Monday, October 13, 2014

Strategic Planning Analogy #539: Great Players Make Lousy Coaches

Have you ever noticed that top athletes usually make for lousy coaches?

The reasoning behind this is simple. The great athletes have natural skill and abilities far above the norm for the sport. They are naturally good because they are naturally gifted. It all comes too naturally for them. They don’t even really have to think about it. They just naturally perform well.

As a result, top athletic performers have no real connection with the struggles of the average athlete. The top athletes never had those kind of struggles. They never had to think about how to overcome them.

As a result, the top athletes are relatively clueless as to how to coach the average player through all of this. Their coaching can sound a little silly to the average player when they say things like:

“Just hit the ball to where you want it to go, like I used to do.”
“Just run a little faster, like the speeds I used to go.”
“React faster to the action around you, like I did.”
“I don’t know how I did it. I just did. So you do it, too.”

That’s why average players usually make better coaches. They’ve had to struggle. They’ve had to think of ways to overcome the struggles. They’ve had to find ways to motivate themselves when times were tough. They’ve had to listen more closely to the teaching of their coaches. They’ve had to try a lot of different approaches to the game in order to find their edge.

The journey of the average player is usually a better learning ground for gaining the skills needed to be a coach. So don’t hire the superstar player to coach your team. Hire average.

The CEO is sort of like the coach of a team. Sometimes when looking for the next CEO, we look for the replacement among the best performers in the company. Since they are such great performers, then they will be a great CEO, right?

But that’s like saying the best athlete will be the best coach. It is not necessarily true and is most likely a false assumption.

Therefore, we need to be very careful when choosing our business leaders. The pool of our best performers may not be the best place to look.

The principle here is that different roles require different core competencies. Therefore, excelling in one role may make you unsuitable for another role if the needed competencies are radically different between the two roles.

For simplicity’s sake, we will illustrate this principle by dividing a company’s work force into three layers: The Frontline, Mid-Management, and Leaders. As we will see, excelling at one lever does not ensure success at another level.

The Frontline
The frontline is where the basic work of the business occurs—the manufacturing of the manufacturers or the service of the service industries. Success at the frontline is all about doing your task and hitting your numbers. If you have a specialty, success is about being the best at doing that specialized work.

Therefore, the core competencies to excel at the frontline are twofold: a) understanding your task, and b) doing it at the speed and quality required (if not better). Do that well, and you will be a frontline superstar.

Mid-management is the connection between the leaders and the frontline. Mid-management tries to appease the leaders by making sure the expectations of the leaders are met by the frontline.

Therefore, the core competencies to excel at mid-management are to: a) understand what the leaders want, b) motivate the front line to get it done, and c) report the results back to top management. Do that well, and you will be a mid-management superstar.

Leaders run the company. Their job is to decide what the company should be doing and make sure the business has the competencies, capabilities and resources to pull it off.

The core competencies of leaders are: a) Vision, b) Communication, and c) Appeasing all the conflicting demands of the various stakeholders (shareholders, bankers, employees, the community, etc.). Do this, and you are a superstar leader.

The Difficulty of Moving Between Layers
Although these are very simplified descriptions, they do show how each layer in an organization is different. The core competencies are different as well.

The top frontline performers are great doers of a task. But that doesn’t mean they will continue to be top performers if promoted to mid-management. Mid-managers are not expected to be great doers of a task. They are expected to be able to motivate large numbers of other people to do a task. That’s a different skill entirely.

It is like automatically expecting an athlete who was naturally great at throwing to be naturally great at teaching others to throw. As we saw above, that tends not to be the case. And so is the case in the business world.

Since the top frontline person succeeded by doing, they tend to revert to that when a mid-manager. The result is unhealthy micro-managing—an attempt to continue doing rather than motivating.

Similarly, if you find a top mid-manager, that does not necessarily mean that they will excel at leadership. Mid-managers excel at getting someone else’s goal accomplished. Leaders, by contrast, are the ones that have to dream up what is to be accomplished.

The skills needed to get a task accomplished are far different from the skills needed to determine what should be accomplished. Therefore, promoting a top mid-management performer to leadership does not guarantee success.

Therefore, when a top mid-management performer is promoted to leadership, they resort back to their old skills of getting someone else’s vision accomplished. So they take the vision already in place and keep pushing that agenda, even if that agenda is no longer relevant. They don’t change the vision with the times, because they weren’t skilled at that vision thing. So the company becomes obsolete and dies.

Relevancy for Strategy
Great strategies rely on great insights, great vision, and an ability to think outside the box. These are not qualities needed to be a superstar at the frontline or mid-management. Therefore, if you promote from the top of the frontline and mid-management ranks to get your top leadership and strategic leadership, there’s a very good chance you will not get those necessary qualities. Therefore, you run the risk of having lousy strategies.

It drives me crazy when I see companies promote people into key strategy positions who do not have the core competencies for strategy. They may be great at budgeting, financial models, implementation, or operations, but that doesn’t mean they have a clue about insights and visioning.

There are three ways to mitigate this problem, First, hire for the part. If you want a great leader at the top or in strategy, hire people with the skills needed for that part. Instead of looking backward to see how well a candidate was at doing or implementing, look forward to see how they are at visioning and insights. So what if they were only mediocre at doing or implementing, so long as they are great at what the new role requires.

Second, train your leaders to be better at the skills of leadership. There are ways to make people better at the skills of visioning and insight. Invest in your leaders to shore up these key competencies.

Third, don’t be afraid to bring in the experts. There are all sorts of strategy experts out there who would be happy to consult with you. They have the proper skills. Take advantage of them.

Just because one is a top performer at one level of an organization does not mean that person will excel when promoted to the next level. Since the core competencies needed at the new level are different than the former, there is probably a greater likelihood that the person will no longer be a top performer after the promotion. To minimize this problem:

  1. Promote people based on the new skills rather than the old.
  2. Train people to become better at the new skills.
  3. Hire experts/consultants to help.

Don’t hire a superstar athlete when what you need is a superstar coach.

Thursday, October 9, 2014

Strategic Planning Analogy #538: Three Questions (Part 3)

We have a persistent cat. When it wants to go outside, it is determined to go outside. However, we do not let the cat out when the weather is really bad, such as a thunderstorm or a blizzard.

When the cat wants to go out, it meows by the door. If the weather is bad, we show it the bad weather through the window and tell the cat it cannot go out.

This will satisfy the cat for about five minutes. Then it will go back to the door and meow again. We show it the bad weather and say no. This again satisfies the cat for about five minutes. And then the cycle repeats itself, over and over again.

It reminds me of the old definition of insanity: Insanity is doing the same thing over and over expecting a different result.

The cat kept going to the door, expecting a different result (to be let out). However, because the situation had not changed (the weather outside was still bad) the results did not change (cat still not let out). The only way the outcome would change is if the situation changed (the weather improved).

It sounds simple, but the cat didn’t get it. Sometimes I think business leaders are a lot like that cat. They want an improvement in their financial outcomes, similar to a cat wanting to go outside. They go to their financial dashboard, just like the cat went to the door, to see if their desire will come true.

The dashboard says that the outcomes haven’t come true. That satisfies the executives for a short while, but then they keep going back to check the numbers—over and over again—and the numbers do not change.

The problem is that the company has not done anything significantly different in the way it approaches the marketplace. And as long as nothing significantly different has been done, one should not expect significantly different results. So we’re back to the definition of insanity.

To get out of this loop, we need to emphasize doing things differently to create a more positive outcome.

This is the third of three blogs looking at the three questions businesses need to ask themselves if they want to prosper into the future. Those question are:

  1. What problem are you trying to solve?
  2. Why should the customer naturally prefer your solution over the alternatives?
  3. What are you doing differently to prove your superiority?

In the first two blogs (here and here) we looked at the first two questions. We saw that success comes from focusing on solutions and developing preference as the best solution. In this blog we will be looking at the third question and further understanding how to create that preference.

The Formula for Success
The key idea comes from the following truism:

a)     As long as you are seen as similar to the alternatives, you will never be seen as better than the alternatives.
b)     As long as you are not seen as a better than the alternative, you will not be chosen as preferred.
c)     Therefore, the formula for preference is as follows:
a.      First, create an obvious, meaningful difference between yourself and the competition.
b.     Second, use this difference to prove superiority over the competition.
c.      Third, use this superiority to create a purchasing preference over the competition.

Everything breaks down if you skip the first step. You have to start with differences. Otherwise you have no foundation for proving superiority. After all, how can you believe something is superior if you perceive it to be the same as the alternative? And without the perception of superiority, there is no reason to expect a natural preference.

So if you want better results in the future, you have to start by focusing on doing things differently. After all, as we saw in the analogy, if you don’t do something different, you shouldn’t expect different results.

But we’re not talking here about just any difference. We a looking for differences which will help the marketplace perceive us as superior.

One of my favorite stories is that of Oxydol detergent. Oxydol was the first laundry detergent to add bleach to its formula. That was supposed to be the change which created a perception of superiority. But it wasn’t working.

The problem was that consumers were having a hard time perceiving the difference. Oxydol looked exactly like the competition. You used it in your laundry exactly like the competition. Nothing felt different. Therefore, consumers concluded it wasn’t really meaningfully different. The net result was that consumers had no natural reason to see Oxydol as superior or preferable.

So Procter & Gamble put useless green crystals into the detergent. Now Oxydol looked different than the competition. Proctor and Gamble attached this difference to the fact that they had bleach in their formula and the competition did not.

Since the consumers now believed Oxydol was different, and that the difference made Oxydol superior, they began to prefer Oxydol. From that point on, Oxydol became the #1 laundry detergent in the US. It stayed #1 until Proctor & Gamble decided to shift its emphasis to making Tide #1.

So creating the perception of a difference made all the difference in creating superiority and then preference.

Followers, By Definition, Are Not Leaders
If all you do is follow and imitate the leader, you will never be seen as different in a superior way. If any difference is seen at all from your imitation, it would be that you are similar, except for being smaller and weaker and not the leading brand. That is not the formula to success.

If you want to be seen as better than the leader, you must do the opposite: stop imitating and do something differently.

Think about Dodge Ram trucks. They used to be a minor player in the world of trucks, way behind the Ford F-150 and Chevrolet Silverado. They were seen as just like the other guys only smaller, weaker and not the leading brand—the formula of death.

So Dodge abandoned imitation and went for differentiation. Instead of making their trucks look like Ford and Chevy trucks, they made them look more like the cabs of a big, industrial semi truck. To add to the differentiation, they put engines in these trucks that were manufactured by the same people who built engines for semis. Then the marking experts at Dodge used these differences to create the impression of superiority with a particular truck-buying segment.

It took some time to change the perception, but eventually it worked. Now Dodge Ram trucks have skyrocketed in sales and have captured a meaningful share of the market. And because they captured that share with natural preference build on differentiation rather than on bribery, the business is more profitable.

So, if you want different (better) results like Dodge Ram, you first have to do something different.

To succeed in the marketplace, one needs answers to three questions:

  1. What problem are you trying to solve?
  2. Why should the customer naturally prefer your solution over the alternatives?
  3. What are you doing differently to prove your superiority?

Regarding the third question, everything hinges on building positive differentiation. It is the differentiation which allows customers the ability to no longer classify you as the same as everyone else. You can use this to say that your difference is what makes you superior. Then you can turn this superiority into preference. And that’s how you win.

What are you doing differently from everyone else?

Wednesday, October 8, 2014

Strategic Planning Analogy #537: Three Questions (Part 2)

For as long as anyone can remember, there had been the ice brigade at the US Congress building. The 29 employees with this job had the responsibility of making sure every congressional office had a bucket of ice by its door before 9AM every morning.

Nobody remembers when it started, but the tradition pre-dates air conditioning and mini-refrigerators. The idea was that Washington, DC can get very hot. Ice could be used in a number of ways to help counter the heat, either externally or internally.

Of course, now that congress has air conditioning, mini-fridges and other ways to conquer the heat, those ice cubes were less necessary. Yet they still came, every day, like clockwork. Many of the ice buckets were just thrown away each day by congress people who did not want it.

Finally, in 1994, Republicans took over control of Congress and started a program to eliminate waste. They saw the ice delivery program as an unnecessary waste and the practice stopped May 1, 1995.

Another waste looked at during this time was the fact that even though every elevator in the building had self-service buttons which anyone was capable of pushing, each elevator had a paid employee to operate those buttons.

Time changes things. Something which may have made perfect sense in the past may be foolish today. Yes, there was a time long, long ago when ice deliveries to congressional offices made sense. But times changed, making that no longer necessary or even particularly desired. Yet the practice continued for decades.

Similarly, when elevators were first invented, it made sense to have elevator operators. But the elevator technology advanced over time to the point where elevator operators had become unnecessary and obsolete. Yet they were still there, working away in congressional elevators.

We may see these as silly and obvious examples of being out of touch with the changing times. Surely, our business would not get that out of touch with the changes in the world around us, would it?

Well, there are business bankruptcies every day, and many of those bankruptcies are due to the fact that a company did not adequately adapt to the changing times. The digital revolution made a lot of analog businesses look rather silly and out of touch—leading to many bankruptcies. For example, Kodak was an expert at analog film. But in a world of digital imaging, they seemed as necessary as elevator operators or ice deliverers in congress. The social revolution is having a similar impact.

Therefore, we must always be on guard to ensure that the times are not passing us by and making us silly relics of the past. Even congress eventually figured this out and did something about the relics around them. I assure you that the marketplace will act quicker than congress. 

This is the second of three blogs looking at the three questions businesses need to ask themselves if they want to prosper into the future. Those question are:

  1. What problem are you trying to solve?
  2. Why should the customer naturally prefer your solution over the alternatives?
  3. What are you doing differently to prove your superiority?

In the first blog, we looked at the first question. We saw that successful companies focus on solutions rather than products. Multiple products can be focused on the same solution, and multiple solutions can be had for the same product. Therefore, if you want to win in the marketplace, you need a strategy concerning which problem you want your product to solve.

Now we will turn our attention to the second question. Once one comes to understand that consumers choose based on which product is best at solving their problem, one realizes that the goal of their company must be to supply the best solution to their customer segment. In other words, you need to get a consumer segment to prefer your solution over all of the alternatives.

Understanding the Alternatives
If you want to be the preferred alternative, then you had better understand who the alternatives are. As we saw in the last blog, alternatives can come from products quite unlike your own. For example, many luxury brands can solve the problem of providing prestige or status. This could be anything from fashion clothing to automobiles to the latest technology to trophy wives to the liquor you drink to exotic vacations to yachts to whatever.

The point is that being the best at your particular product may not make you preferred if other products are better at solving the underlying problem.

For example, there is a big difference between the way high school students act today versus when I was in high school. The underlying problem for most high schoolers has not changed over the years. They are still looking for ways to achieve status and fit in with the cool group. The preferred solution, however, has changed.

In my day, clothing was a key way of solving this problem. If you wore the right status clothes, you got an edge in achieving status and fitting in with the cool group. Today, however, clothing is not the preferred solution. Just look at firms like Abercrombie & Fitch who built their entire strategy around being the best status clothing for high schoolers. These firms are doing poorly in the marketplace because students are looking for status somewhere other than in clothing.

Instead, students have found that having the coolest technology is the preferred solution over coolest clothes. In order to afford the coolest technology, students have shifted their clothing purchases to value brands like H&M or Forever 21. In fact, I just read where thrift stores are a hot place for teens and young adults. So now, clothing is looked at as a place to solve the problem of saving money in order to afford cool technology rather than as a solution for cool.

This leaves Abercrombie & Fitch out in the cold. Even if they are the coolest clothing retailer, it is irrelevant if the preferred cool solution is from technology, not clothes.

So understand the full spectrum of options for your customer. If your offering is not preferred over these alternatives, either change your offering or change your solution. Even Abercrombie & Fitch is starting to figure this out and is repositioning its Hollister brand to be less of a cool solution to more of a stretching your money solution.

Staying Relevant
Since times change, technology changes, competition changes and consumers change, one has to continually monitor the marketplace to ensure that your solution remains the preferred alternative.

For example, think of all the ways the smartphone and all its apps have changed people’s expectations and behaviors. Much of this new behavior is because the smartphone and its apps are being seen as preferred solutions over the older ways of doing things. If mobile is not a part of your solution, you may becoming as relevant as ice men at congress or Kodak in imaging.

Alternative If You Are Not Naturally Preferred
Let’s say you have not created a clear preference for your solution. Perhaps you have parity with the leaders or near-parity. You may think that’s pretty good.

But here’s the problem: if you cannot win them over with natural superiority, then you have to win them over with artificial superiority, which I call bribery. I don’t mean the illegal type of bribery. I just mean you have to sweeten the value by offering large discounts or added goodies. In other words, you are essentially paying them to pick you, because the natural offering alone is not enough to create preference.

And we all know what those discounts and added goodies do to our profitability formula. They transfer the benefit from us to the customer. There had better be an awful lot of price elasticity in order to cover the loss of profits per item. Unfortunately, in a highly competitive marketplace, the competition will tend to match your bribery, so no advantage is had anyway. You just lowered the profitability for the entire industry.

The goal here is not to be preferred by EVERYBODY. That is unrealistic since people are seeking value in different ways. You cannot be the best at pleasing everyone with the same offering. Trying to please everyone usually means you are preferred by no one.

Therefore, the goal is to choose a consumer segment for whom you can create the preferred solution. The chosen segment should be large enough to satisfy your requirements.

Of the three important questions, the second one is “Why should the customer naturally prefer your solution over the alternatives?” Preference is important because without natural preference, you have to lower profits through bribery in order to lure business. Worse yet, your solution may be so irrelevant that even bribery will not be enough to create preference.

Since times change, you have to be constantly on the lookout to ensure that your solution remains preferable through time. Otherwise, you may need to change your offering or change your solution.

Superiority is determined in the mind of the customer, not in your laboratory. When determining whether you are the preferred alternative, ask your customer segment, not your employees.

Tuesday, October 7, 2014

Strategic Planning Analogy #536: Three Questions (Part 1)

In the movie Monty Python and the Holy Grail, the group has to cross over the Bridge of Death. To cross the bridge, they first needed to get permission from the old man guarding the bridge. The old man only gives permission to those who correctly answered his three questions.

His first two questions were always the same:
            What is your name?
            What is your quest?

The third question varied, and included:
            What is your favorite color?
            What is the capital of Assyria?
            What is the airspeed velocity of the unladen swallow?

The third question was always silly and had no logical connection to why someone would be worthy to cross the bridge. But this was, after all, Monty Python, so what do you expect?

Crossing the bridge to seek the Holy Grail is a bit like a company trying to cross the bridge to the glorious prosperity of the future. As in the movie, one could not simply walk the bridge. No, one first had to get permission.

In the movie, permission came from the old man guarding the bridge. For businesses, the bridge to future prosperity is guarded by the consumers of the marketplace. If the consumers don’t like or want what you are offering, they won’t let you cross into prosperity.

In the movie, the old man makes his determination based on three questions. For businesses, they also have three questions they must answer to get permission to cross. We will be answering these three questions over the next three blogs.

To make sure you are pleasing the consumers of the marketplace, you need to ask yourself three questions. They are:

  1. What problem are you trying to solve?
  2. Why should the customer prefer your solution over the alternatives?
  3. What are you doing differently to prove your superiority?

In today’s blog, we will cover the first question. We will tackle the other two in the next two blogs.

1. What Problem are you trying to Solve?
In general, people do not spend money randomly for no reason. No, they spend money in order to solve a problem in their life. There are all sorts of problems in life to be solved, including:

a)     Basic Needs (hunger, transportation, electricity, shelter, etc.)
b)     Higher Level Needs (love, self-esteem, feeling needed, security, etc.)

This principle applies both to the B2C world as well as to the B2B world. Money is not spent unless the purchaser perceives they will receive a benefit that will solve a problem for them.

There are lots of problems out there to solve and you must choose which problem you are solving. After all, if you don’t know what solution you are offering, why should a perspective customer know? And if they don’t know, why should they consider you?

Solutions Vs. Products
Your solution is not what your product is. It is what your product does for the consumer. This distinction is very important, because many different products can be going after the same solution.

Take, for example the problem of weight loss. There are many products which claim to be a solution for weight loss:

a)     Exercise Clubs
b)     Food Supplements
c)     Food Replacements
d)     Surgical Procedures
e)     Hypnosis
f)      Home Exercise Equipment or Videos
g)     Personal Trainers
h)     Reducing the stress or self-esteem issues which cause binge eating

In reality, the customer really doesn’t care that much about the particular product. They care about the results. So they will pick whichever solution is seen as being the best value for solving that problem, regardless of what that product is.

So, if you are a personal trainer, you need to realize that your solution is not personal training, but weight loss and that you are not just competing against other personal trainers, but against anyone else claiming to create weight loss.

Not only can different products attempt to meet the same solution, but the same products can be going after different solutions.

For example, a high-end luxury auto dealer and an auto dealer who provides auto loans to people with bad credit are both selling cars. However they are offering totally different solutions. The high-end luxury auto dealer may be solving problems of self-esteem and pride. The bad-credit dealer is solving a problem of basic transportation for those with limited options.

These two dealers, although both selling cars, are not really competing against each other. The luxury auto dealer is competing against others selling self-esteem and pride, like luxury clothing dealers, luxury vacation sellers, the latest expensive high-tech gizmo, and so on. The poor-credit dealer is competing against bus lines, mechanics who may be able to keep the old car running, and others who offer credit to bad credit risks.

So don’t define yourself by the product you sell, but the solution you offer. Otherwise, you may get confused as to who you are really competing against in your attempt to cross that bridge to future prosperity.

Solutions Offer Direction
In addition to better understanding your competitive landscape, understanding your solution can simplify your strategic decision making. Pretty much every decision can be restated as a single question: Which option best improves my ability to solve my chosen solution? 

For example, if your auto dealership is trying to improve self-esteem, the design of the dealership, the type of salespeople you hire, and the sales pitch you use will all support this solution. They will reinforce the self-esteem agenda.

But this is starting to move into the next question, which is covered in the next blog.

Companies only win in the long run if the consumers in the marketplace support them. And consumers will only support companies if they see them as solving a particular consumer problem. Therefore, successful companies choose to position themselves around solving a particular problem.

Choosing the problem you are solving is not the same as choosing the product you are selling. After all, there may be a diverse set of products all going after the same solution (like weight loss). And there may be a single product that can be positioned towards more than one solutions (like cars). So, the decision is separate. You need to make the choice.

The key benefits of choosing your solution are:

a)     It helps you understand who you are competing against (those with the same solution, not those with the same product);
b)     It helps you know how to run your business (in the direction of better solving the problem).

Business success ultimately is not about me. It’s about the customer. It’s about solving their problems. The irony is that unless you focus on solving THEIR problems, you will never really solve YOUR problem (attaining business success). So make a priority of knowing which customer problem you are trying to solve. Otherwise, the customer will not let you across the bridge.