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.

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