Wednesday, August 4, 2010
Strategic Planning Analogy #343: Where to Look
As the old story goes, one evening there was a man named Bob crawling on his hands and knees outdoors under a bright streetlight. Another man came along, named Jim, who was curious as to what was going on.
Jim asked Bob, “What are you doing?”
Bob replied, “I’m looking for my lost car keys.”
“Where did you last see your car keys?” inquired Jim.
Bob replied, “A couple of blocks down the road, next to my car.”
Puzzled, Jim asked, “Well, if you last saw the car keys down there, why are you looking for them here?”
Bob answered, “Because the light is better here.”
Looking for something is not the same as finding something. If you look in the wrong place, you will never find what you are looking for, no matter how intense your effort is. Bob will never find his car keys because he is looking in the wrong place.
Businesses are looking for great opportunities for growth and prosperity. These opportunities will only be found if the business looks in the places where the opportunity exists (not the places where they want to look).
It may feel more comfortable looking where the most light is, but that doesn’t mean that what you are looking for is there. In the business world, the greatest amount of light (the data which illuminates our mind and helps us to see the world around us) is usually focused on the status quo. However, new opportunities usually require us to reinvent the status quo a bit, making current wisdom somewhat obsolete.
The great opportunities of the future tend to be on the darker fringes of today’s status quo. If you want to find them, you may have to leave the bright lights and spend time out in the fringes.
You will only find the things located within the areas where you look. If an item is located outside the area of your search, you will not find it. How you define your search parameters determines where you will look. Therefore, if you want to find growth opportunities, be sure to define your search zone to include areas where there are the best growth opportunities are located. This usually requires defining a search zone including areas which is not located under the bright lights of the status quo.
In the last blog, we looked at the importance in defining for your customers the category you compete in. Customers, however, are not the only stakeholders in the success of your business. Another key category is your employees.
Just as it is important to get customers to properly categorize your product, it is important to get employees to properly categorize your company. Some of my greatest successes in the business world came from getting executives to re-define how they thought about their company—the business category it was in. By redefining the category, I was able to open their eyes to wonderful new potential opportunities which fell outside the old, narrow category definition.
The way you define your company limits where you look. If you define yourself in terms of the status quo, you will only see ways to incrementally improve the status quo. You will never find the “next big thing” which will make the status quo obsolete, because your narrow definition has kept you from looking where the next big thing is coming from. Sure, there is less data to examine out on the fringes, but that is where the new opportunities are. Include it in your search.
Back in the 1980s when I worked at Shopko, Shopko was facing a problem. It was a discount department store competing against Wal-Mart, Target and K Mart. Wal-Mart had a lock on the best position for Discount Department Stores—lowest prices. Target had the second best position in the category—cheap chic. Although K Mart’s position was weak, it was large, so it wouldn’t be going away soon. So what do you do if you are Shopko: the #4 discount department store in a market where you don’t need four alternatives and the best two positions are already taken?
The first thing I did was convince management to redefine their category. Instead of defining themselves as a “Discount Department Store Company,” I convinced them to redefine themselves as a “Value-Based, Category-Owning Merchant.”
Changing the definition of the category sounds like a small thing, but the implications were huge. I had redefined the search area for new ideas, so we found more great new opportunities.
In the past, because they defined themselves as a Discount Department Store, Shopko thought they had to act like all the other Discount Department Stores. They had to carry the same products, in the same way, in the same depth. It meant trying to figure out how to beat Wal-Mart in a head-on competition with a similar offering. This was a path to disaster. Shopko would never stand out from the crowd if it acted like everyone else in the crowd.
“Value-Based, Category-Owning Merchants,” however, have the flexibility to do things that “Discount Department Stores” do not. We could carry different products in different quantities and sell them in different ways. The idea was simple. Rather than carry a medium assortment of every category sold in a discount department store (like everyone else), we would choose the extremes. In departments where we thought we could win, we would carry far more depth than the typical discount store. In areas where we did not think we could win, we would either eliminate the department or only carry a convenience assortment. The idea was no longer to compete head-on against Wal-Mart, but to peacefully co-exist through careful choices regarding where we wanted to play to win.
Over time, this redefinition of the Shopko business helped Shopko experiment in all sorts of “fringe” areas it probably never would have considered under the old definition.
Back in the 1980s, there were close to 100 other regional discount department store chains in existence in the US. Today, virtually all of them have disappeared. Shopko, however, is still in existence today, a testimony to the power of redefining your category.
A similar situation existed at Best Buy when I got there in the late 1990s. Best Buy at the time basically defined itself as a “US-based, Big-Box Consumer Electronics Retailer.” Its key competitive differentiation was the elimination of commissioned sales people. This was a narrow definition which limited future opportunities.
My team helped Best Buy management to see the company in a new light. We redefined Best Buy as a “Key Player in the Entertainment and Technology Business Ecosystems.” This opened up the potential to numerous new business opportunities, including things like technology services (through the Geek Squad), working upstream to help determine the evolution of new technology, working more directly with key players in the entertainment industry, selling products in a different way (Magnolia high-end, higher service entertainment retailing and Best Buy Mobile Kiosks), and going international.
By changing the definition of the business category, Best Buy started looking in more places for more opportunities. This brought in new streams of cash flow, allowing them to lower the prices on the consumer electronics they sold. Circuit City, which still pretty much operated under the older, narrower definition, tried to match the Best Buy prices, but because they had not expanded into all of those other businesses, they could not afford to match Best Buy prices. Eventually Circuit City had to file for bankruptcy. Best Buy is still going strong.
If you want to find great new opportunities, you need to look where the great new opportunities lie. Usually they lie outside the status quo. Therefore, if you want to find them, you’d better define your business broadly enough that you are not trapped by only looking within the status quo for your future.
Broadening one’s business definition does not mean saying “I’ll do anything to make a profit.” There still needs to be limits. The idea is to not just find new opportunities, but to find opportunities in areas where you can win. Your core competencies, size and other such factors limit the number of opportunities where you can win. Keep these factors in mind when re-drawing your search parameters. Even in the broadened definitions of Shopko and Best Buy, there were still limits.