Friday, March 12, 2010

Strategic Planning Analogy #312: Who is that Old Woman?

Back in 2002, there was a movie released, called “About Schmidt.” In the movie, Jack Nicholson plays the part of Warren Schmidt, a man beginning the retirement phase of his life.

At the beginning of the movie, Warren is introducing us to the people in his life. At one point in the introductions, the movie is showing Warren uncomfortably trying to sleep with his wife Helen. The voiceover from Warren during this scene is as follows:

“Helen and I have been married 42 years. Lately—every night—I find myself asking the same question: Who is this old woman who lives in my house?”

The point of that scene in the movie was that for years, Warren had a mental picture of his wife more similar to that of the woman he had fallen in love with and married so long ago. His mental mindset had not kept pace with time.

Over the last four decades, Helen had changed quite a bit. However, because the changes had come so gradually, they were hard to perceive on a daily basis. Therefore, Warren’s perceptions had not picked up on how much cumulative change there had been to Helen.

Now that he was entering retirement, Warren was taking a fresh look at the fact he would be spending a lot more time at home with Helen. He looked over, and instead of seeing that young women he had married, he saw an old women in bed with him. It was a shock to him because reality had matured a lot faster than his perception. The mental picture of his wife had been replaced with this old person who seemed strangely different.

I believe this phenomenon happens a lot in the business world as well. Companies and industries age and go through life stages just like people. A young, vibrant, growing business over time can become an old, ugly mature and declining business. It may happen so gradually that you do not perceive the change on a daily basis.

Someone may have entered the business back in the young glory days and spent years working their way up to senior management. The busyness of the daily activities blinds them to the gradual aging of the business. Then, one day the person finds that results are getting harder to deliver. The old business tricks they learned in the glory years aren’t working any more. Suddenly, they take a fresh look at the business and are shocked to realize that the business is now old and dying. “Who is this old business who lives in my headquarters?”

The principle here is that the proper strategic approach is different, depending on the life stage of the business. Young start-ups in the garage need a different type of strategy from that of a mature business, and so on. We’ve talked about that in prior blogs (too many to link--try this, this, and this for starters).

In theory, that all sounds so logical. In reality, however, it is a little more difficult, because the transitions from one phase to the next are gradual. It’s not like on Tuesday you have dynamic growth and on the following Wednesday you are in the middle of maturity. You don’t get a tweet on your Blackberry which says: NOTICE – TODAY WE OFFICIALLY ENTERED MATURITY.

If we are not diligent in our observations, the transition can sneak up on us and surprise us. We don’t realize that the woman in bed with us is now an old lady with behaviors that are strange to us. By the time we wake up to the new reality, it may be too late to adapt in a way that optimizes our potential.

I think this phenomenon is particularly prevalent in mature economies, like the USA. Many formerly high growth industries in the US are maturing, and I think a lot of the leaders at these firms are in denial. Their mental picture has not kept up. As a result, their actions are out of sync with reality—they are sub-optimizing.

This phenomenon can also occur in younger economies, like India, where seemingly wide-open industries suddenly are filled by large multi-national firms who seem to sneak in from outside the country.

How can we keep from sub-optimizing due to having the wrong mental picture of our firm’s lifestage?

1) Challenge Your Assumptions on a Regular Basis
How often do you ask yourself if your business is near (or within) the transition to a new lifestage? If you never ask the right question, you will always be surprised by the outcome when the transition occurs. You don’t have to do this every day, but maybe once a year is a good idea. Put it on your calendar.

2) Read the Dials With an Open Mind
When a business is going through a transition, the transition tends to alter the performance of many metrics. Sales growth may slow, profit margins may shrink, customers may leave, and so on. If you mental mindset thinks that the overall lifestage has not changed, you may pass off these changes to your metric performance as “minor aberrations” or “due to the bad economy.”

Then, instead of adapting to the new lifestage reality, you continue with the tactics more appropriate for the former lifestage. Perhaps you even work harder at the old tricks in an attempt to bring back the old metric results.

I’ve seen this happen with the “sales” metric. As a business moves into maturity or decline, the natural growth in the industry goes away. Leaders who are used to all that natural sales growth get concerned when the growth dips. Therefore, they work harder to get back the old sales growth rates. However, the only way to do that is to aggressively try to take share from others. Getting large swings of market share during maturity often requires cutting costs so much (or adding so many extras to the offer) that all the profit is wiped out. You would have been more profitable accepting the lower sales growth and moving to mature industry strategies like cost control.

Therefore when the dials on the metrics you follow start to change, consider whether this might be an early warning sign that your business is moving on to the next phase of its life. Keep an open mind, not automatically assuming that this is just a temporary aberration. It may just be an aberration or an issue with the macro economy—but then again, it may not.

Like cancer, it is always better to detect these things early. Then you can deal with it when the problem is still small. By the time the dials have swung greatly on your metrics, it may be too late to effectively adjust to the new realities.

3) Have a Diverse Network
Don’t surround yourself with people who are just like yourself. Then all you have is a bunch of people with the same out-of-date mental mindset who reinforce that mindset though their agreement.

Instead, have regular contact with people of different ages and backgrounds. Young people aren’t as burdened by past perceptions and out-of-date mental models. They may see the transition sooner and more clearly. The fact that it may be difficult to even hire young people at your firm (because they perceive your industry to be old and in decline) can give you great insight.

Conversely, older people may have already gone through business transitions before. That experience can be invaluable in helping with this new transition. It may also give you more confidence to transition your strategy, since you have someone who knows the way.

Although it may be obvious that different lifestages of a business require different strategic approaches, this knowledge is worthless if you are blind to which life stage you are currently in. Transitions may be occurring right under your nose and they are not detected, because it happens so gradually. To remedy the situation, question your assumptions on a regular basis.

In the movie About Schmidt, Warren was so out-of-touch with how old his wife Helen was that he was completely unprepared when his wife suddenly died. His lifestyle deteriorated rapidly and he never fully recovered. Your business may be closer to “death” than you realize. If you are unprepared, your business may not fully recover either.

1 comment: