Friday, August 28, 2009

Strategic Planning Analogy #273: The Back of the Coin

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.

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 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.

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.

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.


  1. Dear Gerald,
    Your writings are extremely illuminating by their creativity.
    This particular article moved me with its depth. We always live within the boundaries of opposites: fear and greed in the stock market, light and darkness in research and the examples go on. Seeing these opposites in a straight line is different when envisaging them in a circle. Their balance on a wheel might cause the wheel to rotate clockwise and anticlock wise, as you mentioned.
    My addition here is also the wheel might rotate chaotically if the flow of opposites reaches a critical limit. Either new structures of work emerge as evidenced by the exaamples you highlighted ably; else the wheel becomes erratic.
    Congratulations on such a great article.

  2. Ali,

    Thank you for the kind comments. You are correct that our radical actions can re-orient the wheel by turning it clockwise or counter-clockwise, creating a new reference point for everyone.