Tuesday, December 6, 2011

Strategic Planning Analogy #425: The Gotcha Guys (Part 1)

Many years ago, the US Postal Service ran an advertising campaign to increase the use of its priority mail service. The advertising was a tremendous success—far higher than anticipated. Usage of priority mail skyrocketed. The return on that advertising investment was phenomenal. It paid for itself many times over.

The US Postal Service employee in charge of the advertising was pleased with how well the advertising was working. He could see that each dollar spent on the ads returned high levels of profits. Therefore, he increased the spending on the ads. And the ads continued to perform well.

You’d think that the US Postal Service would be happy with these outstanding results. Instead, they fired the employee in charge of the advertising. Why? The man had overspent his allocated advertising budget. And that was considered an offense worthy of being fired.

In this story, we see two points of view. The employee felt he should be rewarded, because he had dramatically increased the profitability of the Postal Service—far more than what was expected. He saw that as a great success.

By contrast, the US Postal Service saw it as a great failure, because the expense budget allocated for advertising had been violated. Such a gross overspending needed to be severely punished.

The employee understood the “Big Picture”: He knew that the postal service needed to create demand for the more profitable Priority Mail if it was to have any long-term viability. He was fulfilling that big picture purpose. His superiors, however, were focused on the “Little Picture”: The postal service was losing money, so it needed to control each line item of costs on the income statement. By losing sight of the big picture, these superiors made a poor long-term decision regarding the advertising.

A similar situation can occur in strategic planning. Somewhere within the planning process, one usually sets some near-term targets—usually financial in nature (the Little Picture). Then there are people assigned to monitor progress against those targets. If the targets are not achieved, then this violation is brought to everyone’s attention.

I call these monitors of the Little Picture the “Gotcha Guys” because they appear to take great pleasure in catching people in the wrong. When they see a violation, they seem to want to shout “Gotcha!” because they like catching people in the act of violating the rules and want everyone to know that they caught someone. These are the types of people who would take pleasure in firing the US Postal Service employee who broke the rule on advertising spending.

Although one needs people to monitor this near-term performance, one must never forget the larger context of the Big Picture. Remember, the ultimate goal of strategic planning is to improve the long-term prospects of the business, NOT to hit every interim target exactly.

In practice, sometimes you can end up discovering a better path to long term performance which doesn’t exactly mesh with the pre-set interim targets. As long as this better path is consistent with the foundational principles of the strategy, it should not be severely punished.

The principle here is that near-term performance always needs to be evaluated within the longer-term context. Otherwise, near-term performance may never lead to the desired long-term results. This blog will briefly look at three problems which can occur when this context is ignored. In the next blog will look at ideas to help keep the context in place.

Problem #1: The Linkage Is Not Ironclad
When the near-term targets are set, there is an assumption that there is a linkage between the near-term target and the long-term goal. In other words, there is an assumption that if the targets are generally achieved, then the goal will be generally achieved.

In a rough sense, that is commonly true—there usually is some sort of linkage. The targets of where to cut and where to invest tend to be made with the idea that they will lead to the right outcomes.

The problem is that this linkage is not ironclad. One cannot assume that there is an unbreakable connection between the two.

For example, sometimes one can find ways to achieve the near term targets in a manner contrary to the long-term goals. Haven’t you ever seen managers find tricks to achieve their numbers (and get big bonuses) which are contrary to long-term intent? They cut needed investments and repairs to hit the near-term expense targets while jeopardizing long-term capabilities. Or they hit a near-term sales target by using tricks which either destroy profits or hurt future sales opportunities. These are the people who are destroying the future, but are wrongly ignored by the Gotcha Guys because they hit their targets.

Conversely, there can be ways to improve strategic outcomes which violate the near-term targets (as we saw with the postal service advertisements). These are the people who are improving the future, but get wrongly punished by the Gotcha Guys, because they missed their targets. In both cases, because the Gotcha Guys are not evaluating near-term performance within the long-term context, they are coming to the wrong conclusion.

Don’t assume an ironclad link. Evaluate each case to make sure the right long-term move was made.

Problem #2: We Learn As We Implement
When the implementation plan and near-term targets are set, we make the best choices based upon what we know at the time. However, as we start the implementation, we learn even more. Sometimes we learn that some of our assumptions weren’t as good as we thought. For example, competition may react differently than anticipated. Or, as we saw in the story, advertising may work a lot better than anticipated.

As we learn, we need to adapt. Sometimes that adapting means that the original targets need to be adjusted. I’m pretty sure that if the Postal Service had known in advance how well the advertising would work, they would have set a higher target for advertising expenses.

In other words, our good intents on target-setting may have lead to the wrong targets. As we learn this, we should adjust the targets. I’m not saying here that we should continually change our Big Picture strategy based on the latest whim. That should be relatively stable. But sometimes tactics need to be adjusted (in light of new learnings) in order to better achieve that same strategy.

The Gotcha Guys tend to ignore learnings and just zero-in their focus on monitoring performance on the original targets. This can lead to not taking advantage of the new learnings and sub-optimizing long-term performance.

Problem #3: Gotcha Guys Stifle Creativity/Innovation
One of the key buzz words these days in “Innovation.” Most of the recent literature seems to promote the idea that great strategic leaps forward require an innovative approach. We need to think “outside the box” in order to find our strategic edge.

The problem with a rigid adherence to the near-term targets is that the targets were probably set with “inside the box” thinking. A truly innovative approach may require severing the linkage between the target and the strategic goal.

If the Gotcha Guys are given too much power to force compliance with the near-term targets, they may inadvertently be stifling any creativity and innovation. Creative approaches which could lead to superior achievement of long-term goals might be abandoned, for fear of upsetting the Gotcha Guys.

Although there is a need to break down long-term strategic goals into near-term tactics, problems can arise if those near-term tactics take on a life of their own outside the context of the bigger picture. For example, tactics can be achieved using tricks that do not support the strategy. Or, tactics may become obsolete as we learn more through implementation. Or, innovative ways to improve on the big picture may be ignored because they do not fit with the original tactics. That is why compliance with near-term targets needs to be done within the context of the longer-term strategy. That way, we can assure that the right things get done—not only for now, but for the future.

The recent news from the US Postal Service is that they are near bankruptcy and that drastic changes are needed in order to survive. Perhaps if they had spent more time years ago incorporating the big picture into their decisions (rather than punishing creative initiative) they would not be in a mess as large as they are today. Learn from the mistakes of the US Postal Service.

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