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.

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