Tuesday, March 2, 2010

Strategic Planning Analogy #310: Suggestion Vs. Command

Once there was a preacher who was upset that the people in the congregation were not living up to the standards of the Bible. Therefore, he decided to give a sermon on the subject.

At one point in the sermon, he got so frustrated that he just blurted out, “That list in the Bible is called ‘The Ten Commandments,’ but you treat it as if it were called ‘The Ten Suggestions.’”

People tend to act based on what they believe. If you truly believe something is a commandment, you will act differently than if you believe it is merely a suggestion.

“Commandments” are unchanging absolutes. You are expected to follow the instructions to the letter. Your job is to obey.

“Suggestions” are optional. You can choose to follow them or go a different way. Your job is to decide whether you have a better approach than the one suggested.

One of the secrets to good strategy is accurately assessing when something is a commandment and when something is a suggestion. If you make the wrong assessment—have the wrong belief—then you will likely take the wrong action.

The principle here is that many aspects of operating a business are not absolutes. There is not just a single way to succeed. That’s a good thing, because if there was only one right way to do things, then we would only need one business per industry.

My experience is that too many people view the business world as full of “commandments” when, in reality, most are merely “suggestions.” This is particularly true when it comes to business models.

Most industries tend to have a particular way in which business is expected to be conducted. Most of the companies follow the rules of that business model as if it were a commandment. They do not deviate much from these so-called orders.

However, consider this: nearly every wildly successful new upstart company began by breaking the old rules of the old business model. (And when an industry consolidates, most of the companies that go away are following standard industry practices.)

Take, for example, the DSW shoe stores, a very successful seller of fashionable shoes in the US. Before DSW, fashionable shoes were sold mostly by department stores who all used the same basic business model. Inventory was hidden in the back out of the sight of the customer. The customer would sit in a chair while a salesman would go in the back and find a pair of shoes he thought were appropriate for you. He would then put the shoes on your feet and try to pressure you into purchasing them. The price of the shoes would be very expensive, unless you were lucky enough to be there when a large sale was going on.

DSW ignored this business model and did something entirely different. They put all the shoe inventory on the sales floor. Customers were free to try on any shoes they wanted at whatever pace they wanted. There were everyday low prices instead of constant big fluctuations between regular and sale prices.

A lot of people prefer this new business model over the old business model, which is why DSW is so successful. If DSW had just imitated the business rules used by the department stores, they would not have brought anything new to the marketplace. They probably would have failed.

Amazon created a new way to buy books by adopting internet selling early. Today, most of the conventional book stores are either out of business or struggling to stay alive.

Apple’s success has also come by consistently re-writing the rules of an industry. In a world where computers were expected to be utilitarian boxes, Apple introduced elegant products with gorgeous type fonts and lots of artistic versatility. The ipod, combined with itunes, rewrote the rules of how music was consumed. The iphone and the apps store redefined the business model for mobile communication.

In an earlier blog, I talked about how there are lots of distinctively different ways to sell pizza. If you can find a dozen distinctively different successful business models for pizza, there are probably many viable business models in your industry as well.

Suggestion Implications
So what can we learn from this?

1) Don’t automatically treat the standard rules in your industry as commandments. Treat them as suggestions. Feel free to question why things are done that way and look for alternatives.

2) “Me Too” strategies rarely create outstanding businesses. When you follow the leader, you are by definition a follower, not a leader. If you want to lead, then you need to strike out in a new direction or do things in a new way.

3) Strategic planning is about finding a spot in the marketplace where you can win. It is much easier to become the winner in a new position than in one where there is already a heavily entrenched leader. Why would a customer prefer your brand if the brand is perceived as doing things just like everyone else? At that point, one tends to get into a death spiral of lowering prices (since price is all that is left to create a preference). Instead, win by making changes to the business model so that you can create a sustainable competitive advantage in some area.

4) Benchmarking is of only a limited benefit. Knowing how someone else is winning rarely tells you how you should win.

5) Encourage discussions around the underlying assumptions to your business model. I’ve been in many businesses where the business model is never specifically talked about or debated. It is assumed to be written in stone like the Ten Commandments and unalterable. It is just “the way things are done”—never to be questioned. Don’t fall into the trap of “But Nobody’s Ever Done It That Way Before.” We’ve talked about this in greater detail in another blog.

Commandment Implications
Of course, this is not to imply that everything in business is a suggestion. There are still some commandments to live by. Here is just one of those commandments to remember:

1. It can be good to break away from convention when building your unique business model. However, once you choose a particular model, your choice of actions should no longer be optional. Your strategy should mandate the proper tradeoffs so that everyone is moving in the direction of your chosen model.

For example, if your model is based on low prices, your strategy should create obedience around activities which make lower prices possible. Actions which go significantly counter to your chosen direction (even if others in the industry are doing them) are not to be tolerated. One of the main reasons why Wal-Mart has gotten so active in the sustainability movement is because it helps lower costs, which reinforces their low price position.

Strategic success often has more to do with how you act differently from the competition than in how you act the same. Therefore, when designing your individual business model, be willing to break the conventional rules. Treat them as suggestions. Then, once your particular business model is in place, command that company actions reinforce your business model. Build superiority at your point of differentiation through compliance.

Eventually, if your newfangled approach to business is successful, you will become the new leader. People will start following you. Before you know it, your newfangledness becomes the new conventional approach to the industry. At that point, it may be necessary to reinvent your model again.

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