tag:blogger.com,1999:blog-54610104929979672112024-03-13T07:14:53.648-05:00Planninga from Nanninga: A Strategic Planning BlogThoughts by Gerald Nanninga on strategic planning, particularly as it relates to improving business performance.Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.comBlogger637125tag:blogger.com,1999:blog-5461010492997967211.post-85050846382210038422018-04-05T16:19:00.000-05:002018-04-05T16:26:12.649-05:00Strategic Planning Analogy #577: What do you March To?<br />
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<a href="https://4.bp.blogspot.com/-4m8cXkqAv90/WsaSpmEhZSI/AAAAAAAACtU/FwzDGaiFlt8rErwq1NjqXEELqsHoUNb9gCLcBGAs/s1600/Sousa.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="565" data-original-width="857" height="262" src="https://4.bp.blogspot.com/-4m8cXkqAv90/WsaSpmEhZSI/AAAAAAAACtU/FwzDGaiFlt8rErwq1NjqXEELqsHoUNb9gCLcBGAs/s400/Sousa.jpg" width="400" /></a></div>
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<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
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John Philip Sousa (1854-1932) was considered to be the best
composer and conductor of American marches who ever lived. His nickname was the
“American March King.”<o:p></o:p></div>
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When I was in college, I heard a story about a time when Sousa
had visited my college. He supposedly told the heads of the college that he
thought our college fight song was one of the best marches he had ever heard.
That made me feel proud.<o:p></o:p></div>
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However, now that I am older, I have heard many additional stories
about Sousa. As it turns out, John Philip Sousa visited a lot of colleges over his
lifetime. And each college tells a similar story about how Sousa told them that
their college fight song was one of the best he had ever heard.<o:p></o:p></div>
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Suddenly, Sousa’s stated opinion of my alma mater’s fight
song seems a lot more meaningless.<o:p></o:p></div>
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<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">THE
ANALOGY</span><br />
</span></i></b>Strategists talk a lot about how companies should try to please
their customer. But you hear far less about how customers often try to please
the company…and this is a bad thing. <span style="mso-spacerun: yes;"> </span>Sousa is a perfect example of this phenomenon.<o:p></o:p></div>
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Think of the college as being like a company and their fight
song is their product. Sousa is the customer. In an attempt to try to please
all of the “companies” Sousa tells them all that he loves their “product” (the
fight song). So, in his attempt to please all of the “companies,” Sousa’s
opinion of their “product” becomes worthless.<o:p></o:p></div>
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Customers in today’s world are often giving as worthless an
opinion to companies as Sousa did to colleges—all in an attempt to please (not
offend) the company. This desire to be nice and no-offensive results in
consumer opinions which are as worthless as Sousa’s.<o:p></o:p></div>
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Many companies today use customer opinion surveys as a Key
Performance indicator (KPI) to judge their strategic success. Unfortunately, there
is often a Sousa-like bias in the customer to please the company and give
opinions which turn out to be meaningless. KPIs with meaningless data can be
very dangerous.<o:p></o:p></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that even though it is important to
please the customer, don’t judge your success by asking customers if they were
pleased. There is too much bias in the desire of many customers to please
companies, making answers to those types of questions worthless.<br />
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<o:p></o:p></div>
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One example which comes to mind are the quick auto oil
change companies. After you get your car’s oil changed, they send out a survey
to ask you if you were pleased with the service. This sounds reasonable until
one digs deeper. <o:p></o:p></div>
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As it turns out, many of the mechanics will tell their
customers about the survey they are about to receive. Then the mechanic tells them
that if they rate him with anything lower than a perfect score, the mechanic will
get no credit towards his performance bonus. Many customers don’t want to keep
their mechanic from getting a bonus and besides, who wants to return to a
mechanic who is upset at them for giving him a low score? You want your
mechanic to like you. So all of the sudden, almost all the mechanics are
getting superior grades (the Sousa phenomenon—worthless information).<o:p></o:p></div>
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To remedy the situation, on a recent oil change survey I saw
a new question asking if the mechanic told you in advance how your ranking
would affect him. I guess that was put in there to “weed out” some of the bias.
Unfortunately, just putting that question in the survey creates more of that
same bias. Who wants to get their mechanic in trouble for talking about the scores?<o:p></o:p></div>
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<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><u><br /></u></i></b></div>
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<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><u>Preference is Better than Opinion<o:p></o:p></u></i></b></div>
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One way to get around opinion bias is to stop asking people’s
opinion about your product. For example, you could instead ask about
preferences. Using our analogy, that would be like instead of asking Sousa
about his opinion of your fight song, you would ask him to rank order the top
25 fight songs from favorite to least favorite. Sousa may still like them all,
but at least now you will know which ones he likes more.<o:p></o:p></div>
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Knowing customer preference (compared to numerous options) is
more important than opinion about a single product, because we don’t always buy
what we like, but are more likely to buy what we prefer. <o:p></o:p></div>
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I might like nearly all cars, but I don’t buy nearly all
cars. I am more likely to buy the car I <b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;">prefer</i></b>. Therefore preference among
choices is a better indicator of future success than mere opinion on a single
item.<o:p></o:p></div>
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<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><u><br /></u></i></b></div>
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<b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><u>Behavior is Better than Preference<o:p></o:p></u></i></b></div>
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But even here biases can creep in to distort the results. In
a desire to please the company, I might rank it higher in preference than I
should. Therefore, an even better question is to ask about past behavior. For
example, I could have asked Sousa how many times he listened to each of the
college fight songs in the past two years. Past behavior is less prone to bias.
Looking at what Sousa actually listens to is probably a better indicator of
what he actually likes than asking his opinion.<o:p></o:p></div>
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I would have far more confidence in a KPI measuring behavior
than one that measures opinion or preference.<o:p></o:p></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><i><b>SUMMARY</b></i></span><br />
KPIs are a key part of strategy. Choosing a KPI that gives
inaccurate or distorted information can be very dangerous. KPIs based on asking
customers if they like you is one such dangerous KPI. It is better to ask for
preferences against competition. Better yet, just ask about past behavior.<br />
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<o:p></o:p></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
This problem is even worse if you are asking customers about
new concepts or products for which they have to prior experience. As Steve Jobs
of Apple used to say: “You can't just ask customers what they want and then try
to give that to them. By the time you get it built, they'll want something
new.” And when commenting on what kind
of consumer research Apple did for the iPad, Jobs said, “None. It is not the
consumers’ job to know what they want.” In other words, KPIs on future concepts
should steer clear of consumer opinion even more than others. When it came to
the future, Jobs marched to the tune of the future, not to the obsolete marches
still in the heads of the customers.<br />
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<o:p></o:p></div>
<br />Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-39891727481135725862018-02-13T13:13:00.000-05:002018-02-13T13:13:11.808-05:00Link to Great Strategy Article<div style="text-align: center;">
<img alt="Strategy to beat the odds" src="https://www.mckinsey.com/~/media/McKinsey/Email/Alerts/2018/02/Strategy-to-beat-the-odds_500x281.jpg" /></div>
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<br /></div>
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One of the best strategy articles I have seen in a long time just came out from McKinsey. The summary of the article is this.</div>
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<br /></div>
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</div>
<ol>
<li>Most companies are in the middle of the pack.</li>
<li>Nearly all the profit is made by the top quintile.</li>
<li>To get from the middle to the top, you need to make a <i><b><u>combination</u></b></i> of bold moves (much more dynamic than your peers) in the following areas:</li>
</ol>
<ol><ol><ul>
<li><span style="font-family: inherit;"><em style="background-color: white; box-sizing: inherit; color: #4a4a4a; letter-spacing: -0.36px;"><b>Programmatic M&A</b></em><span style="background-color: white; color: #4a4a4a; letter-spacing: -0.36px;">. You need a steady stream of deals every year, each amounting to no more than 30 percent of your market cap but adding over ten years to at least 30 percent of your market cap. </span></span></li>
</ul>
</ol>
</ol>
<ol><ol><ul>
<li><em style="background-color: white; box-sizing: inherit; color: #4a4a4a; font-family: inherit; letter-spacing: -0.36px;"><b>Dynamic reallocation of resources</b></em><span style="background-color: white; color: #4a4a4a; font-family: inherit; letter-spacing: -0.36px;">. Winning companies reallocate capital expenditures at a healthy clip, feeding the units that could produce a major move up the power curve while starving those unlikely to surge. </span></li>
</ul>
</ol>
</ol>
<ol><ol><ul>
<li><em style="background-color: white; box-sizing: inherit; color: #4a4a4a; font-family: inherit; letter-spacing: -0.36px;"><b>Strong capital expenditure</b></em><span style="background-color: white; color: #4a4a4a; font-family: inherit; letter-spacing: -0.36px;">. You meet the bar on this lever if you are among the top 20 percent in your industry in your ratio of capital spending to sales. That typically means spending 1.7 times the industry median. </span></li>
</ul>
</ol>
</ol>
<ol><ol><ul>
<li><span style="background-color: white; color: #4a4a4a; letter-spacing: -0.36px;"><span style="letter-spacing: -0.36px;"><span style="letter-spacing: -0.36px;"><span style="font-family: inherit;"><em style="box-sizing: inherit; letter-spacing: -0.36px;"><b>Strength of productivity program</b></em><span style="letter-spacing: -0.36px;">. This means improving productivity at a rate sufficient to put you at least in the top 30 percent of your industry. </span></span></span></span></span></li>
</ul>
</ol>
</ol>
<ol><ol><ul>
<li><span style="background-color: white; color: #4a4a4a; letter-spacing: -0.36px;"><span style="letter-spacing: -0.36px;"><span style="letter-spacing: -0.36px;"><span style="letter-spacing: -0.36px;"><span style="font-family: inherit;"><em style="box-sizing: inherit; letter-spacing: -0.36px;"><b>Improvements in differentiation</b></em><span style="letter-spacing: -0.36px;">. You need business-model innovation and pricing advantages that result in raising your gross margin to the top 30 percent in your industry. </span></span></span></span></span></span></li>
</ul>
</ol>
</ol>
<div>
<span style="color: #4a4a4a;"><span style="letter-spacing: -0.36px;">It sounds pretty basic, but that's what makes it so powerful. Abandon the status quo, make bold moves in five areas, and the odds of improved outcome go up dramatically.</span></span></div>
<div>
<span style="color: #4a4a4a;"><span style="letter-spacing: -0.36px;"><br /></span></span></div>
<div>
<span style="color: #4a4a4a;"><span style="letter-spacing: -0.36px;">You can find a copy of the article <a href="https://app.box.com/s/ry22ppcajpvy40wtpv1plc3bkpn38c1p" target="_blank">here</a>.</span></span></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-6636977133693848952018-01-25T12:58:00.002-05:002018-01-26T09:54:57.515-05:00Strategic Planning Analogy #576: How Strong is Your Foundation?<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-iG4pdSjMKwo/WmoawtP_nCI/AAAAAAAACtE/7zn0ZN3wRVYkfLz2LLSgsX9EhMqLZ-hJQCLcBGAs/s1600/foundation.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="907" data-original-width="1197" height="302" src="https://4.bp.blogspot.com/-iG4pdSjMKwo/WmoawtP_nCI/AAAAAAAACtE/7zn0ZN3wRVYkfLz2LLSgsX9EhMqLZ-hJQCLcBGAs/s400/foundation.jpg" width="400" /></a></div>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><br /></b></span></i>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
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I think the scariest commercials on TV are sponsored by the
companies that rebuild house foundations. They talk about how—if you neglect
your house foundation—it will collapse and your house will be ruined. That
sounds pretty scary to me.<o:p></o:p></div>
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<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">THE
ANALOGY</span><br />
</span></i></b>Businesses are like houses. They are built upon a foundation.
The better that foundation, the stronger that business will be. Strategic
planning is a tool to help build a strong foundation for your business.<o:p></o:p></div>
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But let’s take this deeper. Even the process of strategic
planning is built upon a foundation. If the foundation behind your strategic
planning is weak, it will become a weak tool in helping to build the foundation
of your business. So if you want a strong business foundation, you first need a
strong foundation in your strategy process. <o:p></o:p></div>
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<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
To me, the foundational assumption behind long range
strategic planning is this:<br />
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<o:p></o:p></div>
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“By planning, an organization can
minimize its risk for failure by taking greater control over how its destiny
will unfold.” <o:p></o:p></div>
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This is the foundation behind strong strategic processes. Focus
your process on adhering to this foundation and the process will be strong.
Focus on anything else and you may just end up wasting your time. And then,
your organization’s foundation will also falter.<o:p></o:p></div>
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There are two key words in this foundation that I will focus
on here: risk and control.<o:p></o:p></div>
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<b><u><br /></u></b></div>
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<b><u>1) Risk<o:p></o:p></u></b></div>
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Nothing is certain in life except death and taxes. Everything
else fluctuates in complex, interdependent ways. Strategies are built to be
executed in such an uncertain, interconnected world. In fact, the mere
exercising of your strategy will change the environment it is being executed
in. </div>
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Therefore, strategies cannot be structured in such a way as to guarantee
success. There are too many variables. The best you can hope for is a reduction
in the risk of failure. <o:p></o:p></div>
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As a result, a good strategic process will spend a
disproportionate time focusing on those vulnerabilities where you are at greatest
risk. These are chosen based on two criteria:<o:p></o:p></div>
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a) What situations will have the
greatest impact on my chances for success?<o:p></o:p></div>
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b) What are the areas most
uncertain in knowing how they will unfold?<o:p></o:p></div>
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If something has both high impact <b><i>and</i></b> high uncertainty,
then it should be a key part of your strategic discussion. After all, a high
impact, uncertain situation has the greatest potential for increasing your risk
of failure. <o:p></o:p></div>
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Often times, these may be items that fall outside what is
traditionally focused on in strategy. Yes, there is a place for mission
statements, values, core competencies, goal-setting, metrics, and the like. But
if you don’t spend enough time addressing the high risk issues, the other activities
will not save you. You will be blindsided by a future that surprises you and
you are unprepared for.<o:p></o:p></div>
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That is why scenario planning and contingency planning can
be such valuable strategy tools. Scenario planning can help you discover the risky
areas to focus on and contingency planning can help you prepare your responses
to these risks so that you can minimize any negative impact.<o:p></o:p></div>
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This leads to a second aspect of risk. Because the
environment is constantly changing, you cannot address all of your risks in a
single, one-time strategy document. The world is dynamic, so the strategy
process must be dynamic as well. <o:p></o:p></div>
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Notice that I keep using the word strategy <b><i>PROCESS</i></b>.
Strategic planning should not be seen as a single annual event, but as an
ongoing process which happens whenever there are decisions to be made. If you
want to increase your likelihood for success, you need a strategic approach
that adapts to the changes around you and helps you make the everyday choices
that reduce the risk of failure.<o:p></o:p></div>
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This does not mean that your basic strategy will keep
changing every day. A strategy with no lasting impact is worthless. But you may
need to switch to different (well thought out in advance) contingencies as the
future reveals itself.<o:p></o:p></div>
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As soon as you realize that strategic planning is about
minimizing risk rather than about creating a perfect plan, you will see the
folly in many strategic processes that spend way too much time trying to craft “perfection.”
“Direction” is more important than “Precision” when it comes to planning. If I
know my desired endpoint (i.e., direction), I will know what to do when all the
changes occur: adapt so that my endpoint is still in front of me. However, if I
only have a detailed roadmap as my plan with clear steps on what to do (i.e., precision),
my organization can quickly become lost if the future blows up one of my steps.<o:p></o:p></div>
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Don’t waste time trying to create the perfect planning
document. Instead, use that time to create the right general strategic
framework (which minimizes my risk of failure).<o:p></o:p></div>
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<b><u><br /></u></b></div>
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<b><u>2) Control<o:p></o:p></u></b></div>
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The second key word is “control.” Even though one cannot
gain full control over the future, it is possible to <b><i>increase</i></b> one’s control
over the future through planning. As Peter Drucker once said “The best way to
predict the future is to create the future.” In other words, the more control
you have over how the future is created, the less uncertainty and risk there is
in the future. Therefore, one of the most important parts of good strategic
planning is planning how to increase your control over how the future is
created.<o:p></o:p></div>
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One thing I know for sure is that if your organization is
not focused on increasing control, it will lose control to someone else who <b><i>is </i></b>
focused on increasing control (on creating a future that is detrimental to your
organization).<o:p></o:p></div>
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This really gets down to the issue of power. The more power
you have, the more control you have. And if you have both power and control,
you can create strategies with less risk of failure.<o:p></o:p></div>
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Power is a relative term. To say one has power means that
you have a greater ability to control the future than others who are also
trying to influence how the future is created. Therefore, an analysis of power is
very external in its orientation. It requires a deep understanding of all the
players who can impact how the future unfolds. They may be current or future
competitors, legislators, influential consumer groups, or whatever. Don’t limit
your thinking here.<o:p></o:p></div>
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Your task is to figure out how to maintain your current
power within this environment and increase it over time. This can include
topics such as size/scale, public relations, lobbying, alliances/joint ventures,
the setting of international standards, control of patents, branding,
acquisitions, speed to market, and so on. You need to convince the world to
march to your beat and heed to your rules (the ones which give you the advantage).
Are these issues/topics part of your strategic agenda?<o:p></o:p></div>
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This idea of building strategies which increase control was
a key point of focus in my previous blog, seen <a href="http://planninga-from-nanninga.blogspot.com/2017/12/strategic-planning-analogy-575-youre.html" target="_blank">here</a>.<o:p></o:p></div>
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This is one of the key advantages of the Blue Ocean
strategy. If you focus on building a strategy in a place where there aren’t any
rules yet, you have a better shot of gaining control over how those rules are
written. There is often a better shot at creating the future if you go to a
place where there is not an entrenched competitor who already has control
(provided you enter the blue ocean with power).<o:p></o:p></div>
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How much of your strategic process is focused on internal
issues versus trying to gain control of the eternal environment? My guess is
that your process probably needs to increase the time spent on gaining external
control.</div>
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<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
One’s foundational philosophy behind strategic planning will
determine the type of planning process you adopt. I believe that the foundational
philosophy that creates the best strategic planning process is this:<br />
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<o:p></o:p></div>
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<br /></div>
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“By planning, an organization can
minimize its risk for failure by taking greater control over how its destiny
will unfold.” <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This foundation will lead to a greater focus on the external
issues of minimizing risk and controlling power. And that has the greatest
return on your strategic efforts.<o:p></o:p></div>
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<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
Some say that planning is no longer valuable because the
world is changing too quickly. Well, if your strategic process is focused on
the wrong foundation, that statement is true. However, if your strategic
foundation is focused on minimizing risk, increasing control, and long-term
destiny, then it is more important than ever.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-19604547846228312342017-12-15T10:46:00.000-05:002017-12-15T15:20:24.259-05:00Strategic Planning Analogy #575: You’re Fighting the Wrong War<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-s6tvmcC2QNU/WjPuBRZ3OCI/AAAAAAAACs0/Dze9puEsOw8o88xVGbiVTEvWIDtl-6mmgCLcBGAs/s1600/war.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1036" data-original-width="1050" height="393" src="https://3.bp.blogspot.com/-s6tvmcC2QNU/WjPuBRZ3OCI/AAAAAAAACs0/Dze9puEsOw8o88xVGbiVTEvWIDtl-6mmgCLcBGAs/s400/war.jpg" width="400" /></a></div>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><br /></b></span></i>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
<span style="font-family: "times" , "times new roman" , serif;">There’s an old military saying that goes something like
this: In peace time, military leaders prepare for the next war as if it is
going to be played by the same rules as the last war. Unfortunately, each new
war comes with a new set of rules, making all that planning obsolete.</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
In other words, instead of looking backwards to figure out
how you could have done better in the last war, anticipate the rules of the
next war and prepare a way to win under the new rules.<o:p></o:p></div>
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<br /></div>
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<br /></div>
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<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">THE
ANALOGY</span></span></i></b></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif;">
</span></i></b>This recommendation does not only apply to military strategy. It
also applies to business strategy. The rules of the game in business strategy
keep changing, just as in warfare. The leaders in many businesses are older and
got to the top by following the old rules. As a result, these leaders have a
tendency to prepare for the future by falling back on those old rules which
made them a success in the first place.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Unfortunately, as times change, those old rules become
obsolete. If CEOs continue to run their businesses by those old rules, their
businesses (and themselves) run the risk of becoming obsolete. To prevent that,
strategists must continually update their mindset to stay in tune with the
rules of the times.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><i><b>THE PRINCIPLE</b></i></span><br />
In my opinion, we seem to be at a point where the rules of
strategy are shifting again. This would be the third major set of rules during
my adult lifetime. If the rules are changing as I think they are, then it is
time for strategists to update their mindset again.<br />
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<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><u>Ruleset #1: the
Three P’s<o:p></o:p></u></b></div>
<div class="MsoNormal">
Back for most of the latter half of the 20<sup>th</sup>
century, the rules of strategy revolved around what I called “the 3 P’s.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
During this period, the major strategic objective was to <b><i><u>maximize
cash flow over a sustained period</u></i></b> of time. The best way to do this
was by focusing on three areas:<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l3 level1 lfo1; text-indent: -.25in;">
</div>
<b style="text-indent: -0.25in;"><i><u></u></i></b><br />
<div>
<b style="text-indent: -0.25in;"><i><u><b style="text-indent: -0.25in;"><i><u><br /></u></i></b></u></i></b></div>
<b style="text-indent: -0.25in;"><i><u>
1. Positioning</u></i></b><span style="font-weight: bold; text-indent: -0.25in;">: </span><span style="text-indent: -0.25in;">The idea behind
positioning was to convince consumers to associate your product/brand with
being the superior solution for a meaningful problem. Make the problem and your
solution inseparable in the consumer’s mind so that no other brand can unseat
you as the best way to resolve the problem. For example, different brands of
toothpaste became associated with different solutions: Crest for getting rid of
cavities, Sensodyne for sensitive teeth, Plus White for smokers, Colgate for
healthy teeth and gums, and so on.</span><b style="text-indent: -0.25in;"><br /></b><b style="text-indent: -0.25in;"><i><u><br /></u></i></b><br />
<div>
<b style="text-indent: -0.25in;"><i><u>2. Pursuit</u></i></b><span style="font-weight: bold; text-indent: -0.25in;">: </span><span style="text-indent: -0.25in;">To hold a position
over the long haul, a business had to act quickly and invest in whatever it
took to maintain that position. For example, Walmart wanted to hold the
position of being the low price alternative, so it would invest in whatever
retail format had the advantage in holding the low price position. That is why
Walmart migrated from discount stores to supercenters and added Sam’s Club. It was
pursuing the winning path to hold the position.</span><b style="text-indent: -0.25in;"><br /></b><b style="text-indent: -0.25in;"><i><u><br /></u></i></b></div>
<div>
<b style="text-indent: -0.25in;"><i><u>3. Productivity:</u></i></b><span style="font-weight: bold; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">To maximize
cash flow, the cost of investments in positioning and pursuit had to be less
than the profit margins available from the business. Therefore companies also
kept a keen eye on keeping costs down, pursuing tactics like re-engineering.</span></div>
<div>
<span style="text-indent: -0.25in;"><br /></span><!--[if !supportLists]--><o:p></o:p>
<br />
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<o:p></o:p></div>
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<o:p></o:p></div>
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<b><u>Ruleset #2: The
Three F’s<o:p></o:p></u></b></div>
<div class="MsoNormal">
As the 20<sup>th</sup> century was winding down, a new
strategic ruleset was evolving. One of the key forces behind this change was
the movement from selling physical products (atoms) to selling apps. This was
the world which spawned companies like Google & Facebook (and all the
people that wanted to copy their success). Under the new rules of that era,
there was a new major strategic objective. Instead of trying to maximize cash
flow over the long term, the objective was to <b><i><u>maximize the selling price
when you flipped the ownership</u></i></b>. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Not only was the idea of maximizing cash flow out, the
entire idea of profits lost favor. It was okay to lose money so long as a
future buyer would pay a lot for your business. In other words, your return did
not come from the ongoing business but from what you could make when the
business changed ownership. I spoke about that in more detail <a href="http://planninga-from-nanninga.blogspot.com/2007/02/we-can-all-act-like-sports-franchise.html" target="_blank">here</a>.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And the idea of managing for the long haul was also tossed
out. After all, if you are going to flip the business to a new owner in a few
years, your time horizon is only as long as it takes to cash out. <o:p></o:p></div>
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In this new environment, the strategic rules were as
follows:</div>
<div class="MsoNormal">
<b style="text-indent: -0.25in;"><i><u><br /></u></i></b></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;"><b><u><i>1. F</i></u></b><u style="font-style: italic; font-weight: bold;">und:</u></span><span style="text-indent: -0.25in;"> Find venture
capitalists who are willing to fund your business. This is where the money
comes from, not the user of the app. So, in reality, the venture capitalist is
the customer of your business and the product you are selling them is access to
all the people using your app.</span></div>
<div class="MsoNormal" style="text-indent: 0px;">
<b style="text-indent: -0.25in;"><i><u><br /></u></i></b></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;"><b><i><u>2. </u></i></b><u style="font-style: italic; font-weight: bold;">Flex:</u></span><span style="text-indent: -0.25in;"> In the wild world of
apps, one has to keep flexing the model until a version is found that resonates
with a critical mass of users. Venture capitalists of the time knew that the
end product app was rarely the same as what was originally pitched to them to
get the money. Therefore, the venture capitalists were betting more on the
flexing ability of the founders to eventually hit on a winner rather than on
the original pitch.</span></div>
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<b style="text-indent: -0.25in;"><i><u><br /></u></i></b></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;"><b><i><u>3. </u></i></b><span style="font-style: italic; font-weight: bold;"><u>Flip:</u></span></span><span style="text-indent: -0.25in;"> Since all the value is
created at the time the ownership changes, the strategic emphasis is on
optimizing the flip—who to sell to and for how much. For example, a lot of
people of the time thought that Cisco Systems might be a good potential buyer.
Cysco said it would only buy businesses located in Silicon Valley CA, Austin TX
or Research Triangle NC. Therefore, if you wanted to flip to Cisco, your
strategy would be to locate in one of those three areas. If your plan was to
sell out via an IPO, the strategic emphasis was placed on maximizing those
factors/metrics which would sell well in the IPO pitch.</span></div>
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<span style="text-indent: -0.25in;"><br /></span></div>
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<span style="font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"></span><o:p></o:p></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
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<b><u>Ruleset #3: The Three
S’s<o:p></o:p></u></b></div>
<div class="MsoNormal">
Just as people were getting used to this set of rules, it
appears to be changing again before our eyes. There are many reasons for this.
First, future innovations do not appear to lend themselves to start-ups in the
garage. They are too complex and costly. Starting small and flipping no longer
works as well.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Second, the innovations of the digital age have sucked a lot
of the value out of entire industries. For example, the news and entertainment
industries have seen the overall profits of the whole industry shrink
dramatically. When people expect things for virtually free, it is hard to rake
in huge profits. A new way to move money in your direction is needed.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Third, the more recent flips in general are nowhere near as
dramatic as in the days when Google and Facebook flipped. If flipping is much
less of a “sure thing”, investors will hold back and IPOs won’t be as easy to
create. The whole idea of flipping is being questioned as a primary way to
think about business. You can’t sell to investors if they aren’t investing in
the old type of startups like before.<o:p></o:p></div>
<div class="MsoNormal">
<br />
So what is replacing it? I call it the three S’s. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the world of the 3 S’s, the key objective is to <b><i><u>exert
maximum control/power over an entire business ecosystem</u></i></b>. It is no
longer good enough to just have a good product or a leading app. You need to
control the entire business system in which you exist. If you do not control
how the ecosystem evolves, it will evolve in a way that blocks you from
achieving adequate profitability. Power becomes the great goal, because power
dictates where the limited amount of money goes.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
To do this, you follow the 3 S’s:</div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;"><br /></span></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;"><b><i><u>1. Size-Up:</u></i></b></span><span style="text-indent: -0.25in;"><b><i><u> </u></i></b>This strategic
approach requires thinking big. You need to not only size up the space you
compete in, but the entire ecosystem your space lives within. This includes not
only your traditional competitors. It includes anyone who has influence on how
your ecosystem will evolve and how ecosystem profits are divvied up. It can
include governments, businesses and advocacy groups. You need to size it all up
to get your arms around the magnitude of the ecosystem.</span></div>
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<span style="text-indent: -0.25in;"><br /></span></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;"><b><i><u>2. System:</u></i></b></span><span style="text-indent: -0.25in;"> Your strategy must
encompass more than just how your business works. It has to encompass how you
want the whole ecosystem to work. You have to strategize for the entire system.
Your best individual performance will still leave you in trouble if the
ecosystem defines the rules against you. Therefore, you have to make sure you
have a powerful seat at the table where the rules are made. And you only get
such a chair if your planning takes an entire system point of view.</span></div>
<div class="MsoNormal" style="text-indent: 0px;">
<b style="text-indent: -0.25in;"><i><u><br /></u></i></b></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;"><b><i><u>3. Structure:</u></i></b></span><span style="text-indent: -0.25in;"><b><i><u> </u></i></b>To get the system
to work in your favor, you have to help determine how it is structured. You
have to put all the ecosystem building blocks together into a structure where
you have a disproportionately larger influence than others. Some of these
building blocks you will own. Others will be partnerships. Others will be
voluntary followers of your plan because your power makes it in their best
interest to comply with your wishes.</span></div>
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<span style="text-indent: -0.25in;"><br /></span></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
<div class="MsoNormal">
Here are some recent examples of this type of strategic
approach:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l2 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> </span><!--[endif]--><b><i><u>CVS</u></i></b>:
CVS realized that it needed to be more than just a major pharmacy/drug store chain
in the US. It needed to have control over the entire healthcare ecosystem. To
accomplish this, it started in 2006 by acquiring MinuteClinic, who operated
health care facilities inside a retail setting. This gave CVS some control over
the practice of medicine. In 2007, CVS acquired the Caremark pharmacy benefit
management company in 2007. This helped them have influence over how company
pharmacy benefit plans would impact CVS. In 2015, it acquired Omnicare, a
leader in pharmacy distribution to institutions. And this year, CVS announced
the acquisition of Aetna, one of the leading health insurance providers in the
US. CVS is no longer a drug store company. It is a strong player throughout the
entire healthcare ecosystem. It even changed its name to CVS Health.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l2 level1 lfo4; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l2 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> </span><!--[endif]--><b><i><u>Disney</u></i></b>:
Disney realizes it cannot just be good at parts of the entertainment system. It
needs control over the entire entertainment ecosystem. As the digital aspects
of the entertainment ecosystem evolve, Disney could get squeezed if it does not
influence how the rules are written. Therefore, Disney just announced the
acquisition of a huge chunk of 21<sup>st</sup> Century Fox. The logic is that
the combined content and distribution controlled by such a combination will be
so powerful that nobody will want to make any moves in entertainment without
them.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l2 level1 lfo4; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l2 level1 lfo4; text-indent: -.25in;">
<!--[if !supportLists]-->3.<span style="font-size: 7pt; font-stretch: normal; font-variant-east-asian: normal; font-variant-numeric: normal; line-height: normal;"> </span><!--[endif]-->Another
recent announcement include the merger of <b><i><u>Ascension and Providence</u></i></b> to
create the largest hospital chain in the US. It is like CVS in that it is
trying to exert more power in healthcare. It is like Disney in trying to get
such a large chokehold over a major aspect of its ecosystem that it becomes a
force that cannot be ignored. In their words, they are trying to create a voice
“that can’t be ignored.”<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l2 level1 lfo4; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal">
And Target recently announced the purchase of Shipt. Shipt
is one of the largest providers of the software and trucks used in the home
delivery of items like food. In this
way, Target is expanding its influence in the consumer retail ecosystem by
getting a big share of the out-of-store experience.<o:p></o:p></div>
<div class="MsoNormal">
This is just the beginning….<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><i><b><br /></b></i></span>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><i><b>SUMMARY</b></i></span><br />
The environment is always changing, so the rules of strategy
must adapt. We’ve moved from the 3 P’s to the 3 F’s. Now we are moving to the 3
S’s. If you’re still doing your strategy under the older rules, you may lose
your grip on the future and be left out in the cold.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
Don’t fight future wars with the rules from prior wars.
Fight with the rules appropriate to the times.<br />
<div class="MsoNormal">
<o:p></o:p></div>
</div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com1tag:blogger.com,1999:blog-5461010492997967211.post-9258761966972738802017-11-21T09:55:00.000-05:002017-11-21T09:59:46.214-05:00Strategic Planning Analogy #574: Don’t Be a Jack Strategist<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-4dLsggvVpVo/WhQ-B5fXe9I/AAAAAAAACsg/6iWjmp9kVUYXzPEc4yl_DtizirgEnZSvACLcBGAs/s1600/Utah.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="240" data-original-width="480" height="200" src="https://3.bp.blogspot.com/-4dLsggvVpVo/WhQ-B5fXe9I/AAAAAAAACsg/6iWjmp9kVUYXzPEc4yl_DtizirgEnZSvACLcBGAs/s400/Utah.jpg" width="400" /></a></div>
<b style="font-family: Arial, Helvetica, sans-serif; font-size: x-large;"><i><br /></i></b>
<b style="font-family: Arial, Helvetica, sans-serif; font-size: x-large;"><i>THE STORY</i></b><br />
<div class="MsoNormal">
Early in my career I worked for a retailer who was considering
expansion into Utah. The company was concerned, because most people in Utah at
the time were Mormons (members of the Jesus Christ of the Latter Day Saints
religion, or LDS). We did not know how the culture of the Mormon religion would
impact our success. I was given the task of investigating this concern.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I found out that, yes, the majority of those in Utah claimed
to be Mormons. And yes, many of them took their religion very seriously. But
there was also a very large percentage of these Mormons who were referred to as
“Jack Mormons.” <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A Jack Mormon is a baptized member of the LDS Church who
rarely or never practices the religion, but is still friendly toward the
church. Alternatively, it can be used to refer to someone that is of Mormon
descent but unbaptized or non-religious. For these people, the culture of the
outside world has more influence on how they lived their lives than the
teachings of the Mormon Church.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Given the preponderance of Jack Mormons in Utah (especially in
Salt Lake City), the culture in Utah was not as different from the rest of the
western US as one might originally think. The differences were more subtle. And
they tended to be something that would benefit our company. So we expanded into
Utah and had success.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">THE
ANALOGY</span><br />
</span></i></b>This phenomenon is not just limited to the LDS Church. Most
religions have these two types of adherents: the zealots and the Jacks. The
zealots become fully dedicated to the religion and are transformed. All that
they think, do and say is influenced by the teachings of the religion. Then
there are the “Jacks,” the ones who claim the religion in name, but are only
minimally influenced by it. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The zealots are the ones that are so passionate for their
beliefs that they go out and try to change the world. These are the ones who
impact the culture around them. Just look at the zealots today in Islam. People
may not agree about whether their impact is good or bad, but the Islam zealots
are definitely having an impact on the world.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
By contrast, the Jacks are more influenced by the outside
culture than that of their religion. They just sort of drift along and just do
the minimum necessary to keep from getting kicked out of the church.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Employees have a similar types of relationships with their
company and its strategy. Some are strategy zealots, who are passionate about
the strategy. Everything they think, do and say is highly influenced by the
strategy. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Other employees are only “Jack Strategists.” They may claim
to believe in the company strategy, but they act as if it doesn’t exist. The
outside world influences their actions more than the internal strategy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that the role of the strategist does
not stop when the strategy is completed. The strategist needs to go to the next
step and create a company full of zealots for the strategy.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<b><u>The Benefits of
Having Strategy Zealots<o:p></o:p></u></b></div>
<div class="MsoNormal">
There are three major benefits to having a company full of
employees who are zealots for the strategy. First, strategy zealots are <b><i>better
employees</i></b> than Jack strategists. The strategy zealot has passion for
the company and what it is trying to do through its strategy. For the zealot, their
occupation becomes more than just a job. It becomes a mission. The strategy
zealot will work harder and longer to accomplish the strategy than others,
because of this passion for the mission.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
By contrast, the Jack strategist is mostly at the company
just to get a paycheck. They work because they need to, not because they want
to. Their passion centers more around their life outside of work than inside of
work. They will essentially ignore the strategy and just do what is in their
own personal best interest. There is not enough money in the company to afford
to pay the Jack strategists to be as incented to work as hard as the strategy
zealots.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is one of the advantages of companies like Google. Technology
zealots are drawn to them because they have the reputation of being a place
where these types of zealots can thrive. As a result, Google gets to choose
from a pool of the best of the best employees.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The second benefit of creating a company full of strategy
zealots is that it makes the strategy <b><i>self-perpetuating</i></b>. When a company is
full of strategy zealots, the strategy group does not have to keep reminding
people of the strategy and coming up with ways to get the strategy embedding
into the everyday actions of employees. The zealots are already doing that for
them. The zealots have already passionately bought into the strategy, so they
will naturally keep the strategic momentum going without additional prodding on
your part.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The third benefit of a company full of strategic zealots is
that it tends to make your company’s <b><i>brand more desirable to customers</i></b>.
Studies have shown that if all other things are equal, customers prefer to buy
products from brands demonstrating a mission to do more than just make a
profit. This phenomenon is just getting stronger with each succeeding
generation. Zealots will show the world that your company stands for a higher
purpose, and will improve customer preference and loyalty to your brand.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Implication for
Strategists<o:p></o:p></u></b></div>
<div class="MsoNormal">
Since having strategic zealots is so important to strategic
success, creating a company full of these zealots needs to be a part of the
role of the strategist. This can take three forms.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i>1) The Mission Statement<o:p></o:p></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Do you see the mission statement as a bunch of
fancy-sounding words that look good on paper or do you see it as the call to a
mission that people can be zealous towards? You won’t get people zealous
towards your strategy if it has nothing in it to inspire that kind of passion.
If your company’s mission is little more than just to make a lot of profits,
then you will attract Jack strategists. However, if you can combine profits
with attaining a higher purpose, then the zealots will be knocking at your door
begging you to hire them.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This year, protestant Christians celebrated the 500<sup>th</sup>
anniversary of when Martin Luther nailed his 95 theses to the door of the
church. This began the protestant reformation of Christianity, which changed
the world. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If you want a world-changing strategy, you need to think of
your mission statement as being more like those 95 theses written by Martin
Luther. Think of your strategic writings as something that sets the tone of a
new “religious” movement.<o:p></o:p></div>
<div class="MsoNormal">
<b><i><br /></i></b></div>
<div class="MsoNormal">
<b><i>2) The Hiring Process<o:p></o:p></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What does your company screen for when looking for new
employees? If you’re like most companies, you are screening for people with the
skills necessary for the position. But is that really the best way to screen
for employees?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
People with the requisite skills might be natural zealots,
but they may just be “Jack” employees. At some point, it may be irrelevant if
the employee has the skills if they do not have the passion to use them to the
benefit of the strategy. Therefore, it may be more important to screen for
zealousness than to screen for skills.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
After all, it has been shown that companies can teach people
skills. However, it is almost impossible to teach people passion. As a result,
it is easier to hire people with natural passion and teach them the skills than
it is to hire those with the skills and teach them to have passion. <o:p></o:p></div>
<div class="MsoNormal">
<br />
So how much input does the strategist have in your company’s
hiring process? Are you screening for people who would naturally have more
zealousness towards your strategy. If you aren’t, then you are missing a huge
opportunity.<o:p></o:p></div>
<div class="MsoNormal">
<b><i><br /></i></b></div>
<div class="MsoNormal">
<b><i>3) Strategy “Evangelism”<o:p></o:p></i></b></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As mentioned earlier, creating the strategy should be just
the beginning of the role of the strategist. The next step is to convert Jack
strategy employees into strategy zealots. This is more than just making sure
everyone knows what the strategy is. It is making people so believe in the
strategy that they are willing to become zealots for it. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Are your strategy meetings more like a church revival
meeting or more like a dull review of stacks of words and numbers? Stacks of
words and numbers do not inspire zealots. Inspirational stories do. Have you
turned your strategy into an inspirational story that motivates zealots?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
Just as there are both dedicated Mormon zealots and Jack
Mormons, there are those who are dedicated strategy zealots and “Jack”
strategists. Successful companies tend to have a higher proportion of strategy
zealots. These zealots make a company more successful because they tend to work
harder, they are more committed to following through on attaining the strategy,
and they make a company more desirable to its customers.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
To get a higher proportion of strategy zealots, strategists
need to:<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: .5in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .5in;">
a) Create a Business Mission people
can get passionate about;<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: .5in;">
b) Get their company to screen for
zealots during the hiring process; and<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: .5in;">
c) “Evangelize” their company in
order to convert more Jacks into zealots. <o:p></o:p></div>
<div class="MsoNormal" style="margin-left: .5in;">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
There’s an old saying that “Culture eats strategy for lunch.”
The implication is that cultural norms have more impact on how your employees
act than what your strategy says. Well, that may be true if your company is
full of Jack strategists. But if your strategy becomes a true mission, it will
form its own culture. The zealots will then make sure that this new culture
replaces the old cultural norms. When that happens, strategy will eat culture
for lunch.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-21769761550375747722017-10-09T14:23:00.000-05:002017-10-09T14:23:24.588-05:00Strategic Planning Analogy #573: Aldi Adds Frills?<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-RKeVB4ghEE4/WdvK-TcU0XI/AAAAAAAACsM/EJoPLOarwvgRJs97THUTA5A1Ma287dMMACLcBGAs/s1600/Aldi%2Bupscale.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="663" data-original-width="1048" height="252" src="https://4.bp.blogspot.com/-RKeVB4ghEE4/WdvK-TcU0XI/AAAAAAAACsM/EJoPLOarwvgRJs97THUTA5A1Ma287dMMACLcBGAs/s400/Aldi%2Bupscale.jpg" width="400" /></a></div>
<br /><i><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
<div class="MsoNormal">
Today I went to the grand re-opening of an Aldi store. As
you probably know, the reason for Aldi’s existence is to offer a limited
assortment of groceries in a bare-bones, no-frills environment. By cutting all the
costs of assortment and frills, they can offer their food cheaper than the
competition.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Well, the newly grand-opened Aldi moved the store a little
bit more up-market. The fixturing and signage looked a lot nicer. It didn’t
feel as “no-frills” as it used to. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What’s this world coming to when a store whose success is
based on a no-frills image decides it has to look a lot nicer?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: Arial, sans-serif;"><span style="font-size: large;"><br /></span></span></i></b></div>
<div class="MsoNormal">
<b><i><span style="font-family: Arial, sans-serif;"><span style="font-size: large;">THE
ANALOGY</span><br />
</span></i></b>Aldi claims that they need to make their stores nicer because
the competition is making it harder for them to provide prices low enough to
get enough customers to put up with the low-frills atmosphere. Almost everybody
sells groceries at low prices now, so Aldi can’t create a price gap sufficient
enough to get lots of people to give up the niceties of the other stores to go
to Aldi.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is typical of a market in maturity. It gets difficult
for companies in mature markets to make the old levels of profitability using the
old models that made them a success in the first place. So the companies start
tinkering with the formula. If they are not careful, the tinkering may end up
destroying the business model. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Is there really a place for the “More Upscale No-Frills
Store”? I guess we’ll see.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Why should we care about this? Well, the overwhelming
majority of companies are in mature businesses. They have pressures to rebuild
profitability and growth. Those pressures could lead to the kind of tinkering
that—instead of fixing things—ruins things. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i><br /></i></b></span>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
Since most businesses are in mature businesses, they need to
have strategies for maturity. Strategies in maturity aren’t as sexy as
strategies for growth industries, so they tend to get less attention than they
deserve. As a result, companies may be missing out on how to optimize in a
mature business.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
The major problems in maturity are threefold:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>1) Over Capacity
(Too Many Competitors)<o:p></o:p></u></b></div>
<div class="MsoNormal">
Barriers to exit can be so high that mature industries can
end up with too much capacity. I saw a statistic a while back that said that
there is so much excess manufacturing capacity in the automotive industry that
there is no scenario that would allow you to get enough auto sales to have all
those factories running near capacity.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Not only is there too much production, but too many brands
and companies fighting in the space. When you spread all that overcapacity over
too many companies, you end up with a lot of companies that are teetering on
the edge of bankruptcy. <o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>2) Too Little
Growth<o:p></o:p></u></b></div>
<div class="MsoNormal">
The over-capacity and over-abundance of companies might not
be so bad if the market was growing rapidly. Unfortunately, there is very
little growth in mature industries. Often, the costs of doing business in the mature
industry may be growing faster than sales. This is a formula for disaster.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>3) Not Enough
Differentiation<o:p></o:p></u></b></div>
<div class="MsoNormal">
By the time you get to maturity, all the weak players are
gone. The remaining companies have a quality offering in the marketplace. In
fact, the remaining players tend to have fairly similar offerings. They are all
good enough to be a viable option, but not different enough to get significant
preference over the alternatives. They are almost certainly not different
enough to command much of any price premium.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Two Disastrous
Outcomes<o:p></o:p></u></b></div>
<div class="MsoNormal">
Low growth, overcapacity and insufficient differentiation
often lead to two disastrous outcomes. Either you get into a profit-destroying
price war or you make compromising changes to your core strategy that can
destroy your reason for being (like trying to be the upscale low-frills
alternative). By trying to be more things to more people, you can end up being
adequate for many, but best for none.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Better
Alternatives<o:p></o:p></u></b></div>
<div class="MsoNormal">
Here are some better alternative strategies when faced with
maturity.<o:p></o:p></div>
<div class="MsoNormal">
<b><i><br /></i></b></div>
<div class="MsoNormal">
<b><i>Alternative #1: Flee the Industry<o:p></o:p></i></b></div>
<div class="MsoNormal">
Just because an industry is mature does not mean your
company needs to be mature. You can shift your portfolio to areas less mature.
GE has succeeded for over a century by constantly shifting its portfolio. It
routinely leaves problematic mature businesses and adds businesses that are
less mature. (I spoke more about this concept <a href="http://planninga-from-nanninga.blogspot.com/2016/06/strategy-planning-analogy-562-bowlers.html" target="_blank">here</a> and <a href="http://planninga-from-nanninga.blogspot.com/2007/11/strategic-planning-analogy-129-time-for.html" target="_blank">here</a>).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The more mature an industry gets, the less valuable a company
in that industry tends to become. Therefore, if you want to get out, get out
early, when you can command the highest price for your business. Early exit is
often the best alternative.<o:p></o:p></div>
<div class="MsoNormal">
<b><i><br /></i></b></div>
<div class="MsoNormal">
<b><i>Alternative #2: Consolidate the Industry<o:p></o:p></i></b></div>
<div class="MsoNormal">
If you are the market leader, the best approach may be to
accelerate the consolidation of the industry. Do what you can to reduce the
number of players and the amount of capacity. This often requires buying up a
lot of the more marginal players. At the end, you may end up with a
near-monopoly. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Even in a very mature business, you can usually make money if
you have a near-monopoly. This was the approach taken by Macy’s in the US. It
essentially bought up all the major full-line department store brands, closed a
bunch of them down, and converted all the rest under the single brand of Macy’s.
Now it has a near-monopoly in the space. <o:p></o:p></div>
<div class="MsoNormal">
<b><i><br /></i></b></div>
<div class="MsoNormal">
<b><i>Alternative #3: Move From Mass To Niche<o:p></o:p></i></b></div>
<div class="MsoNormal">
The mass market may be mature, but there may still be great
growth and opportunity on the fringes. Fast Food restaurants may be mature, but
the upscale niche Shake Shack is growing. Traditional supermarkets may be
mature, but the organic/produce/health food niche stores like Sprouts and Fresh
Thyme are growing. The traditional automotive market is mature, but the niche
taken by Tesla is growing like crazy. The leadership at Proctor & Gamble is
trying to move their company further away from the mature mass into the growing
niches.<o:p></o:p></div>
<div class="MsoNormal">
<b><i><br /></i></b></div>
<div class="MsoNormal">
<b><i>Alternative #4: Create a Mature Infrastructure<o:p></o:p></i></b></div>
<div class="MsoNormal">
There are a lot of costs involved in running a business
operating in a growth industry. Many of these costs are no longer necessary
when a market hits maturity. Places to cut can include:<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><br /></span></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Extensive marketing organizations, and marketing
budgets<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Extensive sales organizations<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Large engineering and product development
organizations<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;">
</span></span><!--[endif]-->Large R&D departments<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
You can probably get away with lower-priced executives
across the board, too. In essence, you make your headquarters as no frills as
Aldi’s stores used to be. By gutting the headquarters, you can now survive on
the amount of business and margins a mature market provides. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A few years back, Home Depot got a big bump up in
profitability when they decided to essentially no longer build new stores. They
got rid of all the costs associated with new store growth (including the cannibalization
of sales from older stores). When they eliminated all those costs associated
with growth, it all flowed to the bottom line.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In another example, who do you think bought up all the Fast
Moving Consumer Product Group brands when the big, bloated companies divested all the marginal
and most mature parts of their portfolios several years back? It was the
no-frills companies who were built specifically to survive in maturity, like Pinnacle
Foods.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This type of strategy has to be more than just cutting
costs. It needs to include changing the corporate culture to embrace no-frills
management. Otherwise, the costs will just creep back in.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i><br /></i></b></span>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
The conditions of a mature market tend to severely squeeze
industry profitability. This can force a company into considering a change to their
strategy. But not all change is good change. Bad change is to start price wars
or damage your appeal by trying to be everything to everyone and end up not
being preferred by anyone. Good change includes strategies like fleeing the
industry, consolidating the industry, moving from mass to niche, or redesigning
your infrastructure for maturity.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
I had stopped writing this blog last year because I thought
strategic planning had gotten too mature and did not need this blog any more.
However, I got some feedback asking me to bring the blog back, so I will
periodically add new blogs. Thanks for your support.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-85314487009747177932017-09-12T16:40:00.002-05:002017-09-12T16:40:45.948-05:00Strategic Planning Analogy #572: Outcomes Vs. Objectives <div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-rXJs86dwQs0/WbhUS8zr7CI/AAAAAAAACr4/P1NBO0aNIQo_DkTjuRa8bk_XdWs1pR9GQCLcBGAs/s1600/objectives.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="611" data-original-width="1206" height="202" src="https://3.bp.blogspot.com/-rXJs86dwQs0/WbhUS8zr7CI/AAAAAAAACr4/P1NBO0aNIQo_DkTjuRa8bk_XdWs1pR9GQCLcBGAs/s400/objectives.jpg" width="400" /></a></div>
<i><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><br /></b></span></i>
<i><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
<div class="MsoNormal">
There is a company I know of that desired two outcomes. First,
they wanted a product mix skewed towards new products. Second, they wanted high
returns on their investments.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
So this company turned these desired outcomes into their
goals. Then they set metrics around these goals in order to encourage
compliance in new products and high returns.<o:p></o:p></div>
<div class="MsoNormal">
Here’s what they got: <o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l3 level1 lfo1; text-indent: -.25in;">
</div>
<ol>
<li><span style="text-indent: -0.25in;">In order to meet the metric of having a high percentage
of their products being new, the management discontinued a number of very
viable and profitable older products, merely because they were old.</span></li>
<li><span style="text-indent: -0.25in;">When they looked at the risk profile of their
portfolio, they discovered that the riskiness had skyrocketed. As it turns out,
high returns tend to come from high risks. By bypassing wonderful projects that
would have exceeded their capital to focus on only the highest return options,
they horribly skewed their riskiness.</span></li>
</ol>
<o:p></o:p><br />
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<o:p></o:p></div>
<div class="MsoNormal">
So even though the company tried very hard to focus on the
right outcomes, they created an environment which ironically created the wrong
outcomes.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: Arial, sans-serif;"><span style="font-size: large;">THE
ANALOGY</span><br />
</span></i></b>Desiring great outcomes is a wonderful thing. There is nothing
wrong per se in wanting lots of new innovations and having high returns on
investments.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem occurred when this company turned their desired <b><i>outcomes</i></b>
into company <b><i>objectives</i></b>. <o:p></o:p></div>
<div class="MsoNormal">
Objectives are the things you want people in the company to
do. Outcomes are net results of what happens in the marketplace based on what
you did.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Objectives and outcomes should not be the same thing. When
companies try to make them the same thing, they end up like the company in the
story: They get lousy objectives and undesirable outcomes.<o:p></o:p></div>
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<br /></div>
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This distinction is critical for strategic planning.
Strategic Planning tends to have a great deal of influence on what are the outcomes
and objectives pursued by the company. If strategic planners get this wrong and
make them the same, the company is doomed to repeat the errors in the story.<o:p></o:p></div>
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<br /></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><i><b>THE PRINCIPLE</b></i></span><br />
The principle here is that if you want great outcomes, you
need to have objectives which are different than the outcomes.<br />
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<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>Why it’s Wrong To Make Higher Profits an
Objective<o:p></o:p></u></b></div>
<div class="MsoNormal">
Let me give you an example. Let’s say you want an outcome of
higher profits. In most cases, that is a good outcome to desire. However, the best
path to higher profits is rarely to make higher profits your objective.<o:p></o:p></div>
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<br /></div>
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Here’s what typically happens when you make profits your
objective. <o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
</div>
<ol>
<li> <span style="text-indent: -0.25in;">A group of managers go crazy on cost reductions. They’re
so busy cutting costs that they ruin your quality or ruin your service or stop
investing in the future or have product shortages or miss deadlines, etc.</span></li>
<li> <span style="text-indent: -0.25in;">Another group tries to get incremental sales at any
cost. This usually results in unprofitable price wars, actions which alienate
core customers, trying to be a one-size-fits-all solution which results in
being a never-the-best-solution-for-any-customer solution, etc.</span></li>
</ol>
<o:p></o:p><br />
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
The problem is that higher profitability is too abstract and
too numerical. It leads people to work on moving the numbers rather than doing
the things that actually lead to higher profitability. In most cases, enduring higher
profits come the following types of activities:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo3; text-indent: -.25in;">
</div>
<ol>
<li> Having a superior solution to what is being offered in
the marketplace.</li>
<li> Having a unique business model which produces this
solution in a way that is both better than other people’s business models AND
is difficult for the competition to imitate.</li>
<li> Having superior access upstream to suppliers/partners
and superior access downstream to distributors/customers.</li>
<li> <span style="text-indent: -0.25in;">Having the best employees.</span></li>
<li> <span style="text-indent: -0.25in;">Having a clear and simple message as to why your
offering should be preferred as well as an organization focused on being the
best at delivering on the promises of that message.</span></li>
</ol>
<o:p></o:p><br />
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<o:p></o:p></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
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You don’t see the word “profitability” in any of those
activities. However, if you want enduring profitability, these are examples of
the types of activities you should be focused on. Therefore, if you have higher
profits as your desired outcome, don’t also make it your objective. Instead
center your objectives around tasks like those in the second list.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>Have the Metrics Match the Objectives,
Not the Outcomes<o:p></o:p></u></b></div>
<div class="MsoNormal">
It is a well-known fact that people tend to focus on
achieving the metrics which trigger their rewards. If your metrics are focused
on the outcome, then you will get the mess we saw in the beginning story. However,
if you focus the metrics on the objectives, then you will get people working on
the very activities which lead to your desired outcomes.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Yes, I know that outcome-related metrics are typically much
easier to set and to measure. Profits are a lot easier to measure than the
superiority of a business model. But just because it is easier to do doesn’t make
it right.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
As we saw in the story above, when you measure “% of product
sales that come from products less than 5 years old” you get people eliminating
great products merely because they are more than five years old. Although this
metric sounds like your outcome, it does not achieve your outcome.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
To get the desired outcome, you may need measurements
focused more on objectives. It could be something like “the number of products
in the innovation pipeline today that are successful launches over the next two
years.” Yes, that is a much messier metric, but it gets closer to the core of
what you really want people to do to ultimately achieve your outcome.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
I worry about this point a lot, because these days a lot of
strategic planning departments are housed in finance. Finance people have a
natural inclination to want to measure outcomes. That is what a CPA is trained
to do. But is the absolute wrong thing for a strategic planner to do. They need
to measure the inputs—the things that create the great outputs.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
If you are measuring outputs as your metrics, not only are
you measuring the wrong things, you have the wrong time frame. By the time you
have the outcomes, it is too late. You cannot have any strategic impact on
them. Once you know the profits for the year, it is too late to improve them.
That’s why you need to measure the tasks or objectives which impact profits.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>Wells Fargo<o:p></o:p></u></b></div>
<div class="MsoNormal">
Wells Fargo recently got into a lot of trouble because they
did not heed the advice of this blog. Wells Fargo desired the outcome of having
a lot of customers with multiple accounts. There are many reasons why this can
be a very good outcome. It creates economies of scale and it makes customers a
lot stickier (harder for them to leave).<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
The problem occurred when Wells Fargo made getting customers
into multiple accounts the company objective. By placing the major incentives
around creating multiple accounts, employees did whatever it took to get those
accounts established, including the creation of millions of accounts without
the authorization of the customer. The end result was executives losing their
jobs, destruction of the quality of the brand name, significant losses
(customers and profits), etc.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Instead of having an objective be to create a lot of
multiple accounts, the objective should have been to so be in tune with their
customer’s needs and desires that the customers willingly want to sign up for those
multiple accounts. That could include measuring activities like:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="mso-list: l2 level1 lfo4; text-indent: -.25in;">
</div>
<ol>
<li> <span style="text-indent: -0.25in;">Finding out what types of additional products the
customers want.</span></li>
<li> <span style="text-indent: -0.25in;">Coming up with more efficient ways to create and deliver
these products than other alternatives.</span></li>
<li> <span style="text-indent: -0.25in;">Making sure the benefits of bundling for the customer
are clearly superior to the customer getting these services from multiple suppliers.</span></li>
<li> Making sure the portfolio of offerings is consistent
with the brand and improves the brand (and does not confuse the customer as to
what the brand Wells Fargo stands for).</li>
<li> <span style="text-indent: -0.25in;">Making sure people are not turned away from Wells Fargo
due to heavy pressure sales.</span></li>
</ol>
<o:p></o:p><br />
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<o:p></o:p></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
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<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i><br /></i></b></span></div>
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span></div>
<div class="MsoNormal">
Outcomes and objectives are both important to a business.
But that doesn’t mean they are the same thing. Objectives are what you want
people to do. Outcomes are the results in the marketplace based on what you
have done. Ironically, if you want to achieve your outcomes, you need to
develop objectives which are different from your outcomes. And this includes
developing your metrics around objectives rather than outcomes. If you don’t,
people will chase the wrong numbers in the wrong way and destroy the business.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
Getting a company to properly grasp the difference between
outcomes and objectives may be the single most important thing a strategic
planner can do. I guess we can put that on their list of objectives.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-44774612682442867062016-11-30T10:41:00.000-05:002016-12-01T08:25:08.034-05:00Strategic Planning Analogy #571: Creators Vs. Craftsmen <div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-FfLFfct9UgI/WD7yu53IIrI/AAAAAAAACrc/ERvpfyDcObIZAwjFA1jOOEfcuKnMcksbwCLcB/s1600/Rampal.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://2.bp.blogspot.com/-FfLFfct9UgI/WD7yu53IIrI/AAAAAAAACrc/ERvpfyDcObIZAwjFA1jOOEfcuKnMcksbwCLcB/s320/Rampal.jpg" width="318" /></a></div>
<div>
<br /></div>
<br /><i><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
<div class="MsoNormal">
Back in the early 1970s, pianist and composer Claude Bolling
had the original idea of recording an album that was a mixture of classical and
jazz music. It was to feature Bolling on piano accompanied by someone on flute
(with drums in the background). <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Bolling was fortunate to get Jean-Pierre Rampal to play the
flute part. Rampal was considered to be one of the very best (if not THE very
best) classical flute players of his generation.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Bolling showed Rampal the basic music and asked Rampal to do
some jazz improvisation around it, like bending the notes or modifying the
rhythm. It was reported that Rampal was a gasp at the suggestion and replied something
like this:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“I am the world’s greatest flautist and will play your music
to perfection. But I do not improvise. If you want me to play in such a manner,
you will have to write it into the music.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So Bolling meticulously incorporated “improvisation” into
the musical score. Rampal played it as written and it sounded like
improvisation, even though it was anything but.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
The album was released in 1976, called “Suite for Flute and Jazz
Piano Trio.” It topped the charts for about two years and stayed on the
Billboard sales list for 530 weeks (nearly 10 years). It became one of the
largest selling albums ever released on a classical music label. Little did
most people know that the great jazz parts on flute were not improvisations,
but just excellent technical reproductions of a musical score.<o:p></o:p></div>
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<br /></div>
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</div>
<b><i><span style="font-family: Arial, sans-serif;"><span style="font-size: large;">THE
ANALOGY</span></span></i></b><br />
You’d think that all great musicians would be great creative
artists. After all, what is more creative than music? Well nothing could be
further from the truth. Jean-Pierre Rampal was not creative with his flute. He
could only play what was put in front of him.<o:p></o:p><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Yes, Rampal was the best at playing the classical flute, but
that does not make him creative. It just meant he was a great craftsman. He
mastered the craft of playing the flute. That was an excellent skill..but it was
not creativity.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Compare Rampal to Ian Anderson, the flute player in the band
Jethro Tull. Anderson may not have had the same level of technical craftsman
skills as Rampal, but he had extreme levels of creativity. Anderson can get creative
sounds out of a flute that virtually no one had done before him. Anderson also
wrote all the original music he performed. Anderson was a true creator.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I’ve known many musicians over the years. Many of them are great
at their craft, but only a few are what I would consider to be musically
creative.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The same is true in cooking. There are people who are
excellent at the craft of cooking and can prepare great meals. However, all
they can do is follow a recipe. Yes, they follow it to perfection, but they
have no aptitude for creativity in the kitchen. Others, can go into the kitchen
without a recipe, look at the ingredients in front of them and invent a
marvelous new dish from their creative mind. This second type of cook is harder
to find.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
The point here is that we should never assume that just because
someone can do a job at high levels of perfection that they are naturally
creative. He or she might just be a great craftsman. Creativity is something
very different and the most creative ones may not have the best skills at performance.<o:p></o:p></div>
<div class="MsoNormal">
This is especially true in the world of business. Top
performers in their fields—like operations, sales, accounting, and personnel—may
have excellent skills in their particular craft, but in all likelihood, they
are not the most creative ones in their organizations. <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Part of the strategic planning process requires creativity.
If you load up the strategic planning team with your top performers, you may
only end up with a bunch of craftsmen…great people, but not the ones that can
invent a truly creative strategy. They could all be like Jean-Pierre Rampal,
ready to execute with perfection, but waiting for a creative Claude Bolling to
put the notes in front of them. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Make sure you look beyond excellence at a craft
and enlist some of the more creative ones in your organization to help with
strategy.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that the complete strategic planning
process requires a variety of skills. Therefore, you need to seek out a variety
of people to work on the process. Otherwise, you may not get all the skills you
need.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
One of those skills is creativity. Your most creative ones
are not necessarily your best performers. They may just be great craftsmen. <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Instead, the truly creative ones may be hidden in your
organization. They may not even look like your best performers. Rather than
wearing formal apparel like the craftsman Rampal did when performing, they may wear
shabbier clothing like the creative Ian Anderson did when performing.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The most creative ones may be among your youngest employees,
without much experience. After all, your most seasoned employees may be so
wrapped up in the status quo that they cannot see anything new or different.
Instead, it may be the fresh face that is most likely to question the status
quo and see a different way to approach the business.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Indeed, the employees at the top with the most experience
are probably the ones with the most to lose if the status quo (which they have perfected
as a craft) is replaced by something new (and requires new skills to execute).
Therefore, if you load up your strategic process with only older, experienced
people, you may end up with the opposite of creativity—resistance to change and
barriers to new ideas.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
No, it is the younger group that has more of a vested
interest in the future and may be closer to understanding what the next
generation of customers want.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As Gary Hamel says in his book, “Leading the Revolution”, if
you want a revolutionary new strategy, you have to have revolutionaries on the
team. Or, in Hamel’s words: <o:p></o:p></div>
<div class="MsoNormal" style="margin-left: .5in;">
<br /></div>
<div class="MsoNormal" style="margin-left: .5in;">
“Most companies are not led by
visionaries; they’re led by administrators. No offense, but your CEO is
probably more ruling-class than revolutionary. So don’t sit there staring at
the corporate tower hoping to be blinded by a flash of entrepreneurial
brilliance. Administrators possess an exaggerated confidence in great
execution, believing this is all you need to succeed in a discontinuous world.
They are accountants, not seers.”<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
If your corporate tower is full of craftsman administrators,
you may need to look outside the tower to find your creative revolutionaries.
They may be out there in some remote outpost far from corporate headquarters.
They may not even be employees. Wherever they are, find them and put them on
the team. The level of creativity in your strategy depends upon it. <o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
This is not to say that unconventional creative young people
are all you need to do strategy. No, you need both the Claude Bollings and the
Jean-Pierre Rampals to create success.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
My point is that you need a variety of skillsets to pull off
a great strategy, and the skillset of revolutionary creativity may be the
hardest to find. They are probably not the person in the office next door. They
may not even have an office or cubicle at headquarters. In all likelihood, you probably
don’t even know their names. <o:p></o:p></div>
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<br /></div>
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Therefore, if you do not take pro-active effort to seek them
out, they will not be found. And that will be to your great loss.<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal">
Don’t think you can avoid the hard work of finding the
creatives by hiring one of the big strategic consulting firms. My experience in
working with them is that the big consulting firms probably have even fewer
creative types than you do. These big consulting firms may be the most skilled
craftsmen at running the process, but I wouldn’t rely on them for the big, new
idea. That’s your responsibility.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Take your responsibility seriously and seek out the right
mix for your strategic team.</div>
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<br /></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
It is a mistake to load up your strategy team with only your
top performers. Top performers may only be great at their particular craft.
They may be lousy at out-of-the-box creativity. The truly creative
revolutionaries are probably hidden in your organization. If you do not take
the time to seek them out, you will miss out on their insights. That will probably
result in a poor strategy. And no matter how good your top performers are at executing
their craft, great execution of a poor strategy rarely leads to success.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
I received an autographed copy of <i>Leading the Revolution</i> directly from Gary Hamel. To reciprocate, I
gave him a copy of my book <i>Fast Forward</i>.
Hamel just threw my book into a pile of old boxes, presumably to be tossed out.
I guess he was not seeking to hear new voices to help with the revolution. So
much for practicing what he preaches. Don’t do the same. Please put the ideas of
this blog into practice.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-33860204178281786362016-11-12T10:52:00.000-05:002016-11-12T10:52:43.572-05:00Why Most Strategies Fail: Reason #3<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-1UlxbOIApco/WCTVDy-MSfI/AAAAAAAACq4/gb8hvcEvZbo4_ZUnbo7coLmGyUVSGiWxQCLcB/s1600/tyranny.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="290" src="https://1.bp.blogspot.com/-1UlxbOIApco/WCTVDy-MSfI/AAAAAAAACq4/gb8hvcEvZbo4_ZUnbo7coLmGyUVSGiWxQCLcB/s400/tyranny.jpg" width="400" /></a></div>
<h1>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">BACKGROUND</span></i></h1>
<h1>
<span style="font-weight: normal;"><span style="font-family: inherit; font-size: small;">I recently saw a blog by the Cascade strategy software
company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it
<a href="https://www.executestrategy.net/blog/why-strategies-fail/?utm_source=ActiveCampaign&utm_medium=email&utm_content=New+Post%3A+70++of+Strategies+Fail+-+Here+s+Why&utm_campaign=newsletter-2016-11-08-why-strategies-fail" target="_blank">here</a>.</span></span></h1>
<div class="MsoNormal">
<span style="font-family: inherit;"><o:p></o:p></span></div>
<div class="MsoNormal">
Since I disagree with their conclusions, I decided to write
my own blogs on why strategies fail. I came up with three major reasons. The
first reason why most strategies fail is because they are too internally
focused at the expense of an external orientation. I covered that topic in the <a href="http://planninga-from-nanninga.blogspot.com/2016/11/why-most-strategies-fail-reason-1.html" target="_blank">first blog</a>.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The second major reason why strategies fail is because they
focus too much on “doing” rather than “being.” That was covered in the <a href="http://planninga-from-nanninga.blogspot.com/2016/11/why-most-strategies-fail-reason-2.html" target="_blank">second blog</a> on this topic.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The third reason I feel most strategies fail is because they
fall victim to the “Tyranny of the Immediate.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">PROBLEM
#3: FALLING VICTIM TO THE TYRANNY OF THE IMMEDIATE</span><span style="font-size: 14pt;"><o:p></o:p></span></span></i></b></div>
<div class="MsoNormal">
I feel so strongly about the evils in the tyranny of the
immediate that on my blog site you can see links to 15 other blog entries I
have done on the topic. In fact, I wrote an entire book on the topic which you
can download for free <a href="http://www.lulu.com/shop/gerald-nanninga/tripped-up-by-distractions/ebook/product-22708841.html" target="_blank">here</a>.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>What is the
Tyranny of the Immediate<o:p></o:p></u></b></div>
<div class="MsoNormal">
So what is the tyranny of the immediate? Think of it as the
daily fires at your business which demand your immediate attention. It could be something like an angry customer,
or a production line mistake, or a disgruntled employee, or a bad report in the
media. Not a single one of these types of minor crises will permanently cripple
your business. So why see them as a major source of strategic failure?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The reason is because there are so many of them. Executives
typically encounter at least one of them a day. If the executive is not
disciplined, he or she will find themselves totally consumed with putting out
the fire of the day. And therein lies
the tyranny. We become captive to their demands on our time every single day. If
getting the immediate crisis resolved captures too much of our time, then there
is no time left for long term strategy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In a sense, any strategy is worthless and bound to fail if
people in the organization are such a prisoner to the tyranny of the immediate
that nobody has enough time to adequately put the strategy into practice.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Successful
Strategies Take Time<o:p></o:p></u></b></div>
<div class="MsoNormal">
In the classic strategy book “Competing for the Future,”
Prahalad and Hamel say:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
“As a benchmark, our experience
suggests that to develop a prescient and distinctive point of view about the
future, a senior management team must be willing to spend about 20 to 50% of
its time, over a period of several months. It must then be willing to continually
revisit that point of view, elaborating and adjusting it as the future unfolds.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Unfortunately, Hamel and Prahalad’s research found that most
executives spend less than 3% of their time to building that corporate
perspective of the future. It is no wonder that strategies fail when so little
time is devoted to them. And in my opinion, the tyranny of the immediate is the
biggest culprit causing so little time to be devoted to this core act of
strategy.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Tripped Up By
Distractions<o:p></o:p></u></b></div>
<div class="MsoNormal">
That is why I wrote the book “<a href="http://www.lulu.com/shop/gerald-nanninga/tripped-up-by-distractions/ebook/product-22708841.html" target="_blank">Tripped Up by Distractions</a>.” I
wanted people to see all the subtle ways in which time and effort are stolen
away from doing the work of strategy. They may only look like minor
distractions, but when you add them up they can rob us of the time needed to do
strategy properly. Until we tackle the distractions, we cannot build successful
strategies. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the book, I identify five major sources of distractions:</div>
<div class="MsoNormal">
</div>
<ol>
<li>Having our head down looking at individual numbers so
much that we lose sight of the big picture; </li>
<li>Sending so much time trying to produce perfect
documents or in trying to check off the items on the documents that we don’t
have time to anticipate and adjust to realities surrounding us.</li>
<li>Putting the wrong people in the wrong places doing the
wrong things.</li>
<li>Getting so focused on accumulating money today that
there is no time left to strategize about how to build an enduring money-making
enterprise.</li>
<li>Spending so much time reacting to change that there is
no time to anticipate change and build a strategy to take advantage of change.</li>
</ol>
<br />
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Some of these look at first like innocent activities. But when
you add these issues to the normal crises of the day, you can see why companies
have a tendency to spend insufficient time on building and executing a good
strategy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The book then has three major recommendations of better ways
to spend one’s time:</div>
<div class="MsoNormal">
</div>
<ol>
<li>Spend more time asking questions. If you ask the right
questions, you can more efficiently get to the root of what is strategically
important.</li>
<li>Spend more time on broad issues rather than narrow
crises. If you get the big issues right, a lot of the daily crises disappear.</li>
<li>Change your actions. Not all activity is equally productive
in tackling strategy effectively. If you keep doing what you did before
(falling victim to the tyranny of the immediate), don’t expects your outcomes
to get any better.</li>
</ol>
<br />
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo2; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
<b><u>Warning Signs that
Your Strategy is on a Path to Failure<o:p></o:p></u></b></div>
<div class="MsoNormal">
So, what are the warning signs that one is falling victim to
the tyranny of the immediate?<o:p></o:p></div>
<div class="MsoNormal">
First, do a time study of what your executives do. Is core
strategy work closer to Hamel and Prahalad’s ideal of 20 to 50% or is it closer
to their findings of less than 3%? The lower the number, the harder it is to
build and execute a successful strategy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Second, look at what your company chooses to put as top
priority regarding where time is spent. What do people get most in trouble for
if they don’t spend time on it? What are the consequences if someone spends too
little time on strategy? People will spend the time on that which they perceive
management wants them to spend time on. Send the right message. Reward good
strategic behavior. </div>
<div class="MsoNormal">
Punish those who fall victim to the tyranny of the
immediate.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
Third, is strategy work treated like a real job or more like
a hobby you do on the side in your spare time? If there is never enough time in
the day to do your day job, how can you expect much from tasks relegated to doing
in your spare time? If you truly believe that designing and executing the right
strategy is the difference between long-term success and failure, then
intentionally carve out time for it. Have people on staff for whom this is
their full-time responsibility Make at least some of the strategic work the day
job of people. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Finally, how well do your executives delegate the little
crises so that time is freed up for the work of strategy? If delegation is not occurring,
then strategic work is not occurring either.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<b><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><i>SUMMARY</i></span></b><br />
<h2>
<o:p></o:p></h2>
<div class="MsoNormal">
Depending on which study you look at, somewhere between 60%
and 90% of strategies fail. If we don’t address the deep-seated reasons why
strategies fail, we will not be able to raise the percentage of strategic
successes. I believe that there are three major reasons why strategies fail and
my reasons do not always agree with conventional wisdom. The third reason I
believe most strategies fail is because not enough time is being spent on the
subject. Real success occurs when a company takes the time to get strategy
right and keep it relevant. Without a proactive commitment to spend the time it
takes to get strategy right, the tyranny of the immediate and a whole host of
other distractions will get in the way. If your strategy is a half-hearted
effort barely worked on to accomplish, you will get what you deserve: failure.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">FINAL THOUGHTS</span></i></b><br />
<h2>
<o:p></o:p></h2>
<div class="MsoNormal">
Thomas Jefferson said, “All tyranny needs to gain a foothold
is for people of good conscience to remain silent.” As a strategist, it is your
responsibility to be noisy and fight so that the crisis of the day and other
such distractions do not become tyranny to your organization.<o:p></o:p></div>
<br />
<br />Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-43270165578345862592016-11-11T08:21:00.000-05:002016-11-11T08:21:02.048-05:00Why Most Strategies Fail: Reason #2<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-qTf3rS7HmxU/WCTV6YkrUzI/AAAAAAAACq8/VWiftXhX0lsAEbJiMNH8BH1Mi8Op1KDAgCLcB/s1600/being%2Bdoing.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="266" src="https://1.bp.blogspot.com/-qTf3rS7HmxU/WCTV6YkrUzI/AAAAAAAACq8/VWiftXhX0lsAEbJiMNH8BH1Mi8Op1KDAgCLcB/s400/being%2Bdoing.jpg" width="400" /></a></div>
<br />
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>BACKGROUND</i></b></span><br />
<div class="MsoNormal">
I recently saw a blog by the Cascade strategy software
company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it
<a href="https://www.executestrategy.net/blog/why-strategies-fail/?utm_source=ActiveCampaign&utm_medium=email&utm_content=New+Post%3A+70++of+Strategies+Fail+-+Here+s+Why&utm_campaign=newsletter-2016-11-08-why-strategies-fail" target="_blank">here</a>. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Since I disagree with their conclusions, I decided to write
my own blogs on why strategies fail. I came up with three major reasons. The
first reason why most strategies fail is because they are too internally
focused at the expense of an external orientation. I covered that topic in the <a href="http://planninga-from-nanninga.blogspot.com/2016/11/why-most-strategies-fail-reason-1.html" target="_blank">first blog</a>.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The second major reason why strategies fail is because they
focus too much on “doing” rather than “being.” That is the topic of this blog.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif; font-size: 14.0pt;"><br /></span></i></b></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">PROBLEM
#2: STRATEGIC FOCUS ON DOING RATHER THAN BEING</span><br />
</span></i></b>In an <a href="http://planninga-from-nanninga.blogspot.com/2010/04/strategic-planning-analogy-321-do-be-do.html" target="_blank">earlier blog</a> I started by looking at children. Children don’t
talk about what they want to “do” when they grow up. No, they talk about what
they want to “be” when they grow up. Strategists need to imitate children by
asking what their companies want to be in the future rather than what they want
to do in the future.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>“Being” Keeps You
Relevant<o:p></o:p></u></b></div>
<div class="MsoNormal">
Why is a focus on “being” so important? One reason is
because the world is full of change. Technology changes, competition changes,
social norms change, and so the list goes on in so many areas. The cumulative
impact of all of this change causes behaviors and actions which used to be
right and normal to appear quaint and obsolete.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Just think of all the change resulting from the internet or
the smart phone. They have turned many conventional behaviors on their head.
The right behaviors before the internet and the cell phone now look so add and
out of place. This is one reason why many millennials cannot tolerate watching
old movies and TV shows. The activities in these old shows seem so wrong or odd
from the millennials’ modern perspective that they cannot relate to them.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is why a strategic focus on “doing” can lead to
failure. If you do the “right thing” for a long enough period of time, the
changing world will eventually make it the “wrong thing.” Your strategy becomes
obsolete and you fail.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Just look at Kodak. It didn’t matter that Kodak perfected
the way to do analog film. Digital imaging made that type of doing obsolete. A
strategy that finds the best way to do something is worthless when customers no
longer want you to do it.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That is why focusing on “being” is so much better than a
focus on “doing.” “Being” transcends a changing environment. For example, if
instead of focusing on “doing” film, Kodak had focused on “being” the best
solution for capturing memories, it could still be a thriving company today. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There is always a need to capture memories. The best
solution may vary over time, but a solution will always be needed. If you focus
on the big picture of what you want to stand for in the marketplace (your
choice of what to be), you will remain relevant. By contrast, if you focus on
what you want to do, you will become irrelevant. <o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Example: Wal-Mart<o:p></o:p></u></b></div>
<div class="MsoNormal">
Over the decades, Wal-Mart had had a relentless focus on
what it wanted to be. It’s founder, Sam Walton, wanted the company to be the
best at offering retail value, starting first in rural communities. Back in the 1950s the best way to “do” that
was with variety stores. So Sam Walton operated Walton’s variety stores.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
By the late 1950’s Walton could see that discount stores
were becoming a superior solution for being the best at offering retail value,
so he abandoned doing variety stores and began to do Wal-Mart discount stores.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the early 1980’s it looked like warehouse clubs could be
an even better way to be the best value provider, so in 1983 the first Sam’s
Club was opened. By the late 1980’s Walton could see that supercenters had the
potential to be a better value than either discount stores or warehouse clubs,
so he stopped doing discount stores and started doing supercenters. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Now, shopping by smart phone appears to consumers as the
best value, so Wal-Mart is pushing very hard to become a major player in that
space. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Through it all, Wal-Mart has changed many of the ways they
have done things. But it has stayed true to what it wanted to be: the best
value in retail. By focusing on the being rather than the doing, it has
survived around seven decades, whereas most of its competitors (who focused on
doing) during that time have disappeared. <o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>“Being” Increases
Preference<o:p></o:p></u></b></div>
<div class="MsoNormal">
Nearly every wildly successful brand creates a meaning and
purpose which transcends the current product offering. It is this added purpose
which causes customers to want to identify with the brand. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As we talked about
in the prior blog, successful strategies create natural preference without
resorting to bribes. When your company becomes something grander that customers
want to be identified with, they will prefer your brand and pay a premium to do
so.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Think of Nike. It does not make shoes. Others own the
factories and do the work. Nike focused
instead on being the embodiment of what is aspirational in athleticism. Anyone
wanting to identify with that aspiration became attracted to Nike and was loyal
to them. That strategy allowed Nike to
successfully expand into many athletic areas beyond shoes while charging
premium prices. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
BMW’s success is not due so much to “doing” automobiles as
to “being” the purveyor of “the ultimate driving machine.” Everything BMW does
is focused on this higher level of being. Those desiring to be associated with
that type of being flock to BMW and pay a premium for the privilege. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Apple’s success has far more to do with the being it
represents than the products it offers. It became the essence of coolness and
hipness. Those who also wanted to be seen as cool and hip flocked to Apple.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is not just a consumer products thing. Back in the days
of the big mainframe computers, IBM won the day. It was not just because IBM
was good at doing mainframe computers. It was that they created this aura of
professionalism and service which transcended the product. It impacted
everything all the way down to the professional-looking dress code of the
service technicians who came to the customer’s building for repairs. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
IBM executed becoming this sense of being professional and
reliable so well that there was a saying back in those days that “nobody ever
lost their job recommending IBM” for their company. It was the brand IT
professionals wanted to be identified with.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Being Needs to
Influence Everything<o:p></o:p></u></b></div>
<div class="MsoNormal">
As IBM and other successful brand show, strategy focused on
being is a lot more than just a clever slogan or public relations. It has to
become a consistent way of life for the entire organization. The corporate
culture has to have a similar sense of being. Every facet of the business has
to reflect that sense of being, from product design to customer service to how
the brand interacts with society.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Steve Jobs made sure <b><i>everything</i></b> in every area of what Apple
did lived up to what the brand wanted to be. Similarly, there is no tolerance
at BMW anywhere for something that is not driven towards being the ultimate
driving machine.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
These companies show that success comes not from a
completing a list of tasks but from an integrated approach aimed at becoming
something with a much higher purpose that permeates the essence how a company
sees itself. This goes well beyond just a check list of tasks. It is an
exercise in identity management.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Dire Consequences
When Strategy is more about Doing than Being<o:p></o:p></u></b></div>
<div class="MsoNormal">
When doing dominates strategy, activities are drawn towards
performance metrics rather than how a company is perceived. As long as you do
what it takes to meet the performance metric, you are rewarded. Unfortunately “what
it takes” can destroy who you are.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For example, Wells Fargo got so focused on the task of doing
more multiple account activities that it lost sight of its role to be a
financial institution preferred by its customers. The result was that Walls
Fargo angered its customers by opening many accounts in the customers’ names
without their approval. Now they have a big mess to clean up.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Similarly, Volkswagen got so hung up on doing whatever it
took to get good diesel mileage ratings that it resorted to lying and cheating.
This severely damaged Volkswagen’s ability to be the type of company customers
want to identify with. And now they are paying a steep price (in both money and
image). <o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Warning Signs that
Your Strategy is on a Path to Failure<o:p></o:p></u></b></div>
<div class="MsoNormal">
So, what are the warning signs that one is more focused too
much on doing rather than being?<o:p></o:p></div>
<div class="MsoNormal">
First, how seriously do you take your business mission? Do
you even know what you want to be? Does your mission explain a higher reason
for being that customers will want to identify with or is it just some clever
phrase? Does the company try to live out the mission or is it just meaningless
rhetoric?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
After the collapse of Enron, I talked to many former
employees looking for a job. They all said that Enron had a business mission paper
explaining the essence of what Enron wanted to be. It was called RICE and it
stood for Respect, Integrity, Communications and Excellence. However, they also
said that Enron totally ignored this paper.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Instead, Enron became one thing: a place for doing whatever
it takes to increase short-term stock price. The incentives all hinged on doing
that one thing. So that is what people did. At the extreme, it became illegal
stock manipulation.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This leads to the second warning sign: what do you measure?
Wells Fargo, Volkwagen and Enron were measuring an activity (adding cross
accounts, increasing fuel economy, raising stock price) rather than measuring
how their being was perceived in the marketplace. This destroyed their
strategy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That is why I see KPIs as a necessary evil rather than a
salvation for strategy. KPI’s tend to focus on doing, because doing is easier
to measure and attribute to an individual. Too many and too much focus on these
doing-related KPIs lead to the problems at Enron, Wells Fargo and Volkswagen. <o:p></o:p></div>
<div class="MsoNormal">
Instead, we need more measurement tools that look at how we
are managing our image and sense of being that we want customers to identify
with.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The third warning sign is how a company reacts to the
changing environment. Does it change with the environment so that its being
remains relevant (like Wal-Mart) or does it stick with improving the old
process and become obsolete (like Kodak)?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A fourth warning sign is a strategic process where corporate
culture is not integral. As the saying goes, “culture eats strategy.” Ignore
culture at your own peril.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
Depending on which study you look at, somewhere between 60%
and 90% of strategies fail. If we don’t address the deep-seated reasons why
strategies fail, we will not be able to raise the percentage of strategic
successes. I believe that there are three major reasons why strategies fail and
my reasons do not always agree with conventional wisdom. The second reason I
believe most strategies fail is because the strategic effort is too focused on doing
rather than being. Real success occurs when everything about a company reflects
the reason why customers would want to identify their sense of self-worth with
the identity of your brand. This requires a strategy that is rooted in knowing
what your represent (your sense of being) and what type of culture is needed to
personify it. Otherwise, employees will do the activities that boost personal
gain and destroy the brand and the strategy behind it.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">FINAL THOUGHTS</span></i></b><br />
If you don’t look in the mirror, you won’t know how
attractive you are. A key role in strategy is to be the mirror, so that the
company can see how attractive it is becoming to its customers<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-24437330089149249362016-11-10T15:37:00.000-05:002016-11-10T15:37:35.354-05:00Why Most Strategies Fail: Reason #1 <div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/--A2hew7LLMk/WCTYoilkZrI/AAAAAAAACrI/InEk_OUUjh0e7Mo-JjvLqbwjQ0JrDLewgCLcB/s1600/internal.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://4.bp.blogspot.com/--A2hew7LLMk/WCTYoilkZrI/AAAAAAAACrI/InEk_OUUjh0e7Mo-JjvLqbwjQ0JrDLewgCLcB/s320/internal.jpg" width="317" /></a></div>
<br /><i><b><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">BACKGROUND</span></b></i><br />
This week, I saw a blog by the Cascade strategy software
company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it
<a href="https://www.executestrategy.net/blog/why-strategies-fail/?utm_source=ActiveCampaign&utm_medium=email&utm_content=New+Post%3A+70++of+Strategies+Fail+-+Here+s+Why&utm_campaign=newsletter-2016-11-08-why-strategies-fail" target="_blank">here</a>.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The title lured me in. However, after reading the article, I
was completely dissatisfied. I so fundamentally disagreed with almost
everything said in the blog that I wanted to write back as to why I felt the
blog totally missed the point.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, because we approach strategy in such fundamentally
different ways, I couldn’t find any common ground from which to start. It was
as if we were from different planets speaking a different language.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Therefore, I will just write my own set of blogs on why I
think most strategies fail. It boils down to three things. I will devote a
separate blog to each reason.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: Arial, sans-serif;"><span style="font-size: large;">PROBLEM
#1: STRATEGIC FOCUS IS TOO INTERNAL</span><br />
</span></i></b>For a strategy to succeed, it must succeed in the external marketplace.
It is out in the world, where the customers and the competition are, that you
have to win acceptance. If the consumers vote for your competition, you lose—no
matter what internal goals you have achieved. Too much internal strategic focus
at the expense of external focus misses the point and often leads to failure.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>The Most Important
Question<o:p></o:p></u></b></div>
<div class="MsoNormal">
Therefore, strategy needs to start in the external world by
asking this question: Do you have a reason why customers should naturally
prefer you over the competition? In prior blogs (<a href="http://planninga-from-nanninga.blogspot.com/2014/10/strategic-planning-analogy-536-three.html" target="_blank">here </a>and <a href="http://planninga-from-nanninga.blogspot.com/2011/06/strategic-planning-analogy-399-most.html" target="_blank">here</a>) and in a <a href="http://www.lulu.com/shop/gerald-nanninga/the-most-important-question-and-a-few-other-really-good-questions-on-strategy/ebook/product-22161209.html" target="_blank">book</a>,
I referred to this as <b><i>The Most Important Question</i></b>.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There are three key concepts in this question. The first is
the idea of “preference.” A good strategy provides a reason to be preferred by
a meaningful segment of the population. This means that you perceived as
providing a superior solution to an important problem faced by the customer—a
solution worth choosing over other alternatives. Does the foundation of your
strategy start with a compelling reason for being preferred by the external
marketplace? Do you even know what problem your offering is even trying to
solve and what others are doing to solve that same problem?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The second key concept in this question is “natural.” A
natural preference is a preference rooted in the attributes of the value
proposition. It is not artificially added on top. It is naturally embedded in
who you are and what you offer. If you do not have a natural reason to be
preferred, then you will be perceived as offering a commodity—no better than
anyone else; no reason to be chosen over the others.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the world of commodities, you cannot create preference
naturally. Instead, you have to add incentives—or what I like to call bribes—in
order to create artificial preference. These bribes can be lower prices, free
add-ons, or other gimmicks to create the excitement that your commodity offering
cannot do on its own. The problem with these bribes is that they suck the
profitability out of your offering. And since competition can usually copy
these external bribes, you end up in a downward spiral to bankruptcy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, if you have to resort to bribes to create preference,
you strategy is a failure from the very beginning. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The cell phone networks in the US are a perfect example of
this. The top firms (Sprint, AT&T, and Verizon) have not done a very good
job of creating a natural preference for their network over the alternatives.
To many, they are pretty much the same commodity, offering similar phones,
similar coverage and similar services. The fact that there is so much switching
between the firms indicates a lack of reason for preference. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Since there is little natural preference, these mobile
network firms use a lot of bribery tactics to win customers, such as with price
incentives and free features. These bribes often have only a temporary impact
on preference, since the others copy the incentives. The only long-term impact
is a reduction to profitability potential. Without the profits, long term
success is threatened. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is why AT&T is trying to buy up all the content
companies. It is an attempt to create a natural preference rather than a preference
via bribes.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
One way to know if you have created naturel preference is to
ask the market if your offering would be missed if removed from the
marketplace. If alternatives work so well that you are not missed, then you
have built a strategy that has no reason to succeed, no matter how well it is
executed. I dare say that most companies fail because they never created a
strategy that gave the market a reason to want you to succeed. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The third key concept in the most important question is “consumers.”
It doesn’t matter whether or not I like my product. It doesn’t matter if
independent testing says my product is superior. What matters is the consumer
perception of my product. Theirs is the only opinion that matters. Strategies
succeed or fail in the mind of the customer. How much of your strategic plan is
focused on the mind of the consumer?<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>The Rise of the
CMO<o:p></o:p></u></b></div>
<div class="MsoNormal">
In my opinion, the beginning of the demise in the prominence
of strategy was when businesses created the position of Chief Marketing Officer
(CMO). The CMO was given responsibility for the external marketplace factors.
It was snatched away from strategists. This created a number of disastrous
outcomes.</div>
<div class="MsoNormal">
</div>
<ol>
<li>It forced strategists to only work in the realm of
internals—things like financial outcomes, project management and maintenance of
the metrics of performance measurement. These are all a waste of time if your
strategy is not rightly rooted in building natural preference in the
marketplace. So the strategists could no longer control the key to strategic
success.</li>
<li>CMOs really only have significant influence over
bribes, like pricing and advertising and consumer gimmicks. They really don’t
have much influence over how the company fundamentally functions in order to
create a natural preference. Therefore, instead of focusing on natural
preference, CMOs turned the company’s focus towards bribery. This ruins the
essence of strategic success.</li>
<li>Although CMOs have lofty job descriptions with
long-term goals, if you look at what most of them spend the majority of their
time on, it is short-term advertising. Short-term advertising so consumes their
schedule that they never get around to giving the long term marketplace the
attention it needs. Because traditional strategists were almost exclusively
long-term oriented, they were able to do a better job of making sure the
long-term strategy could overcome short-term concerns (more on this when we get
to the blog on reason #3 for why strategies fail).</li>
</ol>
<br />
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
<b><u>Warning Signs that
Your Strategy is on a Path to Failure</u></b></div>
<div class="MsoNormal">
So, one of the first places I would check to see if your
strategy is likely to fail is the balance in the strategy between internal and
external orientation. If your strategy (and the process behind it) has too much
of an internal focus, your strategy will probably fail. By contrast, winning
strategies tend to be far more externally focused on the marketplace.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Here are some clues that your strategy is too internal:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
First, are most of your strategic goals focused on “What’s
in it for me?” or are they focused on “What’s in it for my targeted consumer
group?” “What’s in it for me” goals are things like:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;"> </span><!--[endif]-->Profitability
Goals<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;"> </span><!--[endif]-->Growth
Goals<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l1 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->3.<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;"> </span><!--[endif]-->Shareholder
Return Goals<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
These all may be nice things, but they are outcomes, not
strategies. They do not tell you how to achieve them. There are lots of ways to
increase profits or growth in the short term that will destroy a company in the
long-term. In fact, often the fastest way to achieve internal goals in the near
term is to screw your customers and give them no reason to prefer you over the
long term.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a general rule, if you get the external marketplace
issues right, the internals tend to take care of themselves. However, if you
only look at the internals, there is no guarantee that the externals will
survive. A lack of external orientation in your goals often leads to failure.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A second warning sign is how you are measuring success: Are
you mostly measuring what is going on inside your buildings or are you
measuring what is going on in the minds of your customer? Keep in mind that the perfect internal
execution of a strategy which is seen as irrelevant in the mind of the customer
is a waste of time and a certain path to failure. So measure what really
matters.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Look at your KPIs (Key Performance Indicators). Are they
mostly measuring internal achievements or external marketplace achievements? Unless your strategy is making an impact on
the marketplace, your strategy is worthless. Therefore, load up on KPIs that
measure what’s happening out in the market where results really matter the
most.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A third warning sign is to look at what your strategists
focus on. Are they mostly focused on internal issues like financials or project
management or KPI management? Again, these are nice things, but they are not
the essence of what makes a strategy successful. Successful strategies put a
company in a position where they can win in the marketplace. If that is not job #1 for your strategists,
then why should you expect to ever win in the marketplace?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I could say more on KPIs, but I will save that for the next
blog, which will focus on the second reason why most strategies fail. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><br /></span></i></b>
<b><i><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;">SUMMARY</span></i></b><br />
Depending on which study you look at, somewhere between 60%
and 90% of strategies fail. If we don’t address the deep-seated reasons why
strategies fail, we will not be able to raise the percentage of strategic
successes. I believe that there are three major reasons why strategies fail and
my reasons do not always agree with conventional wisdom. The first reason I
believe most strategies fail is because the strategic effort is too focused on
internal issues. Real success occurs when a company is properly positioned to
win in the external marketplace. This requires a strategy that is perceived by
the customer as providing a superior solution to one of their problems in a
natural way. If these external concerns are not met, then all the internal
manipulations are a waste of time. So, if you want to have a successful
strategy, put the emphasis on the issues which have the largest bearing on
success. These start with getting the externals right.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
<br /></div>
<i><span style="font-family: Arial, Helvetica, sans-serif; font-size: large;"><b>FINAL THOUGHTS</b></span></i><br />
I am not trying to imply that the internals do not matter at
all. They do matter…just not as much as the externals. We will be addressing
the internal issues more in failure reasons #2 and #3 (the next two blogs). Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com1tag:blogger.com,1999:blog-5461010492997967211.post-7467994253540273592016-11-01T16:11:00.000-05:002016-11-01T16:11:35.602-05:00Strategic Planning Analogy #570: The Magic Word <div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-feczll5wK9s/WBeSrl-XPhI/AAAAAAAACqo/FOFu2fa25DkJlvL8QX1crLOrBN_wZRHqQCLcB/s1600/normal.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="302" src="https://4.bp.blogspot.com/-feczll5wK9s/WBeSrl-XPhI/AAAAAAAACqo/FOFu2fa25DkJlvL8QX1crLOrBN_wZRHqQCLcB/s400/normal.jpg" width="400" /></a></div>
<br />
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
<div class="MsoNormal">
There is a magical word in the English language. That word
is “Normal.” Normal represents that which is to be expected: the routine, the
average to which everything else is compared. If something is better than
normal, we rate it with a positive number. If something is worse than normal we
rate is with a negative number. And normal remains the eternal midpoint of 0.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What makes “normal” a magical word? It’s magical because it
can change your entire perspective on life. For example, let’s say your life
falls into a terrible routine—you’re locked in a prison camp, or you’re living
every day in poverty with little to eat, or some such situation. It looks bad.
You’d think you’d rate it a low negative number.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But…<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If your situation stays like that long enough, it becomes
your expected routine. It becomes your normal to which you compare everything
else. It is your new reference point of 0. Now it is no longer the definition
of bad. Bad is that which is worse than that new normal, no matter how bad the
starting point of your new normal is.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That is why people who have lived their entire life in poor
impoverished nations often seem so happy. This situation is their normal. It is
pretty much all they know. It is their stating point of zero. Since it rarely
gets worse, they don’t rate much in negative numbers. And since it sometimes
gets better, they have many positive moments.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, if you find your life taking a bad turn, just pull out
that magic word of “normal.” Classify your current state as the new normal.
Suddenly, it moves from being a big negative to being your new zero. And zero
feels a whole lot better than a big negative number.<o:p></o:p></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
</div>
<b><i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">THE
ANALOGY</span></i></b><br />
Many companies have learned the magic in the word “normal.” When
times get bad for a business, they explain it away as being “the new normal.”<o:p></o:p><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
“We can’t do anything about this situation,” they say. “It’s
just the way things are. It’s the normal way the marketplace will work from now
on. We just have to accept it and live in this reality.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
They make it sound so logical. They claim these aren’t
really bad times. These are now normal times. This is all that can be expected
in times like these. Instead of the situation being rated a negative number,
things are now recalibrated to zero. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And in recalibrating to zero, the business accepts the new
status quo. They settle for the new point zero. They stop aspiring for anything
much better. It’s okay now to be this way well into the future because it is <b><i>normal</i></b>.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And this is where the strategic problem arises. Once you accept
a bad situation as normal, you are trapped into thinking that this current situation
is the baseline for strategy. It is the norm from which you try to eke out
minor improvements. The parameters of your assumptions are bound by the
mistaken belief that the events causing your situation to be bad are normal,
and therefore nearly impossible to change.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a result, the expectations in one’s strategy tend to
drop. After all, it is difficult to pull off abnormal results when the forces
of nature are pulling you back to normal, right? This causes weak, ineffective strategies which
perpetuate a bad situation. Significant improvement doesn’t happen, because you
no longer expect it or plan for it. You’ve let the magic of normal lull you
into complacency.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">THE PRINCIPLE</span></i></b><br />
I first learned about this principle in a college political
science class. Although my college professor didn’t quite say it in these
words, he believed that most social unrest and political revolts were a result of
changes in the perception of normal.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
His logic went something like this. As long as the citizens
of a nation saw their situation as normal, they were relatively content. You
can’t change normal, so you may as well accept it. So even nations with
horrible conditions were relatively stable. This is all the people knew and it
was all the people expected, because it was their vision of normal. There was
no reason to change, because they did not see anything to change to. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But then, in the middle of the 20th century, mass media
started penetrating the far corners of the earth. People in the poor, repressive
nations started to see how life was lived in other places. They saw how other
places had a totally different type of normal life. The normal in these other
nations looked MUCH BETTER than what they were experiencing. Suddenly, these
nations decided that the superior normal in these other places should be their
normal, too. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
By accepting this new and better definition of normal, the
people in the poor, repressive nations changed their perspective. Now, their
current circumstances were no longer rated as zero. By comparison to the new
idea of what should be normal, the current situation was a huge negative
number.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Nobody wants to live in a highly negative situation, so the
people in these nations started to revolt. They were willing to make great
sacrifices in order to achieve their much higher expectations of what normal
should be. So, according to my professor, mass media and its impact on people’s
expectations is what ended colonialism and put the world on a better path.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Application to
Strategic Planning <o:p></o:p></u></b></div>
<div class="MsoNormal">
So how does this principle apply to
strategic planning? Businesses can be like those repressive nations before the
mass media. Everyone pretty much accepts the current situation. It is all they
know and they think it is all that can be achieved. It is the normal we have to
live with.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The nations did not revolt and work
to improve the situation until they could imagine a potential new normal that
was worth fighting for. Without first creating the ability to conceive of a new
reality, there was no reason for the people to rock the boat and take radical
action.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
From this, one of the most
important principles of strategic planning can be seen: Before you can convince
a company to take on the difficult task of radical change, you must first
convince the people that there is a new and much better version of normal that
can be attained from that change effort.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Therefore, one of the chief roles
of the strategist is this: to help the people within the business redefine
their perception of what normal can be. The strategist has to paint a picture
of a future which is not only much better than today’s norms, but also
something which they can envision as becoming their new norm if they are
willing to work for it. <o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Making Insiders
Into Outsiders<o:p></o:p></u></b></div>
<div class="MsoNormal">
This is one of the reasons why most revolutions in an
industry are started by outsiders. Because outsiders have not lived inside the
industry, they aren’t brainwashed into thinking that the norms of the industry
are the way things need to be. Outsiders have an advantage in dreaming up and
going after a new definition of normal, because:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]-->The minds of outsiders are not clouded by years
of living under the old normal. They don’t have to unlearn the old conception
to form a new one, because they never lived under the old conception.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]-->Outsiders have no vested interest in the current
normal. It is not theirs. By contrast, insiders have to change their thinking
about their identity, which is tied to the current normal.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "symbol"; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal; line-height: normal;">
</span></span><!--[endif]-->Outsiders have nothing to lose if the normal of
the status quo is upset. By contrast, insiders worry the change will make their
situation worse. Kodak didn’t aggressively move from film-based to
digital-based imaging because that new normal looked less profitable. What they
missed is the fact that bankruptcy from not adapting to the new normal is even
less profitable.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Therefore another key role for the strategist is this: to
help insiders think more like outsiders. This means helping people look at the
industry with new eyes that are not clouded by the past. This helps people to
conceive of a better normal. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
One of the enemies of strategic planning is complacency. If
people feel the status quo is all that can be achieved, they will resist any
effort to change. Therefore, one of the key roles of strategic planning is to
help people to do two things: 1) Envision a new and better normal; and 2) Help them
believe that the new normal is achievable. Sometimes, it helps if you can get people to
see their industry more like an outsider than an insider.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
The inability to envision a better normal is not an excuse
to view the status quo as being acceptable. Bad is still bad, even if you
cannot see a way to make it better. In these cases, perhaps the best move is to
sell out to someone who is willing to accept that poor reality…preferably before
an outsider finds a way to make that view of normal obsolete.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-37398656644768308252016-10-14T09:17:00.001-05:002016-10-14T09:21:41.590-05:00Strategic Planning Analogy #569: Strategic Multivitamins<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-_FXGdduqRkk/WADnhDOSkdI/AAAAAAAACqQ/vuOzBoHLIZ4wP5aLPYoBghUVVEd7vO1hQCLcB/s1600/multivitamin.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="281" src="https://3.bp.blogspot.com/-_FXGdduqRkk/WADnhDOSkdI/AAAAAAAACqQ/vuOzBoHLIZ4wP5aLPYoBghUVVEd7vO1hQCLcB/s400/multivitamin.jpg" width="400" /></a></div>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><br /></b></span></i>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b>THE STORY</b></span></i><br />
<div class="MsoNormal">
My most recent blood test showed I was low in vitamin D, so
I went to a healthy food store to look for vitamin D supplements. The man at
the store said that to get the maximum benefits of vitamin D, you need a
supplement that also includes vitamin K. Others say that vitamin D needs to be
paired with calcium, because calcium is absorbed better when paired with vitamin
D.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There are lots of other pairings in vitamins and
supplements. Folate needs to be taken with B12 if you want it to work properly.
Potassium needs to be paired with sodium to keep things in balance in your body.
The list of pairings go on and on.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a result, I did not leave the store with a vitamin D
supplement. Instead, I got a multivitamin supplement.<o:p></o:p><br />
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">THE
ANALOGY</span><br />
</span></i></b>Many of the tools used in strategic planning, like KPIs and tactical
outcome targets, are a lot like vitamins. They help make a business stronger
and healthier. Regular emphasis on them keeps a business from feasting on the bad
“junk food” which leads to poor performance.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem with that these strategic vitamins is that we
tend to focus on only one or two at a time. When that happens, a company can
get out of balance. Just as some vitamins need to be paired with other vitamins
to work most effectively, most KPIs and targets work most effectively when
paired with other KPIs/targets. The singular focus can get a company out of
balance and turn a good tool into a business health nightmare.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Therefore, companies need to apply strategic multivitamins,
so that everything stays in balance. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<o:p></o:p></div>
<i><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b>THE PRINCIPLE</b></span></i><br />
Yes, it’s true that one of the key benefits of strategic planning
is the advantage of getting a company more focused. However, there are dangers in getting TOO
focused. Vitamin A is important for
health, but if all you take is vitamin A, you will suffer in two ways: <span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal; text-indent: -0.25in;"> </span><br />
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
</div>
<ul>
<li> You will starve yourself of other vital
vitamins;</li>
<li><span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal; line-height: normal;"> </span><span style="text-indent: -0.25in;">You will get vitamin A poisoning.</span></li>
</ul>
<div class="MsoNormal">
Similarly, if you narrowly focus a company on achieving just
one thing, you can starve it of other essentials and turn that one good thing
into a poison for your company. KPIs and targets need to be balanced and
paired.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Although Warren Buffett did not use the vitamin analogy, he
said something very similar at the latest annual meeting for Berkshire
Hathaway. Buffet said that profits need to be paired with growth. If you only
focus on profits, Buffet says that you will take too much money out of the
company today and starve it of future opportunities. For a healthy business,
you need to pair the two (profits and growth). That way, a company is healthy
both today and tomorrow.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Pairing
Efficiencies With Investments<o:p></o:p></u></b></div>
<div class="MsoNormal">
A similar pairing would be efficiency and investment. A
focus on efficiency is a good thing. It helps root out waste. It makes your
efforts more productive. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, if too much effort is placed on efficiency—at the
expense of everything else—then problems occur. It moves beyond rooting out
waste and starts eliminating or delaying every expense possible in the
organization. Maintenance is postponed and investments are eliminated. This can
result in increased injuries and product failures. The Samsung smartphone
disaster may have been caused by eliminating too many costs associated with
testing in the mistaken guise of getting to market more efficiently.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The irony is that by eliminating virtually all expenses
today, we just create problems later which cost even more in the future...or
even cause business failure. That would be efficiency poisoning.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That’s why efficiency needs to be paired with investments.
We can’t simply cut our way to prosperity. We also need to invest in our
strategic future. We need to invest in maintenance, equipment, safety, new lines
of business, advertising/promotions, etc. A healthy future requires balanced
nutrition from both efficiency and investments.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Pairing Internal
With Extermal <o:p></o:p></u></b></div>
<div class="MsoNormal">
Another important strategic pairing would be a combined
focus on both internal and external factors. It is easy to fall into the trap
of getting too focused only on the internal. After all, the internal is far
more under our own control. It’s easier to achieve our targets in places where
we have more control. And don’t our executives want achievable goals?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a result, we can put on blinders and only worry about perfecting
our internal business model. But what’s wrong with perfecting our business
model you may ask? Well, if you do this while ignoring external factors, you
can miss shifts in the customers or in what competition is doing. Customers may
no longer want what your model offers or competitors may have come up with a
superior business model. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Consequently, an internal-only focus can lead to perfecting
an obsolete business model. No matter how grandly you’ve perfected the
obsolete, it is still obsolete and worthless. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Just look at Blockbuster. It was trying to perfect the
traditional movie rental business model. Unfortunately customers were moving to
better business models offered by new competitors (Netflix and Redbox). Now
Blockbuster as we knew it is gone.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And what about the current disaster at Wells Fargo? Wells
Fargo has been so internally preoccupied with a focus on its culture of pushing
its model of multiple accounts to the extreme that it lead to corruption and a
public relations disaster. Had they balanced this internal focus with an
external focus, they would have understood better how the internal tendencies
were hurting their external relationships with their customers. That would have
led to a stronger long-term strategy.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Balanced Scorecard<o:p></o:p></u></b></div>
<div class="MsoNormal">
This is where tools like the Balanced Scorecard come in.
Although I have never been the biggest fan of the particulars surrounding the
balanced scorecard, I do appreciate its intended goal. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The goal of the balanced scorecard is to create a more
balance blend of KPIs/targets. It takes into account a lot of pairings, like
internal and external, efficiencies and investment, profits and growth. It
forces a company to stay away from being too narrow in its focus. You can look
at the balanced scorecard as being a company’s multivitamin.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Just as there are many types of multivitamins, there are
many ways to achieve balance in the KPIs and targets you focus on. The
important thing is to get on the multivitamin approach.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
One of the benefits of strategic planning is getting a
company focused on where it needs to be. And that’s a good thing. However, if
we get too focused on the tactics we use to get there, we may never reach our intended
destination.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Life is complex. To make it work properly, we need a balance
of nutrients. In a similar fashion, the business world is complex. To make our
business work properly, we need a balance of KPIs/targets. If we get these out
of balance for too long, disaster is almost inevitable.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Examples of balance would be pairings like profits and
growth, efficiency and investment, & internal and external.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
When I bought my multivitamins, the label said I should consult
my physician before taking the pills. Similarly, I believe companies should
consult a strategist before taking a strategic multivitamin.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-84453599965138781372016-09-22T13:03:00.003-05:002016-09-22T13:08:44.079-05:00Strategic Planning Analogy #568: SWOT it Away<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-LjIGBS2Hp48/V-QciGUqJAI/AAAAAAAACqA/XREw2Su9ieQHr2Nz4VAqgYkXcBUNVeH8QCLcB/s1600/macgyver.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="233" src="https://1.bp.blogspot.com/-LjIGBS2Hp48/V-QciGUqJAI/AAAAAAAACqA/XREw2Su9ieQHr2Nz4VAqgYkXcBUNVeH8QCLcB/s400/macgyver.jpg" width="400" /></a></div>
<br />
<i><b><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;">THE STORY</span></b></i><br />
<div class="MsoNormal">
I was born with a larger than normal nasal cavity, which
means that I have a better than average sense of smell. I haven’t decided yet
if that is a good thing or a bad thing.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
On the good side, most of the flavor of our food comes
through the nose, so good food tastes really, really good to me—more so than
for the average person. The bad news is that it causes me to overeat and have a
weight problem.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
On the good side, I can more easily detect problems, such as
a gas leak or if food is starting to spoil, or if a baby needs a diaper change.
The bad news is that these types of bad smells cause me to react more
negatively than others and get more nauseous than others.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So is having a more acute sense of smell a good thing or a
bad thing?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
</div>
<b><i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;">THE
ANALOGY</span></span></i></b><br />
One of the tools often used in strategy is the SWOT analysis
(Strengths, Weaknesses, Opportunities and Threats). The basic assumption behind
the SWOT analysis is this: things can be easily categorized into one of these
four categories. Once you put things into their proper category, then a
strategy will emerge to emphasize the strengths/opportunities and mitigate the
weaknesses/threats.<o:p></o:p><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem is that I see the world as being a lot more like
my nose than like a list of categories. My acute sense of smell has both
strengths and weaknesses. It provides me with both opportunities and threats.
So does just about everything in business. Just as my nose won’t easily fit
into these categories, neither does most of the business world.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a result, it can be dangerous if a strategist just dumps
a particular attribute into one of these four categories, since this will
ignore the weakness inherent in any strength (and vice versa). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<o:p></o:p></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that the SWOT analysis, as it is
typically used, is an improper approach to strategy. The reason is because the
fundamental assumption behind SWOT is flawed—things do not have a singular
characteristic of being either good or bad. And if you only see a singular
attribute, you become blinded to the more complex nature of the situation you
are dealing with.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
With SWOT, things labeled “bad” will be ignored or gotten
rid of and things labeled “good” will get all the attention. As a result, you
will miss out on the good things inherent in the “bad” and be overcome by the
bad things inherent in the “good.” <o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Example: Retail<o:p></o:p></u></b></div>
<div class="MsoNormal">
For example, let’s compare ecommerce vs. brick & mortar
retail in the US. If you do the SWOT analysis, you might say that ecommerce is
an opportunity and that brick and mortar is a weakness. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
After all, by
comparison, ecommerce is:<br />
<ol>
<li><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">Less capital intensive;</span></li>
<li><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">More Convenient;</span></li>
<li><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">More Flexible;</span></li>
<li><span style="text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">Faster Growing.</span></li>
</ol>
</div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<span style="text-indent: -0.25in;"><br /></span></div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
Such a simplistic approach might cause a retailer to abandon
its stores (weakness) and put everything behind ecommerce (strength). However, this
conclusion misses some nuances.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
</div>
<ul>
<li><span style="text-indent: -0.25in;">Omnichannel (both ecommerce AND brick & mortar) is
even more valuable to customers. This is one reason why about 6 of the top ten
US commerce sites are owned by companies that also operate brick and mortar
stores (it varies depending on who is doing the research). It also helps to
explain why many so-called pure ecommerce sites are starting to open up brick
and mortar stores.</span></li>
</ul>
<ul>
<li>About 88% of commerce in the US still flows through brick
and mortar stores.</li>
</ul>
<ul>
<li>Amazon so dominates the “pure” ecommerce space in the
US that success in the pure ecommerce space is not a guaranteed successful
strategic option for non-Amazon firms.</li>
</ul>
<o:p></o:p><br />
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo2; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
Therefore, dumping stores and putting all money behind
ecommerce could be a huge mistake.<o:p></o:p></div>
<div class="MsoNormal">
Just like my acute sense of smell, both forms of retail have
strengths and weakness. You can’t just slot them into a single category. SWOT
is too simplistic to account for all the nuances.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>Alternative to SWOT<o:p></o:p></u></b></div>
<div class="MsoNormal">
An alternative to the SWOT approach is something I call the
MacGyver Approach. In the TV show “MacGyver”, Angus MacGyver gets into a lot of
problematic situations. To get out of these predicaments, MacGyver looks around
to see what is at his disposal. Usually it is just a bunch of everyday
stuff—not inherently good or bad—just stuff. He then figures out how to combine
what is at his disposal to create a way out of his dilemma. He can make bombs
out of household chemicals. He can use chewing gum and paper clips to find a
way of escape. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The value of the items is not in each individual item, but
in the ways MacGyver combines them for the desired effect. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The same can be true for your business. Your business has a
lot of things at its disposal, including money, customers, patents, distribution
channels, business partners, image, employees, and so on. Rather than trying to
slot each one into a singular category of good or bad, weak or strong, just
look at it as a bunch of stuff at your disposal (no preconceived value
judgements). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Then, like MacGyver, look for ways to combine it all to
create a way out of your dilemma. It’s a lot easier to find creative solutions
when you don’t poison your mind with preconceived notions about how various
parts are only good or only bad. Having an open mind opens up more
possibilities.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
You’d be surprised at what kind of strategy you can come up
with if you abandon the SWOT approach and use more of a MacGyver approach. So
my suggestion is to take SWOT out of your strategic toolbox and replace it with
the MacGyver tool.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I’ve covered this concept in a variety of posts in the past.
To learn more about this idea, go <a href="http://planninga-from-nanninga.blogspot.com/2008/04/analogy-172-dont-read-label.html" target="_blank">here </a>and <a href="http://planninga-from-nanninga.blogspot.com/2008/10/analogy-216-stop-labeling.html" target="_blank">here</a>.<o:p></o:p></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>SUMMARY</i></b></span><br />
Strategies have a starting point—where we are today. Our
current situation comes with all sorts of baggage. To sort through all that
baggage, a common strategic approach is to quickly sort everything into different
piles depending on whether the baggage is “good” or “bad.” This is called the
SWOT analysis. Unfortunately, by initially putting value labels on things we
miss out on the fact that there is both good and bad in everything. SWOT closes
our minds prematurely to all the potential strategic options available to us. A
better approach is to eliminate the labels and see it all as a just pile of raw
materials (no value labels) from which we must build a strategy. Then, like
MacGyver, we look for creative ways to combine it all so that the sum of the
parts gives us the edge we need to escape trouble and achieve success.<br />
<br />
You don't need a nose like mine to smell the benefits of MacGyver over SWOT.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-family: "arial" , "helvetica" , sans-serif; font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
Remember, the best strategy for your company is not some
generic approach applicable to everyone. After all, if everyone can do it,
where is your advantage? Instead, your advantage comes from making the most
from what is uniquely you. Look at everything you have and figure out how to
combine it for maximum impact.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-54208352095919858202016-08-25T13:14:00.000-05:002016-08-25T13:20:44.232-05:00Strategic Planning Analogy #567: Water Between the Marbles<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-OHW-62Qlyho/V781AUg6RlI/AAAAAAAACps/6SLHY4wF_OM2srfVQz3XYhGbupoqTMU5QCLcB/s1600/beaker.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="237" src="https://3.bp.blogspot.com/-OHW-62Qlyho/V781AUg6RlI/AAAAAAAACps/6SLHY4wF_OM2srfVQz3XYhGbupoqTMU5QCLcB/s400/beaker.jpg" width="400" /></a></div>
<br />
<i><span style="font-size: large;"><b>THE STORY</b></span></i><br />
<div class="MsoNormal">
When I was in Junior High School, we did an interesting
science experiment. The teacher took a beaker and filled it full of marbles. He
asked the class if we thought the beaker was full. We all said "Yes."<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Then the teacher poured water into the beaker over top the
marbles. He poured quite a bit of water into the beaker before the water
reached the top. Then he poured the water surrounding the marbles out into
another beaker. The second beaker was about half full of water. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So the teacher then pointed to that original beaker with
marbles up to the top and re-asked his first question: “Is this beaker full?” <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This time we answered “No.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><i><span style="font-family: "arial" , sans-serif; font-size: 14.0pt;"><br /></span></i></b></div>
<div class="MsoNormal">
</div>
<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: large;"><b>THE
ANALOGY</b></span></span></i><br />
Things can appear full even when they are not. It doesn’t matter
what the container is or what you put into it. You can fill the container to
the top and it still will not be full. <o:p></o:p><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem is that little spaces form between the objects
you put in the container. Each individual space may appear tiny, but when you
add them up, all those spaces take up a lot of room. That’s why so much water
could be put into a beaker that was supposedly “full” of marbles.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The same is true in business. A market may appear to be
full, with large competitors appearing to take up all the available space. It
looks like there is no room for anyone else.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, if you stop looking at all the marbles (the big
competitors) and start looking at the spaces, you will see that there is still
a lot of room in that market. If you think strategically, you may still find a
successful way to fill those open spaces.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<o:p></o:p></div>
<span style="font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that even in highly mature markets there
always seems to be room for niche products or niche companies. The reason is
because large companies tend to be best at doing the large things (serving large
customer segments, large product runs, large marketing programs, etc.). They
are not well designed to go after those small spaces.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
These large, mass companies are like those marbles. They
take up all the space that marbles are capable of taking, but they leave gaps
they cannot fill.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Because water can go into smaller spaces, they can fill in
the places the marbles cannot get to. Smaller niche markets and niche companies
are like that water, able to penetrate spaces difficult for the large companies
to effectively reach.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>McKinsey Article<o:p></o:p></u></b></div>
<div class="MsoNormal">
I saw an example of this principle in an article put out
this month by <a href="http://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/winning-in-consumer-packaged-goods-through-data-and-analytics?cid=other-eml-alt-mip-mck-oth-1608" target="_blank">McKinsey and Co.</a> The article was looking at the consumer packaged
goods (CPG) industry. This is a very mature business. Consolidation has occurred
and there are only a few large companies left trying to fill the CPG space. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
To get an idea of how full the CPG space is, the article
states that growth for these large CPG companies over the past four years
averaged only about 0.3% per year. It looks like there is no more room for
these large CPG companies to stuff any more marbles into the CPG market. They’ve
already tapped pretty much all they can get, right?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So does that mean every other company should walk away? Not
necessarily. In the story, we saw that even when the marbles “filled” the
beaker to the top, there was still room for about a half a beaker full of water
in that beaker. Similarly, the McKinsey article says that even though the big
CPG companies have “filled” the CPG market, about half the CPG space is filled
by niches not held by the big companies.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And here’s the more exciting news. While the big companies
were averaging only 0.3% growth, the article says that midsize companies were
growing at 3.8% and small CPG companies were growing at an astonishing 10.2%! So even in so-called slow growing mature
markets, you can grow and prosper if you know how to get into those small
spaces.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So how do you take advantage of those small spaces? Well, simply
put, you have to become less like a marble and more like water. Marbles are
large and rigid. Water is fluid and flexible, able to seep into small places.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There are three ways to become more like water. They are
discussed below:<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>1) Make your Company Successful At Being
Small<o:p></o:p></u></b></div>
<div class="MsoNormal">
Large companies tend to find it hard to do small things
because their very bigness tends to get in the way. They have large overhead,
lots of bureaucracy, rigid rules, and an infrastructure built to exploit big
opportunities. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Smaller, more nimble companies, however, are less burdened
with all this rigid structure and high cost. They can be built in such a way
that they can make money on small opportunities outside the reach of the big
ones.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Don’t try to gain success by imitating the big guys. Gain
success by structuring your business model to do things they cannot do. Stop
trying to be a rigid marble. Stay fluid and flexible.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>2) Target Small Opportunities<o:p></o:p></u></b></div>
<div class="MsoNormal">
Don’t look for the big opportunities. Big opportunities
attract big competitors. The big competitors will crush you there. Instead,
look for the small niches which fall below the big company’s radar.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Small niches can still be pretty profitable if you know what
you’re doing and are designed to optimize in a niche environment. So don’t look
at where the big marbles already exist. Look at the spaces between them. Find a
small space rightly sized for you, but too small for the big guys.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in;">
<b><u>3) Make Big Companies Better at Doing Small
Things<o:p></o:p></u></b></div>
<div class="MsoNormal">
If you are already a big company, the challenge is in
finding a way to become better at doing small things. Technology can be helpful
here. You can use technology to:</div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo1; text-indent: -.25in;">
</div>
<ul>
<li><span style="font-family: "symbol"; text-indent: -0.25in;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><span style="text-indent: -0.25in;">Make small production runs more feasible;</span></li>
<li><span style="font-family: "symbol"; text-indent: -0.25in;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><span style="text-indent: -0.25in;">Make it easier to find and target smaller
consumer segments;</span></li>
</ul>
<br />
<div class="MsoNormal">
You may also need to segregate your approaches to business
depending on whether it is large or a niche. For example, large opportunities
may get one level of service and support while niche opportunities get a
different level of service and support. In other words, you may have both “marble”
divisions and “water” divisions, which are run differently.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>SUMMARY</i></b></span><br />
Fullness is a relative term. When you try to fill a space
with large objects, there will still be lots of spaces where the large objects
cannot penetrate. In the business world, you can have a successful strategy by
targeting those niche spaces between the large firms. The trick is to design
your business to succeed at niches (small, fluid, nimble) and to choose the
niches which fall below the radar of the large companies. Large companies can
also do a better job of going after some of these niches if they segregate these
niche opportunities within their company and treat them differently.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
There is no such thing a single right strategy which makes
all the other strategies wrong. The right strategy for a marble is different
than the right strategy for water. Both can work. The secret is finding the
strategy where you have an advantage. The question for you should not be “What
is the right strategy?” but rather “What is the right strategy for me?”<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-7294093766130302842016-08-21T15:41:00.001-05:002016-08-21T15:41:40.496-05:00Strategic Planning Analogy #566: Regimented Plans<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-7w6FM6wVvL8/V7oR3OgWQAI/AAAAAAAACpc/-ZBw6OlZgtYhHh7PEb99IG8Jg1_tklhlQCLcB/s1600/PG.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="308" src="https://3.bp.blogspot.com/-7w6FM6wVvL8/V7oR3OgWQAI/AAAAAAAACpc/-ZBw6OlZgtYhHh7PEb99IG8Jg1_tklhlQCLcB/s400/PG.jpg" width="400" /></a></div>
<div>
<br /></div>
<br /><i><span style="font-size: large;"><b>THE STORY</b></span></i><br />
Way back when I was getting my MBA, the accepted rules for
success in marketing went like this:<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-bottom: 6.0pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraph" style="margin-bottom: 6.0pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
1.<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;">
</span><!--[endif]-->Get an MBA in marketing from a top-tier business
school.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 1.0in; mso-list: l0 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Immediately
go work a few years for Proctor & Gamble (P&G).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The idea was that if you had a top tier MBA and P&G
experience on your resume, you could go and do almost anything in marketing.
Your long term career was set for life.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There was a woman in my class which took these rules to
heart. She made them her life plan. She was currently getting her MBA like me
from a top tier school. Then her plans were to immediately go to work for
P&G.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As you can imagine, she was very excited when the P&G
recruiters came to campus. Actually, she was a little bit too excited. For
years, this next step had been a part of her life plan and she could hardly
contain her excitement and nervousness.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A short time after the P&G visit to campus, I noticed
that I hadn’t seen that woman around campus recently. I asked someone what had
happened to her. I was told that she had suffered a nervous breakdown and would
probably not be returning.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I guess her experience with P&G had not gone as planned
and she took it a little hard. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
</div>
<b><i><span style="font-family: Arial, sans-serif;"><span style="font-size: large;">THE
ANALOGY</span></span></i></b><br />
Strategic planners tend to like plans. The idea is that if you
have the right business plan, and follow it to the letter, your company will
have success for a long time. This is similar to the thinking of that student.
Follow the plan (top-tier MBA, experience at P&G) and your career will have
success for a long time.<o:p></o:p><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem this woman had was that she apparently did not
get the job at P&G. Her plan could no longer be completed as designed. Since
she did not have a back-up plan, she lost her composure and had a nervous breakdown.
In the end, she didn’t get the MBA or the P&G job and probably ended up
with a career far less desirable than the one she had planned for.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The potential for this type of negative outcome can also
confront strategic planners and their plans for their business. Their plan may
be meticulous and well thought out, but for some reason, not all the pieces
come together as planned (for any number of reasons—controllable or
uncontrollable). If you are too emotionally attached to the original details or
have no backup if something goes wrong, things can get pretty messy for the business.
Instead of getting even a portion of the success dreamed of, you end up with
nothing.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that the goal of planning is not to
make perfect plans. We live in an imperfect world. When a perfect plan
encounters an imperfect world, the plan is usually the first to crack. Setbacks
are not a rare occurrence…they are the norm. Therefore, if your entire future
is predicated on everything going exactly as planned, you’re in trouble. You
have nothing to look forward to, except perhaps a nervous breakdown.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Well, if the main job of planners is not to create perfect
plans, what is their role? The role of the strategist is to:<o:p></o:p></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
<br /></div>
<div class="MsoNormal" style="margin-left: 1.0in;">
Facilitate the process which causes
the long term future of the company to be better than what would naturally occur
if a company only focused on opportunism or fixing the immediate concerns. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The goal is not perfect plans, but a better future. Companies
tend to get fixated on attending to the immediate crisis of the day. By being
held captive to today’s pressures, little time is left for long-term concerns.
I refer to this as the Tyranny of the Immediate.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The strategist’s role is to create more balance between the
near-term and the long-term. By getting more long-term thinking into the daily decision-making
process, the future will arrive in better shape than what would otherwise
occur.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Yes, this process usually includes making plans. But the
plans are merely tools to help create the real objective of a better future.
And because the future is messy, the plans will be a little messy, too.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Problem #1:
Placing Tactics Over Goals<o:p></o:p></u></b></div>
<div class="MsoNormal">
The problem with focusing on executing the perfect
plan is that tactics can mistakenly become more important than the objectives.
We can become so focused on doing each step of the plan exactly as conceived,
that we end up failing to recognize that there may be other, better ways to
obtain the larger objective. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
My fellow student was so focused on the tactic of getting
the job at P&G that she forgot about the greater goal of having a great
career in marketing. When the tactic failed, she gave up. In reality, there are
many paths to a great career in marketing. She should have focused on the
larger picture and found another way to achieve the greater goal.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For example, I know of a retailer that wanted to enter the Nevada
market. The tactic in the plan was to purchase a retailer who already had a
presence in Nevada. Unfortunately, another retailer ended up purchasing this
company. If you only focused on the tactic, you would now walk away defeated,
like the woman missing out on getting into P&G.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But here’s what happened. As it turns out, the retailer who
bought the company had already started retail development in Nevada on their
own. They no longer needed this. So the company that lost out on buying the firm
purchased the development in progress from the company that did purchase the
firm. In the end the strategic objective was met with a different tactic. They
didn’t give up; they merely found another way to achieve the greater goal. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Plans are not to be written in stone, unable to be altered.
There needs to be room for flexibility to adapt to the changing situation.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Problem #2:
Mistaking Opportunism for Flexibility<o:p></o:p></u></b></div>
<div class="MsoNormal">
So let’s say you get over the idea of creating perfect plans
and decide to become more flexible. You can still run into problems if you get
too flexible. Too much flexibility results in abandoning planning and just
chasing the latest hot opportunity. The problem with chasing opportunistic fads
is that if you bring no strategic advantage to the opportunity, you will end up
failing. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It doesn’t matter how “hot” the opportunity is. In the end,
the market will consolidate, leaving most of the participants as losers. If you
do not bring a competitive advantage to the space, you will lose. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Look at the
smartphone industry. It was a very hot space. Lots of firms jumped into the
space. Only Apple and Samsung made any money. Everyone else lost. Building social
media platforms was also a hot space. Lots of people opportunistically jumped
into the space. But when you get past a few firms, like Facebook and Linkedin,
you see that most of the people who jumped in lost.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Being flexible is not the same thing as being opportunistic.
Being flexible means being willing to alter tactics to achieve a previously
chosen strategic goal. Opportunism, by contrast, is just chasing whatever is
hot at the moment. If you have no strategic advantage in that space, you are
just pouring money at the problem. Money is relatively easy to get, so a lot of
people will be pouring money into the hot space just like you. In the end, you
are just pouring money down the drain, because you have not brought any
strategic justification for winning in the space against all of the others
chasing the same hot opportunity.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The better approach is to first build strategic superiority
by focusing efforts on improving expertise in a particular area. Then, when an
opportunity pops up which matches your point of superiority, you jump in. Now
you’ve moved from mere opportunism to exploiting strategic advantage in a place
where you can win. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Apple won in smartphones because they brought a lot more
than mere money. Apple had a great brand image in that space, they knew how to
source the product, they knew how to design a more appealing product, they had
distribution in place, they had the right connections with content providers, they
knew how to build a closed system to surround the product, and so on.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If Apple had gone after another hot space, like craft beers,
I doubt they would have had as much success, because it was not as good of a
strategic fit.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
You will never have superior strategic fit if you don’t plan
for it. So planning is still essential. You need a plan that builds a reason
you can win. Flexibility does not negate that chore. But never forget that the reason you build a way to win is so that you can eventually win. The path to
get there may not be as straight a line as you want, and there may be detours
along the way. Don’t give up when the detours come along. Just pick yourself up,
adjust, and continue towards the greater goal that you have planned for. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>SUMMARY</i></b></span><br />
Strategy is not about building perfect plans. The world is
too messy for perfect plans to survive fully intact. Setbacks will occur. Don’t
let the setbacks create a nervous breakdown. Instead be prepared for
flexibility on the way to your ultimate goal. But don’t let a desire for
flexibility result in the complete abandonment of planning to be replaced by
opportunism. Opportunism only works when you already have a plan in place for
how you can create strategic superiority in that space. Without the prior planning
to create a winning advantage, you will lose, no matter how “hot” the
opportunity appears.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<i><span style="font-size: large;"><b>FINAL THOUGHTS</b></span></i><br />
It’s easy to fall into the trap of focusing on building and executing
the perfect plan rather than focusing on building the better future. After all,
it’s easier to show off your contribution and easier to measure your progress
on getting something done when “checking off the tactics on your list” becomes
the goal. But don’t confuse getting tactics done as the same as moving your
company into a better future. It’s a bit more complicated than that.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-90995693690653602732016-08-19T10:32:00.001-05:002016-08-19T10:46:35.975-05:00The Fall of Strategic Planning<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-IPcc4KhdVko/V7cmcw-XINI/AAAAAAAACpM/aNDpCVNzZMkhsDFXRP3u5sec0JmheiXmACLcB/s1600/fall%2Bof%2Bstrategic%2BPlanning.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="237" src="https://3.bp.blogspot.com/-IPcc4KhdVko/V7cmcw-XINI/AAAAAAAACpM/aNDpCVNzZMkhsDFXRP3u5sec0JmheiXmACLcB/s400/fall%2Bof%2Bstrategic%2BPlanning.jpg" width="400" /></a></div>
<span style="font-size: large;"><b><i><br /></i></b></span>
<span style="font-size: large;"><b><i>THE STORY</i></b></span><br />
I was recently reading a posting on the Strategic Planning
Society group’s site on Linkedin. It was titled “<a href="https://www.linkedin.com/groups/1862382/1862382-6141585424805613573" target="_blank">Forget strategy, innovation has replaced it!</a>” The point Bernhard Schmidt was making was that strategy has
lost its relevance in business and has been replaced by innovation.<br />
<br />
This is a
good issue to bring up. However, I think that point of view just touches the surface
of the problem. I wanted to reply with a longer, more nuanced answer to why
strategic planning has gone out of favor, but my response was too long to fit
into the comments section. Therefore, I am putting my response here.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE RESPONSE</i></b></span><br />
This is what I tried to put into the comments section:<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<i><br /></i></div>
<div class="MsoNormal">
<i>Here’s my brief take
on the decline of Strategic Planning:<o:p></o:p></i></div>
<div class="MsoNormal">
<i><br /></i></div>
<div class="MsoNormal">
<i>1) When strategic
planning was at its peak, companies saw many options for their firms and they
wanted to learn which option was the best for the company’s long term future in
terms of profits, market share and stability. As a result, strategic planning
tended to focus on marketing (i.e., positioning) and business models. This was
highly valued, so strategic planning was held in high esteem.<o:p></o:p></i></div>
<div class="MsoNormal">
<i><br /></i></div>
<div class="MsoNormal">
<i>2) Then the CMO (Chief
Marketing Officer) position was created. This robbed the strategist of one of
their most powerful tools—strategic positioning—because that function was given
to the CMO. Unfortunately, most CMOs were so preoccupied with near-term
advertising that positioning rarely got the attention it deserved from CMOs. As
a result, the idea of strategic positioning faded away.<o:p></o:p></i></div>
<div class="MsoNormal">
<i><br /></i></div>
<div class="MsoNormal">
<i>3) Without the
marketing foundation, strategic planning became principally a financial
function—a bunch of scorekeepers (did you make your numbers). Since there was
little foundation behind the numbers (why the numbers should be hit), the
scorekeepers turned into complainers (you didn’t hit your number). Who needs
that?<o:p></o:p></i></div>
<div class="MsoNormal">
<i><br /></i></div>
<div class="MsoNormal">
<i>4) Worst of all, the
objectives of business changed. First, modern companies don’t care so much
about traditional measures of success. Business model profitability and
customer satisfaction became optional or of far less importance. After all, nearly
all of a modern company’s value comes at two points in time—when it gets initial
investment money and when it cashes in (goes public or sells out). This limits
strategy to how to:<o:p></o:p></i></div>
<div class="MsoNormal">
<i><br /></i></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><i>a)<span style="font-size: 7pt; font-stretch: normal; font-style: normal; font-variant-numeric: normal;">
</span></i><!--[endif]--><i>Make the best
investment pitches to VCs; and <o:p></o:p></i></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l1 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><i>b)<span style="font-size: 7pt; font-stretch: normal; font-style: normal; font-variant-numeric: normal;">
</span></i><!--[endif]--><i>How to cash
out. <o:p></o:p></i></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l1 level1 lfo1; text-indent: -.25in;">
<i><br /></i></div>
<div class="MsoNormal" style="margin-left: 3.0pt;">
<i>So strategy looks more like an episode of Flip This House. You don’t
need fancy strategic planners for that.<o:p></o:p></i></div>
<div class="MsoNormal" style="margin-left: 3.0pt;">
<i><br /></i></div>
<div class="MsoNormal">
<i>5) This leads to the
second change in objectives. Almost nobody seems to care about the long term as
much as in earlier days. Why worry about the long term when you are going to
flip the company near term? And since few people stay at a company over 2
years, the employees have no vested interest in long-term health. The founders
get their wealth up front when the firm cashes out, so the outer years are less
meaningful to them. Few shareholders care about long term either. Without a
concern for the long-term, there is little regard for long-term strategy
experts.<o:p></o:p></i></div>
<div class="MsoNormal">
<i><br /></i></div>
<div class="MsoNormal">
<i>6) So it gets down to
innovation. I interviewed for a strategy position at one firm that planned to go
public soon. They said that they would get a higher IPO price if they could show
innovative new ideas in the pipeline, so they were looking for someone to help
fill the pipeline with a little innovation. This would make great copy to put
into the S-1 document filed with the SEC when going public. Hence, innovation
was more about boosting the near-term cash out value than the long-term
viability of the firm. So in this case, strategy was reduced to little more
than a public relations function.<o:p></o:p></i></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE IMPLICATIONS</i></b></span><br />
So the issue is a lot bigger than just strategy losing out
to innovation. Strategic Planners have been robbed of some of their most
powerful tools (like strategic marketing) <b>and</b>
companies no longer seem to want to buy what strategic planners used to sell
(long term profitability and stability).<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So what can marketers do? There are two approaches.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
First, strategists can reassert themselves by re-introducing
companies to the value that traditional strategic planning can provide. This
starts with getting management to see the value in what strategic planning
offers. The most compelling argument is that current valuations are based on
future expectations. So if you want a high value today, you need a plan which
shows a better future tomorrow.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The next step is to grab back your power base. Seize back
the strategic positioning role. Downplay the scorekeeper role. Get involved in
business model discussions. Put companies on the right path. Place yourself in
the middle of company decisions where there are long-term implications. Be the “strategy
whisperer” who never lets the CEO forget about the strategic implications
embedded in day-to-day decisions.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The second approach would be to adapt strategic planning to
be vital to the new reality. This would include things like:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 57.0pt; mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->a)<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Make
scorekeeping a more valuable function by doing a better job of linking numbers
to strategic initiatives and helping teams make their numbers. <o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 57.0pt; mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->b)<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Do
a better job of helping companies get VC funding and to cash in.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 57.0pt; mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->c)<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Become
a public relations expert. Show you can master the strategic language that gets
more money from VCs and when cashing in.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 57.0pt; mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->d)<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Show
that you can be fast and provide insights today rather than waiting for a
year-long planning cycle to occur.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 57.0pt; mso-list: l0 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->e)<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Show
that there can be a more strategic approach to innovation than just “trying a
bunch of stuff hoping something will work.” I looked at this in more detail in
my <a href="http://planninga-from-nanninga.blogspot.com/2016/07/strategy-planning-analogy-565-not.html" target="_blank">prior blog</a>.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Finally, show everyone how including a consideration of
long-term implications when making short-term decisions leads to better short-term
decisions. This gets at the heart of the issue facing most leaders.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i><br /></i></b></span>
<span style="font-size: large;"><b><i>SUMMARY</i></b></span><br />
It is true that traditional strategic planning has gone out
of favor and that innovation is the “flavor of the day.” To regain relevancy,
strategic planners need to either:<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l2 level1 lfo3; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l2 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]-->a)<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Re-educate
management as to the value traditional planning can bring; or<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l2 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]-->b)<span style="font-size: 7pt; font-stretch: normal; font-variant-numeric: normal;"> </span><!--[endif]-->Adapt
strategic planning to be a more vital element in the new management priorities.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The proper approach depends on your current situation, although
a blend of both is probably required. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
There is no value in being “the strategy person” if nobody
is looking for a strategy person. So job #1 is to come up with a strategy to
make being the strategy person a valuable title to have.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-3861910492746357112016-07-20T17:20:00.000-05:002016-07-20T17:20:57.709-05:00Strategy Planning Analogy #565: Not Enough Monkeys<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-ixuEd5Srx6M/V4_45mywByI/AAAAAAAACo8/PTeByKWigxYUPQxnZGZcdNMjvf-CFAJBQCLcB/s1600/Monkey.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="196" src="https://3.bp.blogspot.com/-ixuEd5Srx6M/V4_45mywByI/AAAAAAAACo8/PTeByKWigxYUPQxnZGZcdNMjvf-CFAJBQCLcB/s400/Monkey.jpg" width="400" /></a></div>
<br /><span style="font-size: large;"><b><i>THE STORY</i></b></span><br />
There’s an old saying (originally attributed to Thomas Henry
Huxley) that goes roughly like this: “If you get enough monkeys sitting at
enough keyboards, one of them, by random chance will write the next Shakespearian
play.” While that may be <b><i>theoretically</i></b> true, there’s a
problem with that logic.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem is with the word “enough.” In order to get
random tapping on a keyboards to come out as a coherent Shakespearian play, you
need <b><i>a
lot</i></b> of monkeys sitting at a <b><i>lot of</i></b> keyboards. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
How many? I would guess at least a million times more
monkeys than exist on the entire planet sitting at more chairs and with more
keyboards than exist on the planet.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, while the statement may be theoretically true, from a
practical matter it is worthless.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE ANALOGY</i></b></span><br />
The big word in strategy today is “innovation.” People want
strategies which make them leaders in innovation. And if that’s what people
want, you can rest assured that countless numbers of consultants will come out
of the woodwork saying they have a way to make you a leader in innovation.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A lot of these consultants have a theory similar to the
story about the monkeys. They say that if you have enough experiments taking
place, one of them will turn out to be a big hit. That’s like saying if you
have enough monkeys, you can write a great play.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem is that many of these consultants don’t get very
specific about how many experiments is “enough.” The reason they don’t get very
specific is because they don’t want you to know your real odds for success.
Like the story with the monkeys, the only way to guarantee that you will have a
successful innovation is by doing <b><i>a lot</i></b> of experiments. And by a lot,
I mean more experiments than you could possibly ever do over several lifetimes.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Look at the social media space. How many truly successful bone
fide outstanding and hugely profitable innovations have there been in social
media? 20? 50? 100? 1,000? Even if you are generous and say there have been a
thousand big innovations, compare that to how many people on the planet have
been experimenting around the world in this space. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There’s probably at least tens of millions of people
world-wide who have tried on average dozens of experiments in the social media
space. That would put us at about 1 in 500,000 being a hit. And I think that’s
a very generous number. Do you think you can do 500,000 experiments in order to
guarantee a winner?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, while this type of response to innovation is
theoretically possible, it is worthless on a practical level.<o:p></o:p></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-size: large;">THE PRINCIPLE</span></i></b><br />
The principle here is the difference between randomness and
purposefulness. Randomness is about producing large quantities and hoping you
beat the odds. Purposefulness is about focusing on ways to intentionally
improve your odds in a meaningful way. Randomness is about repeating a lot of
fast failures (and I do mean “a lot”). Purposefulness is about focusing on
places where failure is less likely to occur.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Here are some characteristics of purposeful innovation:<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>#1: Purposeful innovation plays off your strengths<o:p></o:p></u></b></div>
<div class="MsoNormal">
Even if you do beat the odds and by chance stumble upon a
great innovative idea, you still don’t have a hit on your hands. You still have
to develop it, bring it to market, and win versus others with similar ideas. The
odds of random success at all five levels (ideation, development, operations,
distribution and marketing) is really not in your favor.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As I alluded to in an <a href="http://planninga-from-nanninga.blogspot.com/2007/03/even-one-in-million-idea-is-thought-of.html" target="_blank">earlier blog</a>, even if you have a one
in a million idea, there can be more than a million experiments in that space,
so you have to fight to win against others with almost the same idea. The idea
alone is not enough.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So if you want to succeed, you need to play to your
strengths. Look for innovation only in places where you have competitive
advantages in all of these areas. This means that you need to shut off
innovation wherever your differentiating advantages do not apply. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This will narrow the innovation scope very quickly. But it
will also increase your success very quickly.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Another option is to take away resources from random
innovation and apply them to building competitive advantages. The more
advantages you have, the better your odds of creating an innovative hit that
will win. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I remember touring the area in Austin Texas where a lot of
innovation start-ups were located. They all looked about the same to me. None of
them were building differentiation capabilities. They were all just pulling
all-nighters to get lines of code written. How do you expect to beat the odds
if you are not doing anything meaningfully superior?<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>#2: Purposeful innovation looks for superior solutions to real
problems<o:p></o:p></u></b></div>
<div class="MsoNormal">
A lot of innovation focuses on applying the coolest new technologies
in a spectacular way. These may be the types of innovations that make other
engineers jealous of what you’re working on, but that doesn’t mean the rest of
the world will care.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Consumers are looking for superior solutions to existing
problems at reasonable prices. You need to ask yourself these questions:<o:p></o:p></div>
<div class="MsoNormal">
</div>
<ol>
<li><span style="font-size: 7pt; font-stretch: normal; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">Once the coolness wears off (and it will, sooner than
you think), is there any real substance to your innovation?</span></li>
<li><span style="text-indent: -0.25in;">Is this just a short-lived fad?</span></li>
<li><span style="text-indent: -0.25in;">What existing problem does my innovation solve? Does it
solve the problem better than current options? It is superior enough to be
worth the price you need to charge? Is it superior enough to overcome the
barriers to switching from current solutions and networks?</span></li>
<li><span style="text-indent: -0.25in;">Will consumers intuitively get what you’re trying to
offer or will it be confusing and hard to explain? (Hint: If it takes more than
a sentence or two to explain the superiority of your innovation, it probably
won’t catch on.)</span></li>
</ol>
<br />
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
So the place to start is by finding where customers are
complaining the loudest about the stress points in their lives. Then, you focus
on looking for better ways eliminate these stress points. This means putting solution
solving ahead of just looking at what the latest technology can do. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>#3: Purposeful innovation avoids imitation<o:p></o:p></u></b></div>
<div class="MsoNormal">
Facebook has been very successful. But that doesn’t mean
that a copycat of Facebook will also be successful. That innovation has already
been done. That market has already been captured.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Even if your innovative imitation of Facebook is a little
bit better, it still won’t win. The network effect will keep people from
switching for only minor improvements.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Almost by definition, true innovation is not a close copy of
what already exists. It is doing something different. The blue ocean approach
says it is easier to succeed in places where there is no established market/solution
than one which has already been staked out by a host of competitors.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Imitation may be a sign of flattery, but it usually is not a
path to success, especially when you need to get people to switch networks.<o:p></o:p></div>
<div class="MsoNormal">
<o:p><br /></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>SUMMARY</i></b></span><br />
Great innovations can often lead to success. Unfortunately,
most experiments in innovation will be failures. The odds of randomly stumbling
into innovation success are about as likely as having a monkey randomly write a
play on a keyboard. Rather than rushing off to do as many experiments as
possible, it is wiser to take a moment first to determine a strategic focus for
your efforts. Narrow the scope to improve the odds. This is purposeful innovation.
Purposeful innovation narrows the scope by: 1) Looking in places that take advantage
of competitive strengths; 2) Looking in places where you can provide a superior
solution to current problems consumers are complaining about; 3) Not looking to
imitate what’s basically already out there.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-size: large;">FINAL THOUGHTS</span></i></b><br />
Good fishermen know that you are more likely to catch fish
if you fish in locations where there are more fish to be caught. They don’t
just randomly fish anywhere. They go where the odds are better. Innovators
should do the same thing.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-24526874417912633942016-07-05T10:18:00.000-05:002016-07-05T10:18:34.811-05:00Strategy Planning Analogy #564: The Attack of Gravity<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-TFSNgSCBkKw/V3vPg7Pd5TI/AAAAAAAACos/2Ku2Kt_XQdgIspfXvpb0Lbwxy1xZmI-SACLcB/s1600/skateboard.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="290" src="https://4.bp.blogspot.com/-TFSNgSCBkKw/V3vPg7Pd5TI/AAAAAAAACos/2Ku2Kt_XQdgIspfXvpb0Lbwxy1xZmI-SACLcB/s400/skateboard.jpg" width="400" /></a></div>
<span style="font-size: large;"><b><i><br /></i></b></span>
<span style="font-size: large;"><b><i>THE STORY</i></b></span><br />
I have a skateboard park near my home where lots of young
boys like to hang out. The primary attraction at the skateboard park is a giant
U-shaped surface. The idea is to start at the top of one end of the “U” and
skate down & back up the other side of the “U”.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It sounds easy enough, but these boys have a tendency to
fall off their skateboards. As it turns out, the location the skateboards
prefer is not on top of the “U” but at the bottom. That’s where all the
skateboards congregate after the boys fall off of them.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
They are victims of the law of gravity. The boys try to fight
it, but the skateboards willingly give in to the gravitational pull to the
bottom of the “U”. But then again, if skateboarding were easy, there wouldn’t
be any challenge to the sport.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE ANALOGY</i></b></span><br />
Lately, it seems like retailers have become more like
skateboards. They all want to fall down to the bottom of the “U”. In this case,
it is the gravity of pricing which is pulling them down. All the retailers seem
to want to be on or near the bottom of the range of prices.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In the past, retail pricing was more like when a boy is
guiding the skateboard, trying to defy gravity and get as high in the air as
possible. Similarly, retail management in the past would guide the stores on
paths towards pricing as high as they could get away with. But now it is more
like when the boy falls off the skateboard. The retail pricing falls to the
bottom like an unmanned skateboard.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 3.0pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 3.0pt;">
And there the stores lay, all
clustered at the bottom of the pricing range. And although that may be good for
the consumer, that’s not a good thing for the retailers.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 3.0pt;">
<br /></div>
<span style="font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
If you want people to prefer your offering, then you have to
give them a reason to prefer you. There needs to be something in your offering
that makes it special enough to cause people to see a justifiable reason to
prefer it over the alternatives. That won’t happen if every option looks the
same. Similarity makes all the options undistinguishable from each other. There
is no reason to prefer one over the other when you cannot distinguish one from
the other. Therefore, a key aspect of strategy is to find one’s point of preferred
differentiation.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem is that business gravity tends to pull everyone
down into an indistinguishable sameness. As soon as one firm finds a positive
differentiation, everyone copies it. They chase each other on prices until
everyone is at the bottom. They all get stuck in a heap at the bottom of the “U”
looking about the same.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
To fight the business gravity, firms need to apply the
principles of differentiation. We will look at three of these principles.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>#1: A Difference Needs to be Meaningful<o:p></o:p></u></b></div>
<div class="MsoNormal">
Marginal differences do not motivate behavior. Consumers are
creatures of habit. If you want to change their habits, you have to make your
differentiation large enough to grab their attention and overcome the
resistance to change.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
When I was in the grocery business, the general rule was
that if you wanted to get people to shift based on price, then your average
prices would need to be at least 7% lower than the competition. Otherwise, the
price differential is not enough to succeed. You don’t look different enough to
create preference on price.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem is that in commodity retailing, pretty much all
retailers are now within about 7% of each other on price. Wal-Mart’s original
popularity was based on the fact that their prices were significantly lower
than the prevailing “normal” prices. That caused people to shift to them in
droves.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Now, Wal-Mart prices are considered to be the “normal”
price. Their prices are no longer seen as abnormally lower than the marketplace.
They <b><i>are</i></b>
the marketplace price…no big deal. They set the market norm which others come
pretty close to matching. No wonder Wal-Mart has stagnated. Their level of
difference in their prices is no longer <b><i>meaningful</i></b>. When your level of
differentiation is no longer meaningful, it is no longer a point of strategic differentiation.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>#2: Successful Differences tend to be on the Fringe, Not the Core<o:p></o:p></u></b></div>
<div class="MsoNormal">
Such a phenomenon is typical for the core attributes in
almost any industry. Because the core attributes are so critical to success,
competition won’t let you get a meaningful differentiating advantage there. They
will copy the market leader on core attributes to nullify any advantage.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In retailing, the core attributes tend to be product and
price. Unless you are a niche retailer, the products and prices between
retailers today are not all that different. As a result, it is difficult to
create meaningful differentiation at the core. Therefore, if you want to create
differentiation, you have to look to the fringe.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And that’s what commodity retailers are doing. Wal-Mart has
been investing in improving its service levels and store décor. Even Aldi, a
leader in no-frills, low cost retailing, has started a program to upgrade its
store décor. After all, if your prices are not that much lower than anyone
else, why should customers put up with your low service and bad décor? The
trade-off isn’t worth it when the price differential shrinks. So now you can no
longer just be the best low price store; you have to be the low price store
with the best fringe offering.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So the irony is this: although the core is the reason for
consuming an offering, it is the fringe where differentiation tends to be most
effective, since it is easier to create differentiation at the fringe than at
the core.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>#3: Successful Differences tend to be Difficult to Copy<o:p></o:p></u></b></div>
<div class="MsoNormal">
But just as the core can be copied, eventually so can the
fringe. So the trick is to try to find the types of differentiations which are
the most difficult to copy. This is done by making bold trade-offs.<o:p></o:p></div>
<div class="MsoNormal">
The trick is to get extremely good in one fringe area (i.e.,
create a huge differential) by foregoing much investment in other fringe areas.
It’s like putting your eggs in one basket. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For example, the core in the airline business is getting a
passenger safely to their destination on time. Most airlines are pretty similar
with respect to these core features. So to create differentiation, you have to
go to the fringe. Southwest Airlines focused on the fringe aspects most popular
with pleasure travel and pretty much ignored the fringe directed at business
travel. As a result, they are not the most popular business travel airlines,
but they have meaningful differentiation that attracts the pleasure traveler.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Had Southwest tried to be equally strong in <b><i>all</i></b>
fringe areas, they would not have stood out on <b><i>any </i></b>fringe area. The
beauty of only focusing in one area of fringe is that it allows you to make
bold changes to your business model. You can cut out the aspects of the
business model where you do not focus so that you can alter your business to be
even better at providing the fringe being focused on. This is the idea of
making trade-offs.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For example, Southwest Airlines eliminated the hub &
spoke approach to scheduling. Although that may not have made business
travelers happy, it freed up resources to make it easier for Southwest to win
with the pleasure traveler. The beauty is that it is difficult for airlines who
did not give up hub and spoke to match Southwest on the fringe which matters to
Southwest, because the others did not make the trade-offs necessary to create
ability to outdo Southwest in the areas where Southwest chose to differentiate.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So the secret to differentiation is this: pick an area of
differentiation which is inherent to the unique way you operate your business
model, so much so that those using a more conventional business model cannot
match you. Create trade-offs in both the way you operate and the fringe you
offer, which make imitation difficult. By working the two in tandem (internal operation
and external fringe offering), you can distance yourself from the norm and
create meaningful differentiation.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>SUMMARY</i></b></span><br />
There is a natural tendency in business for companies to
chase the same approaches to the core. Like gravity, they are pulled to the
same place. By all looking and acting the same, there is little opportunity to
create differentiation. And without meaningful differentiation, there is no
reason for a customer to prefer your offering over the alternatives. To get
around this, firms need to:<br />
<ul>
<li>Consider how to create differentiation in an aspect of the
fringe;</li>
</ul>
<ul>
<li><div class="MsoNormal">
Create trade-offs in the business model which allow one to
get so good at offering the chosen fringe that others with a more conventional
business model cannot effectively copy you. <o:p></o:p></div>
</li>
</ul>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<b><i><span style="font-size: large;">FINAL THOUGHTS</span></i></b><br />
This is not just a problem for retailers and airlines. All businesses can
fall victim to their industry’s gravity and become indistinguishable from the
competition. Differentiation at the fringe is important for all businesses to
consider.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-29443408172089686462016-07-01T10:00:00.000-05:002016-07-01T10:00:18.110-05:00Strategy Planning Analogy #563: Strategy by Trickery?<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-S-jz8Xd4weI/V3aDkvwlz9I/AAAAAAAACoc/_2ElQGmnkvo2m3FgQGcBXdGqWCxth5E-QCLcB/s1600/Depression.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="266" src="https://4.bp.blogspot.com/-S-jz8Xd4weI/V3aDkvwlz9I/AAAAAAAACoc/_2ElQGmnkvo2m3FgQGcBXdGqWCxth5E-QCLcB/s400/Depression.jpg" width="400" /></a></div>
<span style="font-size: large;"><b><i><br /></i></b></span>
<span style="font-size: large;"><b><i>THE STORY</i></b></span><br />
Awhile back I was reading an article about depression. The
first half of the article looked at what causes a person to be chronically
depressed. It said that based on research, the major difference between the
chronically depressed and other people is that the chronically depressed cannot
envision a scenario where their situation improves. By contrast, other people
can envision the possibility of better times ahead.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That made sense to me, so I decided to read the second half
of the article, where they were going to suggest a way to eliminate chronic
depression. I expected the article to explain ways for the depressed individual
to change their situation so that a better future was more possible. For
example, I was expecting suggestions like:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraph" style="margin-bottom: 3.0pt; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Get an education.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-bottom: 3.0pt; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Get out of unhealthy relationships.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Take some risks.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: .75in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal">
Instead, the article took an entirely different approach. It
talked about mental trickery—ways to trick yourself into believing in a better
future, even if a better future is not a realistic probability. That might work
for a short period, but is that really a long term solution? Suddenly, I was no
longer impressed with the article.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE ANALOGY</i></b></span><br />
Businesses have their own form of depression: depressed
sales, depressed earnings, etc. When these types of depressions become chronic,
the business is in serious trouble<b>.</b><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I think the cause of chronic depression in business can be
similar to what was stated in the article mentioned above: the businesses
cannot envision a scenario where the company, in its current state, can
improve. After all, if they could imagine a way to improve the current state,
they probably would embark on a strategy to do just that.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The remedy, in my opinion, is to change the current state,
so that you can find a new path where prosperity is more likely. That could
include tasks such as:<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-bottom: 3.0pt; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><br /></span></div>
<div class="MsoListParagraph" style="margin-bottom: 3.0pt; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Changing one’s Position in the marketplace<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-bottom: 3.0pt; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Adding new Capacity or new Competencies<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-bottom: 3.0pt; margin-left: .75in; margin-right: 0in; margin-top: 0in; mso-list: l2 level1 lfo1; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Reformulating the Business Model<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 3.0pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 3.0pt;">
But instead of this, many
companies use an approach more like the one prescribed in the article. They use
mental trickery to get themselves to falsely believe that if they just stay the
course things will get better. Consequently, they don’t make the changes
necessary to reach prosperity. The end result is a failed business. <o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 3.0pt;">
<br /></div>
<span style="font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that you cannot wish yourself into
prosperity. Or, as stated in the title of a book by Sullivan and Harper, “Hope
is Not a Method.”<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
When stated that way, it does sound silly to expect mere
wishing or hoping to solve all your problems. But those aren’t the words used
by the proponents of this approach. They use trickery and cloak it in terms
like “Principles of Leadership.”<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I’ve read it in many forms, and it usually goes something
like this:<span style="font-size: 7pt; font-stretch: normal; text-indent: -0.25in;"> </span></div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
</div>
<div>
<ul>
<li><span style="text-indent: -24px;">When times are tough, leaders are not allowed to show any signs of pessimism. They need to put on a smiley, optimistic face and deceive their underlings into believing that things are really much better than they appear.</span></li>
</ul>
</div>
<div>
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="text-indent: -24px;">Then the leaders are to tell their people that all they need to do is work a little harder, a little better and the future will become bright again.</span></li>
</ul>
</div>
<div>
<ul>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;"> </span></span><span style="text-indent: -0.25in;">Next, the leaders are supposed to set high targets
for their people to achieve—a way of showing that the leader believes good
results are still possible.</span></li>
</ul>
<!--[if !supportLists]--><o:p></o:p><br />
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<o:p></o:p></div>
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</div>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
The optimistic pep talk and the high goals are supposed to
motivate the team to achieve the impossible and get the business out of its
economic depression.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Unfortunately, what we call “the impossible” usually is
impossible, and a smiley pep talk full of hope and wishes won’t get the job
done.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If your situation is bad, don’t trick your mind (or the minds
of your team) into believing the situation is good. The solution is to get out
of the bad situation. Find a new situation where the prospects for prosperity
are significantly better.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Doing a better job of executing an obsolete strategy does
not change the fact that the strategy is still obsolete. For example, no matter
how well Kodak executed an analog film business model, it would not win in a
world of digital imaging. Rather than work harder on executing a bad strategy,
change paths and work on a executing a better strategy.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The solution requires change, and a lot of people are afraid
of change. But we shouldn’t let that fear cause us to continue down the current
course towards destruction.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Instead of following the prescription above, called “Principles
of Leadership”, we should do the following:<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo3; text-indent: -.25in;">
<span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><br /></span></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Be honest with our people and let them know that
the current strategy is not valid anymore. Show how a continuation on that path
leads to failure.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo3; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Then, either:<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-bottom: 2.0pt; margin-left: 74.9pt; margin-right: 0in; margin-top: 0in; mso-list: l0 level2 lfo3; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Present to the team a valid case for adopting
your newer, better strategy; or<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 75.0pt; mso-list: l0 level2 lfo3; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";">o<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]-->Get
the team involved in building that newer, better strategy itself.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 75.0pt; mso-list: l0 level2 lfo3; text-indent: -.25in;">
<br /></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt; mso-list: l0 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;">·<span style="font-family: "Times New Roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]-->Next, get the team to rally behind specific
change initiatives needed to get from the current situation to the newer,
better scenario.<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-left: 39.0pt;">
<br /></div>
<span style="font-size: large;"><b><i>SUMMARY</i></b></span><br />
Bad times are typically not improved by getting better at
doing the same things that got us into the bad situation in the first place. If
your strategy is no longer valid, change the strategy. Replace hopes and wishes
in the status quo with a serious re-evaluation of how to win in the marketplace
and specific change initiatives designed to make the improved strategy a reality.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>FINAL THOUGHTS</i></b></span><br />
Denial is never a good approach. As long as we deny the fact
that our current strategy is broken, we will never fix it. As they say, the
first step in curing alcoholism is to admit that you have a problem. We need to
have the courage to say our current strategy has a problem.<br />
<div class="MsoNormal">
<o:p></o:p></div>
</div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-84221564137237376712016-06-08T12:29:00.000-05:002016-06-08T12:29:55.607-05:00Strategy Planning Analogy #562: Bowlers Vs. Golfers<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-4Unplw4SJvA/V1hVpTHa1TI/AAAAAAAACoM/cIGUXkqwGIIO5wY0Re1BAHmvLxY8pO1lgCLcB/s1600/Bowler.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="291" src="https://1.bp.blogspot.com/-4Unplw4SJvA/V1hVpTHa1TI/AAAAAAAACoM/cIGUXkqwGIIO5wY0Re1BAHmvLxY8pO1lgCLcB/s400/Bowler.jpg" width="400" /></a></div>
<br />
<br /><span style="font-size: large;"><b><i>THE STORY</i></b></span><br />
Last fall, when Jordan Spieth won the FedEx Cup of golfing,
he earned $10 million. That’s a lot of money for a golfing match. It’s not
typical. The winner of a typical game during the golfing season makes only
about $1.5 million. In the 2014-15 golf season, Jordan Spieth won $22 million
from all his playing in golf tournaments.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
By contrast, professional bowlers earn a lot less. The
winner of a major bowling event earns about $25,000 (one-sixtieth of a major
golf tournament). Top money makers on the pro bowling tour only earn about
$250,000 for the whole year. In the first 56 years of the PBA (Professional
Bowler’s Association) history—through 2013—only 40 bowlers made more than $1
million during their <b><i>entire career</i></b>. When you get past the
top ten bowlers, the average yearly earnings from professional bowling is only
about $6,500. And you have to pay all your own travel and living expenses. (You can read more about the plight of bowlers <a href="http://www.bowlingtournaments.net/professional-bowler-salary/" target="_blank">here </a>and <a href="http://priceonomics.com/the-rise-and-fall-of-professional-bowling/" target="_blank">here</a>.)<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What’s going on here? Pro golfers and pro bowlers are both
athletes; they both play as individuals on a tour; they both try to get a ball
to roll to a desired target; they both have to practice thousands of hours to
master their craft; they both play games also played by millions of average Americans.
So why do golfers make so much more than bowlers?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I thought there was a movement to promote equal pay for
equal work. It seems to me that the work of professional bowlers and golfers is
roughly equal. Shouldn’t the pay be the same?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE ANALOGY</i></b></span><br />
The problem is that tournaments can only pay out a
percentage of what they earn, and bowling tournaments earn a lot less than golf
tournaments. Golf has the advantage of appealing to affluent men, a category
difficult to target by marketers. As a result, companies are willing to pay a
fortune to sponsor or advertise on golf tournaments. By contrast, bowling fans
are not a coveted group by marketers. In fact, the PBA was so debt-ridden that
it was purchased in 2000 for only $5 million, less than the cost of a minor
league baseball team.<br />
<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
The economics don’t favor the bowler. There isn’t enough
money available to pay them any more. As a result, poor professional golfers
can earn a lot more than the best professional bowlers.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This problem is very similar to what happens in any
business. The amount of money a company can earn is based largely on the pool
of money available in the industry in which the company operates. If you are
operating in a great place (like an athlete in golf), your chances for success
are high. If you are operating in a poor place (like an athlete in bowling),
your chances for success are practically non-existent, even if you work as hard
at bowling as a golfer does at golf.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At one time, the recorded music industry was like golf,
earning huge amounts of money. Mediocre bands could still make a decent living
off recorded music. Now, the pool of money available for recorded music has
shrunk dramatically. Only the top performers can earn a decent living off of
recorded music.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Therefore, one comes to the conclusion that it is more
important for businesses to determine <b><i>where</i></b> to play than to determine <b><i>how</i></b>
to get better at playing their game. And determining where to play is a key
role for strategic planning.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>THE PRINCIPLE</i></b></span><br />
The principle here is that hard work only has a huge payout
if you are working in a space that can afford to make huge payouts. The problem
is that I see so many businesses focus all their effort on trying to “get
better” rather than trying to be in the “right place”.<br />
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Their strategists focus on things like:<o:p></o:p></div>
<div class="MsoListParagraph" style="margin-bottom: 2.0pt; mso-list: l0 level1 lfo1; text-indent: -.25in;">
</div>
<ul>
<li><span style="text-indent: -0.25in;"><span style="font-family: Symbol;"> </span>How do I lower costs?</span></li>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;"> </span></span><span style="text-indent: -0.25in;">How do I improve the business process to make it
more efficient?</span></li>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;"> </span></span><span style="text-indent: -0.25in;">How do I speed up my output (or get to market
faster)?</span></li>
<li><span style="font-family: Symbol; text-indent: -0.25in;"><span style="font-family: 'Times New Roman'; font-size: 7pt; font-stretch: normal;"> </span></span><span style="text-indent: -0.25in;">How do I use R&D to improve the features of
my output?</span></li>
</ul>
<o:p></o:p><br />
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<o:p></o:p></div>
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<o:p></o:p></div>
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<o:p></o:p></div>
<div class="MsoNormal">
They end up focusing on things like Lean or TQM or other
such process improvement disciplines. This is like a professional bowler spending
all his time trying to figure out how to become a better bowler.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem is that no matter how much a bowler improves his
ability to bowl, he will never be making the big money. He would have been
better off spending those thousands of hours of practice on golfing.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Similarly, no matter how much a company focuses on operational
improvements, the odds of getting a great reward on that effort are minimal if
you are operating in a business space that is not profitable. Doing the wrong
thing more effectively is still doing the wrong thing.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is why Michael Porter, in his seminal article in the
Harvard Business Review called “What is Strategy?” (Nov.-Dec. 1996) said that
operational effectiveness is not a strategy. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If you really want to do strategy, you have to focus on
something else.<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u><br /></u></b></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>Ask the Right Questions<o:p></o:p></u></b></div>
<div class="MsoNormal">
The first place to start is by asking the right questions. The
first question is this: What business should I be in? The second question is
this: How can I win in this business?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a young athletic boy, one should first ask a similar
question: What sport should I be in? How one answers that question can have a
major impact on lifetime earnings. In fact, there may be no other decision a
young athlete can make that will have a greater impact on success. If a lot of
professional bowlers had seriously pondered this question in a rational way
when they were young, they might have decided to focus on golf rather than
bowling. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Similarly, the choice of where a business decides to play is
critical. Your answer to that question can have a greater impact on future
success than anything else you ever do. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For example, Textron and Berkshire Hathaway both started out
in the textile industry in the US. They could have just stayed in that industry
and tried to do the best that they could at operating in the US textiles
industry. Their strategy could have focused on how to be faster, cheaper,
better at playing there.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
But they did not. Both companies stopped to ask that
critical question: What business should I be in? As it turns out, the US
textile industry was a relatively awful place to play. It was sort of like the “bowling”
of the business world. There just wasn’t a lot of money to be made in that
space.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As a result, Textron and Berkshire Hathaway diversified and
moved into better business areas. Their portfolios include businesses in the “golfing”
areas of the business world, far removed from textiles. Stopping to take time
to ask the critical question allowed them to become large, successful entities.
Had they not stopped to ask the question, and stayed in US textiles, neither
company would probably exist today.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In an <a href="http://planninga-from-nanninga.blogspot.com/2013/11/strategic-planning-analogy-514-working.html" target="_blank">earlier blog</a>, I referenced a study by McKinsey which
said that the largest factor in a company’s success is determined by the nature
of the industry the company decides to play in. So companies should spend time
deciding where to play.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
As critical as this question is, I find a lot of companies
don’t stop to do this. They are so focused on getting better at where they are,
they never stop to ask if they should be operating somewhere else. This error
can ruin a company more than almost anything else they do.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is not a one-time decision. Industries change; prospects
change (as we saw in recorded music). You have to periodically reassess if it
is time to shift the business portfolio. GE has been so successful for so long
because they continually ask this question and periodically shift accordingly. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A successful choice in the past will not protect you
forever. Analog photography was great for Kodak for years, but eventually the
time came to switch businesses. By not doing so, Kodak’s doom was inevitable.
There was no amount of operational improvement that could save them in analog
photography.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 2.0pt;">
<b><u>Focus on the Right Efforts <o:p></o:p></u></b></div>
<div class="MsoNormal">
This leads to the second issue—what strategists should focus
on once the right business is chosen. Although operational improvements have an
impact, strategists can make a greater impact if they focus on something else. Rather
than focusing on how to do things <b><i>better</i></b>, they should focus on how to
do things <b><i>differently</i></b>.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If you do things just like everyone else, there is no reason
for someone prefer your offering. They will see you as pretty much the same
thing, so they will pick whatever is cheaper. However, if you are doing things
differently, you can create a point of differentiation, a reason to be
preferred. If you are preferred, you can often charge a premium price. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Moving from an environment of extreme discounting to premium
pricing may do far more for the bottom line than all those operational improvements
put together. I speak more about the need for differentiation in a <a href="http://planninga-from-nanninga.blogspot.com/2014/10/strategic-planning-analogy-538-three.html" target="_blank">prior blog</a>.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<span style="font-size: large;"><b><i>SUMMARY</i></b></span><br />
Operational improvement is not a strategy. Strategy is about
finding the right place to play and about how to win in that space by doing
things differently. If your strategic planning efforts overlook these two areas
and only focus on operational improvements, you may end up perfecting the
obsolete.<br />
<br />
<div class="MsoNormal">
<b style="font-size: x-large;"><i>FINAL THOUGHTS</i></b></div>
<div class="MsoNormal">
Ask yourself: Is my business space more like bowling or more
like golf? If it’s more like bowling, it may be time to change sports.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-61039829979772758022016-05-11T10:16:00.000-05:002016-05-11T10:16:27.326-05:00New Strategy Book (for FREE!)<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-cLuW4a6YITE/VzNA8SYQoZI/AAAAAAAACn8/nEM9D29BBB4YlZTFo_bZ0vKic2Y8v4vmgCLcB/s1600/Tripped%2Bbook%2Bcover.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="320" src="https://4.bp.blogspot.com/-cLuW4a6YITE/VzNA8SYQoZI/AAAAAAAACn8/nEM9D29BBB4YlZTFo_bZ0vKic2Y8v4vmgCLcB/s320/Tripped%2Bbook%2Bcover.jpg" width="242" /></a></div>
<br />
I just finished by latest book on strategic planning, called <i style="font-weight: bold;">Tripped Up By Distractions. </i>I want you to have it <b>for free</b>.<br />
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Thanks again to all the thousands of people who have read my other books. I hope you like this one, too.<br />
<br />Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-68127139803226409452016-04-22T07:00:00.000-05:002016-04-23T12:57:58.782-05:00Failures #3: Crystal Pepsi<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-WZqAcGGq2Fo/VxVXO5B0xdI/AAAAAAAACnY/BJn4iKIj1HQKxOKT1Obk1REFY-AyN33OwCLcB/s1600/crystal%2Bpepsi.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="270" src="https://3.bp.blogspot.com/-WZqAcGGq2Fo/VxVXO5B0xdI/AAAAAAAACnY/BJn4iKIj1HQKxOKT1Obk1REFY-AyN33OwCLcB/s400/crystal%2Bpepsi.jpg" width="400" /></a></div>
<h2>
<i>INTRODUCTION</i><o:p></o:p></h2>
<div class="MsoNormal">
In the last two blogs (<a href="http://planninga-from-nanninga.blogspot.com/2016/04/failures-1-18-colossal-failures.html" target="_blank">here</a> and <a href="http://planninga-from-nanninga.blogspot.com/2016/04/failures-2-leaping-right-distance.html" target="_blank">here</a>), we looked
at (in general) an article USA Today published entitled “<a href="http://www.usatoday.com/story/money/business/2016/04/16/18-worst-product-flops-all-time/83092560/" target="_blank">The 18 worst product flops of all time</a>.” These
flops included:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">1. Edsel
by Ford Motor Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">2. Touch
of Yogurt Shampoo by </span><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Bristol-Myers Squibb<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">3. Apple
Lisa by Apple<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">4. New
Coke by Coca-Cola<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">5.
Premier smokeless cigarettes by RJ Reynolds<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">6.
Maxwell House Brewed Coffee by </span><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Philip Morris Companies<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">7. Harley
Davidson perfume by Harley Davidson Motor Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">8. Coors
Rocky Mountain Sparkling Water by Adolph Coors Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">9.
Crystal Pepsi by Pepsico<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">10. The
Newton MessagePad by Apple<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">11.
Persil Power by Unilever<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">12. Arch
Deluxe by McDonald’s<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">13.
Breakfast Mates by the Kellogg Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">14. WOW!
Chips by Pepsico<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">15. Hot
Wheels and Barbie computers by Mattel<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">16. EZ
Squirt (colored) Ketchup by Heinz<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">17.
TouchPad by HP<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">18.
Google Glass by Google<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal">
In this blog we will focus on only one of these flops:
Crystal Pepsi (#9).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<h2>
<i>LEARNINGS FROM CRYSTAL PEPSI</i><o:p></o:p></h2>
<div class="MsoNormal">
The major innovation for Crystal Pepsi (introduced in 1992),
was that the color was taken out of the cola to make it clear. The novelty of
drinking clear cola succeeded for a short period, but once the fad ended, sales
vaporized. What went wrong?<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Learning #1: Just
Because You Can, Doesn’t Mean You Should<o:p></o:p></u></b></div>
<div class="MsoNormal">
First of all, we need to understand that not everything new
and different is desirable. Just because an engineer can make something happen
doesn’t mean it should be done (no matter how much it would please the
engineer). Being able to take the color out of a cola might be a cool magic trick,
but where is the lasting benefit to the consumer?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Does taking out the color: <span style="font-size: 7pt; font-stretch: normal; text-indent: -0.25in;"> </span></div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="text-indent: -0.25in;">Improve the taste? No.</span></li>
<li><span style="text-indent: -0.25in;">Improve the drinkability? No.</span></li>
<li><span style="text-indent: -0.25in;">Improve the formula? No.</span></li>
<li><span style="text-indent: -0.25in;">Lower the Price? No.</span></li>
</ul>
<div class="MsoListParagraph" style="mso-list: l0 level1 lfo1; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
About the only lasting
benefit of Crystal Pepsi was that the caffeine was taken out. But Pepsi already
had caffeine free versions (since 1982), and you don’t need to take the color
out to take the caffeine out. So this really wasn’t much of a lasting benefit…just
a novelty.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I remember when digital
wristwatches first came out. Because they were digital, it was possible to
engineer them to do all sorts of things that the old analog watches couldn’t
do. Therefore, many had a buch of additional functions added, like stopwatch,
24 hour military time, etc. They fell victim to to adding features, just
because they could.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The problem was that the
designers only put a couple of buttons on the watch, making it almost
impossible to figure out what combination of button pressings were needed to
make the functions work. Worse yet, all that confusion also made it nearly
impossible to figure out how to set the watch for the correct time. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It was like the old VCR
players that always blinked "12:00" because nobody could figure out how to set the
timer. You could tolerate that on a VCR, because the video tapes could still
run without a working clock display. But a watch without a working clock
display is worthless. The manufacturers would have been better off putting in
fewer features so that the primary function—telling time—would have been
easier. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In Today’s digital era, the
temptation to do more innovation than necessary is probably greater than ever
before. You can alter the code to make digital products do almost anything. The
only limit is your imagination.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
However, instead of using
your imagination as the limit, you should use practicality as your limit. If
the added feature gets in the way, confuses the customer, or does not provide
lasting/desired benefits, don’t do it. Tell the engineers to back off. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Just as the trick of taking
the color out of cola did not lead to success, many computer engineering tricks
may not lead to success, either.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Lesson #2: Image Works Both Ways<o:p></o:p></u></b></div>
<div class="MsoNormal">
An innovation can improve the
image of a brand. It can make a brand appear more up-to-date, cooler, more
visionary, more desirable. Apple has used the innovations of the iPod, the
iPhone and the iPad to enhance its image in this way.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Unfortunately, some “innovations”
work on image in the opposite direction. Inappropriate innovations can make a
brand appear out-of-touch, silly, or incompotent. Taking the color out of cola
was a negative image producer. The so-called benefit was silly. Nobody was
aking for it (out of touch). Will I appear out-of-touch and silly if I drink
Crystal Pepsi?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Other potential negative
image factors in Crystal Pepsi:<o:p></o:p></div>
<div class="MsoNormal">
</div>
<ul>
<li><span style="text-indent: -0.25in;">A clear cola appears less potent than a colored cola.
Who wants a perceived diluted cola? </span></li>
<li><span style="text-indent: -0.25in;">What was done to take out the color? Were harsh
chemicals used or added? Did they put bleach in the cola? Clear colas may be
more dangerous to drink.</span></li>
<li><span style="text-indent: -0.25in;">Was the core formula changed? Failure #2 was New Coke,
where Coke fans were outraged because the traditional Coke formula was changed.
Couldn’t the same outrage occur here?</span></li>
</ul>
<br />
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo2; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo2; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l1 level1 lfo2; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
Innovations can create many undesired secondary consequences
which outweigh the slight benefits of poor innovations. Be sure to look for
these undesired secondary consequences before introducing the product.</div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Lesson #3: Hidden
Innovations Rarely Inspire<o:p></o:p></u></b></div>
<div class="MsoNormal">
The whole trick of Crystal Pepsi was in seeing the color
taken out of the cola. Unfortunately, most colas are sold in cans and are
usually consumed right from the can. You cannot see the “clearness” of the cola
inside the can. What good is a benefit you never see or cannot discern during
consumption?<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="https://2.bp.blogspot.com/-KlQHLqlBwuw/VxVXbT_1YqI/AAAAAAAACnc/niJ4R1-urw8vmAal1YvuM20b7nJHSAoJACLcB/s1600/oxydol.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="320" src="https://2.bp.blogspot.com/-KlQHLqlBwuw/VxVXbT_1YqI/AAAAAAAACnc/niJ4R1-urw8vmAal1YvuM20b7nJHSAoJACLcB/s320/oxydol.jpg" width="268" /></a>If you innovate, make sure the innovation is visible and
discernable. Oxydol detergent had the benefit of bleach already inside the
detergent. However, you couldn’t see the bleach, so consumers couldn’t feel the
benefit. Then Proctor & Gamble put little green crystals in Oxydol and told
people that the crystals were “proof” that Oxydol was different, and the
difference was bleach. After that, Oxydol became the #1 detergent in America
(until Proctor & Gamble decided to make Tide #1).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
So, if you bother to innovate, make sure the customer knows
and provide some sort of visual confirmation to remind them of the innovation. Intel
was hidden inside computers and not getting much credit for their innovations.
So Intel made computer manufacturers put stickers on the outside of the
computer to let people know that there was Intel inside that computer. This
greatly improved the image benefits from Intel innovations.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<h2>
<i>SUMMARY</i><o:p></o:p></h2>
<div class="MsoNormal">
Crystal Pepsi teaches us that:</div>
<ul>
<li><span style="font-size: 7pt; font-stretch: normal; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">Just because an innovation is possible does not mean
that it is desirable;</span></li>
<li><span style="text-indent: -0.25in;">Poor innovations can damage a brand image at least as
much as a good innovation can improve an image.</span></li>
<li><span style="text-indent: -0.25in;">To get the full impact of an innovation, it must be
obvious to the consumer.</span></li>
</ul>
<br />
<br />
<div class="MsoListParagraph" style="mso-list: l2 level1 lfo3; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l2 level1 lfo3; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoListParagraph" style="mso-list: l2 level1 lfo3; text-indent: -.25in;">
<o:p></o:p></div>
<div class="MsoNormal">
<o:p></o:p></div>
<h2>
<i>FINAL THOUGHTS</i><o:p></o:p></h2>
Not all crystals are created equal. The green crystals of
Oxydol were beneficial. The crystal clear of Crystal Pepsi was not. So choose
wisely when you innovate.<br />
<div class="MsoNormal">
<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-14836359911212658832016-04-20T07:33:00.000-05:002016-04-20T07:33:09.010-05:00Failures #2: Leaping the Right Distance <div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-AJm9oNFhEoU/VxVSSfiKYZI/AAAAAAAACm4/cHA-w5z0RoEZti3x4Mu34kYuGdp4ffCZwCLcB/s1600/Leaps.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="270" src="https://3.bp.blogspot.com/-AJm9oNFhEoU/VxVSSfiKYZI/AAAAAAAACm4/cHA-w5z0RoEZti3x4Mu34kYuGdp4ffCZwCLcB/s400/Leaps.jpg" width="400" /></a></div>
<h2>
<i>INTRODUCTION</i></h2>
<h2>
<o:p></o:p></h2>
<div class="MsoNormal">
In the <a href="http://planninga-from-nanninga.blogspot.com/2016/04/failures-1-18-colossal-failures.html" target="_blank">last blog</a>, we looked at an article in USA Today
article entitled “The 18 worst product flops of all time.” These flops
included:<o:p></o:p></div>
<div class="MsoNormal">
<span style="font-family: inherit;"><br /></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">1. Edsel
by Ford Motor Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">2. Touch
of Yogurt Shampoo by Bristol-Myers Squibb<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">3. Apple
Lisa by Apple<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">4. New
Coke by Coca-Cola<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">5.
Premier smokeless cigarettes by RJ Reynolds<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">6.
Maxwell House Brewed Coffee by Philip Morris Companies<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">7. Harley
Davidson perfume by Harley Davidson Motor Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">8. Coors
Rocky Mountain Sparkling Water by Adolph Coors Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">9.
Crystal Pepsi by Pepsico<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">10. The
Newton MessagePad by Apple<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">11.
Persil Power by Unilever<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">12. Arch
Deluxe by McDonald’s<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">13.
Breakfast Mates by the Kellogg Co.<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">14. WOW!
Chips by Pepsico<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">15. Hot
Wheels and Barbie computers by Mattel<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">16. EZ
Squirt (colored) Ketchup by Heinz<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">17.
TouchPad by HP<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: inherit;">18.
Google Glass by Google</span><span style="font-family: "arial" , sans-serif; font-size: 9pt;"><o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal">
We looked at three lessons to be learned from these flops.
In this blog, we will look at another lesson to learn: The need to leap the
right distance.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<h2>
<i>LEAPING THE RIGHT DISTANCE</i><o:p></o:p></h2>
<div class="MsoNormal">
Innovation is a lot like taking a leap into the future. But,
as the USA Today article shows, not all leaps are successful. Think of it as
being like leaping over a deep canyon. If you can leap from land to land, you
succeed. But if you miss, you fall down into the canyon and fail.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Here’s the problem. The canyon of innovation is too wide to
cross in one leap. Therefore, to successfully get across the canyon, you need
to leap onto a small mesa in the middle of the canyon. Miss on either side of
the mesa (too short or too long) and you fail. This is illustrated in the
picture below. As we will see, many of the 18 flops failed in part by not
leaping the proper distance.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<a href="https://1.bp.blogspot.com/-n11NQl6VAuI/VxVSluO_y3I/AAAAAAAACm8/npXGC1WOa38yHenyVh-IDc-Mog8xFJJGgCLcB/s1600/Canyon.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="280" src="https://1.bp.blogspot.com/-n11NQl6VAuI/VxVSluO_y3I/AAAAAAAACm8/npXGC1WOa38yHenyVh-IDc-Mog8xFJJGgCLcB/s320/Canyon.jpg" width="320" /></a><b><u>1) Leap Too Short</u></b></div>
<div class="MsoNormal">
The first reason for
an innovation flop is to leap too short. This happens when your innovation
improvements are incrementally too small to matter. Sure, it might be a little
nicer or newer or better, but not enough to justify switching, particularly if
you are charging an innovation premium price.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The Edsel (flop #1) was a nice car, but the innovations were
minor compared to the hype, and the innovations were not enough to justify the
premium price. The leap was too short.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<a href="https://2.bp.blogspot.com/-5QSeJFTchJc/VxVTW5Hj75I/AAAAAAAACnE/mmDILE-u1DEU9R7ETQdHDjarRoe5EnAYQCLcB/s1600/Breakfast%2BMate.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" src="https://2.bp.blogspot.com/-5QSeJFTchJc/VxVTW5Hj75I/AAAAAAAACnE/mmDILE-u1DEU9R7ETQdHDjarRoe5EnAYQCLcB/s1600/Breakfast%2BMate.jpg" /></a>Kellogg’s Breakfast Mates (#13) combined
cereal, milk and a spoon into one “convenient” package. However, a test showed
that the Breakfast Mate was only about a second faster to prepare than regular
boxes of cereal with a normal carton of milk. In addition, convenience to the
customer meant eating on the go, and you could not prepare and eat Breakfast
Mate on the go. Finally, it cost a lot more per serving than the old way. In
other words, Breakfast Mates leaped too short. It was not enough of a
convenience innovation. The right leap would have been to go to breakfast
bars—more convenient to prepare (just unwrap), more convenient to eat (on the
go), and not as big a premium. <o:p></o:p></div>
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
McDonald’s Arch Deluxe (#12) was a better burger than the
regular one, but not enough better to justify the price or to get people to
switch from better-burger restaurants. They did not leap enough and build
really better burgers worth going out of your way for, like Five Guys. <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Apple’s Lisa Computer (#3) was a fine computer for its time,
designed for the business market. The problem was that it was not superior enough
to justify a $10,000 price. Also, it was not superior enough to grab the
attention of software developers to make programs for it. The switching costs
for businesses was high and the leap was not big enough to justify the switch.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>2) Leap Too Far<o:p></o:p></u></b></div>
<div class="MsoNormal">
Just as bad a mistake as leaping too short is to leap too
far. If you innovate beyond the ability of consumers to embrace or beyond the
capabilities of technology, then you will fail as well.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://3.bp.blogspot.com/-qfuVlGWjtlQ/VxVTd3fcBYI/AAAAAAAACnI/OhG52B693iIeuHMTDbMzoTIWx1XrKhsfQCLcB/s1600/Newton.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" height="200" src="https://3.bp.blogspot.com/-qfuVlGWjtlQ/VxVTd3fcBYI/AAAAAAAACnI/OhG52B693iIeuHMTDbMzoTIWx1XrKhsfQCLcB/s200/Newton.jpg" width="200" /></a></div>
<div class="MsoNormal">
The Apple Newton (#10) personal hand-held
computing device came out in 1993, before the pervasiveness of the internet.
Thanks to that, and the limits of technology at the time, the Newton was not a
very powerful device. It tried to be the equivalent of the smartphone before
technology, applications, and consumers were ready. It was a leap too far, by
almost 20 years.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Premier Smokeless Cigarettes (#5), back in 1988, was also a
leap too far. The market had not yet banned traditional smoking as much as
today and the technology wasn’t good enough to make Premier Smokeless Cigarettes
a pleasurable smoking experience. It took about 25 years before the technology
and consumer sentiments caught up to make electronic smoking successful.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
One might argue that Google Glass (#18) was also a leap too
far. Concerns over privacy and functionality made it perhaps ahead of its time.<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>3) Leap Too Late<o:p></o:p></u></b></div>
<div class="MsoNormal">
The problem when timing an innovation leap is that if you
wait until the innovation is fully accepted, you are no longer imitating…you
are following. True innovation has some risks, because you are trying to
establish a market that doesn’t quite yet exist. If you wait for the innovation
to get a firmly established by someone else, it is typically that someone else
who reaps the benefit. They become the brand know for the innovation and get
the first mover advantage.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This was the main problem for Hewlett Packard’s Touch Pad
(#17). HP waited until Apple made tablets their own with the iPad. HP’s Touch
Pad was not meaningfully enough better hardware to unseat Apple. In addition,
Apple owned the apps, content business and digital store, where everything was
designed to work on the iPad.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Hence, HP failed due to waiting to late.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<h2>
<i>SUMMARY</i><o:p></o:p></h2>
<div class="MsoNormal">
Innovation is a leap into the future. If you make your leap
too short, you will not create enough differentiation for success. If you make
your leap too long, you will get ahead of the customer and technology, which
are not ready for success. If you make your leap too late, you become a lesser
also-ran rather than a leader. Therefore, when on the path of innovation, plan
you leap carefully (length and timing). <o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<h2>
<i>FINAL THOUGHTS</i><o:p></o:p></h2>
<br />
<div class="MsoNormal">
Jumping is not the same as leaping, because you end up in
the same place as you started when you jump. So, just because you are furiously
doing something doesn’t mean you are leaping to innovation. You may only be
jumping in place.<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0tag:blogger.com,1999:blog-5461010492997967211.post-39262214412810678632016-04-18T16:22:00.000-05:002016-04-19T07:21:43.144-05:00Failures #1: 18 Colossal Failures <div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-Ut0lE7oZXrU/VxVPaC3XCsI/AAAAAAAACms/m8lhj0PNtaEBANO9lH0-3nEqmpjnkFTDACLcB/s1600/edsel.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="273" src="https://1.bp.blogspot.com/-Ut0lE7oZXrU/VxVPaC3XCsI/AAAAAAAACms/m8lhj0PNtaEBANO9lH0-3nEqmpjnkFTDACLcB/s400/edsel.jpg" width="400" /></a></div>
<h2>
<i>INTRODUCTION</i></h2>
<h2>
<o:p></o:p></h2>
<div class="MsoNormal">
On April 16, 2016, USA Today had an article entitled “<a href="http://www.usatoday.com/story/money/business/2016/04/16/18-worst-product-flops-all-time/83092560/" target="_blank">The 18 worst product flops of all time.</a>” It was based on a study conducted by <a href="http://247wallst.com/special-report/2016/04/12/the-worst-product-flops-of-all-time-2/7/#ixzz466PEVWSP" target="_blank">24/7Wall St.</a> to determine which were the most colossal new product failures since
1950. The 18 flops, and my interpretation of primary causes of the flop, are as
follows:</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<o:p></o:p></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">1. Edsel by Ford Motor Co.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Insufficient New Benefits<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Too Expensive<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">2. Touch of Yogurt Shampoo by </span></b><b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Bristol-Myers Squibb<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Confused Customers<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Eaten by Mistake<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">3. Apple Lisa by Apple<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Too Expensive<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">4. New Coke by Coca-Cola<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Misunderstood its Brand<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Trying to Win by Imitation<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;"><br />
5. Premier smokeless cigarettes by RJ Reynolds<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Innovated Too Soon<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Questionable Benefits<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">6. Maxwell House Brewed Coffee by </span></b><b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Philip Morris Companies<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Confused Customers<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Innovated Too Soon<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">7. Harley Davidson perfume by
Harley Davidson Motor Co.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Brand Extension Too Far<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">8. Coors Rocky Mountain Sparkling
Water by Adolph Coors Co.<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Branding Issues<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">9. Crystal Pepsi by Pepsico<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpFirst" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Insufficient Benefits<o:p></o:p></span></div>
<div class="MsoListParagraphCxSpLast" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Novelty/Fad<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">10. The Newton MessagePad by Apple<o:p></o:p></span></b></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;">
<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Innovated Too Soon<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: .5in; margin-right: 0in; margin-top: 0in;">
<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">11. Persil Power by Unilever<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key Mistakes:<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Defective<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">12. Arch Deluxe by McDonald’s<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Insufficient Benefits<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">13. Breakfast Mates by the Kellogg
Co.<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Insufficient Benefits<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">14. WOW! Chips by Pepsico<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Defective Product<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">15. Hot Wheels and Barbie computers
by Mattel<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Defective Product<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">16. EZ Squirt (colored) Ketchup by
Heinz<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Defective Product<o:p></o:p></span></div>
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<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;">
</span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Novelty/Fad<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">17. TouchPad by HP<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Innovated Too Soon<o:p></o:p></span></div>
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<br /></div>
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<b><span style="font-family: "arial" , sans-serif; font-size: 9pt;">18. Google Glass by Google<o:p></o:p></span></b></div>
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<span style="font-family: "arial" , sans-serif; font-size: 9pt;">Key
Mistakes:<o:p></o:p></span></div>
<div class="MsoListParagraph" style="margin-bottom: .0001pt; margin-bottom: 0in; margin-left: 99.0pt; margin-right: 0in; margin-top: 0in; mso-add-space: auto; mso-list: l0 level1 lfo1; text-indent: -9.0pt;">
<!--[if !supportLists]--><span style="font-family: "symbol"; font-size: 9pt;">·<span style="font-family: "times new roman"; font-size: 7pt; font-stretch: normal;"> </span></span><!--[endif]--><span style="font-family: "arial" , sans-serif; font-size: 9pt;">Pros overwhelmed by Cons<o:p></o:p></span></div>
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Over the next few blogs, we will look at some of the lessons
to be learned from these failures, so that you can avoid them.<br />
<br /></div>
<h2>
<i>LESSONS LEARNED</i><o:p></o:p></h2>
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<b><u>Lesson #1: Innovation
is Not a Panacea<o:p></o:p></u></b></div>
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These 18 innovation flops were huge, causing losses in the
millions of dollars. Yes, they may have been outlyers, since most flops are
less colossal. But that doesn’t mean that flops are rare. The article claimed
that about 40% of new product introductions are flops. <o:p></o:p></div>
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I believe that the 40% failure number underestimates the problem.
A lot of what is considered a “new product” isn’t really much of an innovation.
It can be just a minor brand extension, like adding a new flavor or size. It is
a low risk/low reward bet on a minor tweak. It is not a truly innovative new
product.<o:p></o:p></div>
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If you only look at truly innovative new products, the
failure rate is much higher—over half.<o:p></o:p></div>
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<br /></div>
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I know a lot of companies have a strategy based on some
variation of “winning via innovation.” The idea is that future success will
come from merely introducing new products. The problem is that if over half of
innovations fail (and some fail spectacularly), innovation is not automatically
going to lead to success.<o:p></o:p></div>
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<br /></div>
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Just because you innovate doesn’t mean you’ll win. If fact,
the odds point in the other direction. <o:p></o:p></div>
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<br /></div>
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Innovation is more like a tool than a strategy. <o:p></o:p></div>
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<br /></div>
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Tools are great, but only if used to achieve a viable
strategic purpose. For example, cost control is a great tool but not a
strategy. It is meaningless to have the lowest cost of production if you are
producing something nobody wants. The strategy must first tell you what is
desired. Then, cost control can be chosen as a tool to help make it a reality. <o:p></o:p></div>
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<br /></div>
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Similarly, it is useless to innovate if you are creating
innovations which will flop. Just because something is new does not mean it is
the right thing to produce. Innovation only succeeds if you are using it as a
tool to implement a greater strategy—a strategy which takes into account all
the greater issues like image, branding, positioning, switching costs, consumer
trends & habits, etc.<o:p></o:p></div>
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<br /></div>
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The strategy is the vision of what will win. Innovation and
cost control are just some of the many tools you can use to achieve the vision.<o:p></o:p></div>
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<br /></div>
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Make sure your strategy embraces desirable outcomes rather
than just embracing a particular business tool, like innovation.<o:p></o:p></div>
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<br /></div>
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<b><u>Lesson #2: Don’t Mess
With The Mouth<o:p></o:p></u></b></div>
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A friend of mine in consumer research used to say that
consumers are particularly sensitive regarding anything that goes in the mouth.
They may be forgiving of shortfalls and miscues in other areas, but they expect
something a lot closer to perfection when it comes to things put in the mouth.
Mess up on things put in the mouth and you will pay a heavy price.<o:p></o:p><br />
<br /></div>
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This makes sense, since:</div>
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</div>
<ul>
<li><span style="text-indent: -0.25in;">Health issues are at greater stake;</span></li>
<li><span style="text-indent: -0.25in;">Image Issues are at greater stake (You really are what
you eat, including the brand image of what’s eaten).</span></li>
</ul>
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<o:p></o:p></div>
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This seems to be verified by the results. If you look at the
list of 18 flops, half of them (nine) are items put in the mouth. If you count
the fact that people were mistakenly eating the Yogurt Shampoo, it becomes 10
items.<o:p></o:p></div>
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<br /></div>
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The lesson here is that if you are innovating around items
that go in the mouth, be especially careful. People take these more seriously.<o:p></o:p></div>
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<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Lesson #3:
Innovations Need to Work<o:p></o:p></u></b></div>
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Some innovations fail because the new product was defective.
WOW! chips caused “abdominal cramping and loose stools,” not something desired
in a snack food. Persil Power laundry detergent destroyed clothes at high
temperatures. The Hot Wheels and Barbie names were put on computers which
didn’t work. It’s no wonder why these innovations failed.<o:p></o:p><br />
<br /></div>
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You may start with a great idea. But, if the actual product
does not deliver on that idea, then the idea is irrelevant. Make sure the
product delivers on the promises.<o:p></o:p></div>
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<br /></div>
<h2>
<i>SUMMARY</i><o:p></o:p></h2>
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Innovation is not a panacea for success. On the contrary,
random innovation is probably more likely to fail. To minimize failure,
innovation needs to be seen as a tool to create a larger strategy. In addition,
the innovation needs to live up to the requirements of the strategy and not be
defective. Finally, one needs to be extra careful when innovating around
products which go in the mouth.<o:p></o:p></div>
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<br /></div>
<h2>
<i>FINAL THOUGHTS</i></h2>
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This is just the beginning. Two more blogs on innovation are
to follow.<o:p></o:p></div>
Gerald Nanningahttp://www.blogger.com/profile/10102230443942149045noreply@blogger.com0