Wednesday, October 13, 2010

Strategic Planning Analogy #357: Crawling Backwards

Back when my son was a baby, he learned to crawl in only one direction—backwards. This type of crawling allowed him to move a bit, but since his eyes were facing in the direction he was leaving rather than the direction he was going, he kept bumping into walls. By not being able to see where he was going, he never got to anywhere he wanted to be.

We hated to see him suffer so much, so my wife and I came up with a plan. We would hold out in front of him some of his favorite food when he was about to crawl. The appeal of the food was so great that he eventually learned how to crawl forward in order to get to the food.

It’s hard to get where you want to go when you are moving in the direction of your butt instead of the direction of your eyes. Like my son, when you are always looking backward, you tend to run into walls.

It seems like a lot of businesses have learned to move like my son did. Their eyes are focused on where they have been rather than where they are going. The majority of their time is oriented on the past rather than the future. As a result, instead of quickly rushing to a glorious future, they end up bumping into walls. Their prospects die along with the death of dying past.

All strategic initiatives eventually fail. Even the great ones.

Great strategic initiatives are ideally suited to their environment. However, the elements of the environment are in constant motion. Consumers change, technology changes, competition changes, government regulations change, and so on. Strategic initiatives that were once ideally suited for the environment will get of sync with the environment if they do not adapt to these changes. Eventually, the changes will be so large that even previously great strategic initiatives will fail.

Therefore, if you want to continue to be successful in the future, you need to anticipate the changes the future will bring. And you will not be able to anticipate the future if all you think about is the past.

You may not think you are spending too much time on the past, but consider the following:

1. Finance
The purpose of accounting is to accurately represent in numbers what has happened in the past. Although this is necessary to do for taxes and government regulations, it has almost nothing to do with preparing one for the future. Accountants use the word “closed” as in “We have closed the books on the prior quarter.” That door to the past is shut…finished…closed. Quit opening it all the time.

How much time do you fret over the preparing of those accounting financials? How focused are you on having discussions and giving presentations based on those numbers about the past? How much of your management time is devoted to criticizing or praising people based on what happened in those numbers from the past?

If you want to dwell on financials, try focusing on future cash flow opportunities rather than past accounting performance. After all, stock prices are based on what people think of your future cash flow prospects. Think like they do. Put your eyes on the future rather than the past.

2. Growth
Businesses progress through various lifecycle phases, from introduction to growth to maturity to decline. Each phase requires a different type of strategic initiative. If you do not properly transition your strategy for these changes, you may not successfully progress to the next phase (and die prematurely).

As I’ve said many times previously, managers seem to love the growth phase. There is a tendency to want to perpetuate that phase as long as possible. Rather than looking forward to maturity, they keep looking back at the glories of growth.

This can cause many problems. First, maturity tends to be the most profitable phase of the lifecycle. Why do you want to postpone the most profitable phase? Second, if you keep pushing a growth-based strategy on a business that is no longer in growth, you will cause numerous problems. You will over invest in infrastructure and capacity, wasting a lot of money. You will set goals that are unrealistic, causing perpetual disappointments.

If you want growth, the way to get it is not by overinvesting in a mature business (looking backwards). It is by looking forward to brand new opportunities to provide growth that the mature business can no longer produce. Use the profits of maturity to fund the next cycle.

3. Efficiency
A lot of what businesses focus on is based in a desire for greater efficiency. In the name of efficiency we get standardization, benchmarking, ISO certification, Six Sigma and so on. At first, all of this sounds pretty good. Unfortunately, almost all of the tools used to become more efficient have the unwanted side effect of locking your business more tightly to the past.

Benchmarking chases after imitating where others have been. You cannot move ahead of competition if you are always chasing them via benchmarking. You cannot set the new standards of the future if you are focused on benchmarking the processes and the procedures of the past.

The problem with setting standards and going after ISO certifications and Six Sigma answers is that they get very rigid. You are locking the business into one way of doing things. Tolerance for deviation and experimentation goes away in the name of efficiency. Although those standards may have been ideal at the time they were established, they will not be ideal forever. Locking into the process of the past lock you into a mental mindset of the way things need to get done. Radical new approaches and different business models are stifled, because they do not fit the mold of the rigidness put in place in the name of efficiency.

The ideal process for one type of strategic initiative may be a horrible process for a different type of strategic initiative. For example, Apple built a successful business model for digital music by ignoring virtually every standard in the entire music value chain. It could do this because it was not locked into the old standards which were caused the analog music firms to bump into walls. The analog companies had perfected the obsolete and could not psychologically abandon it the way Apple did. They were crawling backwards while Apple ran past them to the future.

If you want a glorious future, you need to embrace some experimentation and deviation. Cultures like a Google and 3M encourage lots of experimentation. This leads to new opportunities. Remember, the ultimate goal is not to perfect efficiency at what you are doing today (perfecting the obsolete), but to do the right things for tomorrow in a non-wasteful manner.

There are some benefits to accurate accounting, a desire for growth, and a pursuit of efficiency. If you are not careful, however, a single-minded pre-occupation with these concepts can lock you into the past and make it more difficult to see into the future. In finance, balance the backwards look at closing the books with a forward look into future cash flow management. In seeking growth, look forward to new growth opportunities rather than trying to get unrealistic growth out of a mature concept whose growth days are past. In the pursuit of efficiency, don’t lock yourself into rigid procedures that make it impossible to adapt to the new realities of the future. Leave room for experimentation.

In the story, we got my son to quit moving backwards by providing an incentive which made moving forward a lot more desirable (tasty food). If you are having trouble getting your firm to look forward, perhaps you need to do a better job of making a future orientation look more desirable as well. You have to make pioneering into the future seem more pleasurable than nostalgia about the past.

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