Monday, May 28, 2012

Strategic Planning Analogy #453: What Are You Really Selling?

A few days ago, I wanted to get an idea of what I might save if I changed my insurance.  I went to a web site to get a FREE estimate.  All it asked was a small handful of questions.  Then I hit the “submit” button.

Almost immediately after hitting that button, my phone started ringing.  It was someone offering to talk to me about insurance.  At first, I thought that was an odd coincidence, since the insurance company which called was representing a different company than the one on the internet.  While I was talking to this new company on the phone, I got three messages on my phone saying that three other insurance companies were also trying to contact me. 

For the next four days, my phone rang virtually non-stop from dozens upon dozens upon dozens of insurance companies eager to talk to me about my insurance.  It was a nightmare that wouldn’t stop.

I soon realized that I did not receive a FREE service from that internet site.  I paid dearly with time and aggravation.  

I also began to realize that I had never really been a “customer” for that web site.  No, I was the “product.”  They were trying to sell me like a slave to all of these bidding insurance companies. 

Just before hitting that “submit” button, I did not see anything in the fine print saying I agreed to sell my soul to that company (for no charge) nor that I agreed they could re-sell me like a slave in a bidding auction.

And then, after all that aggravation, I decided that my current insurance was a better deal and did not switch to any of those companies.

In the story, I was initially confused about what was the product and who was the customer.  At first, I thought that I was the customer and the insurance was the product.  As it turned out, I was the product and competing insurance companies bidding for me were the customer.   

A similar confusion can happen when designing strategic business plans.  A successful business plan sells a product (or service) to a customer.  And hopefully, the cost to the business of obtaining or manufacturing/producing that product is less than the price the customer is willing to pay for it, so that you can make a profit.

As we will see in this blog, there are a lot of choices one can make regarding products and customers.  And the most obvious choices might not be the most profitable choices.  Therefore, careful consideration needs to be given to these choices.  It should be an important part in the development of one’s strategy.

In addition, if you are not clear in your business plan as to what is the product and who is the customer, you may create confusion within your organization.  People could focus on producing the wrong thing for the wrong person.  The confusion could create inefficiencies and reduce the profitability of the business model.

The principle here is that depending upon how you define the customer and the product, you’ll come up with a different strategy.  And if you want an innovative new strategy, consider less-conventional definitions of products and customers.

1) Selling Slaves
Usually, we think of the people we are appealing to (or advertising to) as the customer.  However, as we saw in the story, you can also look upon these people as the product you are selling.

There’s a popular saying that goes something like this: “If the customer is not paying, then they are not really the customer—they are merely the product being sold to the one who is really paying.”

There could be many options for the real customers who are bidding for your “human slave” product.

a) Insurance Companies – In the story, we saw insurance companies as the real customer.  But here’s another example.  Ever see those commercials on TV where lawyers offer to represent you for free if you suffered from something where a lawyer can successfully sue for damages?  You are not the customer.  You are product, being “sold” to the insurance company on the hook to pay damages. 

b) Government – Governments hand out all sorts of money for things like health care, aid to the poor, help for the disadvantaged, etc.  There are plenty of opportunities to represent people in order to tap into government funds.  The people are the product you are selling to the government.  For example, consider all of those TV advertisements for medical devices and supplies.  The commercial says that this stuff is FREE to you, provided you are on government medical assistance.  Another example is commercial universities which aggressively manufacture students in order to tap government student loan assistance.
c) Advertisers – Advertisers are buying exposure to their ads.  That exposure is to people, so what they are really buying are people.  Therefore, the media are not really selling their media as much as they are selling the people they attract to the media.  So much of the internet business models are based on giving their content away for free in order to attract other sources of income, like advertising.  When you use these internet sites, you are the product being sold, like when Google sells you in order to get paid ads on their search page.  When internet companies talk about monetizing their sites, what they are really saying is that they are looking for more ways to sell you to more people.

d) Investors - For a lot of start-up companies, the original proposal is not the same as what eventually ends up being the business model.  The service can change and the target market can change.  Knowing this, start-ups understand that the real customer is the investor in the start-up.  The people lured to the start-up are merely the product.  The real selling pitch is to the investment community, because they are the only one paying the bills in the start-up phase.  If the investor wants something else, you change the model to please them, because they are the customer.

Using your imagination, I’m sure you can think of a lot of additional customer types which differ from the users (like parents for children’s products, large employers for daycare centers, future acquirers for small start-ups, etc.).

2) Manufacturing the Right Kind of Slaves
If people are merely slaves to be sold in your business model, then you need to think about them differently.  You are in the business of manufacturing people.  Therefore, you need to think of them in the same way other manufacturers think about their product.

When developing a manufacturing a process, a manufacturer must consider several things, including the QUALITY of the product (% of defects), the APPROPRIATENESS of the product (is it what the customer really desires), the FUNCTIONALITY of the product (does it deliver on the desired features), and the PRICE of the product (can you manufacture it cheaply enough).

So, if you’re selling people, you need to consider these same things about your people-manufacturing model.  It’s not just about gathering lots of people.  They need to be the right people (with the right quality, appropriateness, functionality and price).  And what is “right” depends on the people who are paying the bills (your real customer). 

That’s why it’s so important to clearly define the real customer.  Otherwise you won’t know what they want so you won’t manufacture the right kind of people.

Think about Disney.  One of the most important products Disney creates are people who pay to surround themselves (or someone they love) with manifestations of an icon.  In other words, their best product is someone who would buy everything associated with one of their icons, like Buzz Lightyear.  These are the people who buy all the Buzz Lightyear videos, toys, games, dolls, amusement park rides, posters, pajamas, sheets, underwear, and whatever else the image of Buzz Lightyear is on.  Disney sells this person to all of its divisions as well as to any business who wants to license the icon.

Therefore, the manufacturing of an icon lover goes something like this.  First you create an icon.  Then you create a way to get people to fall in love with the icon (like a movie).  Next, you create all the tie-ins to all the ways for this icon lover person/product to be valuable to others.  Then you sell this person to them, principally through licensing fees.

Therefore, Disney’s goal is not just to have a movie which draws a lot of people.  It has to be the right kind of people—icon lovers.  That’s why the movies are designed to create lovable icons more than to create great entertainment.  Those creating the movie have to understand that in order efficiently manufacture the right kind of movie-goers.

Internet sites need to see themselves in a similar fashion.  The goal is not just to attract a lot of eyeballs.  They need to be eyeballs specifically manufactured to appeal to someone who wants to buy those kinds of eyeballs.    And you cannot do this if you don’t specifically plan the whole thing as seamless manufacturing process.   

And if you want to justify your marketing effort to manufacture that person, use the same type of criteria used to justify efficient manufacturing.  Is it the right type of product and is it produced at a lower cost than you can sell it to others for?

The real customer is the one who gives you the money.  And in many business models, these customers give you the money in order to access the people you have accumulated.  To optimize this model, one needs to clearly identify the real customer and then find the most efficient way to manufacture the type of people these customers specifically want. 

This is a two-step strategy.  First you manufacture something to lure the right type of people.  Then you package these people so that they are the most desirable to the people who will pay for them.  In the end, that insurance web site didn’t care if I was made happy (which I wasn’t).  What they wanted was to make those other insurance sellers happy, because they were the customer.  I was merely the second stage of their manufacturing process.

Friday, May 18, 2012

Strategic Planning Analogy #452: “X” marks the Spot?

How much would you pay to get a treasure map showing the exact location where one million dollars is buried?

There’s a big “X” on the map where the exact location of the treasure is—guaranteed! Sounds like that map would be worth a lot of money, doesn’t it?

Oh, there’s one more bit of detail about the map I should tell you about.  The only detail on the map is that “X” for the treasure.  The rest of the sheet of paper is completely blank.

Without any other details or reference points on the map, it is impossible to know how to reach that “X”.  Now how much do you think that map is worth?  Is it even worth anything at all?

A key part of strategic planning is determining a desirable future position—a place where the company can win and succeed at a high level.  That desirable future state is a lot like a hidden treasure.  It is desirable and valuable once you get to it and make it a reality.

The problem is that just knowing what you want that desirable future position to be is not enough.  You have to achieve it in order to gain its value. 

In the story, we know of a treasure, but the map does not provide any detail on how to get to it.  That makes the map worthless.  In the same way, having a strategic goal, but no specifics on how to reach it, is worthless. 

Strategic planning needs to be more than just writing down an idealized vision on a piece of paper.  Like that X on a map, you need to flesh out the plan by showing a path on how to get to the X.  Discovering and managing the path is just as important a part of strategic planning as setting the goal (if not more so).  That is what adds value to the goal, because it creates a way to make the goal a reality.

The principle here is that strategic planning does not end when the goals are set and the pro formas are saved in an Excel spreadsheet.  In many ways, that is just the beginning of the journey.  You still have all the work of taking and completing the journey.

It is like planning a vacation.  You may decide to vacation in Paris.  But just choosing the location is not enough.  You need to pick a date, arrange to get time off from work, determine how you are going to get to Paris, and how you are going to pay for it.  Otherwise the idea of vacationing in Paris is just that—only an idea. 

Just holding a business meeting to announce a strategic goal is like just announcing you are going to Paris.  There is absolutely no assurance that a large and diverse organization will automatically reach that goal.  There are too many forces at work to get in the way. 

In particular, the journey typically requires parts of the organization to abandon the familiar and work together in coordinated ways which they are not used to.  That will not happen by accident or natural consequence.  It has to be proactively managed.  It has to be planned.

For the rest of this blog, we will briefly look at some of the areas to consider when building that path.

1.  Commitment
Getting people to change and work in new ways is difficult enough when there is high desire to get it done.  It is virtually impossible if significant factions in the organization are resistant to the change.  Therefore a key part of the planning path needs to be concerned about finding ways to get people fully committed to the plan. 

Don’t just assume people will drop everything to bring the plan to life.  The change may hurt their power base or career plans.  The plan may interfere with maximizing a bonus.  The plan might require working with people they don’t like.  Or they may just think the ideas behind the plan are silly. 

They may not be very vocal in their opposition.  Instead they may just quietly and subtly sabotage the efforts during implementation.

Therefore, part of the strategic plan needs to find ways to gain commitment and deal with people who resist.  A little planning around this up front can eliminate a lot of grief later on.

2.  Competency
Once you have everyone emotionally committed to the task, one needs to determine if they have all the skill-sets and tools necessary to succeed.  After all, even the most committed individuals will fail to achieve the goal if they lack the competencies needed to get there.

Technologies and processes can quickly become obsolete.  Being the best at an obsolete skill does not guarantee that you will automatically succeed in the transformed environment.

Is training a part of your strategic plan?  Is acquiring new people with new skills embedded in your plan?  Does the plan have a methodology for dealing with people falling behind on competencies?  Do you have the tools in place to apply those competencies in the best way possible?

An even more basic question:  Do you even know which competencies are critical to success with the plan?  Do you have an internal assessment of where you stand today on those competencies?  Do you know where to get what is missing in your assessment (acquisitions, joint ventures, key hires, etc.)?

3. Capacity
Good intentions with smart people can still fail if you have not built an infrastructure capable of supporting those efforts.  There’s an old saying that an Army is only as strong as its supply chain.  If you cannot get sufficient food and ammunition to the troops, they cannot succeed.

Your infrastructure must have sufficient capacity to support your business to the magnitude of its vision.  For example, if your vision includes a major push into selling to China but you have only one-tenth of the selling capacity in China to meet those goals, then those goals will not be met.   You need to add more selling capacity.

Capacity can be critical in many areas, such as manufacturing capacity, supply chain capacity, sources of critical supply elements, and information technology.  If you cannot find a way to achieve the necessary capacity, then the strategy is severely flawed. 

I remember hearing stories of how capacity issues creates major changes at McDonalds.  For example, they had a great strategy for Shrimp McCocktails, but they determined that there were not enough shrimp available on the planet to supply projected demand, so the plan was scrapped.  When McDonald’s enters new regions, it often has to plan many years in advance to ensure there are enough of the proper cows and potatoes in the area to support the expansion.  Capacity has to be built before that expansion can occur.

 Does your plan calculate the necessary capacity in key areas?  Does it have a plan to achieve the necessary capacity?  Is the timing of the steps in the plan coordinated so that capacity comes on-line at the proper time?

4. Connections
Usually a plan’s success depends on the actions of others outside your direct control.  This can include suppliers, distributors, governments and customers, among others.  You need to find a way to make sure they have the proper commitment, competencies and capacities to achieve your plan as well.

Think about health care.  For a plan to work, you often need to get the cooperation of government to approve your approach, doctors to prescribe your approach, insurers (or governments) to pay for the approach, and patients to accept the approach.  Lose cooperation in any area and the strategy fails.

In a competitive world, it is often necessary to create stronger connections within your network of partners than the connections in competing networks.  You need to prevent defections.

 How strong is your network?  Are the strengths of your network connections specifically addressed within your plan?  Do you have a plan to make them capable of supporting your plan?  Do you need to add or change partners?  Do you need to acquire them?

A plan does not magically come into being just because the leaders want it to.  To ensure that a strategic vision is more than just a wild dream, you need to proactively determine and control all the steps necessary to get there.  Otherwise the forces of inertia and self-interest will keep the vision from becoming a reality.  Areas to consider in this plan include commitment, competency, capacity and connections.  Without these considerations, all you have is a treasure marked with an X on an otherwise blank piece of paper—a goal without a means to attain it.

One of the biggest criticisms of strategic planning is that all those fancy plans never become reality.  Maybe if we spent more time proactively trying to manage the path, we’d have a lot more success in achieving the goal.  That will quiet the critics and increase our value.

Monday, May 14, 2012

Strategic Planning Analogy #451: Too Much Cotton in the Bottle

The other day I bought a bottle of ibuprofen. I bought it to help with the occasional headache I get with my spring allergies.

When I opened the bottle, I couldn’t get the pills out. There was so much cotton stuffed in the bottle that I couldn’t get to the pills. It was quite a struggle to get that cotton out of the jar.

I understand why the cotton is put in the bottle. It is to protect the pills from bouncing around in the bottle and getting damaged during shipping.

But here is my question: What is the benefit of having perfectly undamaged pills if I am unable to get to them and use them for my headache? If they are locked up in a bottle behind too much cotton, they cannot help my headache. They are worthless to me.  I’d rather have easier access to a slightly damaged pill.

That ibuprofen is only useful to me if I can get those pills into my bloodstream. Having them in a bottle does nothing for the pain.

A similar situation can occur in the business world. Businesses have all sorts of resources. They can be financial, technological, intellectual or a wide range of other resources. These resources are like those ibuprofen pills. If properly used, they can be productive and solve problems.

However, if the company tries too hard to protect those resources, it can be like over-stuffing the medicine bottle with cotton. The protection makes it nearly impossible to get access to those resources. And if you cannot use the resources, it is irrelevant that you kept them in top condition. They become worthless to you in your battle to increase your prosperity in the marketplace. THE

The principle here has to do with risk. The problem is that if a company gets overly protective of its resources in order to eliminate downside risk, they will not only prevent undesirable activity—they will prevent all activity. Like over-stuffing the medicine bottle with cotton to prevent any damage, over-stuffing your business with policies to prevent any risk leads renders your resources worthless.

The only way to be 100% certain that activities with downside risks are eliminated is to eliminate all activity. And that leads to another 100% certainty—100% certainty that the company will cease to exist due to a lack of investment. And so, ironically, the policies intended to minimize downside risk actually increase the likelihood of the greatest downside risk—the risk of destroying the entire business through resource starvation.

As the old saying goes, you have to take some risks in order to receive any rewards. So, the goal should not be to stuff the medicine bottle with as much cotton as possible. The goal should be to find the best way to use the pills in the bottle. Or, to use business terms, the goal is not to avoid risk by preventing investments, but to find the most prudent ways to invest.

Now I understand the need to prevent wasteful and reckless use of resources. For example, if I had been reckless and swallowed all of those ibuprofen pills at once, I would have killed myself. But, if used properly, ibuprofen can do wonderful things. And similarly, wise use of company resources can do great things.

So the rest of this blog will look at ways to prevent over-stuffing the bottle with cotton and promote more prudent investing.

Problem #1: Personal Biases
Scientists and researchers tell us that most managers have built-in biases when it comes to making decisions. They say that the typical manager over-emphasizes the potential downside risk and under-emphasizes the upside potential. As a result, managers become too protective and miss out on making perfectly sensible investments.

I have a theory about why that occurs. I believe the problem is that the upside and downside risks for the company are not always in sync with the upside and downside risks for the individual making the decision.

For example, let’s assume that a manager has a tough decision to make. If you just look at the math from a probability analysis, you would see that although the downside risk is large, the upside risk is a little bit larger and a little bit more likely. Therefore, the “experts” would say that the manager should make the investment.

However, that is just considering the risk to the business. Now consider the risk to the manager making the decision. The manager may think that if the upside potential occurs, he/she may only get a minor recognition. After all, it is their job to make good decisions, so if the decision turns out well, they were just doing their job properly.

On the other hand, if the downside were to occur, the manager may rightly assume that he/she would lose their job. Just look at what is happening at J.P. Morgan. Some trading deals went bad and the downside scenario came to pass. And as a result, a number of people at J.P Morgan are losing their job.

So, from the manager’s perspective, there is very little personal upside potential from recommending the deal and if the downside potential occurs, he/she could lose their job. Therefore, it is no wonder that executives appear irrational (from the company’s perspective) in saying no to “reasonable” risk. After all, from a personal perspective, saying no seems highly rational.

Consequently, if you want management decisions to be in the best interests of the company, you need to make the personal risk profile more similar to the company risk profile. Otherwise, you can end up with managers overstuffing the medicine bottle, which hurts the company but protects their career.

Problem #2: Departmental Biases
Large business decisions often impact large sections of a business. Problems can occur if the risk profile varies between the sectors of a business impacted by a decision.

For example, one part of a business might bear the biggest brunt of the investment while another department may reap most of the benefits. In such a circumstance, the department needing to make the investment may resist the move, because the math may not make sense when just looking at that particular department in isolation.

To prevent this “irrational” cotton stuffing, one needs to get all of the affected parties to share in the entire company-wide risk profile. That way, decisions will be made for the good of the company rather than the good of the individual department.

Problem #3: Excessive Busyness
Just because a resource is kept busy does not mean it is being invested properly. There is an opportunity cost risk in missing out on potentially huge gains because resources are focused on surer, but much smaller gains.

Take, for example, your human resources. Since the start of the great recession, there has been a push to keep those human resources as busy as possible. Individuals are often doing a workload previously done by two or three people before the recession. At first, this may be admired as a wonderful productivity gain.

However, if someone is too busy with the mundane, they will not have the luxury of time to ponder larger issues which produce major breakthroughs. As we’ve seen in prior blogs (here and here), some down time is needed if you want the brain to discover that next huge breakthrough.

As a result, excessive busyness can act like that cotton, and prevent you from being able to use those resources for greater benefit. Therefore, one may need to program in some more “slack” time in order to get the most out of the resource.

Problem #4: All or Nothing
Often times, an investment can look scary because it is positioned to appear so massive. It is proposed as an all or nothing deal. You are told you are either in or you are out. And if you are in, you have to make the big bet all at once. And that can scare people away.

Well, this is often a false premise. Most big deals can be broken down into smaller deals. You may be able to test it in a small fashion before rolling it out. You may be able to borrow or rent resources before committing to purchase. You may be able to do a joint venture with a firm rather than have to acquire it.

Tactics such as risk-sharing, stage-gating or real options theory can help keep the risks manageable by placing them into smaller chunks. If a small chunk goes bad, you can stop before investing in the next stage.

Problem #5: A Portfolio of One
One of the best ways to overcome downside risk is to avoid putting all of one’s eggs in a single investment basket. That is just another scare tactic akin to the all or nothing approach mentioned above. Instead, invest in multiple investments. With a portfolio of investments in your pipeline, then the odds increase that the entire mix of investments will be positive (even if some of the individual investments are negative).

Therefore, to encourage better levels of investing, two actions should occur. First one needs to diversify the risk by building a portfolio of investments (at least in their initial stages). Second, one needs to move away from treating risk in isolation but look at the risk in terms of the whole portfolio. Accept some individual failures as a necessary part of the overall quest to create a positive portfolio.

Problem #6: Fear of Obsolescence
Often times, there can be a fear of investing in something new out of fear that it will hurt the core business. For example, Kodak did not aggressively invest in digital imaging for fear of hurting the core analog film business.

But here is what one needs to realize. If it is a good investment, somebody else will make it. Consequently, the core business is at risk whether you make the move or not. So in most cases you’d be better off making the move, since at least then you would be a part of that which destroys your core. Otherwise, you core is destroyed by someone else and you are left with nothing.

There are many factors which can act to hold people back from making the investments which they should. We were only able to scratch the surface here. However, in the areas we looked at, it was seen that these factors can be minimized/reduced by becoming proactive in addressing them. By getting in front of these issues, we can establish approaches which keep people from stuffing the investment bottle with too much cotton.

By first investing in policies and approaches which help us to better handle risk, we will end up making more good investments in the business.

Monday, May 7, 2012

Strategic Planning Analogy #450: Pushing the String

Here’s an experiment. Take a long string and stretch it out on the floor. Go to one end of the string and try to push the string across the floor. That effort will essentially be a failure.

Now re-stretch the string on the floor. Go to one end of the string and try to pull it across the floor. This should be a great success.

Conclusion: It is much easier to pull a string across the floor than to push it.

What was the difference between pulling a string (success) and pushing a string (failure)? When you pull a string, you are in front of the string. When you push a string, you are behind it.

You organization is like a string. Strategic planning tries to move an organization to a better place, sort of like trying to get a string across the floor. Just as getting in front of a string (to pull) is the best way to move the string, getting a strategy in the hands of the person in front of the organization is the best way to get the organization to a better place.

By definition, followers need leaders up in front. Strategic leadership, then, is a pre-requisite to strategic followership. Trying to move the organization from another position is far more difficult.

The principle here is that strategic planners are not typically positioned at the front-most end of the organization. Therefore, if strategic planners want to effectively move the organization forward, they need to work through those people who are at the front and capable of pulling the string—top management. This becomes their primary audience.

Like it or not, strategists are not in front of the string. In most cases, they are usually further down the ladder. It is common for them to report to a CFO, who then reports to a CEO. Without the mantle of top leadership, strategists cannot directly pull the string.

If the primary force for change in an organization is the strategist, then the effort to move the organization is more like trying to push the string. The string will not respond as desired, because the effort is coming from too far back in the organization.

Mistake #1: Having the Strategist Lead
There are many reasons why having strategist lead the strategy movement is sub-optimal. First, consider the audience—the organization. They will ask themselves a few questions:

1) If this is the person we should be following, then why aren’t they in a position of leadership?

2) Since they are not the leader, what gives them the right to ask me to follow?

3) If this were really important, wouldn’t the real leader be leading us?

They will think: I’ve got enough responsibilities on my plate handed down from my direct superiors to worry about. Why worry about the ranting of someone who has no direct control over me?

Therefore, the organization will not wholeheartedly follow the strategist. It will be like trying to push a string.

Now think of it from the position of the real leader of the organization. Leadership from anywhere else can be seen as a threat to their power. Most leaders don’t like potential threats to their power. Consequently, they will not abdicate enough power to the strategist to really be able to effectively pull the string on their own. Others in the organization will see that the power has not been handed down to the strategist. Therefore, the strategist will not have enough power to pull the string. They can only push.

Mistake #2: Having the Strategist Merely Keep Score
So if the strategist cannot lead, should we just take them out of the leadership equation? No. As we’ve talked about many other times in these blogs, the strategist provides an important leadership function. They can provide a unique perspective which can be gained almost nowhere else, because:

1) Strategists are the least vested in the status quo. Therefore, they can most objectively look at the status quo versus alternatives.

2) Strategists are the least captive to the “Tyranny of the Immediate,” those daily crises that tend to capture the immediate attention of the operators of the business. This allows the strategist to focus on long-term implications more than anyone else.

3) Strategists spend the most time focused on understanding the big picture (and where it is heading). They can look for the holes in the marketplace yet to be filled. As a result, they can offer an important perspective not available elsewhere.

Therefore, it is mistake to lower the position of the strategist to little more than a mere scorekeeper (as we saw in the prior blog). To do so will be to lose the power of these insights.

Solution: Become the Strategy Whisperer
So how do we take advantage of the needed leadership of the strategist while understanding they do not have enough leadership power to pull the string? I refer to it as becoming the “Strategy Whisperer.”

The idea is based off of the book The Horse Whisperer by Nicholas Evans (which was made into a movie starring Robert Redford). The book and movie made popular a form of horse training known as “natural horsemanship.”

The basic idea of natural horsemanship is that wild or unruly horses will become more effectively useful to their riders if they are approached with respect rather than with force. The idea is to work sympathetically with a horse in order to obtain cooperation (rather than submission). Instead of trying to destroy the horse’s will by overpowering it, you gain its respect so that the horse’s natural power is voluntarily given over to the desires of the rider.

And this is an effective analogy for strategists. Their goal is not to overpower the leaders of the organization. The task is not to break the will of the leader. No, the strategist needs to come to the leaders showing great respect for their power. Rather than posing as a threat to the leader, the strategist merely seeks mutual respect in return. And once gaining that non-threatening respect, the strategist can then whisper into the leader’s ear what he or she needs to hear from the unique perspective of the strategist.

As a result, the leader is still the unquestioned leader. Their power to pull the string is not threatened by the presence of the strategist. Yet, because the leader is listening to the whispering of the strategist, the leader is pulling the string in a direction which is more strategically correct.

The Strategy Whisperer approach may not come naturally to the strategist, especially if the strategist wants to be the one with the hands on the string. But if you want to effectively help move the company, this can be the best approach.

The best way to move a company in the proper strategic direction is to get the leader of the organization to want to lead the organization in that direction. This requires positioning the strategist as far more than just a scorekeeper, but far less than a threat to the power of the leader. The optimal spot is that of a Strategy Whisperer—a respected advisor who has the ear of the leader.

It’s better to have your hand on the shoulder of the real leader (so you can whisper in his/her ear) and let them effectively pull the string in your desired direction than to insist that the string be put in your hand and only be able to ineffectively push it.

Tuesday, May 1, 2012

Strategic Planning Analogy #449: Scorekeepers Vs. Score Makers

Today, when you go to a sports arena they have those huge Jumbotrons showing you not only the score, but lots of high definition video in full color. It wasn’t always that way.

There was a time when scoreboards were only what their name implied—boards of wood with the score on them. When the score changed, a person had to physically take down the old painted number sign and put up a new number (by hand).

Those scorekeepers were kept pretty busy changing those signs during the game. But even though they worked hard to change the score on the board, the score keepers did not cause the score to change. They only reported on the action taking place on the field.

Sure, the scorekeeper put the larger score on the board, but if you wanted a larger score, you needed to have a coach with a great game plan and athletes who could execute it. Just because the scorekeeper was closest to the scoreboard does not mean he was closest to the action.

Don’t confuse the scorekeeper with the score makers. Don’t mistake them for being the coaches or the athletes. All he does is put the signs on the board.

Now it may seem silly that someone would confuse the scorekeeper with the score makers. Maybe it wouldn’t happen in sports, but it seems to happen quite frequently in business. And that isn’t silly; it’s tragic.

In a lot of companies, we have employees who are referred to as strategists. Their responsibilities may use terms such as managing strategic planning or strategic plans. But when you look closely at their job descriptions, they are really little more than scorekeepers.

But instead of a scoreboard, they have a spreadsheet. They use the spreadsheet to keep score. First, they keep track of the desired score—the goals of what the company wants to achieve. Then they keep track of the actual score—what the company actually achieves. Finally, they compare the two scores to show a variance score.

Then, if these so-called strategists have a big enough budget, they create fancy dashboards to place on all of the executives’ digital screens to show off the results. These dashboards have lots of fancy colors and dials and charts and traffic lights—sort of like those fancy Jumbotrons.

But as fancy as they all are, the root function is not much different than that old-time scoreboard operator. The primary function is just to keep track of the score.

The principle is that scorekeeping is not the same as strategic planning. And if the job description for your “strategists” is basically that of being a scorekeeper, then the task of true strategy is probably lacking—to the detriment of the company.

This is not to belittle the role of the scorekeeper. That is an important job. But it is not strategic planning. You need them both. Just as sporting events would be pretty worthless if only the scorekeepers showed up, all that business scorekeeping is pretty worthless if all the goals and measures being watched are not rooted in comprehensive strategic planning.

Asking the Tough Questions
Comprehensive strategic planning is not merely about coming up with a number. No, it tends to be more like an essay test. Great strategic planning has to answer a lot of tough questions, like:

Where are we going to play in the marketplace?

How are we going to win in that place?

What are the tradeoffs we are going to make to win?

What is the business model best suited for us to win?

What is missing in our resources to accomplish this? How will we obtain what is missing?

What threats are on the horizon which could change the way we need to play to win?

We talked more about the importance of answering these types of tough questions here and here. The key point is that until you answer these questions, there is no way of knowing how to score your progress. You need to know the rules for YOUR particular game before you can properly score it.

Otherwise, it would be like carefully measuring the speed at which you are driving when you have no idea of where to go. If you have not determined a destination and a path, then the speed at which you are driving is irrelevant. Getting nowhere faster isn’t much to be proud of.

To get a handle on where the profession of strategic planning is headed, I spend time looking at the job descriptions posted for “strategic” positions. It is fairly common to see lots of scorekeeping in the job description, but very little about tackling these tough questions. The qualifications tend to ask for people with expertise in accounting and spreadsheet modeling. They don’t tend to ask for people with expertise in positioning, business models, or how to win in a competitive marketplace.

I’m not so sure that accountants are necessarily the best qualified to answer these types of questions. And even if they were, they will be too busy with scorekeeping to spend much time focusing on the questions.

Don’t Merely Rely on the Operators
I’ve talked to some of the people who operate under these types of job descriptions. I ask them how all those tough questions get answered. What I hear is that the scorekeepers rely on the business operators for the bulk of the input. Unfortunately, there are many flaws in this approach.

First, the operators have a personal bias towards getting a large bonus. This can cloud their thinking regarding what a good score would be. A good score for an operator might be a beatable number, rather than the strategically correct number.

Second, operators tend to be highly invested in the status quo. That is their strength; it is what they know. Therefore, they tend to pick goals which are incremental extensions of the status quo. Strategically, the best solution might instead need to be a drastic change…perhaps even selling off that operation. Why would an operator volunteer to see his career path and platform for power go away?

Third, a lot of the best strategic moves are into new spaces. This is often referred to as the Blue Ocean strategy. By definition, new virgin spaces do not have an established operating base. Therefore, there is not an operating division naturally thinking about or fighting for this new opportunity.

Finally, operators tend to be overwhelmed by the Tyranny of the Immediate. In other words, a large percentage of their time is focused on the current crisis of the day. They are spending so much time putting out the current fire that they do not have enough time for the luxury of pondering the long-term. If you are not spending enough time pondering the big picture and the long term, then you will answer the questions in a narrow, short-term way. This leads to sub-optimization.

That is why companies need professional strategists who are not captive to these limitations. They do have the luxury of being able to focus on these big issues. That is, they have that luxury if they are not required to spend nearly 100% of their time as scorekeepers.

This is not to say that the viewpoint of operators is worthless. No, their insights are valuable to the process because they are on the front lines. But, it cannot stand alone. It needs to be balanced by the objectivity and big-picture thinking of a real strategist.

Keeping score is not the same thing as providing key insights into answering the tough questions of strategy. If you reposition strategic planning as little more than scorekeeping, then a key aspect of strategic planning will be missing. As a result, you may end up with great measurements of nearly random activity which does not lead to a great long-term destination.

Today’s modern spreadsheet and dashboard tools can turn into great toys which are fun to play with. They can start absorbing an ever larger percentage of your time. But let’s not forget that they are only more sophisticated scoreboards. And although they can be very useful, the action on the playing field is still more important than the sizzle of the scoreboard. Keep it all in its proper perspective. The essay test of the tough strategic questions may not have as much sizzle as a scoreboard, but it still needs focused attention.