Thursday, June 30, 2011

Strategic Planning Analogy #400: Don’t Eat The Whole Fish

There is a Japanese seafood delicacy called fugu. We call it the blowfish. Although many rave about the taste and texture of the fugu, the fish has a serious drawback—eating it can kill you.

Fugu contains tetrodotoxin, an extremely potent neurotoxin that paralyzes its victims while they are still conscious. In other words, you are fully aware as your throat closes, your lungs deflate and you drift slowly into death. Even extremely small doses of tetrodotoxin can kill. There is no known antidote.

This toxin permeates large portions of the fish. Therefore, if you want to eat the fish and survive, you must only eat the particular portions not containing the toxin. That is why only chefs who are properly trained and certified in fugu preparation are allowed to sell fugu in Japan.

Even though the chefs are certified, I think I’ll pass on fugu.

Just because the gourmet crowd loves fugu, that doesn’t mean they devour the whole fish. These people are smart enough to know that only a portion of the fish is edible. They are careful to avoid the poison within the fish.

Unfortunately, this is often not the way businesses operate. Leaders may become enamored with a particular company or a strategy, just like the gourmet love the fugu. For example, a leader may say they admire the success of a particular company like GE or Google or Apple or Berkshire Hathaway. Then, wanting to make their company more like the company they admire, these leaders start to imitate EVERYTHING which the company they admire does. In other words, these leaders do not discriminate and decide to “eat the whole fish” of the company they admire.

And just like the poison in the bad parts of the fugu can kill, the bad parts in the admired company can kill your company.

The principle here is that just because a company enjoys success, that does not mean that everything they do contributed to that success. In addition, many of the things which “work” in their company could be toxic if applied in another company. Therefore, we need to be discriminating and only borrow concepts from others which are appropriate to our situation. Instead of eating the whole fish, we need to first cut away the dangerous and inappropriate.

There are three reasons why borrowing something indiscriminately from an admired company can become poison to our own company.

1. It Wasn’t A Part of Their Success
Even great companies can do stupid things. At one time, many people thought Enron was a great company. In February 2001, Fortune magazine's ranking of America's most admired companies listed Enron as No. 1 for "innovativeness" and No. 2 for "quality of management."

And, yes, Enron did do some remarkably creative things. Unfortunately, they also did some stupid things. The stupid things eventually destroyed Enron. By the fall of 2001, Enron fell apart.

What ultimately killed Enron was its highly leveraged reward structure on a quarterly basis. It caused employees to do bad things in order to reap the outlandish quarterly rewards. This was their poison in the fish.

Had someone in early 2001 decided that Enron was a great company, they might have indiscriminately done anything that Enron did. They might have copied the compensation structure which was the poison in the fish. After all, it was a “great” company, so isn’t everything they do great?

No, great companies can do lots of things that have nothing to do with their greatness. In fact, great companies can be so successful that the success overcomes a lot of poison. A weak company cannot afford to do too many stupid things and stay alive. Strong companies can. So there can actually be more poison in a strong company than a weak company.

Therefore, when admiring a company, first try to figure out which parts of the company are most highly correlated to their success. Then focus your attention on how you may incorporate that particular concept into your own business. Don’t just try to copy anything they do. You may end up copying their poison.

2. It Won’t Work in All Environments
Another company which used to be on most admired lists (for many decades) was GE. When companies got into trouble, they often wanted to replace their leaders with executives from GE. The idea was that GE leaders were a part of what made GE great, so if I get one of their leaders, it will make my company great.

Unfortunately, when many of those GE leaders went to other companies, they were not as successful as they had been at GE. Does this mean that the leaders suddenly become less competent? Of course not.

The problem was that the leaders often found themselves in a different environment than they had at GE. The corporate culture may have been different, the competitive situation different, the place in the lifecycle different, and so on. This could make the success formula at GE inappropriate or irrelevant in the new environment.

Of all the things GE did right in their glory years, one of the most important ones was their knack of knowing how to manage portfolios. They knew when to get out of old businesses and when to get into new businesses. They knew what to fund and what not to fund. If you move that portfolio knowledge to a one-business company operating in an area GE would have exited, then that knowledge isn’t very useful.

Remember, in the environment of the fubu fish, the tetrodotoxin is not poisonous. It is only poisonous when moved into the environment of the one eating it. The same is true in business. When the environment is different, the success factors can be very different. What works in one place can be poisonous somewhere else.

Right now, companies like Apple and Google tend to be highly admired. These companies are in a particular environment where there is high obsolescence and an extreme dependence upon gifted engineers and programmers, for which there is a severe shortage. That is why these companies tend to have some unusual perks to keep their engineers and programmers happy, like free gourmet meals.

If you try to apply the lessons of Apple and Google to a mature business with low obsolescence and little dependency on scarce talent, these tactics may not provide nearly as much benefit. They may just be money pits that decrease your profits—perhaps to the point of poisoning your ability to compete.

Therefore, consider the impact of the environment (yours and theirs) before adopting ideas and strategies from other companies.

3. It Won’t Work Alone
Often times success is not due to a single factor, but to a highly integrated system. By just copying one portion of the system, you may not reap its benefits, because the benefits require the entire interrelated system.

Take Wal-Mart, for example. One of the keys to its success is its low prices. Therefore, one could try to emulate the success of Wal-Mart by also offering extremely low prices. The problem is that if all you do is try to underprice Wal-Mart, you make quickly go bankrupt. It will become your poison.

Wal-Mart can afford to offer low prices because of its integrated system to lower costs. It has world-class logistics, global sourcing, a culture of frugality and a lot of other factors in place to allow it to profitably have low prices. If you copy the prices without copying the rest of the system, you will not have success.

Usually the connection is not as obvious as in the Wal-Mart example. Therefore, it may take more effort to determine how the complete system works. Then, you can determine if you want to copy the entire interrelated system.

Just because you may admire a particular company does not mean that you should indiscriminately copy anything which that company does. If you do, you may be adding poison to your company rather than success.

This principle also works in reverse. Just because you have a low regard for a company doesn’t mean that everything they do is wrong. I know of a leader who would refuse to hire anyone who came from a company with a smaller market share than his own. His reasoning was that if a company had lower market share, then everything and everyone associated with that company must be inferior. But just as there can be poison in a “great” company, there can be nuggets of gold in a “bad” company.

1 comment:

  1. Gerald Nanninga,
    I am unable to find the right words to express my admiration of this post. May I add also that some portions might not be toxic to some bodies, and quite toxic to others. The environment of the body "its chemistry" might turn a non-toxic portion into a toxic one. Penicillin is safe for most people, but deadly for the remaining few.
    Probing success factors and their environment is a must practice.