Friday, December 24, 2010

Ponder This

When people ask me what my hobby is, I usually tell them that my hobby is to ponder things. I like to ponder all kinds of things.

I think that is a good quality for strategists to have--the desire to ponder things. Pondering means taking the time to fully think things through--to even let your mind wander a bit.

Think of it as mental exercise...stretching the brain.

If all you do is run from meeting to meeting, with your eyes glued to a smartphone all the time, you are letting that pondering portion of the brain atrophy. Ignore the rush of the daily grind for awhile; relax and ponder.

The great "Eureka!" moments of strategic discovery rarely come unless pondering has first taken place. I spoke in more detail on this concept here.

This is why I was encouraged by the comment to the prior blog where Ali Anani suggested I add a 4th "P" to my 3P approach to strategy, a P for "Pondering."

Since this is Christmas time, I am reminded of another time of pondering. It says in the Bible that after Mary gave birth to Jesus, she pondered over what had just happened. During this Christmas season, that is indeed something worthy of pondering.

Enjoy the season and happy pondering!

Tuesday, December 21, 2010

Strategic Planning Analogy #369: Or Vs. And

I recently returned from a vacation to Europe. On the plane ride across the Atlantic Ocean, I discovered that flight attendants are experts in the language of “or”. For the in-flight meal, I had the choice of meat OR pasta. For a snack, I was offered peanuts OR a cookie. For a beverage, I was offered soda Or juice Or water. For reading, I was offered either the USA Today OR the Financial Times.

Whatever became of the word “and”? Why couldn’t I have a cookie AND a peanut? Why couldn’t I have water AND a soda? Why couldn’t I read two newspapers?

It reminds me of the lunch I had yesterday. Before I could fully finish the drink in front of me, the server place before me another glass of the same drink—twice—without even asking me. At these types of restaurants, be careful what you choose for your first drink, because the servers will try to make that your only drink choice for the entire meal. The idea of variety never crosses their mind. What if I want to try one thing, AND then later want to try something else? No, those servers don’t understand the word “and”, either.

It seams that servers (on airlines and otherwise) like treating me as being one dimensional. I’m only allowed to like one thing. That seems a bit narrow-minded to me.

Sometimes, I think many strategic planners can become equally narrow-minded. As we will discuss later, there are several different schools of thought as to how to approach strategy. Individual strategists tend to gravitate towards one of these schools of thought. This then becomes the singular way they treat all strategic problems.

Just as those servers want me to drink the same type of drink all day, these strategists want me to use the same approach to all strategic issues. When you read the writings of the popular strategic writers, the approach seems to be: “choose my school of thought, not the other.” In other words, it is a land of “or” (one school of thought or the other), not a land of “and” (accepting and using multiple schools of thought).

Just as it makes sense to me that I might want to read both the USA Today AND the Financial Times, it makes sense to me that I might want to use the strategic tools found in one school of thought AND another school of thought.

The principle here is that there are a wide variety of strategic issues in business. If you want to be successful in solving this vast array of problems, it helps if you draw upon a variety of strategic resources.

For example, sometimes a company may be sub-optimizing because it is poorly positioned. Other times, a company may have a great position but cannot execute it well. Or maybe the company is executing well, but is executing the wrong thing. Since these are all distinctively different problems, they require distinctively different approaches to fix them. If you limit yourself to only one school of thought about strategy, you may be applying the wrong solution to that particular problem.

The Right to Win
I was reminded about this in a recent article in Strategy+Business, the strategy publication of Booz & Co. The article, called “The Right To Win”, categorized strategic thinking into four different schools of thought.

One is the “Position” school of thought. The idea here is that winning companies create and hold a distinctive position in the marketplace. This school of thought includes the work of Michael Porter and the thinking behind the Blue Ocean Strategy.

Another is the “Concentration” school of thought. Here, winning is supposed to come from focusing your effort on your core competencies. Key books for this school of thought are “Competing for the Future” by Hamel & Prahalad and “Profit From the Core” by Chris Zook.

A third school of thought is the “Execution” approach. The idea here is that winning companies work on aligning people and processes for operational excellence. This includes the quality movement proposed by W. Edwards Deming, the Reengineering movement of the 1990s, and the book “Execution” by Charan and Bossidy.

The fourth school of thought was called “Adaption.” The idea here is that the environment changes very quickly, so successful companies need to excel at quickly adapting to the change via creative experimentation. This is the approach recommended by Henry Mintzberg and was a key part of the book “In Search of Excellence.”

The article pointed out the pros and cons to each of these schools of thought. It showed how each approach was useful in some situations, but fairly worthless in others. And that is the key point. If you limit yourself to only one school of thought, you are only prepared to solve a subset of the strategic issues you may face. You will be fairly worthless in solving the others.

If you want to be prepared to solve all the strategic issues you may encounter, you cannot take an “or” approach. You need to take an “and” approach and embrace multiple approaches.

Otherwise, you will be like the old saying which says that, to a hammer, every problem looks like a nail (even if it isn’t really a nail). Just as a good carpenter has a variety of tools in his toolkit to handle a variety of carpentry tasks, a good strategist needs to put a variety of strategic schools of thought into the strategy toolkit. I talked about this idea in greater detail here.

The Three P’s
That is why I use an approach to strategy which I call the 3 P’s. The three P’s stand for Positioning, Pursuit, and Productivity. The idea here is that a successful company needs to do well in all of three of these areas.

With a three legged stool, the stool is only useful when all three legs are functioning well. If any one leg is missing, then the entire stool is worthless. Similarly, successful companies need to be supported by three strategic legs:

A) A strong/unique Position (a place where you can win);

B) An aggressive Pursuit of excellence in the key elements of that position (which allows you to own the position and adapt faster than anyone else); and

C) An efficient and effective business model, so that there is enough Productivity to allow for optimum profits and cash flow.

My approach is simple. First do a systematic diagnostic of the situation. From this analysis, determine which of the three legs of the strategic stool is most in need of attention (Position, Pursuit or Productivity). Then, use the tools available within that area to fix the particular problem at hand.

Although Positioning, Pursuit and Productivity do not line up exactly with the four schools of thought in that article, you should be able to see how the tools offered in those four schools of thought can be useful in different ways to each of the three legs. All have something to offer at different times, depending upon which leg of the stool is broken.

That is why I shy away from the narrow-minded view that one should lock onto only one school of thought (just as I wouldn’t want to lock into only one beverage for the rest of my life). For example, if you only lock in on the Positioning school of thought, you will only be able to fix one leg of the stool—Positioning. You will be ill-equipped to handle problems with the other two legs (Pursuit and Productivity).

If you want to learn more about the 3 P’s, check out my blogs which feature Positioning, Pursuit and Productivity in the links section.

Not all strategic problems have the same root cause. Different strategic tools are needed depending upon what is the nature of the problem. Therefore, do not limit your strategic toolbox to only one strategy school of thought.

While I was in Europe, I tried one of the local beverages, called Kofola. Kofola was the communist alternative to Coke at a time when Coke was unavailable in communist Europe. It was not the drink for me (it tasted to me like motor oil). It was a good thing the server let me change my beverage choice. Just as Kofola was not appropriate for my taste needs, each strategic school of thought alone will not be appropriate for all of your needs. At certain times, you will need to change approaches (just as I changed my beverage to something other than Kofola).

Friday, December 17, 2010

Change is not necessary (?)

I came across a great quote today by W. Edwards Deming. You may recall that he was the “Quality” guru of the 20th Century. Deming believed that if you continually measured and improved your processes, you would not only achieve higher quality, but you would also achieve higher productivity.

The Deming quote is this:

“It is not necessary to change. Survival is not mandatory.”

I love this quote because it touches on two key lessons we need to learn about strategy.

Lesson #1: Success Does Not Last Into Perpetuity
It is crucial to remember that success is not guaranteed over time. Just because a company is successful today does not mean that it will be successful tomorrow.

Over time, things change. Technology changes, consumer desires change, consumer expectations change, the competitive landscape changes, new product substitutions are created, your product’s place on the product lifecycle changes, your place in the economic cycle changes, your employee mix changes, processes become obsolete, and so on.

The point is that with all of that change going on (and most say it is even accelerating), it is extremely unlikely that the winning strategy before that change will be identical to the winning strategy needed after all that change.

That is why my mantra is to continually tell people that “ALL STRATEGIC INITIATIVES EVENTUALLY FAIL.” Even if a strategic initiative is wildly successful today, there is no reason to expect that success to last forever. It likely won’t even last as long as your job tenure.

Lots of companies who used to be on top of the world and swimming in success are now struggling to survive. Think Netscape, AOL, Kodak, A&P, Blockbuster, Sears, etc. And the business graveyards are full of companies who no longer exist but used to be highly successful.

Don’t let current successes lull you into thinking that all is well. As Deming put it, “survival is not mandatory.” Unless you proactively work and adapt to remain relevant in the marketplace, your success will melt away. There’s even a good chance that your firm will no longer survive.

For more on this topic, read some of my earlier blogs: here and here.

Lesson #2: Strategic Planning Requires Self-Starters
Since all strategic initiatives eventually fail, successful firms need to adapt and change in order to stay relevant. Change is one of the key elements of strategy—discovering what change is needed and how to make that change a reality.

Unfortunately, the mandate for change is often just a whisper in the high levels of a business. It is drowned out by the shouts of the crisis of the day. I have often referred to this as the “Tyranny of the Immediate.” The pressures of keeping the status flow working suck up all the time and energy, leaving little for thinking about change and the future.

That is why I like the first part of the Deming quote: “It is not necessary to change.” There are no shouts demanding strategic change. There are no legal mandates forcing strategic change. Most of your fellow executives are not demanding long-term strategic change.

Instead, the opposite tends to be the norm. The focus is on getting the status quo of the immediate done. Thinking about strategic change gets in the way of meeting today’s goals.

If you do not force the issue of change, it will not be missed by those fighting the Tyranny of the Immediate. In fact, they will be grateful. That is, until all that success from the status quo eventually turns to failure.

As a result, strategists cannot wait until the company is begging for change. This almost never happens, because daily pressures keep us from realizing the necessity for change. By the time the company wakes up to the need for change, it is usually too late…the world has already passed you by and it will be nearly impossible to catch back up.

Therefore, strategists need to be self-starters—people who fight for change even when nobody is asking for it. You are not doing your company any favors if you wait until they beg for change. For more on this topic check out my blogs on the subject of the Tyranny of the Immediate.

It is not necessary to change (you have to be a proactive self-starter and force change onto the agenda). Survival is not mandatory (if you do not force the change, your strategy will eventually fail).

Wednesday, December 15, 2010

Strategic Planning Analogy #368: Managing Losses

Once upon a time, there was a man named Bill who liked to bet on horse races. After years of experimenting on ways to beat the odds at the race track, Bill finally found a way to assure that he would always make the winning bet.

His solution? Place a bet on every horse in every race. That way, no matter which horse won the race, Bill was 100% guaranteed to have placed a bet on it.

There was a slight drawback to this system, however. In addition to a 100% guarantee that he would have a bet on every horse that won, this system had a 100% guarantee that Bill would have a bet on every horse which lost. As it turns out, the losses on the losing bets were greater than the winnings on the winning bets. The system left Bill bankrupt.

Bill loved to boast that his system always picked the winners, but the boasts didn’t impress his friends after they learned this system was also path to bankruptcy.

In horse racing, only a small handful of horses win on any given day (only one per race). The vast majority of the horses end up being losers. Therefore, if you bet on every horse, you will end up losing your money, even though a few of the bets will be for winners.

Although Bill’s system is obviously a foolish way to bet on horses, it is not that different from the way many companies bet on their future. Many companies like to make lots of bets on lots of future growth projects, be that in R&D research, new product offerings, acquisitions, brand extensions, and other such investments.

And just as most horses fail to win their races, most new products, acquisitions, brand extensions, and R&D research fail to make a profitable return on investment. Sure, a few of the bets in these areas will produce winners. However, the losses on all the other bad investments can be so high that they wipe out the profits on the few winners. Worse yet, because so much money was poured into the losing bets, there is not enough money left to fully optimize the potential of the few winners. The potential winners become starved for lack of resources.

Yes, if a company bets on everything, they can boast like Bill that they have created some winners. However, if all the bad bets destroy the company (or destroy the ability to optimize the potential on the winners), then it is a rather hollow boast.

The principle here is that since most of a business’ strategic activities deal with failure, the strategic process should have a rigorous way to minimize the negative impact of failure.

Living With Failure
What do I mean when I say “most of a business’ strategic activities deal with failure”? Well, strategies are typically about finding and implementing the changes needed to reach a larger and more prosperous future. Many of the tactics used to create that change are associated with activities like those mentioned earlier:

a) Mergers and Acquisitions
b) Research and Development
c) New Product Introductions
c) Brand Extensions
d) Reaching out to New Customer Bases
e) Innovation Activities

Lots of studies have been done which measure the failure rates for these types of activities. Depending upon the research, the failure rates tend to be somewhere in the 75% to 95% range. In other words, the key tactics used in strategy usually fail.

The strategic path is a path dominated by opportunities to create negative returns on investment. It naturally comes with the territory, since most opportunities fail. The only way to avoid running into failures is by deciding to do nothing. But just as betting on every horse leads to destruction, betting on no horses will not lead to success, either. So we need to get comfortable living in a world where we use tools which usually fail.

Therefore, the strategic process needs to find a way to minimize the impact of inevitable failure while a company tries to find and nurture the few opportunities out there for success.

Learning From Research
Fortunately, recent research lends some insight into how to do this. My good friends at the Corporate Executive Board have been studying the characteristics of “elite” companies. These are defined as companies which performed above their industry median in both EBITDA margin and growth rates between 1995 and 2008. In other words, these companies successfully managed both the top line and the bottom line over an extended period of time and different parts of an economic cycle.

Starting with a list of more than 1,500 firms, they determined that there were 143 elite companies (less than 10% of the total). The Corporate Executive Board discovered a lot about these elite firms—more than we can comment on here. There was a good summary of some of their findings recently at Right now, we will focus on what they learned about how to succeed while living in a world of failure.

In general, we can learn two things.

1) Time Your Bets
The return on investment is a ratio. The return is the numerator and the denominator is the investment. Elite companies have found a way to optimize the numerator and the denominator by timing their activities relative to the business cycle.

The timing is as follows—buy at the bottom of the cycle (when the denominator is lowest) and sell at the top of the cycle (when the numerator is highest). This process will get you reasonable returns on even weak investment opportunities. And the losers will be less of a loss.

Yes, I know it can sound like a cliché—buy low and sell high—but elite companies actively monitor business cycles and proactively try to make the cliché a reality. Their strategies take into account the context of where they are in the business cycle. They boldly buy when the rest of the world is selling and sell when the rest of the world is buying.

This process has the added benefit of improving cash flow. Buy selling high, the elite firms have more money to invest when prices are low. You can afford the risk of a few more failures when flush with cash and buying when the cost is the lowest.

2) Exit Quickly
Instead of being like Bill in the story who bet all the time on every horse, elite companies are also quick to cash out when failure appears inevitable. Patient money is used for the potential winners, but the funding quickly stops for the losers.

This is done in two ways. First, elite companies set up specific, measurable criteria for success prior to making an investment (early warning signs). If the criteria are not met in these early stages, funding stops.

Second, these companies actively monitor investment performance throughout the entire lifecycle of the investment. This has two benefits. On one hand, it lets the elite firm quickly know when an investment is turning into a failure (so that investment can stop). On the other hand, it lets the company learn what works and what doesn’t work, so that they can make more intelligent investments in the future (ones that are less likely to fail).

Since most strategic activities fail, managing failure is the key to strategic success. The idea is not to avoid failure completely, but to make sure the impact of failure is minimal. This can be done by building strategies around business lifecycles and by actively monitoring investment performance against predetermined criteria throughout the entire investment lifecycle.

Those who bet on horse races do not have the ability to cancel their bet halfway through the race, when they can obviously see the mistake in their original bet. Businesses, however, can back off from their bets if they see failure in the early running of the investment. When things look bad, cut your losses early.

Monday, December 6, 2010

Strategic Planning Analogy #367: Rules vs. Execution

The problem with sports is usually not the complexity of the rules. Usually, the basic rules are pretty simple. In golf, the basic rule is just to “hit a ball until you get it in the hole.” In soccer, the goal is to “kick a ball into a net.”

Unfortunately, simplicity of rules does not mean that the game is simple to play. I know a lot of frustrated golfers who get upset because they find it so difficult to get that little ball into that little hole.

Kicking a ball into a net sounds easy, but if it were easy, why do so many soccer games have such low scores? Apparently, just because you know where the net is and how to kick a ball does not mean that you will be able to kick that ball into that net.

I used to try to play billiards (pool). Before taking a shot, I would carefully calculate out what I wanted to accomplish. I’d work out the math, calculate the angles, and estimate the physics of what would happen when the billiard balls hit each other. After I got it all figured out, I would take the cue stick and hit the cue ball. Unfortunately, the ball never followed the trajectory I had calculated in my head. Because of my incompetency in hitting the ball, it would go a different direction at a different speed. All of those calculations were worthless when it came time to execute them.

I soon came to the conclusion I was wasting my time doing all of those calculations, since I did not have the ability to hit the ball in the direction my calculations desired. So now, I just try to hit the billiard ball very hard and hope it bounces around enough to make something happen.

I guess that’s why there are a lot more seats in a sports arena for spectators than there are for the athletes. Pretty much everyone in the arena knows the basic rules of the game being played. However, only a few of them are able execute the rules in a productive manner.

Businesses have basic rules, just like sports. For example, I’ve spent most of my life working in retail businesses. The basic rules for the business of retailing are pretty simple:

1) Buy goods at a low wholesale price.
2) Resell those goods to customers at a higher retail price.
3) Make sure the difference between your buying price and your selling price is large enough to more than cover all of your costs to sell those goods.

That sounds pretty easy, doesn’t it? However, every year thousands of retail stores close because they were not able to execute these simple rules. Just as in sports, merely knowing the rules does not mean that you will be successful in executing them.
Even if you master the business rules at a more sophisticated level, like I tried to do with billiards, it doesn’t necessarily mean that you can execute those rules at a more sophisticated level. It takes something more.

The principle here is that the knowing the rules is not the same as winning the game. Just as successful athletes bring more to the game than a knowledge of the rules, successful business people need to bring more to their company than a knowledge of the rules of business.

My Finance Friend
I used to work with someone in the finance department of a retail business. He was frustrated because one of the retail divisions at this company kept losing money. He kept yelling things something like “Why can’t these idiots just buy the right goods?” or “This division would make lots of money if those idiots would just sell all the items they bought” or “If these idiots would just quit having so many markdowns in price, they would stop losing money.”

This finance person was pretty smug about his comments. He thought he was superior to those people running the business, because he could see how they were not executing the basic rules of retailing. His idea of fixing the businesses was simple…just tell the people running it to follow the simple rules.

Of course, that would be like a spectator at a sporting event thinking he was superior to the athlete playing the game, because the spectator could see the violations of the basic rules. Yelling at a golfer “You should have hit that ball more accurately!” really is no help at all to the golfer. He knows that. He isn’t intentionally trying to be inaccurate.

Yelling at a soccer player, “If you hadn’t kicked the ball wide to the right, it would have gone into the net!” is equally worthless. The athlete knows the rules. He’s trying to get the ball into the net.

No, the spectator is not superior just because he or she can see the missteps of the athlete. If you put that spectator out on the playing field, I’m sure they would make even more mistakes than the athlete they are criticizing. Their comments are useless for helping win the game.

This is equally true for my finance friend. His comments were worthless to the folks running the retail division. They knew the rules and were trying to execute them. And I’m pretty sure my finance friend wouldn’t have done much better at execution if he were running the division.

What my finance friend did is an easy trap for strategists to fall into. Strategists tend to watch the operation of a business from a distance. They can see the missteps. It is easy then for a strategist to feel smug about themselves, because they see where the missteps are. It is then easy for them to tell everyone that the strategy is failing because of lack of proper execution. It is easy advice, but it is also worthless advice. And you won’t get much cooperation from the business division if all you do is criticize them.

The goal of a strategist should not be to merely point out mistakes. The goal is to help companies find a way to win.

Coaches don’t just tell their teams that they are lousy. No, they help find ways to make the team better. That is similar to what the role of a strategist should be. While everyone else is busy trying to execute, strategists have the luxury of observation and the time to ponder what is happening. This can be used to add value to the division by finding alternative approaches which will improve success.

Going Beyond Criticism
Rather than criticizing mistakes, a strategist should be helping to eliminate mistakes. There are many ways to do this.

First, one can work on strategies to fix the cause of errors. A golfer’s accuracy may be off because of a flaw in the swing. If you can identify the flaw and help the golfer find a way to correct that swing, then you have helped the golfer. Similarly, if you can identify the root cause of a business execution flaw and help find a path to correct that flaw, you have helped the business. To do this, a strategist may need to collect and study lots of data to find the behavior patterns which lead to errors. Or perhaps benchmarking would help find the cause of errors and how others fixed it.

Second, one can change the strategy so that it works with, rather than against, natural strengths. For example, a small, thin athlete shouldn’t be trying to compete as a sumo wrestler. That athlete would be better off changing to a sport better suited to his physiology. Perhaps you need to redirect the division to a new competitive space or a new positioning which is better suited to what you can do well. This involves finding your strategic fit.

Third, perhaps failure is occurring because you are missing a key element of success. For example, even if a team has great offense, it will still fail if it has no defense. It needs to build up the defense it is missing. Perhaps your company is missing something, like a key technology, or access to markets, or a particular expertise. You can help by identifying what is missing and helping to find a way to obtain it, either through acquisitions, or targeted hiring, or licensing of patents, or training, etc.

If you can help in these ways, you have really made a contribution. Now that would be useful strategic advice.

The goal of a strategist should not be mere criticism of execution. Yelling at people and telling them they messed up won’t fix the problem, and it will limit the cooperation you get form the people whom you need to execute the strategy. Instead, work with them to find ways to become better, by either improving performance or by changing paths to something where you can naturally perform better.

At a sporting event, it is the people on the field (the players and coaches) who earn a living, not the spectators. If you want to earn a living in the business field, be more than just a yelling spectator.

Wednesday, December 1, 2010

Strategic Planning Analogy #366: Stats vs. Wins

I was reading a story recently about a quarterback in the US National Football League. It seems he had gotten very concerned about his individual stats when playing the game of football. Quarterback stats include things like percentage of completed passes (which you want to be high) and number of intercepted passes (which you want to be low).

This quarterback discovered that his desire to have great stats was affecting the way he was playing the game of football. For example, if you want a high % of completions and a low % of interceptions, you stop taking risks on where you throw the ball. Instead, you only throw short passes to receivers who are not being well defended.

Unfortunately, there is a negative consequence to this approach. First, if you only throw short passes, you reduce your ability to advance enough yards to score touchdowns. Second, there are rarely opportunities to throw a ball to an undefended receiver, because the opposition usually has a good defense. Therefore, if a quarterback waits until he finds an undefended receiver before throwing the ball, he will end up waiting too long. Eventually a defender will get to the quarterback and tackle him for a loss.

After realizing that his quest for great stats was hurting the team’s performance, the quarterback changed his ways. He started to play to win rather than play to get great stats. The result? His stats got a little bit worse. His completion percentage went down a little and his interceptions went up a little (although in both cases, the stats were still pretty good). However, at the same time, the passes he did complete went a lot further and he wasn’t tackled for a loss as often. The net outcome was that his new approach resulted in scoring more points and winning more games. And at the end of the day, he was happier winning games rather than having great stats.

Like sports, businesses have a lot of performance stats to look at. Business stats often tend to be financial in nature, including things like earnings per share, return on investment, sales growth, and the like. Other stats include things like the percent of customer sales calls which result in a sale, or the number of defects.

Too much of a focus on these stats can cause the same problems for businesses that the focus on stats had for that quarterback. Often times, the best way to achieve these business stats is by taking fewer risks or delaying decisive action. The result may be great stats to put in your next quarterly report, but you could be placing your company in a position to lose your ability to compete and win over the longer term.

Strategic planning is about finding ways to win in the marketplace. Don’t let the quest for better stats get in the way of winning.

The principle here is that the goal of businesses should be to win long-term in the marketplace rather than to achieve the highest short-term stats. Yes, there is usually a correlation between performance on stats and winning. For example, if all of your financial stats are horrible, your company is probably on a path to failure. And successful companies usually have pretty good stats.

However, there is usually a point at which a quest for further improvement of stats can be counter-productive. The reason is similar to the situation with the quarterback. The only way to ensure that bad performance NEVER occurs is to stop performing. And, as we all know, without taking risks, you will never achieve great rewards. We can see that in the examples below.

1. The Quest for Great Stats Can Lead to Behaviors which Hurt the Business
Let’s say you want the highest possible return on investment. One way to do that is by eliminating most of your investments. In the short term, earnings will continue to come in. And since your investments have dropped to next to nothing, your return on investment stats will look great. However, if you stop investing in the future, eventually your source of earnings will dry up as your old business model becomes obsolete and non-competitive. In the long run, you will have nothing.

Eliminating investments to achieve high returns on investment is like a quarterback trying to avoid dropped passes by never throwing the ball. The stat may look good, but you won’t win any games that way.

Instead, it is better to make a number of investments into your future, even if it drops your return on investment a little, because it will increase the likelihood of keeping your company relevant and successful long-term.

Another stat that can be counter-productive if taken too far is sales growth. There are many ways in which a quest for the highest possible sales can hurt a business. First, not all sales are profitable sales. Taking on too much unprofitable business can ruin a company. Second, taking on too much sales can clog up your operations and result in disappointing your core customers, who then take their business elsewhere. Studies have shown that in most cases, the vast majority of a business’ profits come from a small minority of their customers. If going after more business hurts your ability to serve that more profitable core, you can be far worse off, even if sales are much higher.

Third, if your business success is based on owning a niche, you may ruin that position if you try to stretch that appeal too far. Just think of all the high-end luxury brands which chased after mainstream market sales, which ruined the cache of their high-end prestige and eventually destroyed the brand.

Fourth, the attempt to increase sales appeal beyond a certain level can cause a company to try to make a product meet too many needs. As a result, instead of solidly owning one position in the marketplace, the product now confuses the customer and does not really stand for anything anymore. In other words, by attempting to not alienate anyone, the product now also doesn’t excite anyone. Most business successes happen at the performance extremes, not in the murky middle. Yes, extreme positions place a limit on one’s appeal, but those niches can be great places to be if you want to win long-term.

The goal to completely eliminate defects can also be counter-productive. A lot of the methods used to eliminate defects work by institutionalizing processes. You find a way to do things well and never deviate. Of course, when such a process is institutionalized, innovation is also eliminated. How can you get better than the status quo if you are prevented doing things differently from the status quo? Adding new products (or product improvements) will, by nature, make it harder to be defect-free, since there is a learning curve in innovation. If your product mix becomes obsolete due to a lack of innovation, it no longer matters that those obsolete products have 0% defects.

We can go on an on, but I think you get the idea. An extreme focus on statistical perfection can be counter-productive to winning.

2. Be Careful When Choosing What You Measure and What You Reward.
So how do we prevent this type of bad behavior? Well, first look at which stats are currently most measured and most talked about at your company. Then ask yourself these questions:

a) Are these the stats most associated with winning?
b) At what point does additional focus on these stats become counter-productive?
c) Are we moving into that counter-productive level of emphasis?

Then do the same thing for the way in which you reward people. This includes more than just bonuses. In addition, look at what types of performance leads to promotions and recognition. Are you rewarding people for counter-productive behavior. Have you set the goals so high that they can only be achieved by hurting one’s ability to win long term? If so, change the measurements.

3. Make Winning the Top Priority
Finally, if you want to win, you have to make winning a greater priority than just having great stats. As the quarterback learned, he won more games when he made winning a priority over having the best individual stats.

Often times, we like to measure individuals on their individual performance. But in the end, we don’t want people so focused on themselves that they forget to help the entire team win. How much of an individual’s rewards at your firm are based on team effort or on total company success? If none of their reward depends on the whole company winning, then why should you expect them to help you win?

Strategic planning’s goal is to help a company win the long-term battle in the marketplace. Unfortunately, the ability to win long-term is often prevented due to placing too much emphasis on perfecting individual stats. Too much emphasis on stats can lead to actions which prevent doing something wrong, and unfortunately also prevent doing something exciting. Winning takes risks. Don’t let the stats eliminate your risks.

Brett Favre is one of the most successful quarterbacks to have played the game of American football. In his prime, he helped his teams become winners. He helped teams win by taking bold actions. As a result of these bold actions, Brett Favre also holds the record for having thrown the most interceptions. Although that is a terrible stat to own, it is a natural consequence of the type of bold actions he needed to win games. If Brett Favre had focused on eliminating those interceptions, he would not have taken those bold moves needed to win games. Don’t let a quest for statistical perfection eliminate the boldness you need to win.