Wednesday, September 29, 2010
Strategic Planning Analogy #354: Strength in Diversity
Last week I was on vacation. One of the places I visited was the Niobrara Buffalo and Elk Wildlife Refuge near Valentine, Nebraska. The wildlife refuge was located at the intersection of four distinctly different ecosystems. From the west came the Rocky Mountain pine forest, from the south were the sparse sandhills of the Great Plains, from the north came the harsh environment of the Dakota Blackhills, and from the east were the lush deciduous forests. All four ecosystems comingled within the nature preserve. It was beautiful.
The wildlife refuge claimed that being on the edge of multiple ecosystems creates an ideal environment for animals. First of all, the variety of ecosystems brings a variety of eating options. There is more diversity both in terms of plants and other animals to eat. This makes it easier to find nourishment all year long, regardless of the changing climate conditions.
Second, this ecological diversity creates a variety of habitats for the animals. Depending on the time of day, time of year, and type of activity, different habitats are more desirable than others. By being in an area with multiple habitats, the animals can be in the optimal place at the right time.
Unfortunately, at the time of year I was at the refuge, the Elk and Buffalo were hiding in a portion of the property which was off-limits to humans. But I did get to enjoy the beauty of the ecosystems and see a waterfall up close. And although I did not get to see a buffalo, I did get to eat a buffalo burger (from commercially grown buffalos, not the nature refuge).
Strategic planning tries to find places where businesses can be strong and prosper. According to this nature refuge, animals get stronger and more prosperous when they live in an area of diversity. In many ways, I think this fact also applies to businesses.
Just as there is strength in diversity for wildlife, there is strength in diversity for businesses. Is your planning taking advantage of the richness to be found in diversity?
In many of my prior blogs, I have spoken of the power of focus. In fact, it is almost impossible to succeed in business if you are not focused. Strategies are critical in that they point to where a firm should focus its efforts.
However, being focused should not be confused with being narrow-minded. Almost a century ago, Henry Ford had great initial success by mass producing the simple Model-T automobile, which only came in the color black. By narrow-mindedly sticking to this single product for far too long, the Ford Motor Company almost went bankrupt, because the market had shifted to nicer cars in more colors. Ford had to diversify its offering in order to survive. Kodak narrowly focused far too long on analog photography and missed virtually all the growth in digital imaging. Its fortunes faded along with the fading of its narrow focus.
As we can see from nature, there is power in diversity. The challenge for strategic planning is to apply the benefits of diversity without losing the benefit of focus.
The wildlife refuge saw two benefits from diversity: habitats and nourishment. We will now apply those two areas to strategic planning to show how to blend diversity with focus.
1. Diversity of Habitat = Diversity of Backgrounds (Process)
Just as animals live in many different places, people live in many different places. There is a great diversity in people depending upon the backgrounds of where they come from. Each background provides a unique perspective on the world, a perspective which is colored by the experiences that background provides.
One of the goals of the strategic planning process is to provide an understanding of the marketplace in which a company competes. This understanding is richer when developed with a diverse group of people.
To paraphrase Colin Powell, former US Secretary of State and Chairman of the Joint Chiefs of Staff, if your team is made up of people who think just like you, then most of you are redundant. How much redundancy is there in the people involved in your strategic planning process? Do they all tend to be about the same age, same gender, same race, from the same country, having similar incomes, with the same educational background? Does your group include any people who live more on the edges of society?
If you want a rich understanding of the world, it helps to have a rich variety of backgrounds in the people who are building that understanding. Multiple perspectives and points of view will help you to avoid blind spots in your analysis. As the market shifts, you will be better able to both detect the shift and adapt to it, because you will already understand that perspective. If your team can only see the world “as it used to be”, you will fall into the obsolescence traps we saw earlier with Henry Ford and Kodak.
Consider carefully the mix of people you place into the planning process, to ensure diversity of perspective. It should not just be a few senior executives. In addition to broadening the diversity of employees in the process, one could also consider including suppliers and customers in the process.
During the process, don’t hide in the corporate office. Get out into the various habitats where your product is used. See what’s going on at the point of sale. See what’s going on in places where you are both successful and not successful. Enrich your perspective.
The diversity of animal habitats allow the animals to be in the right place at the right time. The diversity of thought and perspective allow your business to be in the right place at the right time.
Diversity of thought does not mean randomness of action. Focus is not thrown away. A company still needs to focus. But that focus will be more effective if you have a broader understanding of the environmental context surrounding that focus. It allows you to truly optimize your focused efforts, because you truly see the world as it really is—in all of its diversity.
2. Diversity of Nourishment = Diversity of Revenue Sources (Outcome)
Animals are nourished by food. Businesses are nourished by sales income, or revenue. Animals die without food. Businesses die without income.
Diversity of food sources benefit animals. A diversity of revenue sources benefit businesses. As the old saying goes, if all of your eggs are in one basket, you lose everything if you drop that basket. It is better to diversify that revenue source into multiple baskets.
There are two ways to diversify one’s revenues. First, you can diversify your customer base. For example, if you only sold to new construction businesses, you were in severe trouble when the recent great recession virtually wiped out new construction. Had you also sold to other customers who were less severely hit by the recession (like refurbishers of old construction), you would have had a stronger base of revenue.
Second, you can diversify your product offering. By focusing too much on analog imaging products, Kodak missed the benefits which they could have gotten by diversifying faster and more aggressively into digital imaging products.
This diversity does not mean you should try to sell anything to anybody. You still need focus.
Here are two examples of how to diversify your revenue sources while still maintaining a focus.
Bausch and Lomb is focused on helping people have superior eyesight. Yet, within that focus they have diversified their product offering to include corrective lenses, eye surgery devices, eye nutrition products, eye care products, and so on. No matter which way the market moves in terms of superior eyesight, Bausch and Lomb is ready. They won’t become obsolete when a particular approach to eye care becomes obsolete, because Bausch and Lomb has a diverse enough offering to be able to shift with the times. By focusing on the solution (superior eyesight) rather than a single product to get there, they have strengthened their ability to survive and be nourished with sales for a long time.
3M focuses on particular technologies. In particular, they tend to focus on technologies in a handful of areas, like adhesives, abrasives, and substrates. However, once they master a technology, they try to sell it to as many customer bases as possible. For example, 3M is the master of the technology behind adhesive tape. This technology is applied to as many markets as possible, such as the consumer market (Scotch Tape), the home improvement market (masking tape), the medical market (tape for bandages), the security market (reflective tape), and so on. There is still a focus (on technology), but a richness in revenue by applying that technology to as many diverse customer bases as makes sense.
Although focus is still essential for strategic success, that focus is made more powerful when properly blended with diversity. The first type of diversity is the diversity of thought used in the strategic planning process. The more perspectives you bring to examining your area of focus, the less likely you will miss opportunities within that focus. The second type of diversity is diversity of revenue sources. By sticking to your area of focus, you can still improve revenues by applying that focus to a broader base of products or customers.
In the Buffalo and Elk Wildlife Refuge, the Buffalo did not try to become elk and the elk did not try to become buffalo. They stuck to the essential focus of who they were as animals. Yet at the same time, they prospered by exploiting the diversity of the multiple ecosystems around them. You should do the same.