THE STORY
To earn money during college, I worked on a landscaping crew. We had two types of mowers: large riding mowers and small trimmer mowers that you had to push. The riding mowers were great on large, open, flat lawns. The push mowers were great around trees, fences and other such objects, where the large mowers wouldn’t fit or cut delicately enough.
The old timers on the landscaping crew always took the easy
job of sitting on the large mowers. The college students got the tougher job of
trimming around the trees with the small mowers. At least I got a tan and built
up some muscles.
Are the big riding mowers better for cutting grass or are the small push mowers better? Well, it depends. If you have a large flat lawn, the large riding mowers are better. If you are trying to trim grass around trees, the small push mowers are better. Each mower is appropriate for one type of job and inappropriate for the other type of job. The trick is to choose the appropriate tool for the job you have.
The same can be said of strategy. Some strategies are more
likely to be successful in the hands of large companies. Other strategies are
more likely to succeed in the hands of small companies. If you put a strategy
into the hands of the wrong company, it won’t work.
That’s why you cannot evaluate strategies in isolation. Most
of the time one cannot say “This strategy is universally good” or “This
strategy is universally bad.” The better answer is “It depends on what company
is executing the strategy.” The same strategy may be great or terrible,
depending on who is trying to execute it.
So, just as choosing the right tool matters when cutting
grass, choosing the right company matters when executing strategy.
This is the second of two blogs looking at what makes a strategy good or bad. The first blog looked at how timing impacts success. This blog looks at how the type of company impacts success.
The principle here is that there needs to be a fit between
strategy and those being called to execute it. If the fit is good, then the
likelihood of success goes way up. If the fit is poor, the likelihood of
success goes way down. Therefore, one needs to choose strategies which align
best with who they are.
This would seem to be an obvious principle, but I see it
violated all the time. A typical case is when a company in an industry does
something successful. Others in the industry see that success and try to
imitate it. These imitators think “That company has found a good strategy. I
should have a good strategy, so I will imitate their strategy.”
However, just because the strategy worked for that first
company does not mean it will work for all of the other companies equally as
well. It just may not be appropriate for who your business is. It would be as if
your company was like the little trimmer mower who was trying to imitate the
strategy which worked for the large riding mower. You won’t succeed, because your
company isn’t built for success in that area.
There are many elements which influence whether your business
is a good fit for a particular strategy. These elements include:
- Culture
- Values
- Competencies & Expertise
- Centralized or
Decentralize Management
- Tight or Flexible Controls
- Access to Resources
(Money, Talent)
- Connections in the Supply
Chain
- Level of Patience on
Financial Returns
This list can go on and on. However, to illustrate the
principle, I will focus on two elements: Clout and Agility.
Agility
An agile company is a lot like that small trimmer mower. The
trimmer mower has the flexibility to cut around all types of obstacles. It can adjust quickly and make sharp turns
when necessary. The same is true of an agile company. It can quickly adjust to
lots of obstacles in its path.
Agile companies are well suited to strategies in new spaces
where there are a lot of unknowns and where flexibility, speed, and unconventional
approaches are keys to success. That is why most of the dramatic disruptions in
an industry come from small upstart companies rather than the large status quo
firms. The small upstart companies are better suited to having success with the
disruption—they are more agile and have less to lose from disruption.
IBM understood this when it tried to invent the PC industry.
Management knew that the core of IBM at that time was more like the large
riding mower. It was great for mowing down the competition when going after
large accounts with large processing needs in established industries. But it
was the wrong tool to implement a PC invention strategy. They needed something
more agile.
Therefore, in order to make the PC strategy succeed, IBM had
to first create a business that was properly fit for the task—something more
agile. IBM set up a separate business in a separate location with a culture
dis-similar to the rest of IBM. Had they not first set up this separate, more
agile culture for the strategy, most experts feel the PC strategy would have
been a failure.
Other large companies often try to follow IBM’s example and
set up separate, more agile divisions for their start-up strategies. But I’ve
seen many of them screw it up by forcing the small division to still use the
corporate shared services. The idea is that the shared services will make the
start-up more efficient. Instead, I’ve seen the opposite. The start-up is
strangulated by all the red tape and bureaucracy from the shared services. They
end up becoming less efficient, and worse, less agile. It’s like taking a small
trimmer mower and putting a huge engine and seat on it. It can no longer act
like a small trimmer mower.
Clout
But small, agile companies are not the best for all
strategies. Sometimes clout is more important than agility. As an expert in
retail, I’ve been approached by others asking me if a particular retail
strategy is good. Sometimes, I respond by saying, “That depends. Is Walmart going
to implement the strategy or is it a small upstart?” The reason I say that is
because some strategies can only work in the hands of someone with tremendous
clout. In the consumer space, Walmart has clout that other can only dream
about. So it can implement strategies others cannot.
Since Walmart is typically the largest customer of most
consumer products companies, Walmart can ask its vendors to do all sorts of
things—and the vendors will do it due to the clout Walmart has with them.
Smaller firms would not be able to pull this off.
Walmart’s huge size gives them the scale to do things
outside the scope of others. Because they handle so many transactions, Walmart
has been able to transform portions of the financial industry. Because they
have so many employees, they are now experimenting with reinventing how health
care is managed. Size and clout can be your best asset when it comes to some types
of strategies, where power is more important than agility.
In an earlier blog, I discussed the story of Clean Shower.
Robert Black invented a product that helped clean the soap scum off shower
walls. At first, the big consumer product companies wanted to buy him out, but
Black initially refused and decided to run his small business on his own.
Unfortunately, his invention was easily copied by big
consumer products companies. The consumer product companies used their superior
clout in distribution and marketing to get advantageous product placement in
the stores and brand preference with the consumers. Black did not have enough
clout or resources to keep up with them. Eventually, Clean Shower ceased to
exist. For Black, the better strategy would have been to sell out early to the
ones who had the clout needed to succeed.
At one time I was trying to pitch a strategy to revitalize
Sears. But that was when Sears still had reasonable clout in the marketplace.
That clout has since dissipated quite a bit. Sears’ clout has so weakened that
I doubt my strategy would work anymore. So was my strategy good or bad? It
depends.
Options
Therefore, you have two options when trying to successfully
execute a strategy. Either you:
a)
Start by only
considering strategies which have a strong fit with what your company is already
good at executing, OR
b)
Look for ways to
modify your company so that it can become a better fit with the strategy (like
what IBM did for the PC).
Although the first option is probably the safest, it may
limit you to only small, incremental improvements. If you want to make larger
leaps, you may need the second option.
You cannot just look at a strategy in a vacuum to determine if it is good or bad. You have to look at in within a context. One element of that context is who is executing the strategy. If the fit between what the company is good at and what is needed to win is right, the strategy can be very good. If the fit is wrong, that same strategy can be very bad. Although many factors affect fit, two important ones are agility and clout. Sometimes smaller, more agile companies are better suited to a strategy. Other times, large companies with a lot of clout have a better chance of success. To ensure fit, you can either: 1) Only look at strategies which fit who you are today; or 2) Modify your company to improve the fit.
Strategies are only good if they work out in the marketplace. Therefore, before embarking on a new strategy, make sure you know what your company is capable of. Do you have what it takes to make it work out in the marketplace?
