Wednesday, November 10, 2010

Strategic Planning Analogy #363: Star Players

Once upon a time, there was a basketball team which was doing very poorly. The owner of the team started yelling at the coach about how disgusted he was with the team losing all the time.

The coach responded, “The problem is the poor talent on this basketball team. We don’t have any athletic stars on this team. If you can go out and get us some star athletic talent, I can make this basketball team a winner.”

So the owner went out to hire some star athletes. A week or two later, the owner announced that he had just hired some great athletic superstars for the basketball team. These superstar athletes were among the best in their field. It took a whole lot of money to sign them to the team—more than anyone else on the team was making—but the owner was hoping that their superior skills would bring him a winner.

Yet the basketball team continued to lose. In fact, the team was worse than it was before adding the star athletic talent. Why? These star athletes were among the best jockeys the horse racing world had ever seen. Unfortunately, a jockey’s key attributes include being short and light weight—not exactly what you want on a basketball team.

Although the story is made up, it contains a lot of truth. When times are bad, there is a tendency to want to get some superstars on your team. It happens in sports all the time. The idea is that if we can just get one or two star players on the team, we can move from being a loser to being a winner. It’s seen as the quickest way to make a big improvement.

That’s why the top players in a sport make so much money. They are seen as the difference between being a loser and being a winner. And that is worth a lot.

This phenomenon is not just limited to sports. Businesses do this all the time as well. When a business is continuously producing poor results, there is pressure on the board of directors to do something quickly. To common perception is that the quickest path to moving a company from being a loser to being a winner is the same as for a sports team—just hire some star talent.

As a result, businesses pay a fortune to hire one or two superstar leaders from outside the company. They put a business superstar (who’s been on the covers of all the business magazines) into the CEO chair. Unfortunately, the track record for bringing in outside superstars in business is not very successful. James Heskett, a professor at the Harvard Business School, was recently musing on the internet about the research showing how the superstar philosophy often does not usually work in the business world. The results are underwhelming.

Why is that so often the case? I think it is like what happened in the story. You can bring in superstars, but if they are not fit for the task at hand, all that super-ability is wasted. Those may have been the best jockeys in the world—absolute superstars in their field. But their talent is useless for playing basketball. There was not a good fit between the jockey star’s ability and the basketball team’s need.

It also works the other way. A basketball superstar would be a lousy jockey. The outstanding abilities of a leading basketball player are ill-suited to riding a racehorse.

Ignore the fit and you can end up paying too much to get something worthless at getting what you need done.

The principle here is simple. Don’t hire jockeys to play basketball (or vice versa). Even the best jockeys will do poorly at basketball, because it goes against their strengths. It is the wrong fit.

I believe the hiring of outside business superstars rarely works because almost by definition it will be a poor fit. Let me explain why.

The Needs of the Business Looking For a Star
Usually, the businesses with the greatest motivation to hire a superstar are like the basketball team in the story—chronic losers. After all, there is little motivation to go outside and spend a fortune on a business superstar if your business is already highly successful. No, it is the companies with lots of problems who have the greatest temptation to go after a superstar.

Although there can be lots of reasons why a company is consistently posting poor results, it usually boils down to two key issues:

1) A Poor Position in the Marketplace. This blog has talked about the importance of positioning probably more than any other topic over the years (for the best one, look here). It is virtually impossible to win in the marketplace unless you have a winning position. You need a reason why a significant number of customers would naturally prefer you over the competition to solve a particular problem. Without a strong position, the only way to get business is by “bribing” customers with below-cost price cuts and outlandish deals. And that is not a path to being a winner.

2) Poor Resources. If you lack in resources, it is hard to win. Those resources could be a lack of knowledge, competency, infrastructure, IT capabilities, money, modern automation, manufacturing capacity, supply chain connections, or a host of other such tools. Just as you cannot build a great house without great construction tools, you cannot build a great business without the needed business tools.

Therefore, it is probably the case that the biggest need of the business looking for a superstar is a new position and/or better resources.

The Abilities of the Typical Superstar
So if that is what the company needs, what does the typical superstar offer? Well, first, we need to understand that business superstars tend to come from highly successful companies. After all, the logic goes like this: how could this person be a business superstar if his or her business is doing poorly? Almost by definition, a superstar must come from a place with consistent success.

This means that the company where the superstar is from probably already has a good position and good resources. So what sets the superstar above the rest? Usually, they are the people who excel in getting the most out of that position and those resources. In other words, they tend to be super-operators. They can leverage those core elements better than others. They can make production more efficient, selling more powerful, and make the most out of the knowledge, data and capabilities inherent in the business.

The Lack of Fit
So here is the problem. The company needs a new position and a complete overhaul of its resources. The business superstar typically knows how to leverage positions and resources, but is clueless into how to create them in a place that doesn’t have them.

This is like hiring jockeys to play basketball. The fit is all wrong. The business superstar’s brilliance is worthless to the weak company, because there is nothing for him to leverage with his leveraging skills.

Jockeys know what to do if there is already a fast horse in existence. But if there is no fast horse, the jockey doesn’t know how to win. Similarly, a business executive skilled at improving a strong business doesn’t know what to do if there is not already strength to the current business.

I had a boss who put it something like this: “We keep hiring all these great people to turn around the business, but instead of their strengths transferring to the business, the weak business transfers to the people.”

Or to quote Warren Buffett, “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

In other words, when the skill-set of the star does not meet the needs of the business, the star will no longer look like a star. It’s not that they suddenly lost all their skills. They just have skills that are useless for the task at hand. Therefore, if you feel a burning need to turn around a weak company, make sure there is a good fit. Look for the rare star who is great at transformation (moving from weak to strong) rather than the more common star who is great at operation (getting more out of something already good).

A company which is producing consistently poor results requires a different type of leader than the company that has been consistently strong. Therefore, it is very risky to take someone who has done well in a successful company and put them in a poor company. It is likely that the skill-set of the superstar at the strong company is a poor fit for the different needs at the weak company. Instead, if you are a weak company, look for people who are good at transformation, not good at operating in a place already transformed.

Operating a strategy well is a far different skill than creating a great strategy. Make sure you know which is the priority need before you fill the leadership position.

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