Friday, June 19, 2009

Strategic Planning Analogy #262: Blind Loyalty


THE STORY
I was listening to an interview with P&G’s outgoing CEO A.G. Lafley shortly after P&G acquired Gillette. Lafley was talking about how he uses all the P&G products at his home. He was excited about adding the Gillette products to the mix because they, too, were already products he used at his home.

Then he paused and remembered that he was currently using Edge shaving cream rather than Gillette shaving cream. Lafley then said, “Well, I guess I’ll be switching from Edge to Gillette shaving cream.”

Goody, goody…Gillette shaving cream has one more customer (Mr. Lafley), because he bought the company. I hope he has additional ideas for increasing share, since that plan (buying the products because you bought the company) is pretty limited.

THE ANALOGY
Lafley felt an obligation to always buy P&G products, for no other reason than the fact that he was CEO of the company. It became a knee-jerk reaction: if P&G owns it, then I have to buy it.

I guess that, as a leader, Lafley felt a need to show confidence in his products. He may have feared what would happen if word got out that Lafley used a competitor’s detergent. Would it damage employee morale? Would customers switch away from P&G products?

I don’t think that would have much of an impact in those areas. I remember when Brittney Spears was doing commercials for Pepsi and word got out that when she was on tour during that time, she had it in her contract that her dressing room would only have coke products. It didn’t seem to cause much of a stir. So I wouldn’t be too worried about that.

What I would worry about is how Lafley’s behavior may distort his business judgment. If you are blindly choosing P&G products based solely on whether your company owns them, then you are acting quite differently from the marketplace. Yes, perhaps a few P&G employees may switch to using Gillette products as a result of the acquisition, but for the rest of the world, the acquisition is a non-issue for brand choice.

The rest of the world needs a more compelling reason to choose your brand. Lafley’s behavior is out-of-touch with the market, which is far less loyal to the brand. This could distort his view of the P&G brand strength.

A similar situation can occur for strategists. If you become too strong of a company person, your perception of the company becomes ever more distorted relative to the rest of the world. You may give too much credit to your own brands and too little credit to the competition. This can cloud your strategic perspective. Your company bias can distort your judgment and cause you to make strategic errors.

THE PRINCIPLE
The principle here is that Blind Loyalty can blind you from the truth. How can you tell if you are superior to the competition if you never experience the competition? Sure, you can read market reports, but there is a lot to be said for personal experience.

I believe that blind loyalty can distort your perspective of the marketplace. Since strategies are designed to optimize performance within the marketplace, distorted visions of the marketplace can create useless, distorted strategies.

Think about people you have known who have gotten divorced. If you only talk to the wife, you will get a distorted view as to what went wrong with the marriage and probably put too much blame on the husband. Similarly, if you only talked to the husband, you would get a different distorted picture and probably put too much blame on the wife. Depending on which one you are most loyal to, you will have a different perspective on the divorce. If you want the truth about the divorce, you need exposure to both sides and a bit of objectivity.

Similarly, if you only surround yourself with your own products and with your own loyal employees, you will get a distorted picture of your brand. You need exposure to the other side.

I would have been more impressed if Lafley had said in his interview, “I’m a loyal user of Edge and I’m sure there’s a good reason for that. I need to find a way for Gillette to give me an even better reason to use them than Edge.”

Experience the Competition
I knew someone who had been an engineering executive at Ford. Ford put him in a program where he was given a series of competitor’s cars to drive. Every few months, he’d be given a different competitor’s car to drive as his personal car. For each of these experiences, he was to write up his impressions of the car.

This helped him to understand how the Ford engineering stacked up against the competition. He could learn from some of the superior things the competitors did. He could learn where Ford was weak. If he had only driven Ford cars during his employment, they would have missed out on these insights.

No matter where I have worked over the years, I have always told my wife to ignore that knowledge and shop as she normally would. I told her to make her purchase decisions based on what she thought was best, rather than who was paying my paycheck. Although I wasn’t always happy when she chose the competition, I was able to learn from her why she acted that way.

This helped to anchor me closer to the real world. I wasn’t distorted as much by blind loyalty. My perspective was not as overly biased in favor my employer to the point where I could no longer see all the warts on my company that the consumer could see. It made me a better strategist.

Watch Out For Brand Extensions
One place where this distortion causes many problems is in strategies surrounding brand extension. Your blind loyalty (and the blind loyalty of the rest of the decision-makers in your company) can cause you to overestimate the power of that brand. As a result, you overextend the brand into places where it doesn’t belong.

There’s a reason why most brand extension strategies turn out to be disappointments. It is because the rest of the world is not as enamored with your brand as you are, so you over-reach.

Watch Out for New Business Models & Fear of Cannibalization
You can also become so used to doing things the “company way” that you become blind to different business models. Kodak was blind to digital photography because of their infatuation with the “Kodak way” using analog film-based photography. The rest of the world didn’t care that much about Kodak magic moments. They just wanted the best way to get and share pictures. And as it turns out, the digital model was (for most) the superior business model. Blind loyalty blinded management to the need to quickly adopt a digital strategy.

A variation on this problem is cannibalization. You may become so loyal to legacy products that you do not want any type of strategy which will hurt those legacy products. At Kodak, it would have been difficult to get aggressive at trying to own the digital space without hurting the core legacy film business. The new business would have cannibalized the old.

Well guess what. Other companies got aggressive with digital and now Kodak is fighting for survival. Either you cannibalize your business or someone else will do it to you. If you do it yourself, at least you are left with a new, successful replacement business. If someone else does it, you are left with nothing.

The Solution
So what is the solution to avoiding some of these problems? First, you need a corporate culture that shuns blind loyalty and encourages more interaction with the competition. It needs to be okay to question the status quo and say an occasional nice thing about the opposition. The prized image should be that of an objective person, not an overly-loyal company puppet.

Second, spend more time listening to voices outside of your headquarters. Recent technological advances in Web 2.0 make this even easier than before. The more you get involved with your customers, the better your strategic perspective, provided you listen to more than just your most loyal customers. Listen to both the good and the bad comments.

Third, be skeptical. If we, by nature, have too much of a positive bias towards our own company, then we need to counteract that by being overly harsh in our strategic analyses. When estimating the likelihood success of your strategy, shy away from the optimistic scenarios. Be more realistic.

SUMMARY
Most leaders in a company have a natural tendency to develop a distorted positive bias towards that company. This blind loyalty can cause us to make poor strategic decisions. One needs to proactively take steps to counter this tendency, in order to help retain more objectivity.

FINAL THOUGHTS
There was an old saying that loyal IBM employees were so loyal that if you cut them, they would bleed in “IBM Blue.” I’d rather your blood was red, because then I would know you were alive and well (and useful).

Wednesday, June 17, 2009

Stay Connected -- A New Blog?


These are lean times for long range strategic planning. Compared to times past, it is relatively out of favor to promote long-range planning. At times like these, it helps to connect with other fellow strategists in order to prevent discouragement.

Linked In has some interesting places to connect with fellow strategists. In particular, there are some interesting discussions every once in awhile within the Strategy Professionals Network on Linked In.

A newer place to go is www.toolbox.com. Although this was originally set up as an IT profession gathering place, they have recently added a place for finance professionals. Within the finance area is a sub-section for corporate strategy professionals. Although this is relatively new, they are making an effort to make it a place worth going to, with lots of white papers, blogs, and ways to connect.

This leads to my main point. The folks at Toolbox found my blog (Planninga From Nanninga) and enjoyed it enough to ask me to write a different one specifically for Toolbox. I said yes. I call it Planninga WITH Nanninga. This new blog is shorter, more pointed towards strategy professionals, and poses questions to encourage discussion (hence the word “with” in the title). You can find it at http://finance.toolbox.com/blogs/planninga-nanninga/, although you may have to first join toolbox to see it.

Check it out. Let's get the discussion going.

Monday, June 15, 2009

Strategic Planning Analogy #261: How Does It Feel?


THE STORY
Back when I was a teenager (in the 1970s), muscle cars were all the rage (especially if you were a teenager). These were gigantic hunks of metal with massive engines. They shouted of power. They had names like GTO, Barracuda, Javelin and so on.

One of the distinctive features of these muscle cars was their paint job. No dull and boring colors need apply. They were bright yellows, bright oranges, bright purples and bright reds. They looked like shiny plastic toy cars…only a lot bigger.

Of course, nowadays, cars truly are made of plastic and other non-metal parts. However, you could not tell by looking at the paint job. Most of the cars of today seemed to be painted in metallic colors, like gray and silver and copper. Even when other colors are used, they often have metallic flakes in the paint to give it more of a metallic look.

So why is it that when the cars were made of metal, we made them look like plastic, but when the cars are made of plastic, we make them look like metal?

THE ANALOGY
The automobile industry understands the importance of appearance. Just being a good car is not enough. You also have to look the part. Fast muscle cars are like “toys for older boys.” The plastic colors helped reinforce that image. It makes them feel more “fun.” By contrast, today’s cars are all about quality and durability. The illusion of metal helps reinforce that image.

Image is not just important to automobiles. Every strategy should have an image component. And every image is reinforced by visual cues, even if the visual cues have little to do with actual performance.

Is a plastic car any stronger because is has a metallic paint job? That depends on whether you ask the automotive engineer or the customer. The engineer would say no, but the customer seems to feel more secure in the strength when the appearance is metallic.

Are you adding the right visual cue to your offering to evoke the image most relevant to your strategy?

THE PRINCIPLE
The principle here is that reality lies in the mind of the consumer. If bright, plastic colors make muscle cars seem more fun in the mind of the customer, then one should use bright plastic colors. If metallic colors make a plastic car feel more durable in the mind of the customer, then metallic colors should be used.

It doesn’t matter what rational measurements say. What matters is how customers feel. Strategic positions are not just held by rational measurements, but also by whether the position “feels right” in the customer’s mind.

Principle in Action
If you are a bank, you probably want a strategic position which includes being strong, stable and secure. That’s why banks tend to be located in brick buildings, rather than ones with cheap plastic siding. The physical reality of bank security may have nothing to do with bricks versus plastic siding. But in the mind, bricks make a bank seem much more secure.

When I was younger, I was hanging out at a shopping center that had a bank in it. It was a nice, sturdy brick building (or so I thought). I accidentally kicked the building and a piece of the thin brick fa├žade fell off, exposing chicken wire and a little plaster. It was all a fake. Suddenly, my opinion of the security of that bank went down. It was all emotional, based on the illusion of fake bricks. When the visual cue broke down, so did my opinion. It didn’t matter that the reality of what was happening inside the bank had not changed. The opinion in my mind changed, and that is all that matters.

A similar principle applies to lawyers. A lawyer may not be any smarter if they are sitting in a plush, ornate office, but it sure feels like it.

To reinforce the strategy, everything should have an appearance which reinforces the image behind the strategy. For example, Apple owns the position of cool. They do it by making sure EVERYTHING is cool. Sure, the technology is cool, but so is the user interface, the esthetic design, the advertising, the software/apps, and even the store you buy it in. Everything helps to reinforce the coolness of everything Apple. As a result, it makes the people who use Apple products feel more cool.

Many of Apple’s competitors stop at just trying to make the technology cool. That’s not enough when all of the other visual cues are telling customers that Apple is cooler.

The cues don’t have to be rational…just effective at the mental level. For example, I worked with a grocer whose strategy was based on having an image of low prices. Through research, they determined that having employees bag the groceries lowered costs, because it sped up the checkout line, requiring fewer cashiers. Lower costs would help create lower prices, right? So what did the company do?

Rather than using baggers, the store used the less efficient process of having the customers bag their own groceries. Why? Because the visual cue of bagging groceries yourself created a greater mental perception of “low price” than would arise if the efficiency of baggers was applied to actual prices. Baggers do not “feel” like low price, even if they are.

What to Do
So what is a strategist to do? First, come up with a compelling strategic position. Second, determine which attributes reinforce that position. Third, make sure there are enough practical attributes imbued in the product to deliver on the promises inherent in the position. Fourth, surround the offering in visual cues so that every experience reinforces the mental perception of delivery on the promise.

When I say everything, I mean everything. If a customer has to call your customer service line, will that experience reinforce what you stand for? Do you ever consider the customer service line when designing the strategy?

Even if it doesn’t make sense from a rational perspective, if it helps with mental persuasion, do it. If needed, make the plastic car look like sturdy metal or the metal muscle car look like fun, colorful plastic.

And remember, although the smoke and mirrors are important, the product still has to deliver. A cool environment will not save an electronic gadget whose internal technology sucks.

Spend some time trying to experience the entirety of your offering, just like a real customer. Don’t just have someone in your firm take a product off the assembly line and dump it in your lap. Take time to try to purchase it just like a customer would. Try to set it up and use it without having one of your tech people or engineers in the room. Call to complain and hear what the response is. Experience all the image cues.

SUMMARY
Strategies are won or lost in the minds of the customer. These minds are influenced by all sorts of visual cues. The better you are at incorporating the management of all of these cues into your strategy, the greater the likelihood of success.

FINAL THOUGHTS
When you are in a strategy meeting debating tactics and actions, continually ask yourself this question, “How does that make me feel?” If it doesn’t feel right or feels inconsistent, then it probably shouldn’t be done, no matter how rational it first appears.

Wednesday, June 10, 2009

Strategic Planning Analogy #260: Are You Better Off?


THE STORY
Back in 1980, it was a close presidential contest between current president Jimmy Carter and former governor Ronald Reagan. Even just a few weeks before the election, there was not a clear leader.

It was hoped that some televised presidential debates would help people make a choice. Unfortunately, there was a split between how to handle third party candidate John Anderson. Reagan wanted Anderson in the debate; Carter did not. This argument caused them to miss deadlines for the debates.

Finally, with a little over a week before the election, Reagan wanted so badly to get in a debate that he caved in to all of Carter’s demands. So on October 28, 1980, Carter and Reagan debated in Cleveland, Ohio.

Ronald Reagan’s closing remarks at the debate were, "Are you better off now than you were four years ago? If so, I encourage you to vote for my opponent. If not, I urge you to vote for me."

Given the Iran hostage crisis, the weakening economy, and rising inflation, it appeared that most felt they were not better off than four years ago. As a result, immediately after the debate, public sentiment moved largely in favor of Ronald Reagan, and he won by a comfortable margin.

THE ANALOGY
Recently, there was a discussion on Linkedin about the sad state of strategic planning. During the current recession, it seems that strategic planners were often in the first wave of people let go. Not only that, recent unpredicted and unexpected events, like the housing slump, the debt crisis and the stock market slide had made people lose confidence that one can ever have much insight or influence over the future.

Finally, there was so much emphasis on near-term survival, that any talk of long-range planning seemed out of place in many companies. People were starting to believe that things change too fast and are too unstable to create any kind of meaningful long-range plan. The entire idea of strategic planning was starting to look out-of-date and useless.

Although I disagree with the conclusion, I can certainly understand the dilemma. To me, it goes back to the 1980 presidential debate. Business leaders were asking themselves a version of the question posed by Reagan: Is my company in 2009 better off now than it was several years ago?

The answer for most is “no.” Sales have plummeted. Profits have vaporized. Stock prices are down. Bankruptcies are up. By almost any measure, things are worse than before.

Now isn’t it the role of strategic planners to be the ones focused on improving the long-term prospects of the business? If the future is getting worse, then it would appear they are not doing their job.

Therefore, just like in the 1980 presidential election, companies are answering the question by throwing out the incumbents (the strategists) and are moving in a new direction.

THE PRINCIPLE
The principle here is that if strategists want any respect (and want to keep their jobs), they need a favorable response to that question: Is my company better off than before? Or to put it another way, is my company’s future any brighter because of the strategic planning efforts we have taken? If not, Reagan’s approach would say to kick out the strategists.

Granted, the current recession is so deep and so global that almost everyone is worse off, regardless of strategy. But has your strategy at least made you less worse off than your competition (are you gaining an edge on them)?

That has been the situation for the Ford Motor Company. Years earlier, it could see what was coming and built a strategy that acted early to get in front of the problem. They refinanced their debt when that was still relatively easy to do. They sold the weaker divisions when there was still a relatively healthy market for selling them. They got leaner and meaner in preparation for tougher times. As a result, Ford may not be having great times today, but they are gaining share and are better positioned than many of their competitors.

Now, it might seem obvious that strategists should measure themselves on how well they are helping to steer a company into a better future. Yet, when I look at what strategists get busy with, that does not always appear to be a priority. Here are some ways that strategists keep busy at tasks that are only tangentially related to creating better futures.

1) Scribe
Yes, it is important to get all the words and numbers written down. Things need to be quantified and clearly described. Accountability requires it. But if most of your time is spent just getting things written down and organized, you are not adding much value to the process. A stenographer or an administrative assistant can pretty much do that.

After a certain point, any improvement in the way words and numbers are written down will not improve the quality of a company’s future. And that point is fairly low on the quality spectrum. Instead, the place where quality time should be is on the ideas and activities behind what is written down. How much influence are you having on crafting the content of what is written? How much time is spent making sure business activities are bringing the content into reality? Don’t just blame the ops people for bad implementation of brilliant words. If you act as nothing more than a scribe, you should expect poor implementation.

2) Oracle
Yes, visionaries can be critical to success. And yes, one often needs to see into the future before one can optimize it. But if visioning is where you stop, then it is not very useful. Unimplemented ideas are like money hidden under a mattress. If it is never spent, then you live like a pauper, no matter how rich you are. You never benefit from it and may as well be poor for all the good the money did. Ebenezer Scrooge may have had money, but he did not have prosperity of life.

If you want a better future, then time must be spent in applying the insights of the oracle. Just being smart is not enough. In fact, studies have shown that B+ students make for better entrepreneurs than A students. B+ students tend to work harder in real life, while A+ students are too satisfied in just being smart and resting on idea-making that doesn’t go anywhere.

3) Activities Director
On the old Love Boat TV show, Julie was the activities director on the cruise ship. Her job was to make sure that there were lots of activities going on (on schedule with no problems) and that people were happy doing something. Sometimes we can get busy doing things like Julie. We spend so much time making sure the activities of the planning cycle go smoothly (the various discussion meetings, the filling out of paperwork, the approvals, the offsite planning meetings, the communication meetings, etc.) that we lose sight of why all that stuff is being done in the first place.

Perfect meetings do not always lead to perfect futures. I’d rather have a sloppy process that creates real substance than a flawless process that nobody treats seriously. True planning is not the process of managing the planning cycle. You can hire meeting coordinators for that. True planning is managing the quality of what comes out of the process.

Better Ways to Be Busy
If you want to have a meaningful part in creating a better future, focus your busyness on three things. First, help people get an accurate understanding of their true condition. Provide knowledge and insight that makes them smarter about what the situation is. Break down inaccurate biases. If your people have an unrealistic bias about what your condition is, then you will create a strategy that is inappropriate for true reality.

Second, control the debate. Make sure the tough questions are addressed and true out-of-the-box thinking is going on. Stretch the minds. Help people see the long-term consequences of near-term actions. Help people to see beyond the status quo. Help people envision alternatives.

Third, don’t hand off all responsibility once the ideas are on paper. Be active in making sure tasks get done. Monitor actions to make sure they stay on track. Keep people accountable. Make sure the long-term agenda does not get lost in the tyranny of the immediate fires which scream for attention. Scream back at them.

If you focus on these three tasks, you should get a better answer when people ask if the company’s future is better off because you were there.

SUMMARY
When strategists get a bad reputation, it is usually because leaders do not see significant value being added by strategists in the creation of a better future. Therefore, it is in your best interest to focus your limited time on the activities which are most critical to creating that better future. Don’t let the allure of “busyness” in lesser activities lure you into thinking your job is complete.

FINAL THOUGHTS
Ever notice any of those employees who have mastered the art of “looking busy” in order to avoid doing real work? You probably don’t have much respect for them. Remember that whenever you start feeling content in the busyness of being a scribe, oracle or activities director.

Tuesday, June 2, 2009

Stall Points



Question
Every month, Professor Jim Heskett of the Harvard Business School poses a question on the internet. This past month’s question was this: According to the book Stall Points, the authors found that growth rates for large companies: (1) increased up to the "stall year," (2) dropped precipitously in the following year, and (3) faced increasingly difficult odds of regaining momentum with the passage of time after the stall. Of the companies in the study, 87 percent had experienced a stall. Fewer than half of those were able to return to prior rates of growth within a decade after the stall. Why do these phenomena occur? Why do big companies, with access to people and capital, find it difficult to innovate and grow after becoming large?

You can read the whole thing here, including 81 responses to the question and Heskett’s summary which included a reference to my comment. But if you only want to see my brief comment, here it is.

My Comment
Two Concepts: Infestation and Cannibalization. First, when a company becomes large and successful, it attracts parasites, like moths to a flame. A parasite is an employee who is looking for a safe haven, a place already creating a lot of cash flow (which they want to tap into). They are not risk-takers. It is amazing to me how quickly a company can become infested with these parasites once the reputation gets out there. These parasites suck out the entrepreneurial drive.

Second, great new innovations succeed by obliterating the status quo. All of that "new" growth comes by taking share away from older industries and business models. When you have nothing, the rewards in reinventing an industry look huge--making the risk look worthwhile.

However, if you are now the market share leader, the reinvention ends up stealing from yourself (cannibalization). All of that reinvention looks like taking money out of one of your pockets to put into the other pocket. Why spend a ton of money and take a huge risk of destroying the core if the reward is the hope that you will get back all the share you already had?

To avoid the stall, a company has to diligently fight against parasite infestation and accept the virtues of self-cannibalization, realizing that it is better to cannibalize yourself than to have an outsider do it to you.

I am reminded of the SS Kresge company in the 1960s. They knew that for their new Kmart division to succeed, they would have to destroy the Kresge variety store core. They were willing to cannibalize themselves, and Kmart thrived for decades.

Then, when the supercenter concept came about, Kmart's first reaction was to try to build a supercenter that did not take share away from the core Kmart stores (avoid cannibalization). This resulted in a disaster supercenter called American Fare, a short-lived phenomenon. This time, by trying to protect the core, they killed the future of the company.