Thursday, February 25, 2010

Strategic Planning Analogy #309: In the Middle

Once upon a time, two families were planning their vacations. The Smith family really got into the vacation planning mode. They planned out all of their vacations for the next 10 years at the same time. They planned out, down to the minute, where they would be and what they would be doing for the entirety of all of those vacations. Then they started making the arrangements so that they would be prepared to do everything on that 10 year vacation list.

The Jones family took a less aggressive approach to planning their vacation. They knew they wanted to spend time on a warm beach this year, so they decided to just start wandering south. They figured that if you keep heading south, eventually you will find a warm beach.

Well, even though the Smith family put a lot of time into planning their vacations, they turned out to be a disaster. Over the course of 10 years, a lot of things happened that disrupted those carefully crafted vacations. First, Mr. Smith was not always able to get away from work every year precisely when the vacation was planned. Second, many of the amusements and attractions they wanted to see were no longer in existence years later when they planned to see them. Finally, some of the hotels they had arranged to stay at had been sold to other firms who did not recognized their reservations from so many years earlier. Because they had not kept up on adapting to these details, the vacations were awful.

The Jones family had a disastrous time as well. It turns out that it took a lot longer to find that warm beach than they thought. All that wandering wasted most of the vacation days. Second, once they got to the beach, they found out that all of the lodging had already been reserved. There was no place to stay at the beach. They had to stay many miles away from the beach in an ugly, dirty part of the city. And because so much time had been wasted wandering, they had to go home almost as soon as they had arrived. If only they had picked a particular destination in advance so they could have locked it up while there were still vacancies.

In the field of strategic planning there tend to be two major schools of thought. One is the “positionist” school (as championed by people like Michael Porter) and the other is the “emergent” school (more in line with the thoughts of Henry Mintzberg).

Since we don’t have space to fully expound on the nuances of each position, I will briefly summarized the two schools using quotes from Walter Kiechel III from the Spring 2010 issue of Strategy+Business.

“A positionist…believes that you should conduct a rational analysis, decide on the competitive position you wish to occupy, develop a strategy to get there, then execute.”

“Fat chance, counter those of the emergent persuasion…You begin with the hand you’ve been dealt. You go from there…setting off in a general direction. You run into reality…, learn from your mistakes, make corrections and ‘execute like hell.’…In the process, your strategy emerges.”

In other words, positionists tend to believe that if you get the big picture right, the little details will take care of themselves. By contrast, the emergents believe that if you get the little details right, the big picture will take care of itself.

In our story about vacation planning, the Smith family were positionists and the Jones family were emergents. And in the end, both approaches lead to disaster.

The Smith family, as good positionists, found great destinations (i.e., positions) for their vacations. Unfortunately, they did not have as much control over the details as they had hoped, so the vacations did not turn out as planned.

The Jones family, as good emergents, chose a good general direction (towards warmth) and made the right adjustments to get in the direction of a warm beach. But because they did not plan out the big picture very well, by the time they reached the destination, all of the key spots had already been staked out by others (no rooms were available).

The principle here is that either planning philosophy, when taken to an extreme, is not optimal. Strategic Planning should not be a battle between the extreme of Positionists versus the extreme of Emergents. Both extremes lead to disaster. The best path is somewhere in-between.

1. The Overall Flaw
The big problem with either extreme is that it assumes something will take care of itself. Positionist extremists assume the little things will take care of themselves (if you get the big picture right). Emergent extremists assume the big things will take care of themselves (if you are vigorous enough in executing the details of the moment). In reality, nothing takes care of itself. You have to worry about both the big picture and the small details. That is why the Smiths and the Joneses had lousy vacations.

2. The Emergent Extreme Flaws
In particular, the emergent extreme has two critical flaws. I call the first one “The Mosaic Flaw.” Imagine that you are building a giant mosaic—too big to see in its entirety while up-close working on it. As you are choosing each individual little tile to put into the mosaic, you choose the color and shape base on what looks right to you in that immediate area. Each little area looks beautiful to you. However, when you are done and are able to stand back far enough to see the entire design, you realize that the total picture is an entire mess. It doesn’t look like anything in particular. It has no intrinsic beauty as a whole. It must be thrown away.

This is what happens when emergent extremism takes place. The big picture does not magically come together. A pile of pretty tiles do not automatically make a pretty mosaic. The only way to create a beautiful large mosaic is to: a) first have a general master design and b) stand back every once in awhile to get an idea as to the major ramifications of your immediate efforts.

The second major flaw with the emergent mindset is what I call “The Leap Flaw.” All strategies and business models eventually fail. For example, analog strategies and business models have been replaced by digital strategies and models. Business models dependent on tight control of information (like traditional travel agents and newspapers) are having their business models replaced by more open, consumer driven internet models (like or Craigslist). If you stick with a particular strategy/business model long enough, you will eventually become obsolete.

Emergents tend to focus on making adjustments to the current model, to make it better, stronger, and more appropriate to the moment. This approach rarely leads to the great leaps necessary to jump from one model to an entirely different model. A better, but obsolete model is still obsolete. And that is where emergent extremism will lead you in the long run.

3. The Positionist Extreme Flaws
Positionists avoid the flaws of emergents. They keep track of the big mosaic picture and prepare for leaps to radically new models. However, their method in the extreme also has flaws. The first is what I call the “Ivory Tower Flaw.” This is the idea that strategy is mostly an academic exercise which can be played out in a tower far removed from where the daily decisions are being made. Emergents will be the first to tell you that if strategy is divorced from where the work gets done, then it won’t have any impact on how work gets done—so the strategy never happens.

The second flaw of position extremism is what I call “The Funding Flaw.” It takes a lot of time to get to the glorious long-term nirvana envisioned by the positionists. It usually takes a lot of early investment to get there as well. If you only focus on the glorious nirvana, you may not have in place enough near-term activities to fund the transition from here to there. You may go bankrupt before you have a chance to reach that huge pot of gold at the end of the rainbow.

4. Where Should I Be On the Continuum Between the Two Extremes
So, if both extremes are dangerous, where should I be on the continuum between the two? That depends upon your current situation. In particular, it depends on Industry Barriers and Life Cycle Stage.

Some industries have high barriers to entry and high barriers to exit. This tends to create relative stability to the big picture. Once you make it in, you are relatively protected. Therefore, you can worry less about the positioning and focus more in the direction of the emergents. GE has traditionally focused mostly on these types of industries, which helps explain why their planning approach appears to lean more towards emergence.

By contrast, industries with low barriers to entry and exit are more in flux. To survive the turmoil it is ever more important to stake out a strong position which stands out over the fray. Here, I believe the approach needs to drift closer to positionists. I think that one of the reasons Bob Nardelli failed when moving from GE to Home Depot was because he went from a more emergent environment at GE (just execute lots of cost cuts right now) to more of a positionist environment at Home Depot (invest in a position which wins with the customer). By being too emergent in the new environment, he was out of step in what was needed at Home Depot.

Life Cycle stage also impacts which approach to use. In the early incubation stage of an industry, nobody knows how the industry will evolve. Here, leaning more towards the emergent side of the continuum may be more valuable.

The rapid growth phase is probably most suitable for positionist leanings. This is when the race is being won to see who will be the leader when maturity comes. It is important at this point to stake out your leadership position and win the race to own it. No time to waste meandering and hoping for something to emerge.

Once maturity is met, the big picture becomes more stable. As we saw earlier, stability tends to favor a leaning towards emergence.

When an industry is entering decline, it is time to look for a leap to a new model. As we saw earlier, positionist leanings work best when it is time to make a leap.

Since successful strategic planning needs to manage both the big picture and the small details, one should avoid the extremism leanings of positionists or emergents. The best place to locate on the continuum between the two can vary depending on things like industry barriers and lifestage. In other words, although we know the extremes are always wrong, there is no other place that is always right. You have to plan your planning approach, too.

Don’t try to keep up with the Joneses…or the Smiths. Both of these extremists will lead you astray.

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