Monday, October 3, 2011

Strategic Planning Analogy #415: Good Vs. Better

There is a movie currently out in the theaters called, “I Don’t Know How She Does it,” starring Sarah Jessica Parker. The movie is about a woman, named Kate, who is trying to be a good mother, a good wife, and a good employee all the same time. The comedy in the movie comes from her difficulties (and occasional failures) in trying to simultaneously do all of these things well.

According to the movie reviews, not only does Kate have trouble doing things well, but so do the people making the movie. The reviews were so bad that I am not going to go see it.

There are many arguments used by businesses to downgrade the importance of strategic planning. One of those arguments goes something like this.

1) Most people know the difference between good and bad.

2) Most people would prefer to do good.

3) Therefore, if businesses would just eliminate the barriers on their employees, people would naturally do good things. This would create great success all on its own. Therefore, you do not need strategic planning.

The problem with that logic can be seen in the plot to the movie “I Don’t Know How She Does It.” Kate knew what a good wife, a good mother, and a good employee looks like. She was motivated to be good at all these tasks. Yet she was not performing these tasks very well.

Kate was drowning under the pressure of trying to do so many good things at the same time. She was learning that knowing good and desiring good does not necessarily lead to achieving good in all areas. Something was missing.

The same is true in business. Releasing the barriers on employee behavior may only lead to anarchy rather than success. Thousands of employees rushing around randomly trying to do good in too many areas, with too little coordination, can actually lead to bad performance—failure instead of success. Something is missing, and that something is strategic planning.

The principle here has to do with tradeoffs. Successful businesses are not usually the ones who try to be good at everything. Instead they are the ones who make good choices. They examine the tradeoffs between strategic options and choose a narrower area to focus on.

Here are three points to consider on this topic.

1. Better is Better
Successful companies realize that the goal is not to be good, but to be better. Customers aren’t usually looking for a good alternative. They want the best alternative. Your success depends on how your offering compares to alternatives. To win a customer’s business, performance must be viewed as superior relative to other options.

At a given point in time, consumer decisions tend to center around a key attribute. Perhaps lowest price is most important…or maybe quality…or maybe service. Then the choice is made based on that attribute. You’d better be better on that attribute if you want to be chosen.

Now, over a long period of time, a customer may desire many different attributes. However, decisions are made based on which attribute is important at a particular point in time.

For example, let’s look at grocery shopping. At the beginning of the month after just getting paid, one may want to stock up on the basics. Therefore, the key attribute may be assortment, so the customer chooses the large supercenter. Mid-week, this customer may need to pick up only a couple of items, like milk and bread. At that time, convenience is most important, so they go to a convenience store. When this person is having the boss over for dinner, quality may be most important, so the gourmet store is chosen. At the end of the month, money may be tight, so this person goes to a hard-discount store like Aldi, because it has the lowest absolute prices.

Yes, all the attributes are important at some point, but they are not all equally important at a particular point in time. As a result, the consumer did not do all their shopping in a single average store that was good at all the attributes (but better at none). No, the consumer chose the superior store for the attribute most relevant at that particular moment. Sometimes, it was the supercenter, sometimes the convenience store, sometimes the gourmet store, and sometimes the hard discount store. It was never the “fairly good at everything store.”

So, instead of aspiring to a lot of good, look for places where you can be better.

2. Better Options Come From Making Trade-offs
Usually, the only way to become the best in one area is to accept a lower performance in another area. For example, trying to offer the best price and the best quality and the fastest service at the same time fails, because it is nearly impossible to excel at all three at the same time.

It is expensive to offer superior quality and speed. These costs make it impossible to offer the lowest price. And if you want it cheapest and fastest, you will not get the best quality (think fast food). And if you want it cheaply with high quality, you usually will have to wait for it (think health care).

In other words, working to do better in one area (like low prices) can work against trying to do better in another (like quality). So if you have people randomly trying to do good in multiple areas, their activities will tend to cancel each other out. You end up better at nothing. And you don’t get chosen by the consumer.

The winners make trade-offs. They choose a place where they can be the best and focus their efforts in that direction. Yes, this may require backing away from other areas, but it is the only way to win in the area chosen.

Wal-Mart may have great prices and a large assortment, but to get there Wal-Mart had to back away from offering a speedy shopping process, or offering high service, or offering product customization. It was a reasonable tradeoff which has lead to success.

Apple offers a great product in a great way with great apps, but it is also one of the most expensive options. It is a reasonable tradeoff, which has lead to success.

Michael Porter talks a lot about this in his excellent article in the Harvard Business Review called “What is Strategy?” (December 1996). To quote Porter, “Trade-offs are essential to strategy. They create the need for choice and purposefully limit what a company offers.”

In other words, without trade-offs, all the competition starts to look the same, so there is no reason for a customer to choose you or prefer you. Businesses then have to resort to “bribes” to get business, by adding more “goodies” to the deal or by lowering the price. This leads to a downward spiral where eventually companies are making offerings they cannot afford. Failure is the ultimate outcome.

There is a reason why Southwest Airlines has been consistently profitable over the years while the other major US airlines have traditionally done poorly. Southwest Airlines chose a distinctive position (low cost point-to-point flying) and made a number of tradeoffs in order to profitably achieve superiority at that position (no seat assignment, no connections with other airlines, standardized fleet, no baggage transfers, etc.).

By contrast, the rest of the industry did not make trade-offs. They all tried to do everything reasonably well. Because they were all doing the same activities, they did not give customers a reason to prefer them (they all looked alike—nobody was distinctively better). Therefore, the rest of the industry ended up in price wars and point giveaways they could not afford. The result has not been pretty

3. Strategic Planning is Needed To Pull This Off
Therefore, in order to win, companies need to make choices. And the best choices are made if a qualified strategic planner is involved to help. Those choices are:

a) Where do I focus to win?
b) What tradeoffs do I need to make to win at this point of focus?
c) What business model optimizes these tradeoffs?
d) How do I get employees to understand the trade-offs, so that they do more in the areas related to the focus and less in the other areas?

Unless you answer these questions properly, you will be searching for good everywhere and have a comedy of errors on your hands, like the movie “I Don’t Know How She Does it.”

So don’t let people win the argument that strategists are unnecessary. The facts are in your favor.

Even if your people know what “good” looks like and are motivated to achieve it, that does not mean that you will be successful. The problem is that “good” does not win. Only superiority wins. And sustainable, affordable superiority can only occur if you choose a distinctive position and make the hard choices about the trade-offs necessary to win at that point of focus. You have to say “no” to a lot of good things in order to create a few “great” things. And without the help of strategic planning, the proper choices will probably not be made.

In the article “What is Strategy?”, Porter also says, “With so many forces at work against making choices and tradeoffs in organizations, a clear intellectual framework to guide strategy is a necessary counterweight.” Are you filling that necessary role?

No comments:

Post a Comment