Tuesday, November 29, 2011

Strategic Planning Analogy #424: Matching Up

Recently, I was talking to someone who was divorced. After the divorce, she had been using a number of internet dating sites to find a new partner. Her ex-husband was also using a number of internet dating sites at this time to find a new partner.

What was interesting was that these internet dating sites kept making suggestions that these two formerly married people should start dating each other. Given the nature of the negative emotions surrounding their divorce, I can assure you that the idea of getting them back to dating each other is a very, very bad idea.

One of the secrets to a good marriage is a good match between the people getting married. And although computer dating services may help reduce the risk of a bad match, they are not foolproof. As seen in the story, some of their suggestions can be disastrous. That is why extra effort needs to applied to ensure the match is truly good.

The same idea applies to strategies. Like marriages, strategies require good matches between the people involved. After all, strategies are only good if they are effectively implemented. Implementation requires the actions of a number of stakeholders. If these stakeholders are not well matched up with the essence of the strategy, they will stray from the strategic intent. Implementation will suffer.

Yes, there are computer programs and internet sites to help us find the right strategic stakeholders, be that strategic partners, acquisition targets, employees, customers, lenders, equity holders, etc. However, these tools are not foolproof. Extra effort is needed to ensure that all the parties match up well with the thrust of the strategic intent. If we are not diligent and vigilant in making sure we have good strategic matches, we will end up with the equivalent of a strategic divorce…and that is rarely the desirable way to implement a strategy.

The principle here has to do with strategic fit. Strategic fit based on how well stakeholders match up with the strategy. Typically, the better the fit, the better the strategic execution.

The logic behind this idea seems pretty obvious. For example, if your employees are strongly opposed to what the strategy is trying to accomplish, then they will rebel and resist. Implementation will suffer (I have witnessed this firsthand). However, if the employees are in strong agreement with the strategy, then they will more heartily implement it properly.

Anyone who has had an activist investor who wanted to move the company in a different direction than the management has also seen how such a mis-match can stall strategic implementation. The worst case scenario is that the two sides (management and equity investor) will get into a nasty fight and neither strategic option will be strongly embraced. The company suffers greatly.

Or ask Netflix about how well their strategy to split the company went after they announced it and found out that it was a major mis-match for their consumers. Customers rebelled, subscriptions dropped dramatically, and the stock price dropped equally dramatically. Netflix had to abandon the original strategy to split the company.

So it would seem to be a no-brainer that companies need to cultivate a strong strategic fit with all their stakeholders—be it employees, investors, customers, or whomever is important to the success of strategy implementation. Yet, like with Netflix, there are so many examples where companies have not been diligent and vigilant in maintaining strategic fit with these stakeholders (and have suffered the consequences).

So what causes companies to stray from this basic principal? To put it bluntly, it usually boils down to either greed or laziness.

Greed and Overreach
Greed can ruin strategic fit in two ways. First, greed can lead to strategic overreach. A great strategy is typically based upon owning a strong position. For example, a position may be based on superiority in delivery an attribute, like quality, speed or service. By definition, these positions tend to be limiting. To strongly own one of these attributes, one typically has to make trade-offs against other attributes. For example, for Apple to truly own coolness, elegance and ease of use, it has had to trade away from low cost/low price.

Limiting can initially sound bad, but it can actually be very good. It is easier to find strategic fit with customers if you stick to your point of uniqueness. Your customers became your customers because they also wanted that point of uniqueness. There was a fit.

But greed can set in. Management may want to expand beyond their point of uniqueness. They want to become much more. As a result, they overreach and destroy strategic fit with their customers.

For example, every time Wal-Mart has tried to expand beyond their low cost/low price position and try to become known for fashion, it has failed. It is a mis-match with how Wal-Mart is perceived by those who want low cost/low price and those who want fashion.

When exclusive high fashion brands let greed cause them to overreach and try to be more relevant to the masses, it leads to long-term disaster. The old customer who loved the exclusivity will walk away quickly. The new masses will eventually walk away as well, because a lot of the appeal to them was in emulating the exclusive customer (who is no longer associated with the brand). Not only is there now a mis-fit with the customer, but also their supply chain. Once the fashion brand appeals to the masses, the exclusive retail outlets will drop the brand because it no longer fits with their strategy.

Or how about Toyota? Toyota had a strong position in producing dependable cars. However, Toyota got greedy and wanted to make all kinds of cars at all kinds of prices. The trade-offs which used to lead to superior dependability started to fade away. Quality and dependability dropped to levels which hurt the credibility of the old position. People were no longer willing to pay a high premium to get the “dependability” of a Toyota, because it no longer seemed worth it.

Greed and Cheapening
Another outcome of greed may be in underinvesting in the core position in order to cut costs and make more money. To own a position, you have to invest in it. Choke off investment in the strategy (in the name of greed), and your actions no longer fit the strategy. For example, another part of Toyota’s problem was that they underinvested in the quality levels needed to create dependability (in order to increase the profits needed to invest in overreach). This lead to less dependability in the cars and a mis-fit with the customers.

In this economy, companies are finding they can get away with paying their employees less. In the long run, however, this is creating a mis-fit between employees and the company. The good employees leave as soon as they can. They ones who can’t leave get angry and become less committed to putting in any extra effort behind the strategy.

If you cheapen your approach enough (in labor, parts or whatever), execution will eventually suffer to the point where you lose the right to own that position. Then your strategy is lost. Greed for short-term bottom-line gains eventually leads to far lower long-term profits.

Sometimes it isn’t overt acts like overreach or cheapening which ruin strategic fit. Sometimes it is just a lack of effort to keep fit from eroding away. We can get lazy in our vigilance to maintain fit. For example, we may let mis-fitting employees creep into the business because we do not police that characteristic close enough in the hiring process. We hire them because they have superstar status and forget to do the due diligence into whether they are the right fit for the culture and strategy. When the fit is wrong, they can poison the culture of a company and ruin the strategy.

Many of the Silicon Valley firms like Google, Apple and Facebook realize how important engineering excellence is to their core strategy. As a result, they are not lazy in their approach to getting the best engineers. They do whatever it takes in terms of pay, perks and image to gather this important resource for their company the best they can.

Another place laziness in fit-seeking can occur is when looking for investment capital. We may take equity investment money from someone just because they want to invest in us and not take the effort to ensure that there is a strategic fit between their objectives and ours (and regret it later when they challenge our strategy due to a mis-match). Or we can acquire a company because the financial models look good, but not do additional due diligence into strategic fit. That lack of strategic fit can make the acquisition a disaster. In fact, poor fit is one of the leading causes of acquisition failure.

As we have seen, strategic fit cannot be assumed to be a given. Fit can fade away due to greed or laziness. Therefore, we need to become proactive in aggressively cultivating strategic fit with all our key stakeholders—investors, employees, customers, partners, supply chain, etc. We need to make fit a high enough priority to overcome the impulses of greed and laziness.

Whenever a decision is being made which impacts a stakeholder, we need to ask this question: Will this move strengthen or weaken strategic fit?

Cultivating fit needs to become integral to the strategy itself. We need to seek out investors who agree with our approach. We need to seek out employees who believe in the strategy. We need to find distributors where supporting our strategy is in their best interests. We need to aggressively seek out those customers who are looking for what we are offering. We need to only aggressively go after acquisitions with a strong fit. It cannot be taken for granted. It must be sought out.

Strategic implementation is strongest when all the stakeholders to the strategy are well-matched to the strategy. Without a strong fit across the board, the strategy suffers. There are many forces (like greed and laziness) which can naturally work against strategic fit. Therefore, we need to be proactive at seeking out and protecting strategic fit.

Sure, not everyone is a good fit for our company. But that doesn’t mean we should give up looking for them. They are out there. We just need to take the effort to seek them out.

Monday, November 21, 2011

Strategic Planning Analogy #423: The Whole Canvas at Once

Back when I was in college, I spent one year as an art major. I had a professor who tried to teach me how to paint. This professor said that beginning novice painters tend to make the mistake of working on a painting one section at a time.

These new artists try to get one small section of the painting fully completed before moving to another section of the canvass. Then they try to fully complete the painting in the second section before moving to a third section, and so on.

The professor said this was a mistake because all of these little sections rarely fit together properly when the painting is completed. The colors don’t blend together right, the textures don’t blend together, and the overall effect feels disjointed rather than as one flowing statement.

Instead, the professor said that one should paint over the entire canvass all at the same time. First, you rough out the entire painting at the same time. Then you put on the finishing touches across the entire canvas at the same time. That way, everything flows together well and the painting makes a grand, unified statement.

Although this advice was excellent, my painting skills were not. It was soon thereafter that I switched my college major to something besides art.

Painting and Strategic Planning are both creative processes. And, in my opinion, a great strategic plan (when completed) can be just as beautiful as a great painting. But both can appear rather ugly if one does not follow the advice of my art professor.

The strategic process is often broken down into its component parts, like mission statements, five forces analyses, vision statements, scenario planning, goal-setting, tactics, etc. Then, like those misguided painting novices, we can try to perfect each of these parts in isolation before moving onto the next component. It can be like following a check list. You do a strategic task to completion, check it off the list as “done”, and then move onto the next item on the list.

The problem comes when all the items on the list are finally checked off as done. Because each step was done in isolation and fully completed before moving onto the next step, the end result looks ugly. The parts don’t blend together. Everything is disjointed. There is no overall flow to the plan.

Because the pieces are not well integrated, faulty logic can creep into the strategic process, or even no logic at all to tie the parts together. The net result is a failed plan, because not only is the logic weak, but nobody could understand the flow and become committed to making the flow a reality.

Just like in painting, a truly beautiful strategic plan occurs only when you work the entire canvass simultaneously. That way, you can make sure that the logic flows properly and that people can clearly see the vision you have tried to communicate.

The principle here is that strategic planning is not a series of isolated events, but an iterative process. You cannot effectively finish one part until you have finished all parts.

Each Part Influences Other Parts
All of the various parts of a strategic plan influence all the other parts of the plan. Therefore, one needs to work through all the parts together in order to take advantage of all the richness to be found in the interaction between the parts. The whole canvass needs to be worked as a whole—in an ongoing basis—allowing the knowledge gotten from feedback in one area to influence all the other areas.

For example, one can do a SWOT analysis (Strengths Weaknesses Opportunities Threats) and come away thinking you really know where your strengths are relative to competition. However, a later scenario exercise (or market test) may cause you to realize that if the environment unfolds in a particular manner, your “strengths” may not be as strong as you originally thought. You may need to go back and modify your earlier SWOT conclusions. And if your original mission was based on a strength you now feel is less secure, you may need to change the mission statement. Either that, or you may need a radical reprioritization of strategic initiatives in order to spend time restoring a strength you realize you no longer have.

Or let’s say you set a goal. Then later on in the planning process, you realize that the only way to possibly achieve that goal is by taking on more risk than you feel comfortable with. Based on this new information, you may need to go back and either change your goal or change your tolerance for risk. The worst thing you can do is not go back and change the goal (because that task is already “done”) and then disappoint everyone when the goal is not achieved, because the goal was never realistic in the first place.

Sometimes, you cannot tell if a vision is a good one until you work through all of its implications in the rest of the planning exercises. You may find out that it isn’t as good as you thought, or perhaps you stumble upon an even better vision. So you should be open to change as you go through the process.

Don’t Be Premature In Wordsmithing
I’ve seen planning processes grind to halt as executives struggle over each individual word in a mission statement or vision statement. Many weeks or months can go by as the simple sentence is edited, then re-edited, then re-re-edited, then re-re-re-edited, and so on. Major discussions envelop the choice of each word.

This is like the painter who labors forever over the perfection of the painting of a single tree in a forest landscape before moving on. So many layers of paint and scrapings of paint may occur on that single tree that it no longer looks like it fits into the rest of the forest. Similarly, so much effort is put into the individual words or a mission or vision statement that the big picture of the whole plan is missed.

Earlier, we saw that as we learn from the planning process, we may need to go back and modify prior efforts. A good idea for a vision or mission statement may not look so good anymore. It may need to be altered. Unfortunately, if you have just gone through this major, time-consuming struggle to perfect each word of the statement, it may not be possible to alter it any more. It’s taken on a life of its own and it would be a political nightmare to open it up for review.

Now, you are stuck with:

a) A statement no longer appropriate for the strategy; or

b) A strategy that matches the statement, but not the reality of the marketplace; or

c) A statement which eventually gets ignored because people know it is not relevant to what is happening (meaning that all that work was a waste of time); or

d) A strategy which eventually gets ignored because people cling too tightly to the improper vision/mission statement; or

e) A poor planning process, because the earlier-written statement blinds the executives from keeping an open mind about the realities in subsequent analyses.

None of these are good options. That’s why vision and mission statements should not be fully locked down into the final words until the full planning process has had a chance to “pressure-test” the statement, to make sure it is still completely relevant. Postpone the “wordsmithing” until you are sure you have a full understanding of the big picture. Don’t do it as a complete, unalterable, isolated event at the very beginning of the process.

Because all the parts of the strategic planning process influence your knowledge base for all the other parts of the process, you cannot do effective strategic planning in a strictly linear manner. Instead of perfecting each part individually and sequentially (like a check list), one needs to incorporate a little back and forth into the process. New learnings need to be applied to prior strategy tasks to ensure that they are still relevant. Be willing to adjust and modify along the way. Work the entire strategy canvas together.

Just because the strategy process should be iterative does not mean that a plan is never completed. Painters work the entire canvas together in an iterative fashion, yet manage to eventually complete the painting. Everything on the painting gradually gets better together until everything looks great. The same is true of strategic planning. Yes, go back and forth to keep making everything better, but eventually stop when the whole picture comes together. Then start the implementation.

Monday, November 14, 2011

Strategic Planning Analogy #422: Hatching Chickens

Back when I was a child, the family living next-door hatched chickens in their garage. They had a number of incubators full of eggs. As long as the incubators were kept at the proper temperature, those eggs would hatch. Then the neighbor’s garage was full of cute yellow baby chicks.

Eventually, those chicks would be gone, and they’d have a bunch of new eggs to hatch. I never asked what happened to all those baby chicks…or asked why someone living in an inner ring suburb of Detroit was hatching eggs in their garage…or why they also had a machine to make ceramics in their garage. I guess as a young boy, you just thought it was cool to see a bunch of baby chicks get born and didn’t think about the rest.

Chickens are not the only things which are hatched. Companies try to get strategies hatched which will grow the firm. But just as all eggs do not lead to hatching chickens, not all strategies result in growing a firm. Instead, some just die in the shell.

To reduce the risk of failure, my neighbor put the eggs in an incubator. The incubator had a temperature level which was tightly controlled. There was a thermometer in each one, so that one could make sure the temperature was ideal for hatching eggs. At the right temperature, hatching was more likely to occur.

The same is true for strategies. Strategic success has a lot to do with the characteristics of the company where the strategy lies. If the environment is wrong, then the strategic idea will die (just like those eggs if held at the wrong temperature).

The principle here is that even great strategic ideas will die if they are placed in the wrong environment. Therefore, having great ideas is not enough. One also needs to manage environment, so that the ideas have a chance for survival.

1) Don’t Try to Hatch a Strategy Which Requires a Distinctively Different Environment
For example, one time I worked with a company and came up with what I thought was an excellent strategic idea. It leveraged a lot of the company’s core competencies in a way which could reinvent an entire industry, creating huge growth opportunities. Unfortunately, I could never get the idea to hatch within this company, no matter how hard I tried.

The problem was that the corporate culture at this company was centered on helping people have more fun. This new strategy had nothing to do with “fun.” It was more focused on alleviating pain. This incompatibility with the prevailing culture doomed the strategy. It didn’t have a chance of hatching. The corporate temperature was wrong.

As in this case, the temperature was wrong because the energy of the company was focused in a different direction. However, sometimes there just isn’t any energy at all to support change. The incubator is turned off and it is too cold to grow anything.

These are the companies who resist any kind of change. New ideas are shot down quickly. Energy is spent on protecting the power bases of the status quo rather than moving the company forward. Anything out of the ordinary gets vetoed.

We talked about the need for getting power behind a strategy in the prior blog. But if there is no power to harness, then you have what I referred to in an earlier blog as “hard clay.” Once clay has been baked hard in a kiln, you can no longer reform the clay into something new. The hardened shape stays forever. Just as you cannot remold the hard clay into a new form, you cannot remold a cold company into a new strategic reality. The efforts are a waste of time.

If you find yourself in a cold environment with hard clay, don’t waste your efforts on radical strategic change. You won’t get anywhere. Your strategic options are more limited to things like:

a) Milking the old strategy as well as one can on its way down (a harvest strategy); or
b) Divesting the operation (all or in part) (a liquidation strategy).

Although these may not be the most dynamic options, at least they are compatible with the temperature of the company, so that they have a chance of succeeding. I’d rather have a successful harvest strategy than a failed repositioning strategy—no matter how appealing the repositioning at first appeared.

2) Build Strategic Incubators
Sometimes, if the core business is not the right temperature, you can still have success if the company allows you to build separate incubators. For example, when IBM was trying to invent the PC, it was soon apparent that the core business environment at IBM was the wrong place to hatch such a strategy. The structure, the bureaucracy, the culture…they were not designed for such a radical start-up. The PC would have died before hatching. Wrong temperature.

IBM was clever enough to realize this, so they moved the PC development off-site. It was freed from the old corporate structure and allowed to incubate on its own—far away from headquarters in an environment ideally suited for such a start-up. As a result of the isolation, the diversification into PCs was a success. It hatched well because it was allowed to be put in the right kind of incubator—even if it required being separated and held at a different temperature than the core business.

Incubators work on eggs because they properly control the entire environment around the egg. They protect the egg from the wrong environment. The same is true with strategies. If you separate them from the pressures of the core business and nurture them in the right culture, they can hatch into a successful business. Therefore, pre-plan the incubator needs when proposing a strategic move which would die if started within the core. Include the incubator as part of the proposal.

Beyond that, the trick here is how one handles the strategy once it is successfully hatched in the incubator. Eventually, the project needs to leave the incubator and get reunited with the core. Otherwise, the core will never benefit from the strategy. However, the newly hatched business is still young and weak. It can still get stomped on and killed by the core if one is not careful.

Therefore, your great idea may not only need an incubator strategy, but also a post-incubator strategy.

3) Sometimes You Need to Change the Core Culture
If keeping a culture which has either gone cold or is no longer suitable to the future is not acceptable, or if incubation of a small offshoot is not enough, then one is left to change the core culture. This is extremely difficult and highly risky. The likelihood of success is low.

If this is your choice, understand the risks and enter the project well prepared. Start early and expect a long battle. Anticipate resistance and head it off early.

One of the biggest errors I have seen is leaders trying to push a new strategic agenda and think that all they are doing is pushing a strategic agenda. If the agenda is radical, one is not only pushing a new strategic agenda, but one is also pushing through a new culture, a new bureaucracy, a new corporate climate. If all your forces are lined up to push the strategic agenda, then the forces of the status quo culture will resist your effort at the cultural level.

This is a two-front war—a war of strategy and a war of culture. You have to win at both to win at all. That is why trying to change the whole corporation is so difficult and risky.

Even great strategic ideas will fail if launched in the wrong environment. To prevent this failure, one must either:

a) Limit one’s strategic options to only those options compatible with the current corporate environment;
b) Launch the new ventures in a separate incubator, protected from the core and run with a more appropriate culture; or
c) Launch a risky two-front war to change both the strategy and the culture of the core business at the same time.

When someone outlines a strategy to me and asks me if I think it is a good one, my first response is to ask them who the strategy is for. After all, strategic success depends not only on the idea, but on who is going to implement it. A strategy which is great for one company could doom another, depending on the situation and the culture. Therefore, don’t just try to seek a “good strategy.” Instead, seek out the “strategy most appropriate for me (and my culture).” Find the strategy which will hatch in your incubator.

Monday, November 7, 2011

Strategic Planning Analogy #421: Tapping the Power

One year for Christmas I decided to put up a larger than normal Christmas light display in my front yard. I bought all sorts of new items to place in my yard, including a metal deer covered in lights with a motor that made its head go up and down.

Everything worked fine for a few days. Then it stopped working. The lights went out and the motor stopped working. I spent many hours over many days going over everything in the front yard trying to get it to work again. I assumed that something in the display was broken, so all I need do is fix the display and everything will be fine.

So I spent hours looking for the brokenness in the display. I wiggled all the wires in the display. Nothing helped. For the rest of the season, the display at my house was dark and lifeless.

After Christmas, I started to take all of the lights and displays down. It was then that I saw a switch in my garage that I had never noticed before. It was a circuit breaker switch. I pushed the button, and all of a sudden the remaining parts of the display began to work.

If I had only spent a second at the beginning of the season pushing that button in the garage, I could have saved all of those many hours wasted in the front yard trying to get that display to work.

My goal was to have a great Christmas light display. Therefore, that is where I focused my efforts. When my goal was not being achieved, I spent my time looking for a solution somewhere in the display.

Unfortunately, the problem was not hidden within the display. It was back behind the scenes in the garage. Had I only taken my eyes off the goal, I would have seen that the display was fine and that the problem was that there was no electrical power getting to the display. Had I spent more time thinking about the power behind the display, I would have had a working display that year.

A similar situation can occur in strategic planning. We can get so focused on our strategic goal that we forget about looking at how well the goal is connected to the corporate energy source. Since the goal is what we want, we look at fixing the elements of the goal when results fall short. This can all be a waste of effort, since the problem often is a result of insufficiently tapping into corporate energy. Turn on the power of the organization, and the results will come on their own.

The principle here is about discerning the difference between power and performance. Performance is the output—it is what we want to happen. It is our goal. Power, by contrast, is the input—it is the energy needed to accomplish the goal.

Strategic planning is usually pretty good about managing the performance. It helps us decide what we want to happen (goals) and how we are going to measure the results (metrics). Many times, however, the process comes up short on managing the power. It doesn’t go behind the scenes to ensure that sufficient energy is focused on the plan.

Power is often just assumed to be there. Just set the goal and the work will get done. Therefore, all the effort is spent on getting the right goal and measuring the progress towards the goal. Nobody bothers to go back into the garage to make sure the power switch is set in the “on” position.

The real problem occurs when performance falls short of plan. If you focus only on the performance, you may not be able to fix the problem, because the cause may be insufficient power.

For example, let’s say that you have a goal to achieve dramatic sales growth for a particular product and performance is falling short. To fix the sales problem, you may look for a sales solution. You may look to change the advertising, or change the pricing, or start a new sales promotion, or some such similar tactic. This would be similar to when I tried to fix my Christmas display by tinkering with pieces of the display. And, like with my Christmas display, all those efforts may not work.

However, if you stepped back to consider the power in your organization, you may have found that there was nothing wrong with the original plan (as far as it went). Instead, the problem was insufficient motivation amongst those required to do the selling (not enough power). Perhaps they do not believe in the product. Perhaps they have put their power behind a different product in the portfolio. Perhaps they just aren’t motivated to work hard because they feel no loyalty to the company. If you fix the power, the performance will come all on its own, because highly motive employees can accomplish much.

Problem #1: No Power
There are two ways in which a company can mismanage power. First, they may not create sufficient power. I have personally witnessed how much performance is impacted by the level of power running through the employees.

For example, I worked with a company that used to have a lot of power flowing through the employees. They were highly motivated to “do whatever it takes to win.” They loved the founder and would go the extra effort in response to that love. The place felt like a family and everyone worked hard for the good of the family. The power was huge and performance was outstanding.

Then something happened—the founder retired and the new leadership destroyed the feeling of family. As a result, work became nothing more than just a job. People went from voluntarily working 70 hours a week (because they loved doing it) to working only 50 hours a week. The energy levels during those 50 hours went down as well (because they didn’t love doing it as much and they didn’t care as much). The power of family love was replaced with unproductive in-fighting. Personal goals replaced doing whatever it takes for the greater good. And, not surprisingly, performance started to suffer.

The company is scrambling to find ways to get performance back up. But the focus in on adjusting the tactics rather than the power behind the tactics. As a result, they are fighting a losing battle.

In essence, the company had unknowingly turned off the switch in the garage, not realizing how much impact that would have on the display out front. And now they are trying to fix the problem by tweaking the display rather than turning the switch back on.

By contrast, I had the privilege to work in the past with the employees of Save-A-Lot, a hard discount, low price food retailer similar to Aldi. When you walked into the Save-A-Lot headquarters, you could feel all the energy and buzz around you. The power switch was on full power.

When you talked to the people, the conversation wasn’t around doing a job of pushing groceries at a profit. Instead, people talked in terms more similar to a religious revival. They talked about the pride they had in providing a higher standard of living to those who society tended to overlook. They talked about bringing “greater dignity” to the poor by packaging the food products to look like the brands the rich people ate. They not only wanted to feed these people, but improve their sense of self-worth. It was as if they weren’t grocers, but missionaries on a mission to save the poor from malnutrition and humiliation. They were united in purpose and focused on this larger, more personal motivation. And guess what? This power lead to great performance.

To achieve high levels of power, you need to supply high levels of purpose. This purpose needs to transcend just working for a paycheck. It requires tapping into the inner desires of your people. This concept seems to be taking on greater significance, as the Millennials who are now entering the workforce seem more focused on this greater purpose than the Baby Boomers they are replacing. If you do not provide a greater purpose, you will lose a lot of the power potential in the Millennial segment.

Strategic Planning can help by infusing a higher purpose into the Vision and Mission Statements. Planners can help ensure that strategic processes not only looks at managing performance, but also proactively manages power. They can make sure that power issues get sufficient attention.

Problem #2: Power Unlinked
Even if the company is full of power, performance may still suffer if there is insufficient connection between the power and the performance. My Christmas display only worked when plugged into the power source in the garage. Similarly, strategists need to connect the strategy to the power in the people.

Strategists need to show how the strategy is connected to the higher purpose. They need to show how achievement of the strategy not only improves performance, but improves achievement of the higher purpose. They need to show that putting effort behind the plan gets them closer to the higher purpose that doing something else.

Often, the best way to ensure that strategic goals are met is to take your focus off the goals and focus instead on ensuring that the organization is powerfully motivated to achieve the goals. This typically requires bonding with employees at a deeper level (than merely meeting the goals) by instilling a higher purpose into what people do. The higher their motivational power, the more likely the effort will be there to get the task accomplished. If you can connect that power to the task at hand, then the results will pretty much take care of themselves.

This deeper bonding can also work with customers. If consumers identify with your higher purpose, then they will want to support your efforts by purchasing from your company. This can lead to higher unit sales volumes at higher prices.

Friday, November 4, 2011

Strategic Planning Analogy #420: Creating the Future

Back in 1989, a move came out titled “Field of Dreams.” The story is about a farmer who heard voices. One of the voices kept saying, “Build it and he will come.” Eventually the farmer figured out that he was supposed to build a baseball field on his farm. So he did.

After building the baseball field, the players from the old 1919 Chicago White Sox team miraculously come out of the corn and onto the playing field. Many exciting things happen in the movie as a result of building that baseball field.

The movie would have been pretty dull if that farmer had ignored the voice which said “Build it and he will come.” Then all you would have seen is a movie about a farmer harvesting corn.

Exciting things happened in the movie because the farmer was pro-active in building that baseball field. He did not wait to react to the world around him. He built a new world on his farm and his life was forever changed.

This same dilemma occurs in strategic planning. We have the choice of either looking at the world as it is (and finding a way to exploit it), or of envisioning a new world and building it.

Building a new world can be difficult. Scoffers may laugh at you (like they did to the farmer in the movie). But often, the rewards of building that new world can be great.

The principle here is based on an old quote by the late business guru Peter Drucker. He said, “The best way to predict the future is to create it.” In other words, the future is full of unknowns. The best way to minimize the unknowns in your future (and maximize your ability to succeed) is to proactively work to create the future of your choice. Rather than react to an uncertain world you did not create, proactively shape the world to your benefit. Be like the farmer and “build it” and the profits “will come.”

Weakness in Reaction Approach
This idea is contrary to a lot of the writing on how to do strategy. These writings will tell you to do an environmental analysis and then look for holes in the current environment to exploit.

Yes, this process of reacting to what the world offers up can often improve performance a bit. After all, exploiting what is in front of you is better than just drifting along and not trying to find a way to exploit the current environment. This process, however, rarely leads to great leaps in success.
The problem is that the current environment is designed to optimize the status quo. The rules of how the game is played are designed to perpetuate the status quo. The current leaders of the status quo tend to hold a disproportionate amount of power and influence. The supply chain is designed to their advantage. Unless you are one of those current leaders, it is hard to make an impact under their rules. Barriers to entry and exit keep the status quo in and you out. You are left to look for the small niches that the leaders ignored.

Another problem with the reactive approach is that you are always in a “following” or “chasing” mode. The world is constantly moving, and if you are merely trying to exploit what is in front of you, then by the time you get your strategy up and running, the world may have already passed you by. This is why Steve Jobs ignored the voice of the consumer. He said that by the time you got around to satisfying that voice, the consumer would have already moved on to something else. You’d never catch up by reacting.

There is a lot of truth to the idea of “first mover advantage,” where those who lead in creating a new world have inherent advantages over the companies which follow them. For example, look at all the companies trying to follow the success of Apple’s iPad. They can hardly make a dent into the industry built and lead by first-mover Apple. First movers are proactive, rather than reactive.

Strength of Proactive Approach
Look at the companies which tend to be at the top of most admired lists: Apple, Google, Southwest Airlines, Amazon, and Fed-Ex. These are companies which ignored the status quo and built an entirely new world, with new rules which gave them an advantage. They built it, and it (profits) came.

Apple totally reinvented industries such as computing, music, telecommunications, and entertainment. Google changed the way the world thinks about and uses information. Southwest Airlines threw away the rulebook on how airlines are supposed to operate and created a totally different one—one where they had the advantage. Fed-Ex created a category which did not before exist—guaranteed overnight delivery—and used the advantage of the new rules to create a great company. Amazon created shopping tools and a shopping process unheard of before. They rewrote the rules on customer service (via recommendations, customer reviews, and one-click) and created an empire.

These were not followers. They did not look for holes in the status quo. They built new worlds with new rules. By creating their own future, they had greater control over their worlds and how they evolved. They were able to predict how their industries evolved because they invented that future. They invented the rules by which the new world plays—rules which are most beneficial to themselves.

You Have To Build The Whole System
So does this mean that I just need to design the next cool thing and I’m all set? Not really. The forces of the status quo are quite strong. They will fight anyone trying to upset their situation. The best way to overcome this marketplace resistance is to build an entirely new marketplace. In other words, this is not about building new things, but entirely new systems which encompass the entire supply chain.

Consider the iPod. It was not the first attempt at reinventing digital music. Many MP3 players preceded it. They failed because they could not beat the forces of the music status quo. A music player without the cooperation of the music industry is not very useful.

The genius of the iPod was that it was a total reinvention of the entire music ecosystem. There was the cool player which the consumers loved. There was also an easy way to access music through iTunes. And Apple found a way to get cooperation from the holders of the music which nobody else had been able to do before. So this was not just a device play, but a rewriting of the whole system, including where and how music was sold and new rules on how musicians and labels were compensated.

Google wanted to reinvent the way businesses advertised. However, to do that, Google needed to also reinvent the platforms where that advertising took place. Google created the best search engine in order to be the preferred place for the new advertising to take place. They built Google Maps, Blogger, and other such sites so that they could control the way key future advertising venues evolved (and make sure Google got a huge chunk of that advertising).

In order to play in the advertising space in mobile, Google invented Android and gave it away for free. As a result, Google is controlling the leadership in smartphone platforms, giving it more control over how mobile advertising evolves (to its advantage). Google understands that if you want the new rules to benefit you, then you need to have a say in how the entire ecosystem evolves.

Amazon wants to ensure that the rules of digital commerce for ebooks and other such products work in their favor. As a result, they developed the Kindle as vehicle for these types of transactions. Some may complain that Amazon is selling the Kindle too cheaply, but consider the value it creates in helping Amazon reinvent the rules in their favor. Just as Google proved with giving away Android for free, the market penetration which comes from low prices helps one control how the future is built. And that is where the real benefit comes in.

And this is not just a digital phenomenon. In the early days of Wal-Mart, Sam Walton wanted to reinvent the rules about how rural customers purchased goods. Unfortunately, just building stores in rural areas was not enough to get the cooperation of the status quo. To win, Wal-Mart had to reinvent the entire ecosystem via building his own sophisticated distribution and data processing networks. Without that, Wal-Mart would not have been able to gain enough control to rewrite the rules of the future in their favor.

Great strategic success rarely comes from reacting to the market as it is. Instead, it comes from creating an entirely new market, where the new rules are written to your advantage. The secret is about gaining as much control as possible over your destiny in a volatile world. To ensure that the new rules are written to your advantage, you need to reinvent the entire ecosystem, not just throw a new product into the old system. Build the system, and they will come.

Controlling the system does not usually require owning the whole system. Apple did not purchase the music labels. Google does not own telecommunication companies. Wal-Mart did not purchase the companies which supply its products. However, these companies created enough influence so that these other players were forced into playing by the new rules. And that is the key.