Tuesday, February 8, 2011
Strategic Planning Analogy #376: Dry Wells
Imagine two people digging water wells. Bob takes a very sophisticated approach to the problem. First, Bob brings together a team of experts in the latest advances in drilling. They design an elaborate, but efficient drilling methodology with all sorts of high-tech tools. While the well is being dug, Bob calls in a team of experts in water pumping. They design an elaborate, but efficient system of pumps using the latest in pumping technology. Finally, Bob and his team design a complex, but efficient series of pipes in order to get the water to its intended destination. It took a lot of planning, but in the end, Bob was convinced that this was the best water delivery system in the country.
Sanjay took a different approach to the problem. Sanjay dug his well with nothing more than a little back-hoe and a simple shovel. He got the water out of the well using a bucket tied to a rope. Sanjay got the water to the customers by pouring the water out of the bucket into a small tank truck, which would drive the water to the final destination.
So who was more successful with their well?
It seems that Bob was so busy planning his water distribution system that he didn’t have time to properly locate his well. All those pipes, all those pumps, and all that fancy digging lead to a dry hole. There was no water anywhere near Bob’s well. It was a worthless enterprise.
Sanjay, on the other hand, made sure that he did his simple digging over a large body of fresh, clean water. That was where he focused his effort. Sanjay may not have had the most sophisticated system to get that water distributed, but at least he had water to offer his customers. Since he was the only one around who had discovered the water, Sanjay had a thriving business.
Bob was great at process. He had a great process for planning his water distribution system. He built a great process for delivering water. Unfortunately, Bob didn’t have any water to distribute. It was all for nothing.
Sanjay, on the other hand, was less concerned with having the right process. Instead, his focus was on being in the right place (on top of the only source of water). As a result, Sanjay was able to satisfy the needs of his thirsty customers, even if his process was less than ideal.
Every day, businesses need to make trade-offs on how they balance their time between a focus on process and a focus on place (also known as position). As we can see from the story, great process is worthless if the process is being built around a worthless place. Conversely, if your company is positioned in the right place (on top of what is desired), you can do well even if your process is less than ideal.
Therefore, as strategists, we need to make sure that sufficient focus is placed on being in the right place. Otherwise, we could be wasting a lot of time.
The principle here has to do with the primacy of position. In prior blogs, I have talked about the three main components of great strategy:
1. A Great Position – A Place Where You Can Win.
2. An Energetic Pursuit – Winning the Race to Own that Great Position and Defend it from Competition. (I speak more about pursuit in the second chapter of my new book “8 Questions,” as well as here.)
3. An Eye on Productivity – Optimizing the Wealth Available due to Owning a Great Position.
All three—positioning, pursuit and productivity—are vital elements to success. None can be ignored. However, of the three, positioning is the most important.
In the story, Bob had great pursuit. He quickly amassed great resources to create a great water distribution system. Unfortunately, he was pursuing a dry hole, so the pursuit was worthless. Bob also used experts to ensure that his system was highly efficient—a focus on productivity. However, even the most productive water system is worthless if there is no water for the system.
Sanjay started by making sure he got the position right (digging the well where the water was). That made all the difference.
Pursuit and Productivity are “Dependent” factors. Their success is highly dependent upon the desirability of the position being pursued and being made more productive. Therefore, the best way to optimize all three factors is to give the search for the right position primacy.
This principle is supported by an article in the January 2011 edition of the McKinsey Quarterly. The article, entitled “Have You Tested Your Strategy Lately?,” brings up many ideas, but I want to focus on one particular point in the article. Referencing a book called “The Granularity of Growth,” by Baghai, Smit and Viguerie, the article states:
“80 percent of the variance in revenue growth is explained by choices about where to compete, according to research summarized in The Granularity of Growth, leaving only 20 percent explained by choices about how to compete. Unfortunately, this is the exact opposite of the allocation of time and effort in a typical strategy-development process. Companies should be shifting their attention greatly toward the “where” and should strive to outposition competitors by regularly reallocating resources as opportunities shift within and between segments.”
In other words, 80% of success (at least for revenue growth) comes from getting the position right. Only 20% is explained by pursuit and productivity. That is why Sanjay succeeded and Bob did not. Sanjay focused on the 80%; Bob did not.
If this is true, then our strategic planning should take this into account. Positioning needs to be more important than process. I mean this in two ways:
1) Strategic Planning Outcomes Are More Important Than Our Strategic Planning Processes.
It is easy to fall into the trap of trying to perfect an annual strategic planning process. Getting the calendar set up, designing great meetings and presentations, getting great forms to fill out, having great computer systems which link data to scorecards and budgets, and other such process issues can easily suck up all of our time and attention.
However, the ultimate goal is not to perfect the planning process. It is to optimize the business performance. Spend less time perfecting the process and more time making sure the company adequately grapples and comes to a conclusion on what determines 80% of success.
It’s okay if the planning process is a bit messy. In fact, that is probably a better way to find your position. I speak about that in more detail in an earlier blog, which can also be found as chapter 15 in the book “8 Questions.”
2) Strategy Implementation Processes are Less Important than Strategy Implementation Direction
Although there needs to be a methodology for implementing a strategy (implementation process), that process is fairly worthless if it is pointed in the wrong direction (towards a dry well). As we have seen, getting the right position is the critical first step. Unfortunately, the McKinsey article points out that most companies have their time priorities upside down. They spend 80% of their time on implementation (pursuit & productivity) and only 20% on positioning. Instead, we need to give the greatest priority to discovering the right position.
In the first chapter of “8 Questions,” (which can also be found here), I give a list of 8 questions which can help you get your position right. The McKinsey article referenced earlier also has some questions to consider. This is where the focus should be—on pressure-testing your position, so that you know you are in the right place. Otherwise, your efforts will be as misdirected as they were for Bob.
Although positioning, pursuit and productivity are all important elements of strategy, proper positioning is the most critical. That is because if you choose the wrong position, your pursuit and productivity efforts will be wasted. No amount of pursuit and productivity can get water out of a dry well. First, spend the time to position yourself where the water is.
Just because positioning is the most important factor does not mean that you need to reposition yourself on a continual basis. Great positions have lasting qualities. If you emphasize them long enough, the position almost becomes synonymous with the brand (think of the association between Wal-Mart and low price). Frequent change will just confuse the customer and dilute the power of the position. That being said, modifications may be needed to ensure that you still own the position and the position is still relevant.