Strategy Planning Analogy #560: Gas and What??

THE STORY

When I brush my teeth, I just put my toothpaste on the toothbrush and put it in my mouth. I thought this was normal.

Then I read an article about the research done by a toothpaste manufacturer. They wanted to figure out what would be the optimal consistency for their toothpaste. Therefore, they did a survey to find out how their toothpaste was used.

The research showed that there was no single, dominant way that toothpaste is used. Instead, there were three common approaches. Some wet their toothbrush before putting on the toothpaste. Some wet their toothbrush after putting on the toothpaste. And what I did (and thought was normal—no wetting the toothbrush) was the least popular of the three.

As a result, the manufacturer had to design its paste to work under all three conditions. So much for normal.

THE ANALOGY

We like to assume certain activities are normal, just because that’s the way we’ve always done it. It doesn’t occur to us to consider alternatives. Our current habitual behaviors seem just fine. There doesn’t appear to be any need to change.

Yet, as we saw with the toothpaste, there are alternative approaches and different ideas about what “normal” toothbrush behavior is. So what seems odd to us can seem normal to others.

This trap often occurs in strategy development. We get trapped into thinking that the way we’ve been doing things for years is “normal” and that any other approach would be odd and undesirable. Just as I thought that putting toothpaste on the toothbrush did not require water, you may think that your approach does not require any additions or changes.

Yet, as the toothpaste story shows us, there can be many viable alternatives out there. And if we do not consider that there can be viable alternatives, we will miss out on many strategic opportunities.  

THE PRINCIPLE

The principle here is that some of the best strategic opportunities may come from looking at options that run counter to what you consider normal. You may have to abandon your ingrained habits and preconceived notions of “how things are done” in order to reach a better condition (a newer, better normal).

We will be using retail gasoline as an example of this principle.

Normal #1: Gas Plus Auto Repair

Back in the 1960s, when I was a child, pretty much every gas station was also an auto repair facility. The gas pumps were in front. Behind them was usually just two stalls for auto repair and a place for a cash register. And that was it.

It was like the gas station run by Gomer and Goober on the Andy Griffith Show on TV. This was normal, and almost nobody did it differently.  

But then the world changed. Cars got more complicated to repair and the tools to do it became more expensive. The mechanics at the gas stations were not skilled enough or had enough money to invest in fixing the newer cars. As a result, auto repair moved from gas stations to large, specialized repair facilities.

The old normal for gas stations became obsolete. If you stuck with the old normal, you were in trouble. A new normal was required.

Normal #2: Gas Plus Convenience Store

The new normal was to convert those repair stalls into a convenience store. It became the strategy of the “eens”: Caffeine (coffee & soda), Nicotine (Cigarettes), and Gasoline. This became the new way to run a gas station and almost everyone used this same basic strategy.

Beyond Normal

Although this became the typical approach, there is no law that says it must be the only approach. Here are some other options in the US.

In the Carolina’s, Sheetz has positioned itself as primarily a great restaurant which just so happens to also sell gasoline. In fact, they are experimenting with hiding the gas pumps in the back in order to improve the image of the restaurant.

In Ohio, United Dairy Farmers essentially operates gas pumps in front of an ice cream store. And this is no one-store operation. They run over 200 of them. You may not think it normal to buy your gas at the same place as you get an ice cream cone, but it is normal in Ohio.

Large, big-box retailers like Costco and Wal-Mart sell gasoline. In addition, many grocery stores use gas stations as a loss-leader for selling more food. The more food you buy, the bigger the discount on gasoline. At some places, if you buy enough food, your gasoline is free.

You can find gasoline pumps in parking garages. Farmers can install large tanks on their own property and pump it at home. The list goes on and on.

The Next Normal

With electric cars, we move from gasoline pumps to electric recharging stations. Where will these end up? In front of convenience stores? They are ending up in all sorts of places, like parking structures and people’s own garages. The rules can be reinvented all over again.

Implications

There are two main implications from all of this. First, just because something is normal today does not mean that it will be normal forever. The gas plus repair shop was normal for a long time but eventually became essentially obsolete. A move to electric cars could make any of today’s mass selling of gasoline obsolete.

So don’t assume that today’s success will last forever. It is a better assumption that today’s successful normal will become obsolete sooner than you think. In your strategic planning, always look for what’s on the horizon that could make you current approach obsolete.

Second, just because the marketplace has defined a normal way of doing things, that doesn’t mean that there are no other viable alternatives. Just as there were three viable ways to put toothpaste on a toothbrush, there can be many viable ways to sell gas. You can sell it with ice cream, a restaurant, with parking ramps or a host of other ways.

Your only limit is your creativity and your willingness to break away from “normal” and do something differently. In many prior blogs, we’ve talked about the benefits of differentiation. If you do things differently, you create a unique appeal that can put competitors at a disadvantage in trying to attack you. Perhaps you should break away from the pack and do things differently.

And these implications do not only apply to the selling of gas. They apply to all businesses. In a prior blog, we talked about all the ways you can sell pizza. If there are a variety of ways to sell gas and pizza, then there are probably many ways to sell your product, including options nobody has done yet. Perhaps you can be the first in a new alternative and reap all the benefits.

SUMMARY

Just because you call something normal does not mean that it is the only strategic option. There can be a whole host of alternative approaches which could be more successful for you than sticking with the normal way. In addition, because the environment is continually changing, even today’s normal could eventually become obsolete, to be replaced by a new normal. Therefore, strategic analysis needs to look outside today’s “normal box” to ensure that you are doing what’s right for you and right for the times.

FINAL THOUGHTS

Every time you fill up with gas at the pump, remember this blog. It can be a weekly reminder to take off the blinders which keep you from seeing alternatives beyond “normal.”

Strategy Planning Analogy #559: Don’t Blame the Racetrack

THE STORY

This past week I was at a large park. This park had a long jogging trail. I watched some of the joggers using the trail.

Some joggers were moving effortlessly along the trail. It was as if they were just gliding on air. They looked like they could go on merrily forever.

Other joggers were bent over and huffing & puffing. Their forward progress was almost non-existent. They looked like they were about to pass out.

Based on my observations, was this a good trail for jogging on or not?

THE ANALOGY

Actually, that’s the wrong question. This was the same jogging trail for all joggers—the ones gliding effortlessly and the ones about ready to pass out. The variation was not in the trail, but in the users of the trail. It wasn’t the trail that determined success or failure; it was the condition of the joggers using the trail.

Therefore, the better question would be: Are you (as a jogger) in the right condition to succeed on this trail?

This is similar to a question I have often heard in strategic planning: Is this a good strategy? Like the question about the trail, it is the wrong question to ask.

Name almost any reasonable strategy, and I will find winners (companies gliding along effortlessly) and losers (those about to pass out) among those implementing the same strategy. Since all of these companies were following the same strategy, it cannot be the strategy which determined success or failure.

No. It was the condition of the company which determined if they were succeeding or failing with that strategy.

Therefore, instead of asking if the strategy is good, we should be asking if our company is in the right condition to succeed with this strategy.

THE PRINCIPLE

The principle here is that strategy success is based in large part on whether there is strategic fit. The greater the fit between who you are as a company and the qualities needed for the strategy to work, the more likely you will succeed with that strategy.

If you want to succeed on that jogging trail, your physical conditioning must fit with the physical requirements of the trail. If there is no fit, you will fail. This is true for both jogging trails and business strategies.

It’s like going to a job interview. All the candidates who make it as far as the interview are smart and talented. But the one who eventually gets the job is usually the one with the personal qualities which best fit with the hiring organization.

Similarly, your company can be full of smart and talented people. But if the company’s culture and capabilities do not fit with the chosen strategy, you will fail with that strategy.

You may observe another company and say, “Look! They’re succeeding with this strategy. That means it’s a good strategy, so if I follow that strategy I should succeed as well.”

But that is faulty reasoning. That would be like the out-of-shape huffer & puffer looking at the physically fit glider on the jogging trail and saying, “Look! That person is succeeding on this jogging trail. That means it is a good trail and that I should succeed as well.”

That logic ignores the fact that the huffer & puffer is not fit for the trail and will never succeed on it, no matter how many others glide by.

When considering fit, here are some thoughts to keep in mind:

1) Most Runners in a Race Lose

In horse racing, only the top three finishers in the race matter—the ones who either win, place or show. The rest are losers. Similarly, in the race to succeed with a strategy, only a small handful really succeed with a given strategy. The rest are all losers.

Take technology. How many wildly successful (and profitable) computer companies are there? Other than Apple and Samsung, are there any other successful smartphone companies? How many companies are winning in the smart watch category?

The point is that one can pull out all sorts of statistics about the how wonderful a particular category is—how fast it is growing, how large it will become, how much money will be spent. It can make the strategy of entering that category look very desirable.

However, in the long run, only a very few companies actually earn meaningful profits in that category. The rest are losers.

Were all the losers bad companies with incompetent people? No. They just did not have as good a fit (culturally, image, competency and capability-wise) in the category as the winners.

Being a good operator is not enough if you want to win. There have been lots of good companies making good technology who lost. In fact, nearly all of them lost. If you want to win, you need a better fit than anyone else.

That requires one of two things. Either only select strategies where your current fit gives you competitive advantage, or change yourself to get in shape for the strategies you want, so that your fit is more in alignment than others.

In the latter case, your strategy becomes a two-step strategy. First, get in shape to have the best fit. Second, pursue the strategy where that new fit is most valuable.  

2) Strategy Choice is Both External and Internal

Strategic Fit means having alignment between what a strategy needs and what a company can offer. Therefore, when choosing a strategy, you have to look both externally (at what a strategy needs) and internally (at what I have to offer).

If we only look at the appeal of the strategy, we are missing half the analysis.

We also need to look at ourselves. And we have to be honest with ourselves and admit to our shortcomings. We have to look into the mirror and see ourselves as we really are.

If we are having trouble with objectivity, we can turn to asking customers and other industry players or consultants to help us see ourselves as we really are.

When former New York Mayor Michael Bloomberg was considering running as an independent candidate for President of the United States in 2016, he did some consumer research (I happened to get one of his surveys). The research convinced Bloomberg he did not have a good enough fit to win, so he decided not to run.

Your research may also show that you do not have the right fit to win at a particular strategy. If so, be like Bloomberg and don’t implement that strategy.  

3) Money Rarely Overcomes a Bad Fit

Some people think that if you have enough money, you can buy your way to success. The problem is that money is relatively easy to obtain. And the ones with the best strategic fit tend to be the companies that find it easiest to get the money.

Therefore, money rarely becomes a differentiating factor. If a lot of companies can get it, then having money does not get you an edge. Besides, the money will be most effective in the hands of the people with the best fit, so even if you have a little more money, it will probably not be enough to overcome a weaker fit.

Just ask the large, cumbersome, bureaucratic companies that had a lot of money but lost out to a small, nimble company that started out in a garage with little cash. Despite having more money, they lost out to the company in a garage because their culture and mindset was a poorer fit. Having more money was not enough to overcome this.

Example

I consulted with a company that was pursuing a broad-based leadership strategy in a particular industry. One of the requirements of that strategy was to aggressively consolidate the industry by rapidly buying up smaller operators. The problem was that this company’s culture was financially conservative and their core competency was not rapid, large consolidation.

As a result, other companies following a similar leadership strategy in this industry were doing a better job at consolidation, because they had a better fit. This meant that the company I was consulting with was falling behind and becoming less relevant as a leader.

Therefore, I recommended that the company shift from a leadership strategy to a niche strategy. The recommended niche was chosen by looking at where this company had a competitive advantage in terms of fit.

Now the company is confident they are on a path that is more likely to achieve success, because the strategy has a better fit with who they are.

SUMMARY

No strategy is universally good or bad for everyone. There will be winners and losers among people using the same strategy. The difference between the winners and losers is how strong the fit is between the strengths of the company and the requirements of the strategy. Therefore strategic planning cannot merely look externally for a good place to be, but it must look internally to ensure that you are the right company to be in that place.

FINAL THOUGHTS

Getting in shape never sounds like fun, but trust me, you will be much happier running the race if you are in shape. Make sure you are in the right shape shape for running the strategic race you have chosen. If you are out of shape for the race, don’t blame the racetrack when you lose.