Monday, October 12, 2009

Strategic Planning Analogy #281: The Magic Hammer

Bob was giving Joe a tour of his office building. In the center of the main entryway was a fancy display case. Inside the display case was a hammer.

Bob was very proud of this hammer. He made sure that seeing the hammer up close was the first part of the tour.

“This is the finest hammer ever created,” beamed Bob. “All the research says that if you want to succeed in my industry, you need a great hammer. Since I want to succeed, I bought myself the greatest hammer in the world.”

Joe was a little perplexed. He asked Bob, “If you keep this hammer locked up in a display case, how can it help improve your business?”

Bob replied, “The research said that having better hammers leads to better success. If I went and used this hammer out in the field, the hammer would get worn out. Its condition would deteriorate from what it is now. It would become a lesser hammer. Why would I want to make this a lesser hammer if the research says that better hammers are the ones which lead to success?”

At this point, Joe could see that further discussion about the hammer would be useless, so he asked Bob to show him the rest of the office building.

Bob sighed and said, “There really isn’t much left to show you. I declared bankruptcy last week and sold off all of the office equipment in an auction.”

A hammer is a tool, not some sort of magical charm. For a tool to be useful, it needs to be used properly. Just having the tool on display won’t do much good. It doesn’t provide magical success merely from its presence.

Although Bob owned the hammer that could potentially bring success, his company failed, because he did not properly use the hammer.

In the business world, there are hundreds of management tools available. There are also lots of books and consultants out their proclaiming that their particular management tool is just what you need to be successful. Lots of these books are purchased and lots of these consultants are hired. Yet many companies continue to fail.

Apparently, Bob is not the only one having trouble getting the promised success out of tools. Perhaps, like Bob, we are not using the tools properly.

The principle here is my universal law of management tools. It goes as follows: For every management tool available, you can examine the marketplace and find companies falling into each of these four categories:

1) Firms using the tool who are successful.
2) Firms using the tool who are not successful.
3) Firms not using the tool who are successful.
4) Firms not using the tool who are not successful.

For example, I can find firms using centralization that are both successful and unsuccessful. Similarly, I can also find firms using the opposite approach (i.e., decentralization) that are both successful and unsuccessful.

In other words, any given management tool is not a magical charm that makes every company who touches it successful. If used properly, it may be able to help you, but even that is no guarantee. The correlation between any tool and success is typically very weak.

Therefore, when developing strategies, do not make obtaining a particular management tool the centerpiece of the strategy. Your ultimate goal is the quality of what you put in the bank account (profits), not what you put in the toolbox (tools). Good tools are nice, but your strategic approach should give a higher priority to the following three areas:

1) Place
Which of the two petroleum industry scenarios do you think will be most successful:

1) Using mediocre tools to drill into a huge reserve of oil; or
2) Using the highest quality tools to drill into an area devoid of any oil.

Naturally, if you want to be a successful oil producer, you need to apply your tools to places where the oil exists. Good tools help, but if you are located in the wrong place, those tools will not prevent your failure.

Strategy guru Michael Porter says that one of the most important steps in strategy is your choice of place—where you have decided to set up your business model. Not all places are created equal. Some are naturally better suited for success than others.

Some industries have high average profits, while others tend to be perpetually bad for everyone nearly all the time. Some sectors within industries tend to do a better job of absorbing the profitability of their ecosystem than others. Some business propositions (positions) tend to be more compelling than others.

Choosing a poor position in a poor sector of a poor industry will almost guarantee failure, no matter how good your management tools are. Jack Welch was known for using a lot of management tools at GE. However, a great deal of his success was due to identifying places in the GE portfolio where they had little chance for success (typically where they had no chance of being a leader) and divesting of those businesses (and reinvesting in better places). GE has continually morphed its portfolio over time so that it is in the right places (where success is easier to obtain).

As Willie Sutton put it, he robbed banks because that’s where the money was. Therefore, we need to be like Willie Sutton and first figure out where the money is. Then we need to direct our strategy so that it is pointed at that pool of money. Only after making this major decision should we worry about the tools.

2) People
If you give an axe to a skilled lumberjack, you will get a better result than if you give that same axe to an axe murderer. The tool is only as good as the person using it. Poor operators lead to poor results.

In developing your strategy, how much attention is focused on strategies for finding, obtaining, training and keeping the best people? Is it a higher priority than strategies for getting in place the latest management tool?

Online retailer Zappos put nearly all of its energy from day one into optimizing the people side of the business. It let them grow from nothing to being acquired by Amazon for a little under a billion dollars after only a few years in business.

If you truly believe that people are the key to your success, then that should show up as a priority in your strategy formation.

3) Practice
Great companies tend to be perceived as best at delivering a desirable benefit. Becoming the best is typically not an accident. It comes from a continual focus on that point of superiority.

Practice makes perfect. So to keep your edge, keep working the area that makes you great. Get even better, so that others are never able to catch up. Wal-Mart wins by being best at price. It innovates new ways to help it lower prices even more, so that others cannot catch up.

Focusing on the goal of getting better at what you are best at is more important than focusing on the latest management fad. Fads come and go. True staying power comes from staying true to your point of differentiation.

The correlation between any management tool and success is weak. You can find both successes and failures with virtually all the management tools. Therefore, don’t focus too much strategic energy on getting the latest management tool. Instead, focus on matters more critical to success, such as place (where you choose to position yourself), people (getting, keeping), and practice (getting better at what you are best at).

Beware of magicians trying to sell you their magic hammer.

1 comment:

  1. Gerald,
    You used your hammer ably. You hammered me with this leading idea. A sword gets rusty if not used. A skill deteriorates if left in the humid climate of negligence.