Monday, June 23, 2014

Strategic Planning Analogy #531: Would You Want an Auto Mechanic to Cut Your Hair?

Would you want an auto mechanic to cut your hair? Think about it for a moment. Auto mechanics are very skilled at using tools to accomplish a task. Isn’t that what hairdressers do?


Okay, I thought about it for a moment. No thank you. I think I’d rather go to a hair-cutting professional than an auto mechanic to get my hair cut.

Just because someone is skilled at using automotive tools to repair an engine does not mean they would be skilled at using scissors to cut my hair. First of all, the tools are different. Second of all, the objective is different. Third, knowledge needed is different. Fourth a good hair stylist has a great intuitive sense of style and fashion, something not needed to be a great auto mechanic.

It seems so obvious. Give the task to the person who is skilled, trained and has a natural affinity towards it.

But that is not what I see in many areas of business today, particularly in the world of social media and other digital businesses. There seems to be this notion that nearly all tasks in the business should be done by engineers. After all, engineers are supposedly good at solving problems. Therefore, if everything is done by engineers, then all the problems will be solved. Right?

Well, to me that makes about as much sense as saying that because an auto mechanic is good with tools, I should give them scissors and have them cut my hair.

Even being the best mechanic in the world does not ensure that the person is any good at cutting hair. Similarly, being one of the best engineers gives no guarantee that the person has a clue about what it takes to be a great marketer, great strategist, great leader, etc.

No thank you. I think I’ll stick with the specialists.

The principle here is that the skill sets needed to be great in disciplines such as strategic planning are not the same as the skill sets needed to be a great engineer. Therefore, do not fill those roles with engineers. Here are four reasons why.

1. Different Problems
Yes, engineers are good at solving certain types of problems, but that doesn’t mean they are good at solving all problems.

In particular, engineers tend to be good at the “how” questions:

  • How do we get this done?
  • How do we overcome this design roadblock?
  • How do we turn an idea into a prototype?

However, there are a lot of questions that don’t begin with the word “how”:

  • What problem should we be solving?
  • Where is our competitive differentiation?
  • Why should we win in the marketplace?
  • Who is our key consumer and why will they prefer us over the competition?

In other words, engineers may excel at getting things done, but there are others who are probably better trained and more skilled at knowing which things should get done. Or to put it another way, engineers may be good at answering questions, but strategists are better at knowing which questions to ask.

Engineers like to talk about speed in execution, using buzzwords like “scrum” or “agile”. It’s as if speed is all that matters. But moving faster in the wrong direction does not get you closer to success. This is what I call the “lottery strategy”: the sooner I scratch more losing lottery tickets, the sooner I will scratch a winning ticket. That’s not strategy—that’s relying on luck. The odds are so low that you will most likely lose more money on what you spend on the lottery tickets than what you win.

No matter what many engineers may believe, success is not getting something done. Success is building an enduring business built upon a business model which is designed to win in the marketplace. Without the winning position and business model, all you may have succeeded in getting done is failure. Where’s the pride in that accomplishment?

Strategists are skilled in asking the right questions—to focus businesses on activities where they are more likely to succeed. Strategists can help engineers move from games of luck to games where the rules are in their favor.

2. Different Place
Engineers tend to spend their time focused on the lab. People like marketers and strategists focus their time in the marketplace.

In the lab, everyone is an engineer. They think all this technology stuff is cool just because it is technological. So putting the functionality of a smartphone into a watch is cool to them just because of the technological challenge. And since there is no dissention in the lab, they press on.

Out in the marketplace, things are different. There are problems which need to be solved. There are images which need to be maintained. And there are lots of firms offering a wide variety of options for solving these problems.

Consumers want to consume the best solution to their problem. To them, it is irrelevant whether the solution comes in a watch or in a magic orb. They will consume whatever is best for their needs. And it may just be that putting the functionality of a smartphone on a watch is not the most compelling solution—no matter how cool the engineers think the technological feat is.

Yes, you need people like engineers focused on the lab. But you also need people like strategists who are focused on the marketplace.

3. Easier to Learn Industry than Discipline
I’ve talked to a lot of people in retail store operations over the years and they all say the same thing. They’d rather hire someone with good people skills and train them in the retail industry than hire someone with lots of retail experience who has no people skills.

The reason is because some people are more naturally gifted in certain skill sets than others. These gifts are difficult to train to someone who doesn’t naturally have them. Without the right natural skill sets for a particular function, knowing the industry where you want to apply those gifts is not very useful. In fact, training about the industry to the right person is far easier than training in skill sets gifts to those who are in the industry but don’t have the gift.

As we’ve already seen, great engineers tend to be naturally gifted differently than marketers, strategists and others. Yet, these engineer-driven companies are hesitant to bring in non-engineers to help, because they are afraid they will not understand the industry.

Trust me, it is easier to hire great, naturally-gifted strategists and marketers and teach them your business than to take engineers who know your business and train them to think like marketers and strategists.

4. Remember the Failures
I have heard people say in response to the line of argument in this blog: “But look at all those successes like Google. They are engineer-driven and it worked. So I should be, too.”

My answer is this: For every successful firm like Google, there are thousands of failures using that same engineer-driven approach. Evidence would show that the engineer-driven model has produced far, far more failures than success. I see no evidence that the odds of success are improved when engineers are placed in positions for which they are not naturally gifted.

Just because an engineer is smart and good at getting things done does not mean that engineers should take over nearly all the functions of a business. Like everyone else, they have blind spots. By hiring a diverse set of people with different skill sets, you eliminate the blind spots and get people who are more naturally gifted in each particular job. Hiring a real strategist to run strategy is an asset because they can help focus engineers on getting the “right” things done.

Just as you wouldn’t want to have an auto mechanic cut your hair, I don’t think you’d want an auto mechanic defining how others should cut your hair. Yet, when I look at some job descriptions for strategists, it appears as if the job was defined by an engineer. The strategist position is defined as more of a project manager (engineering mindset) than as a strategic thinker (strategic mindset). If you leave out the natural giftedness of the strategist from the job description, you won’t get true strategy. You’re designing failure.

Thursday, June 12, 2014

Strategic Planning Analogy #530: The Power of Power

I once had to sit on a long plane ride next to a woman who wouldn’t stop talking to me. She kept going on and on about all of the products she had “invented” over her lifetime. Although she used the word “invented”, I think that was a bit of a stretch. Actually, a better term would be “dream up.”

She would tell me how she thought of an idea for a new product and then years later a company would actually bring it to market. For example, she told me that she had dreamt up the idea for disposable diapers long before Proctor and Gamble invented them. She never really pursued any of these ideas. She just had an idea that someone else would later also have. The difference was that she never did anything with her idea and they did.

There was only one of her “inventions” which really came to life. It was a brush for cleaning grease traps at fast food restaurants. And it only came to life because she worked for a brush manufacturing company and she had the company actually do the work of bringing it to life.

Just having an idea is not enough to be a successful inventor. You need to bring your idea to life and get it successfully marketed. Lots of people have ideas. The successful ones find a way to make money off their idea.

The lady on the plane didn’t bother to do anything with her vague notions, so she never profited from them. They did her no good. She really was not an inventor—just a thinker.

Strategic planners can fall into the same trap. You can dream up all sorts of cool strategic ideas, but if the ideas are never put into practice, you haven’t really done much. You really aren’t a strategist—just a thinker.

The principle here is that strategies are only useful if they are used. Therefore, a successful strategist does not stop with just an idea. Instead, the strategist finds a way to put the strategy in motion.

Making a strategy useful involves three steps: thinking, acting, and attaching.

1. Thinking
Thinking is the process of coming up with the notion of what strategy to use. This is an essential and necessary first step. It bothers me how many modern companies skip this step. They usually say that there are no competitive advantages and that things change too quickly, making strategic notions passé.

So they skip the thinking step and go right to actions. They work to be fast and agile. They want to get things done. But if you have no strategic notion, then what exactly are your actions leading to? Getting nowhere faster isn’t very comforting. You’re still nowhere.

I’ve written hundreds of blogs and numerous books on the importance of strategy. It makes a difference. Don’t skip the step of developing great strategic ideas.

2. Acting
A lot of us are like the lady on the plane who stop at step one. We have an idea, but don’t act on it. Great ideas don’t just stand up and do the work on their own. You have to do the work to bring them to life.

Thomas Edison said that invention is 1% inspiration and 99% perspiration. I’m not sure if those percentages are correct, but his point sure is. If you’re not willing to do the hard work that creates perspiration, your inspiration won’t be very useful. That applies to inventions and to strategies.

This is why it bothers me how strategic planning and operations are so isolated from each other in most organizations. Strategists and operators rarely interact. This makes it hard to connect the inspiration to the perspiration.

Worst case scenario is when the wrong type of outside strategy consultants are brought in, who do little more than just put their strategic notion on a powerpoint slide which only top management sees. The consultants then leave before the implementation stage. The consultants have no vested interest in the act of implementing. They already got their money and have moved on to their next client.

Similarly, the operators have no vested interest in the ideas of these outside consultants. The operators never met them and the operators think that those “ivory tower” consultants are out of touch anyway, so they can be ignored. The result is a failure to get the thinking converted into acting.

That is why I recommend that operators be an integral part of the thinking process. I also recommend that strategic planning departments have a combination of strategy professionals and operating professionals in them. That way, there is a more natural bond between the thinking and the acting, so the thoughts are more likely to be acted upon.

3. Attaching
Good intentions by the ones acting does not ensure that the strategy will be properly implemented. Usually, it takes some form of power to bring the strategy to a successful implementation. Without that power, you will hit a road-block on your path to implementation that you cannot overcome.

That power can take many forms. It could be the power of deep pockets of money. It could be the power of brand recognition. It could be the power of control over distribution channels. It could be the power of knowing the right people. Good strategists figure out what kind of power they need and attach themselves to that power.

It could mean attaching yourself to a venture capital group for cash. It could mean doing a joint venture with someone who has power you are lacking, like distribution. It could mean finding someone who has the power to introduce you to the right people.

The only successful invention of that lady on the plane occurred because she had attached herself, through employment, to a company who had the power to bring brushes to life. If she wasn’t attached to that power, I’m sure that grease trap brush invention would not have occurred, either.

Therefore, successful strategists consider what types of power are needed to make their idea come to life. Then, they include within the strategy a means of acquiring that power.

Bringing a strategy to life has three steps:

  1. Thinking: Coming up with the great strategic notion.
  2. Acting: The hard work of implementation.
  3. Attaching: Finding ways to get access to the power needed to overcome the barriers to success.
Many people try to skip steps. That typically leads to failure.

Good strategists understand that power is powerful (I guess that’s how it got that name). Make sure you have a way to attach yourself to power.

Wednesday, June 11, 2014

Strategic Planning Analogy #529: Stick to Your Stage

I read a story recently about how John Breck introduced shampoo to the United States back around 1930. Before then, people used some form of soap to wash their hair. But John Breck showed how to use a pH-balanced detergent which more easily rinsed away from the hair and left the hair and scalp in better condition.

I was shocked to learn how recently shampoo, as we know it today, was invented. I started thinking about all those generations of people in the past who have not had the simple benefit of shampoo.

I guess there was a reason why royalty in the past liked to wear those big crowns on their heads and why the ancient pharaohs of Egypt shaved their heads. As royalty, they did not want to be seen with dirty hair.  

Shampoo is not the only common everyday consumer good that was invented relatively recently. Nearly all common consumer goods which fill our supermarkets are less than 100 years old. In fact, Uneeda Biscuits is considered to be the first broadly advertised branded food product. That happened in 1898. Before that, most food items were sold to grocers unbranded in bulk barrels—put into a plain brown bag for the customer by the local grocer.

Even self-service supermarkets, themselves, have only been around since abut the 1930s. They had to wait until all these products, like Breck Shampoo, were invented and branded so that consumers could choose items on their own.

You could say that a century ago, branded consumer products were the internet economy of their time. They were inventing whole new categories of products, like shampoo. They were changing the way people lived and spent their time and money. A radical transformation was going on in a burgeoning new industry. New trails were being blazed and new concepts were being invented (like couponing, which really didn’t begin to take off until all these branded products came about).

This was the era in which consumer product firms like Proctor & Gamble really grew into the huge and successful businesses they are. They were the masters of inventing new categories and inventing ways to market them to create incredibly large businesses which did not exist before (you could say that disposable diapers were like the Facebook of their day).

These consumer product companies understood how to use chemists and other scientists to invent major breakthroughs in performance (not unlike how companies in the digital economy use engineers). They blazed trails in new distribution and marketing channels, just as the digital economy did with marketing on the internet and smartphones.

Yes, less than 100 years ago, the big consumer branded product companies were Googles, Linkedins and Apples of their time.

But now look at those branded consumables found in supermarkets. Right next to them is a store brand that is just as good and costs a lot less. Sales growth is virtually non-existent. The old marketing tricks don’t move the sales needle much. It’s a very mature business driven mostly by cost control and price wars.

Consumer branded products are not at all anymore like the digital economy. And I suspect that at some point in the future, the digital economy will look a lot like the consumer branded goods industry today—very mature and without much growth. And it may happen sooner than many people think, just as I was surprised how soon shampoo went from a new category to extreme maturity.

The principle here is that industries go through life cycles. There’s the introduction stage, followed by rapid growth, maturity and decline. Each stage has its own challenges—the keys to success and the skills required to win vary by stage as well.

Two Strategic Choices
As a business, you can choose one of two strategies:

  1. Stick with your industry (become and industry expert) and ride the industry through its stages.
  2. Stick with the business stage you are good at operating in and change your portfolio so as to stay in that stage of the life-cycle.
Looking at history, it seems that the second option is the best. General Electric has been so successful for so long because it keeps changing its portfolio. It gets out of businesses that are maturing and reinvests in newer industries that can take advantage of its corporate strengths. Proctor and Gamble has succeeded by getting out of the mature industries it helped develop and reinvest in industries (like beauty care and health care) where it’s traditional skills are still valuable.

And today, we see a lot of “serial entrepreneurs”—people who are great at the start-up stage of a business. As soon as their business leaves the start-up stage, they sell it and work on their next start-up. They succeed because they stick to the stage of business they have mastered.

It’s easy to understand why the second option is preferable. It’s hard to change one’s nature and instincts. As industries move from one lifecycle stage to the next, what is required to win is different. You have to radically change your business model and culture to adapt to the change. Most companies find it difficult enough to excel when dealing with relative stability. It becomes exceedingly difficult to excel when moving into a phase where all the rules for success are changing.

So stick with what you know—and the most important thing you know (most likely) is how to operate in a particular life stage, not the particulars about your industry.

If your company stays with your industry, your company’s life cycle will follow the industry lifecycle. You’ll decline along with the industry. Is that what you want?

It all happens faster than you think
The second option is not without its own risks, though. The trick is knowing when is the right time to make the shift—to exit one industry and enter another. If you get the timing wrong, you miss out on a lion’s share of the value creation.

One point to keep in mind is that industries move through their stages a lot quicker than we usually think. When you are in the middle of the day to day within an industry, you can sometimes lose sight of the bigger external factors that about to shake your industry into the next phase. From the inside, today looks a lot like yesterday, and tomorrow looks like it will be a lot like today. So we get lulled into thinking things are moving slowly.

But then, one day, everything seems to change. It only surprises us because we didn’t keep a closer eye on what’s happening outside the industry—where the disruptions start.

Experts tell us that industry lifecycles are getting ever shorter; the transitions come ever sooner. While I am a bit surprised about how fast consumer branded products went from invention to complete maturity, that process occurred far more slowly than what is happening today.

Back in the early 2000s, I was working with Best Buy and was trying to convince them to look for a “post retail” strategy. My concern was that the traditional retail industry was going to get extremely mature relatively quickly and if they wanted to continue to be a growth company, they would need to think beyond retail.

Best Buy thought they had a lot of time, so they didn’t act. And now, only about a decade later, Best Buy finds itself struggling because its retail foundation is in maturity (or maybe even the beginnings of decline). This just goes to show how fast this change can sneak up on you if you are not watching carefully.

So to play the second strategy, one needs to keep one eye focused on the external environment, in order to know when the times are about to change.

Businesses have two strategic choices:

  1. Stick with your industry (become and industry expert) and ride the industry through its stages.
  2. Stick with the business stage you are good at operating in and change your portfolio so as to stay in that stage of the life-cycle.
In most cases, the second option is more likely to lead to lasting success. However, to make the second option really successful, you have to get your timing right on knowing when to shift your portfolio. That requires keeping an eye outside your industry—where the disruptions which cause your industry to shift occur.

Google is not content to think its current business foundation will be a growth industry forever. They keep investing in places where they think the next growth may come. You should

Tuesday, June 10, 2014

Strategic Planning Analogy #528: Business Without Brains

Imagine a game in which you are in your backyard and your goal is to shoot ping pong balls at targets in your neighbor’s back yard. The only problem is that there is a high wall between the two backyards so that you cannot see the targets…and, in addition, the targets are constantly moving. Since you cannot see anything, the only way you know you have hit a target is when you hear the ping pong ball bounce off the target.

Therefore, to win the game, you shoot as many ping pong balls in as many directions as possible. When you hear a ping pong ball hit a target, you start shooting even more in that direction until the target moves away. Then you start randomly shooting everywhere again.

That sounds like a relatively stupid game to me. There’s no intellectual challenge. There’s no strategy. It’s just random shooting, hoping to get lucky. You could train a monkey to do that…or program a machine to do it.

Yet this is what modern marketing consists of at many companies. The company sets up its digital business on a web site. Then the company tries a constant stream of experiments with the site to see what works. Colors are randomly changed, the size and placement of boxes changes, prices and offerings randomly change. Text randomly changes. They try everything, everywhere.

With all of this “experimentation” going on, the company “listens” to see if they got any “hits” on the website. If so, they start doing more of what random thing seemed to cause the hit. Eventually the customer moves away from that approach, so the company randomly starts firing experiments in all directions again hoping for the next hit.

You can give this approach all sorts of fancy names like “big data” or “agile” or “digital marketing” or “listening to the customer.” But the reality is that it is little more than that silly game with the ping pong balls. No need to think; no need for strategy. Just program a machine to try a lot of things and listen for hits. It sounds like a rather stupid game to me.

The principle here is that although the digital age has had a profound impact on marketing, most of the foundational principles of marketing have not been repealed. They are still valid. And if you ignore these principles, you are doing little more than shooting ping pong balls over the wall. Sure, with today’s technology, you can be more efficient with your randomness (and hear the hits better), but it still is little more than random luck. You may as well quit marketing and put all your money into lottery tickets. It takes about the same level of brainpower and strategy (virtually none) yet is a lot easier.

The only problem is that you can get VC money to make a business out of random experiments, but you cannot get VC money just to play the lottery. Perhaps venture capitalists would have higher success rates if they put their money into lottery tickets. Or MAYBE they should invest in people who still operate by the fundamentals or marketing.

Marketing Principle #1: Successful Companies Have a Reason for Being
Successful companies do not merely exist to make their owners wealthy. They succeed because there is a reason for them to succeed in the marketplace. They are fulfilling a consumer need better than anyone else. By fulfilling an unmet need, they have a reason to exist—a relevancy when it is time for customers to spend their money.

Before starting down the path of a new business venture, smart marketers will ask a series of relevancy questions. If the business idea is not sufficiently relevant, then they do not pursue the venture, for it is most likely destined for failure—because it does not have a reason for being.

Examples of relevancy questions include:

1.     Why would a consumer naturally prefer my product over the alternatives?
2.     What benefits do I provide better than anyone else?
3.     Do customers truly have a need for what I am offering?
4.     For what problem am I offering a superior solution?
5.     Is my solution valuable enough to the consumer to get them to pay me an amount that would provide a proper return on investment?
6.     If I didn’t exist, would I be missed in the marketplace?

Google initially succeeded because they offered a superior way to search the internet. It was different. It was better. Consumers could see the superiority. It was a better solution. In other words, it had a reason to exist—a reason to be successful—a reason to be preferred.

Compare that to a lot of other digital businesses trying to make it in the world today. Thousands upon thousands of these ideas are dreamed up in dorm rooms or on a sofa at Starbucks. They all look about the same and act about the same. There is no talk about superiority, because there is none. It’s still in beta and bull of bugs and won’t be great until version 4.0.  

There’s rarely talk of real benefits or meeting needs in a way people are willing to pay for. And there is rarely talk about why this version would be naturally preferred over the thousands of similar pitches being made in the same space.

Instead they talk about how fast they will be at adjusting and adapting. It sounds to me like they are just shooting ping pong balls over the wall and they think they will win because they can shoot more ping pong balls more often.  

Marketing Principle #2: Successful Companies Own a Position
But even if these people bothered to develop a great solution for an important problem, it is not enough. Others may have as good (or better) a solution for that same problem. In addition to having a solution for a problem, you have to OWN that solution in the mind of the customer. The solution has to belong to you. When the customer encounters the problem, your brand needs to be the one which comes to mind.

Google took its initial superiority in search engines and built a brand which “owned” search in the minds of most customers. By owning search, it became nearly impossible for anyone to take it away.

When I look at a lot of the proposed digital ideas today, I see people going after spaces already owned by someone else. They want to be the next “Facebook” or the next “Apple.” Well we already have Facebook and Apple. As long as they do their job, we won’t need another one.

Don’t attack a space already owned by someone else. That battle rarely leads to victory. Build a position that is different—one that you can own. Imitation may be the most sincere form of flattery, but it is a lousy way to try to win. Followers are never in the front.

How many different games do we need on our smartphones? They all seem to be minor variations on a small handful of themes. Your odds of being the next Angry Birds or Candy Crush are probably worse than if you put your money into lottery tickets.

If you cannot own a position, then you cannot achieve a winning position in the consumer’s mind for that space. And without a position, you have no reason to exist. Owning a position usually requires being early in the game, bringing something meaningful to the game, and out-executing the competition. A lot of companies are competing in the smartphone business, but only Apple and Samsung make any real money at it. Everyone else is a loser in that space because they do not own it.

Marketing Principle #3: Successful Companies Know Why they are Successful
Some of the literature on the “new” way of marketing say it is a waste of time to try to figure out why a particular experiment works. If a blue website sells more than a green one, just accept it and move on.

I’m okay with some of that as it relates to minor tactics. But at some point, one should understand why they are in business and why a customer should prefer them. You cannot strengthen or broaden a position if you don’t understand why it works.

If your only success is due to discovering the advantages of a blue website first, your advantage disappears as soon as everyone else makes their website blue. The advantage is not sustainable.

However, if you deeply understand the “why” of your success, you can use that knowledge to build barriers of sustainability. Apple understands why it is successful. It creates a consumer advantage through “coolness” and a competitive advantage through closed systems. It keeps replicating this over and over again to make Apple ever stronger. And if the superiority in coolness and closed systems lies outside of Apple, as in the case of Beats, they acquire it.

The new marketers praise the value of ignorance—just go with what works and don’t ask why. I beg to disagree.

Much of what is proposed as “New Marketing” is really “No Marketing.” It is a brainless, strategy-less approach depending upon quickness and luck. The basic laws of marketing still exist. Sure, the execution will need to adapt to the digital age, but the fundamental principles still apply. Successful businesses today still need to worry today about:

a)     Having a reason to exist in the marketplace (superior solution);
b)     Owning their position in the marketplace (differentiation);
c)     Knowing what is the reason for their success (understanding why).

Even in the new digital economy, these are the characteristics of the sustainable winners.

In that ping pong game, the successful “real” marketer would put a door in that wall and design compelling reasons why the targets would be prefer to come into my backyard and/or let me walk into their backyard. This proactive, strategic approach is superior to shooting ping pong balls and hoping for the best.