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

THE STORY

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

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

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

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

THE ANALOGY

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

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

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

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

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

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

THE PRINCIPLE

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

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

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

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

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

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

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

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

1) Most Runners in a Race Lose

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

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

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

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

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

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

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

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

2) Strategy Choice is Both External and Internal

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

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

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

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

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

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

3) Money Rarely Overcomes a Bad Fit

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

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

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

Example

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

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

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

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

SUMMARY

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

FINAL THOUGHTS

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

Strategic Planning Analogy #546: It Depends on Company Fit

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.

THE ANALOGY
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.

THE PRINCIPLE
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.

SUMMARY
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.

FINAL THOUGHTS
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?