. But you have to make a conscious decision during the planning process as to which option you are going to choose.

Strategies are based upon finding the best way to sell something to somebody. This involves making some choices:

- What to Sell (product/benefits strategy)
- How to Sell (the winning formula, the attribute strategy)
- Who to Sell to (the marketing target strategy)

When choosing the “somebody” of strategy, there are essentially two options: Chase or Stand. Chasing is all about following a particular customer. Wherever they go, you try to anticipate and serve them, just like Bingo.

Standing is about owning a particular solution and then serving whomever crosses your path in need of that solution. Customers come and go, but you stand solid. This is what Duke did.

Are you going to be person-focused (chase) or solution-focused (stand)?

This question comes up in business all the time. Take MTV, for example. Over the years, it has created strong bonds with teenagers. Unfortunately, teens eventually grow up and become twenty-somethings. This leads to a strategic choice—do you “grow up” with the audience that loves you and chase them into their twenties (person-focused) or do you let them go and wait for the next crop of teens (solution-focused)?

There are pros and cons to each. On one hand, it’s hard to create strong consumer bonds to a brand. Once you have a customer who loves you, why let them go? Why not chase them into adulthood, modifying the brand to keep up with their changing demands? This is what Bingo would do.

On the other hand, MTV knows the youth market. They may not succeed in the transformation to older fare. And, just as Duke knew that the cars would keep coming, MTV knew that there would always be more teens coming down the road. So why not stick to the teen position?

One thing MTV did know is that they could not succeed with both alternatives using the same brand. They had to make a choice. MTV chose to be like Duke—stick to its position and then grab each generation of teens as they passed by. VH1 then became the brand you were supposed to migrate to when you grew up.

This strategic choice worked well for a long time. Unfortunately, the latest crop of teens is less enamored with a TV-centric approach. Brands like You Tube and Ipod are starting to take the place of MTV. Like an old dog, MTV was slow to learn the new tricks. Just because you choose to stand does not mean that you can stop innovating.

Sears right now is trying to win over the teen customer. They have set up a prom website, are starting an exclusive line of teen clothes from LL Cool J, and are partnering with MTV on the movie “The American Mall.”

This strategy will be tough. Other retail brands already have strong bonds with that segment. Sears’ current strength is with older customers who remember the glory days of the brand. Perhaps Sears would be best served finding more ways to chase the older customer through time—to migrate the brand into exciting new areas which appeal to the boomers as they age.

Let’s look at a couple of grocery retailers: 7-Eleven vs. Whole Foods. 7-Eleven is not chasing particular people, they are owning a position—convenience. Sometimes people are looking for convenience, sometimes they want something else (selection, low price, etc.). 7-Eleven is counting on the fact that although you may not want convenience all the time, almost everyone wants convenience some of the time. 7-Eleven doesn’t care about chasing those people around as their desires change. They just stand firmly on convenience, and take whomever at that moment wants convenience. As long as there are enough of these desires at any time, the strategy works.

By contrast, Whole Foods is locked into a particular type of person—someone who sees food as more than just fuel. They have a passion for health, wellness and natural, organic items. Whole Foods will chase this customer wherever they go. That is why Whole Foods has expanded into healthy organic restaurants, healthy organic catering, natural organic health care and well-being products, and so on.

When chasing, you typically want to grab a large percent of the spending over a large span of time from a small group. This is the “share of wallet” or “Lifetime Value” strategy—empty the pockets of a small group who loves giving you their money for all their needs.

When standing, you don’t mind taking a small percentage over a short period, provided to total demand pool is large enough. This is more of a “toll booth” strategy—grab a little from everyone as they pass by.

For another example of chasing versus standing, let’s look at the retailing of Christian-related products. On the one hand, there are Christian “Bookstore” chains, like Lifeway that are chasing the advocate of the Christian lifestyle. I don’t even know why they call them bookstores anymore…books are only a small part of the mix. Instead, they are selling the entire Christian lifestyle. They have coffee bars, hold Christian music concerts, and sell tons of knick knacks with Bible verses on them.

These Christian lifestyle stores are going after that lifetime share of wallet. They chase a small group of people (those advocating a Christian lifestyle) and try to sell everything related to that lifestyle. Whatever the latest fad is in that lifestyle, they are there, because their customer is there.

By contrast, Wal-Mart also sells some of this Christian merchandise. But Wal-Mart is not chasing this customer. They are standing firm on low price. As the economy ebbs and flows, the number and types of people who are looking for low prices varies, and Wal-Mart takes whomever is interested in low prices at that moment.

Some of these people are interested in Christian literature at a good price, so Wal-Mart sells it. However, Wal-Mart also sells literature that has nothing to do with Christianity. So rather than trying to get all of the Christian advocate’s wallet, Wal-Mart is just looking to get a small “toll” from them as well as all sorts of other people who are drifting through a price sensitive phase of their life.

Strategy is about making choices. One choice to be made is how to approach consumers. Either you can focus in on a particular group and go wherever they go (chasing strategy) or you can focus on a solution and grab some money whenever someone drifts into needing that solution (standing strategy). Both can work, but your strategy will most likely fail if you try to do both. You have to make a choice.

There are these rope chew toys for dogs where the dog clamps its mouth on one end and the owner grabs the other end. The game is to see if the owner can yank the rope out of the dog’s mouth. Almost always, the dog wins, because they have such a strong grip on the rope. Whether you are using the rope of chasing (chomping on a group of customers), or the rope of standing (chomping on a solution), you need to grab on as tightly as those dogs do.

Tuesday, July 8, 2008

Analogy #192: Pick a Pew

Back when I was a young boy, my family took a summer vacation to New England. One of the places we visited was a church which claimed to be one of the oldest churches in the US still in operation.

One of the things that I found interesting was the fact that the many of the church pews had names engraved on them. The tour guide said that the in the old days, the wealthy people would donate large sums of money to the church. In return, the church would put your name on a pew. That spot became your spot in the church, and was where you were expected to sit during the church service.

The more money you gave, the more prominent your location. It sort of reminds me of the luxury suites at the sports stadiums, where wealthy corporations can buy the best seats at the stadium.

I figure there were some disadvantages to everyone knowing where you sat at church. First, everyone would know if you didn’t show up. Second, it would be hard to just sneak into the church late.

In many ways, having engraved assigned seating at church also created some advantages. First, you didn’t have any trouble finding a spot, since one was reserved for you. And everyone knew where everyone was, so it was easy to locate each other. There was also a sense of orderliness and predictability.

Good times in business also tend to follow this same pattern. Everyone knows who you are and where you belong. You have a special position in the marketplace which belongs to you. None of your competition can take your seat. The more you invest, the more prominent your position. There is stability and order.

Sometimes, I am asked to explain good strategy in as few words as possible. On those occasions, my response is this: “Pick a pew and then sit down.”

By “pick a pew,” I mean that strategy is first about making good choices about where to locate yourself in the marketplace. Just as there are lots of pews in a church, there are lots of positioning options in the marketplace. And just as some pews are better located than others, so some business positions are better than others.

It’s virtually impossible to stand for everything in the marketplace. Typically the best approach is to find a more narrow set of attributes where one can excel, rather than being mediocre at everything. You have to make some tradeoffs and choose to narrow your sights on specific location where you can win. We talked about this in detail in the blog “Strategy is Like Barbeque Sauce.”

Les Wexner of The Limited uses the term “best at.” What are you best at? If the marketplace cannot quickly and uniformly mention what you are best at, then you have done a poor job of picking your pew. Your position should be so easily identifiable that it is as if your company’s name is permanently engraved on that pew for all to see.

If you haven’t picked out and staked a claim to a pew, then you are stuck with whatever is left. Rarely is that a prime location. The same is true in business. So step one is to make that choice: finding the best unclaimed pew for which you have sufficient resources to secure. In other words, “pick a pew.”

The second step is to “sit down.” By this I mean that businesses need to settle into that position. As an old consultant once told me, “Great positions are hard to find. Once you get one, ride it for all it’s worth.” If a company keeps moving around, it will confuse the marketplace and the employees. Nobody will really give you strong credit for your position, because it changes too often.

If you move around and try to sit everywhere, you will end up sitting nowhere in the minds of the marketplace. However, if you stick it out for the long haul in the same location, everyone will instantly associate you with that location. That strength of image can then be used to extract additional value out of the marketplace.

Apple picked the pew of elegant innovation. Whatever Apple introduces is a great, highly functional innovation encased in sleek design. People who desire this give Apple so much credit that they are willing to pay a premium for the privilege of owning an Apple product. New products are accepted quickly because of the reputation consistently built over time.

If Apple walked away from its pew and started to litter its portfolio with “me, too” products in ugly packaging, it would ruin that image. Customers would stop trusting what Apple stands for. New “innovations” would be met with more skepticism. Profits would drop.

When you sit down in your pew, you are firmly and clearly staking claim to that spot. Nobody can take that spot away from you unless you stand up and walk away from it. The more clearly you can communicate where you have chosen to sit the better (see “Clarity”).

Sitting down does not mean that you have to do the same thing forever without change. Apple has transformed its business in many different directions over time. The secret is that every transformation is consistent with the chosen pew—elegant innovation, be it in computing, music, cell phones or retailing.

Wal-Mart picked the pew of low price and has sat there for more than 45 years. The way it delivers that low price has changed from discount stores to supercenters. In addition, Wal-Mart has created many new supply chain innovations to improve its ability to deliver low prices. Even its recent efforts in environmentalism are rooted in eliminating the environmental waste which drives up costs.

Because of the strength gained from sitting in one place for so long, when the economy recently weakened, customers who became more interested in low prices instantly knew where to go. They went to Wal-Mart in droves.

So the principle here is not to continually change your position at every whim. Sit down in one spot and work on improving your ability to deliver that position. Intensification beats meandering every time.

Good strategy can be defined as simply as “Pick a pew and then sit down.” In other words, choose a position and then stick with it, always trying to intensify on one’s ability to deliver on that position.

I’ve seen people fret so much about picking the right pew that they never truly make a choice. The fear of making the wrong choice paralyses action. In reality, there are usually many viable positions in the marketplace. Just pick one and stop second-guessing yourself.

Thursday, July 3, 2008

Analogy #191: Plugging Along

Ever since Mary had children, she has been excited about setting up the Christmas tree—especially seeing the glow of all the colorful lights on the tree. Well, Christmas time was here again, so Mary eagerly set up the tree.

After setting up the string of lights on the tree, she tried as hard as she could to get the lights to go on. Unfortunately, nothing happened. Mary thought that perhaps the bulbs needed to be rearranged, so she moved all the bulbs around on the string of lights. Still, there was no light.

Then she thought that perhaps she needed to replace the old bulbs with new bulbs. Mary tried that and still got no light. Mary was starting to get desperate. She thought about how she had placed the string of lights counterclockwise around the tree. Maybe, thought Mary, if she put the string of lights on the tree clockwise they would work. So Mary restrung the lights in the other direction, but still the lights did not go on.

Finally, Mary’s little son Bobby came by. Bobby watched his mother struggle trying to get the Christmas tree lights to go on. Finally, Bobby said to his mother, “Mom, why don’t you try plugging the lights into the wall?”

Mary is not the only one who sometimes has trouble getting things to work properly. Businesses deal with poor performance issues all the time.

Mary’s responded to a lack of performance in her Christmas lights by trying reorganization. First, she reorganized the location of the bulbs. Then she tried an organization of new bulbs. Finally, she reorganized how the string of lights laid on the tree.

When businesses get into trouble, they often first try a little reorganization as well. Think of those Christmas bulbs as being like people. We can reorganize by shifting people around in the organization or in bringing new people into the organization. And changing the way the string of lights is put on the tree is like redrawing the lines on an organization chart—same bulbs, just shifting their orientation towards each other.

Mary’s problem was that without the power of electricity, it was irrelevant how she organized her bulbs. They were not going to light up until she plugged them into the wall socket.

The same is true in business. Unless there is power flowing through the organization, it is powerless to function properly—regardless of the way it is organized.

The principle here is about understanding how plugs and switches impact organizational effectiveness. Often times, a little work on fixing the plugs and switches will create far greater productivity gains (faster and more economically) than work on totally reorganizing the business.

Switches turn power on and off. In the business world, many people can have the ability to give or take away permission to get something done. These are the people or processes which can give the “okay” or can veto the action. The “okay” turns the switch on and the veto turns the switch off.

Plugs are what connect us to the source of power. In today’s environment, one of the great sources of power is knowledge. The more connected you are to the knowledge, the more powerful you can be. Taking away access to that knowledge is like unplugging the string of lights. The illumination disappears.

Three consultants at Booz & Company (Gary Neilson, Karla Martin, and Elizabeth Powers) have an article in the June 2008 edition of the Harvard Business Review. The title of the article is “The Secrets to Successful Strategy Execution.”

In this article, the authors talk about their research into the effectiveness of organizations at implementing their strategies. After studying over 1,000 organizations, they found that about 60% have trouble translating important strategic decisions into action. In my terminology, although everyone had the beautiful string of lights, only 40% were able to get them to light up.

The Booz & Company consultants looked at four factors which might cause the lack of action:

1) Access to information (in my words “are you plugged in?”)
2) Decision Rights (in my words “who controls the switch?”)
3) Motivators (in my words “desire to see the lights go on”)
4) Structure (in my words “how the bulbs and string are arranged on the tree”)

What the authors discovered was that getting the plugs and switches right (information and decision rights) was twice as important as getting the motivation and structure right.

The authors concluded that rather than rushing to reorganize, businesses should first spend time fixing decision rights and access to information. In my terminology, first make sure you have not done anything to cut off access to power. Then you can play with improving the beauty of how the lights look on the tree. Without the power, the structure is irrelevant.

The article provides 17 traits that characterize organizations which are effective at translating strategy into action. All of the most powerful traits revolve around plugs and switches.

#1) Everyone has a good idea of the decisions and actions for which he or she is responsible. (In my words, everyone knows where the switches are and who is in charge of each switch. In addition, each person with a switch knows what they are supposed to do with it).

You can’t be effective at “doing” if people don’t know what to do. And even then, you cannot do it if organizational power is not flowing in that direction. And unless someone is specifically held responsible for monitoring that flow, it can be subverted. All of the “okays” (switch is “on”) need to aligned with the strategy and all of the vetos (switch is “off”) need to prevent hindrances to the strategy.

This means that you can’t have a bunch of half-informed people clamoring to get their hands on the switch. They’ll be turning the power on and off in all sorts of directions. At best, you will get a little flicker of light. At worst, you’ll blow out a circuit. It helps if the keeper of the switch is close to the action and can see the lights, rather than isolated at headquarters.

#2) Important information about the competitive environment gets to headquarters quickly. (In my words, keep the headquarters plugged into what is going on in the field.)

You cannot make good decisions based on outdated or inaccurate information. Decision makers need to be plugged into the current reality of the situation in the field.

#3) Once made, decisions are rarely second-guessed. (In my words, once a switch is turned on or off, it is left alone in that position)

Inability to delegate can cripple action, since it creates a huge bottleneck at the top. Push those switchboxes down into the organization, tell the switch-holder what his or her responsibility is, and then trust them to handle the switch properly. Don’t keep second-guessing them.

#4) Information flows freely across organizational boundaries. (In my words, keep everyone plugged into the same circuitry.)

Most every successful action these days requires interdisciplinary cooperation between multiple functions. You cannot do it alone. Put egos aside and work together. Share your power and knowledge. If you put more than one string of lights on your tree, they only work if they are all plugged into each other on the same circuit.

#5) Field and line employees usually have the information they need to understand the bottom-line impact of their day-to-day choices. #6) Line managers have access to the metrics they need to measure the key drivers of their business. (In my words, they keepers of the switches know how their choices impact the big picture).

The field operators need to be plugged into the rest of the organization, so that they can receive the proper information feedback. Ignorance rarely creates great decisions. Wrong behavior won’t change if you did not know it was wrong.

One of the biggest contributing factors to the housing credit melt-down was that the ones approving the credit were disconnected from the big-picture risks they were creating. By disconnecting the sales making from the risk-taking, a mountain of bad risk was created.

When results are disappointing, rather than rushing in to reorganize everything, focus on your switches and plugs. Make sure the switches are pushed down into the organization, given to knowledgeable people who are empowered to make the decisions. In addition, make sure everyone is plugged into the information grid, so everyone is both informed before making decisions as well as can see the impact of their decisions.

Back in the early days of PCs, before they had much memory, you had to save everything externally on huge floppy disks. One day back then, I had worked long and hard on a project and started to save it onto the floppy disk. While saving, a colleague tripped over the electrical cord to my PC and yanked it out of the plug. The computer stopped, and all of my work was destroyed. Don’t destroy all of your strategic work by getting it unplugged from the organization.

Wednesday, July 2, 2008

Analogy #190: Who's Bribing Whom?

Back around 100 years ago, San Francisco was a pretty wild place for doing business. The city was growing rapidly and it was busy putting together its infrastructure—utilities, transportation, etc.

If your company became a part of that infrastructure, you would become extremely wealthy. Therefore, companies were highly motivated to use bribery to convince the San Francisco city aldermen to include their companies in that infrastructure.

Examples of companies who were bribing city officials at the time included PG&E (Pacific Gas & Electric), Bay Cities Water, and United Railroads. United Railroads had a $200,000 pool of money just to be used for bribery (which would be a huge amount in today’s dollars).

One of the biggest scandals was in the telephone utility. Pacific Telephone and Telegraph was currently serving customers in San Francisco. Newcomer Home Telephone Company wanted a piece of the action and allegedly paid $5,000 per official to get approval, along with $125,000 for political boss Abraham Ruef. Of course, Pacific Telephone did not want to lose its monopoly, so it bribed the officials to keep out Home Telephone. They supposedly spent about $50,000 in bribes.

Home Telephone appears to have made the bigger bribes, so on March 5, 1906, the San Francisco city supervisors awarded Home Telephone Company a 50 year franchise to operate in the city.

While the city was using bribery to build up the city, Mother Nature decided to tear down the city. On April 18, 1906, little more than a month after the Home Telephone decision, San Francisco was destroyed by a great earthquake and a fire lasing four days. Shortly after cleaning up from the earthquake, the city cleaned up its government. In March of 1907, the city officials and the businessmen who bribed them were convicted in a court of law. Abraham Ruef was charged on nearly 70 counts of accepting bribes.

Although most businesses today do not resort to the level of bribery found in San Francisco 100 years ago, “bribery” is extremely common today. I’m not referring to the illegal type of bribery, but a legal form of bribery.

In reality, any time one must resort to added incentives to get a customer to make a purchase, you are “bribing” them. In essence, these incentives show that you cannot create sufficient sales at the original value, so you have to “bribe” people with something beyond the original value (such as a price cut), in order to get them to act as you want and buy your product/service.

Recently, I got a call for a time-share resort company who was willing to offer me all sorts of prizes and gifts in order to get me to drive to their resort to hear a sales pitch. All of their bribery in incentives was not enough to get me to go, though. It would take a much higher bribe to get me to overcome my lack of desire to hear their sales pitch.

The worse your original value proposition, the higher the bribe (in added incentives and price cuts) is needed to get customers interested in making a purchase. Ultimately, this cuts into your profits. Although this type of bribery will not get you convicted, it is not a very efficient way to earn profits.

The principle here is that offerings with an inherently strong internal value are typically more profitable than offerings where bribery is needed in order to create sufficient value.

Take, for example, the automobile industry. GM and Ford are currently offering huge bribes in terms of incentives and price cuts in order to sell their slow-moving gas guzzlers. By contrast, Toyota can sell all of the Hybrid Prius automobiles they manufacture at full-price (and a premium price at that).

Because the Prius is more in tune with what customers want, Toyota does not need to add any bribes to the offering. The basic offer is strong enough on its own and can command a premium price. On the other hand, the big gas guzzlers at Ford and GM are out of tune with the marketplace. Consequently, they have to load on so many bribes to move the goods that there is very little left to create a profit. As a result, GM is in serious risk of going into default, while Toyota is doing well.

This is not an unusual example. Throughout history, one can find industries where one firm has such a superior perceived value that it can sell at a premium, whereas the competition has to resort to bribes in order to get any attention. Just compare Ipod to its competitors. Or look at Virgin Atlantic versus traditional airlines, where extensive bribery through special promotions and discounts has been a financially disastrous way of life.

Although he does not look at the issue in terms of bribes, J.C. Larreche covers similar territory in his book “The Momentum Effect.” Larreche is a marketing professor at INSEAD. Based on his studies, Larreche discovered that firms which spend a lot of marketing money to “push” goods on consumers (with what I call “bribes”) do not grow as fast, have lower stock prices, and are not nearly as profitable as companies who focus on creating the types of superior values which do not require bribes.

To paraphrase, Larreche’s advice is that rather than rushing to get a product to market, one should stop and first take the time necessary to ensure that the product you have has enough intrinsic value that it will sell without the need for bribery (what he calls achieving “compelling value” or the “power offer”).

Well, that all sounds logical and intuitive—superior offerings sell better (and more profitably) than inferior values. But how do you create these compelling power offers?

There really aren’t any shortcuts. It’s a lot of hard work. I divide the work into three buckets: Left Brain (Rational) Work, Right Brain (Emotional) Work and Whole Brain (creative) Work. The idea for the first two buckets is that you have to choose a particular customer segment and then get inside their brain. You have to understand all of their needs/wants/desires as well as what triggers satisfaction.

Some of these discoveries will be highly rational. Some will be highly emotional. You need to understand both. It is not always the technologically superior product that wins. Instead, it is the product which connects best with the customer on all levels, including emotions and psyche. Apple is very good at making the connections on all of these levels. Their products are technologically great, esthetically great, and create great emotional connections with their customers (see “Reason Vs. Rationale” for more on combining both rational and emotional appeals).

This takes time. It requires getting close to your customers…spending lots of time watching and talking to them…getting below the surface to the true human motivations. This is the data gathering phase.

But it doesn’t stop there. I know lots of companies which brag about being fact-based operations. But facts alone are not enough. It takes intuition and creativity to convert those facts into original superior value propositions. This is the third bucket of work.

Sure, it takes time and money to go through these three steps. But this is a far more productive use of your funds than using them for bribes.

And the beauty of the whole thing is that if you do this properly, the bribes will start flowing in the opposite direction. Instead of you having to bribe others, others will start bribing you.

1) Customers may start bribing you by offering to pay a premium to achieve faster access to your products. Customers can even start to act like free sales reps, singing the praises of your product to their friends.

2) So many people will want to work for your company that they will do whatever it takes to get a job there. They may even be willing to work for free as interns in order to be a part of this great value.

3) Other firms will want to do tie-ins so that they can have their products associated with your products. They will come up with all kinds of legal bribes to try to get permission from you to do this.

With all of these benefits, it should come as no surprise that I recommend that strategic planning efforts focus around trying to come up with a position which is so compelling to your customers that bribery is unnecessary. Your strategic planning process needs to incorporate some form of these three buckets (rational, emotional, and creative).

It is more profitable to offer unique, compelling values than to push mediocre products. Pushing mediocrity requires an expensive form of bribery. However, if your value is compelling enough, people will start bribing you. Compelling values come from those who do the hard work of first leaning the deep-seated motivations of their customers (rational and emotional) and then finding a superior way to deeply satisfy them.

These days, whenever I look at advertising or an advertising budget, I imagine them as being distasteful bribes. It’s as if your advertising budget is like the $200,000 United Railroads had set up as their bribery budget back in San Francisco 100 years ago. Once you get into this mindset, one naturally starts to focus on ways to create extra internal value, so that you can get out of the distasteful business of supplementing your mediocre value with bribes.

This is not to say that advertising disappears. It just becomes more productive through informing and reinforcing the value, rather than trying to overcome the lack of sufficient value.

Tuesday, July 1, 2008

Analogy #189: Driving for Success

Back when I was in high school, it was a really big deal to learn how to drive an automobile. However, before you could get a driver’s license, you had to take a course in driving (called Driver’s Ed). I really wasn’t sure what to expect from the course, because the father of one of my best friends taught Driver’s Ed, and I knew from personal experience that he was a terrible driver.

In class, they showed us lots of movies of gruesome automobile accidents, to frighten us into driving safely. Then, before we could get out on real roads, they let us practice driving on the school parking lot. We drove around in a large circle. On every lap, we would pass a spot where students stood to wait for their turn to drive. There were some pretty girls waiting there for their turn after me. On each lap, I would roll down the window and offer to give them a ride. I thought it was hilarious; they thought I was a moron.

The school provided us with a list of rules—everything we were supposed to do, from when we first got into a car to drive all the way to what we were to do when we finished driving. They told us that we should repeat this list whenever we drove for the rest of our lives.

Most of the items on that list made a lot of sense to continue doing. There was one item on the list, however, which I never did after leaving Driver’s Ed. They said that after completing your driving, put the car key into the outside lock on the driver’s side door (so that the next student could find the key) and walk away.

The primary purpose of driving is to get from one place to another. This is also a primary goal of strategy. In essence, the role of strategy is to help determine the proper destination for your business, as well as the best means for getting there.

Since driving and strategy have similar goals, perhaps there is something we can learn from Driver’s Ed that can apply to strategy. This blog will look at these applications.

The principle here is that many of the rules which lead to effective driving can also lead to effective strategic planning. The basic rules I learned in Driver’s Ed were based on the “Smith System” of driving. These rules had been developed by Harold Smith and Ford Motor Co. Since I went to Edsel Ford High School, which was across the street from the huge Ford R&D Research Center in Dearborn, Michigan (headquarters city of Ford Motor Co.), it is no surprise that we used something sponsored by Ford. By the way, Ford also donated the cars for the program.

There were five rules to the Smith System of Driving. We will look at each rule and then apply it to strategic planning.

1) Aim High in Steering
The idea here is that the further out in the distance you focus to anchor your steering, the better. Studies have shown that if the driver is barely looking out beyond the front bumper of the car, they are more likely to swerve back and forth through over-steering. Looking further out tends to stabilize the ride.

The same principle is true in strategy. If you never look out more than a month or a quarter into the future, you will feel pulled in all sorts of directions by every little whim in the marketplace. It is only by keeping firmly focused out on the more distant prize that you can get the proper perspective on where to steer.

Not every little blip in the road requires rerouting the company. Most can be ignored. By aiming high in your timeline horizon, you can tell which blips one should truly adjust to. However, if you manage one blip at a time, everything will look like a crisis and you’ll swerve all over the road trying to avoid them, never reaching your ultimate destination. (We talked about this principle in detail in “Every intersection is not a crossroad”)

2) Keep Your Eyes Moving
Drivers should never fixate on only one thing. Although most of the time should be spent looking forward, drivers need to occasionally move their eyes to look in the mirrors and look at the dials and gauges on the dashboard.

The same is true in strategy. Although most of the time should be spent looking forward towards the strategic goal, one needs to glance at other things as well. For example, one needs to look around in the mirrors to see what the competition and the consumer are up to. If you fixate in one direction only, you can miss out on some of these key changes in the external environment—information which requires a response.

In addition, one needs to look at a dashboard of key statistics to make sure that your internal performance is on track. The beauty of dashboards is that they allow you to assess your condition with a quick glance. They do not require you to pull over and stop the car to do extensive investigation under the hood.

It is amazing to me how many companies drive cars without dashboards. They may have reams of data printouts, huge reports, and great data warehouses on their intranet, but nothing they can quickly glance at while driving to the future. Just as you wouldn’t want a driver with their head down reading a complicated data report while speeding down the highway, you don’t want your people drowning in data to the point that they cannot move ahead.

Not all data is equally important. Distill out the most relevant indicators, put them on your dashboard, and glance at them from time to time.

3) Get the Big Picture
Drivers drive better when they adjust their driving to the total environment. Weather conditions can impact the drive. The condition of the pavement can impact the drive. Time of day can impact the drive. Once you know what type of traffic is around you, you can start anticipating how their movements affect your driving experience.

It is easier to drive when you can anticipate in advance what might happen. By putting all of the data into a single big-picture perspective, you can more safely adjust, because you are more prepared.

The same is true in business strategy. The better you understand the big picture, the more likely you will choose the right strategic goal and the right path to reach it. You do not drive in a vacuum. Understanding the context surrounding the strategy creates a better strategic process.

4) Make Sure Others See You
Drivers who are unseen get ignored when decisions are made by others. Being in another car’s blind spot is dangerous, because they could unknowingly swerve right into you. By contrast, the more other drivers on the road are aware of you, the more they will take into account your location in their own driving decisions.

This makes things safer for everyone. Now, not only are you looking out for yourself, but you have others doing so as well. Therefore, it is a good idea to make sure you are as visible as possible.

The same can be true for your organization. What good does it do to have a brilliant strategy if nobody in the company knows what it is? Employees cannot execute to achieve a goal that they are unaware of. Make sure the employees see the strategic goals and tactics on a regular basis. Otherwise, they will make decisions that could run over and crush the strategy.

Similarly, what good does it do to develop a great positioning in the marketplace if the consumers in the marketplace are unaware of it? An unknown position is like having no position at all.

Never assume that everyone knows where you are, strategically. Keep reminding employees and consumers, so that they can react properly to it. (We talked about this in more detail in “Psst. It’s a Secret.")

5) Leave Yourself An Out
It is dangerous for drivers to get into a situation where there is no escape if things go bad. Getting boxed in by a group a trucks is undesirable. The same thing is true in strategy. Even the best-laid plans can run into problems. However, the more you can anticipate in advance a way out of these binds, the more you can avoid the pain which comes with problems.

In strategy, we call this contingency planning. Think in advance of what could go wrong so that you can develop a way to avoid it. Typically, a rational contingency plan created during an earlier calm will be more effective than a plan quickly put-together in the heat of the crisis, when emotions are high.

Race cars carry fire extinguishers during the entire race, so that they are prepared for whenever a crisis could occur. They do not wait until after the crash to try to run an extinguisher out to the car. Your contingency planning should work the same way—ready in advance.

Strategic Planning for a business is like driving a car. Therefore, the five driving rules of the Smith System equally apply to strategic planning. First, Aim High in Steering (keep a long-term perspective). Second, Keep Your Eyes Moving (periodically check out the external environment and internal performance indicators). Third, Get the Big Picture (put everything into context). Fourth, Make Sure Others See You (don’t keep your strategy a secret). Finally, Leave Yourself an Out (through contingency planning).

Before you can legally drive, you have to get a driver’s license. I could not get a driver’s license until I passed both a written and driving test with the local police department. Alas, not all “drivers” in business could pass a strategy test, yet they are still allowed to be out there. Beware!