Tuesday, April 30, 2013

Strategic Planning Analogy #498: Snapshots vs. Paintings

I recently got back from a combination trip to see my new grandson and a vacation.

I wanted a good picture of my grandson. To get it, I took a lot of pictures of him. Some of the pictures were pretty awful, but eventually, that process lead to getting a good photo of him (see photo above).

Afterwards, I went vacationing and toured some old houses. There were old oil portraits of people on the walls.  They may have looked fancy—even a bit regal—but I’d rather have the simple snapshots of my grandchild than any of those old paintings.

In the business world, we have the option of building two types of planning processes—either one like the process used to create fancy oil paintings (like the ones I saw in the old houses) or like the process used to create digital snapshots (like the ones I took of my grandson). 

The painting process may create something worthy to display on a wall for generations, but it is usually time consuming, costly and inflexible. Those don’t sound like good qualities for a strategic plan. 

Conversely, taking digital snapshots is quick, inexpensive, and flexible. It may produce a few duds, but eventually you get some good photos in a very efficient way. Those qualities also sound good for strategic planning.

The principle here is that the goal of strategic planning is not to create perfect documents and statements to proudly display on walls and bookshelves. The goal is to figure out how to move a company forward in an efficient and timely manner. To do so, we can learn more from the process I used to get a photo of my grandson than from the artists who made those old paintings on the walls of those old houses.

The Problems With Paintings
Oil paintings can look great on the wall and last for generations. The artist of great paintings can achieve great fame. And that can sound appealing. There is a certain appeal for planners to want to create plans great enough to “hang on the wall” for generations and give the planner fame and glory. But great plans should not be the desired endpoint; instead, the desired endpoint should be great companies. The plans are just a means to that greater end.

The important thing to remember is that you don’t need “perfect oil portrait” plans in order to effectively and efficiently move a company forward.  In fact, the desire for this perfection can actually be counterproductive. 

One of the problems with oil paintings is that they take a long time to create. Time is a precious resource in our fast-moving world. Time lost in perfecting a plan can become advantage lost to faster competitors. A “good enough” plan received in a timely manner is more valuable than “perfection” which comes too late to be of any use. Is your planning process geared more towards timely completion or excessiveness and grandeur?

Another problem with oil portraits are that they are posed. The people being painted have to remain in a stiff, usually unnatural position in an artificially positive environment.  And if the posing still doesn’t look good, the artist will alter reality to make the painting more flattering than reality.  The end result may be great art, but not an accurate accounting of reality.

Bad planning can fall into the same trap. The plan may try to place the company in the best light rather than show the harsh reality of the truth of what’s happening out in the marketplace. The most positive assumptions can be used. The plan may try to please the egos of the leadership rather than tell the truth they do not want to hear. Wrong strategic decisions are made, because judgment is clouded by unnatural flattery in the “posed” strategic plan.

Sometimes the flattering distortions are the result of trying to hit unrealistically high profit numbers with the plan. The only way to fit these numbers into the plan is by surrounding them with unrealistically optimistic scenarios, since you cannot get there just by incrementally tweaking the harsh reality.

The result is that the plan becomes a failure and the numbers are never achieved, because the plan was never achievable once reality overcame the false optimism posed in the assumptions.  It would have been better to paint the real picture and show that the desired profit numbers were not achievable. Then, you would be aware that radical change was necessary and you could take steps in advance to avoid the inevitable failure of the flattery approach.

Finally, oil paintings have to problem of being hard to modify once the paint has dried. We live in a dynamic world.  Adjustments are inevitable.  Is your planning process hard to modify once the ink has dried?  If the world changes shortly after the plan is put into play, do you have to wait a year until the next planning cycle to make adjustments?

The Benefits of Snapshots
Digital snapshots avoid a lot of the problems we saw with the painting approach.  They are fast and easy to create.  They capture reality rather than an artist’s distorted vision of flattery. They provide rapid feedback of what is happening. And it is easy to keep taking snapshots so that your latest picture is accurately telling you what is happening NOW.

What does a snapshot oriented planning process look like?  First, it gets out of the portrait studio inside the corporate offices and goes out into the marketplace to capture reality where money is changing hands. And it doesn’t care what camera the snapshots come from. It gathers impressions from social media, customers, competitors and a variety of other sources, so that the information is not a one-sided bias of “corporate-think.”

Second, snapshot planning is very experimental. When I was taking snapshots of my grandson, I tried all sorts of approaches to getting his picture.  Some of these experiments did not work.  But some picture-taking experiments were great.  The planning analogy is to do a lot of small experiments. Test hypotheses to see how well they fly out in the marketplace. The results of a test can often provide far better guidance for strategic decisions than having internal executives guess about what will happen in the real world.

Try things on a small scale. The disaster at JCPenney was not that CEO Ron Johnson tried something different. The disaster was that he did a full rollout before testing it.  There was little downside risk to my taking a bad snapshot of my grandson, so I could afford to try a lot of things before finding what worked.  Set up your tests in a similar manner, so that you do not risk much and can pull the plug early if it doesn’t work. That approach would have saved JCPenney a fortune.

Being flexible and experimental does not mean that your planning becomes random. This is not a process of just clicking a camera continually in random directions until you get a good shot. No, there still must be a focus to where you point the camera.

Winning strategies need to position your company in a place where is can bring a competitive advantage. There may be very few places where you can create that kind of advantage. Random acts are not the best way to find these places. First you need to understand the marketplace, what you bring to bear on the marketplace, and what others can do. This preparatory work helps you to know the general space where you are most likely positioned to succeed. Then you get flexible and experiment within that space.

The emotional connection between me and my snapshots was the fact that I wanted a record of my grandchild. Random photos of anything, or of other babies, would not have worked.  I needed to point my camera in the general direction of my grandson in order to get a satisfactory photo. In the same way, your plan needs to know the focal point. This provides guidance for the experimentation.

Plans are not the endpoint, but a means to a greater end—the long-term improvement of the business. Therefore, rather than wasting time perfecting the plan, focus your effort on building a tool which quickly and effectively points to where success is most likely, so that you can win the race to finding the fortune that such a place offers.

You rarely see oil portraits of the young and unaccomplished. Instead, most portraits are of older people after they have made their great accomplishments.  They look backward at past successes rather than towards where future success will come. Planning processes which are too focused on the successes of the past (like oil paintings) will hang on too long to obsolete strategies and miss out on winning the battle for next big thing. 

Thursday, April 11, 2013

Strategic Planning Analogy #497: Managing Moments

When I started my first semester at the university, I was surprised how friendly all the students were. I had never seen such friendly people. I thought to myself that this was going to be a great experience. 

However, when I started my second semester as a freshmen, I noticed that the other students in my classes were a lot less friendly.  At first, I thought it was an odd coincidence that I just so happened to get friendly students in all my first semester classes, and unfriendly students in all my second semester classes.

Eventually, I figured out the real cause of the change. In my first semester, I was surrounded by other first semester freshmen.  We were all new to the university. Most of us did not have friends on campus because we didn’t know anyone there yet. Because of the strong desire to have friends, these first semester freshmen were acting aggressively friendly in order to fill that desire.

By the end of the first semester, these freshmen had made a sufficient number of friends.  The need was satisfied. Therefore, they relaxed in the second semester and were not as desperate to aggressively make new friends. Hence, they were not as “friendly” to me.

That is why, when I’m speaking to someone who is going off to the university for the first time, I tell them to be careful in choosing the classes and places where they hang out in that first semester. After all, the people you meet in that first semester are the ones most likely to become your lifelong friends long after university life is over.

When students first go to college, there is a brief window of time when they are aggressively seeking out friends. In a matter of weeks, however, that window gets closed.  Enough friends have been made during the short window of opportunity that afterwards the aggressive behavior goes away.  They are now less likely to work abnormally hard to make more friends.

Windows of opportunity also exist in the marketplace. There are brief moments of time when an individual is more open to creating new purchasing behaviors or preferences. Then the window quickly closes and they become “less friendly” towards changing those behaviors/preferences. Habit and routine takes over; and market share hardens like concrete.

There are many triggers which can cause these windows of opportunity to open. Moving to a new location, like a university campus, is one such trigger. Not only may you need to be more open to finding friends after moving, but you now may have to find a new grocery store to prefer, a new doctor, a new hair stylist, the best place to service your car, and so on. You are much more receptive at that time to consider new alternatives. But soon, you make all of those choices and the window of opportunity closes.

Other triggers which can open us up to abnormally high openness to change in behavior include getting married, having one’s first child, getting a big promotion, buying your first home, a change in a company’s CEO, a drastic change in the economy (up or down), revolutionary new technology which makes the status quo behavior obsolete, and so on.

Most strategic plans include a desire to change marketplace behavior to the benefit of the company/brand. Since triggers can have such a strong impact on susceptibility to changes in behavior, it usually makes sense to consider triggers as part of your strategic plan.

The principle here is that windows of opportunity are only open for brief moments. Therefore, finding ways to quickly identify and exploit these windows should be a priority in most strategies. If you wait until the third semester to make friends in college, you will probably end up with fewer friends than if you started in the first semester, when making new friends is easier. Similarly, if you are slow in reacting to triggers in the marketplace, you will miss out on the benefits inherent when windows of opportunity are open.

Here are three suggestions on how to better exploit triggers and windows of opportunity as part of your strategy.

1. Understand the Relationship Between Triggers and Your Business
Not all triggers are equally important to your business or your strategy.  Therefore, if you want to exploit trigger points and their windows of opportunity, you must first understand which ones are most important to your business, and why. It is only through understanding the relationships that you can properly determine which triggers to exploit, and how to exploit them.

For example, I know of a church that wanted to grow. It did research and found that the people most likely to consider seeking out a new church were those who were new to the community. That was their key trigger point.  Additional research showed them that the primary reason why people moved into their community was due to a job transfer. 

Therefore, the church built a strategy around seeking out and appealing to those with job transfers.  They took out ads in the airport (the place where many of these people first experienced the community). They formed close relationships with the companies bringing in the most new employees to the community. As a result of strategic actions such as these, many newcomers ended up choosing their church and it grew very rapidly.

So do your homework to learn which triggers to exploit as well as discover the best way to exploit the window of opportunity while it is open.

2. Prepare in Advance
Because these windows of opportunity may not be open very long, one needs to act quickly—as soon as the window opens.  Otherwise, by the time you figure out what to do, it may be too late. 

In a prior blog, I talked about how Caterpillar did a scenario analysis of what would happen in significant economic downturn. They calmly built what they believed to be the best course of action under such a scenario.  Then, when the great recession began, Caterpillar realized that the significant economic downturn trigger had occurred, so the quickly implemented the plan built for that scenario. 

The plan worked brilliantly because it was not hastily put together during a period of panic. When the trigger came, they pulled out the plan and implemented it immediately with full confidence.

Other companies, like Proctor & Gamble, were criticized for being too slow and indecisive when the great recession came.  And they suffered for it.

In another example, a friend of mine told me a story about beer in Chicago. Budweiser had been a strong competitor in Chicago, but sometime back around the 1970s or so, the Budweiser distributors suffered from a strike.  Old Style beer, a smaller player from out of town, knew a strike at Budweiser in Chicago was a potential trigger point, so they prepared for it. 

When the strike occurred, Old Style immediately flooded the market to fill the void. They positioned themselves as being the one loyal to the citizens of Chicago. They made close ties with the local sports teams.  They advertised aggressively to position themselves as Chicago’s beer. As a result, when the strike came, the former Budweiser drinkers (who now had to find a substitute) chose Old Style and many stayed with Old Style after the strike was over.  Old Style became the strong leader in the Chicago market. It took many decades before Budweiser regained the share lost due to the strike. All because Old Style was prepared in advance for the trigger.

3. Utilize Modern Technology
Thanks to the technological advances in “Big Data” crunching, and the data available due to social media, it has never been easier to find out when individuals have reached a trigger point.  One can now set up massive, yet finely targeted marketing campaigns to reach individuals precisely at the point when the trigger goes off.

I recently attended a big data conference and was amazed by how advanced the tools are becoming (and how the prices to use them are dropping). It would be foolish not to consider them as key tools in your strategic arsenal.

However, given privacy concerns and other such issues, one needs to be careful.  Back in February of 2012, Target stores got into some trouble for being too indiscriminate in the process.  Due to big data analysis, Target determined that if a customer suddenly started buying certain products (out of a list of 29 products), there was an extremely high likelihood that the person was pregnant. So once someone started buying these products, Target immediately went into action with their pregnancy and new baby promotions.

Unfortunately, one of these promotional packages ended up going to a young teenaged girl.  The girl’s father became irate and went to Target to complain.  But then, a few days later, the father apologized to Target because he learned in the interim that his daughter was indeed pregnant. Thanks to big data, Target knew before the girl’s father.

Since then, Target is more subtle in how they exploit the data.

The best time to convince people to switch allegiance to your brand is when people are most prone to consider making a change. Therefore, effective strategies can be built around finding and then exploiting the triggers which cause people to be more susceptible to changes in behavior. The best way to do this is by:

1.      Understanding the relationship of your brand to various triggers.
2.      Preparing in advance a strategy to exploit that trigger, so you can act upon it immediately.
3.      Carefully using all the modern big data and social media tools which make finding and exploiting trigger points easier.

Another thing I remember from my college days was that at the beginning of each school year, one of the beer companies would sponsor a huge free concert on campus. They understood that those first semester freshmen were not only making new friend choices, but new beer brand choices. Are you the one exploiting these types of windows of opportunity, or are you letting the competition get the upper hand?

Monday, April 1, 2013

Strategic Planning Analogy #496: The 3 Keys to Success (Part 3)

I heard a great story long ago from a preacher. He was describing a fishing club.  Every week, the club members gathered to hear lectures about how great it is to go fishing. Everyone at the meeting agreed that fishing was great (and loved hearing stories about fishing), but none of the members had ever actually gone fishing. 

A new, younger member of the group listened to the lectures and decided he would go fishing. So he did, and he caught a big fish. The following week, he brought the fish to the weekly fishing club meeting. The audience was excited.  Most had never seen a real fish before.

After that, the fishing club insisted that the young fisherman repeatedly tell stories about his one fishing trip. Of course, this kept the young man so busy that he could no longer find time to fish anymore. So the fishing club was back to not having any members who fished.

The preacher was using his story to compare the weekly fishing meeting to the weekly church service.  Many people at church are like the members of that fish club: They like to hear stories every week about conversions to Christianity (catching fish), but never go out to evangelize on their own. Many may not have ever even seen a new convert to Christianity. His point was that just as odd as it would be to join a fishing enthusiast’s club yet never fish, it should seem odd for a professing Christian to love conversions but never participate in seeking them.

A similar analogy could be made in the business world. A lot of business leaders profess to be enthusiastic about many great business principles, like serving the customer, making employees the most important asset, having a business strategy, and so on. They may talk about these great business principles on a regular basis. The leaders may even convince their followers to also believe in these principles.

But, if nobody in the company actually does anything to support these principles, they become just hollow slogans with no impact. The company becomes as silly as a fishing club that never goes fishing.

We are currently on the final blog in a three-part series on the three characteristics which tend to determine whether a business is a great, lasting winner, or a long-term loser. In the first blog, we looked at “Passion” and saw that the winners have a passion for the business and the intricacies of the business model which makes it work in the marketplace. The losers focus their passion on the money that comes out of the business and are only tangentially concerned about the details in how it is made.

In the second blog, we looked at “Direction” and saw that losers choose a direction which follows—either the rules of the status quo or the actions of the leader in the industry. By contrast, winners choose a differentiating direction—either a new business model to better solve an old problem, or an entirely new value equation for a new industry.

In this blog, we will look at “Action.”  The principle here is that winners have a bias towards taking action regarding what they believe. The losers, by contrast, are more like that fishing club. They talk a good story, but never get around to acting upon it.

It’s All About Culture
A bias towards action tends to get to the root of a company’s corporate culture. Some cultures naturally encourage action—a bias towards “yes.” Other cultures have natural barriers which naturally discourage action—a bias towards “no.”

A culture with a bias towards action tends to have the following characteristics:

  1. Curiosity
  2. A Passion for Experimentation
  3. A Tolerance of Small Failures
  4. Willing to Take Calculated Risks
  5. Allow People Out in the Field Some Independence
  6. Permit “Skunk Works” (independent projects)
  7. Reduce the Red Tape to Get Things Done
  8. Get Tired of Just Talking and Settle Disagreements By Trying Something
  9. Put Their Investment Money Where Their Passions Lie.

Of course, if a company is all action with no direction, all you have is confusion and anarchy. So what you want is action focused around a general direction, the direction of strategic intent. You want to get those things done which have the greatest impact on moving the strategy.

This is why all three characteristics of success tend to be linked together.  Without a passion for how the business works, you won’t know what actions to take to improve it. Without a strategic direction in how you want to stand out in the marketplace, you won’t know where to experiment. It all goes together.

Three Types of Actions   
Successful companies tend to focus their actions in three areas.  First are the “tinkering” actions.  This is the idea of never being content with the status quo. The culture is one of never declaring “We’ve Made It!” The thinking is that there is always room for improvement and we should try to find ways to improvement all the time.

You can never just relax and put your feet up on the desk and say we’ve perfected it and we can relax.  The problem with resting on your laurels is that the world is constantly changing. The best for yesterday is not good enough for today.  If you stop improving, a competitor will pass you by.

Therefore, successful companies are always acting to tinker with the current approach to make it better. They ask themselves questions like:

  1. What Worked?
  2. What Didn’t Work?
  3. How Can We Do This Better/Faster/Cheaper?
  4. What is the Customer Feedback?

Wal-Mart is a master of the art of tinkering. They are never content; always stretching to improve.

But it doesn’t stop there.  If all the action was on small incremental improvements, companies would never make the major strategic leaps. Therefore, these successful companies also devote a significant amount of time to bringing the future to life. I call this “Big Picture” actions.

Think of Google. Their big picture vision is to advance the consumption of knowledge in a superior manner for consumers, in a way that also offers additional opportunities to leverage their digital advertising strengths. But this is not mere talk. At Google, they do it. 

To get more ads on mobile, Google created an entirely new mobile ecosystem around the Android operating system. To get more ads related to geographic search they invented a whole new approach to geographic search, including sending cars everywhere to take street-level photographs of everything. Google Glass allows people to see the internet all the time in glasses (that will also support ads). Heck, they’ve even invented cars that drive themselves so that passengers can be freed up to spend more time online to see Google’s ads.

Google saw the big picture and made big actions over large sectors in order to pave a path for their strategy. They didn’t wait for these markets to evolve; Google created them themselves in order to control the destiny of their strategy. 

Similarly, Amazon wanted to protect its ability to continue selling books once books went digital, so they acted to create the Kindle ebook devices. They saw the big picture and did what was necessary to protect their strategy. They weren’t talking about fish—they were fishing.

Finally, the third type of action revolves around just doing the things that businesses should do. I call this “Doing What the Experts Say to Do.” Starting with Peter Drucker and moving through the decades to today, there have been a number of experts saying what good companies should do. It involves things like:

  1. Finding a Position
  2. Investing In Your Infrastructure
  3. Investing In Your People
  4. Listening to Customers
  5. Communicating Well
  6. Delegating Properly
  7. Organizing Around Competencies
Good companies don’t just read about this stuff—they actually do it. How many companies say they care about their people, yet do nothing to show they care? The good companies make these principles come to life by focusing actions to make it happen. We don’t need a lot more books on what businesses should do. Instead, we need more business who make it a priority to do what is in the books already written.

I remember going to a business roundtable of retail strategists years ago. The mix of retailers represented covered the full spectrum—from very successful firms to very unsuccessful firms. We started the meeting by going around the table asking each strategist to say what was their biggest challenge. 

For the successful firms, there was a variety of high-level problems that were being tackled.  However, for the troubled companies, the challenge was always the same. They said their biggest challenge was in getting people to actually implement the strategy. The losers could only talk about fishing; the winners were actually doing it.

It could not be any plainer. If you can’t implement things, you are doomed to failure. If you can, then the challenge is to pick which successes to go after.

One of the key differences between business winners and losers is the ability to turn ideas into actions. If your corporate culture has a bias towards actions, you are more likely to succeed. The three types of actions are:

1.      Tinkering—Always looking for ways to do things better
2.      Big Picture Actions—Building the future reality of your grand strategy
3.      Doing What the Experts Say to Do—Putting the principles of good business into action.

So success boils down to just three things—Passion for the Business (and business model), Direction Towards Meaningful Differences, and a Bias Towards Action. Where do you stand in these three areas?