Thursday, January 29, 2009

Analogy #236: Check List

Recently, the New England Journal of Medicine published an interesting article. Some hospitals were given a checklist of 18 items to do before surgery. It was sort of like the checklists that pilots go through before starting an airplane flight.

Over the course of a year, the hospitals using the checklist saw their death rates fall by over 40% and their rate of complications drop by more than a third. That’s pretty impressive. It is even more impressive considering what the 18 items were on the checklist.

They weren’t earth-shattering activities. For example, one of the items was to have each of the people on the operating team introduce themselves to each other prior to beginning surgery and describe their function.

In fact, when each of the 18 items was examined separately, there was nothing that stood out as particularly influential on creating the success. The conclusion was that rather than looking at the individual items on the list, one must look at the process of regularly doing a preset list as the primary source of the success.

As this study illustrates, dramatic improvement does not always require dramatic change. Sometimes, all it takes is the institutionalization of a lot of very small tasks (via a list). The list ensures that a lot of little things, which tend not to get attention, get the attention they deserve every time. Nothing falls through the cracks.

Pilots do it. The military does it. It reduces mistakes and saves lives. And now it looks like it works in a medical environment.

How about in a business strategy environment? The old traditional strategic planning process has been downplayed a lot recently. Business gurus claim that the world is moving too fast for traditional planning, the process is too rigid (not flexible enough for flexible times), and it tends to exclude too many stakeholders from the decision making.

Some are claiming that the process of strategic planning is obsolete and should be abandoned. In a web 2.0 environment, just let the customer “drive the bus” of your strategy. Rather than having strategy lead the activities, empower people in to act and let whatever happens become your strategy.

I’m not sure we would take that same approach with hospital surgery. I wouldn’t want to be operated on by people who have no preset plan and empower everyone to do whatever they want. Relying on the judgment of the patient to drive the operation sounds a bit scary to me as well, particularly if I am unconscious during the critical parts.

The systematic process of following a list of procedures has benefits. Even if you cannot see the benefits in any given item on the list, the discipline itself can be very beneficial. The same is true for strategic planning. Even if all the parts are difficult to justify individually, there is a benefit to the gestalt of running through all the key pieces of the traditional strategic planning process on a regular basis.

The principle here is that the discipline of going through a strategic planning check list on a regular basis has value. It helps ensure that nothing gets missed. It can reduce mistakes and keep you on your toes. A lot of those old items found in traditional strategic planning processes should not be abandoned. Instead they should be institutionalized on a list.

So what would I put on a Strategic Planning check list?

1. Continual Ongoing Surveys
Don’t wait until things start to go awry to talk to your customers. Have a regular, ongoing dialog through surveys that sample your base at all times. That way you can detect problems in their early stages and begin strategic adjustments when it is still easy to make course corrections. If you’re not doing it all the time, you’ll probably not be doing it at the time when it is needed most.

2. Environmental Assessment
The conditions of the external environment are fluid—ever changing. Assumptions at one point in time may no longer be as relevant at a later date. By forcing a more detailed environmental assessment somewhere into your annual calendar, you ensure that changes in the environment don’t surprise you. It’s better to be proactive than reactive, and by putting it on the checklist, you are being proactive.

3. Company Assessment
Just as the external environment changes, so does the internal environment at your company. The two are also linked…changes in the external environment may cause what you are doing to become obsolete or antiquated. Strategic success usually requires leadership in some area. It’s good to annually check to make sure you are not losing ground or no longer failing to lead.

4. Strategy Assessment
A good strategic plan should not change very often. It should act as a long-term guide for all you do. However, all strategies eventually do fall out of favor and fail. It’s not a bad idea to check on an annual basis to see if the strategy is still relevant for the environment.

5. Implementation Assessment
One of the most common causes of strategic failure is at the point of execution. Great strategic ideas are worthless if you cannot put them into action. Just as one should continually track consumer opinions with surveys, one should continually monitor performance on strategy implementation. Some sort of dashboard of metrics is needed to let you see how well things are going. Are the right things being done (on time and under budget)? Are they having the intended impact on company performance? Don’t assume that the work is getting done. Measure it regularly.

6. Key Issue Management
As mentioned in a prior blog, effective strategy implementation requires focus. As a result, companies can rarely be effective if they try to do more than about three major initiatives at a time. Somebody has to manage the key initiatives and keep up the visibility and momentum. Otherwise the tyranny of the regular day work will drown it out.

7. Positioning Assessment
Winning strategies have winning positions that answer the 8 questions. Like overall strategies, winning positions should not change very often. But change is sometimes necessary. You will never change at the right time if you never spend time considering if this is the time.

8. Linkage Map
Strategies, activities, budgets and resource allocation (people, capital) should all be working together. If the resources and activities are not linked to the strategy, then the strategy is just a worthless batch of words and numbers. Someone needs to ensure that activities, budgets and resources are pointing in the same direction as the strategy with the same priorities. It may as well be you. Every time these actions change, double check to make sure it links to the strategy.

9. Innovation/Creativity/Big-Picture Time-out
Left unchecked, the tyranny of the immediate will absorb all available time. However, great strategic thinking requires breaking away from that day to day mindset. A large block of time is necessary to contemplate the larger issues, and creatively build a future that is not just an extrapolation of the present. Unless you proactively put those blocks of time on your annual checklist, the tyranny of the immediate will freeze them out. Don’t wait until it is convenient to do so. It is never convenient. Build big-picture creativity time in as a mandatory event on the calendar.

10. Monthly Face Time With Top Executives
It does no good to do steps one through nine if the implications are not a part of the regular decision making of the company. Knowledge is only power if the powerful people have the knowledge and are forced to deal with it. These issues need to be in front of top executives on a regular basis, like monthly. The topics may rotate from month to month, but by forcing strategic issues onto the regular monthly agenda, one helps ensure that their implications aren’t ignored when everyday decisions are being made. If it is not made mandatory, my experience has been that they are one of the first things bumped off the agenda when time gets tight.

Using a checklist for your strategic planning process is a good way of ensuring that nothing falls through the cracks. It also minimizes the risks of one’s strategy falling out-of-step with the environment. Many of the items on that check list will be variations of some of the things associated with classic strategic planning, although perhaps in a slightly different form. Although the classic process may no longer be as valid as practiced earlier, that is no excuse for abandoning regular, mandated time on strategic issues.

Activity is not the same as progress. Just because people are busy does not mean that a strategy is being properly implemented. Without a strategy checklist, you could be running around like a chicken with its head chopped off. That random running around may look impressive, but will not create forward progress in the direction of the strategy.

Sunday, January 25, 2009

Analogy #235: It’s Not Fair!

Usually, the first words said by a baby have something to do with their father or mother…words like “Mama” or “Dada.”

Although I can’t prove it, it seems to me that one of the first sentences a child says is “It’s not fair!” Even if it is not the first sentence, it is probably one of the most frequent sentences you will hear from a small child…and usually accompanied with some tears (and perhaps a temper tantrum).

Even very small children seem to have a sense of justice. They feel they have rights, and when they do not get what they think they deserve, they cry out “That’s not fair!” Although you may disagree with these young children over what they truly deserve, there is no denying that these youngsters get very unhappy when they feel that they have not gotten a fair deal.

To show their displeasure, they may cry, throw a temper tantrum, or try to create their own sense of justice by stealing back what they believe was unjustly taken away from them. A good parent will eventually show the child that the world is not always fair and that we are not to create our own vigilante justice, but work within the system. In the meantime, parents will teach the child that temper tantrums are not the proper way to resolve problems.

Unfortunately, I have seen companies do the equivalent of crying “That’s not Fair!” and throw temper tantrums when a competitor has what appears to be an unfair advantage. Well, you know what? Life isn’t always fair in business and normally, throwing a temper tantrum will not solve the problem. Crying about an unfair disadvantage won’t suddenly make your “disadvantaged” strategy a rousing success. It is still a failed strategy, regardless of whatever injustice you feel.

And although you may want to use this “injustice” as an excuse for poor performance, guess what…your shareholders don’t care. They just want performance. Rather than throwing a temper tantrum, just pick yourself up and find a different strategy where you have the advantage in your favor.

The principle here is that the world is not always “fair” and that a good strategist does not use unfairness as an excuse. Instead, a good strategist looks for an alternative strategy which creates “unfairness” in its favor. In other words, instead of sitting around pouting over bad performance and blaming “It’s not fair!,” redesign your strategy so that the tables are turned and the competition is now the one claiming “It’s not fair!”

I was recently talking to an executive about a business division that was performing below expectation. I suggested that the problems were primarily due to a particular competitor that was gobbling up market share at their expense. The response I got sounded a bit like a temper tantrum excuse: “But that competitor is a dotcom startup that is not required to turn a profit. Because we require our division to make money, it cannot offer as strong a consumer value.” I half expected the excuse to end with a cry “It’s not fair!”

My answer was that it didn’t matter that the competitor did not feel compelled to make as big a profit as we did. From the customer’s perspective, they don’t care about all that profit stuff. All they know is that the competitor offered a better deal.

Hiding behind that excuse won’t solve the problem. Customers will continually flock to the place where they get the best deal. Eventually, the board and shareholders will stop listening to these cries of “It’s not fair!” and demand results. To solve the problem, this division needs a new strategy which creates a different type of value that the competitor cannot match.

I was reminded of a similar situation earlier in my life. The company I was working with had a division that was doing poorly against a particular large food retailer. This food retailer was privately held. Being privately held, this competitor made financial decisions as if its cost of equity was virtually free. Our company, which was publically held, had to calculate a large cost of equity into its return on investment. As a result, the competitor could “afford” to do things which our firm thought were poor investments.

The customer didn’t care about “cost of equity” and “return on investment.” All they knew was that these so-called “poor” investments created a preferred shopping environment for our competitor. People within our company were saying the equivalent of “It’s not fair!” They hid behind this excuse rather than change the rules with a new strategy. Guess what? The competitor grew and our division shrank. And no amount of temper tantrums would fix that.

So what do we learn from this?

1) Don’t Hide Behind Excuses of “It’s not fair!”
If the situation truly is not fair and you are at a disadvantage, then you have a broken strategy. Sticking with such a broken strategy is suicide. Crying about it won’t change it. Pick yourself up and change your strategy.

2) Develop a Strategy Where you Have Your Own “Unfair” Advantage
If your strategy is broken, you need to reposition yourself relative to the competition in a manner where you can create your own advantage. For example, if the competitor has a unique cost advantage which you cannot touch, then do not use a price strategy against them. That is suicide. Instead, find a place where they are weak (like service) and build your “unfair” advantage there. Remember, the goal is not to beat the competition at their game. The goal is to find your own game where you can win.

There is almost always multiple ways to approach the marketplace, particularly with a niche strategy. Find the approach where you have the edge over the others.

In the end, you may find that your best approach is a strategy where both companies win. For example, if you let them win on price and you win on service, then both companies can succeed on their own and not resort to killing each other firm in a downward competitive spiral.

Unfair does not mean illegal. It is not illegal that taller people win more basketball games. Their height gives them an advantage in basketball, and they can legally use that advantage there. But being tall is not always an advantage. If you are short and small, perhaps you should be competing as a jockey. Riding a racehorse is a place where a huge, tall basketball center is at a disadvantage.

A good strategy is one where the competition complains “It’s not fair!” about you rather than you complaining “It’s not fair!” about them. This requires looking for positions where your uniqueness gives you an edge that others find difficult to imitate. This proactive search for your own “unfair” edge is much better than just whining and complaining about the unfair edge that someone else has.

Lately the US government has been listening to a lot of whining and complaining about unfairness. The auto industry, for example, is asking for a handout because of the unfair advantage they claim to have versus the foreign auto companies. Just giving them more money won’t change the “unfairness.” Ultimately, the auto industry needs to change and find a strategy which is not broken.

Thursday, January 22, 2009

Analogy #234: Context

Awhile back, I needed to purchase a refrigerator for my house. As part of the search for a refrigerator, my wife and I went to one of those warehouse appliance stores.

There is a reason why these places are called “warehouse” appliance stores. The building was little more than just a huge warehouse. There were no interior walls, no finished ceiling…just a mammoth open area, with row after row after row after row after row of refrigerators.

Eventually, my wife and I agreed on a refrigerator from this store and made a purchase. At the time, I thought we had made a great choice. But then came the shock when the refrigerator was delivered to our house.

The refrigerator was HUGE. It barely fit into the spot designated for refrigerators in the kitchen. When I started filling it with food, it seemed like there was no limit to how much it could hold. I could probably stock enough food in it to meet the needs of a large army of hungry teenagers. And I only needed to meet the needs of my wife and myself.

My first reaction was to double check to make sure they delivered the correct refrigerator. They did.

So then I tried to figure out how I ever convinced myself that this Paul Bunyan-sized refrigerator was such a great choice. Finally, it came to me…

In that large, cavernous warehouse store, all the refrigerators looked small. None came anywhere near touching the high, unfinished roof on the warehouse. There was no kitchen-sized reference point to compare the refrigerators to.

Now, if the inside of my home looked like the inside of a cavernous warehouse, with no interior walls or finished ceilings, I suppose that refrigerator would have looked in my home just like I remembered it at the store. But my home is not a warehouse. So now I have this over-sized white monster in my kitchen.

On the plus side, it’s easy to see where everything is in the refrigerator.

The problem with my refrigerator purchase was that the context in which I purchased my refrigerator (a huge warehouse) was different from the context in which I use it (my small kitchen). The wrong context of the warehouse distorted my thinking and my judgment about the appropriateness of the refrigerator in my kitchen.

The same thing can happen in strategic planning. A supposedly great idea dreamed up by a bunch of old, rich white guys at a strategic planning off-site at a resort (after playing a round of golf) may not seem as great to the targeted customer: a young Hispanic woman who is struggling to make ends meet and has screaming children tugging on her jeans.

These two groups are living two entirely different lives. Their thinking comes from distinctly different contexts. Dreaming up a strategy in one context and implementing it in another may create a mismatch many times worse than my refrigerator problem.

The principle here is that strategies work best when they are designed to operate in the context in which they will be implemented. Just as I would have made a better refrigerator decision if I had done it in the context of a kitchen, strategies should be evaluated in the context of where they will be practiced.

We will look at three aspects of strategic context.

1. Environmental Context
Your strategy will not be executed in a vacuum. It will have to fight for supremacy against competitors. As mentioned in an earlier blog, all successful strategies work by taking share from someone else and you should expect counter attacks form the ones who are losing that share. In other words, the mere entry of your strategy will inevitably change the environmental context. Therefore, you must not only design your strategy for today, but also so that it will work in the new context created by your entry.

Strategies succeed by winning a position in the marketplace. If you don’t incorporate the marketplace into your strategy, how will you ensure your ability to win? For example, if your strategy depends on winning with price by having prices 15% below competition, what will you do if competition decides to match your prices? In this case, one needs to understand the pricing context they are putting their product into—how stable is the pricing? Do you have a cost advantage that can sustain itself in this environment?

What if someone larger copies your strategy? As we saw in an earlier blog, this can be devastating.

Just as chess players study the mind of their opponent to determine the best moves, you must study the minds of the opponents in the marketplace.

2. Consumer Context
You would think that it would go without saying that your strategy should be designed to be desirable to the chosen customer. However, given the extremely high failure rate for new products, there must be a flaw in here somewhere.

Companies say they spend a fortune on consumer research and testing. Supposedly, all of this knowledge gathering is supposed to mitigate much of the risk. Just listen to the consumer via web 2.0 technology and you’ll know exactly what to do. At least that’s what people say.

The problem is that much of that research is done under the wrong context. Consumers are often put in sterile, unfamiliar surroundings and asked questions in an abstract form with a professional researcher watching them. This is not the environment in which the item will be purchased or used. It is like asking me in that giant warehouse if I think that refrigerator is too big. The context is wrong, so the answers you get are likely wrong. The closer your research can mimic the context in which a product is bought or used, the more reliable your results will be.

Sometimes, a new product or strategy will be so radically different that the customers have no reliable reference point in their lives to judge it. Sure, they will answer your question, but because they have no internal context for judging it, the answer will be wrong.

Most radical departures which eventually become huge successes were first viewed very skeptically by the consumer marketplace. Because it was so different from their past behavior, they had trouble imagining it within their future behavior. Computers, microwave ovens and other such items might never have come to the market if the decision was entirely based on initial consumer response. Therefore, if your strategy/product is too far outside the context of the consumer’s past, it may not be worth your time to even do the research (unless the research allows people time to interact with the product over a long period of time in the customer’s own environment—long enough to develop hands-on context).

3. Employee Context
Your employees are the ones that have to implement the strategy. If they cannot envision how the strategy works within the context of what they do every day, they will probably fail to execute the strategy well. When explaining the strategy to the troops, be sure to use words that put it into the work-world context. Tell them how their behavior fits into the larger context of the strategy—what is good behavior, what is bad behavior.

The entire context for the employee—job descriptions, rewards, punishments, promotions, etc.—should be linked to the strategy. That way, right behavior for the employee is right behavior for the strategy. Their context is your context.

Strategies do not exist in a vacuum. They only succeed if they make sense within the context of the way people will interact with it on a daily basis. Therefore, don’t evaluate them in isolation outside of that context. Keep in mind the way competitors, consumers and employees naturally live their lives—what motivates them, how they react to change, how they derive satisfaction. Anticipate how your strategic change will change that context. Then communicate the strategy with language relevant to that context. As part of your strategic planning, try to plan tactics that keep this context in your favor. Take nothing for granted.

I used to work for a furniture retailer whose store was in a giant warehouse building. However, unlike the warehouse store in my story, this furniture warehouse store was divided with walls into 200 little rooms, fully furnished and accessorized, with lamps, paintings, fake windows with curtains and everything. You felt like you were in a 200 room house rather than a warehouse. It was easy to get a feel for how the furniture would look in your home. They were able to make a warehouse building achieve the right context. You can do the same.

Tuesday, January 20, 2009

Analogy #233: Ownership Vs. Control

In the recent financial meltdown, people from all sectors of society have seen the value their investments wiped out. Some was due to poor investment decisions by the investment companies. Some was due to being victims of Ponzi scemes from people like Bernie Madoff.

These losses point out the difference between ownership and control. The investors owned their money. The investment houses, however, controlled the money. When the owners tried to pull their money back out of the investments, they found that the money no longer existed. The ones who controlled the investments had either stolen it or lost it through bad financial decisions.

The owners of the money lost much of their wealth. The controllers of the money ended up making really good salaries/bonuses.

So where is the real power—in ownership or control?

Many of the discussions in a strategic planning process seem to center around ownership:

1) What position do we own?
2) What should we own in our portfolio?
3) What core competencies, skill sets, intellectual property, etc., do we need to acquire (for ownership)?
4) What should we no longer own?
5) How can we get the things we own to run more efficiently?

The underlying assumption is that the better the mix of the things one owns, the better the overall strategy. However, as we saw in the story, sometimes a better measure of success is what we CONTROL, rather than what we own.

Just as ownership of financial investments in the story did not guarantee wealth, ownership of all your strategic assets may be a mistake. Being able to control the strategic environment should normally take a higher priority than ownership.

If you control the environment, you are better able to move in positive harmony with the environment as it shifts over time. This is because you can control both where you go and where the environment goes.

By contrast, ownership in an investment tends to lock you into more of a static position. Some flexibility is lost. As the environment shifts, that investment can go out of favor. It’s hard to get out of an investment that is out of favor. Just ask the owners of newspapers how easy it is to sell out of these poor investments. Nobody wants to take them off their hands.

The principle here is that strategic discussions should spend more time looking for ways to control one’s destiny, instead of how to own things.

Take a look at Nike. It doesn’t own any factories. It doesn’t own any major professional sports teams in the US. Instead, Nike has spent its time controlling the evolution of sports and the key influencers in the sports field. This has allowed Nike to continually move to wherever sports outfitting has gone and be a leader. It even helps determine the direction of the industry, due to its clout.

Why own factories when you can control them? Nike gets the products produced the way it wants (control) for probably less than if it owned the factories. Nike can sidestep some of the manufacturing ownership and labor controversies. If something goes wrong, Nike can shift to another factory (flexibility). If the product mix shifts, Nike can more easily shift away from manufacturers of the obsolete to manufacturers of the up-and-coming.

The negative factors associated with ownership include the following:

1) Less Flexibility
Once entangled with ownership of assets, it is harder to untangle one’s self when it is time to move onto the next big thing. If all of your assets are tied up obsolete technology, it is harder to free up capital to exploit new technology. In the current credit crunch, it is harder to find others to loan you the money to buy into ownership. That is why the automakers need a government bailout to move from gasoline to new technology engines.

2) More Bureaucracy
At some point, there tend to be diseconomies of scale in management when a company gets too large. Big conglomerates can choke on their internal bureaucracy. If the pieces are kept smaller and more independent, they can keep the entrepreneurial spirit alive in a lean and mean, efficient structure. Some has suggested that “too large” can occur as small as with 200 employees (depending, of course on a number of industry factors). At that point, some suggest that the company be broken up.

Also, an employee in a large impersonal conglomerate may not be as motivated as someone who has more of an ownership stake in a smaller entity. A loose gathering of owner-operators can be far more powerful than a mass of mere employees. This is one of the benefits of the franchising model.

3) Conflicts of Interest
As we talked about in detail in a previous blog, you may have fewer customers for a division if you own it. The idea is that many of our competitors do not want to do anything to put cash into our hands. The more pieces we outright own in the business ecosystem, the more pieces that our competition may boycott so as to avoid us. If we merely align with these pieces, rather than own them outright.

4) Less Efficient Use of Capital
If you want to get 100% ownership, you have to invest 100% of the capital. However, there are often ways to have the power and influence which come from 100% ownership by only putting up maybe 40% of the capital. You money can go a lot further if you are willing to settle for a controlling share rather than 100% ownership.

If you try to acquire something to get ownership, you typically have to pay a large acquisition premium over the current value to obtain the property. In essence, that high premium price means that you are handing over much of the future profit potential to the former owner which absorbing all the future risk on your own.

Contrast that with the idea of forming an alliance with the other company, where they may be so interested in the benefits of working together that they give you a discount. In addition, because they are still owners of their part, they are absorbing their part of the risk, not you.

5) Less Speed
Coffee manufacturers have often wanted to get their cold coffee beverages into the vending distribution system. They have found it much easier to form alliances with carbonated beverage manufacturers (who already have a vending distribution system in place) rather than take the time to build a 100% owned vending distribution network. By partnering with people who already have key pieces in place, one does not lose precious time trying to develop an expertise or ownership in this area.

6) Lose Benefit of Specialization
In alliances and outsourcing, one is putting together a group where everyone is an expert in their field. They specialize at excelling in their area and are not distracted by getting into areas outside their expertise. If you try to own 100% of everything, it is likely that all of your parts will not be the best in their field. Even if the piece you bought was an expert before you purchased them, the large corporate infrastructure and internal politics could weaken that expertise. You will have weak links in your system.

With all of these problems, why do people focus on getting ownership? The reason is because they are looking for the benefits of control. The more of an industry ecosystem you can control, the more of your destiny you can control. And that usually leads to greater profits.

So, rather than first looking to ownership as a means of getting control, use your strategic analysis to first look at other ways to more efficiently and effectively gain control. This could be strategic alliances, distribution agreements, licensing, outsourcing, franchising, minority ownership, or some other such arrangement. Try to structure them to get as much control (with as much flexibility and as little money) as possible. In the long run, this can create a far stronger strategy.

Strategic success is more dependent on control than ownership. Although ownership can be one means to gain control, there are often other alternatives which are a more effective and efficient way to gain that control. Make sure these other options are front and center in your strategic discussions and not an afterthought.

Yes, it’s true that these other forms of business structure bring their own sets of risks. Alliances can fail as often as acquisitions. But when a mess is made, it is often easier to undo the mess under these alternative structures. The point is not to automatically flock to one type of structure for every situation. When building the strategy look at them all (and don’t automatically assume that ownership is always to be preferred).

Sunday, January 11, 2009

Analogy #232: Breaking the Ice

Growing up in Michigan, I heard stories every year of how ice was affecting the shipping of goods through the Great Lakes. Each winter, portions of the Great Lakes waterway would freeze, making it impossible for the cargo ships to operate.

The Great Lakes shipping industry is vital to the economies of communities throughout North America and beyond. During the winter months, about 17 million tons of cargo flow through this waterway. Key cargos include coal for electricity and heat, iron ore for manufacturing, salt to keep roads open in the winter, and grain for food.

To keep the cargo moving, the US Coast Guard uses icebreaking ships. These ships do not carry cargo. Instead, they are specifically designed to break down ice, in order to create shipping lanes for the cargo ships. Without these icebreaker ships, many weeks of shipping would be lost each year.

Although both types of ships are different, both the icebreaker ships and the cargo ships are necessary to accomplish the task. In fact, it is their differences which make each one valuable. No cargo ships could get through without the icebreaker ship creating the shipping lanes. And those shipping lanes would be worthless if there weren’t cargo ships to use them. They functions are both vitally important.

Both of these ships are specifically designed for their purpose. If you tried to use a cargo ship to break the ice, you would destroy the ship. And the icebreaker ships are not designed to carry much and would be highly inefficient as a cargo carrier.

There is a similar situation in business between “Leadership” and “Management.” Both are vitally important to get business accomplished, but they are different and cannot be a substitute for each other.

Leadership is like the icebreaker ship. Leadership looks ahead and creates the path to the future, like building a shipping lane through ice. Leaders (the icebreakers) provide guidance to show the followers (the cargo ships) where to go. Leaders need to innovate—break through the rigid ice of conventional thinking to achieve the next “breakthrough” idea. Leadership is mostly externally focused, scanning the environment to find a proper path.

Management is like the cargo ships. Management makes sure the details of the business get done—the cargo is loaded, shipped and delivered on time and under budget. Management is mostly internally focused on the specific task at hand.

Focusing on management alone can lead to two problems. First, management skills are good at making sure the task gets done, but not well suited for determining which task to do. Without leadership, one can end up becoming very good at managing a task that is no longer relevant.

Second, management alone can become so internally focused on improving the process that they fail to see the changing external conditions which can make all that effort for naught. The ice comes in and freezes that cargo ship of management so that it cannot move. Leaders are needed to detect the coming ice and find the proper path through it.

I have seen too many companies get all wrapped up into managing the tasks at hand to the exclusion of any leadership looks into the larger picture. The company just focuses on trying to do everything “just a little bit better.” The idea is that if we keep doing the same thing (only a little better) everything will work out all right.

In times of economic turmoil, like the current situation, it can become even more intense of a focus on managing the execution. Unfortunately, the economic turmoil has changed the environment. The old ways may no longer be appropriate. The leadership role is needed to find the new path in the icy storm.

Of course, as important as leadership is, it alone is not enough, either. Many great ideas from visionary leaders fail because of insufficient follow through on managing the process to bring the idea to light.

In addition, leaders are only great if they have followers. Just as shipping lanes in the ice are only useful if there is someone who follows behind and uses the lane, leaders need followers to create any value from the vision.

The principle is that strategic planners need to recognize the existence of two essential, but different functions here—leading and managing. Each aspect needs a different kind of strategic plan.

The strategic questions which need to be answered for “leading” are as something like this:

1) What does the environment look like?
2) Where is the ideal place in this environment for our business to go?
3) What should our position be in the marketplace?
4) What does winning look like?
5) How do we need to change in order to win?

This tends to look like conventional strategic planning.

But we shouldn’t stop here. We need to plan the management of the vision as well. This second type of planning is often referred to as Project Management. This is how one coordinates all the little things that have to happen to make the plan come to life. The questions for planning at the management level look something like this:

1) What are all the tasks which need to be accomplished?
2) How do the tasks interact? Do they have to be done in a particular order? Where do tasks need to coordinate together?
3) Who will be responsible for getting each task done? What are the incentives/punishments associated with getting it done?
4) What are the timetables (due dates) for when each task needs to be completed?
5) How are we going to monitor all of this activity, to make sure it gets done properly?

To a professional strategist, this may look more like a tactic than a strategy. However, to the one who has to get the job done, this is his/her strategy. And getting this planned out properly is just a critical as getting the big picture correct.

Now, just as you use two different kinds of ships at sea (cargo and icebreaker), you probably need two different types of people to do these tasks (leading and managing), because the skill sets tend to be very different. But just because they are different tasks done by different people doesn’t mean they can act independently of each other. Tight coordination is needed.

The tasks being managed need to be moving the company in the direction of where the leader is trying to lead it. And the leadership cannot properly lead if it does not keep the managers in the communications loop. They are really just two aspects of the same process.

Therefore, when setting up your strategic planning process, make sure time is given to planning the plan (leadership) and planning the execution of the plan (management). Although they may take place at different times with different people, they need to coordinated on your calendar and be working towards the same agreed upon goals.

For a company to succeed, it needs two things: the proper path into the future (Leadership), and a process to get there (Management). Both are essential and need to be a part of the overall strategic planning process. Leadership alone is just a dream with no way to fulfill it. Management alone will get a job done, but it may be absolutely the wrong job to be doing, because it is out of touch with the evolving environment.

A common term thrown about these days is “visualization.” The idea is that if we can just visualize hard enough the goal we want, the goal will somehow be miraculously be obtained. I’m not willing to just rely on thinking hard (leadership alone). I want to work hard as well (management).

Friday, January 2, 2009

Analogy #231: Where's the Finish Line?


What if every participant in the Tour de France bicycle race got to choose their own unique race course?  Some might pick flatter courses.  Some might pick shorter courses.  Some might decide to race in Canada rather than France.


If this happened, how would you determine who won the race?  With every racer having a different finish line at the end of a different course, that could be quite difficult.


Perhaps as a guide, we can look at the race for the presidency of the United States.  Not all of the candidates chose the same route.  Some entered the race early; others came in later.  Some candidates skipped the early primary states and focused instead on some of the later, larger prizes.  Some candidates charted their race through the internet more than others.  Some took a grass roots path while others went after the political party establishment.  Tactics, messages, and issues varied from one candidate to the other.  Sometimes, they varied for the same candidate from one month to the other. 


So how do we know who won?  It was the candidate that had the most cheering fans at their designated finish line.  That's the one who ended up in the White House.


So, to apply this to our Tour de France contemplation, perhaps the winner would be the cyclist who had the most cheering fans at the end of their designated finish line, wherever that might be.  Even if we weren't positive they won the race, at least we would know they won the hearts of the fans.



Strategic planning is very much a race—a race to a desired future position.  Whoever captures that position first gets to "own" that position and reap disproportionally higher rewards from the customers desiring that position.


This business race, however, is more like the hypothetical Tour de France in our story than the real one.  Each business determines its own race course and has its own finish lines.  Not every firm chooses the same desired position.  Not every firm tries to get to their position in the same manner.  Business strategies can vary all over the place.


So the question remains—how do you know if your strategy is a winner?  Check out the crowds at your finish line.  How many people have paid to see you cross that line?



Given the fact that the race of business has everyone on different courses with different finish lines, one should consider the following four principles:


1. Good Training and Good Execution are not Enough

If everyone were running the same course under the same rules, then the winning strategy would be simple—just perform better than the others on that course.  Your focus would be on training well and executing well. 


However, if everyone is running different courses in different ways, the task becomes exceedingly more difficult.  Not only do you have to perform well, but you need to choose well.  Since the race course is not given to you, you have to choose one.  Making the wrong choice for your course could be more damaging than how well you run the course.  Getting quickly to a bad destination doesn't qualify you for the winning Tour de France yellow jersey.  


So many times I have seen companies get singularly focused on the concept of "training and execution."  The idea is that if I can just perform a little bit better at what I am doing, I will win.   Just lower costs a little, raise quality a little, improve service a little, or lower prices a little, and I will do well.  In other words, if I run just a little harder, I can win.


This concept is flawed, because it assumes that you are running the right course.  In fact, you may be on a terrible course.  For example, I don't care how well you may operate a five and dime variety store.  It is an obsolete retail format.  The customers have left and are cheering on other retail formats, like discount stores, dollar stores, or supercenters.  To win, you first need to change your course to a retail format that is still viable in the marketplace.


Choosing the right course is just as important, if not more so, than getting the execution right.  Therefore, one's focus needs to expand beyond just performance and also concentrate on making the right choices for course and destination. 


2. Chasing the Competition is not always a Great Idea

If everyone is running the same course, then the goal is to chase the leader and overtake them, so that you can get to the finish line first.  The focus is how you are doing relative to the other racers.  However, if you have different finish lines in different locations, your position relative to competition becomes less relevant.


In most industries, there is room for more than one successful position (i.e., finish line).  For example, in grocery retailing, there can be success at being the lowest priced (like Aldi), the most convenient (7 Eleven), the best one-stop shopping experience (a supercenter), the best and most healthy food (Whole Foods), and so on. 


Each of these successful positions is pointed at a different finish line.  Whole Foods will not win its position by chasing Aldi, nor vice versa, because their desired end-states are in different places.    Each needs to stay true to their own path. 


Again, I have seen many companies lose because they were too focused on following the competition.  For example, I remember when Wal-Mart was first expanding to the east coast of the United States.  This was an area owned by Roses discount stores.  Roses saw that Wal-Mart had a winning strategy, so they tried to follow it.  Roses tried to copy everything Wal-Mart did, including repainting its store walls to the same color as Wal-Mart.  In the end, Roses had made itself into an inferior Wal-Mart.  When Wal-Mart came to town, Roses lost and quickly disappeared from the retail marketplace.  People didn't desire an inferior Wal-Mart (Roses) when they could get the real thing (Wal-Mart).

Roses made the mistake of running towards Wal-Mart's finish line (a race they could not win), rather than finding a course where they could win.


By contrast, when Wal-Mart expanded north into Shopko Discount Store territory, Shopko took a different approach.  It started backing away from aspects where Wal-Mart was strong and put more resources into areas where Wal-Mart was weaker.  The goal was not to beat Wal-Mart but to successfully co-exist by choosing a different course.  Now, twenty years later, Shopko still exists. 


The moral of the story is to focus on running your race, rather than the race of someone else.  Keep the eye on your finish line, not theirs.


3. Remember that Rules are Fluid

In the comic strip Calvin and Hobbes, Calvin invented a game called Calvinball.  The rules were simple:  a) no two games are to be played by the same rules, and b) you make up the rules as you go along.


In many ways, real life business strategy is a lot like Calvinball.  The environment is constantly changing.  Rules that worked in the past may no longer apply.  The cheering crowds may have moved to a new location. 


In this type of race, you don't just set the course once and forget about it.  Instead, you need to periodically make course adjustments.  You may need to put your finish line in a slightly different place.  In extreme cases, you may need to abandon the race altogether and start a different one.


Strategic planning is not a one-time event.  The end result is not a huge book detailing steps to be followed exactly to the letter.  Instead, it is a continual way of thinking about the marketplace so that your running gets you closer to your cheering crowd.  When the crowd moves, you need to move as well.


4. It's Most Important to Have the Crowds at the End of the Race  

Most great new innovative strategies start small.  This is because innovation implies change, and people tend to resist change at first.  Habitual established patterns can be hard to break.  However, great innovations do eventually win out over habit.


Therefore, do not be afraid when striking out on a new, innovative course.  If the innovation provides a clearly superior solution to customer problems, it has a great chance of winning in the long run.    


The important thing is not how many adoring fans you have at the beginning of the race, but at the end.  Barack Obama had very few fans when he started the race for President.  But at the end, when it counted, he had enough fans to win the election.


Therefore, choose the destination that is in the same location as where people are going, rather than merely looking at where they are today. 



Strategic planning is about winning a race for the future.  However, your race is not the same as everyone else's.  You need to find the course that is best for you.  Therefore:


1.  Spend Time Choosing the Right Course

2.  Don't Chase Competitors who have Chosen a Different Course.

3.  Be willing to modify your course in the middle of the race.

4.  Run to where the crowds are going to be.



A friend of mine invented his own Tour de France:  a bicycle race down France road in Minneapolis.  It may not be as big as the race in Europe, but at least it was a race he could win.