Tuesday, July 31, 2012

Strategic Planning Analogy #463: Where Secrets Aren’t Hidden

Back when I was in High School, I had a friend who wanted to date a girl.  Unfortunately, she did not want to date him.  She said that the only way she would meet with him would be if he came over to her house to have her teach a lesson from her religious organization.  Since that was the only way he was going to meet her, he said yes to those conditions.

Later, my friend had some misgivings about the conditions, so he talked me into joining the religious class with him at her house.  She gave us some religious books to look at and told us to read a particular page.  After we read the page, she asked us a question about the material.  I immediately gave her an answer.  She was impressed by what I said so she asked me how I came to that conclusion.

My reply was that it was not my conclusion.  There was a big footnote at the bottom of the page which had the answer she was looking for in it.  So all I did was read the footnote verbatim.    

After that, she didn’t ask me any questions any more.

Life is full of questions.  Business is no exception.  If you want a build a solid business strategy, you need to first answer a lot of questions regarding the environment, internal competencies, competition, consumers, assumptions, and so on. 

Sometimes, it can be difficult to find the answers to these questions.  However, at other times, the answers may be right in front of us, like that footnote in that religious book.  All we need to do is know where to look (like in the footnotes section) and there it is, staring us in the face.

One of the hardest bits of information to find can be the future strategic intent of key outside stakeholders and competitors.  It is usually in their best interest to keep that information a secret from you.  After all, if you knew their strategic intent, you could use that information against them.  They prefer the element of surprise to work in their favor, so they hide their strategic intent.

This blog will show where some of that supposedly hidden intent is actually out in plain sight, like that footnote.

The principle here is that even though competitors may not want to tell you their strategic intent, they are often obligated to tell others of that intent.  For example, they may need to tell their intents to a lender or the SEC or a zoning commission.  All you need to do is look at what they tell the others and the intent can be as obvious as that footnote in the story.  We will talk about several of these places.  

1) Jobs
If a company is planning to move in a new direction, that often requires an infrastructure or skill-set not currently in the company.  It may also require a restructuring of the business (which also may apply if a company is abandoning an area).

As it turns out, these types of changes often lead to new job titles and new hires.  So if you follow what types of people are being hired and how job titles are changing, you can find out what type of work and what type of organization is being developed.  And that will tell you the direction of the strategy.

I’ve read job descriptions where the whole new strategic intent is pretty much laid out in full.  Or the job description may say that the company is planning to enter the “such-and-such” business and is looking for people with expertise in that area.  Or a press release about job promotions may explain the strategic basis behind the reorganization.   Facts they want to hide from you are broadcast to perfect strangers through job boards, press releases and other job-related material.     

So where can you find this data?  Job listing aggregation sites like indeed.com are very valuable.  Search on a company and/or a job title and you can find all the relevant job listings.  The Signal feature of Linked In (look under the header for News) and various Twitter search options can help you track early hiring searches sent out via messages like Twitter.  Just search on the word “hiring” and all sorts of interesting things show up.

And of course, you can look at a particular company’s web site.  Two places of note are useful—the career page and the press release page (to read about promotions and reorganizations).

2) 10 Ks
Public companies are obligated by governmental regulatory agencies to report on key aspects of their business.   These documents need to be filed and can typically be accessed by the public.  The key information might not be at the top in the headlines, but if you look at the interior pages and footnotes, a lot of secrets are disclosed.  In the US, the key documents filed with the SEC (like 10Ks) can be found at www.sec.gov/edgar/searchedgar/companysearch.html.

For example, no company wants to later be cited for not sufficiently explaining all the risks to their business in the business risks portion of the document.  Therefore, they tend to go overboard and overstate risks.  These overstatements can allude to business risks of future strategic intents not otherwise discussed.  A great example of using a company’s filing to discover strategic intent can be found here, where the example of Microsoft is used.

3) In-House Documents
Some companies go to great lengths to keep secrets out of documents going out to the world.  However, they can often be less diligent in documents meant for internal employees.  And guess what?  A lot of company web sites have links to internal newsletters and other such documents.  And anyone can look at them.

By the way, sometimes it is difficult to discover the internal conventions for how company emails are assigned.  However, you can often find out what these conventions are in these in-house documents.

4) Employee Rants
Employees often say more than they should, especially if they are angry.  And some of them put these thoughts on the internet.  There are lots of places where this can be found.  If you can join a particular company employee group on Linked In, you can catch some of this gossip.  Or the Yahoo company message boards in the finance section often have insider comments from employees.  Just type in the company symbol and look for its message board.  Or go to Google and type in a company name followed by the word “sucks.”  Most major firms have at least one site devoted to rantings which can usually be found this way.  Or you can search on company comments on Twitter. 

I know of one high-ranking officer in a company who lost his job because he said too much on the Yahoo message board.

The Jigsaw Puzzle
Many times, press releases, interviews and some of the other sources mentioned above will give some hints about strategy, but not provide a complete picture.  They are like a single piece of a jigsaw puzzle—interesting but not enough to understand what the whole picture is about.  However, if you collect enough of this information from a variety of sources, you can end up with handfuls of jigsaw puzzle pieces.  They may not be all the pieces to the puzzle, but enough to know what the complete picture would look like.

So consolidate your individual pieces and look at them together.

Just because a company wants to keeps secrets doesn’t mean that the information cannot be found.  If you know where to look, a lot of those “secrets” are hidden in plain sight.   So look for them.

For the truly lazy, there are companies that will do the looking for you.  You really have no excuse.

Tuesday, July 24, 2012

Strategic Planning Analogy #462: American War-Idol

Imagine what would happen if military warfare shifted from the field of battle to a TV reality talent contest, like “American Idol.”  Victory would no longer depend on direct combat with the enemy.  No, the victor would be determined by how many in the TV audience vote for a particular army.

Instead of direct combat against each other, each army would perform a military exercise separately.  They would show off their talents at warfare skills. Then the TV audience would vote on which army appeared more skillful. Like on those singing talent TV shows, the singers rarely go head to head in combat.  They just sing their songs and hope the audience prefers their performance over the others.

If this were the case, then the whole idea of warfare would have to change.  Instead of focusing on the best way to physically defeat the enemy, the goal would shift to focusing on the TV audience.  Gaining votes from the viewers becomes the name of the game rather than the old measurements of territory won or lives lost.

I suppose this would cut down on the bloodshed, but it would require a radical rethinking on how to do the act of war.

A lot of the terminology in strategic planning is borrowed from the military.  There are strategic campaigns, strategic attacks, competitive enemy assessments, and so on.  In fact, a lot of the beginnings of business strategy borrowed heavily from military thought.  Military books like “The Art of War” are often placed on the recommended lists for business leaders.

But I think we need to ask ourselves an important question.  Is the modern game of business more like the traditional military, or more like those singing talent shows on TV?  This is an important question, because the way you approach winning under these two scenarios is quite different. 

As we saw in the story, traditional warfare is about direct confrontation with a foe.  The focus is on overpowering the enemy with superior force.  On the TV talent contests, the confrontation is much more indirect.  Yes you still have to overcome a foe, but the decision is made by the audience.  In this case the focus is on wooing the audience.  The enemy is overcome by superior popularity with a third party.

In the modern world of business, the losers go bankrupt while the winners create cash flow.  And where does that cash come from?  It is not like the old traditional warfare or pirate warfare where you would conquer the enemy on the field of battle and then take their wealth as “the spoils of battle.” 

No, it is far more indirect in the business world.  You get the cash flow primarily from people buying your goods and services—your CUSTOMERS, not your enemy.  Yes, you have to convince customers to spend their money with you rather than your competition.  But that is an indirect assault on the competition.  This means that the real battlefield is not where the competition is, but where the customer’s mind is at.

Hence, victory in business today appears more like the American Idol TV show than old war battles.  You focus on trying to get the “votes” of the audience (customers vote mostly with their money in business) rather than directly vanquishing the foe. 

In fact, this trend appears to be getting even greater.  First, thanks to the social media, the customer is becoming even more powerful in determining the winners and the losers.  Second, governments are still legislating and prosecuting to protect companies from direct “anti-competitive” moves on other companies. 

So, direct confrontation is getting legislated away while the voice of the third party consumer is becoming more influential.

Therefore, if you want to get ahead in business, it may make more sense to put away those books on war and start watching more talent contests on TV.

The principle here is that your strategic thinking may need to deemphasize the competitive warfare principles and embrace more of a talent show mindset.  In other words, you may need to fixate less on the competition and more on the consumer.

Too much of a fixation on beating the competition can have two major drawbacks.

1.  Too Much Focus on Improving the Status Quo Rather than Seeking Superior Consumer Solutions.
Consider the epic battle in the last century between Kodak and Fuji in the analog film business.  Each was focused on trying to beat the other.  First, a lot of effort was put into trying to have a superior film product over the other.  For a short period of time Fuji would be ahead of Kodak in quality and then Kodak would make a leap to superiority and so on.

Second, serious effort was spent trying to get superior product distribution over the other.  Finally, there was the battle over value/price.

And we all know what happened.  Customers abandoned the category and moved to digital imaging, making Fuji and Kodak both losers in imaging.  All that effort to have superiority over the rival in quality, distribution and value ended up being meaningless.  It didn’t matter who won the direct battle between Fuji and Kodak for superiority in analog film.  If the consumers stop voting for the category, the victory is very hollow.

I had a friend who worked in the US beer industry decades ago.  He would talk about the intense fixation in top management at Anheuser Busch and Miller at that time to try to destroy each other.  Each spent a fortune to try to get an edge on the other in the US market.  All the while, imports and micro-breweries were stealing the hearts of the customers.  AB and Miller were so weakened by the shift that they each had to seek shelter by selling out to larger international firms.

The point here is that the intense competitor fixation is usually placed on competitors doing pretty much the same thing in the same way in the same industry.   It is based on the current status quo and the goal is to be the best at doing what the status quo does.

The problem is that consumers shift, causing the status quo to become severely weakened or obsolete.  While you are staring at your status quo enemy, you miss the competitor of the future who is now only a blip on the horizon.  You miss thinking outside the box to find advantages that have nothing to do with superiority within the status quo competitive system.  Worse yet, you miss out on time that could have been focused on understanding the mind of the customer better (where the real voting takes place).   

Rather than building superior solutions for the consumer, you end up building superior obsolete products. Just because you beat up your enemy doesn’t mean the customer wants you.  A better version of a no longer desired solution still loses the war for votes.

2.  Missing Out on Peaceful Coexistence Options
Another important point is that you can win the hearts of the customer without having to completely destroy the competition.  Many of the losers on the American Idol TV show still went on to have successful singing careers.  Winning on the show did not mean everyone who did not win had to fail.   They could peacefully co-exist in the entertainment marketplace by appealing to different audiences.

This is very true in the business world.  If your strategic position is significantly different from another firm, you can both win by appealing to different segments.  For example, one technology firm can win in the consumer space (like Apple) where another find success in the business space (like Microsoft).   Or one brand can focus on the high-end luxury business while another focuses on the masses.

The idea is that rather than focusing on outdoing a competitor at the same thing, one can often be more profitable leaving the competitor alone and going in a different strategic direction.  In a head to head competitive battle, your advantages tend to be very temporary, because the enemy fights back to gain its own advantage.  In addition, price wars against each other wipe out the profits from any temporary advantages.

By contrast, if you ignore the enemy and go a different way, your efforts can be placed behind more dramatic and more lasting points of differentiation—because the whole strategy is based on being different rather than trying to be better at the same thing.  And with a stronger differentiation, there is less need to resort to price wars.

Strategy is about choosing the right tradeoffs—doing less of one thing so that you can do more of another.  If you choose different tradeoffs than the competition, then you sort of cease to really even be in competition any more.  So long as there is a large enough audience voting for your version of the tradeoffs, you can almost ignore that other company and just focus on being better at your point of differentiation.

If Apple had continued to try to beat Microsoft in traditional computing, it would have died a long time ago.  However, by repositioning itself in an entirely new business model, Apple could win while not having to really worry about Microsoft anymore, because they were no longer in direct competition.  Instead it had the luxury of just focusing on getting better at its point of differentiation (and make a lot of money doing so).

Excessive focus on beating the competition can hurt your chances of success because it takes focus away from areas which can create consumers to spend more money with you.  In particular, it focuses one too much on the status quo, rather than on the superior business models of the future (which typically come from someone who is not a current competitor).  Second, money and effort is wasted on trying to outdo the competitor at the same thing rather than creating more lasting and more profitable superiority through differentiation in positioning.  Remember, the money comes from the customer, not the enemy, so focus on where the money is.

Even the military is starting to adopt more a TV talent show approach to warfare.  The turning point for the US in the war in Afghanistan came when less focus was placed on out-muscling the enemy and more focus was placed on pleasing the citizens living there.  By building roads and schools and other initiatives, the citizens started liking the US more.  As a result they gave less shelter to the enemy of the US, allowing the US to gain more victories.  If even the military is moving in this direction, shouldn’t you?

Wednesday, July 18, 2012

Strategic Planning Analogy #461: Watersheds

Years ago, I was hiking in a wilderness area in northern Minnesota.  I felt like I was out in the middle of nowhere.  But there on the ground was a small plaque.  The plaque said that I was standing at the Hill of Three Waters.  This was the point where three great watersheds meet.

To the north of this point, all of the water flowed north to Hudson Bay in Canada and into the Arctic Ocean.  To the southeast of this point, the water flowed into the Great Lakes and the St. Lawrence Seaway, eventually flowing into the Atlantic Ocean.  To the southwest of this point, the water flowed south into the Mississippi River and eventually into the Gulf of Mexico.   All three watersheds get their start at this point in the wilderness. 

Of course, since this was the high point in the area, there really wasn’t any water here.  It had already drained into the three great watersheds.  So I poured a little water on the point to see which way it would flow.  It didn’t flow at all.  I was just absorbed into the dry ground. 

So much for my great experiment.

Watersheds are powerful systems.  They channel huge amounts of water into a singular direction.  The force of gravity pushes the water on its predetermined path.  The water doesn’t have a choice.  It goes in the direction dictated by the watershed it is in.

The water doesn’t get to vote on where it goes.  If it is in the Northern (also called Laurentian) Watershed, it will go to Hudson Bay.  If it is in the St. Lawrence Watershed, it will flow to the Atlantic Ocean.  If it is in the Mississippi Watershed, it will flow towards the Gulf of Mexico. 

Similar forces take place in society and in business systems.  Certain situations will come together in such a way that the pull on the economy will be like the gravity on the watershed.  Society will naturally flow in particular direction and you won’t be able to do much to change it.  If your strategy runs counter to the flow of society, it will have difficulty succeeding.  However, if it exploits the power of the watershed, then success can be multiplied many times over as cash naturally flows in your direction.

The principle here is that business ecosystems operate like watersheds.  Individual companies/brands have the power to not only exploit the forces of these watersheds, but to change the contour of the watershed.  Just as a bulldozer can change the contour of the land, a business can change the contour of the marketplace.  The result can cause even more cash to naturally flow in your direction.   Therefore, strategic planners need to consider more than just their own internal business.  They need to create plans which encompass the entire watershed.

We will now look at four key points in planning the watershed and then show examples of two companies which have done this well.

1) The Flow is Most Obvious Near the End of the Journey
When I was at the Hill of Three Waters, I could see no evidence of the three watersheds.  The land was dry.  This is because the beginnings of the water flow are very small.  However, if I were to go to the ends of these watersheds, I could easily see the power of the water flow.  As the Mississippi River gets near the Gulf of Mexico, or the St. Lawrence Seaway gets near the Atlantic Ocean, you can see the great accumulation of water moving strongly towards its goal.

But here is the problem.  By the time the flow of the watershed is that obvious, it is really strategically too late to do much.  The flow is already set in place.  And just as the end of the flow is a consolidation of huge number of earlier tributaries, mature business watersheds are consolidated into a small handful of firms.  It is too late to break in and make a big difference.  This is not the time to push into the system.  The winning company (river) has already been determined.

So the dilemma is this…the best time to make a strategic move into a business watershed is early on, when you have more power to control the flow to your advantage.  However, that is also the hardest time to detect where the great watersheds would be.  It is not as obvious. 

As a result, companies need to step away from the obvious of today and envision where future flows of cash could go.  This is part research (science) and part imagination (art).  Consider the beginnings of Starbucks.  The idea of converting a society used to buying cheap coffee as an ingredient in supermarkets to buying expensive finished product coffee in restaurants was not obvious.  That new ecosystem (watershed) really did not exist in the US at that time.  It looked like the dryness of the Hill of Three Waters. 

Yet instead of going down the established flow of the old system, Starbucks crossed the divide and created a new watershed.,,and was very successful.

This is somewhat akin to the Blue Ocean Strategy approach.  Rather than fight the flow of water when it is strongest against you (in a mature structure at the end of a watershed), go to a new location and build your own flow of water.  This is where you have the power to mold the flow to your advantage.

So don’t just strategize around where the water is today.  That game is likely already set against you.  Go to new watersheds, where you can build flows that come to you.

2) Manage the Entire Watershed
Depending on the contour of the land, more or less water will flow in your direction.  Similarly, the contour of the marketplace will determine how much flows towards a particular company.  Suppliers have choices.  Distributors have choices.  Customers have choices.  If you proactively contour the marketplace, there will be a natural desire for those choices to be made in your direction.  Just as gravity naturally moves water in a particular direction, your actions to shape the greater marketplace will move business in your direction.

Don’t assume that if you run your small part of the ecosystem well that everything will naturally flow your way.  It may not.  Take strategic steps outside your small part to encourage the rest of the ecosystem to give you preference.  By working together, Microsoft Windows and Intel created a strong “Wintel” watershed which made software developers and computer manufacturers naturally prefer to work with them over any competing system.  It became a near-monopoly standard.  Like gravity, practically the entire business computing world flowed in the direction of Windows and Intel, because they locked up all the key players into their watershed.

As we shall see below, Apple and Wal-Mart have also been extremely successful because they built strategies to encompass the entire ecosystem.  This forced more business to flow through their core operations.  This doesn’t mean that you have to own the entire ecosystem.  But it does mean you need to exert a degree of control over it.   Spend time to find ways to create advantages with all the players in the system.  Help define the standard operating procedures for the entire system in your favor.   Make this a key part of your strategic plan.

3) Grow By Exploiting the Flow You Already Control
One part of strategic planning is to find new avenues for growth.  This is often best accomplished by taking advantage of the advantages one has already developed in the marketplace.  In other words, take advantage of the strong water flows you have already created, rather than start from scratch.  This is akin to the idea of building on one’s core.

The problem is that businesses which appear to be near the core may not necessarily benefit from your watershed.  Consider Anheuser Busch a few decades ago.  They saw the salty snack business as being very similar to their core beer business in the US.  Both businesses used direct store delivery to get to similar retailers.  Both businesses were relatively inexpensive indulgences.  They were often consumed together.  So Anheuser Busch made a big push into salty snacks with Eagle Snacks.  It failed.

Why?  As it turns out, all the power flowing through Anheuser Busch’s beer business really didn’t provide a competitive advantage in salty snacks.  Rather than being the same watershed, they were parallel watersheds.  And the salty snack watershed was already mature and flowing into Frito Lay.    

Example #1:  Wal-Mart
Wal-Mart was successful because it followed these principles of the watershed.  In the beginning, rather than fight the entrenched watershed of discount retailing which flowed through large cities, Wal-Mart crossed the divide and built a watershed flowing through small towns.  Here, the game was wide open and they could write the rules in their favor.

Second, Wal-Mart knew that to be successful in small towns, it would need to control the entire supply chain (watershed).  It built its own distribution network, to make it the most efficient path to reach small towns.  It built the most sophisticated data network, so that it knew what was happening across the system.  This created the superior system, so both customers and vendors flowed to its stores like gravity.

Finally, when Wal-Mart wanted to grow beyond its US base of discount stores, it stayed within its watershed.  It added food to the mix to create supercenters.  This took advantage of the infrastructure and power already in place and made it even stronger.

Example #2: Apple
When Steve jobs came back to Apple, he didn’t try to fight the entrenched Wintel watershed.  Instead, he crossed the divide and created a new watershed around specialized portable computers dedicated to music (the iPod).

Apple did not just create the iPod device.  Instead they created the entire ecosystem, with the iTunes store, the Apple store, the software to easily download tunes, and so on.  As a result, they had designed the contours of the digital music space so that they were the superior place for everything to flow.  It all worked together well because the entire system was strategically designed to work together well.

Finally, when it was time to diversify and grow, Apple built off the strengths of the iPod watershed and exploited them with the iPhone and the iPad.  They utilized many of the same strengths Apple had already built in the marketplace.  The music flows flowed into the phone and the pad.  The distribution channels, the strength in design, the app store as an extension of iTunes, and so on.  It was building on prior flows, rather than starting over.

Exceptional levels of success require exceptional levels of business activity to flow in your direction.  This does not occur by accident.  It occurs when one proactively makes plans for the entire business ecosystem.  And it is easiest to influence the direction of the ecosystem when it is still young.

Once your watershed is built and the water is flowing strongly in your direction, there can be a desire to just sit back and enjoy the flow.  Unfortunately, the business landscape is not as stable as a physical landscape.  Society may shift; competitors may dam up your river; rain may pour into a new watershed.  You need to remain diligent in managing the watershed.

Monday, July 9, 2012

Strategic Planning Analogy #460: Who’s the Greatest

If you get sports fans talking long enough, the conversation the conversation will eventually get around to an argument over who was the greatest.  Who was the greatest athlete?  Who was the greatest coach?  Which is the best team?

The problem with these types of arguments is that the individual greatness is tough to separate from the given situation.  For example, there are coaches who were very successful coaching one team, but then did poorly coaching another team.  Same coach with supposedly the same brilliant coaching strategies and skills, but different results.  So is the coach great or not?

The same is true for many athletes.  An athlete might have great success playing on one team but not when playing on another team.  Same athlete with the same skills, but different results depending on the rest of the team.  So is the athlete great or not?

And, of course, most teams can have a streak of very successful years, followed by a streak of poor years.  Is it a great team or not?

In the world of business, one can also find heated arguments about greatness—who was the greatest CEO, the greatest business or the greatest business strategy.  In these discussions, you run into the same problem as with sports—the situation plays a major influence.  Some CEOs have great success at one company but fail miserably at another.  A company regarded by business experts as great in one year may go bankrupt a few years later.  Just like in sports, situations can change, causing otherwise great CEOs and companies to suddenly not look so great (or vice versa).

The one that is most relevant to me is the discussion about great business strategies.  Many times, a great strategy on paper may not work out so well in practice.  So was it a great strategy or not?  Should the strategists be rewarded or not?

The principle here is that strategies should not be judged on how great they are.  Instead, they should be judged on how SUCCESSFUL they are.  After all, if the company does not benefit with success from the strategy, what is the point of having it?  Being proud of a “great” strategy on a piece of paper that never gets properly executed (for whatever reason), isn’t much to be proud of in my opinion.

And since success is based on a lot of situational factors (like in sports), strategists need to concern themselves with these factors if they want to see success. The truly great coaches adapt their strategies to the particular situation at hand—the athletes they have, the opponents they play, and so on.  In a similar manner, business strategists, need to look at the larger context in order to be sure that the strategy ultimate leads to success.

Moving from merely having a great strategy to having a successful strategy requires four steps.  These are described below.

1) Moving From Ideas to Actions
It all starts with a great strategic idea—what to be, what winning looks like.  But, if you have no clue how to bring this idea to life, then all you have is an idea.  Dreams are nice, but eventually you have to wake up and face reality.  For example, a sports team can dream about winning a championship, but that’s not enough to secure the championship. The team has to take action—play games, win games.

Moving a great strategic idea from a dream to a reality is the same. You have to convert the dream into action plans.  This doesn’t mean that every detailed action needs to be spelled out in advance.  However, the big action requirements need to be understood. 

A good coach doesn’t just tell his team to “win” and then walk away.  No, he draws up some game plans and set plays.  He devises actions that will increase the likelihood that the team will win.  In the same way, successful strategies are more than just declarations of lofty targets.  They also outline the path of actions needed to get there.

2) Moving From Actions to Skills
So far so good, but this is still not enough.  A great coach could have a great strategy and a great gam plan..  But if the players on the team are incapable of executing the strategy and game plan, then the coach will not succeed.  Somebody has to do the actions.  If the people cannot do the actions, the actions won’t get done.

That is why a great strategy not only includes an action plan, but also a plan for those doing the action.  In sports, it usually boils down three things—having athletes of the proper skill levels, having athletes properly trained, and having the proper equipment and facilities. 

A similar situation exists for businesses.  To execute the action plan you need skilled people who are properly trained and have all the tools and infrastructure they need.  In the past, I have referred to this as the “pursuit" portion of strategic planning.  The idea is that the plans don’t get done by themselves—you have to pursue them.  The pursuit portion of strategic planning makes sure you have all the pieces needed to win—competencies, capacity, and connections.  I spoke in more detail about these in an earlier blog.

Remember, strategic success relies on having the right people properly equipped.  Therefore, strategies need to consider both the human resource element and spending on resources.

3) Moving From Skills to Exploitation
Okay, so now we have a strategy, an action plan and some skilled players.  But that still does not guarantee success.  There have been dream teams in the past with all sorts of skilled players who still had disappointing performance.   Maybe the team chemistry is wrong.  Perhaps there are too many selfish egos in the way preventing teamwork.  Perhaps a key player doesn’t want to be on the team and is sulking rather than playing.  Perhaps the team is not serious about doing what it takes to win.

Whatever the cause, the execution is below the levels necessary to win.  Even if sufficient skills and sufficient training/equipment is there, if the athletes are not sufficiently motivated, the plan will not be properly executed.  The skills need to be exploited to be useful.

That is why great coaches not only work on game plans, but also work on team motivation.  Both are needed if you want the plan to succeed.  It is natural and expected for coaches to do this.  Yet it is not usual and expected that strategists would do this.  I think that is a mistake. 

It is common for strategist to hand off the plan to those executing it and then walk away.  And if the plan fails, the strategist blame “poor execution.” “It’s not my fault,” they say. “It’s the fault of those who are poorly executing that great plan of mine.”  We wouldn’t accept it if a coach used that excuse in sports.  Why do we allow that excuse in business?

No, if you want a truly great strategy, you have to include a process which properly motivates employees to aggressively and enthusiastically execute the key elements of the plan.  Do the people know what you want executed?  Are the compensation systems set up to reward the proper long term strategic behavior?  Are there motivating pep talks?

4) Moving From Exploitation to Strategy
Often times, even having action plans, skilled personnel and motivation is not enough.  For example, on a sports team, a coach may find that the people have skills, but not the right skills or right balance of skills.  Perhaps a star player retired or got injured, leaving a big hole.  Perhaps the matchup with competition is not what is desired.  In these cases, no matter how well thought out, the original plan is in trouble.

Great coaches do not blame these circumstances for their problems and accept failure.  No, they adjust.  If you don’t have the right kind of team to execute the original plan, perhaps you need to adjust the plan to better exploit the advantages you do have.  Look at what you have to find a way to win.

The key is not to have a great strategic planning document, but a successful business.  The environment the company is competing in is fluid and ever changing.  Internal and external changes often require adjustments to the overall plan.  This does not mean that strategies should be in constant flux.  But it does mean that adjustments may be necessary.

Planning is not a one-time event, but an on-going process.  It is a continuous cycle from strategy to action to skills to execution and back again to strategy. 

The goal is not to have a great strategy, but to have a successful business.  Therefore, the strategist should not just come up with a great idea and walk away.  No, the process needs to be expanded to encompass all the elements needed to convert a strategy from an idea to business success.  That includes the development of action plans, plans to ensure the proper people/infrastructure are in place, and plans to properly motivate the right actions.  And if, going through this larger process you notice that the original plan is no longer most appropriate, take time to reformulate the plan to best exploit the situation at hand.

The greatest strategists are the one who create the greatest company successes, not the ones with the greatest portfolio of mission and vision statements.

Tuesday, July 3, 2012

Strategic Planning Analogy #459: Strategic Toss-Outs

When its time to clean out the junk which accumulates at my house, my wife and I have different opinions.  She seems very willing to toss out my stuff, but more reluctant to toss out her own stuff.  I, on the other hand am very willing to toss out her stuff while hanging on to my own.  As a result, we often disagree about what should be tossed out.

Sometimes, I’ll come home from a business trip and find out that my wife used the time I was away to get rid of the junk in the house.  Apparently, she finds it a lot easier to make those decisions about what to toss when I’m not around.   The disagreements go away (along with a lot of stuff I would have wanted to keep).

Houses aren’t the only things which collect junk over time.  So do businesses.  Business junk that accumulates over time includes:

   1) Old Products and Services which are no longer relevant.
   2) Formalized Processes and Procedures which are out of date.
   3) Informal ways that things get done which are out of date.
   4) People and positions which no longer accurately reflect best practices.
   5) Ways of thinking about the business.
   6) Unprofitable customers.
   7) Old capital investments.

Although nobody would argue with the abstract concept of eliminating the obsolete and irrelevant, the problem arises in that not everyone agrees about what is obsolete and irrelevant.  This is particularly true if someone else believes that what you yourself do for the business is obsolete and irrelevant.  Like the situation with my wife, someone else’s area in the business may appear less relevant than one’s own, so you fight to toss their junk while keeping your own.

Worse yet, sometimes businesses are in a position like a couple who is downsizing from a large house to a small apartment.  In order to fit into the smaller dwelling, they not only have to get rid of junk, but also get rid of some stuff that has reasonable value.  Similarly, businesses often find a need to downsize and are faced with the tough task of getting rid of seemingly good things in order to fit the budgeted shrinkage.

The problem, of course, is in deciding what seemingly valuable aspects of the business to toss out.  This can be difficult, because it may require getting rid of long-time employees or heritage products associated with the founding of the company.  And, as in the story, there can be differences of opinion as to what is or is not valuable. 

And, if some people are left out of the decision (as I was during a business trip), some highly valuable things could get tossed out because the one doing the tossing did not appreciate the value.

The principle here is that strategic planning is about more than just how to grow a business.  Yes, it may be more fun to talk about growth strategies.  However, often times a lot more value can be unlocked from a business by tossing out a lot of the accumulated junk already choking the business.

There can be all sorts of processes, people, products, and factories embedded in the business which are gigantic cash drains.  Getting rid of this junk can create a far greater return on investment than investing in completely new stuff.  (Remember all those statistics about how most acquisitions and new product introductions fail?—it is not a given that every growth move is a winner.) 

Unfortunately, if you get rid of the wrong stuff, like core competencies, key aspects of your competitive advantage, and investments in the future, you can end up destroying the future of the business. (Wrong cutting moves can be as dangerous as wrong growth moves).

Therefore, decisions about what to toss out can be just as strategic as decisions about what to add.  Yet, I’ve seen many examples where cost cutting programs totally bypass any strategic scrutiny.  Perhaps every department is told to cut out 10% of their expenses and they can use their own judgment about what they can toss.  This could end up being a strategic nightmare, because it may not cut out enough junk in some areas while choking off the best potential in other areas.

Without a coordinated, strategic approach to tossing out, you can end up tossing away your best chance at success.  Here are some strategic issues to consider when embarking on a cutting/fixing program.

1) Know what is the Foundation of Success
Nobody would intentionally sabotage the underpinnings of their success.  Yet it happens all the time.  There are two causes.  First a company may not know what is the basis of their success, or they may have a mistaken understanding of what strategic elements created their success.  Unless you first know what is critical to your business model, you will not know how cuts or fixes are going to affect those critical elements.  So before embarking on a cutting/fixing program, make sure everyone is in agreement as to what is important for future success.  Know what your key points of differentiation are and what parts of the business model cause them.

Second, all cutting/fixing suggestions need to be viewed in the context of their impact on the core business model.  If the cuts or fixes critically hurt the core elements of success, then don’t do them.  Remember, these are not isolated decisions.  They impact the overall business model.  Keep that in mind when making each decision.

2) Consider Cross-Linkages
Actions in one part of the business can impact many other parts of the business.  For example, the operations department might cut back on labor to make their department’s costs lower.  They might even get a big bonus for this action.  However, the resulting drop in quality could ruin the budget for the service/repair department and make the selling force much less productive due to the problems in trying to sell lower quality goods.

Therefore, one needs to look at the big picture and all the cross-departmental implications.  Reward people on the total impact of their decision, not just on their individual area.  Otherwise, you can end up with a single individual maximizing their area while destroying everyone else (sort of like when my wife cleans out when I’m not around).

3) Flexibility and Backup is Important
Getting rid of excess fat in your supply chain is usually a good idea.  However, like most good ideas, it can turn into a bad idea if taken to an extreme.  If the 2011 tsunami in Japan taught us anything, it was that an extreme approach to lean supply chains is a disaster if a link in the chain gets broken. 

A lot of automotive manufacturing parts had only a single source of supply and that source was wiped out by the tsunami.  And because of a just-in-time system, there were no excess parts on hand. As a result, the entire global automobile supply chain ground to a halt waiting for the single source for one product to be replaced.  This created great financial losses for many months.

You can prevent these great losses by building a little bit more flexibility and backup into the system. Have backup sources or alternative manufacturing options.

Also keep in mind that needs and desires can change over time.  This can require you to make frequent tweaks to your offering.  If you get so specialized in your process (to save money) that you cannot quickly adapt to minor tweaks, you have really made yourself less efficient. 

4) Consider Fewer, But Larger Cuts
A lot of strategy has to do with making trade-offs (see prior blogs here and here).  The idea is that if your strategy requires you to excel in a certain area, it may require you to put more money in the area to excel in and less in areas which do not add (or even take away from) from your competitive edge.

In other words, instead of cutting back a little bit everywhere, perhaps you need to invest more in some places and completely eliminate other areas.  For example, Wal-Mart invests more in areas where cost savings can be realized (like IT systems) and completely eliminates services which only serve to raise costs (and prices).  When you consider fixed and variable costs, the only way to get big improvements in some non-essential activities is to eliminate the whole thing (to cut out the fixed cost).   

So, before making your decisions on what to toss out or fix, first understand the trade-offs which underpin your strategy.  Then consider becoming more extreme in your approach to those trade-offs.

5) Think Longer-Term
To prosper long term, you need a full product development pipeline.  You need something to sell today, something to sell in the near term and something to sell in the long term.  If you cut off R&D and product development to help near-term profits, you may be destroying long term profits because you let the pipeline get empty.

This is like saving a little money today by not changing the oil in your car and ending up eventually having to replace the entire engine because of the damage caused by improper lubrication.  Those near-term savings pale when compared to the long-term consequences.  So make sure our near-term cuts aren’t crippling your long-term strategy.

Strategy isn’t just about plans for how to grow and expand.  It should also include plans for how to fix/improve/eliminate the messes in the current business.  If you do not take a strategic approach to these cuts and fixes, you can end up destroying the key elements of distinction which created your basis for existence.  In other words, strategists can’t just dream about a blue sky future; they need to get their hands dirty helping keep the current businesses on a balanced path between cost efficiency and strategic effectiveness.

A lot of companies focus on “best practices” in order to increase efficiency.  But if all you do is focus on industry best practices, then you are not doing anything to distinguish yourself in the marketplace.  To win, you have to do things differently, and you don’t get different by following industry norms.  Strategies help you understand how to be different, and this can open up greater efficiencies through trade-offs than you can find in best practices. So power your cuts and fixes with strategic insight.