Strategic Planning Analogy #273: The Back of the Coin

THE STORY
If you take a coin and hold it close to your eye at a perpendicular angle, it no longer looks like a coin. All you see is the edge, and the edge looks like a straight line. It is only when you change the angle in which you look at it that you can see it is a circle.

I’ve used this concept to help explain some of my political observations. In the political world, people like to describe things on a one-dimensional line. At the left end of the line is liberalism. On the right end is conservatism. People are judged politically by where they are on that line—left, right or center. The thinking is that the further you are to one of the extremes on this line, the further your political thinking is from those folks on the far other end of the line.

However, in my observations and discussions with the really radical extreme conservatives and liberals, I see something different. The really radical extremes on both ends start looking more similar to each other.

- Both tend to highly question the abilities of the general public to be able to comprehend the “truth.” They do not trust them to make good choices.
- Both tend to have little faith in current political system to solve problems and are willing to take drastic steps to bring down the status quo.
- Both seem more inclined towards the idea of benevolent dictatorship (although they may define benevolence a little differently).
- Both tend to use populist rhetoric.

This is where the concept of the coin comes in. As you move further to the extreme on the political line, what you are really doing is moving along the edge of a coin. As you get more extreme, you start moving around the edge of what you see to the back of the coin. As a result, the radical, extreme elements of both conservatism and liberalism are so extreme that they are both moving to the back edge of the coin, and moving in a direction where they are now getting closer to each other.

In other words, politics is not on a line, but on a circle. We just can’t see it because we are looking at the coin from the wrong angle.

THE ANALOGY
In the business world, we also like to position ourselves as being on a one-dimensional line. However, instead of using the terms Liberal vs. Conservative, the extremes on our line could be:

Low Price Vs. High Service

Mass Vs. Niche

Multi-Purpose Vs. Specialized

Fashionable Vs. Pedestrian

High Quality Vs. Low Price

Efficient Vs. Customized

With this mind-set, we position one extreme against the other. The idea is that if you become more of one end of the continuum, you are by necessity less of the other. In other words, the more mass you are, the less niche you can be; or the lower your prices, the worse your service or quality needs to be. It becomes an either/or proposition.

This mindset is like looking at the edge of the coin. All you see are linear opposites.

But what if we change our perspective and look at the entire shape of the coin? We may find that if we throw away conventional thinking and get very radical, there may be a way to get to the back of the coin, where both extremes can co-exist. The “either/or” becomes a “both/and.”

Maybe there is a way to be both mass AND niche, or to provide high service AND low prices. All we need to do is find a path to the back of the coin.

We, as strategists, need to sometimes look at things from different angles, so that we can see possibilities that appear impossible from the original point of view. We need to change from thinking lines to perhaps thinking circles.

THE PRINCIPLE
The principle here is that so-called opposites can possibly co-exist successfully if we take a more radical approach to how we look at things. We will illustrate this by looking at a handful of U.S. retail companies.

1) Home Depot
The thinking in the hardware/home improvement industry used to be that one could either be high service or low price. You could not be both. This was the conventional linear thinking.

In the late 1970s Bernie Marcus and Arthur Blank started looking at things differently. They could see a circle, where low price and high service could co-exist. To do so, they had to get radical and rewrite the business model for the industry. Rather than small departments in a low price discount store or small, high service hardware stores, Marcus and Blank built huge stores that encompassed every imaginable home improvement need.

The large stores created enough demand and efficiency that they could offer unheard of low prices and still have money left over for high service. The early stores were staffed with former hardware store owners and part-timers who still worked in the skilled trades of plumbing, painting and the like. They even held seminars to teach the skills to the customers.

Bernie and Arthur had found the path to the back of the coin, where low prices and high service could co-exist. They called it Home Depot. It was very successful.

Unfortunately, when Robert Nardelli took over as CEO of Home Depot, he returned to linear thinking. He wanted to lower prices, so he cut back on service, thinking that to get one (low price), you had to cut back on the other (high service). This point of view severely damaged the prospects of Home Depot during the past decade. It wasn’t until Nardelli was replaced by insider Frank Blake (who understood the back of the circle) that things started to turn around. Service returned, and so did market share.

2) Amazon
Jeff Bezos used the internet to rethink a lot of the old linear ideas in retailing. Through the creation of Amazon, he was able to develop a mass retail site that had every imaginable customization tool, so it could also cater to every conceivable niche. Both mass and niche feel comfortable using Amazon.

Because of the efficiencies of internet technology, Bezos made Amazon both a slick, efficient low cost operator as well as a high service operator, providing recommendations, reviews, wish lists, easy ordering, and so on.

All of these services and customizations came with the convenience of shopping at home 24 hours a day. Yet, at the same time, Amazon was able to provide very low prices. Never before had so many linear “opposites” successfully coexisted in a single retail brand.

Jeff Bezos used the internet as a tool to radically redefine what one can do in retail. He saw the circle and got to the back of the coin, where all these so-called opposites come together. To Jeff, the internet was not just another place to do conventional retailing. It was a tool to redefine retailing.

3) Target
Target is known for its “Cheap Chic” image. Before Target, no retailer would have considered the combination of cheap and chic. These were supposed to be linear opposites. However, Target was originally owned by a sophisticated department store company which understood fashion well. This background gave them a different perspective as to what was possible.

By taking some of the tools from department stores and some of the tools of discount stores, they were able to fashion a new type of store which could provide both chic and cheap. They got to the back of the coin.

Once Target showed that you could have both, another wave occurred. By using the radical supply chain innovation of “fast fashion” (small batches of Apparel knockoffs made quickly—while the fashion is still hot—and sold quickly—without markdowns), chains such as H&M, Zara and Forever 21 are also finding a way to combine cheap and chic.

SUMMARY
Sometimes the way we look at a problem limits our ability to find the solution. If we see attributes as linear opposites, it is hard to picture them as successfully co-existing. However, if we are willing to change the angle we use to look at problems (and are willing to consider radical departures in our business model from the status quo), we can find ways to combine these so-called opposites into a hugely successful strategy.

FINAL THOUGHTS
Almost everything about the way we live and think today was at one time considered a very radical departure from the status quo. Therefore, don’t be afraid of thinking radically. All you may be doing is just redefining the future status quo.

Strategic Planning Analogy #272: Exercise Your Mind

THE STORY
Last year, the exercise club I was using declared bankruptcy and shut its doors. There was no advanced notice—just a note taped to the locked doors. Well, it was getting close to the Christmas season, so I decided to enjoy the holidays and not look for a replacement exercise club until the following January.

Apparently, I must have “enjoyed the holidays” a little bit too much. When I got to the new club in January, I was woefully out of shape. I had gained a bunch of weight and could not exercise anywhere near the same levels of intensity I could at the old club. Even my blood pressure was higher.

It took several months of intense work at the new club to get back to the level of physical abilities I had before taking the time off. It was amazing how just a few weeks of neglect caused many, many months of effort just to get back to where I was before, let alone make any progress.

THE ANALOGY
Without continual exercise, muscles suffer atrophy. They whither back to a weaker state. Unfortunately, it takes more time to get them back into shape than the time it took for them to get out of shape.

It’s sort of like a balloon. It is a lot faster and easier to let the air out than it is to later put the air back into the balloon.

As a result, the best way to exercise is on a continual basis—a little bit done frequently—rather than binge exercising every once in a great while. Continual exercise keeps the muscle tone in shape, so that you are always ready to use them when needed. I regret not having kept up my continual exercise through the Christmas season. I paid the price.

Although this concept seems logical for our physical muscles, it seems to be ignored by many when it comes to our strategic mental muscles. During the recent economic crisis, there have been many companies that have taken time off from strategic thinking, just as I did with exercise at Christmas. If any strategic thinking is going on, many of these companies are doing it on a binge basis, at infrequent strategy sessions.

Strategic thinking has a lot in common with exercise. If you don’t do a little bit on a frequent basis, those skills go into atrophy. And it takes a lot longer than you think to get good at it again.

THE PRINCIPLE
The principle here is that strategic thinking is more important than strategic planning. What good is it to have a great planning process if the participants have let their strategic thinking skills go into atrophy? Great outcomes depend on great input. Great strategic input comes from those who are exercising those muscles on a regular basis.

When companies use excuses like the current economy to abandon strategic thinking, several things happen. First, the time horizon for framing issues shrinks. It’s all about getting through the next week/month/quarter. Long-term implications of short-term decisions stop being considered. That skill goes into atrophy.

Second, short time horizons cause people to look at the world as a snap shot rather than as a moving picture. Wayne Gretzky famously attributed his hockey success to skating to where the puck is going to be, rather than where it currently is. He instinctively knew that his world was in motion and that the way to win was to anticipate the motion and use it to his strategic advantage. That is strategic thinking.

However, when you get too focused only on the here and now, you lose the skill of anticipating the motion. The world becomes a snap shot. You focus on where the puck is now, rather than where it is heading. By the time you get to that spot, the snap shot has changed, so you enter a new crisis of getting to that new position. This leads to a cycle of perpetual catch-up crisis thinking, rather than proactive, anticipatory strategic thinking.

Third, abandonment of strategic thinking usually results in incremental thinking. Improvements are only seen as coming from small, incremental changes to the status quo (what you know and are focusing on), rather than bold, sweeping change (which is no longer being pondered).

Small incremental changes to film photography will never get you to digital photography. Small, incremental changes to carbon paper will not lead to photocopying. Itunes did not come out of little tweaks by the recording industry, but by bold, radical moves by an outsider not bound by the industry’s status quo.

Revolutionary ideas come from revolutionary thinking. Revolutionary thinking is not something you can conjure up on a whim. It is a way of life that you must practice on a regular basis.

Finally, abandonment of strategic thinking tends to minimize all sorts of other thinking. The mindset is focused on getting the “task of the day/week/month/quarter” accomplished. No time to question the validity of the move—just “git r done.” Motion becomes more important than direction. It doesn’t matter where we are headed as long as we are progressing on the task at hand.

Soldiers may be great at following orders, but their success depends on having the proper orders to follow. Proper orders come from good strategic thinking. Take that away, and all the great action of the soldiers is wasted effort. If all of your daily time is spent focused on following orders, you never develop the skill to develop what the next order should be.

Formal strategic planning meetings get a very small percentage of management’s time. If strategic thinking is not exercised on a regular basis, management will not be prepared to take full advantage of those meetings. All the time will be spent trying to unthink the thinking process of the rest of the year and getting geared up to think in a different way. And since those muscles are not used very often, they will not be functioning at peak form.

Worse yet, since the rest of the year seems to abandon strategic thinking, it makes whatever occurs at the planning meeting seem irrelevant to the rest of the year. It is no wonder that many strategies just sit on a shelf and don’t get put into practice. If you do not value strategic thinking all year long, why should someone pay attention to the results of a one-week effort in strategy put together by people not in peak strategic shape?

The solution?

1) Incorporate long-term strategic thinking into the daily routine. Make sure that people get into the regular habit of considering the strategic implications of all their decisions, all year long. Continually ask “How does this decision impact our strategy? What are the greater implications of this move?” Ask it so often that people mentally prepare an answer in advance because they know the question is coming.

2) Make sure people keep “watching the movie.” If strategy is about anticipating future movement, spend time throughout the year looking into where the future is heading. Stop focusing just on the snap shot and have regular discussions/presentations on where you think the “movie” of your industry is headed. Talk often about where you think your “hockey puck” is going to be—changes in consumer desires, changes in regulatory environment, changes in economy, and so on. Educate people about trends throughout the year, rather than just at an annual planning meeting. Let it soak in, so that it becomes a natural part of the ongoing dialogue.

3) Match incentives to desired behavior. People tend to act in ways that maximize their incentives. If you want strategic thinking, reward that behavior. If all compensation is based on near-term results, all you will get is near-term thinking.

SUMMARY
Strategy loses its effectiveness if it is compartmentalized into only one week in the year. Good strategic plans come out of good strategic thinking. Good strategic implementation comes out of good strategic thinking as well. Therefore, spend time throughout the year building up those strategic mental muscles so that you are strong and capable for the task ahead of you and can execute well on a daily basis. Otherwise, all your strategic planning efforts are for naught.

FINAL THOUGHTS
Exercise helps you lose fat in two ways. First, the activity burns up calories, which comes from burning your fat. Second, the activity builds muscles. The bigger your muscles, the more calories it takes to move them. Hence, future exercise is made more productive because those muscles make your body more efficient at burning calories faster. The same is true with strategic thinking. Not only does continual strategic thinking make your current decisions better (less negative “fat”), it places your company in a better overall strategic position (stronger “muscles”), which provides a better and easier launching point for more strategic opportunities.

Strategic Planning Analogy #271: Nuance is Needed

THE STORY
You may remember Hugh O’Brian as the star of the TV show “Life and Legend of Wyatt Earp.” This was a top rated show during its run on ABC from 1955 to 1961. Hugh O’Brian is also known for something else, called HOBY, which stands for Hugh O’Brian Youth Leadership. O’Brian started the organization back in 1958, after being inspired by an encounter with Albert Schweitzer. HOBY is still active today.

The goal of HOBY is to help prepare High School youth to become effective future leaders in society. Every year, HOBY brings together some of the best and brightest high schoolers in the US to central locations for seminars and interactions with some of the leaders in the world. It is a great organization.

Back in the 1990s, I was invited one year to be a leader at HOBY representing the food distribution system. I thought it would be fun to interact with the youth and “impart my wisdom.” Little did I know that I would soon be ambushed.

I got to the location where the meeting was being held and was immediately bombarded with questions from the youth about food distribution in the US. At least they were worded like questions. In reality, they were manifestos, presented in the form of a question. They had already decided that we needed a radical overhaul of food distribution, had concluded what that revolutionary change should be, and were berating me for why the industry had not already made all these changes.

After the initial shock of being ambushed, I pulled myself together and tried to explain a few things. I tried to explain to them that the world is not purely black and white. The current system was not 100% evil and their proposals were not 100% good. There are implications from every decision that ripple out and affect many areas. There can be lots of negative unintended consequences which fall out of what originally appears to be good, and vice versa. You have to look at all the trade-offs of good and bad in your decisions and find the best blend.

For example, many of their proposals were very expensive to implement. I told them that these proposals in total would radically increase the cost of food, putting it out of the reach of poorer people. As a result, instead of giving people better food, their proposals could have the unintended consequence of increasing starvation and malnutrition. Did they really want that?

I told them that some of their ideas about food purity could lead to increased spoilage, food wastage, and increased disease and sickness. Did they really want those unintended consequences?

As a result, I told them that one needs to take a balanced and nuanced approach, trying to create the most good while minimizing the unintended negative consequences.

I could see that I was getting nowhere with this line of reasoning. Their minds were already made up. It was more important for them to act now than to act right. Nuance is not a part of the average High School thought process.

THE ANALOGY
These HOBY leaders-to-be aren’t all that different from some of the leaders of today. They have notions of what look like good ideas, but haven’t thought through all of the long-term consequences.

Leaders today have lots of pressures on them. Every day is full of crises and fires which need to be put out right away. There are pressures to act quickly and decisively. There doesn’t appear to be any room for nuance or for thinking out all of the long-term consequences of a decision (good and bad).

Unfortunately, if this type of thinking is ignored, leaders eventually may come to regret their decisions. For example, Enron came up with what at first looked to be a great incentive system for encouraging near-term profits. It was praised by many management gurus. However, it also had the unfortunate negative consequence of encouraging falsification, deception, and corruption. The unintended negative consequences of this incentive system caused the implosion of Enron.

How can this be avoided? This is where strategic planners can provide one of their most valuable services. Because strategists tend to be a little more removed from the tyranny of the immediate crisis of the day, they have the luxury of being able to focus more on thinking through all the consequences of a decision. They can then present that thinking to top leaders, so that they can make more informed decisions.

Just as I was trying to help the HOBY youth see the bigger picture and all of the consequences and ramifications of a decision, strategists need to the same for their companies.

THE PRINCIPLE
The principle here is that although it is desirable for leaders to look for the unintended consequences and the subtle nuances/ramifications in their decisions, it is essential for strategic planners to do so. No one else is in a better position for this task. (Note: I talked in greater detail on the importance of considering unintended consequences in an earlier blog.)

As mentioned above, leaders are often pulled in many directions and have difficulty sitting back to ponder all the ramifications. This makes it difficult for them to be the key practitioners of this task.

Many of their other top confidants have large empires of power. This can bias their ability to think objectively through all the ramifications, since it could impact their power base, or the power bases of their rivals. Even if they can be objective, that power base can make it hard for them to appear objective to others. Their questionings can appear to be personal attacks. So they are not the best candidates, either.

Outside consultants are useful, but this is typically not an area where they excel. They are often not intimately knowledgeable about your industry in a way that helps them understand the nuances of a particular decision. Also, they are not planning to stick around long enough for the unpleasant ripple effects to appear. Finally, their specialty is usually to bring in hoards of young people to gather data, not to have someone sit back and ponder implications.

No, it would seem that the strategists are in the best position for this important task. They have the most freedom from the daily fires that detract from long-term thinking. Strategists also tend to have fewer ties and biases to the status quo power bases, giving them more freedom to look to look at things objectively. Finally, because they are insiders with a stake in the long-term prospects of the business, strategists can see the nuances and are motivated to make them known.

In medieval times, the court jester was the only one who could openly criticize the king without fear of getting his head chopped off. They could get away with it because it was part of their role, and because it was packaged inside humor.

In many ways, strategists are like the court jester. Strategists are uniquely suited to get away with critical assessment about unintended long-term ramifications, because long-term concerns are a key part of their role, and they can package it inside of strategic assessment rather than personal attack. A friend of mine succeeded well as a strategist because he mastered the role of the court jester, which allowed him the ability to point out these negative ramifications in a way that no one else could.

Most job descriptions for strategists do not include the specific task of being the key point person for pointing out negative unintentional consequences and showing the difficult trade-offs hidden behind many decisions. Even so, it is probably one of the most important things they can do for their organization. Take the time to develop this skill. Then use the skill. Your company’s future depends on it.

SUMMARY
Many decisions which look great upon first glance can actually be terrible strategic decisions after pondering all the hidden long-term ramifications. To make sure a company reaches the right decision, someone in the organization needs to be pro-actively searching for the unintended ramifications before the final decision is made. This involves taking the time to ponder the nuances and interconnectivities of the business and how the decision will impact them. And guess what…usually the person best suited for this role is the strategist.

FINAL THOUGHTS
Earlier, I said I was ambushed at the HOBY convention. Actually, I was ambushed twice. Hugh O’Brian cornered me and wanted as much insight as possible into how he could get a huge donation for his organization from the company I worked for. I pointed him in the right direction.

Strategic Planning Analogy #270: Tool Time

THE STORY
A man walks into a home improvement store to purchase a ladder. He goes up to the salesman and asks for a recommendation on which ladder to buy.

The salesman replies, “That depends on what you plan on using the ladder for. We have tall ones, short ones, durable ones, inexpensive ones, and flexible ones. Tell me how you plan on using the ladder and I’ll recommend the right one.”

The man says, “I don’t know how it will be used. Heck, just get me a blue ladder. I like the color blue.”

THE ANALOGY
It’s hard to buy the right tool when you do not have a clue as to how it will be used. The same is true with financial models. You can design all sorts of different computer models for your strategic scenarios—simple ones, complex ones, flexible ones, and so on. Like the ladders in the story, each type of model has its place—and each type can be inappropriate under certain circumstances.

Models are like ladders; they are both tools to get a job done. The better you understand the job, the better choice of tool you will make. Choosing a ladder because you like its color makes as much sense as choosing a modeling technique because it is your favorite. Instead, get the tool based on the job to be done.

THE PRINCIPLE
The principle here is that the best type of model is the one that best answers the question at hand. Simple models have their place. They are quick and easy to build and easy to understand. However, they may not be adaptable to a wide variety of scenarios and they may not be sophisticated enough to provide a meaningful answer.

By contrast, a sophisticated and complex model can allow you to understand a situation more deeply. They can also be adaptable to more alternatives. Unfortunately, they can also be a time-consuming nightmare to build, debug, and input data. In addition, you may not have enough information to know how all the pieces in the model should interact.

Remember, a computer model is just a tool, not the end result. The end result is a strategic decision. Depending on what that decision is, different models may be more or less appropriate.

Keeping that in mind, here are my rules for designing models.

1) Start With the End
The first thing you need to do is ask what decision will be made based on the modeling. Knowing that (the end) will let you know where to start. I’ve seen cases where someone rushes off to build a model before fully understanding how the model will be used. They come back with something inappropriate. That is a waste of time for the modeler and the ones for whom the model was made.

If you are trying to decide between two different ways to operate your business (quality vs. low price; in-house vs. outsourced; mass vs. niche; automated vs. flexible; etc.) perhaps the best model is just a single look at each option in its mature state. There would be more complexity around the factors that are different in the scenarios and less complexity in the areas where they are the same.

If you are trying to decide whether to do an acquisition, then you probably want a model which spans several years—long enough to capture the value of the deal. You need enough detail to compute cash flow. Since a lot of the value of an acquisition is gained or lost during the transition process, you would want to model that as well.

If you are trying to choose between short-term tactics (like a pricing plan or an advertising plan), the model can probably be simplified to only looking at the areas of the business impacted by the tactic.

If you are in a crisis mode where a decision has to be made immediately, stick to the key issues and crank something out quickly.

2) Never Asssume You Will Get it Right In One Take
I worked with a guy who had an interesting take on model building. Once he got all the formulas right, he would run the model once and then freeze the results. In other words, he would erase all the formulas and links from the model and replace them with the actual numbers which came out of the first running of the model.

Then, he would present his results. Invariably, someone would want to adjust some of the assumptions in the model or try another scenario. This guy would then throw a fit because he had erased all of the formulas. He couldn’t run the model again because he had frozen each cell in the spreadsheet with the number from the prior scenario.

This is an extreme case, but the principle applies broadly. Assume that there will be future adjustments to the model. Build it with enough flexibility so that it can be adapted to the future changes.

3) The Questions You Ask Are More Important than the Model You Build
Models are built to provide more clarity around a business decision. Fuzzy notions are hard to quantify and even harder to properly evaluate. In the process of building a model, one has an opportunity to help your audience become less fuzzy by asking a lot of questions.

A computer spreadsheet model has a lot of cells which need to be filled. By working with your audience and asking the right questions, you can force them to become clearer about how each of those cells inter-relate. They may not have thought it all through. By asking the right questions, you can make them think about things that need to be thought through in order to fill in all the cells.

The value of getting them to think these things through may be a lot more valuable than the actual number which comes out of the model. For example, they may be looking at changing the price of a particular product/service. To make sure they fully understand the ramifications of the price change, you can ask questions like:

- How would that price change impact the price perception (and cannibalization) on the rest of the product portfolio?
- How will it impact your quality image?
- What happens if competition matches your price?
- How much price elasticity is there in the marketplace?
- If a lower price raises demand, what items are fixed and what items are variable in meeting that demand?

Just by asking those penetrating questions, you can create better decision-making, regardless of the model. I remember someone from McDonalds telling me about their test of a new product called McShrimp Cocktail. The original model looked pretty good until someone asked the question, “How much shrimp would it take to roll this thing out chain-wide?” Once it was determined that 100% of the known shrimp in the world would not be enough to cover annual sales projections, the project was scrapped. Simple questions can be very powerful. Use the tool of the model as an excuse to get in front of people to ask these questions.

4) Once You Have Enough Information to Make the Right Decision, Stop
The goal here is not the perfect model, but the right decision. Sometimes the choice is so obvious that it doesn’t take much of a model to show it. The gap between option A and option B at times can be so large that you don’t need to waste a lot of time fine-tuning the model. If no amount of fine-tuning could ever make option B better than A, then stop the fine tuning.

As you build and refine the model and the assumptions, continually ask yourself this question, “What is the likelihood that further refinement would lead me to a different conclusion?” At the point where you see little to no chance that further refinement would change your decision, then make the decision now and stop wasting time refining the model.

Sometimes the difference between option A and option B can be very slight. In those cases, it can be well worth the time to further refine your modeling in order to better understand which is the right decision. Focus on the key areas which are the least certain and the most influential.

SUMMARY
Financial modeling is just a tool. Its value comes from its ability to help you make better decisions. Depending on the decision, you made need a different model. So start by understanding exactly what that decision needs to be. Then bring clarity around that decision by asking the right questions. Finally, once you have enough clarity, stop fine-tuning the model.

FINAL THOUGHTS
Some strategic implications of a decision are hard to quantify, like the impact on corporate culture or the value of strategic flexibility. Just because they are hard to quantify does not mean they should be ignored. Often, the soft issues make or break a decision. A financial model is just one tool in the toolkit. Combine it with softer tools which take these other aspects into account.

Strategic Planning Analogy #269: Culture is Offensive (and Defensive)

THE STORY
Back in the days of the dot-com boom, I was working on a new e-commerce opportunity. In an attempt to get this idea off the ground, I was trying to form a joint venture between three types of companies: a high-tech e-commerce software company, a large telecommunications company, and a traditional store-based retailer.

Unfortunately, this project never got off the ground. The reason? All three companies had vastly different cultures. The software company had a silicon valley corporate culture. The telecommunications company still thought like it was part of the old-school monopolistic practices prior to the breakup of the original AT&T. The bricks and mortar retailer fell somewhere in-between.

It’s hard enough trying to get three companies to work together who have similar cultural styles. But when they cultures are so different that they appear as unintelligible foreign languages to the other firms, your chances for success are doomed.

THE ANALOGY
In the world of strategy, a lot of one’s future success often depends on cooperation with other firms. If the firms do not work together as planned, the strategy falls apart. You can put a lot of reason on paper why a cooperative strategy should work:

1) Complementary Skill-Sets/Resources
2) Mutual Self-Interest
3) Speed-to-Market
4) Building a Network Powerful Enough to Win (stronger than going alone)
5) The numbers (financial analysis) show great profit potential.

This was the case in the story above. There were many reasons why the participants should have been ticklee to death to do the deal. The logic was solid; the numbers were solid.

Unfortunately, the cultures were so different, that the companies did not trust each other. As a result, the logic and the numbers were not enough to hold the deal together.

THE PRINCIPLE
The principle here is that a strategic plan which ignores corporate culture is an incomplete strategy. Now you may be saying, “Sure, that’s true when you are trying to acquire a business or do a joint venture, but after that, corporate culture is a minor factor.” I beg to differ.
I think corporate culture can be used as both a strong offensive and defensive strategic move. By pro-actively putting corporate culture into your strategic plan, you can change the rules to your favor.

Offensive Cultural Tactic #1: Getting to the Future Faster
Most strategies are an attempt to create a better future position for your business. That usually requires changing the rules of how the game is played and getting out ahead of the competition.

New rules often require new ways of running your business. Your old corporate culture was designed for the old rules. To get to the future faster and more effectively often requires becoming aggressive at pro-actively altering your corporate culture to be more in tune with the new rules.

Those old telecommunications giants like the one in the story have a lot of legacy culture from the old days of the simple telephone monopolies. This slow, bureaucratic culture is not well suited for the modern telecommunications age. Nimbler firms like Apple are finding the new ways to mine gold from that space. They can think outside the box, because the box was not their cultural home.

Similarly, the cultural heritage of the Detroit automakers was designed for different times. GM has stuck with that old, outdated culture and paid the price. Ford has proactively tried to break that culture by bringing in an outsider to lead the firm. Caterpillar used to have a corporate culture like the auto industry, but it early on aggressively changed that culture and has become a world leader.

John Chambers, CEO of Cisco, loves to talk about how he saw the future evolving to one where innovation is more important, so he changed the corporate culture to better embrace that new reality. As these examples show, if you want to take the offensive on moving ahead, it helps if pro-active adapting your culture early in the game is part of that strategy.

Offensive Cultural Tactic #2: Getting the Right People
It’s said so often that it’s become a cliché, but success has a lot to do with getting the right people. You win with people, as the saying goes. Therefore, getting the right people can be a key factor in strategic success.

The exciting new people of the next generation are wired a bit differently from past generations. To become the employer of choice for these top prospects may require adapting your culture to make it more appealing to them. If your culture only attracts people with yesterday’s mindset, it will be hard to even see, let alone win, tomorrow’s game.

Therefore, a pro-active approach to adapting your culture can be a key offensive tactic to draw in the talent one needs to make your strategy work.

Defensive Cultural Tactic #1: Postponing Obsolescence
Corporate culture is a lot like the culture in yogurt. At first, the active culture reacts with the milk to make tasty yogurt. But if that same active culture works too long on the milk, the yogurt goes bad and spoils.

If you leave the same culture in your company too long, your company, like the yogurt, can go bad and spoil as well. You need to change it up a bit to stay current with the changing marketplace. Otherwise, your outdated culture will keep you stuck in the past. It will make your company irrelevant and obsolete.

There’s a reason why disruptive innovation often comes from outside an industry. Those on the outside bring a fresh culture and a fresh perspective. They don’t get trapped in the past by saying, “But we’ve never done it that way before.” Outsiders are more willing to try a new way, with a new culture, because they are not wedded to the old.

Therefore, if you want to defend your industry position, it is often desirable to do so by pro-actively working to keep your culture relevant to the changing industry you are in.

Defensive Cultural Tactic #2: Blocking Openings
Often times, the future industry leader gets its start by exploiting a little hole in the current leader’s strategy. The future leader takes that little hole as a beachhead to eventually topple the current leader.

This is similar to what Google is trying to do to Microsoft. Microsoft had a hole in its strategy when it came to search engines. Google exploited that weakness and became a strong leader in search. Google is now using that leadership in search to build positions across nearly all of Microsoft’s businesses. If it weren’t for that hole in Microsoft’s strategy, Google would not have had the entry way to now challenge Microsoft and put them on the defensive.

Corporate culture tends to make us look at the world in a particular way. This creates “blind spots” that others can exploit and use as a beachhead. However, if we proactively develop a culture which embraces more diversity of thought, we are more likely to have people in the organization who see that “blind spot” and help us defend it from attack.

SUMMARY
Corporate culture can be far more than just a nice little afterthought for your strategy. In fact, it can be one of your most significant strategic tactics, both as an offensive move and a defensive move. By taking a more pro-active approach to managing cultural change, one can increase the likelihood of success.

FINAL THOUGHTS
I’m not saying that you should abandon your culture every year and take up the latest management fad. Culture should have some lasting qualities. Some aspects, such as a culture of integrity or a culture of pursuing low costs may last forever. Other aspects, however, should be reexamined on a periodic basis to ensure they are still relevant.