Monday, August 8, 2011

Strategic Planning Analogy #406: Reference Points

Recently, I was watching an old movie from 1992 on DVD, called “The Player.” The movie is about a guy who works at a movie studio. His job is to listen to writers pitch ideas for new movies. He hears thousands of pitches each year.

Because he has to listen to so many movie ideas in such a short time, he keeps telling the writers to limit their pitch to 25 or fewer words. Well, it’s hard to describe an entire movie in only 25 words, so the writers use short-cuts. Since everybody in the movie industry knows about all the prior movie hits, the writers explain their plots by referring to the other movies it is similar to.

A common approach used in the movie (and in real life) is for the writer to pick a couple of movies the new movie is like (we’ll call them “Movie X” and “Movie Y”) and then pitch their new idea as “Movie X meets Movie Y.”

Of course, the movie exaggerated the absurdity if you try to combine too many concepts.

In the move, a studio executive is trying to summarize a crazy, convoluted movie idea he’s hearing by saying, “So it's a psychic, political, thriller comedy with a heart.”

The writer agrees, saying, “With a heart, not unlike Ghost meets Manchurian Candidate.”

Not all possible movie combinations should be combined.

Just as movies don’t get made unless they are successfully pitched to studio executives, strategies don’t come to life unless they are successfully pitched to management. And just like the movie studios, the business executives you are trying to pitch to are very busy. If you cannot crystallize the essence of the strategy in 25 words or less, the executives may never take the time to grasp what you are talking about.

Therefore, if you want to get your strategy implemented, you need to think and act like those writers trying to get a movie made. You need to use short-cuts—reference points with which your audience is familiar. For example, you could describe your strategy as being like “Competitor X meets Competitor Y,” implying that you want an assortment strategy like company X but add to it the service levels of competitor Y. This short-cut helps management quickly understand what you’re trying to do—in a way that they can easily visualize. And if they like what they see, it is easier for them to implement the plan, because they have those reference points to fall back on.

The principle here has to do with reference points. The idea is that reference points can be a strategist’s best friend AND their worst enemy. Therefore, they must be used carefully.

The Benefits of Reference Points
We’ve already talked about many of the benefits of using reference points when pitching a strategy. It speeds the process, it makes it easier for the audience to understand, and it makes it easier for the audience to implement. These benefits occur because reference point help take an abstract concept more tangible.

For example, Zapmeals had an idea to try to get quality food quickly into the hands of people who didn’t want to waste time sitting in a fancy restaurant. Their idea was to use the internet to connect local chefs (who can provide the great meals) with local people (who want the great meals). To pitch the idea, they used a reference point of a success people were aware of: “eBay for takeout orders.”

The Dangers of Reference Points
Although there are many benefits to the use of reference points, there are also many dangers. Reference points refer to what the audience knows. And what the audience knows is what already exists. It is impossible to become an innovative leader if all you are doing is copying what already exists in the industry.

As a result, reference points can keep one locked into minor variations of the status quo, if used improperly. This is particularly true if all of your reference points come from within the industry.

In the worst case scenario, competitors start clustering around the current winning strategies in the industry, because that is the common reference point for success. With all that competition fighting for the same spot, a brutal war for market share will develop. There will be a race for the bottom as everyone cuts prices to gain share. In the end, all will fail.

For example, I knew of a retailer who described his company’s strategy as being like Company X, a direct competitor. I asked him how he planned to differentiate himself that retailer. He really didn’t have an answer. He just saw a successful competitor and wanted to emulate it. The problem was that this competitor already strongly owned that position and there was no way he was going to be able to take the position away from them. Therefore, his reference point was going to make him an inferior imitation—not a formula for success.

Great strategies tend to create business in a space that in currently unoccupied. You won’t find unoccupied spaces if you look for reference points among companies that already occupy a space.

There’s a reason why one finds very few original movies. They all tend to look like other movies you’ve seen before, because the reference points when they were pitched were movies you have already seen before.

Solution: Borrow from Other Industries
To get around this problem, one needs to use reference points which come from outside the industry. That way, you get the benefits of a reference point without all the problems which come from copying what is already in the industry.

As Clayton Christensen has pointed out in the Innovator’s Dilemma, most great new innovations tend to come from people who are outsiders to the industry. They are not trapped by conventional industry reference points, so they can come up with something entirely original.

You can do the same, by searching for reference points outside your industry. For example, I was speaking to someone in the banking industry who was using retailers like convenience stores as a reference point. He liked the way mass oriented retail stores created impulse sales through effective signing and display endcaps. He liked the way they could sell a lot through minimal service by creating self-service. He liked the way customers felt comfortable in a convenience store instead of the uncomfortableness people felt in a bank. He wanted to replace those scary desks in a bank with friendly aisles full of financial packages. In other words, he wanted to be “the 7-Eleven of banking.”

So, spend some time looking beyond the walls of your industry. Think about how others do their business. Look for principles you can transfer to your industry.

The idea here is to look for successes in areas totally unrelated to your industry and envision what would happen if you applied their success formula to your industry. It may turn out that a full space in one industry is actually an open space in your industry.

It is so difficult to get management to embrace a strategy in a space that is empty (they say “if it is so good, why is the space empty?”). Therefore, if you can point to tangible examples of other industries where that position is very successful, you have a better shot of selling the idea.

Great strategies need to be sold before they can be implemented. And it is easier to sell the idea if you can relate it to a concept the audience already understands (a reference point). The trick is to look for comparison insight outside your core industry. Otherwise, you will end up just copying one of your competitors and become a weak imitation.

With over 400 of these blogs, I have shown how easy it is to understand complex strategic principles by finding analogies in unrelated fields. This same approach can be used to sell your strategy. Find a great analogy and then your selling process will be a lot easier.

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