Wednesday, May 19, 2010

Strategic Planning Analogy #326: All You Have to Do…

When I was in college, I worked as a DJ on the college radio station. The great benefit of this job was that I had access to all of the music being issued (which was quite a lot). Granted, not everything issued was great music, but it seemed to me there was a lot of great music out there that never got the attention of radio stations or became successful.

I tried to figure out what the commonality was between the music that became successful versus the music which did not. I looked at all sorts of things—the level of musical performing talent, the cleverness of the music writing, and so on. I could not see any correlation. For example, some successes were talented, some were not. Some failures were talented, some were not.

After awhile, I determined that musical success or failure was not based on any single factor. There were too many successes and failures sharing the same characteristics. Therefore, I concluded that musical success was either mostly based on luck or based on a complex equation of many factors—too complicated to be obvious. I guess that’s why so much music was issued—if what works is not obvious, then issue a bunch, hoping that there are enough successes in the mix to overcome the failures.

If you spend much time looking at the business literature, you will find all sorts of theories on how to create a successful business. Usually, the literature focuses on getting just one thing right. If you get that one thing right, the literature says you will be a success. Of course, each article or book focuses on a different “one thing” to focus on.

For example, some focus on something related to positioning—just find a unique, winnable, untapped spot in the marketplace and you will be automatically rewarded with success. Many others these days focus on listening to the customer—just do whatever they tell you and you will automatically succeed. Others say just focus on doing good (be a responsible corporate citizen) and you will automatically do well (be very profitable). Yet others say to focus on your employees. If you put together a good team of smart people and give them freedom, they will automatically be successful.

Others said to focus on things like audacious goals, cash flow, the next killer app, leadership, shareholder value, differentiation, speed, streamlining the decision-making process, innovation, and on and on and on the list goes. Some even said the focus should be on creating a focus.

Usually, this literature would “prove” its point by showing examples of successful firms who focused on exactly that one thing the literature was proposing. The logic was that these firms did it and were a success. Therefore, if you do it, you will automatically be a success as well.

Unfortunately, this all seems a bit simplistic to me. I think the situation is more like what I found as a radio DJ. Just as I found musical winners and losers for every single characteristic, you can do the same for these business foci.

In other words, for any “just focus on this one thing” business article/book, I could find the following:

1) Companies who followed the recommendation and succeeded;
2) Companies who followed the recommendation and failed;
3) Companies who did not follow the recommendation and succeeded;
4) Companies who did not follow the recommendation and failed.

And, as many have pointed out, even companies who followed the recommendation and were successful (at least at the time the literature was published), often continued on that path and later failed. The original book of this genre, In Search of Excellence, was famous for having picked a list of successful examples of “excellence,” where most were in deep trouble (no longer excellent) only a few years later. Hence, likelihood of finding automatic success in business by focusing on any one thing is just as likely as what I saw in music—almost none.

Therefore, I think you have to come to a similar conclusion to what I discovered as a radio DJ: success is either based on random luck or a complex mix of factors, working together in a way that is not easy to discern.

So here is the dilemma. If success is random, then it really doesn’t matter what you do. If success is based on a formula too complex to comprehend or apply, then having the formula does not provide much guidance, either. So what should I do to increase the likelihood of my success?

To get out of this dilemma, I will propose a middle ground. The idea is to provide a broad enough scope to encompass a lot of the complex issues involved in success, yet cull it down far enough to provide a relatively simple (and relatively easy to apply) approach for business management. Although not perfect, it is better than betting it all on just one thing or hoping for luck.

This approach is based on keeping an eye simultaneously on three broad areas, which I refer to as the three P’s: Positioning, Pursuit and Productivity. In one short blog, I cannot fully explain all the nuances to each “P,” but hopefully, you’ll get the general idea.

1. Positioning
In a nutshell, positioning is the act of getting a targeted consumer group to believe that there is a compelling reason why they should prefer purchasing your product. The battle takes place in the mind of the consumer and you want to “own” a position within that mind. The goal is to convince them that you have a superior solution to one of their problems. A good position for your brand/product/service is one that is desirable, sizable, ownable, preferable, achievable, believable, understandable, and profitable. Your key soldiers in this battle include marketing and strategic planning.

Another way to look at this is to ask yourself these questions: What is the reason why my product needs to exist? Would anyone miss my product if it no longer existed? If your product has no unique reason for existing, then do not be surprised if it fails.

Within this broad area of attention (Positioning), three concerns should be kept in mind:

a) Have I created a winning position? Is my position still relevant? No I need to modify it?

b) Are the actions of my company consistent with this position? Am I doing everything possible to accentuate and strengthen my ability to deliver on the key attributes of this position? Are resources disproportionately allocated towards building/reinforcing the position? Am I making the right trade-offs?

c) Have I adequately communicated the position so that the customer understands and accepts it? Does the consumer continue to keep me as the top-of-mind leader on that position?

2. Pursuit
Having a good position is not enough. You need to exploit it. The idea behind pursuit is to create as many opportunities to exploit the position as possible. The battleground is the place where transactions take place, where people do the buying. Your key soldiers in this area include operations and sales. This is about out-hustling the others who want to win in the same space. Many people with great ideas fail because they let someone with more hustle out-pursue them and reap the rewards from that idea.

Within this broad area of attention (Pursuit), three concerns should be kept in mind:

a) Have I built up enough relevant competency/expertise in order to deliver on the promises of the position? Am I strongly pursuing innovations in order to remain a leader? Am I keeping an edge over competition in competency/expertise?

b) Do I have enough capacity (points of sale, types of sales channels, sales personnel, inventory, distribution) to satisfy the demands of all relevant customer segments and geographies? Am I expanding my selling/production/distribution capacity at a faster rate than competition in order to create superiority in selling (and putting competition at a disadvantage in reaching these customers)?

c) Have I pursued superiority in relationships up and down the supply chain? Have I created a competitive edge in position with these business partners?

3. Productivity
Selling at a perpetual loss is not a good long-term strategy. Ultimately, you have to provide your value at a price which is higher than your cost to deliver. Your business model needs to be engineered for profits. The battle ground is your income statement, balance sheet and cash flow statement. Your key soldiers in this battle tend to include finance, procurement, and operations.

Within this broad area of attention, three concerns should be kept in mind:

a) Am I focusing on the activities which provide the greatest return on investment?

b) Am I managing everything (costs, capital, personnel) for peak efficiency (while still enabling pursuit and position reinforcement)?

c) Am I building and leveraging my power within the business ecosystem so as to extract a larger share of the total ecosystem profits? Am I leveraging my economies of scale?

I have written many blogs about these topics in the past. Check out my keyword topic label links on Positioning, Pursuit and Productivity to learn more.

Business success is not an automatic outcome of doing just one thing right. It is a complicated formula, requiring proper moves in many areas. For simplicity sake, one can categorize most of these moves into one of three concerns: positioning, pursuit and productivity. All are needed to increase the likelihood of success.

All three of these areas need attention because they intermingle to form the formula for success. For example, you cannot exploit the economies of scale in profitability if you have not pursued the capacity for scale or created a position which demands scale. You cannot pursue a position if your do not know what that position is or have not created enough cash flow to give you the funds needed to invest in the pursuit. Therefore, you need to work on all aspects of the formula in concert. Again, we’re back to the music analogy.

1 comment:

  1. Hi Gerald, Your 3Ps remind me of the three body (ball) problem, in which it is impossible to determine the exact "Position". All you can define is the probability of finding the ball of success in the playing field. The three P's problemm is apparently analogous to the three body problem. The difference is naming the success as the target with the three Ps revolving around it. It is only through trial and error and reiteration that wee may hir the ball of success.