Tuesday, September 4, 2012

Strategic Planning Analogy #467: The Flavor Conspiracy

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.

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 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.

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.

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.

No comments:

Post a Comment