Why Most Strategies Fail: Reason #2

BACKGROUND

I recently saw a blog by the Cascade strategy software company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it here.

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 first blog.

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.

PROBLEM #2: STRATEGIC FOCUS ON DOING RATHER THAN BEING
In an earlier blog 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.

“Being” Keeps You Relevant

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.

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.

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.

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.

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.

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.

Example: Wal-Mart

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.

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.

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.

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.

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.

“Being” Increases Preference

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. 

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.

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.

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.

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.

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.

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.

Being Needs to Influence Everything

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.

Steve Jobs made sure everything 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.

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.

Dire Consequences When Strategy is more about Doing than Being

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.

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.

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).  

Warning Signs that Your Strategy is on a Path to Failure

So, what are the warning signs that one is more focused too much on doing rather than being?

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?

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.

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.

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.

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.

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.

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)?

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.

SUMMARY
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.

FINAL THOUGHTS
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

Strategic Planning Analogy #566: Regimented Plans

THE STORY
Way back when I was getting my MBA, the accepted rules for success in marketing went like this:

1.     Get an MBA in marketing from a top-tier business school.

2.     Immediately go work a few years for Proctor & Gamble (P&G).

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.

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.

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.

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.

I guess her experience with P&G had not gone as planned and she took it a little hard.

THE ANALOGY
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.

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.

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.

THE PRINCIPLE
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.

Well, if the main job of planners is not to create perfect plans, what is their role? The role of the strategist is to:

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.

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.

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.

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.

Problem #1: Placing Tactics Over Goals

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.

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.

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.

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.

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.

Problem #2: Mistaking Opportunism for Flexibility

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.

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. 

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.

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.

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.

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.

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.

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.  

SUMMARY
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.

FINAL THOUGHTS
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.

Failures #2: Leaping the Right Distance

INTRODUCTION

In the last blog, we looked at an article in USA Today article entitled “The 18 worst product flops of all time.” These flops included:

1. Edsel by Ford Motor Co.

2. Touch of Yogurt Shampoo by Bristol-Myers Squibb

3. Apple Lisa by Apple

4. New Coke by Coca-Cola

5. Premier smokeless cigarettes by RJ Reynolds

6. Maxwell House Brewed Coffee by Philip Morris Companies

7. Harley Davidson perfume by Harley Davidson Motor Co.

8. Coors Rocky Mountain Sparkling Water by Adolph Coors Co.

9. Crystal Pepsi by Pepsico

10. The Newton MessagePad by Apple

11. Persil Power by Unilever

12. Arch Deluxe by McDonald’s

13. Breakfast Mates by the Kellogg Co.

14. WOW! Chips by Pepsico

15. Hot Wheels and Barbie computers by Mattel

16. EZ Squirt (colored) Ketchup by Heinz

17. TouchPad by HP

18. Google Glass by Google

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.

LEAPING THE RIGHT DISTANCE

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.

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.

1) Leap Too Short

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.

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.

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.

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.

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.

2) Leap Too Far

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.

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.

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.

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.

3) Leap Too Late

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.

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.

Hence, HP failed due to waiting to late.

SUMMARY

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).

FINAL THOUGHTS

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.

Strategy Planning Analogy #557: Procedurals Vs. Chapters

THE STORY
One of my favorite strategic planning stories is an interview of Steve Jobs by Richard Rumelt, a professor in strategy at the UCLA business school and a leader in his field. At the time of the interview, Steve Jobs had just returned to troubled Apple with the task of turning the company around and saving it from a path towards bankruptcy.

Rumelt was not sure there was a viable turnaround path for Apple. After all, Apple at the time had less than a 4% share of the personal computer market. The Microsoft/Intel business model (called “Wintel”) had a virtual monopoly on the space. There isn’t much you can do when your position is so insignificant.

So when Rumelt asked Jobs what the long term strategy was, Jobs just smiled and said, “I am going to wait for the next big thing.”

THE ANALOGY
Jobs’ answer to the question would be hard for most boards of directors to take. In essence, Jobs was saying:

1. I don’t know what the strategic direction should be right now.
2. All I know is that it will come from exploiting the next big thing, whatever that is.
3. And I don’t even know when the next big thing will show up. Our main task now is to wait.
4. All I know is that sticking to the status quo is a path to destruction.

Does that give you warm feelings of confidence in the future of the company? As a board member would you accept that strategy?

Well, in retrospect, we know that the next big thing was the iPod and the next big thing after that was the iPhone. Jobs pounced on them and created one of the most valuable companies the world has ever seen.

So, when your company is stuck, perhaps waiting for the next big thing is not such a bad strategy after all.

THE PRINCIPLE
The principle here is that some strategic positions are so weak that they cannot be repaired by merely adjusting the status quo. Sometimes you have to accept defeat in the status quo and move on to the next big thing, even if you do not know what the next big thing will be. All you can do is watch and wait. Then, if you pounce on the next big thing faster and more aggressively than the others, you can own the future and leave the former leaders in the dust.

This is what Apple did. And more recently, this is what NBC did.

A few years back, NBC’s position in prime time TV was not that different from Apple’s position when Steve Jobs came back. It was small and weak. CBS dominated the ratings. There was no easy way for NBC to tweak itself out of its downward spiral. So NBC borrowed the approach used by Apple—it waited for the next big thing.

Procedurals

When NBC was at the bottom, the key to ratings success tended to revolve around having the best “procedurals.” A procedural is a television drama with two distinct features:

1.     Each episode has a relatively independent plot that can stand on its own.

2.     What holds the series together is that fact that each episode follows essentially the same procedure—they all tend to be structured in a similar manner.

CBS was the king of the procedurals, with shows like CSI and NCIS. This helped put CBS at the top of the ratings. When a producer had an idea for a new procedural, they tended to take it to CBS first, because they knew it would be a stronger show inside that CBS lineup. This made it hard for NBC to catch up in getting its own good procedurals. And NBC had the problem that since very few people were watching their current shows, they had fewer opportunities to show viewers promotions for new shows. Hence, NBC was in a bit of a death spiral while CBS was in a sort of virtuous cycle.

At the time, viewers liked procedurals because it fit better with how they watched TV. People didn’t always have time to watch every episode in sequence and remember the plot line from week to week. Hence, they preferred shows where each episode stood on its own.

The networks liked procedurals because they did a lot better in summer reruns. Shows with connected story lines like the original version of Dallas did terribly in summer reruns because once you know how the plot worked out over time, an old episode from the middle was less compelling. By contrast, shows that stand on their own can be seen in any sequence without difficulty (and did better in the summer).

The producers liked procedurals because they were ideal for the secondary market of cable TV. Cable TV channels loved buying rights to show procedurals. They showed procedural shows at all hours of the day, sometimes clustered in blocks and sometimes one episode at a time. This made it almost impossible to follow the shows on cable in sequence. Therefore, the fact that procedurals did not need to be seen in sequence was desirable.

 

Chapters

Procedurals are not the only way to make TV dramas. Another approach is called “chapters.” In chapters, a TV season is seen as being like a complete book and each episode is like a chapter of that book. This approach is very different from the procedural in two key ways:

1. The plotline is connected from chapter to chapter. You have to see the episodes in sequential order for them to make sense, just like you need to reach chapters in sequential order in a novel.
2. The nature of the way the drama unfolds varies a bit from episode to episode, depending on what is necessary to move the greater plot of the season along.

A good example of a chapter show is NBC’s The Blacklist.

NBC could see that the environment was changing in favor of chapters and away from procedurals. For example, more viewers were getting access to DVRs like TIVO so that they could watch prime time according to their schedule rather than the network’s schedule. Now, they would miss fewer episodes and could re-watch them prior to the next episode. This made chapter shows easier to watch.

The summer rerun issue for chapters was becoming less of an issue, because now nearly all shows did poorly as summer reruns and the networks had switched to alternative programming for the summer.  

The prime secondary market was switching from cable TV to digital services like Netflix, Hulu and Amazon Prime Video. Unlike cable, these services allow you to watch what you want to watch in the order you want to watch it. This lead to the phenomenon of binge TV—watching an entire season of a show back to back over a weekend. Binge watching is more powerful when watching chapters than procedurals.

So NBC jumped on loading its prime time with chapters. The hope is that procedurals will soon become obsolete and that NBCs aggressive move into chapters will allow them to capture the future, just like Apple did with the iPod and iPhone.

Waiting is Not Sleeping

When waiting for the next big thing, you don’t just take a nap and wait until opportunity knocks. Waiting is still a strategic activity. Waiting involves doing a lot of watching and speculating. The next big thing usually starts out small. You won’t find it if you are not actively looking for it.

As we saw in the NBC example, NBC had to observe the changing viewing environment to see where the new viewing favored new program styles. For Apple, they just so happened to be talking with their supplier community when they say saw a new type of processor which made would make the iPod possible. In both cases, they saw change and then figured out how to exploit it to create the next big thing.

Another thing to keep in mind is that NBC and Apple did not jump to new things in areas outside their expertise. Apple stayed in consumer technology and NBC stayed in TV entertainment. Leadership needs both the new idea and a way to bring it to life. If you don’t have the skills, you cannot bring the next big thing to life. So part of waiting for the next thing is knowing how to redeploy your competencies to exploit something new.

SUMMARY
Sometimes a strategic position is so poor that it is not worth the effort to try to fix it. Instead, the best strategic move is to move on to the next big thing. Even if you do not yet know what that is, make that your strategy and start looking for it.

FINAL THOUGHTS
If your board of directors or leadership balk at the idea of declaring a strategy to move in a new direction which is still unknown, just show them how that strategy worked out for Apple.

Strategic Planning Analogy #533: Planning the Periphery

THE STORY
Last week I got bumped off an airplane in exchange for a ticket voucher discount for a future trip. I thought that was a pretty good deal until I tried to redeem it.

The airlines said I had to redeem it on their online site. Unfortunately, there was a flaw in the website making it impossible for me to redeem the voucher online. As a result, I had to call the airline on the phone.

After a terrible phone experience, I finally got an email notification of my transaction. There were two parts of the email that irritated me. First, they still had not corrected the problem. Second, they charged me a $25 service fee for using the phone to do my booking.

So I had to call the airlines a second time. It struck me that this was a pretty good deal for the airlines. By creating incompetency on their website and on the phone, they were able to create numerous $25 services fees they would not otherwise receive.

They were getting rewarded for incompetence as my travel voucher was becoming less of a deal.

THE ANALOGY
Airlines have an interesting pricing strategy. They sell the seat ticket at unsustainably low prices and then make up the difference by charging all sorts of associated fees, like the $25 I had to pay for calling them on a telephone. They have other extra fees for things like luggage, earlier pre-boarding, seats with slightly more legroom, pillows, blankets, meals and a host of other things.

How did it get to this point? Well, the core business of selling a seat to get you from one airport to another became commoditized. Let’s face it. There is very little difference between the standard seat experience in one airline over another. If you closed your eyes, you’d never be able to determine which airline you were flying.

I remember one time flying from London to Germany. I was about to go up the boarding steps to the airplane door when I noticed that the steps had the wrong airline logo on them. At first I thought that I might be boarding the wrong plane. But then an airline employee came along with a magnetic sign with the right airline logo. He put in on top of the other logo. Voila! Suddenly I was going up the proper airline set of stairs.

But that’s how it is. The standard airline service is so commoditized that you could slap any logo on it and it wouldn’t make a difference.

And we all know what happens when a core service becomes commoditized. The only way to create a preference is by lowing the price. So all the airlines lowered ticket prices to unsustainably low levels.

Since the airlines could no longer make a profit on the seats, they had to get the money somewhere else. That’s why I had to pay $25 to make a phone call to complain about a defective website.

And the point of this blog is that nearly every industry is moving in a direction towards this airline pricing model. Core businesses in numerous sectors are becoming commoditized. If you cannot come up with ways to make money on the periphery of your business (like charging for phone calls), you will have an unsustainable business model.

THE PRINCIPLE
The principle here is that in industry after industry, the core business is becoming commoditized. The commoditization is causing core businesses to be priced as a “loss leader.” To remain viable, one has to get nearly all of the profit from non-core elements on the periphery. So, ironically, one’s strategy may need to be more focused on the periphery than the core if one wants to succeed.  So much for all that literature on “sticking to one’s core.”

Fast Food Example

This is not just an airline problem. Look at the fast food industry. The basic hamburger is commoditized. All the major fast food restaurants sell the core hamburger at a loss.

With the core product priced at a loss, the only way to make money is by focusing on the periphery. So McDonald’s adds fancy coffees and fruit smoothies. They all start putting a slice or two of bacon on everything so that they can charge a premium price. They push the higher margin fries and beverages. They try to get you to upsize to a larger combo meal and to add a dessert.

This is their version of what the airlines do. They come up with all sorts of peripheral things to charge you for, because the core item on the menu (the hamburger) can no longer make it on its own.

Others

Or how about the cable TV industry?  Cable TV in the US is commoditized. They all give you essentially the same channels in the same way. When watching your favorite show on TV, the viewing experience is identical, regardless of the cable company piping it to your screen.

As a result, US cable TV companies can no longer price their core TV business at a profit. The only way to earn a profit is by focusing on the periphery—phone service and internet service. Cable TV service has become a loss leader in order to sell the periphery.

In a similar fashion, phone companies sell talking over the phone at a loss and have to make it up on peripheral services like data transfer.

In social media, it is quite common for companies to give away the core business for free and then try to recoup their losses in sales of peripheral features to peripheral customers (think of LinkedIn). It’s called the “Freemium” model. It is very common in gaming, where the core game is free and you pay for periphery features which help in the game experience.

It’s common for digital companies to use the word “monetization.” It is their way of saying that they have to give away the core for free in order to build out network to a critical mass. So, to make a profit, you have to create a secondary strategy for collecting cash—the “monetization.”

When you try to buy something at the store, they try to get you to pick up impulse items at the checkout, get the extended warranty, add on the optional extras, get a matching belt for the pants, and so on. Why? Because the core products are not profitable. The money is made on the peripheral goods. Even big ticket items like cars are sold this way.

I could go on and on, but you get the idea.

Implications

So what should a strategist do? Well, first one can try to fight the commoditization by creating uniqueness at the core. It can be difficult, but some can succeed. I’ve talked about this in a prior blog. The problem is that if everyone starts adding the same “uniqueness”, then that becomes a commodity as well.

Therefore, one should seriously consider the periphery while developing the core strategy. The periphery strategy may be even more important than the core strategy. After all, if the core truly is commoditized, all you need to do is copy industry best practices and build scale to get credibility at the core.

It is in the periphery where you not only get a chance to make extra margin. It is also the place where you have the best shot at creating differential advantages. The periphery is where you have a shot at creating a sustainable reason to be preferred over the competition.

For example, Comcast has a reputation for absolutely horrible customer service. A cable TV competitor can take the peripheral element of customer service and create a meaningful advantage over Comcast. Southwest Airlines has created an advantage by treating the peripheral business of baggage differently from its competitors.

Apple tries to get around commoditization in smartphones through the unique peripheral features in the closed system it attaches to its phones. All along, it has been the closed systems circling on the periphery (like iTunes) which have made all the Apple innovations truly successful.

So the periphery may not be at the core of the industry, but it is probably at the core of what helps you to win and make a profit. So treat it accordingly when doing your planning.

SUMMARY
There is a tendency for the core business of all industries to become commoditized and/or become a loss leader in price. As a result, if your strategy only focuses on the core, you will most likely never achieve sufficient profitability to make your business a financial success. Real profit tends to come from the periphery, where there are more opportunities to enhance your margins. As an added bonus, the periphery also often is the best place to create meaningful differentiation. With all those potential benefits coming from the periphery, one should not leave the periphery to chance. It needs strategic planning emphasis as much as the core, if not more.

FINAL THOUGHTS
I know a lot of social media companies have a singular focus on building out the core. They say they will get around to figuring out how to monetize it later. That’s like saying I have a great strategy, except that it does not provide me with a differentiating position or a way to make a profit. You’d never settle for a strategy like that. Why would you settle for a business like that?

Strategic Planning Analogy #528: Business Without Brains

THE STORY
Imagine a game in which you are in your backyard and your goal is to shoot ping pong balls at targets in your neighbor’s back yard. The only problem is that there is a high wall between the two backyards so that you cannot see the targets…and, in addition, the targets are constantly moving. Since you cannot see anything, the only way you know you have hit a target is when you hear the ping pong ball bounce off the target.

Therefore, to win the game, you shoot as many ping pong balls in as many directions as possible. When you hear a ping pong ball hit a target, you start shooting even more in that direction until the target moves away. Then you start randomly shooting everywhere again.

THE ANALOGY
That sounds like a relatively stupid game to me. There’s no intellectual challenge. There’s no strategy. It’s just random shooting, hoping to get lucky. You could train a monkey to do that…or program a machine to do it.

Yet this is what modern marketing consists of at many companies. The company sets up its digital business on a web site. Then the company tries a constant stream of experiments with the site to see what works. Colors are randomly changed, the size and placement of boxes changes, prices and offerings randomly change. Text randomly changes. They try everything, everywhere.

With all of this “experimentation” going on, the company “listens” to see if they got any “hits” on the website. If so, they start doing more of what random thing seemed to cause the hit. Eventually the customer moves away from that approach, so the company randomly starts firing experiments in all directions again hoping for the next hit.

You can give this approach all sorts of fancy names like “big data” or “agile” or “digital marketing” or “listening to the customer.” But the reality is that it is little more than that silly game with the ping pong balls. No need to think; no need for strategy. Just program a machine to try a lot of things and listen for hits. It sounds like a rather stupid game to me.

THE PRINCIPLE
The principle here is that although the digital age has had a profound impact on marketing, most of the foundational principles of marketing have not been repealed. They are still valid. And if you ignore these principles, you are doing little more than shooting ping pong balls over the wall. Sure, with today’s technology, you can be more efficient with your randomness (and hear the hits better), but it still is little more than random luck. You may as well quit marketing and put all your money into lottery tickets. It takes about the same level of brainpower and strategy (virtually none) yet is a lot easier.

The only problem is that you can get VC money to make a business out of random experiments, but you cannot get VC money just to play the lottery. Perhaps venture capitalists would have higher success rates if they put their money into lottery tickets. Or MAYBE they should invest in people who still operate by the fundamentals or marketing.

Marketing Principle #1: Successful Companies Have a Reason for Being

Successful companies do not merely exist to make their owners wealthy. They succeed because there is a reason for them to succeed in the marketplace. They are fulfilling a consumer need better than anyone else. By fulfilling an unmet need, they have a reason to exist—a relevancy when it is time for customers to spend their money.

Before starting down the path of a new business venture, smart marketers will ask a series of relevancy questions. If the business idea is not sufficiently relevant, then they do not pursue the venture, for it is most likely destined for failure—because it does not have a reason for being.

Examples of relevancy questions include:

1.     Why would a consumer naturally prefer my product over the alternatives?

2.     What benefits do I provide better than anyone else?

3.     Do customers truly have a need for what I am offering?

4.     For what problem am I offering a superior solution?

5.     Is my solution valuable enough to the consumer to get them to pay me an amount that would provide a proper return on investment?

6.     If I didn’t exist, would I be missed in the marketplace?

Google initially succeeded because they offered a superior way to search the internet. It was different. It was better. Consumers could see the superiority. It was a better solution. In other words, it had a reason to exist—a reason to be successful—a reason to be preferred.

Compare that to a lot of other digital businesses trying to make it in the world today. Thousands upon thousands of these ideas are dreamed up in dorm rooms or on a sofa at Starbucks. They all look about the same and act about the same. There is no talk about superiority, because there is none. It’s still in beta and bull of bugs and won’t be great until version 4.0.  

There’s rarely talk of real benefits or meeting needs in a way people are willing to pay for. And there is rarely talk about why this version would be naturally preferred over the thousands of similar pitches being made in the same space.

Instead they talk about how fast they will be at adjusting and adapting. It sounds to me like they are just shooting ping pong balls over the wall and they think they will win because they can shoot more ping pong balls more often.  

Marketing Principle #2: Successful Companies Own a Position

But even if these people bothered to develop a great solution for an important problem, it is not enough. Others may have as good (or better) a solution for that same problem. In addition to having a solution for a problem, you have to OWN that solution in the mind of the customer. The solution has to belong to you. When the customer encounters the problem, your brand needs to be the one which comes to mind.

Google took its initial superiority in search engines and built a brand which “owned” search in the minds of most customers. By owning search, it became nearly impossible for anyone to take it away.

When I look at a lot of the proposed digital ideas today, I see people going after spaces already owned by someone else. They want to be the next “Facebook” or the next “Apple.” Well we already have Facebook and Apple. As long as they do their job, we won’t need another one.

Don’t attack a space already owned by someone else. That battle rarely leads to victory. Build a position that is different—one that you can own. Imitation may be the most sincere form of flattery, but it is a lousy way to try to win. Followers are never in the front.

How many different games do we need on our smartphones? They all seem to be minor variations on a small handful of themes. Your odds of being the next Angry Birds or Candy Crush are probably worse than if you put your money into lottery tickets.

If you cannot own a position, then you cannot achieve a winning position in the consumer’s mind for that space. And without a position, you have no reason to exist. Owning a position usually requires being early in the game, bringing something meaningful to the game, and out-executing the competition. A lot of companies are competing in the smartphone business, but only Apple and Samsung make any real money at it. Everyone else is a loser in that space because they do not own it.

Marketing Principle #3: Successful Companies Know Why they are Successful

Some of the literature on the “new” way of marketing say it is a waste of time to try to figure out why a particular experiment works. If a blue website sells more than a green one, just accept it and move on.

I’m okay with some of that as it relates to minor tactics. But at some point, one should understand why they are in business and why a customer should prefer them. You cannot strengthen or broaden a position if you don’t understand why it works.

If your only success is due to discovering the advantages of a blue website first, your advantage disappears as soon as everyone else makes their website blue. The advantage is not sustainable.

However, if you deeply understand the “why” of your success, you can use that knowledge to build barriers of sustainability. Apple understands why it is successful. It creates a consumer advantage through “coolness” and a competitive advantage through closed systems. It keeps replicating this over and over again to make Apple ever stronger. And if the superiority in coolness and closed systems lies outside of Apple, as in the case of Beats, they acquire it.

The new marketers praise the value of ignorance—just go with what works and don’t ask why. I beg to disagree.

SUMMARY
Much of what is proposed as “New Marketing” is really “No Marketing.” It is a brainless, strategy-less approach depending upon quickness and luck. The basic laws of marketing still exist. Sure, the execution will need to adapt to the digital age, but the fundamental principles still apply. Successful businesses today still need to worry today about:

a)     Having a reason to exist in the marketplace (superior solution);

b)     Owning their position in the marketplace (differentiation);

c)     Knowing what is the reason for their success (understanding why).

Even in the new digital economy, these are the characteristics of the sustainable winners.

FINAL THOUGHTS
In that ping pong game, the successful “real” marketer would put a door in that wall and design compelling reasons why the targets would be prefer to come into my backyard and/or let me walk into their backyard. This proactive, strategic approach is superior to shooting ping pong balls and hoping for the best.

Transcendent Strategy

THE PREMISE
There seems to be a consensus building in the business world claiming that concepts like positioning and competitive advantage are becoming obsolete. This premise is based on the assumption that the business world is moving too fast. In such a fast-paced changing world, nothing lasts—including positions and competitive advantages.

This leads to the conclusion that if competitive advantages and positions have no lasting value, then it is a waste of time to focus much effort on them.

I tend to disagree. Here is my rebuttal to this point of view.

THE REBUTTAL, PART 1
Yes, technologies come and go; products come and go. But the truly important issues endure.

Has the desire for value gone out of style? Has the desire for quality gone out of style? Have the desires for prestige and self-esteem gone out of style? No.

These eternal desires have been around or hundreds of years and will continue to be around for hundreds of years to come. Eternal values such as these do not become obsolete.

The problem is not that positioning and competitive advantages have to—by their very nature—become obsolete. No, there is nothing inherent in positioning or competitive advantages which creates obsolescence. Instead, the problem is that people are focusing on the wrong things to build a position or competitive advantage around. If you focus your position or competitive advantage on a particular “product”, “technology”, or “feature set”, then of course your position or competitive advantage will not last—because the best alternative in these areas is constantly changing.

By contrast, if you focus your position or competitive advantage around mastering and owning the enduring attributes of prestige, self-esteem, quality, value, etc., then your position and competitive advantage will endure. Advantageous strengths in areas like this transcend all of those ever-shorter life cycles in products, technology or feature-sets.

Your company lasts, survives, and thrives even if particular products come and go, because your position and competitive advantages in understanding and providing solutions to enduring desires allow you to better migrate to the next iteration of how that need is satisfied. You continue to win, because you have built your strengths around owning the solution itself (e.g., prestige) rather than merely owning the current manifestation of that solution (e.g., a smartphone).

Think of Virgin. The company is not linked to a particular product, industry, technology or feature set. Virgin is into hundreds of diverse businesses from media to transportation—even transportation into space. Instead of focusing on a particular product or technology, Virgin has built competencies and advantages in winning a position in the enduring values. Here’s how Richard Branson, founder of Virgin, describes it:

“We've become a sort of way-of-life brand. ... People think of Virgin — if they hear that Virgin's going into a new area, they know that the quality will be good, that we'll do it in a fun way, that we'll give good value for money. And so it gives us a leg up when we go into a new venture. People already [trust] us, and they'll give us a try and, generally speaking, people seem to like what they find.”

Virgin the corporation wins and endures, even when particular ventures come and go, because it is always on the prowl looking for the next evolution for its “way of life” solution. It takes its skills (competitive advantage) in imbuing these way of life values into an industry and wins.  

And think about Apple. Its popularity has transcended a wide range of obsolescence in products, technology and feature sets. People love Apple because it wins on enduring values. Status, elegance, simplicity, easy-integration, and being “cool” are all integral to everything it does. Apple built competitive advantages in pursuing these enduring traits. This allows the company to endure, because positions and competitive advantages in these areas endure.

The fact that Apple is hiring Angela Ahrendts, the CEO of the Burberry fashion house, to run its retail division shows that Apple is structuring its competency around status, elegance and “coolness” rather than particular products or technology.

So if you build your position and your competencies around the enduring values (like Virgin or Apple), you can have a competitive advantage which can last a relatively long time.

THE REBUTTAL, PART 2
Winning positions and competitive advantages win because they best fit into the context of the environment in which they operate. The battle is decided in the marketplace. To win in the marketplace, you have to be designed to win within the context of that marketplace.

If we buy into the original premise that the business world is undergoing accelerated change, then that is the context where we must design a winning strategy. Therefore, a good way to win in this marketplace is by building competitive advantages in adapting to change.

Competitive advantages in adapting to change could include superior competencies in areas like:

1. Monitoring the environment to get early detections in the direction of change.
2. Building a flexible supply chain.
3. Having an organization that can quickly reallocate resources (human, monetary, etc).
4. Building skills around enduring values rather than temporal products and technologies.
5. Speed in execution.
6. Developing a tolerance for risk.
7. Quickly building strategic partnerships in areas needed to adapt to the change.

Companies which can do things such as these better than anyone else will have an enduring competitive advantage within the context of a rapidly changing marketplace.

SUMMARY
It is a false notion to claim that positions and competitive advantages can no longer be enduring. Yes, many positions and advantages will not be enduring, because they are linked to particular products, technologies or feature sets. But that is the fault of the people who picked the wrong things to focus their positions and advantages on. If, instead, one focuses on enduring values or adapting to change, then you can build enduring positions and competitive advantages.

FINAL THOUGHTS
Don’t blame the concepts of positioning and competitive advantage when your business becomes obsolete. These tools still work well if applied properly. Think of the axe. In the hands of a skilled lumberjack, the axe is a wonderful tool. In the hands of an axe murderer, it is a horrible tool. Are you more like the lumberjack (building enduring skills) or the axe murderer (focusing on products, technology and feature sets)?

Strategic Planning Analogy #509: High Occupancy Vehicles

THE STORY

To help alleviate pollution, congestion and speed up traffic, some urban areas have put HOV lanes on their highways. HOV stands for High Occupancy Vehicles and is typically defined as a car having at least two people in it.  The HOV lanes usually only allow high occupancy cars and other efficient vehicles, like buses.

Because about 75 to 85% of workers commute by driving alone in their car, most commuters cannot legally take advantage of the HOV lanes. As a result, the HOV lanes are less congested and move along faster. Seeing the HOV cars moving faster makes some of those driving alone try to find ways to cheat in order to get into the HOV lanes.

One way used to cheat is to put a mannequin or a life-size blow-up doll in the passenger seat. For example, in 2010, a 61 year old woman put a mannequin in the passenger seat so she could ride in the HOV lane in New York. Unfortunately for the woman it was a cloudy day, and the hat and sunglasses on the mannequin looked out of place to a highway officer. The woman ended up having to pay a $135 fine and had two points taken off her license.

THE ANALOGY

We live in a business environment which has been described as faster than any time in history and getting even faster. Businesses feel the pressure to move ever faster or die. To a large extent, speed has become the default universal strategy.

One way businesses try to increase speed is by unburdening themselves of as much as possible. Management is eliminated, rules are eliminated, and strategic planning is eliminated—all in the cause for speed.

The elimination of strategic planning is justified with reasons like “We don’t have time to waste on that” or “Things move too fast to plan anything long-term” or “All we have to do is release the next version of our product before the competition—you don’t need strategic planning for that.”

The problem is that the business world is more like those HOV lanes than these people realize. All this unburdening is making businesses look more like those single person cars—going it alone. And since nearly everyone is taking this same approach, they are all crammed into the slower lanes.

Ironically, the faster HOV lane is the one where cars are “burdened” with extra passengers. And, as we will see in this blog, if companies load up their “car” with extra passengers like strategic planning, they will have access to the faster lane and get to their destination more quickly.

THE PRINCIPLE

The principle here is that the proper use of strategic planning does not slow a company down, but actually puts a company on a faster path. So instead of dropping strategic planning in the name of speed, we should be adding it to our “car”. Described below are three reasons why adding strategic planning gets you into the HOV lane of business.

1) Strategic Planning Improves Speed Via Focus

A focused company can move faster than an unfocused company, and strategy improves focus. Lack of focus leads to anarchy and confusion. You can yell at an unfocused company to “Move Faster!” all you want, and all you get is faster anarchy and faster confusion. Everyone is moving in random directions rather than making forward progress. Faster randomness is not improved progress.

Strategic Planning, when used properly, is a way to provide a business with focus. Not only can it tell a business what are the right things to work on; more importantly, it can tell a company what are the wrong things to work on. Strategic planning simplifies the agenda by taking a lot of options off the table (the things that are off-strategy). All the time-wasting rabbit trails are eliminated before they begin.

With a strong, focused strategy, you don’t have to waste time in endless meetings continually asking yourselves “should we be doing this or something else?” Instead, you can speed things up by focusing on how to improve on the things everyone already knows are important to the strategy.

Look at Apple. Under Jobs, Apple did not go in all directions trying to do everything as quickly as possible. Jobs had a specific strategy in mind as to what Apple would focus on. It had to do with designs that emphasized quality, elegance, coolness, and user-friendliness, made possible by focusing on building closed end-to-end systems. It became obvious what was appropriate for Apple to be doing and what was not.

The “not” list for Apple under Jobs was large. They did not work on low price products, or products not tied to the larger closed system. They did not even work on manufacturing. This allowed Apple to become very focused and quickly build a whole new digital future.

2) Strategic Planning Improves Speed By Overcoming the Leapfrog Trap

When speed alone becomes the substitute for strategy, a company is no longer building unique competitive advantages or competencies (except maybe the competency of speed). All they are doing is racing everyone else to be the first to release the next new improvement to the status quo. This is very common in areas like consumer electronics & digital media, and becoming more common elsewhere.

This process leads to what I call the leapfrog trap. Any small success gained by getting to the next improvement first is lost when a competitor leapfrogs you and gets to the improvement which follows before you. Gains are short and fleeting, since others are racing to leapfrog your most recent advancement as soon as they can.

Here is the crux of the problem. Because everyone is focusing on the same thing (speed), nobody is creating a competitive advantage. All the companies look about the same, with the same types of engineers in the same types of culture working on the same types of issues. You cannot create a lasting advantage in this scenario because you bring no real competitive advantage to the marketplace. Others can copy you almost immediately because they have a similar business approach with similar tools at their disposal.

By contrast, a true strategy builds differential advantages which allow a business to do certain things better than others. Rather than playing the same game of leapfrog with everyone else, you go your own way and build a different game where you have an edge and are not so easily copied. This leads to the third point below.

3) Strategic Planning Improves Speed Through Business Model Superiority

Great strategies understand the importance of making trade-offs. They don’t try to do everything well. They understand that:

a)     There are not enough resources to do everything well; and

b)     Even if there were enough resources, it is still not possible to win on all fronts because of conflicting agendas. For example, it is nearly impossible to win at lowest price AND highest quality AND most innovation at the same time, because what it takes to win in one of these areas makes it harder to win in the others.

Therefore, great strategies choose what to specialize in and make all the proper tradeoffs to win there, even if it means giving up abilities in places outside their specialty. Take, for example, Southwest Airlines in the US. For decades, they have had both consistently lower prices than their competitors as well as consistently higher profits. Why? Southwest Airlines built a business model to specialize in lowering costs. This caused many trade-offs, where Southwest didn’t do things everyone else did if it got in the way of the low cost strategy.

When other airlines tried to copy Southwest’s pricing, they did not achieve Southwest’s higher profits, but made their profits even worse. Why? Because their business models were not laser-focused on making enough tradeoffs to pay for the lower prices.

When all you look at is speed, you take your eyes off building the right trade-offs in your business model to allow real differential advantage. If the business model does not provide an edge, then you cannot quickly build a place where you can win. You are stuck in the leapfrog trap.

SUMMARY

Ironically, the singular drive for speed does not usually end up putting a business on the fastest track to lasting success. Instead, the faster track also needs to include a drive for great strategy. The addition of strategy improves speed by:

a)     Adding Focus (on what to do and what NOT to do);

b)     Adding Differentiation (to avoid leapfrog trap); and

c)     Adding a Trade-off Based Business Model Design (which makes it harder for others to copy you).

These additions allow you to take a superior path that speed-only businesses cannot get on.

FINAL THOUGHTS

There’s a reason why mannequins are referred to as “dummies.” And if you think you can sneak onto the fast lane without real strategy in the passenger seat, then that mannequin may not be the only dummy in your car.