Thursday, March 17, 2016

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.

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