Strategic Planning Analogy #504: Fixing a Plane After it Crashes

THE STORY

After 17 years, the tragic crash of TWA flight 800 is back in the news. A documentary has come out claiming that the official explanation of the crash (static electricity igniting the fuel) is wrong. Instead, the documentary endorses the alternative explanation that the plane had been attacked with a rocket, perhaps sent by terrorists.

I have a couple of thoughts about this. First, I can easily understand why so many prefer the rocket attack explanation. After all, it always feels better to blame some outside force (beyond our control) for our problems than to admit internal incompetence, either in the plane design, maintenance or operation.

My second thought is that for the 230 aboard that flight who died 17 years ago, it largely doesn’t matter anymore which theory is correct. Neither explanation will bring them back to life or restore the plane so that they could reach their original destination. For them, it is too late.

THE ANALOGY

The business world is full of tragedies. Companies crash and burn, negatively affecting hundreds, if not thousands, of people. In terms of financial impact, these corporate tragedies are larger than the tragedy of TWA flight 800.

When these events happen, it is common for the leaders of these destroyed organizations to take an approach similar to the one in the TWA documentary—they try to blame it on outside forces beyond their control. “It wasn’t me or my leadership which caused the disaster,” they say. “No. It was the fault of some evil outside force which nobody could have prevented.”

Outside forces which get the blame can include international economic conditions, the weather, political unrest, too much (or too little) government intervention, illegal market manipulations, unfair competitive environment, and so on. The logic is that despite the Herculean effort of management to counter these evil outside forces, the situation was just too great. Nobody could have saved the company.

In a narrow sense, there may even be some truth to these claims. Dire situations can be devastating to companies. But this explanation only works if your time horizon is narrow.

In reality, strong, well run companies can anticipate most of the potential tragedies which could occur. Using strategic planning and scenario analyses, they can anticipate and be prepared for the worst. In fact, the great strategic plans avoid the disasters entirely by steering their company in a new direction before the outside forces come to pass.

Sure, it’s easy to claim that nothing can be done if you wait until your “plane” is on fire and already close to crashing before looking for a solution. But, in most cases, advanced strategic thinking years earlier could have provided a solution so that you avoid the fire altogether.

The best time for analysis is not after the crash occurs. By then, it is too late. The tragic results have already occurred; the damage is already done. No, the best time for analysis is years, if not decades in advance. That way, you have sufficient time to use the knowledge to create a path which puts a company out of harm’s way.

THE PRINCIPLE

The underlying principle here is that the best time for critical strategic analysis is not during (or after) a crisis, but before the crisis, when times are still relatively good. By attacking potential future disasters while times are still good, you have many advantages:

1)     You have more time to prepare and implement a solution;

2)     You have more cash flow to apply to the solution;

3)     You still have a strong reputation, good market share, and a consumer following, making the transition easier for your key stakeholders;

4)     You can analyze the problem more rationally, instead of making rash moves in the heat of the disaster.

5)     If you have to retreat from a business to avoid the future disaster, there is still time to find buyers for it who will pay a good price.

By contrast, if you wait until the disaster is upon you before creating an exit strategy, the situation is working against you:

1)     You have very little time to find and implement a new course;

2)     Your options are limited because your cash flow is already decimated and customers have already started abandoning you.

3)     The crisis is so obvious that nobody wants to bail you out by paying a handsome sum to take over your disaster.

Example #1: Department Stores

Look at the situation JCPenney is in. It’s on fire and looks like it could be headed for a crash. There is a lot of speculation about what or who to blame for the disastrous results of late, such as losing about a third of their business.

Some would say that the problems for the department store industry are so bad that there was really nothing that any leader could have done to save JCPenney, be that Ron Johnson, the recently fired CEO, or Mike Ullman, the replacement executive (as well as having been the top executive prior to Johnson).  The reasoning is that the department store industry was doomed due to outside economic, technological and competitive forces. It is beyond redemption.

But that is only if you start trying to fix the problem now, after the plane is already on fire.

Look at the Dayton Hudson Corporation. They used to be a major player in the department store industry decades ago. The executives there were smart. They knew that the best days for the department store format were behind them. They knew that the format was on a course headed for eventual bad times.

So while times were still good, Dayton Hudson started selling off its department store properties. First, they got rid of their holdings in the fast-growing southwestern part of the US in the 1980s, when competitors were trying to out-bid each other to buy them. They finally sold the remainder of their department stores to the May Company (another department store company) in 2004 (for a good price).

But then the bad times started to hit the industry. Soon thereafter, the May Company was in such bad shape that they had to sell themselves to Federated (now called Macy’s) at a terrible price. And now, almost all the remaining department store companies are struggling to find a winning strategy, like JCPenney, Sears and Bon-Ton.

What did Dayton Hudson do? They took the money from the sale of the department stores to invest in the future, their Target store chain. Dayton Hudson (now called Target Corp.) is doing well and avoided the department store mess.  

The point is that if you wait until the industry is in trouble (like JCPenney) before crafting a solution, you will find it very difficult. But if you start crafting a solution while the times were still good (like Dayton Hudson), you have a greater chance of success.

Other Examples

A similar situation occurred in grocery wholesaling. To an astute observer, it was obvious decades ago that the small independent grocer (the key customer of grocery wholesalers) was entering a troubling future. Walmart supercenters and the big grocery chains were putting pressure on many of the independents. Eventually, it was likely that many of these independent grocers would be out of business. It doesn’t take an expert to figure out that if your key customer is going out of business, it doesn’t bode well for those supplying them.

Therefore, while times were still good, Cardinal Foods decided to act. They used their cash flow to diversify into a field where their distribution expertise had longer life—pharmaceuticals. Now, Cardinal Foods, whose name was changed to Cardinal Health, is a strong #21 on the Fortune 500 while many of the few remaining grocery wholesalers are in challenging times.

Google did not wait until its computer-based business model was in trouble before pushing hard into the smartphone space with Android. Google did it while it could still leverage its strength. Amazon did not wait for its strength in the computer-based ecommerce era to end before launching Kindle.  By contrast, Zynga was already in trouble from smartphones taking over gaming from the computer when it decided to take the challenge seriously (and is having serious problems now making the transition because it waited until it was in a position of weakness).

There are many more examples I could mention. I’ve talked about some in previous blogs here, here and here.

SUMMARY

All strategies eventually fail. If you wait until failure comes before starting to change, you will most likely not change successfully.  By contrast, if you start adapting while times are still good, you are more likely to make a successful transition.

FINAL THOUGHTS

Think of strategic planning as a parachute to help escape problems. But a parachute is of no use if you wait until the plane has already crashed before putting it on. It only helps if you escape while the plane is still flying.