Tuesday, December 29, 2009

Strategic Planning Analogy #301: Management by Voting?

We Americans love democracy. The idea of dictators dictating orders without a vote is not in our DNA. That’s why the USA likes spreading democracy around the world.

However, I’m not sure that putting everything to a vote in all situations is always the best idea. What if parents were barred from taking any action unless voted on and approved by their children? And what if parents had to do what ever their children voted on for them to do? I think that would cause a bit of a mess.

And what if every employee had the sole vote in how their individual career was managed (how much they got paid, what their title was, what work they did, whether they could get fired, etc.)? Probably the closest we ever came to that was the high levels of unionization in Detroit, and we can now see how that helped eventually destroyed Detroit’s economy.

And what if, in the middle of a war, soldiers refused to take any military action until all of the soldiers could have time vote on it? Military “orders” would merely be propositions to be voted on. With enemy bombs coming in your direction, reaction tactics would have to wait until a sufficient time for campaigning and voting occurred. And if each military unit independently voted on what tactic to take, there would be no unified military action…only chaos.

No, I think some areas of life need more balance between the input of the people and the wisdom of the leaders.

Businesses are not true democracies. Most items are not put to a vote of the Board of Directors, the Employees or the Customers. Instead, business leaders tend to determine what they think is best and get the company to follow.

The advent of Web 2.0 technology has made it easier for businesses to gather the input from a wide variety of stakeholders. This makes it easier to, in essence, put all management decisions up for a vote with customers and employees.

Many are hailing this as a great and wonderful thing. There are even books and business pundits declaring that Web 2.0 requires business leaders to relinquish control of the business to the customers, who have now supposed taken control of all the power.

Indeed, having access to all of that Web 2.0 interaction can enrich the decision-making process. The input is very valuable. However, I’m not ready to abdicate all business leadership to “the will of the people.”

Just as children need good parenting and soldiers need good commanders, businesses need good, strong leaders. And just as employers need to consider more than just the will of their employees, businesses must consider more than just what the latest Web 2.0 feedback says. And just as there are times when children need to obey their parents and soldiers need to obey their commanders, there are times when “voting” needs to be set aside so that business leaders can be obeyed.

The principle here is that all the exciting new Web tools are just that—tools to be used in the hands of leaders. They are not substitutes for leadership—especially when it comes to strategy.

About a month ago or so, I was reading a story in Fortune magazine about Best Buy. There was a quote in there from current Best Buy CEO Brian Dunn.

One of my roles as CEO is to be the chief listener. I don't believe that the model is any longer that there are a few really smart people at the top of the pyramid that make all the strategic decisions. It is much more about being all around the enterprise, and looking for people with great ideas and passionate points of view that are anchored to the business and connected to things our customers care about.”

At first, this quote sounded good to me. Dunn was using the wisdom of others to help make more informed decisions. Then I thought about it for a second longer. This is more than just getting input. This was starting to sound like abdicating responsibility for creating strategy. Strategic leadership seems to have been banished from the organization. Rather than having tactics derived from strategy, strategy appears to be belittled to nothing more than the culmination of a series of independent and unconnected tactical decisions made “by the people.”

Tactics shouldn’t drive strategy. Strategy should drive tactics.

Dynamite can be a very useful tool, but without skilled dynamite users, the tool can destroy you. Similarly, feedback from others is a powerful tool, but if you eliminate the role of professional strategists at the top of the organization to properly apply it, it can destroy your company.

You need both—the tool (feedback) and the professional tool handler (the strategist). Eliminating the strategist can lead to the following problems.

1. Mistaking Ideas for Strategy
Interaction with stakeholders is a wonderful way to get ideas. Ideas are great, but they are not strategy. Strategy gets to the heart of the matter: What business should I be in? What is my competitive advantage? What business model should I use? How do I win in the marketplace?

Not all ideas are appropriate for all companies under all conditions. Good ideas are the ones which support the strategy. Great strategic leaders understand their strategic thrust and can cull out the best ideas for their particular firm from the others. Leaving it up to a vote gets what’s popular, not what’s appropriate. For example, consumers may all want low prices, but typically only one firm in an industry is the lowest-cost operator. For everyone else, a priced-based strategy is probably not going to win, regardless of what the people say they want.

2. Missing the Big Picture
One of the major benefits of business strategy is getting “the big picture” vision correct. Great “big picture” visions rarely materialize out of merely following the whims expressed in a series of votes on minor tactics. Creating these visions cannot be fully abdicated to others. Leadership needs to take possession and ownership of visioning process.

Your big picture goal is to optimize the opportunities for your firm. That is not the same goal as your stakeholders. Your customer’s goal may be to get everything, perfectly, instantaneously, and free. If all you do is try to serve their selfish need, you will not be optimizing your own goal. Their objectives are not always in complete alignment with yours. You need to filter their ideas through your objectives.

In addition, the people you talk to only have limited knowledge of a small part of your overall situation. Hence, their ideas are biased towards their limited perspective. You need professional strategists to bring all of the knowledge together in order to create a comprehensive and complete picture of what is going on in the world. Only when you can see the big picture will you see the best strategic alternative.

Finally, great strategy, according to Michael Porter, is about choosing the right trade-offs. Your customers may not like it when you make trade-offs (they want it all), but it is often the only way to create excellence at some point of differentiation. You need to be a strong strategic leader and determine where those trade offs will be. Then you need the fortitude to stick to the principles of your tradeoff and not fall victim to the trap of trying to do everything well and failing to do anything well.

3. Missing Discontinuous Change
Change in the marketplace tends to revolutionary, rather than evolutionary. New categories and business models seem to spring out of nowhere. On-line travel firms like Orbitz, Expedia, and Travelocity gave a death blow to traditional travel agents almost overnight. Bottled water came out of nowhere to become a huge industry. Digital everything destroyed analog everything. Mobile phones, microwaves and laptop computers changed the entire nature of how people live and work, impacting almost every other industry. Newspapers used to be one of the most profitable industries in the world. Now they are bleeding badly. The recent recession quickly changed the fortunes and the rules for a lot of industries, particular in the financial arena.

As long as the marketplace is stable and the rules and players don’t change, it is easy to forget about strategy. Just talk to all of the stakeholders who are comfortable with the current situation and you will get all kinds of ideas for useful tactics to tweak the system.

However, when radical change occurs, this management by talking becomes far less useful. There is no consensus in your stakeholders as to what to do. They have no direct experience in the change for you to benefit from. Mere tactical improvement suggestions won’t succeed when all the rules are changing.

Professional strategists are needed to:

a) Help anticipate the discontinuous change
b) Develop scenarios in advance so as to be prepared when change occurs
c) Help the company to become proactive in change and help bring about change in a fashion which disproportionately benefits your company.

Apple doesn’t wait to react to change. They didn’t “take a vote” of the world before introducing change. They lead the change. Ipod and iTunes reinvented the business model for music. Iphone reinvented smart mobile devices and the selling of aps.

As Henry Ford put it, “If I’d asked my customers what they wanted, they’d have said ‘a faster horse.’” Suggestions from the masses tend to be extensions of what they know, which is the old business model. They are not very useful in proactively getting to the discontinuous new. And unfortunately, the discontinuous new is all around us. This is where professional strategists are most valuable.

Although there are many tools available for mining the ideas of your stakeholders, this is no substitute for having professional strategic leadership activity at the top of your organization. The best of all worlds is to have both—the insights of your stakeholders put into proper perspective by professional strategists.

Benjamin Franklin once said, “When the people find they can vote themselves money, that will herald the end of the republic.” Similarly, when users of Web 2.0 tools find out how to manipulate the system, it could herald the end of the current fashion of capitalism (of abdicating strategy to the masses), because they will suck all the money out of the business model, leaving you with the losses.

Tuesday, December 22, 2009

Strategic Planning Analogy #300: On a Mission

There’s an old story about a man watching workers build a church. He goes up to each of the workers to ask what they are doing.

The first worker says he is laying bricks. The second worker says he is laying panels for the floor. The third worker says he is building a place to worship and glorify God.

Guess which worker is probably doing the best quality of work.

All three workers were doing a small part to help build a church. But they viewed the nature of their work differently. Two defined their work by the particular task they were doing—laying bricks or laying a floor. One, however, saw the big picture and defined his work a being part of what he viewed as a noble cause—building a place to glorify God. And of course, the one with the nobler definition of his work is the one who will tend to produce the greatest outcome, because he sees a deeper importance/significance to his performance.

Businesses have the strategic option of defining themselves just like these workers. They can define the work as being a mundane task—like manufacturing widgets—or as part of a larger, more noble task—like making the world a better place.

And the more you imbue a task with a noble purpose, the better off you tend to be. Strategic planning has an important roll in helping to frame a company’s mission so that it imbues the business with a noble purpose.

The principle here is that companies with a noble business mission can tap into benefits than mundane missions cannot.

1) Additional Sources of Revenue
Noble companies have three additional sources of revenue. First, they can typically charge more for their products. According to the 2009 Corporate Citizenship Study, people are willing to pay more for products from socially responsible companies. Forty percent said they would spend between 1% and 10% more for a product from a socially responsible company.

Consider TOMS Shoes. TOMS Shoes was founded on a simple, noble premise: With every pair you purchase, TOMS will give a pair of new shoes to a child in need—one for one. To this, they also add the idea of having vegan shoes—no leather (save a cow).

TOMS’ shoes are not cheap. Their simple canvas shoes are about $50. I can go to Wal-Mart or Target and get a simple canvas shoe for half that price (or even less). Yet people are willing to pay a premium for a TOMS shoe. Why? They like the noble idea that whenever they buy a shoe, a person in need gets a free shoe. That is worth a premium price.

Second, a noble cause provides new sources of revenue. Who says you have to earn all of your income from your purchase price? That purchase price can be subsidized with additional income from other sources.

Consider many cause-related media companies. It is getting harder to be profitable in the magazine business these days. Many publications are calling it quits and shutting down because subscription and ad revenues are not enough to remain profitable. However, one cause-related magazine I subscribe to has started a new campaign with its subscribers. It is touting the noble purpose of the publication and asking for additional donations beyond the regular subscription price. It says that it is worth giving extra to keep the noble magazine and its important message in business. I’m sure that extra money is coming in. This is something that a mundane magazine cannot tap into.

If your cause is really noble, there are opportunities to tap into government funds, charitable funds/endowments, or sponsorship ties with other companies that will pay you in order to associate themselves with your noble endeavor.

An example would be St. Jude’s Children’s Research Hospital. In many ways, it is a hospital just like any other hospital. Yet, on top of this, they have imbued a greater sense of nobility to the hospital business. It does more cutting edge research and never turns away a child due to an inability to pay.

As a result, St. Jude’s taps into a lot of additional revenue sources more successfully than many other hospitals. It is strongly promoted by many in the acting community. It has a nationwide charitable program. It has a partnership program with many retailers, including Target, Kmart, CVS, Williams-Sonoma, Dollar General, Brooks Brothers and others.

The third revenue benefit of a noble mission is that there are the added revenues which come from having loyal customers who volunteer to be an advocate for your company. TOMS, for example, has a DVD describing their noble cause and encourages customers to hold DVD parties at their homes to spread the word. TOMS also encourages and helps customers set up parties in their homes to customize and decorate TOMS shoes. On April 8, 2010, they are encouraging customers to bring attention to the noble cause by going a day barefoot. And of course, there are all the web 2.0 opportunities with Twitter, Facebook and the like to build a strong, loyal TOMS community.

Loyal customers will buy more from you and act as evangelists to get others to buy from you as well. And this loyalty is stronger, the more noble the mission of the company.

2) Additional Ways to Lower Costs
Not only does increased nobility improve the top line. It can also reduce costs, further improving the bottom line.

Going back to the 2009 Corporate Citizenship Study, they found that people highly value the idea of working for a socially responsible company. Fifty-six percent said that it would make a positive difference for them. Even more telling, 40% said they would be willing to take a small pay cut to work for a socially responsible company.

For years, private schools with noble causes (principally religion-based) have traditionally paid their teachers less than those working for public schools. This idea does not have to be limited to just schools. Bring a greater nobility to the cause at your business. Not only are the employees who desire to work at noble companies more motivated, you do not have to pay top dollar to get them. The privilege of spending the day feeling a part of a larger, more noble purpose is worth sacrificing for.

This idea can also be used as leverage with your suppliers to negotiate lower costs. They may give you a break if they realize that their lower price to you is contributing to a greater noble cause.

Finding Your Nobility
Perhaps your sense of nobility is not as great as what was seen in some of these examples. But that doesn’t mean that you cannot change your business model to become more noble. St. Jude could have used a more conventional hospital business model, but they chose not to. You can change your business model to become more noble as well.

You could perhaps do a one for one program like TOMS on your product/service. You could be like Target, who gives 5% of its income to charities in the markets where it has stores. Best Buy is getting more involved in sustainability issues with the products it sells, accepting returns of old electronics items and working with its suppliers to help design more sustainable products. Wal-Mart is getting ever more active in environmental causes. The change in Wal-Mart’s reputation has improved significantly once they took a more noble approach and I believe it has helped them in many ways. The list goes on.

The way you define your strategic mission has a lot to do with how your employees, customers and other stakeholders view the company. It can not only change the perception, but also the reality of how noble a company you really are.

Consider these mission statements:

Google: To organize the world's information and make it universally accessible and useful.

Proctor & Gamble: Provide branded products and services of superior quality and value that improve the lives of the world's consumers, now and for generations to come.

Johnson & Johnson: To provide scientifically sound, high quality products and services to help heal, cure disease and improve the quality of life

Herman Miller: Herman Miller, Inc., works for a better world around you. We do this by designing furnishings and related services that improve the human experience wherever people work, heal, learn, and live.

And it cannot just be hollow lip service. The mission needs to be more than just words on paper. It has to be lived every day by senior management, supported by where the capital is spent, evidenced in how employees and customers are treated, and a key element of the discussion on all major decisions. In other words, it must be fundamental to the strategy. If done properly, not only will you do well (quality of social responsibility), but you should also do well (enduring, profitable company).

Companies with noble missions have access to many advantages. Customers are more loyal and act as advocates for your company. You can get away from competing only on price (and perhaps raise prices a little). You can tap into more sources of revenue. You can attract highly motivated workers who do not necessarily need to be paid top dollar. And you can feel good about not only building a strong business, but also a better world.

Now you may be saying to yourself that your business really is rather mundane and that there is not a lot of nobility in what goes on. Yet consider the investment banking industry. Currently, many see investment bankers as the scum of the earth. Large sectors of the population see nothing noble in the way they operate.

However, listen to the way Goldman Sachs CEO Lloyd Blankfein defines his work (from The Sunday Times, November 8, 2009). “We’re very important. We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle. We have a social purpose.” He is, he says, just a banker “doing God’s work.” (something like the attitude of the church builder in our story?)

I’m not saying that you need to agree with Blankfein’s assessment. However, if he can find a way to put such a noble spin on what he does, I would think that you can do the same for your business.

Sunday, December 20, 2009

Strategic Planning Analogy #299: Work Worth Doing

Many years ago, just before I was to receive my MBA, I met someone I did not know in the hallway at the University. He was also about to graduate.

Although I was trying to ignore him, he came up to me and started talking with a big grin on his face.

He said, “Do you know why I am graduating with a degree in accounting and getting a CPA?” He didn’t wait for a response and immediately answered his own question, “Accountants get one of the highest starting salaries right out of business school, and people who make the most money get the most sex.”

Here was someone who had a personal “strategic” plan. However, it seemed a little bit one-sided to me. It was all about what was in it for him (money and sex). There didn’t seem to be much concern for the people who would be paying him that money or the people he would have sex with.

At some point, I would suspect that if the only reason he was an accountant was for the money (and he had no love for the profession) that the joy of money would decline and the hatred of accounting would increase. Similarly, if he was only able to get sex because of the money, then over time the joy of the sex would decline and the futility of the meaninglessness of that sex would increase.

This individual’s focus appeared to go straight to the ends (money and sex) without considering the means (the nature of the work and the quality of the intimate relationship). Over time, I think he will lose some of the joy for those ends because of not attaining them in a meaningful or satisfying manner.

This can also happen in business strategies. If the focus of the strategy is on one-sided ends (e.g., get huge bonuses, put big numbers on the bottom line) and ignores the means of how to get there (what the business does), it can lead to a long-term disaster.

The principle here is that long-term success is more likely if you focus on the “means” rather than the “ends.” Therefore, strategic plans need to focus more on the means than the ends.

For most “for profit” enterprises, the end is to grow profits, i.e. make more money and improve the return on investment. Although this is not a bad goal per se, it is a lousy strategic focus.

A strategic mission statement saying, “We want to make a lot of money” is not very useful. It provides no guidance as to what to do. It doesn’t rally the troops around a particular type of work. And worst of all, it does not provide an incentive for potential customers to give you their money.

Business is a two-way street. In order to sell something, someone else has to purchase it. These purchasers typically have multiple options. They do not have to give you their business. They can give it to someone else. If your strategy does not focus on a way to get customers to prefer you, that ultimate goal of making lots of money won’t happen.

This is especially true today. Consumers are so angry at the perceived greed of business people, that they now are expecting even more accountability from them. More than ever, they want to patronize companies that have a social conscience, who are good corporate citizens. And thanks to the internet, they will find out how sincere you are. You cannot hide. The type of corporate citizen you are will help determine whether they buy from you. This is not a fad. This is part of the new normal.

That is why one of the most important strategic questions you can ask is “What can we do for our customers that will cause them to prefer us over their spending alternatives?” You can see this line of thinking in Proctor & Gamble’s new mission statement—“to touch and improve more people’s lives, in more parts of the world, more completely.”

This new mission has opened up a world of new sources of profits to P&G in places where they never went before. As C.K. Prahalad shows in his book “The Fortune at the Bottom of the Pyramid,” there are a lot of profits to be made among the poor if you focus on ways to improve their lot in life. This is what P&G is doing. But it only works if your focus is on bettering the poor rather than bettering yourself.

Here is the great irony. The more your strategic effort focuses on your customers (and the less it focuses on your rewards), the greater your rewards tend to be. There are three reasons for this.

1. Right Focus
When you focus on what the customer wants, you end up focusing on the “means”—the nature and process of what you do. You look for ways to meet the customer’s needs and desires. And when customers see you as the better alternative for them, they will give you their money.

Strategy is about helping you figure out what to do. Do the right things and the rewards will come. The right thing to do is to create a positive differentiation versus your competition on attributes important to a potential customer segment. This comes from focusing on what you do for others.

Unfortunately, this is not what all strategic planning processes do. I’ve seen businesses use their strategic planning session primarily to set a numeric goal as to how much money they want to make. The discussion is around how big of a number (Sales, Profits, Return on Investment, EVA) they want to achieve by a certain point in time in the future.

This is selfish one-way thinking. Just because you can build an elaborate spreadsheet and graphs showing what this type of goal looks like does not mean it will automatically happen.

What I’ve seen happen is panic set in when the company gets close to the goal year and is nowhere near hitting the numeric goal (because the plan never focused on the means for achieving the goal). Desperate measures are taken to hit the numbers. These desperate measures rarely lead to long-term success.

The better focus is to set goals for specific operational outcomes that are customer-centric (improving quality, reducing costs, improving the business model, adding features, etc.). The idea is to focus on making a better two-way street. Focus on finding ways making customers prefer you, and the ends will come.

2. Right People
If the only thing you offer people is a means to satisfy their greed, then you will attract greedy people. Overly greedy people tend to destroy the long-term viability of a firm. I saw a study several years ago which asked investment bankers if they would still be in that profession if it stopped paying exorbitant wages. Over 80% said no. They were only there for the money. They didn’t care much about the products they dealt with, the risks they took or the people getting mortgages they couldn’t afford or the people insuring those risks. And that attitude I believe had a lot to do with how we got into the big financial mess we are in today.

I was talking to an executive of Enron before its demise. We were discussing how Enron expected very high levels of effort, but rewarded people very well if they succeeded. I asked him if it was difficult to get people like that. He said that most of their hires came from investment banking and were used to that type of culture. Well, we saw what happened when you get too many people of that attitude at Enron.

However, if everyone sees you as a company focused first on the customer, you will attract the people who like putting the customer first. These are the people who are most useful in building a strong, lasting company, a place where customers want to spend their money.

3. Right Motivation
What do you think motivates the rank and file employee more—lining the pockets of the top executives with big bonuses, or making the world a better place? P&G’s new mission talks about making the world a better place. So do many other firms (see this prior blog for examples).

A noble purpose causes people to care more about what they do. When they care more, they tend to perform better. There is a greater motivation to do well, because it has more meaning to what is being done.

Strategic mission statements should provide that type of inspirational motivation, because people highly motivated to serve customers tends to lead to great results.

If you want great financial results, don’t focus your strategic planning process on getting great financial results. Instead, focus on how to give customers greater benefits than they can get anywhere else. Customers are the ones who control much of your financial success. If you convince them that you are their best option, they will give you their money (making you financially successful).

This Christmas season brings to mind the idea of giving. If you keep this giving attitude all year ‘round, you have the foundation for a successful plan.

Thursday, December 10, 2009

Strategic Planning Analogy #298: Don’t Do That

I heard a story about a hotel located along the gulf coast of Texas. The balconies overlooked the gulf. One time, one of the guests thought the balcony was close enough to the water that he could fish from the balcony. Therefore, he put a heavy weight on his fishing line so that he could cast the line a long way. Then he tried casting the line out into the gulf.

Unfortunately, the gulf was farther away than he thought. The line did not go out that far. Instead, the line swung back towards the hotel. The heavy weight on the end of the line crashed through one of the hotel’s glass windows, creating an expensive and dangerous mess.

Although this had never happened before, the hotel officials wanted to make sure that it never happened again. Therefore, they put signs on all the balcony windows saying “Do Not Fish Off the Balcony.”

When future guests saw these signs, it put the idea into their head that perhaps it is possible to fish off the balcony. Suddenly, lots of people were trying to fish off the balcony. And lots of windows were being broken.

Not knowing what else to do, management took the “Do Not Fish Off the Balcony” signs off the windows and threw them away. Immediately, the fishing off the balcony stopped.

Normally, one of the outcomes of a strategic plan is a desire to get people to act in a particular way, be that employees or customers or the government or competitors, etc. As we saw in the story, sometimes the direct approach will fail. Telling people not to fish actually increased the fishing.

The direct approach often fails with business strategies as well. Telling competition not to attack you in a particular way rarely stops them. In fact, it may make them want to do it more, because your insistence makes you appear vulnerable in that area. Worse yet, if you work too directly together with your competition, you could face criminal charges of collusion.

As a result, often the best way to get people to act in a particular manner is through indirect persuasion. Rather than directly mandating or banishing certain behavior, use a tactic which indirectly results in the behavior you want.

The principle here is that the fastest way from point A to point B may not be a straight line. If people can see you coming straight at them in a straight line, they can build up defenses to your path. However, if you come after them indirectly, they may not be able to perceive what your ultimate objective is. Not knowing the ultimate objective can reduce resistance to the behavior change you are trying to create.

I was reminded of this principle in reading an interview with Ryanair’s chief executive Michael O’Leary in the Wall Street Journal. O’Leary was talking about their leadership in being one of the first airlines to charge a fee for checking in baggage. This was not a direct ploy to get more money out of its passengers. No, it was an indirect ploy to dramatically reduce total fees, thereby improving Ryanair’s strategy of having by far the lowest prices.

The idea was that one of the more expensive aspects of the airline business is running the check-in counters at the airports. Ryanair knew that if they could eliminate these costs, they could increase their relative value. However, if they would have directly commanded people to no longer carry bags and no longer use a check-in counter, there would have been a revolt. People resist such direct orders to change behavior. Such a direct banishment would have been as effective as those “Do Not Fish Off the Balcony” signs.

Instead, Ryanair started charging fees on checked baggage so that people VOLUNTARILY stopped checking in bags. Without bags to check in, Ryanair could eliminate the labor at the check-in counter. It is now 100% web-based. Rather than creating a revolt, the customers are happy because they no longer have to wait in long check-in lines and ticket prices were kept low.

Now, Ryanair is considering the idea of charging money to use the lavatories on the airplanes. Again, the idea is not to get additional income off the toilets. Instead, it would be an indirect means to change behavior. The thought is that this would cause passengers to voluntarily use the lavatories at the airport prior to boarding. This would reduce the demand for toilets during the flight, allowing Ryanair to reduce the number of lavatories on the plane. Fewer lavatories would mean room for more seats. Having more seats per flight means they would need to charge less per seat to make a profit. Hence, the strategy of having the lowest fares would be strengthened.

Another example occurred in the attempt to stop smoking among youth in the United States in the 1990s. The direct approach of telling teens “Do not smoke” was not working. Therefore, the anti-smoking advertisers switched to an indirect approach. They used fellow teens to tell the youth that the evil big-business tobacco companies had no respect for them and were trying to manipulate them with lies.

Well, no teen wants to be manipulated by adult authority figures, so the new message got teens angry with the tobacco companies. To “punish” these companies, the teens decided on their own not to smoke. This indirect approach was more effective in cutting down teen smoking than the direct approach.

So how do we apply this principle to your strategy?

Step #1: Identify the New Behavior Required by the Strategy
The first step is to determine what behaviors are needed to make your strategy a reality. What different behavior is required by your company and its employees? What different behavior is desired from your supply chain? Your customers? Your competition? Your shareholders?

If you cannot easily identify the new behaviors then how do you expect those behaviors to happen?

Step #2: Look for Incentives That Indirectly Create Voluntary Behavior Change
The next step is to use the Ryanair approach and look for ways to make people voluntarily want to do what you desire. This usually requires an indirect approach that prioritizes what is in the best interest of the people whose behavior you want to change. The idea is to find that ideal intersection where their selfishly desired behavior just so happens to be the same behavior you selfishly desire.

Then appeal to their selfishly desired behavior. This will indirectly get you your selfishly desired behavior without ever having to mention it. Ryanair selfishly wants to put more seats on the plane, but the appeal is by making it in the passenger’s selfish best interest to use the lavatories at the airport.

Step #3: Integrate Indirect Incentives Into Your Strategic Action Plan
If you want something to happen, spell it out and make it known. So once the indirect incentives are figured out, spell it out in the strategic action plan. Don’t make the indirect tactic a mystery. Just because it is an indirect tactic does make it less critical to your success. The link to your success is direct even if the customer/employee/supplier cannot see the connection.

People often resist direct appeals to change their behavior. In fact, they may rebel and do more of the opposite of what you want. Therefore, the best approach is often to appeal to them indirectly—get voluntary compliance by finding something in their best interest which indirectly is also in your best interest.

When people are asked to do something, a common response is WIIFM (What’s In It For Me?). The more you appeal to their WIIFM, the more likely you’ll also get what’s in it for yourself.

Wednesday, December 9, 2009

Strategic Planning Analogy #297: Plaything of Management

Having spent time in college as a radio DJ, it is no surprise that one of my favorite TV shows of the past was “WKRP in Cincinnati,” a show about the radio business.

The station manager on the TV show was Mr. Carlson. Mr. Carlson didn’t like managing the radio station (owned by his mother). Since he didn’t like dealing with the radio business, he spent a large part of his day playing with toy trains.

Mr. Carlson was afraid that spending the day playing with trains would make him look unprofessional. The staff would cheer him up by saying something like, “You aren’t playing with trains. You’re a ‘Train Hobbyist.’ All the great business executives have hobbies. You are a connoisseur of trains and a collector of train replicas.”

That pep talk would make Mr. Carlson feel better, and he would go back to playing with his trains.

There are only so many hours in the day. The daily pressures of what to do with those hours can be intense. Yet, in spite of all the demands on our time, we seem to find time for our hobbies.

Hobbies are the things we really like to do and prefer to spend time on. For the fictitious Mr. Carlson, his hobby was playing with toy trains. He could always find time to play with them.

In the business world, daily pressures demanding your time can come from many different sources. There can be problems with key customers, production issues, supply chain problems, price wars, and so on. The daily tyranny of the immediate can drain all the time out of a day, leaving nothing left for pondering long-term concerns. As a result, time tends to run out before executives get around to the serious effort needed to create great strategic plans.

So what is a strategist to do in order to fight for executive time and attention? Well, as I said earlier, executives always seem to find time for their hobbies. Therefore, if you want to get top management attention, you need to make them into “Strategy Hobbyists.”

A dear old friend of mine used to say that strategic planning departments exist at the whim of senior management. His point was that all businesses have to have things like Human Resources Departments, Accountants, Lawyers, Salespeople and Operations Managers. However, having professional strategists on staff is optional. Many have them; many don’t. It only exists if by whim the management wants it.

Therefore, part of the role of a strategist is to get the audience to want strategy. Otherwise, they will eliminate it (or give it so little time that the process is destined to fail).

As my friend put it “You need to become the plaything of management.” In other words, your goal is to have them want to play with strategy in the same way Mr. Carlson wanted to play with toy trains. Or, as I put it, “You need to make strategy their hobby.”

In general, I believe that people are looking for three things from their hobby. Therefore, if you want to get top management to make strategy their hobby, you need to find ways to have strategy supply these three things. They are discussed below.

1. Boost Their Ego
Hobbies make people feel better about themselves. This can be both in an absolute sense and a relative sense. In an absolute sense, hobbies can provide the opportunity to become an expert in something. It feels good to be an expert in something. One reason why many hobbies involve making things with one’s hands is that one can proudly look at the completed piece and say “I made that.”

In a relative sense, hobbies can provide status relative to others. If you are the expert, people come to you for advice. They look up to you, and not just because of your title. And it allows you to tangibly demonstrate that you are better than others. Part of the fun in playing golf is when you can beat others because of your superior playing ability. It is a way to elevate your stature in a competitive world.

How can we apply this to strategy? Appeal to their egos. Help them see that becoming experts in strategy will boost their stature with their peers. It will help them beat their competition in a way more satisfying than golf. Show them how enacting a business plan can be a way to make a tangible difference to the company that they can point to and say “I did that.”

Unfortunately for the strategist, when you build up their ego, it means focusing attention away from your own ego. However, this can be a small price to pay to keep within their whim.

2. Let their Imagination Escape
Good hobbies help people temporarily escape the drudgeries of the day and transport their mind to a more enjoyable place. Mr. Carlson could escape the drudgeries of being a boring station manager and pretend to be a rail baron during the heyday of the train industry.

Golf courses transport you to a place of lush greenery which feels worlds away from the office. Being the captain of your own sailboat out on the lake feels powerful, free and in control, far from the normal world which often feels out of control. Working with wood or spending time gardening can taking you back centuries to a world that seems a lot less complicated. Hobbies take you to another world—another role—which is a pleasant escape from the norm.

How does this apply to strategy? Strategy is about creating visions of a better and brighter future. It is a way to escape the tedium of the immediate and focus your imagination on good times. In imagining the future, you are in control and things are going your way. You can tackle big issues—fun issues—instead of the petty boring things which normally turn up. Show them that strategyy is a legitimate and honorable way to escape the tedium for awhile.

3. Be Fun
Hobbies are to be an alternative to “work.” Yes, a lot of work may go into a hobby, but the secret is that is does not feel like “work.” It feels like fun.

Does your strategic process feel like fun? I’ve talked to many executives who groan when they are told they have to do strategy work. They hate it. To them, it seems like going through the motions of filling out boring forms, going to dull lectures, and getting books filled with boring statistics. Rather than being an alternative to tedium, it becomes tedium at its worst.

Don’t fall into this trap. Make strategic planning a fun escape that executives look forward to. If it is seen as fun and important, then people will gladly do the work of strategy and create something meaningful. If it is just seen as useless busywork, you will get halfhearted, worthless participation.

Since strategic planning is often viewed as an optional activity, executives can opt not to do it. Instead, they can fill their time with the pressing issues of today. If you want to make strategic planning a priority, you need to make it appear like a hobby—something people always seem to find time for. To do so, you need to show how strategic planning can boost their egos, let them justifiably escape the tedium of today and have fun. That will get you the time and attention you need to produce a quality plan.

Strategy is still hard work. But if it seems like a hobby, then it doesn’t feel like hard work.

Friday, December 4, 2009

Strategic Planning Analogy #296: Stop Satisfying Customers

It is a commonly accepted principle that if you want to spend less at the supermarket, eat before you go shopping. The idea is that you tend to buy more groceries when you are hungry. Therefore, if you eat first, you won’t be hungry when in the supermarket looking at all that food.

My wife believes in this principle and eats before grocery shopping. She claims it cuts back on purchases.

Me? I have a different approach. I used to work in the grocery business, so when I am in a supermarket, it reminds me of going to work (and the things other employees do to the food when working in a supermarket). For some reason, that takes away my appetite.

If you are hungry, you desire food. That desire (hunger) seeks to be satisfied. That’s why hungry people tend to buy more at the supermarket.

This concept applies to more than just food. No matter what you sell, the general idea is usually to satisfy some sort of demand (appetite). The concept is to find a need and fulfill it better than anyone else. People will purchase from you in order to satisfy that need.

Seeking to satisfy customers—sounds like a rather basic truth, right? Well, there’s only one problem with this approach. Once a customer is satisfied, their desire is fulfilled. The demand goes away.

You may be better off if you eat before grocery shopping, but the grocer is not. The grocer would rather that you came to the store hungry. As a business person, you want hungry customers as well—hungry for what you have to offer.

Unfortunately, once you truly and completely satisfy that hunger, the game is over. If the customer is completely satisfied, then they no longer have that need, so they no longer need to patronize your business.

Think of it like a kidney transplant. If I have a defective kidney, then I desire a new one. When the hospital does an excellent job with the kidney transplant, that need for a new kidney is completely satisfied. I’m not going to say, “Boy, that hospital did such an excellent job, I’m going to come back every month to get a new kidney.” No, I’m all done with that desire. It is fully satisfied. No more new kidneys for me.

The people doing kidney transplants would go bankrupt waiting for repeat kidney transplant business from their patients. The surgeons have to keep seeking out new patients, because they do too good of a job satisfying the former patients. As in the case of the grocer, the more satisfied the customer, the less additional business they will get from that customer.

The principle here has to do with the concept of satisfaction. Many businesses give a high priority to completely maximizing customer satisfaction. Bonuses at these places may even be based on the level of customer satisfaction. The idea is that the more satisfied a customer is, the better.

Unfortunately, as we have seen, if a customer is completely satisfied, then they have no additional demand (since the demand is completely met). In many cases, a fully satisfied customer no longer even needs to be a customer (or at the very least needs you less). So, perhaps complete satisfaction is the wrong goal.

Yes, we want to make customers happy, but we also want to keep them hungry enough so that they keep wanting/needing to coming back. A part of them still needs to be unsatisfied, wanting more.

Therefore, instead of focusing on “Customer Satisfaction,” I suggest a focus on “Customer Engagement.” A lot of literature has been written about how employees are more productive if they are fully engaged with their work. I think the same is true of customers. A customer fully engaged with what you are offering is a more productive customer. They will keep coming back.

Consider Ty Warner and his Beanie Babies. He never advertised them. He refused to sell them to any of the major toy retailers. Ty limited the number of Beanie Babies that any retailer could order (no more than 36 of any style per month), no matter how many they wanted. Then Ty would retire styles while they were still popular.

That certainly doesn’t sound like someone who wants to maximize consumer satisfaction. He made them hard to find, in insufficient quantities, and stopped producing them when they were still in demand. Yet this very “un-satisfaction” approach maximized consumer engagement.

People clamored to the stores to seek out the new Beanie Baby styles before they ran out. There was a mad rush when the new styles came out, and often this lead to fistfights since there were never enough to go around. Customers were tickled to death to be one of the lucky ones to get a particular style. A collectors market came about, with lots of books and web sites to help people trade Beanie Babies with others. Ty had successfully turned “customers” into avid “hobbyists.”

According to Ty, “As long as kids keep fighting over the products and retailers are angry at us because they cannot get enough, I think those are good signs.” Ty Warner understood that his success was not based on satisfying retailers or customers. It was based on engaging them.

A similar principle is used by Jean-Claude Biver, who has had a long, successful career in the Swiss watch industry, currently running Hublot. Biver would always ration his luxury watches. Even during the boom times, he would never ship as many watches as the retailers wanted. Demand always outstripped supply. As a result, the watches always maintained their luxury pricing—no need to discount to reduce inventory. This increased the luxury and exclusivity image of the brand. And in the luxury business, exclusivity and price integrity are extremely important.

According to Biver, “You only desire what you cannot get. People want exclusivity, so you must always keep the customer hungry and frustrated.” Hungry and frustrated? That doesn’t sound like someone striving for consumer satisfaction. No, but it has lead to great success. As in the grocery example, hunger makes people buy more. Hungry people are more engaged with what they are hungry for.

There are many ways to shun satisfaction and increase engagement.

1. Limit supply (never enough to satisfy)
2. Have a continual stream of new products or product improvements (make the old obsolete—not enough to satisfy anymore)
3. Cloak your product in secrecy (secret formula/recipe—like Coke and KFC, lots of mystery leads to increased curiosity)
4. Tie product (or discounts) to exclusive membership (you have to be part of a special group to participate)
5. Every time you ship/sell a product, include a promotion for yet another product (never allow a transaction to appear as the final one).
6. Sell things in installments (you don’t get it all at once)

It’s sort of like the striptease. Anticipation is heightened and made more enjoyable by not giving the audience everything they want right away. They are more engaged in the process.

So when planning your strategic approach, are your goals and tactics centered around creating satisfaction or around creating engagement? How are you planning your production supply versus anticipated demand? Are you trying to leave the customers a little hungry? Are you teasing them?

Striving for total customer satisfaction can be a sub-optimal strategy. When customers are fully satisfied, they no longer need to buy what you are selling (demand is sated). Instead, your strategy should strive towards customer engagement. Keep the customer a little hungry and they’ll come back for more.

Walt Disney once said that the first rule of show-business was simple: "Always leave them wanting more." That’s probably a good rule for your business, too.