Wednesday, July 27, 2011

Strategic Planning Analogy #404: A Word About Sponsors

Paris Hilton has tried a number of things in her career—singer, actress, and author, just to name a few. But she has also been very busy lending her name to all sorts of products.

Some of the products she has lent her name to make sense—items like apparel, shoes, fragrances, and accessories. Although with all the hundreds and hundreds of styles and versions, one wonders how much input she actually had on many of these products.

Other products with her name are a little bit further afield—items like a collection of fashion and accessories for dogs, press-on nails and eyelashes, hair extensions and the like.

Yet others are even more far afield, like Paris Hilton motorcycle helmets, video games (Paris Hilton’s Diamond Quest), champagne and wine in a can, a chain of nightclubs (Club Paris), and decorative accessories for scrapbooking. She even promoted a brand of beer in Brazil whose name roughly translates into “Very Blonde Bitch.”

Needless to say, a lot of these far afield products were major flops. I guess the name Paris Hilton has only so much power.

Paris Hilton has made a lot of money by lending her name to a wide range of products. Many of the people who paid her that sponsorship money, however, did not succeed as well from the deals. A large number of these products were failures.

Once on the David Letterman show, David was giving Paris a hard time about all of the sillier products she had lent her name to. It soon became apparent that Paris really wasn’t all that interested in many of the odd items sold under her name. You could see that she was much more interested in the promotional money she was making than the desirability of the products her name was on. I’m not even sure she had ever used many of these products. For example, Paris rarely ever made her scheduled appearances at Club Paris. She was too busy. If Paris wasn’t interested enough to visit her clubs, why should I make the time to visit them?

In the end, this made Paris Hilton a relatively poor sponsor.

In the world of strategic planning, it is also common to have a need for sponsors. Unless some high level executive lends their name as an endorsement of the strategic program, the program goes nowhere. However, if your executive sponsor just lends his/her name and really doesn’t get personally invested in the project, that sponsorship may be about as useful as Paris Hilton’s name was on some of the far afield products.

Sponsorship by itself will not ensure strategic success. You need the right sponsor who will lend the right kind of support.

The principle here has to do with executive sponsorship for strategic initiatives. You not only need a strategy for the initiative, but also a strategy for managing the sponsorship of that initiative.

There are three elements to a sponsorship strategy—choice of sponsor, choice of relationship, and incentives. Each aspect is discussed below.

Choice of Sponsor
In general, there are two rules of thumb in choosing a sponsor:

1) The higher the sponsor’s rank in the corporation, the better. In fact many feel that without the endorsement of the CEO (the highest ranking officer), the initiative will never fully get off the ground.

2) The more involved (time, emotion, action) the sponsor is in the initiative the better. You don’t just want use of the person when the initiative is introduced, like was often the case with Paris Hilton. You want their help all the way through to the end.

The problem is that, often times, the higher one reaches in the organization for a sponsor, the less time that person has to get involved in the strategic initiative. Therefore, you need to make trade-offs. The goal is to find the highest ranking person who still has enough space in their schedule (and enough desire and expertise) to devote meaningful energy to the initiative.

Getting the right sponsor is critical. And the sooner you work on getting the right one, the better. Don’t wait until the project is approved to look for a sponsor. The sponsor may be essential to getting approval in the first place.

My experience is that it is best to start seeking out sponsors before the initiative is even fully fleshed out. That way, the sponsor can help design the initiative. By participating in the early design, he or she is more emotionally vested in getting the initiative accomplished, since it is partly their idea. I’m pretty sure that Paris Hilton was brought in relatively late on many of the products she endorsed, which is why she had no emotional ties to them. Even if the desired sponsor is not part of the strategic development team, get them emotionally involved early by seeking their input.

Choice of Relationship
There are three types of relationships a sponsor can have with a strategic initiative. The least involved relationship is that of an “endorser.” An endorser essentially lends their name to the project early on and does little else.

At the other extreme is the “complete handoff.” This is where the sponsor takes over full responsibility for the project. In fact, they may even be asked to abandon their regular job in order to manage the project full-time. At the time of the handoff, the strategists are no longer involved in the project.

The third option is in the middle, which I call “co-production.” This is where the strategists and the sponsor work together manage the process.

There are many problems with the two extremes. For example, if all you get is the endorser’s name early on (the first option), then you can end up with many of the same problems that manufacturers had using Paris Hilton’s endorsement. The sponsorship is too weak to withstand all the resistance the initiative will encounter along the way. About the only time endorsement alone is desirable is when trying to get the support of the CEO (because that may be all you can get at that level). In that case, you probably need multiple sponsors—endorsement at the very top, and something stronger further down the organization.

The complete handoff is nice, because you are getting the greatest commitment of the sponsor. However, there can be a problem if the strategists are cut away from the project too early. The strategists and their team put a lot of effort into researching and thinking about the initiative. They have some unique skills in helping to see how all the pieces fit together. If they are cut out of the process too soon, a lot of their insight is also cut out.

The key concern here is that new strategic initiatives are often contrary to the status quo, yet most sponsors come out of the status quo. Therefore, if the strategists are cut out too soon, the initiative may end up becoming less radical than desired, and end up more like the status quo. After all, that is what the sponsor knows and is more comfortable with. That is why you need to keep the strategists around longer, to help pass on the insights learned and make sure that the radical essence of success is not lost over time.

This is why I prefer the middle-ground of co-production. That way, everyone has a vested interest in success and the key success factors are not lost along the way. But even if you cannot get formal co-production, informally try to help after the handoff so as to minimize problems.

To keep the initiate on a successful path, it is helpful to make sure that interests of the sponsor are in sync with the interests of the initiative. One way to do this is by creating incentives which cause initiative success to be in the sponsor’s best interest. If all of a sponsor’s incentives are tied to their regular job, then don’t expect a lot of time taken away from their regular job to work on the initiative.

Figure out what motivates these people (power, money, accomplishment, etc.) and then make sure that the initiative helps them get what motivates them.

Strategic initiatives often need sponsors in order to get approved and to get implemented. Therefore, having a good sponsorship strategy is important. Start looking for the right sponsors very early in the process. Get them emotionally vested in the project. If at all possible, keep the strategists actively involved with the sponsor long enough to ensure that the radical nature of the change is not lost over time. Finally, provide incentives to the sponsor, so that active sponsorship of the initiative is in their best interest.

Of course, if the idea is bad, even great sponsorship isn’t worth much. I’m not sure if there is a sponsorship strong enough to make a major success out of champagne in a can.

Tuesday, July 19, 2011

Strategic Planning Analogy #403: We’re All Number One

One of my first jobs after getting my MBA was to help a small retailer determine where to put its advertising dollars. All the local radio stations thought that I should be spending my advertising dollars with them. As a result, I was constantly being shown presentations by the radio stations about why I should be using them for my advertising.

What amazed me was that nearly every radio station in that market could use the ratings book to “prove” that their station was ranked number one. How could they all be #1? It was done by slicing up the market into sub-segments. As it turns out, for some time during the day for some sub-set of the demographics, each station could find a place where they were number one.

For example, one relatively weak station showed me that they were #1 with teenage girls at 2AM. I’m not sure how many teenage girls are listening to the radio at 2AM, and I’m not sure why I would want to talk to them at 2AM, but it was the rare opportunity when this one station could claim to be #1, so they bragged about it.

It didn’t take me long to figure out why the boss had given me the task of working with these radio stations. He knew from experience that these presentations were a waste of time. So to avoid them, he gave that job to me—the new guy.

These radio stations all saw an advantage to being able to claim that they were the market leader. Therefore, they sliced up the data until they found any obscure data point that would allow them to claim some form of leadership, no matter how meaningless.

A lot of business strategies and mission statements also put a high priority on leadership. You’ll find goals to be “a market leader” or “industry leader” (or something similar) in many of them. And there is a lot of evidence showing that there are strategic benefits to being a leader.

The problem is that not all types of leadership are created equal. As we saw with the radio stations, it is possible to find leadership within minutiae that is so obscure as to be practically meaningless.

This same problem can occur with all businesses. Like the radio stations, they can find a way to claim leadership. If you look hard enough, almost all businesses can find someplace where they are a leader. But is the leadership meaningful? Is the leadership claim strategically significant, or just some trivial point of data with no power?

The principle here has to do with smugness. Having a business which is a leader can be very satisfying. It can be a source of pride. It can make you feel like your strategic mission has been accomplished. It can make you feel smug…nothing left to do but put your feet up on the desk and watch the profits roll in.

In reality, however, there is no room for smugness in strategic planning. Just because you have found a way to define yourself as a leader today does not mean that you will remain a leader tomorrow. Worse yet, the type of leadership you have defined for yourself may not have any strategic power or significance.

While it may be true that all successful businesses are leaders, not all leaders are successful. You need leadership in a place worth leading.

Problem #1: Leaders Without Followers
The definition of a good leader is someone with lots of followers. Similarly, being #1 is only valuable if you are number one in a place with high demand. Being #1 in a place that everyone is abandoning is not much to brag about.

The largest threat to the power of leadership is obsolescence. It leaves the leader of the obsolete with nothing but memories, because their future is typically ruined. And pretty much everything eventually becomes obsolete. Therefore, if you smugly rest on your #1 position, refuse to abandoned your strategy, and hold on too long, you will eventually be a leader in a worthless position—abandoned by customers because it is obsolete.

This applies to leadership positions in specific products. Just think of all the analog products and business models made obsolete by the digital age. Being #1 in video tape players is worthless in a world of streaming movies off the internet.

Technology leadership is also vulnerable to obsolescence. Being the leader in the manufacturing of cathode ray TV picture tubes is worthless in a world of flat screen TVs. And as Clayton Christensen points out in his book on The Innovator’s Dilemma, data storage devices have gone through numerous technological transitions, and the leader in the former technology is rarely the leader in the next technology. Often, they cease to exist because they smugly clung too long to the obsolete technology.

Even entire industries can become obsolete. Think about the payphone industry. Being #1 in any aspect of the payphone industry is pretty worthless in a world of cell phones. Similarly, being #1 in the video rental store industry is fairly worthless, because the entire industry is obsolete. Just look at what happened to Blockbuster. Their leadership in the end could not save them.

Even leadership with a customer segment can be worthless if that segment goes away. I worked with a wholesale company whose core customer segment was small independent retailers. The small independents were disappearing due to the growth of Wal-Mart and other large chains. This wholesale company’s #1 position with independents was becoming worthless because independents (its customers) were becoming obsolete.

I know a story of a brewer who was looking at buying a beer brand. They did research and found out that although this brand had a leading regional position with a certain customer segment, that segment was starting to get old. They were starting to die off. No new customers were being added. In the not too distant future, so many members of the customer segment would be dying off that the leadership with this segment would be worthless. Dead customers are obsolete customers.

Problem #2: Leading in a Meaningless Place
Even in young, growing sectors, leadership can be worthless if the leadership is in a bad place. For example, some segments are just too small (like being #1 with teenage girls at 2AM). Even if you are the leader with 100% market share, it is not enough to provide an adequate return.

Think about satellite-based cell phones. About the only customers who desire them are people in places without access to cell phone towers. Unless you are out in the middle of the ocean (and few of us are) or in a very remote area (and by definition almost nobody can be in an area labeled “remote”), then you have virtually no reason to pay the extra expense for satellite-based phone service. Therefore, being #1 in satellite phones is fairly worthless. The returns will never justify the costs.

Another worthless place is being the leader in a broken business model. Even in young, rapidly growing businesses, if you cannot eventually find a path to profits, then that leadership is worthless. I can think of a lot of dotcom business which are leaders with a large number of followers. However, they have not discovered a way to adequately monetize that leadership. The business model is broken. In these situations, leadership will only allow you to burn through cash more quickly on your way to failure. The reason why dotcom bubbles and housing bubbles burst is because the industries are based on flawed models. Eventually, the flaw brings the market down, and even the leaders struggle to survive.

Avoiding the Problems
So how do you avoid these problems? First, don’t get smug and stop adjusting to the marketplace. Always be watching the marketplace for early signs that your position is in a place that is becoming obsolete. That will give you time to prepare to jump to the area that is making you obsolete. Better yet, consider initiating the act that will cause obsolescence. That way, you have a better shot at keeping leadership through the transition.

Second, don’t get smug and relax just because you were able to manipulate the data in such a way as to find some place where you are #1. It may be a worthless place of leadership. Do the math to make sure that all that effort to lead will end up in a place worth leading.

Third, once you have found the right place (a place where you can win and a place worth winning), work hard to be a leader there. This is when leadership really makes a difference, so work hard to get it.

Doing nothing is rarely a good strategy. Marketplace conditions are too fluid. Even a market leader can lose out if their point of leadership becomes obsolete or is threatened by others with a superior business model. There is never an excuse for becoming smug and stopping the attempt to get closer to where the market is going. Rather than looking for ways to redefine the status quo as some obscure version of leadership, look for areas where leadership is really valuable and move from the status quo to get there.

As Clayton Christensen likes to point out, leaders at one point in time rarely survive the transition to the new when the old becomes obsolete. They are replaced by new companies created just for the new. And a major reason, I believe, for that inability for the leader to survive the transition is because they become too smug.

Sunday, July 10, 2011

Strategic Planning Analogy #402: Strategy is Like a Resume

Since I am currently looking for a job, I have been spending some time talking with resume-writing experts. One of those experts said something which caught my attention.

He said that when recruiters see a job title in a resume, they usually have a pretty good idea of the duties and responsibilities associated with that title. Therefore, if the only explanation on your resume is the duties and responsibilities associated with that job, you haven’t really told them much of anything they didn’t already know.

Worse yet, the expert said you are not telling the recruiters what they want to know. What they really want to know is how successful you would be if they hired you for the job they are trying to fill. By only telling them the duties and responsibilities, you are not explaining how you approached those duties and responsibilities and why you were successful.

The expert referred to these as “transferrable skills.” In other words, what skills do you have which could be transferred to the recruiter’s company to create success there? After hearing this, I modified my resume.

There’s an old acronym called WIIFM (pronounced “wiffum”). It stands for “What’s in it for me?” In other words, I have no interest in what you’re saying unless you first tell me how it affects me.

My original resume did not pass the WIIFM test. I hadn’t explained how any of it was relevant to the recruiter. Therefore, they had no reason to be interested.

The same principle applies to business missions. They need to pass the WIIFM test. Business Missions need to explicitly explain why the marketplace should care that you exist. In other words, they need to explain what’s in it for the customer.

The principle here has to do with having an orientation towards others. When writing a business mission, it should be like a good resume—oriented towards why the customer should be interested in me.

Unfortunately, many mission statements and plans are like bad resumes—nothing more than bragging about how great I am. Recruiters don’t care about how “great” YOU are. They want to know how great you will make their COMPANY. Similarly, a good mission statement shouldn’t just say how great YOU are, but explain how your business model is great for your CUSTOMERS.

You can see the difference when looking at Ends and Means.

1. Ends (What is my goal?)
One way to tell a good mission/plan from a bad one is to look at the goal of the company. A bad mission plan has a self-centered, bragging goal, something like:

1) A huge sales goal
2) A huge profit goal
3) A huge growth goal
4) A goal to be the biggest or best in the industry (a leader)

It’s not that any of these things are necessarily bad. It’s okay to be successful. The problem is that these goals are not very useful from a strategic point of view. They do not provide any strategic insight.

It would be like a coach in sports saying his goal is to win games. That’s a great thing to do, but saying it provides no direction as to how those games are to be won. If the coach just told the players “Our goal is to win” he has not given them any strategy as to how to win. Everyone on the team may interpret the goal differently. As a result, there is no teamwork, no coherent game plan to follow that would lead to a win.

The key weakness of a self-centered goal is that the linkage to success is weak. There are lots of things one can do in the name of becoming great, but it doesn’t always lead to greatness.

For example, let’s say I wanted to have great sales. Tactics which might come out of that could include things like:

1) Selling everything below cost (which in the long run destroys success)

2) Getting people to purchase sooner than they normally would (which only reduces sales later)

3) Reducing the quality so that you can afford to sell cheaper (which will hurt future sales when people figure out that it wasn’t such a good deal at that lower level of quality)

4) Diversifying into all sorts of added businesses which divert the company focus, put you in places where you have no competitive advantage, and/or confuse the customer about what you stand for. All of this will hurt the company long-term

5) Expanding the appeal beyond an exclusive niche to reach the masses. This can destroy a fashion brand, because the core customers want exclusivity. They will abandon it once the masses have it. And once the core customers abandon it, the masses won’t want it much longer, either.

In other words, the pursuit of near-term sales-building tactics can lead to long-term disaster. Ultimate, sustainable success is often not achieved. Long-term failure is very likely.

Now, let’s compare this to the opposite approach—having an “other-centered” goal. Instead of saying “What’s in it for me” you say “What’s in it for my customer”. The new goal would be about providing a benefit for the customer. It could be something like:

1) I will save the customer time;

2) I will make the customer’s life easier;

3) I will improve the customer’s standard of living;

4) I will reduce the customer’s down time;

The idea is to form a goal around improving a particular part of your customer’s life. If you truly have a way to improve the customer’s life, they will give you their business. The sales will come naturally, without having to resort to the tricks like I mentioned above. This creates a sustainable business where customers come back because they want to, not because you bribed them or tricked them into coming.

With my resume, I was told to take out phrases that implied “hire me because I’m wonderful” and replace them with phrases which implied “hire me because this is how I can make your company better.” Similarly, instead of saying “my goal is to be great” in your mission statement, say “my goal is to benefit from focusing on making my customers’ lives better.”

2. Means (How Does My Business Model Allow Me to Please the Customer?)
Bad resumes just say how great the person is and list the duties the person had at previous jobs. The experts say that instead of focusing on duties, focus on “transferrable skills.” These are the things I am able to do that would work well at the new company. These skills are the means by which I achieved success at the old firms and can also bring success at the new firms.

This also applies to mission statements. It’s one thing to say you are oriented towards helping your customers solve problems. It’s quite another to have a business plans which provides the means to accomplish this goal (profitably). It is the skills you use to satisfy the customers.

Therefore, a business mission should also outline the means by which your company will win at serving its customers. These are the company’s skills which allow it to do a better job than the competition.

For example, one could say that their business mission is to “save their customers time by bundling all their entertainment needs into one convenient package.” So the end is saving customers time and the means is though the ease of providing it all in one bundle.

There are many ways to save a customer time. If you don’t pick one, the company will lack focus and waste its effort by moving in too many directions. Pick the means where you have the best chance of winning.

A good mission statement is like a good resume. It communicates two things: the ends (what I can do for my customers) and the means (the unique skill-set and business model which makes it possible to profitably deliver the ends better than the competition). The final statement would generically look something like this:

My mission is to provide “X” solution to my customers by doing “Y” better than anyone else.

That provides a lot more strategic direction than saying “my goal is to be great.”

Resumes are short. Business missions should be short at well.

Monday, July 4, 2011

Strategic Planning Analogy #401: Adrift at Sea

Suppose, for a moment, that you took your company out for an ocean cruise. While on the cruise, there was a terrible storm and your ship sank. Now, you and your senior team are all on a tiny lifeboat out in the middle of the ocean, adrift at sea.

You realize that this is a serious problem, so you decide to hold a strategy meeting on that tiny lifeboat.

“Ladies and Gentlemen,” you begin. “We have a serious problem here. We need a strategy to get out of this mess. The first order of business will be to come up with a strategic goal. My suggestion is that our goal should be to reach land. Any objections?”

Everyone agrees that reaching land is a good goal.

“To get to land,” you continue, “we need to move the boat. Therefore, I want all of you to work on tasks to move the boat. That will be our strategic tactics”

So everyone started to do whatever they could to move the boat. People took whatever they could find to act like an oar. Then they leaned over the side of the lifeboat to use their makeshift oar.

However, since nobody knew where the closest land was, everyone just started rowing in random directions. Worse yet, everyone was rowing in a different direction. As a result, the boat just went around in circles.

Looking at the mess, you finally conclude, “You see? This is proof again of why I don’t think strategic planning works. We’re working hard but not getting anywhere.”

It seems that this experience on the lifeboat is not all that uncommon. According to a recent survey by Booz & Company, a lot of executives have come to a similar conclusion about the planning activities at their companies. The survey found that most of the executives (53%) don't feel their company's strategy will lead to success.

What does that say about the power of strategic planning if most executives do not have confidence in their company’s strategy? It’s a black eye to all strategists that the confidence in the industry has sunk so low. We’re sinking like that cruise ship.

Now it’s easy to see why the strategy on the lifeboat was so awful. The goal and the tactical directions did not provide any useful guidance. All it led to was random, useless activity. As we will soon see, a lot of business strategies are almost equally as useless.

The principle here is that when strategic planning doesn’t get you where you want to be, it is not because strategic planning doesn’t work. Instead, the problem is that you have a lousy strategic plan. A bad strategic plan is like an inaccurately drawn map. It may look like the real thing, but it is useless.

We need to raise the standard of strategic planning and no longer accept lousy plans. They’re hurting the image of the profession in the eyes of top executives. Listed below are some clues that your strategic plan is leading to a disaster like the one made in the lifeboat.

1) You May Be Adrift At Sea
One of the most important outcomes of a strategic planning process should be an understanding of a company’s reason for existence. If you do not have a reason for why customers should prefer you, then you should not be surprised when customers choose not to patronize you. This is why I said recently that this is the most important question you need to ask in a planning process.

You cannot fulfill a purpose if you have no purpose. And if you have no purpose, then expect your strategy to fail. Without a purpose, you are like that lifeboat—adrift at sea, bouncing around wherever the waves take you. You will never make it to shore.

So the first thing to do is check if your strategy is built on a foundation of purpose—a reason for existing in the marketplace. Companies adrift never win. In the Booz survey, only one in five (21%) executives think their company has a "right to win" in all the markets it competes in. You cannot solve this problem until you give your customers a reason to want you to win—a purpose linked to their desires.

2) Your Goal is Too Vague
Now you may be saying, “Wait! I have a purpose. My goal is to provide great returns to my shareholders…or my goal is to grow sales at 20% per year…or my goal is to be a leader.”

These goals are no better than the goal in the story of wanting to “reach land.” It is too vague. Where is the land? Which direction do we need to go? What does it take to get there? What do we need to get there?

Vague goals like sales targets or return on investment are focused on the outcomes which benefit one’s self. They do not address how or why those results should occur (ignore the cause for those outcomes). The only way to get sustainable sales or profits or leadership is by pleasing the customer. Unless your goal addresses how you are specifically benefiting the customer, then there is no guidance in how to get those sales or profits or leadership. You are still adrift at sea.

Check your goals to see if they are specific enough around how you are going to please the customer. If the goal is too vague, then you probably have a lousy plan.

3) Your Tactics Are Poorly Aligned
In the story, everyone was paddling in a different direction. As we all know, if you want a boat to move efficiently in a singular direction, you need to have everyone paddling in that one direction. The same is true for tactics. If they are not aligned towards the purpose, it will never be reached.

According to the Booz study:

- Two thirds of the executives (67%) say their company's capabilities do not fully support the company's strategy and the way it creates value in the market.

- Almost two-thirds say their biggest frustration is "having too many conflicting priorities."

- 82% say that their growth initiatives lead to waste at least some of the time.

These survey answers would seem to indicate that there isn’t a lot of tactical alignment going on out there. Too many companies have too many paddles moving in too many directions.

No wonder these people don’t trust their strategy. It is having no meaningful impact on what people do. There are too many so-called “strategic initiatives” out there which aren’t properly linked to the big-picture purpose.

For a strategy to be effective, it needs to provide a focus to what people do. It needs to show what to do as well as what not to do. It needs to be a beacon light showing the way, so that everyone knows the direction in which to push their efforts.

And even more important, it needs to help prioritize what is to get done. It is impossible to be effective at simultaneously working on 20 different key strategic initiatives. That is too many. It will cause too many conflicting priorities. Most companies can only handle four or fewer key strategic initiatives at any given time.

Is your strategic planning process:

a) Getting everyone to move in the same direction (towards your purpose)?
b) Getting everyone focused on the same few top priorities?

If not, you may have a lousy plan.

If you are upset with your strategic planning, don’t blame the concept of doing planning. Instead, blame the lousy quality of the plan. Instead of rejecting the idea of doing planning, change your approach, so that you are producing quality plans. Signs that you may be producing lousy plans are a) lack of a clearly defined, customer-oriented purpose, b) too much vagueness, c) little connection between the purpose and the activities, and d) trying to do too many strategic initiatives at the same time.

If the plans are lousy, eventually the blame will shift from “what a lousy plan” to “what a lousy planner,” and the planner will find him or herself unemployed. Fix this before it is too late.