Friday, February 27, 2009

Strategic Planning Analogy #242: Normally Speaking


Here in the United States, I am treated like an odd alien from another planet because I prefer to drink my soda at room temperature.  However, when I am in Europe, that behavior is considered to be normal.  I like mayonnaise on French fries as well, which makes me appear odd in the US, but normal in parts of Europe.  I also think US sweets are "too sweet," and prefer some of the less sweet treats from Europe.


Perhaps when I was a child…in the middle of the night…some mad scientist switched my taste buds with the taste buds of someone from Europe.  That might explain my cravings for food at odd hours—my taste buds are in the wrong time zone!  Of course, having transplanted tastebuds (a sort of Frankenstein-of-the-Tongue) would make me odd most anywhere.



What is normal?  As we saw in the story, what is normal in food taste tends to depend on where you were raised.  Normal cravings in one place are seen as quite odd in other places.


But it doesn't end with just location.  Look at the usage of new media by age.  What a twenty-something thinks is normal usage of new media would seem abnormal to many older people, and vice versa.


And stand out of the way when many people of opposing political viewpoints start to argue.  Each sees their viewpoint as "normal" and reasonable.  They find the opposition to be odd at best, and insane or dangerous at worst.


Even things as mundane as brushing teeth can challenge the concept of normality.  Proctor and Gamble tried to determine the normal teeth brushing routing routine, so that they could design the ideal tooth paste.  They found no normal.  Some wet the toothbrush before putting on the paste, some wet the toothbrush after putting on the paste, some don't wet the toothbrush at all.  And that's just the beginning of the tooth brushing routine.  Once the toothbrush enters the mouth, even more variety in behavior occurs.


We live in a highly fragmented world.  There are so many different lifestyles, attitudes and ways of everyday living.   And the trend appears towards even more fragmentation.


At some point, even the notion of there being a "normal" seems quaint and old-fashioned.  We are told to "celebrate diversity" and see those who propose conformity to a norm as "narrow-minded."


As a business, this poses some strategic challenges.  How do you create a business strategy in a "post-normal" world—a place where the idea of normal ceases to exist?



Business strategies are executed out in the marketplace.  If the marketplace is diverse enough to make normalcy obsolete, then strategic choice—how to win in that marketplace—becomes less obvious.   The good news is that in a diverse marketplace, there is not just a single best way to win.  If someone has already locked up a solid position in the market, it doesn't mean that you've lost your chance.  With all that diversity, you are more likely to find a different strategic path where you can also win.


The bad news is that fragmentation decreases the size of any behavior segment, so that when you win your audience, it may be too small to support your infrastructure.  Economies of scale are harder to obtain (although the digital world often tends to reach scale sooner than the physical world).


Listed below are five generic approaches for trying to reach a post-normal world.  As we will see, some approaches are better suited for this world than others.


1.  Fight for Average

In order to maximize scale, one can aim for offering a single solution targeted to satisfy the average within the diversity.   In other words, if diversity scatters behavior randomly in all directions, the single position which is closest to each individual would be the position in the middle—average features, average prices, average performance, and so on.


In a world without normal, this can be the most dangerous position to take.  There is no longer the large bulk at the center of a tall, bell-shaped curve.  The dispersion of people is more equalized, putting fewer people close to the center.


Average at everything means you are the best at nothing.  Trying to please everyone a little bit rarely works, because you are not competing against others who are also striving for average.  You are competing against hoards of specialists.  Although none of the specialists have broad appeal (and may actually be hated by more people than your average approach), for each demand group one of these specialists will be preferred over your average approach. 


As a result, an average approach may never come in last, but it will never come in first.  The average of black and white is gray.  If you offer gray, you appeal neither to the whites (you are too dark) nor the blacks (you are too light).  Middle of the road products and retailers have been losing out to specialists for years. We talked about this in greater detail in a prior blog.


2.  Do it All

If trying to cover everyone with a single go-to-market strategy targeted at average is wrong, then how about the opposite?  There are two ways to do this.  The first is to try to be the absolute best at everything in a single offering—the perfect product.  The second is to offer a near infinite assortment of offers, each targeted at a different fragment.


Lucky you if you can pull off the single perfect product.  It is extremely difficult to do because there are usually trade-offs which make this impossible.  Adding more features creates complexity, which fights against simplicity.  It is nearly impossible to best at all and be best at price.  In addition, there probably is no consensus anymore on what "best" really means.  Some may think the best design is contemporary while others may think traditional design is best.  For some, bigger is better…for others, smaller is better.  Best is no longer an absolute term in a post-normal world.


The reality is that if you are going to get a product out in the marketplace at a reasonable price, you have to make trade-offs.  You cannot afford to do it all at the level of perfection.  Customers are willing to make trade-offs to get what they want at a price they can afford.  They will migrate to firms who offer their ideal trade-off.  If you do not trade-off as well, you may be priced out of the market.


But then, to create a near infinite amount of trade-off offerings (one for each fragment) has its own set of problems.  First, you may not get enough scale for any one of those offerings to create a profit.  Second, you can create brand confusion.  It's hard for a brand to be known as best at everything.  If all these products come out under the same brand, it can confuse a customer as to what the brand really stands for.  In addition, customers will not believe that a single brand can be good at producing that many varieties of trade-offs.  Generalists are not usually viewed as powerful a brand as specialists.


So "Do it all" is difficult pull off in a post-normal world as well.


3.  Cluster Portfolio

If trying to please everyone with one product (as average or as best) doesn't work, and trying to please everyone with near infinite products doesn't work, how about something in between?  This would be to create a portfolio of a manageable number of offerings which are best or average for large sub-sectors (clusters) of the marketplace.  This tends to be the approach taken by people like Proctor and Gamble.  They have great technological expertise in paper/absorbency.  How do you exploit your full potential with that competency?


With toilet paper, the Charmin brand uses four sub-brands to cover the bigger niches: Ultra Strong, Ultra Soft, Basic (price) and Plus (with lotion).  With paper towels, there are three basic niches for the Bounty Brand: Extra Soft, Regular (thick and stylish), and basic (cost).  With diapers, Luvs stands for price and Pampers stands for good parenting.


The trick is to find the sweet spot between covering more fragments without diluting the brand.  If you can find that sweet spot, you may be able to get the best of both worlds—economy of scale plus specialized trade-offs.


4. Laser Focus

One strategic option reasonably well suited to the post-normal world is the laser focus.  Choose a relatively large niche in the marketplace and own it better than anyone else.  Specialize in understanding the niche and meeting its unique needs.  Essentially forget about all the other diversity.  Aldi isn't trying to please everybody, nor is Whole Foods.  Each has found its own niche in the grocery marketplace and is exaggerating its offering to the tradeoffs most desired by that niche.  They don't care that others may hate their offering and never patronize them.


Although the world may no longer have a normal, there is usually an agreed upon normal within the niche.  In fact, it is their version of normal which tends to define that niche.  Play to that normal (ignoring the rest), and you can win, provided the niche is large enough. 


5.  Enable Personalization

Rather than specializing in the final product for every fragment, how about providing the means so that every fragment can create their own?  A good example is  At Zazzle you can get the ideal t-shirt just for you.  They have an enormous number of customizing options.  And if you do not like any of them, you can create your own individual customized look and they will make it for you.  There are tons of firms like this who will customize clothing, food and other everyday needs to your individual tastes.


In this web 2.0 world it is easier to work with the customer, allowing them to customize and personalize their own unique solution.  Your solution is no longer the end product.  Your solution is to be the enabler that allows each fragment to find or build their own unique end product.



In a post-normal world, a one-size-fits-all strategy is out of place.  It is better to either narrow your strategy to a single niche, pick a small cluster of niches, or enable the fragmented world to create their own unique solution.



Next time someone accuses you of being abnormal, just say thank you.  In a post-normal world, that is a complement.

Wednesday, February 18, 2009

Strategic Planning Analogy #241: Aging Athletes

Some athletes just don’t know when to quit. They may be old, fat, out of shape, and well past their prime, but they still try to compete.

It can be painful to watch. You remember them when they were in their prime. You hate to see them end their careers in such humiliation.

Athletes don’t stay young forever. Eventually, time catches up with them, robbing them of their great athletic skills.

The same thing happens in business lifecycles. Growth businesses eventually mature and then go into decline. Unfortunately, some companies act like these pitiful athletes and continue to pretend they are growth companies, even though the days of great growth are well behind them.

It can be painful to watch. Every year they throw tons of money at the business to grow it (just like in the good old days), but the growth doesn’t happen like before. The glory growth days are history.

At a certain point, athletes need to realize when their time is up and they are no longer able to compete. Similarly, companies need to realize when their business has reached maturity and is no longer a rapid growth concept.

Knowing when it is time to move on is a key part of strategic planning.

The principle here is about managing maturity. Don’t let it sneak up on you and surprise you. Plan it out in advance. There are three key elements to understand when managing for the shift from growth to maturity.

1. Avoid the Demon of Denial
One of the worst things you can do is live in denial and act as if your business model will be in rapid growth forever. You may end up being like the washed up athlete who still thinks he or she is in prime athletic form, but is now just a laughing stock.

When in denial, one can be pouring in capital to grow a business which no longer can justify that action. You end up destroying value, because there is no longer enough growth to justify the extra investment.

Starbucks for years kept building new cafes at breakneck speed, as if unlimited growth would go on forever. It doesn’t. First, there is limited capacity for these cafes. Second, if a business is doing well, there will be imitators who will start absorbing some of that capacity, as McDonalds is now doing in coffee.

Eventually, all those new Starbucks stores were merely stealing sales from other Starbucks already in place, which by the way were losing sales to McDonalds. The rapid growth phase was over. Now Starbucks is forced to admit that these latter stores were poor investments which needed to be closed. It would have been better if those stores had not been built. In a similar situation, Wal-Mart eventually got the message and ramped back expansion in the US., because the rapid growth phase was over. Profits and share prices responded positively.

Another problem with denial is that one can start looking for blame in the wrong places. Rather than admitting that problems are due to an obsolete business model designed for rapid growth which no longer exists, one looks elsewhere for blame. This leads to making the wrong decisions, which do not correct the core problem. You cannot fix the real problem (end of rapid growth) unless one first admits that the real problem exists.

2. Avoid the Doom of Diversification
Sometimes, people look to solve the problem of slowing growth through diversification. In other words, if one business is slowing down, add another business to the mix that is just starting its rapid growth. The logic is simple: if you want rapid growth, just buy your way into rapid growth via diversification into places where rapid growth potential still exists.

Although this sometimes works, it often leads to disaster. The problem is that mature companies and young startup companies require a different type of infrastructure and management style. If you try to mesh mature and startup companies under the same infrastructure and culture, you often end up sub-optimizing both of them.

I’ve seen this scenario play out in companies with disastrous results. Either potential outcome ends up bad. First, you can try to optimize synergies between the mature and the young by unsuccessfully meshing them together as much as possible. Neither gets the structure and style they need and both suffer. The other alternative is to keep them entirely separate and build a new “holding company” infrastructure on top. At this point, one wonders if you have added any value through diversification, since there are virtually no synergies and you have added a new layer of infrastructure which didn’t exist before.

Perhaps a better model is that of the “serial start-up” kings of the dotcom space. These entrepreneurs would start up a company. Once the company migrated to the next level, they would sell it off and then go start up another new company. This way they specialized in the start-up infrastructure/culture and did not need to mesh companies at different stages together.

3. Properly Manage the Switch
So perhaps the best way to manage the transition to maturity is through a switch. Either:

a) “Switch the strategy” to one which optimizes mature businesses; or

b) “Switch the Portfolio” by Selling/Spinning off the mature business and replacing it with something which better matches a rapid growth culture.

A good example of the switching the strategy Fuller Brush. When it became apparent that the door-to-door sales model of Fuller Brush was in decline, management totally revamped the strategy to optimize profits in a decline. The revamped strategy worked so well that Fuller Brush was able to throw off cash for a far longer period than originally envisioned.

Maturity can be a profitable time, because you start reaping the rewards of prior investments, without having to put a lot more investments back in. But to get those profits, you have to manage the business as mature, not rapid growth.

Some examples of firms who switched the portfolio are:

a) GE, which continually sells off mature businesses and adds growing businesses to the portfolio. As a result, it has moved from heavy industrial businesses to finance and entertainment businesses and now is moving to environmental/infrastructure businesses.

b) P&G, which moved out of mature food businesses and invested in growing health care and beauty businesses. In 1995, food was about 12% of the P&G portfolio. Now it is down to just Pringles snacks, which is around 2% of its business. During that same time, Health and Beauty has gone from about 29% of its sales to 51%. And even in their more mature product categories of paper and cleaning products, P&G uses innovation to find growth sub-sectors, like with Dryel and Febreeze.

c) Cardinal Foods saw the coming decline of food wholesaling, so it sold off its food distribution business and replaced it with faster growing health care distribution and other health businesses, eventually becoming Cardinal Health.

The secret here is to get the timing right. If you wait too long to make the switch, then it is hard to effectively get out of the old businesses. GM has waited too long to get out the Hummer division and cannot find suitable buyers. P&G got out of many food categories early, when there were still people clamoring to buy the brands at a good price.

Just as we like to see athletes retire when they are still on top, it is good to make the portfolio switch when the old brands still have strength.

Just like the inevitability of death and taxes, all rapid growth businesses eventually mature. It is better to have a strategy which proactively manages this inevitability than to live in denial.

Just because a business model stops growing does not mean that a company has to stop growing. You just need to change the business model. And that’s the value of strategic planning…knowing how to change to the right model at the right time.

Sunday, February 15, 2009

Strategic Planning Analogy #240: Clowns With Scissors

Back when my son was about four years old, I took the family to the mall. My wife had an appointment to get her hair styled at a shop in the mall. I was going to entertain our two kids at the mall while my wife was at the salon.

As I suspected, when we were done touring the mall, my wife was still being worked on at the salon. My son poked his head in to see what was going on. He saw the women stylists in there working on people’s hair. Now the types of women who go into that profession tend to be a bit extreme in their fashion preferences. In general, when compared to the rest of the population, they tend to have wilder hair styles, wear wilder clothing and use more makeup.

So my four year old son is trying to figure this all out. Using his limited experience, he’s trying to figure out who these women are with wild hair, wild clothes and heavy make-up. He finally comes to a conclusion.

He starts pointing at them and shouting to me over and over again, “Look Daddy! Clowns!”

Sure enough, in his little world of experience, the only people who have wild hair, wild clothes and lots of make-up are clowns. Therefore, these ladies must be clowns.

I try to quiet my son, but to no avail. He keeps shouting “Look! Clowns!” Not wanting to offend these women (who, by the way, are carrying scissors as weapons and are working on my wife), I quickly take my son back out into the mall.

It is quite natural for us to use our experiences from the past in order to understand what we see in the present. Unfortunately, our past experiences may lead us to the wrong conclusions.

My son had limited experiences, so when he saw those stylists, the best interpretation of what he saw was that they must be clowns. After all, he knew of no other profession where people dressed that wildly. But he was wrong.

This happens in the business world all the time. The environment changes. New products emerge. New technologies are born. Consumer expectations evolve. If we evaluate these changes merely by our own past experiences, we may misinterpret them. We can come to wrong conclusions, as my son did.

Sometimes, we need to use more than our past experiences to make sense of where the world is going.

This principle has been referred to as “The Black Swan,” in reference to a 2007 book of the same name by Nassim Nicholas Taleb. The idea behind the title is that for centuries it was common knowledge that all swans are white—that is, until black swans were accidentally discovered in Australia. Since all past experience was to only see white swans, there was no reason to believe that any other colored swan existed. It was a complete surprise when the black swans were found. All that common knowledge about swan colors had to be thrown away.

The application to the business world is this: our past experiences may have limited usefulness in preparing us for the new and unexpected. Almost by definition, if it is unexpected, then we are not prepared for it. And guess what? Unexpected events seem to happen all the time.

I remember when Alan Greenspan was brought before congress in October 2008 to find out what his role might have been in the housing collapse, financial meltdown and resulting recession. Greenspan said he had not anticipated problems of this magnitude because we had never had problems of this magnitude before. To quote Greenspan, “I was shocked [by the problems in the banking industry], because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

Greenspan was confronted with financial black swans which disrupted his way of looking at the world. His 40 years of experience let him down. Like my son, he thought he saw happy, innocent clowns, when what he was really looking at were institutions cutting things up with scissors.

Sometimes, the Black Swans are great, unexpected positive opportunities. However, because we never saw that opportunity before, we may not recognize it for the opportunity it is. Take, for example, computers.

Univac pretty much invented the commercial mainframe computer and was in the best position to exploit the computer industry. It did not. Instead, it was IBM who exploited the invention. It forged ahead with production while Univac held back. Why? Univac did some research in 1950. Their research predicted that by the year 2000, there would be only 1,000 computers in use. That averages out to only 20 computers per year. This hardly seemed like a sufficient enough demand to warrant a major investment. By contrast, IBM didn’t conduct this type of research, so they didn’t know how “bad” their decision was in the eyes of the “experts.”

Contrary to the research projections, by 1984 more than one million mainframe computers were in use. Why was there a big discrepancy between research and reality? The problem was that the experiences of the past did not show a great need for great computing power. Nobody was doing it at the time (of course they couldn’t do it, because the computer hadn’t yet been invented). The only ones clamoring for it were a few scientific research centers. Not enough to build a business on.

Since IBM was a business-based product corporation, they could see the potential new business applications of the computer, which would prove to be a much larger audience. As a result, IBM forged ahead while Univac remained tentative.

However, before we give too much credit to the visionary leadership of IBM, look at how they approached the personal computer. Steve Jobs and Steve Wozniak invented the Apple Computer in a garage in their spare time. They took the prototype concept to a number of firms, such as IBM, Atari, and Hewlett-Packard in hopes of finding someone to back their idea. They all turned them down. IBM’s past indicated that people wanted mainframes. The people who ran the mainframe departments of large businesses (their key customers) weren’t asking for it. IBM could not envision a different world where individuals would want a machine of their own. IBM misjudged the good surprise of the PC black swan. It wasn’t until years later that IBM failed in its attempt to catch up and be a major player in personal computers. /

Other times, the black swan can be a bad surprise. The unintended consequences of the unregulated world of complex financial derivatives and the like have hurt us beyond the wildest expectations of the so-called experts.

So what should we do to make sure we don’t miss out on the good black swans (like computers) and avoid the bad black swans (like unregulated derivatives)?

1) Don’t look at events only through the lens of the past
Although it is important to use our past experiences when making decisions, we should not use that as our only guide. Try to imagine scenarios which deviate from behavior of the past.

2) Try to Envision “Unintended Consequences”Every action causes a reaction. Don’t evaluate the strategic action in isolation. Evaluate it along with potential reactions. For example, people reacted to computers with behavior they had not done before computers. If you do not evaluate the consequences properly, you’ll miss the value (good or bad) of the action. And remember, these consequences are often a deviation from the past. This is particularly important in finding the negative black swans. We talked about this in more detail in a blog on unintended consequences.

3) Evaluate in terms of Solutions, Rather than Products or Behaviors
It is often difficult to evaluate the potential of new products and new technologies, because nobody has had sufficient experience with them. Consumers may tell you what they think about them in research, but they really don’t know due to a lack of experience, so their answer may be unreliable. One thing we do know is that people have problems, and they will switch behavior if they are convinced that a new behavior will lead to a better solution. Therefore, do like IBM did with the mainframe. Try to envision if there is a way in which the new invention will lead to a superior solution to a problem, regardless of initial market reaction.

4) Weigh Upside Versus Downside Risks
Nassim Taleb emphasizes this concept. Some trends have more potential for downside risks than upside risks. Others, have the opposite. His advice is to be conservative on the former, and aggressive on the latter.

Although the past is useful in evaluating the future, it by itself can lead to the wrong conclusions. Use other tools, like unintended consequences, solution analysis, and upside/downside risk analysis to bring further clarity to the problem.

After the beauty salon incident, my son had another early opportunity to test his conclusions. He was about four or five at the time. We were in a store at the mall that had someone dressed up in a cartoon character costume. He looked at that character and was a bit confused. She was a lot bigger than she looked in the cartoons. And he wasn’t sure that cartoon characters should be alive. Was she really for real? So this time, he did some further research. With all his might, he kicked her in the shin. Well, based on the reaction, he learned something. I learned something, too: stop taking my son to the mall. Seriously, don’t take everything for granted. Kick it first.

Friday, February 13, 2009

Strategic Planning Analogy #239: Holy Fire

I suspect that at some time in your life you’ve heard the story of Moses and the burning bush. Moses was minding his business as a shepherd in the wilderness. He came across a bush that was on fire. Interestingly, although on fire, the bush was not being consumed by the fire. Even more amazing, the burning bush started talking to Moses—with the spiritual authority of God.

God’s voice from the bush told Moses to take of his sandals, because he was standing on holy ground. Then the voice from the bush told Moses about the holy mission he needed to undertake—the freeing of the Hebrew slaves in Egypt and getting them from the desert to the Holy Land.

The job of freeing the Hebrews from the Egyptians and getting them to the Promised Land was a very difficult task. The powerful Egyptian Pharaoh did not want to let them go. The Hebrew people were not the most cooperative people to lead, either. The forty years of wandering in the desert prior to reaching the Promised Land was very discouraging. I doubt that Moses would have followed through on the plan if he did not believe that there was holy direction behind the task.

Your business has some difficult tasks in front of it as well. It may be easier to lead your business through the desert times if you can imbue some “holy purpose” to the task.

What do I mean by “holy purpose”? This is the elevation of mere work into a noble endeavor. It is taking a strategy from being merely a list of chores to being like a divine inspiration, something that sets you apart for accomplishing greatness.

This could be seen back in 1983, when Steve Jobs was trying to lure John Sculley from Pepsi to join Apple. Steve’s approach was to position working at Apple as a holy purpose, while working a Pepsi was just a job. To quote Jobs’ plea to Sculley, “Do you want to sell fizzy water for the rest of your life or do you want a chance to change the world?”

Can people see the holy purpose in your strategy, or does it just look like fizzy water?

The principle here has to do with the active management of holy purpose as part of your strategy. The amazing thing about the burning bush was not that it was on fire, but that it was on fire, yet not consumed by it. Fire is a powerful thing. Inside a fireplace, it can be very useful in heating your house. Outside a fireplace, the fire can consume your house and destroy it. Similarly, we want to use holy purpose to “fire up” your employees to achieve greatness. However, if holy purpose is uncontrolled, it can consume your business and burn it up into nothing. Holy purpose cannot be allowed to run wild. It must be managed.

Active management of holy purpose means building up two characteristics and tearing down two activities. The two characteristics to be built up are the strengths of Purpose and Passion. The two activities to be torn down are Idol Worship and Pharisaism.

1. Build Strength of Purpose
One of the main roles of strategy is to provide direction to a company. The enemy of strategy is randomness. Pure randomness leads to nowhere. When holy purpose is given to a strategy, the power of that direction becomes stronger. The path is now a noble, holy path. People are less likely to deviate from a holy path, as this can be portrayed as akin to sin. As a result, you are more likely to get the strategy accomplished.

Petty bickering is also diminished, because “you are standing on holy ground.” The greater good of the strong purpose makes all that other stuff seem so trivial. Cooperation goes up…actions become more powerful.

The noble purpose at Wal-Mart is to help customers save money so that they can live better. Everyone within the entire Wal-Mart organization understands that this noble purpose requires Wal-Mart to be a low-cost organization. This universal strength in direction means that people instinctively act in conformance with this direction. Everyone is on the same page—do what it takes to keep costs low. It is burned into the fiber of the organization. In many ways, the strategy becomes self-regulating and self-reinforcing, taking care of itself.

People are drawn to companies with a strong sense of purpose, both as consumers and as employees. People want to work at Google because they believe in its purpose, “to organize the world's information and make it universally accessible and useful.” This is not just data crunching—this is revolutionizing the world by empowering the individual.

2. Build Strength of Passion
As I’ve mentioned in the past (here and here), dedicated, passionate advocates for the cause are far more productive than mercenaries, who are only in it for the money. Passion turns a war into a crusade and employees into missionaries looking for converts.

By giving holy purpose to your business cause, you can better tap into the emotional and other higher level motivators within a person. This seems to be especially true among Gen X-ers, who are more likely to choose what they buy, where they shop, and where they work based on higher level purpose. If your brand is not associated with a higher purpose, you are missing out on potential with this group.

In the race to the future, having passion on your side can be the difference between success and failure. Cultivate passion with a holy purpose.

3. Tear Down Idol Worship
As good as holy purpose can be, there is a down side if improperly managed. One of these downsides can be “idol worship.” When Walt Disney ran his company, people at Disney almost worshipped the man. When Walt died, the Disney company went into a downward slide for years. People were afraid to take a bold move because the guiding force was no longer there. They had been trained to do whatever Walt said, rather than trained to run a great company.

When the leader becomes idolized, creativity and innovation in the rest of the organization can wither. Everyone expects the great oracle at the top to lead the way. Employees can become mindless drones to carry out the will of the worshipped leader. Responsibility is abdicated and replaced with worship.

Some worry that Steve Jobs and Apple may be falling into this trap. That is why the Apple stock price plummets whenever rumors surface about the health problems of Steve Jobs, the worshipped leader. Some fear that Apple’s great innovation and sense of purpose will die with Steve.

The trick is to focus the holy purpose around ideals, rather than leaders. Then management needs to ensure that the entire organization feels responsible for maintaining the holy purpose.

Leaders come and go. They can make mistakes. That is why the holy purpose needs to transcend any one individual and belong to everyone.

4. Tear Down Pharisaism
Another potential downside is Pharisaism. In the Jewish faith during the time of Jesus was a group of religious leaders called the Pharisees. They took the simple laws handed down from Moses and turned them into complex legalism. The noble holy purpose was replaced with cold (almost blind) rigid obedience.

The same thing can happen to your business. Over time, the noble purpose can just become a bunch of rules to obey. Unfortunately, the marketplace changes over time, eventually making these rules obsolete. Blind following of obsolete rules leads to destruction.

Strategist Gary Hamel talks about this principle a lot. He refers to it as “orthodoxy.” Every industry has its set of orthodoxies—the generally accepted way to do things. Nearly all great innovations come about by changing the rules, i.e. ignoring the orthodoxies.

In a recent blog, we talked about Revol Wireless, who ignored the orthodoxies of their industry. The orthodoxy was to get an expensive new mobile phone into the hands of customers when they sign up for a wireless plan (the lure). The phone is sold at a discount and subsidized by higher usage rates tied to a contract (to ensure people stick around long enough to pay off the subsidy). Revol ignored the orthodoxies and did not subsidize the phone. This allowed Revol to charge lower usage rates (the new lure) and abandon the contract.

Harvard professor Clayton Christensen has written extensively on the idea of disruptive innovation. Christensen’s point is that true innovation traditionally comes from outside an industry rather than inside, because the insiders are too wedded to the old orthodoxies. The insiders don’t want to disrupt their rules because they have too much at stake in the old ways.

This is like those Pharisees who rejected Jesus because they had too much at stake in the legalism of the old ways. However, just as the Pharisees’ rejection could not stop the rise of Christianity, industry insiders cannot stop innovation through adherence to the old orthodoxies.

Every once in awhile, strategists need to sit back and question the orthodoxies around them. Is it time to change the rules? How should the rules be changed?

Adherence to principles, rather than rules, allows you to adapt and innovate. Wal-Mart was an early leader to get on the “green” bandwagon. Why? Their holy purpose was to lower prices so people could live better. As it turns out, the green movement eliminates a lot of costly waste. By going green, Wal-Mart can further its holy purpose and cut costs out of the system. Wal-Mart changed its rules/orthodoxies, but stayed true to its purpose.

Providing a nobler purpose to a strategy can be a powerful tool to improve the likelihood of success. It strengthens the power of strategic direction and allows you to tap into the passion of people. However, there can also be downsides if this holy purpose degenerates in to idol worship (abdication of responsibility) or Pharisaism (blind legalism). As a result, holy purpose needs to be actively managed to cultivate the good without achieving the bad.

In the Bible book of Acts, the author Luke praised the citizens of Berea, because they did not blindly follow the teachings of St. Paul (Acts 17:10-12). Instead, they took their passion and carefully studied the doctrine against scripture—to make an informed decision. He referred to these Bereans as “noble.” Blind followers are never as good as those who continue to make informed decisions. Passion needs to be linked to knowledge. A good strategy taps into both.

Wednesday, February 11, 2009

Strategic Planning Analogy #238: Anchor Your Boat


Every month I have to change a bunch of passwords at work for email, voicemail, access to data, etc., because they expire.  And I can't change them to something easy to remember.  The passwords have to contain letters, numbers and symbols, and I cannot repeat a password I've used in the past year.  It's maddening!


Just imagine how much worse it would be if your other forms of identification also expired every month.  What if each month you had to come up with a new first name, last name, home address, email address and phone number?  You'd probably be spending half the month setting up your new residence, getting new government paperwork for your new name, setting up new phone service, and so on.  Then, for the rest of the month, you'd be trying to contact all of your friends to let them know your new name, where you live, and how to contact you. 


Of course, if all of your friends are also changing identities every month, you wouldn't know how to contact them to tell them about your new identities. 


All of your time would be spent trying to establish your life, leaving no time to live your life.  After awhile, all the names and numbers would blur together in your brain. You wouldn't even remember your own name, because it no longer has any special meaning to you…it's just another in a long line of names.  Here today, gone tomorrow.


My parents had it easy.  They lived in the same house together for about 50 years and had the same phone number over that length of time.  Their identities were solid and easy to remember.



Stability and continuity in one's personal identity can be a good thing.  First, it is easier to remember (for yourself and for the people you want to stay in contact with).  Second, your identity becomes stronger and more special, because its power hasn't been diluted through constant change.   Third, it allows you to spend less time on creating your identity and more time on living out who you are.


Although we can easily see the benefits to keeping our personal identity factors constant, I have seen many companies abandon this idea when it comes to the identity of their brand, company or selling proposition.  On a regular basis, they change their logos, their advertising slogan, their market position, their CEO and all manner of things relevant to their identity.


Maybe it's due to boredom.  Maybe it is out of the desperate hope that a change in identity can be a catalyst for improved performance.  Regardless of the reason, the result of constant change in business tends to be disappointing.  People get confused (both inside and outside the company), the power of the brand is diluted, and corporate resources are diverted to identity change rather than serving the customer.



The principle here is about strategic anchoring.  If you do not anchor a boat it will drift away and you will lose it.  However, if you anchor your boat in a known location, you can find it when you need it.  Just as boats need anchoring, so do strategies, or you company will drift away.


It's hard to get people's attention.  And when you do get it, you only get enough time for a soundbite or a Twitter "tweet."  Complex or subtle message find it hard to get through.  This applies not only to your customers, but to your employees. 


Therefore, when trying to communicate strategy, don't keep changing the context or the jargon.  Anchor it to something already embedded in the brain.  Look at the Balanced Scorecard.  Robert Kaplan and David Norton came up with the concept back in 1992.  Over time, Kaplan and Norton have come up with lots of new ideas and concepts for business beyond the original Balanced Scorecard idea.  Yet, they have not abandoned the identity they gained with the Balanced Scorecard. 


All of their new ideas are put inside the context of the Balanced Scorecard.  Why?  It is the identity already embedded in the mind of their audience.  It is a reference point understood by the audience.  It makes it easier to get their new concepts across in soundbites.


It looks like a similar situation is occurring with the Blue Ocean strategy.  W. Chan Kim and Renee Mauborgne came up with this concept back in 2004, but they are not letting it die a quick death.  They now have the Blue Ocean Institute.  All their current ideas and writings are put into the Blue Ocean context.  It is becoming the solid identity foundation to build upon.  It is their version of a Balanced Scorecard.


If Kaplan and Norton kept redefining their jargon and context every time they had a new idea, they'd be like the person in the story who keeps changing his location and name.  You'd be spending so much time just trying to connect to your audience, that you will not have time to persuade.


Worse yet, abandoning the old jargon gives the impression that the old ideas and concepts should be abandoned.  And if the author is abandoning the ideas, why should I pay attention to them?  Won't those new concepts be eventually abandoned just like the old?  If the ideas become obsolete quickly, then why pay such close attention to them?   Your audience will start saying, "These, too, will pass soon, so I can get away with ignoring this latest management fad."



Don't marginalize your ideas by turning them into the "fad of the month."  Make a stand.  Keep the identity solid over a long period of time…long enough that people no longer feel they can ignore it.


Just because your company has strategic planning meetings every year does not mean that your strategy should change every year.  A good strategy should last quite a long time with only minor modifications.  Continuity is a good thing.


The same applies to the jargon and concepts used to describe the strategy.  Continuity of terminology reinforces the position in the mind of the audience.  Employees are more willing to go out on a limb and fight for your strategy if they know it is going to be around for a long time.


Now this does not mean that strategies are cast in concrete, never to change.  Tweaks and modifications are part of the game.  But just because one has to adapt their identity does not mean you throw the old identity away.  Rather than moving to a new house every month, like in the story, just redecorate the familiar old house.  If you look at the Balanced Scorecard "house" today, it has been vastly redecorated from what it looked like back in the early 1990s.  But it is the same, familiar house.  The boat is still well anchored.


Sure, the professional strategist can easily get bored with the old languages and concepts.  To spice things up and look like you are contributing, a strategist can get excited by using the latest jargon and newest tools at each strategy session.  Just remember, you audience doesn't think about this stuff as much as you do.  At the point where you are getting bored with it all, it may just be sinking in and getting comfortable with them.  And they will not spend as much time as you do keeping up with all these new approaches.  You can easily lose them in the churn of changing approaches.


Now, in this blog I have done just the opposite.  Rather than pound on the same analogy, week after week, month after month, year after year, I've done a new analogy with every blog entry.  This blog is analogy #238.  That's a lot of change.


I recently tried to remember all of those analogies and I couldn't do it.  They all started to blur.  If I, the author, cannot remember them, then the audience hasn't a chance.  If I wanted to make a big splash, perhaps I should have stayed with my favorite analogy—Strategic Planning is Like Barbecue Sauce—and just kept pounding on it week after week, like my version of the Blue Ocean.


One analogy can be an important metaphor for use in planning.  But 238 analogies are more than anyone can fully absorb into their daily living.  Perhaps it is time for a new approach.



Anchoring your strategy around a continuity of terminology has advantages.  It makes it easier to get your ideas across (common language).  It also keeps your ideas from being ignored as just a passing fad.  And besides, a good long term strategy shouldn't be changing all that often, anyway.  So why keep changing the jargon which talks about it?



Joseph Stalin used to say, "One death is a tragedy; one million is a statistic."  Even something as monumentally tragic as death becomes just a meaningless number when it occurs countless times.  If you want to have a monumental impact on your people, don't change your strategic language countless times.  That degrades it to a mere statistic.

Saturday, February 7, 2009

Analogy #237: Take It Off

The Story
A lot of people have trouble losing weight. Well here are two sure-fire ways to lose weight.

Method #1: Get Very, Very Sick
There’s nothing like a severe case of food poisoning, flu or diarrhea to take off pounds quickly. The weight just goes down the toilet. In addition, you’ll feel so weak and nauseous that you won’t want to eat for awhile after that.

Method #2: Amputation
Now some would complain that with method #1, the weight eventually comes back. So if you really want to make sure your weight loss doesn’t come back, try amputation. Once you cut off a leg or two, that weight is never coming back. It’s quickly gone FOREVER.

The two methods above that were recommended for weight reduction are impractical and stupid. What good does it do to lose weight if you have to spend all your time weak and sickly, either in bed or near a toilet? There’s nothing beautiful about seeing someone in such a sickly condition. In addition, there are the long-term negative health considerations from depleting your vital fluids.

Amputation may cause weight reduction, but it also eliminates key functioning parts of your body. Chopping off vitally important pieces of your body is extremely short-sited. Eventually, you’re going to want those pieces back, and by then it is too late. Not only that, you still haven’t eliminated the ugly fat in the rest of your body. You’re still fat, but without a leg.

As silly as these methods sound for human weight reduction, I have seen similar approaches taken by companies in the name of cost reduction. On the one hand, some companies cut out their “vital fluids” to the point where the company is too weak and sick to effectively function in the marketplace. They may be lean, but they are not mean. They are bedridden and on their way to oblivion.

This is often the result when companies indiscriminately announce 20% cost reductions across the board. Not every area has 20% waste, so some areas will lose vital fluids needed to be effective in the marketplace. Purging yourself of vital energy to compete makes a company sicker, not healthier.

Second, some companies will lop off entire sectors of their business. At first, they may think that they can get away without these major pieces of their business, but eventually they want them back and it is too late. For example, amputating R&D or maintenance from your company may save money today, but without R&D, you won’t have a pipeline to grow future profits, and without maintenance, your current profit machine will break down and go into disrepair, shutting you down.

During these current economic times, many strategies are focusing on cost reductions. Please don’t use either of these methods.

In the end, the real goal is not absolute lowest weight, but absolute best health. If you go to a health club, the trainers will tell you that some people are so weak that they need to gain some muscle weight in order to function at their peak. Likewise, strategies should be designed to focus on health, rather than just cost reduction, since, as we have seen, not all loss is healthy.

Experts will tell you that the sensible way to lose weight is also the healthy way. The idea to do a combination of two things: Change to healthier eating habits, and increase your exercise. In other words, it’s all about managing caloric inputs and outputs: fewer, but more nutritious calories in, and burn more calories out. In today’s blog we will apply this principle to business cost reductions.

1. Cut Back on Bad Calories
The goal is not to cut out all calories. That leads to unhealthy bulimia. Instead, eliminate the empty calories that provide no nutrition. In a business sense, that means cost cutting which takes out the things that have no bearing on your positioning, things that will not be missed and do not hurt your image or competitive strengths. In fact, some cuts can actually improve your strengths (just like cutting out an excess of cabs and sweets can eliminate energy crash cycles).

My current favorite example of this is Revol Wireless. In the United States, cell phone usage is fairly mature. Just about everyone who wants a cell phone already has one. Now the typical cell phone model in the US is to sell a phone well below cost and then charge a higher phone rate over a set period of time (in a contract) in order to recover the cost of the phone.

Well, what if a cellular company were to treat the phone as empty calories? If you eliminate the phone, the usage fees no longer have to cover a phone subsidy. In addition, you do not need to lock people into a long-term contract, since you don’t need to stretch usage out until subsidy is paid for. That’s basically what Revol Wireless has done. By treating the cell phone as empty calories, it can eliminate the undesirable contract and charge much lower phone rates than the competitors who have to factor in a subsidy.

Now not everyone wants to stick with their old phone, but if that market is big enough, someone like Revol can make out.

A simpler example is Kellogg. In the past, cereal companies have tried to cut back by putting less cereal in the box. Over the long haul, that can hurt, because you have reduced the value of the box without a comparable reduction in price. This is not just eliminating fat, it is eliminating muscle. People are buying cereal, and you’ve reduced that very thing they are trying to buy.

Recently, however, Kellogg has tried a different approach. Instead of reducing the contents of the box, they have changed the shape of the box so that it takes less cardboard to house the same contents. When you multiply a small savings on cardboard times all the boxes they sell, that adds up to a large cost reduction. This reduction, however, did not reduce in any way the quality or quantity of the contents. As a side benefit, Kellogg contends that the new shape fits better on a customer’s shelf, so the value may have actually increased, even though costs decreased.

Many of the green marketing programs also work in this way. They eliminate wasteful excess packaging (empty calories), which not only reduces costs, but can increase one’s image as caring about the environment.

2. Increase Exercise
One can lose weight not only by cutting out food, but by keeping food intake constant and increasing exercise. So when one feels pressured to improve productivity, don’t blindly rush to cut. Perhaps all you need to do is improve your exercise.

In a business sense, you can see that in ratios. Most productivity measures are ratios, like Labor $ per Unit Made, Costs per Unit Sold, Overhead per Dollars Sold, and so on. The cutting reflex wants to quickly cut the numerator of these ratios—the labor, the costs, the overhead. The exerciser realizes that productivity can also be gained by keeping these inputs flat and increase the denominator outputs, like units or sales.

For example, in this current economic recession, P&G has resisted cutting inputs like advertising. If anything, they are putting added emphasis on advertising. Why? Strong advertising (flexing their advertising muscles) can increase the denominator of sales, thereby increasing productivity.

Recently P&G has announced that they are taking their Mr. Clean Car Washes out of test mode and rolling them out. This will cause an increase in expenditures, but it is a productive exercise of their money, so they will be better off. In addition, it will provide another avenue of sales so that overhead as a % of sales will go down even if overhead costs stay the same.

In tough economic times, there can be a lot of pressure to cut costs. However, the best strategy is not one that cuts the most costs, but one that creates the healthiest company. So if you have to cut, look for cutting the empty calories out of your business diet—things that won’t be missed or hurt your image if they are cut (both near term and long term). Otherwise you may be cutting out something vital that you will need later (weight loss through amputation). In addition, look for ways to increase your exercise, so that you can grow the denominator (sales, units) faster than the inputs (costs). If an investment is highly productive, you can increase productivity by actually spending more.

The tough times will not last forever. More prosperous times will return. Unfortunately, if you amputate your leg, it is never coming back. Think twice before placing the saw on a piece of your corporate body.