Emergent Vs. Positioning (Part 2)

 

INTRODUCTION
In the last blog, we looked at a comparison between the Emergent view of strategy and the Positioning view.  I explained why I prefer the positioning view.  In today’s blog (part 2), I will explain why I think the emergent point of view also makes some good points and how to incorporate them into a positioning framework to get the best of both worlds.

 

POINT #1: SUSTAINABLE COMPETITIVE ADVANTAGE

The Issue

The emergent position brings up two good issues.  The first has to do with sustainable competitive advantage.  The positioning school tries to find positions which provide sustainable competitive advantages.  The emergents respond that sustainable competitive advantages are becoming increasingly more difficult to create, so finding those types of positions can be a more futile undertaking.

First is the “sustainability” part of the phrase.  In a seemingly ever faster changing environment, very little appears sustainable.  So if change is constant, why seek sustainability? 

Then there is the “competitive advantage” portion of the phrase.  With rapid change comes frequent upgrades and frequent obsolescence.  It makes any advantage very temporary.  It is like a ping pong game, where the ball keeps bouncing from one side to the next—first side A has the advantage and then side B has the advantage, then side A regains the advantage, and so on.  So instead of trying to achieve lasting advantage, emergents just try to stay in the game by responding with their ping pong paddle in a way to keep the game alive.

The Solution

Is this phenomenon a concern?  Yes.  Is the problem as dire as the emergents believe?  I don’t think so.  First of all, this is not the first time rapid change has occurred in business.  We’ve gone through the industrial revolution, the widespread adoption of electricity, the movement to a knowledge-based economy, and so on.  Yes, there is some turmoil during the transition, but companies with a good strategy find a way to make it through the transition.

The solution is to change the focus of where one looks for advantage.  Even when many things are changing, many others stay the same.  In particular, when products and technologies are changing rapidly, basic human needs and desires still stay the same.   There is always a segment wanting low prices.  There is always a segment wanting status.  There is always a segment wanting convenience.  There is always a need to feel loved or appreciated.

Now the means by which these constants are achieved may change.  The core solutions do not.  So the solution is to find positions which are not tied to particular products, but to enduring solutions.  For example, Wal-Mart positioned itself around the enduring solution of offering low prices.  Now the way it has done this has changed.  It started as a discount store.  When it looked like wholesale clubs could provide lower prices, they opened up Sam’s Club.  When it looked like supercenters could provide lower prices, they aggressively replaced discount stores with supercenters.  When it appeared that building a more sustainable and eco-friendly supply chain could lower costs and prices, Walmart aggressively went in that direction. 

The point is that Walmart’s low price position gave them an anchor.  As the world was changing around them, they did not panic.  They just kept migrating to wherever that position could be best met.  And through that singular focus, they were able to reinforce that position with the customers and become continually stronger.

Bausch & Lomb was in the lens business, but they focused their position on the end solution—better sight.  As a result, they migrated in to contacts, eye surgery equipment and eye enhancing vitamins.  Yes, the product changed radically, but because of their focus, they knew what had to be done to stay relevant.  They found a place where they could differentiate and win.

Apple keeps changing their offering, but each offering is true to their position of selling cool, easy to use interfaces between people and their data.

Without these positioning anchors, the myriad of strategic choices would overwhelm a company.  You cannot do it all.  You have to focus.  You have to make trade-offs.  And these enduring positions help light a path within the confusion of change.  In fact, they can help you better anticipate where to go, due to that focus.  Without it, you are always trying to catch-up to whatever looks hot today.  And by the time you match it, the world has moved on to the next hot item.  You never get ahead that way.

Another positioning approach to take is to create a position around speed and flexibility.  The emergent view is to always be racing to keep pace with change.  If speed and flexibility are so important in a rapidly changing environment, wouldn’t building excellence around speed and flexibility be a great position?   Build your positioning trade-offs around speed and flexibility, so that you become faster and more flexible than those who do not make those trade-offs.  This position actually makes rapid change an advantage for your position.

 

POINT #2: LOSS OF CONTROL

The Issue

The second key point emergents make is that businesses are losing control of the interaction with their customers.  The power is shifting to the consumer.  Social media and web 2.0 have given the consumer more of a voice.  They are having a greater say in how products are designed and marketed. 

If consumers are gaining a greater control over the conversation, then emergents would say that consumers are gaining greater control over a company’s position.  If that is the case, then a company can no longer rely on managing its business by managing its position.  Instead, a company needs to chase where the consumer conversation is going and whatever emerges from that is the strategy.

The Solution

Well, this is true to a point.   And that point ends when you shift from incremental strategy to transformational strategy.  Consumers can be great critics of the status quo.  They can tell you what is wrong with a product and how to incrementally make it better.   However, they tend to be quite bad at voicing opinions about transformational issues which go beyond what the consumer has experienced. 

This is because a) most consumers are too busy living their current lives to spend time dreaming up all the particulars around the business model for the next big thing; and b) if they have no experience to relate to, then they have trouble getting their arms around it and give an accurate assessment.

That is why Henry Ford supposedly said, “If I’d asked my customers what they wanted they would have asked for a faster horse.”

That is why Steve Jobs supposedly said, “You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new.”  And when commenting on what kind of consumer research Apple did for the iPad, Jobs said, “None. It is not the consumers’ job to know what they want.”

So if you want to remain in an approach to strategy which is only incremental, then perhaps the idea of following the customer makes sense.  But if you want to transform the world like Henry Ford or Steve Jobs, it would seem that following the customer is a poor choice.  Instead, you still need to lead the customer and be pro-active in what you do.  And if the world is moving as fast and creating as much obsolescence as the emergents proclaim, then I think the transformation approach is even more important.  And that means that significant control is still in the hands of the successful companies.

 

SUMMARY

The emergents make some good points, but not enough to get me to abandon the positioning perspective.  Instead, I just altered the positioning perspective slightly to accommodate the concerns.  You can see them in the chart nearby.  For the concern of the world changing too quickly, I suggest either shifting positions to timeless solutions or to speed & flexibility solutions.  For the concern of losing control, I suggest focusing more on transformations, where control is still strong.

 

FINAL THOUGHTS
Although there is good and bad in both points of view, that does not give an excuse to abandon all approaches to strategy.  It is still worth doing.

Emergent Vs. Positioning (Part 1)

INTRODUCTION
With today’s blog, we will begin a two-part look at a comparison between the Emergent view of strategy and the Positioning view.  In this first part, I will explain why I prefer the positioning view.  In the next blog (part 2), I will explain why I think the emergent point of view also makes some good points and how to incorporate them into a positioning framework to get the best of both worlds.

 

EXPLAINING THE TWO POINTS OF VIEW
In strategic planning, there are two dominant philosophies, commonly referred to as the Emergent and the Positioning philosophies.  They are based on different assumptions and result in different strategic activity.

The Emergent view is that the world is in constant change, so if you want your company to be relevant, you have to keep changing to find your place of relevance within that changing world. In the emergent point of view, building a strategy is not a goal but an outcome from your series of actions taken in order to fit into the marketplace of the moment.  Over time, if you focus on the right series of moves on a near-term basis, you will end up with long-term relevancy (and that result becomes your strategy).  In other words, the strategy emerges out of the focus on actions.

With the emergent point of view, the key role of a strategist is to understand how the market is shifting and to identify the evolving “sweet spot” within it.  Then the strategic path is to try to get to the sweet spot faster and better than the competition.

The Positioning view is that winning long term comes from superior differentiation.  The only way to achieve superior differentiation is by making tough choices about trade-offs.  In other words, the only way to get a sustainable edge is by freeing up resources due to minimizing the factors one trades away in order to double-down with the higher level of resources needed to create superiority at point of differentiation.  And the only way to know which trade-offs are the right ones to make is by predetermining the position one wants to own—where the superior differentiation is to occur.

With the positioning point of view, the key role of the strategist is to help determine which position provides the best chance for success for your particular company/brand and then help the company make the right trade-offs on a near-term basis in order to achieve and reinforce that position.

 

WHY I PREFER THE POSITIONING VIEW
I lean more towards the positioning point of view, and here is why:

1) Getting the Customer’s Attention is Tough

The world is cluttered with information and distractions.  It is hard to compete with all of that to get the customer’s attention.  By emphasizing a position over the long-run, I believe you not only have a better shot at getting the customer’s attention, but getting the customer’s business. 

When you own a position, a consumer knows where to slot you in their mind.  They associate your brand with a word, like “energetic”, “trendy”, “durable”, “easy-to-use”, “long-lasting”, etc.  This makes your brand easier to remember and easier to understand.  There’s too much clutter and demand on people’s time to expect them to figure it all out if it isn’t easy.  They have more important concerns.

Positions can also give your brand a personality.  And this is important, because people tend to purchase the brands which have a personality most similar to their own (or the one they aspire to). 

If you ignore positioning and just move around from sweet spot to sweet spot, you confuse the customer.  They are not sure what you stand for or why they should prefer you over the alternatives.  And when customers get confused, they tend to forget you.  That is not the way to build a strong and loyal following.

2) It’s Easier to Win in Uncontested Space

If you are are chasing after the sweet spot in the marketplace, there is a good chance that a great many others will also be chasing after that same sweet spot.  It becomes quite a competitive battleground.  And as we all know, markets eventually consolidate to only a small handful of winners.  Most of the challengers become short-lived failures.  Why pursue an approach where the odds of success are so small?

By contrast, positioning looks for ways to differentiate.    Rather than chasing the same spot as everyone else, it sets itself apart.  As I say in my book Eight Questions, a good position is desirable, sizeable, ownable, preferable, achievable, believable, understandable, and profitable.  One of the keys is ownability—a position which nobody else owns.  It belongs to you.  It is your word or personality.

When you own a unique position, it is like competing in uncontested space.  Everything is easier.  You can focus on making money instead of fighting hoards of competitors.  Long-term ownership of a position requires that focus on trade-offs that comes from a positioning perspective.

Why battle everyone else for the same sweet spot when there is the uncontested alternative?

3) It’s Difficult to Win a Battle When You Bring No Advantage

Because the emergent view downplays creating unique advantages via focused trade-offs, it doesn’t bring much to the battle.  All you can hope for is to be a little faster and a little better than all the others trying to do the same thing.  And even if you can attain this, it tends to be a very fleeting and short-lived phenomenon.  Someone else will likely be a little faster or a little better with the next iteration.   As a result, the emergent approach tends to put you in one of the most competitive places while providing very little reason for why you should have an advantage over any of those competitors.  Just trying to work harder than everyone else is not a very bankable strategy for the long haul.

By contrast, positioning tends to put you in a less competitive spot with more tools for winning the battle.  Trade-offs create business models with inherent advantages at the point of differentiation.  This makes it harder for others (without that same model) to match you at that point of differentiation.  This increases your chances of winning.

4) Profits Come From Efficiency, Not Bribery

If you have no inherent advantages to bring to the battle, then you have to resort to what I refer to as “bribery.”  My definition of bribery is creating inducements to get customers to prefer you when you have no natural advantage.  This would be things like significant price cuts or adding extra goodies to sweeten the deal.

There are two main problems with this type of bribery.  First, it is easily copied.  The advantage is fleeting because the copiers negate the advantage.  You end up in a price war.  This leads to the second problem—bribery significantly reduces profitability.  It transfers the advantage to the buyer rather than the seller.

By contrast, positioning gets a company focused on perfecting numerous trade-offs moving in a similar direction within a business model.  This consistency improves the efficiency of the business model.  And as the model becomes more efficient, two things happen.  First, you get even stronger at your point of differentiation, so you have a greater natural advantage.  Hence, there is less need to resort to bribery.  Second, the efficiency and the trade-offs provide more cash to apply to any price war.  However, if your position is strong enough, you can probably get way with having a small price premium (people will pay more is the preference is strong enough).

Example:  Microsoft Vs. Apple

Although you can find good and bad examples for each approach, I am going to use Microsoft and Apple to illustrate why I prefer the positioning approach.

Microsoft has used more of an emergent approach over the years.  When they see a particular space get “hot,” they jump to try to become a part of it.  Examples:  When AOL and Netscape were hot, Microsoft jumped in with MSN.  When game players were hot, they jumped in with the X Box.  When iPod-like devices were hot, they jumped in with Zune.  They’ve dabbled in all sorts of other non-computer computing devices over the years.  When search got hot, they invented Bing.  And now that the cloud is hot, they are putting their effort there.

In the process, Microsoft hasn’t built up any strong position.  They haven’t created much of any natural advantages.  They haven’t made consistent trade-offs.  And for the most part, they haven’t created many winners.  About the only advantage they brought to the game was deeper pockets, due to their cash flow from Windows and their business-oriented software.

The sad part is that while they were chasing sweet spots, Microsoft did not meaningfully enhance their original strengths in business software.  With the cloud, that business could be at serious risk, as people stop buying software and use competing cloud services. 

 
By contrast, Apple stayed on a narrower path, thanks to positioning.  They knew what position they wanted to hold—cool, elegent devices combined with proprietary software and services which were easy to use and worked seamlessly.  Apple made the necessary trade-offs in their culture and investments and business model to accentuate this position.   This gave Apple a natural advantage and customer loyalty strong enough to allow them to charge premium prices and still win.

Microsoft has lost market value while Apple has soared to become the highest valued public company.

 

SUMMARY
The strategic planning discipline has developed two different schools of thought on what strategy should be.  These are the positioning school and the emergent school.  I prefer the positioning school, because:

1)      Getting the Customer’s Attention is Tough Without A Position

2)      It’s Easier to Win in Uncontested Space (Which is more likely to occur with a good position).

3)      It’s Difficult to Win a Battle When You Bring No Meaningful Advantage (Which often happens with an emergent approach).

4)      Profits Come From Efficiency, Not Bribery (Positions tend to lead to efficiency, emergent tends to lead to bribes).

 

FINAL THOUGHTS
Although I prefer the positioning point of view, the emergent perspective is not without some merit.  It makes many good points.  In the next blog, I will talk about how to incorporate some of the emergent contributions into a positioning framework.

Strategic Planning Analogy #469: Mirror, Mirror

 

THE STORY
I knew a woman who didn’t like the way she looked.  She wanted a quick and easy way to solve the problem…and she found one.

She took all the mirrors out of her house.

 

THE ANALOGY
Yes, getting rid of the mirrors meant that she could no longer see the way she looked.  And yes, by not seeing the way she looked, she no longer was reminded of the way she looked, so it did not bother her anymore.  But it didn’t change the way she looked.  The problem was merely avoided, not eliminated.

Company leaders often take a similar approach.  They are uncomfortable with their long-term prospects (or how to deal with them).  As a result, they only focus on what they are comfortable with—the near-term issues (the crisis of the day).  They never take the time to examine the firm with a look at the long-term.  The long-term views are eliminated like mirrors, so that you can no longer see how dire the future might be.

Although that may be the comfortable way to eliminate dealing with the issue, it doesn’t solve the problem.  It merely avoids the problem.  Eventually, long-term issues will catch up with you.  And if you haven’t dealt with them in advance, they can destroy your business.

 

THE PRINCIPLE
The principle here is that the future is will come, whether you are paying attention to it or not.  The more you pay attention to it in advance, the better it will be.

Back in the 1980s, Gary Hamel and CK Prahalad wrote an article for the Harvard Business Review saying that senior executives should be spending about a third of their time looking into that future mirror.  Instead, what they found was that senior executives were only spending about 3% of their time looking into that mirror.  I don’t think those numbers have changed significantly since then. 

The tyranny of the immediate always seems to win over gazing into the long-term.  And there is a serious price to pay for this.

Why ignoring the future is a mistake:

1) The Future Determines Your Valuation

The value of a company or business is not based on what happened in the past or what is happening now.  It is based on what will happen in the future.  Companies are cash flow machines and today’s value of the firm or business is roughly the sum of its future cash flows brought back at some discount rate.

Look at the social media firms like Facebook.  Their extremely high stock valuations cannot be justified by what is happening today.  They can only be justified by future expectations.

If you want a high valuation for your firm or business, then you need to have a compelling story about the future and future cash flows.  And you won’t have that story if you ignore the future and only concentrate on the here and now (by throwing away the long-term mirrors).

The question is not what have you done for me lately, but what are you going to do for me tomorrow.  And a great tomorrow won’t happen by accident.

2) Others Are Still Looking at Your Future

In the story, the woman no longer fretted about how she looked because she could no longer see what she looked like.  However, throwing out the mirrors did not stop others from looking at her.  And if they were turned off by her appearance, she would still have problems.  It could hurt her social life, hurt her career and lead to a less desirable life.

The same is true in business.  Consumers look at you; bankers look at you; private equity looks at you; parent companies look at you; clients look at you; vendors look at you; competition looks at you.  If they don’t like your future prospects, they can make your life miserable.  They will take away funding.  They will take away business.  They will assume you are a higher risk and charge you more for their services.  As a result, you will have even more near-term crises and more dire future prospects.

3) Others Are Preparing their Future

If everyone was equally blind to the future, we would all be similarly handicapped.  However, there are always those companies who seriously work to optimize their long-term prospects.  Their proactive approach will help define how the future unfolds.  And since they are working for their own advantage, the future will not unfold to your advantage.  You will become weaker as they become stronger.

Remember that if you don’t define a place for yourself in the future, someone else will define it for you…and you probably won’t like the results.

4) The Future is not Always Incremental

The future does not roll out as a smooth continuous line of incremental improvement.  Major disruptions can occur.  Just ask anyone in the analog business who got wiped out by the digital revolution (like Kodak, traditional newspapers, etc.).  So just trying to get better at the status quo will at some point break down.

So if your head is only looking down at what is in front of you today and all you are trying to do is make it incrementally better, faster, or cheaper, then at some point you will have the best, fastest, cheapest obsolete item on the market.

Only by looking to the future will you have the foresight needed to adapt to the non-incrmental change (which is inevitable)—hopefully with enough advance notice in order take advantage of the leap rather than be a victim of it.

So What is the Solution?

If top management has a little trouble finding sufficient time (or desire) to stare into the mirror, then someone else needs to be doing it for them.  That would be a key role of a strategic planning group.  By being freed a bit more from the tyranny of the immediate, they can spend more time looking into the mirror and pondering what the future looks like.  

Then, as a trusted advisor (and a bit of a nag), the strategy group can ensure that the voice of the future is at the table when decisions are being made.

 

SUMMARY
The future will come, whether we are ready for it or not.  And the future will be better if we are prepared in advance.  After all, that’s where today’s value comes from—our potential future prospects.  And if top management cannot carve out enough time to do so, then strategic planning can add significant value by doing much of it on behalf of senior management.  That alone should make every executive team want to have a vibrant strategic planning unit.

 

FINAL THOUGHTS
There’s an old saying which goes something like this:  “Blessed is the company which never does any long-term planning, for their inevitable demise will come as a complete surprise to them (and they won’t have wasted all that time in worry about it).”  A better blessing would be to properly prepare for the future so that you can be rewarded with long prosperity.  Look into those long-term mirrors.

Strategic Planning Analogy #468: Defeating Concrete

 
THE STORY
The previous owners of my house had put up a pole in the back yard to connect a clothesline to the house, so that one could hang wet laundry outside to dry.  I did not dry clothes outside, so one day I decided to take down that pole.

The job was a lot more difficult than I thought it would be, because the pole was secured in place with concrete.  I had no idea how much concrete was used until I tried to dig out the pole.  The previous owners had used a lot.

With a great deal of effort, I eventually got the pole out of the ground.  Then, I took a hammer to the concrete in order to break it up into smaller pieces.  I was able to discard the smaller pieces of concrete in the trash can.

 

THE ANALOGY
There is something about concrete which seems permanent.  Once it hardens, it appears like it will last forever.  But I was able to destroy that concrete in my backyard.  The pole was no longer permanent.  I threw it all away.

In the business world, market conditions can also seem quite permanent, like concrete.  This feeling is especially true in mature businesses.  The market has already consolidated; the few remaining players have staked out their positions.  It looks like nothing will change—it is as if everything is secured in place with concrete.   However, just as I was able to get rid of the concrete in my back yard, market conditions can also change, even in mature markets.  A seemingly solid position, like that pole, can be thrown away.

Therefore, we cannot sit back and relax.  We cannot rely on the markets to stay unchanging as if set in concrete.  We still need strategic planning.

 

THE PRINCIPLE
This is another blog which tackles arguments for abandoning strategic planning.  In the past, we refuted the argument that certain markets are moving so fast that strategic planning is irrelevant.  In this blog we refute the argument that certain markets are moving too slow to require strategic planning.

Let’s face it.  Although emerging nations and new industries are exciting to talk about, most companies operate the majority of their business in relatively mature sectors or markets.  Mature markets tend to have the following characteristics:

1)      The market is consolidated down to a few players (who don’t change much over time).

2)      The reputations and brand positions of the remaining players are well set (like concrete) and it is difficult to change a customer’s long held perceptions of the remaining players.

3)      Changes in market share are very small and don’t tend to occur very often (like they are set in concrete, too).

 
      4)      The rules for how everyone plays the game appear to be set in concrete as well.

In such an environment, many will reach the conclusion that sophisticated strategic planning is a waste of time and money.  If everything is set in concrete, then why bother spending a lot of effort trying to change it with strategy?  Focusing on doing things a little better and a little cheaper is all you can do.  So stop wasting effort on strategy and just work a little harder and a little cheaper.

However, as we saw in the story, concrete may not be as permanent as it appears.  Change still happens.  And we can become the unfortunate victims of change if we do nothing, or we can take advantage of change if we work to destroy the concrete as I did in my back yard.

Coke Vs. Pepsi

Think about Coke versus Pepsi.  The cola market is very mature in most places.  Coke and Pepsi have eliminated or weakened most of the serious challengers.  Growth is minimal overall and market share doesn’t change very much.  If you are a dedicated Coke drinker, you are probably not going to suddenly shift your alliance and dedication to Pepsi.  The individual brand images have been too strong for too long.

So, why should firms in mature markets like Coke & Pepsi concern themselves with sophisticated strategy?  Because it still matters.

1) The market may be set in concrete, but customers can walk away.

If all one does is focus on doing the same thing better or cheaper, one gets myopically focused on the false assumption that there are no alternatives.  Everything appears to take place in my little area of concrete.  But customers can use your concrete as a sidewalk to move to another market.

Yes, core consumer problems may last forever, but the way they satisfy the problem can change radically.  I may always have thirst, but I do not have to drink a cola.  Starbucks started a revolution to make coffee-based drinks a viable alternative to cola for an entire generation.  Trends in health, wellness and other events have created a rise in demand for fruit drinks, energy drinks, vitamin drinks, etc.  Suddenly, the mature cola industry is becoming a declining industry.

If your feet are stuck in your own industry’s concrete, you may not look up to see the customer revolution and you may not be able to move fast enough to get to where the customers are going.  Suddenly it is no longer a war between Coke and Pepsi.  You are fighting a whole host of alternatives who are not playing by the old rules.

Radical changes can come from all sorts of places.  People are buying fewer watches because they can just look at the smartphone which is always in their hand showing the time of day.  Why buy a newspaper when you can get live updates from everywhere all the time in the digital space?   Why buy meal ingredients at the supermarket and spend the time preparing them when restaurant value meals can be cheaper, easier and faster?

Strategic planning is needed to spot these radical changes before it is too late and then prepare a response.  Perhaps if you make watches, you need to reposition yourself less as a timepiece and more as a piece of jewelry.  Perhaps if you are a supermarket, you need to sell your own value meals.  If you are a newspaper, perhaps you need to radically transform your entire business model.  If you are Coke or Pepsi, you may need to diversify.  Finding and building the right response can take a lot of time and a lot of thought.  An ongoing strategic planning program gives you that time and that thought. 

If you wait until the revolution sneaks up on you, then it is too late.   At that point, all you can do is either acquire into the revolution at a price which is too high to make a decent return, or sell out of the old business at a price which is too low to make any of your stakeholders happy. 

Just working a little harder and cheaper at making Coke or Pepsi will not get someone to stay if they find that coffee or fruit juice or energy drinks are a better solution for them than cola.  And if that is all you do (the status quo a little harder and cheaper), that concrete is going to look more like a granite tombstone.

2) Rules are just words on a piece of paper.

Just because something has always been done the same way does not mean it is the only way.  Rules are just words on a piece of paper.  They do not have to be etched in stone (or concrete).  If you rewrite the rules, perhaps you can get a huge advantage—even if the market is labeled as “mature.”

Retailers like Aldi in grocery retail and Ashley in furniture retail found a way to reinvent mature businesses by re-writing the rules.  They designed their own specifications and went directly to the factories to have products manufactured just for them.  By cutting out the middle man, they were able to improve margins while cutting prices.  This gives them an edge over people playing by the old rules.  A similar event occurred when “fast fashion” retailers like H&M and Zara rewrote the rules about inventory (much less) and fashion seasons (much more) and made huge gains in an otherwise mature business.

Apple rewrote the rules about how music got distributed and became a leading player in a market where they had no prior presence.  They broke through the concrete because they saw it as merely paper—a place where they could write new rules.

Rethinking an entire business model does not come out of just doing the same old thing harder, faster, and cheaper.  Working intently on carbon paper will not create the photocopier.  Working intently on books will not make an e-reader.  No, new business models require new thinking.  And if you eliminate strategic planning, there will not be a strong advocate for encouraging out-of-the box thinking and experimentation on a regular basis.

And if you only work on executing the old rules better (rather than looking for new rules), you will be surprised when a competitor rewrites the rules and takes most of your business away.

 

SUMMARY
Labeling a business as mature does provide an excuse to eliminate or dilute the strategic planning effort.  Radical improvements can still be gained if one uses strategic planning to either find ways to move to new solutions with the customer or to find ways to rewrite the rules for offering the old solutions.  Conversely, if you stop this type of planning and your competition (current or future) do not, then others will get those radical improvements at your expense.

 

FINAL THOUGHTS
In a mature business, don’t think of strategic planning as an expense to be cut, but as a doorway to leaps in opportunity that cannot otherwise be found when the status quo is hardening.

New Web Site

I just wanted you to all know that I have a new web site for my strategy consulting business.  You can find it at http://planninga-from-nanninga.webs.com.  I welcome any suggestions/criticisms.

Strategic Planning Analogy #467: The Flavor Conspiracy

THE STORY
There’s a global conspiracy out there which is trying to get you to believe a lie.  I call it “The Flavor Conspiracy.” 

Think about those artificial flavors.  You can find “cherry” flavor in hundreds of items, from candy to cough syrup.   And every item which claims to have the “cherry” flavor tastes exactly the same.  If everyone is claiming that to be cherry flavor and they all have the same flavor, then that flavor must be the flavor of a cherry, right?

WRONG!  If you were to bite into a real cherry and it tasted like the so-called cherry flavor, you’d spit it out and say that it tasted funny.  Real cherries don’t have the flavor of what manufacturers call cherry.  It’s a lie!

That artificial banana flavoring is even worse.  The flavor doesn’t even come close to that of a real banana.  But every manufacturer uses that same imitation flavor and calls it “Banana Flavor.”  Just because they are all telling the same lie does not make it true.  It’s merely a conspiracy—the flavor conspiracy.

 

THE ANALOGY
A similar conspiracy is taking place in the world of strategic planning.  There is a lie out there that strategy is little more than setting numeric goals and then tracking progress against those goals.  Just shout the numeric goal and plot the progress on some dashboards and spreadsheets and you are done.  Your strategy is complete (except perhaps for additional shouting when the goals are not met).

In more and more companies, this is pretty much how strategy planning is defined.  It is a small offshoot from accounting, where being a CPA is considered a primary prerequisite to working in strategic planning (since those people are skilled in tracking numbers).  If you don’t believe me, go to a job openings site like www.indeed.com and search for strategic planning positions.  Most of the job descriptions tend to move in that direction.

But just because everyone is calling that “strategy” does not make is so, no more than claiming that artificial banana flavoring tastes like bananas makes it so.  It is still a lie.  The conspiracy of having large numbers of people promoting the lie may make it harder to go against the flow.  But that doesn’t mean the majority is right.

Just as those artificial flavors do not accurately represent what the true fruit flavors are, this idea of strategy as merely goal monitoring does not represent what true strategic planning is.   

 

THE PRINCIPLE
The principal here is that unless the planning community stands up to the goal monitoring conspiracy, real strategy will fall away.  It will be like people who never got to taste the real fruit, so they have no reason to reject the false artificial flavors.  Similarly, unless we show the business community what real strategy looks like, the false notion about strategy will be all they know, so they will have no reason to reject it.  They will not know what they are missing.  And they will be missing a lot.  In this blog, I will refer to what is missing as the three R’s.

1. Missing A Reason

Numerical goals are nice, but if you have no reason for why the goal is attainable, then there is no reason why you should assume the goal will be attained.  For example, I could have a goal of wanting to be seven feet tall (2.13 meters).  But I have no reason for why my mature body should suddenly become so much taller.  Therefore, I am unlikely to reach my goal.

Similarly, expecting a mature business model to suddenly jump significantly in sales or profits without any underlying reason is also highly unlikely.  Without a reason, that goal is rather worthless.  And improving the accuracy in your tracking of that goal does not make the goal any more reasonable. 

In my latest book, The Most Important Question, I talk about how the most important question in strategy is “Why should a customer naturally prefer me over the alternatives?”  If you have no reason for why a customer should prefer you, then they will not prefer you.  There will be no reason to expect results to suddenly get better and reach much higher numbers because you have not given customers a reason to reward you with higher numbers.

Sure, you can work a little harder and a little longer at the same old approach and perhaps squeeze out a few drops of extra performance.  But this has a very limited impact.  Any advantage from working harder is usually met with a competitive response which negates the advantage.  And the extra pressure could chase away your best employees or cause them to create more errors due to fatigue. 

 

Also, as markets change, you may find that your old status quo position is becoming less relevant.  And working harder at an obsolete approach doesn’t make it more relevant.  If you are not looking for reasons to succeed, you may not even notice the drift away from a relent reason to exist.  You will only see that goal.

Sure, you can overcome no reason to be preferred a bit by “bribing” the customer with lower prices or better deals.  This may increase sales a bit, but lower profits due to the cost of the added incentives.  And since most of these types of bribes or incentives are easy for competitors to copy or neutralize, they may not even improve sales.  Finally, since there is no underlying reason for why they customers should stay, you could lose those gains as soon as the “bribing” is stopped.

That is why true strategy doesn’t start with a numeric goal.  It starts with defining a position where you have a reason for being, a right to win.  It examines the marketplace to look for viable positions which are desirable, attainable and winnable.  It looks at both rational and emotional drivers of consumer behavior (something not found on a CPA exam).  It dreams up ways to be different from everyone else (whereas accounting tries to achieve conformity in rules with everyone else). 

And most importantly, true strategy questions the status quo to make sure you continue to have a reason to win in a changing marketplace.  It is willing to abandon old rules and adopt new ones.  It is a creative exercise more than a tracking exercise.

2. Missing Reinforcements

True strategy is about making strategic decisions regarding resources.  Where should I put extra resources; where should I take away resources?  Just having a numeric goal doesn’t tell you how to make those choices.   

Michael Porter says the essence of strategy is making the right trade-offs.  In other words, what do I de-emphasize, so that I can afford to create superiority somewhere else?  To answer that, you need to know:

 

       a)      Where you are trying to win (your reason);

b)      What business model makes winning possible;

c)      What attributes are most critical to that business model;

d)     How all the various parts of the business work together to reinforce the winning position.

True strategy isn’t just about telling the people you have today to go out and reach for a goal.  It may first be about eliminating lots of activities (and people) who need to be traded away so that investments can be made in new competencies and capabilities (and new people) that don’t currently exist in the business. 

Until you get the right infrastructure in place, shouting the goal may be shouting at the wrong people.  To win, you need to reinforce the areas of the business most critical to success.  To fund the reinforcement, you need to take funding away from less critical areas.  A true strategy points the way to how those trade-offs are made.  This is a complex task, requiring cooperation and a reduction of political in-fighting and turf wars (particularly from the areas being de-emphasized).  You won’t get that from just shouting a numerical goal.

3. Missing Restrictions   

Strategy is more than just saying which way to go.  It is also about saying which way not to go.  Strategy is about getting alignment around a proper go-to-market strategy.  It is about moving the company in a common direction, so that actions reinforce the reason for being. 

That means that there are more actions which can be wrong than can be right.  And if you are not specific about which activities are wrong, you will not stop them from occurring.   

There are lots of ways to hit a numeric goal.  And a lot of those ways can do harm to the long term prospects of a company.  For example, you can increase profits for a little while by:

a)      Eliminating necessary investments in maintenance or infrastructure;

b)      Destroying quality or damaging services;

c)      Raising prices to non-competitive levels.

In the long run, these actions can destroy a business.

If all you emphasize is hitting a goal, you can end up with all sorts of actions which hit the near-term goal, but destroy long-term prospects.  That is why a true strategy puts restrictions on activities to prevent wrong actions.  True strategy is more about doing the right thing than in hitting a number.  Because if you keep doing the right things, it is easier to hit good numbers year after year after year.  But if all you do is try to hit today’s number by any means possible, there may not be any future.

 

SUMMARY
Just because nearly everyone is doing the same thing doesn’t make it right.  Even if everyone says that imitation banana flavor tastes like bananas, it does not make it true.  Similarly, if most businesses are defining strategic planning as just goal setting and monitoring, that does not mean they are right.  True strategic planning is much more.  It involves determining a reason for winning, a well-thought out trade-off analysis about where to make reinforcements, and restrictions on bad behaviors.

 

FINAL THOUGHTS
Richard Rumelt, in his book Good Strategy/Bad Strategy, says that a goal monitoring approach is bad strategy.  More specifically, Rumelt says that this type of bad strategy “is not the same thing as no strategy or strategy which fails rather than succeeds.  Rather, it is an identifiable way of thinking and writing about strategy that has, unfortunately, been gaining ground.  Bad strategy is long on goals and short on policy and action.  It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impractical.” 

In other words, this approach is not just doing strategy poorly.  It is taking on an approach which is the enemy of true strategy and poisons the mind so that true strategy cannot occur.  We need to fight this conspiracy.