Wednesday, July 14, 2010
Strategic Planning Analogy #338: Traffic Jams
It’s common for larger cities to have traffic web sites. You can go there to find out where the major traffic accidents and road construction slow downs are. It’s great to check out the site before getting in my car to drive home from work. That way, I can adjust and plan a route home which avoids the worst of the traffic problems.
Since most days tend to be uneventful on my route home, I tend not to look at the web site all the time. Of course, it seems that whenever I check the site, there are never any problems and that whenever there is a problem, that is the day I didn’t check the site. As a result, the traffic tie-ups tend to come as a surprise to me. I don’t know about them until it is too late to avoid them. Then I am hopelessly stuck in traffic, unable to move or adjust. Had I only been more proactive by checking the site, I could have avoided the mess.
Like cars, businesses can get can get hopelessly stuck. Just as actions outside your control (like accidents, flooding, and road construction) can make your normal commute route unusable, external actions like shifts in the economy, competitive actions, and shifts in consumer desires can bring your old business plans to a complete halt.
In driving, if you know about the potential traffic problems in advance, you can re-plan your route to avoid the worst. The same is true in business. If you know what difficulties lay ahead, you can adjust your plans to avoid problems and become more in tune with where the opportunities for smooth progress are.
Checking out those traffic web sites are a lot like an important piece of strategic planning. Strategic planning takes the time to see what’s going on in the environment before starting the journey. That way, you can prepare a route for your business which gets you to your desired location faster and with fewer difficulties.
Avoiding this step of strategic planning would be like ignoring those traffic web sites. If you are unaware of the changing dynamics, your business will be surprised when the traditional path you take to profits is suddenly and unexpectedly halted by the new conditions.
By not making any adjustments to your strategic path until the old path is already obsolete (you are already stuck in “money-losing traffic”), it is often too late to make a smooth transition to progress. The road to recovery is slower and more painful. In addition, you have less cash flow to make the transition and competition (who planned better) will get to the new position sooner and get a head start on gaining ownership of that position.
It is much easier to adjust while times are still good, cash is still flowing in, and you still have a strong reputation with your customer base. Unfortunately, it is also more tempting to avoid looking ahead for necessary adjustments when times are good, cash is flowing in, and your reputation is strong. Don’t become tempted as I was to stop looking at that web site just because it had been a long time since the path had seen problems. The day you stop looking could be the day when your really need to look.
The principle today has to do with preparing for strategic adjustments. A good, solid strategic position usually lasts quite awhile and should not be changed all that frequently. However, the way in which that strategy is applied on a daily basis may need occasional adjustments. It is better to be proactive by adjusting in anticipation of change rather than waiting until the old methods no longer apply and scramble for a way out of the traffic jam.
Take Wal-Mart, for example. Wal-Mart’s strategic position is rooted in low cost, low price. This is a great position which can last for many decades. However, the best path for pursuing that low cost, low price strategy may need an occasional re-routing. By looking ahead, Wal-Mart recently saw that attitudes about the environment, energy and sustainability were changing. Looking at these environmental changes through the lens of their low cost, low price strategy, Wal-Mart saw the opportunity for a win-win strategic adjustment.
Wal-Mart discovered that if you approach energy, environment and sustainability issues in a particular way, it can lead to substantial cost savings—savings in energy usage, savings in packaging waste, and so on. All these savings lowers costs, so that one can lower prices. By proactively getting into the movement early and by approaching it aggressively, Wal-Mart was able to reinforce its low cost, low price strategy while at the same time become more in tune with the desires of their customer (and improving its consumer image).
This is only one in a series of adjustments Wal-Mart has made over the years to remain a leader at achieving is low cost, low price position. Earlier adjustments have included moving from low technology to high technology, adding groceries to the merchandise mix, and moving from a pure adversarial role with vendors to a bit more of a cooperative partnership. If Wal-Mart had not made these adjustments and kept on the same exact path they were on in the 1970s, they would have lost their leadership position. They would have gotten stuck in traffic and not grown to the success they are today.
It the extreme, as we saw in the last blog, sometimes the environmental changes are so severe bold new directions need to be taken. For example, the movement from analog to digital was so severe that the entire Kodak strategy (based in analog film and paper) needed to be abandoned and an entirely new route needed. Because Kodak did not boldly seek a radical new route, it got stuck in traffic while digital companies passed it by.
There are three principles we should keep in mind to help one become proactive in avoiding business “traffic jams.”
1. Check Traffic Conditions Early and Often
We have already talked about the importance of checking the traffic conditions early—before you plan out your journey. However, as we all know, the marketplace is dynamic and in continual flux. Road conditions when we start the journey will not necessarily stay that way throughout the journey.
Therefore, scans of the operating environment should not be seen as isolated, infrequent events, but rather as an ongoing concern. The more we can update our data base on a “real-time” basis, the sooner we can detect the need for adjustments, and the better our adjustment decisions will be.
Do you have a daily/weekly/monthly/quarterly dashboard of key environmental indicators (like those traffic web sites) to help you adjust while your business is on the road?
2. Know Your Alternate Routes in Advance
When I was commuting in Minneapolis, I had preplanned dozens of alternative routes. That way, no matter where I was during the commute, I had an alternative path from that point to my home or work. As a result, when things started to look bad on my normal route, I could quickly (and calmly) adjust to a superior alternative route.
This same principle applies to business. The equivalent of developing alternative routes would be scenario planning. By doing scenario planning in advance (and tracking the key factors determining which scenario is most likely), one can quickly adjust properly at the point when the key factors point to a need to adjust.
Waiting until disaster sets in to find an alternative is too late (just ask BP regarding the oil spill in the Gulf of Mexico). Do the scenario planning in advance so that everyone in your company knows what to do when it is time to make the shift. This eliminates panic, confusion, and rash decisions which would be regretted later. It also helps you make the transition faster.
3. Grasp the Immediate Ramifications of Future Problems
One of the biggest frustrations strategic planners have to deal with is getting the rest of the organization to adequately focus on longer-term issues. As we have talked about so often in these blogs, the “tyranny of the immediate” often blinds most employees to the long-term. They become so focused on putting out the fire-of-the-day that there is no time to think beyond today.
When presenting long-term plans, the response is often “I see no relevance to what I have to deal with today, so I will ignore it.” Therefore, it is imperative for us to help the organization see the relevance of the long-term to the issues of today.
Going back to our commuting analogy, that car accident slowing down traffic may be a long way away from the office, but that doesn’t mean I should ignore it until I get there. It has immediate relevance. For example, depending upon which alternative route home is most desirable for me in my commute, I have to make a choice immediately upon leaving the company parking lot. One route requires me to turn left upon leaving the lot, while the other requires me to turn right. Even though the accident may be many miles away, the changes in what I need to do while driving occur immediately upon leaving the office.
We need to show our leaders that long term paths have immediate implications on whether we turn left or turn right today. Wal-Mart was not going to achieve the full cost-saving ramifications of environmental sustainability immediately, but the instant that decision was made, it had immediate ramifications on how to deal with vendors, how to design stores, how to operate its logistics, and so on. We need to “connect the dots” to show that relevance so that we turn the right way right now.
In addition, we can show that by only focusing on today, we are like those people who ignore the traffic web sites and are surprised when they land in a traffic jam. Those traffic jams are the fire-of-the-day that they are constantly dealing with. Had they taken time to look long term, they could have avoided a lot of those fires-of-the-day by planning alternative routes around them. Wouldn’t it be nice to get out from under the tyranny of the immediate?
The more time we spend looking long term at what’s happening in the marketplace, the better we will design a path for our business which avoids profit slow-downs (and gets us to a better future more rapidly). This includes environmental scans at the beginning of the process, environmental dashboards while in process, and continual reminders of how long-term changes impact what we should be doing today.
Sometimes, the best way to avoid the traffic on the road is to take a helicopter. Don’t be afraid to think out of the box to radical new approaches.