Strategic Planning Analogy #506: Perspective

THE STORY

Let’s assume that a government transportation committee examined whether to add more lanes to an urban highway. 

The conclusion of their study went something like this:

Yes, we concede that during a brief period of the day (rush hour), the highway becomes highly congested and traffic stops moving. However, outside of rush hour, the highway is operating well below capacity and flows very smoothly. Since the highway is well below capacity for approximately 85% of the day, we see no reason to add any lanes. After all, 85% efficiency for a highway is quite acceptable.

The response from a consumer group advocating extra lanes went something like this:

The reason why the highway flows well outside of rush hour is because that is not the time when the highway is most used and most needed. According to our research, 85% of the cars using the highway use it during the congested rush hour period when cars greatly outnumber the current highway capacity. Since the highway is well above capacity when 85% of the drivers are on it, we see a clear justification for adding more lanes to the highway. After all, 85% inefficiency for a highway is quite unacceptable.

So is the current highway 85% efficient or 85% inefficient?

THE ANALOGY

Strategy creation involves making decisions. Facts are a key input for making those decisions. In fact, I had a boss once who on a daily basis would say that he would not make any decisions unless they were “fact-based.”

But how reliable is the “fact-based” approach? In the story above, two groups used facts to reach a conclusion. The transportation committee used facts to “prove” that the highway was 85% efficient. The consumer group used facts to “prove” that the highway was 85% inefficient. These facts lead each group to come to a different conclusion about adding lanes to the highway.

Was one group’s facts right and the other group’s wrong?  No, both groups had equally true facts:

a)     85% of the TIME OF DAY the highway had excess capacity.

b)     85% of the TIME OF DRIVERS using the highway was during times of inadequate capacity.

So what is the right “fact-based” decision? Obviously, we need more than just these facts to reach an acceptable decision. And when it comes to strategy we need more than just facts as well.

THE PRINCIPLE

The principle here has to do with perspective. Facts alone do not automatically lead to the proper conclusion. It is only when we place those facts within the context of the proper perspective that we see what is the right thing to do. Therefore as much care and effort should be given to developing the proper perspective as is given to acquiring the right facts.

Perspective depends on two items: Where one is looking from and what one is looking at. In strategic analysis there are usually multiple places to look from and multiple items to look at. If you miss out on examining some of these options, you may come to the wrong conclusion.

Perspective #1: Where One Is Looking From

From the eyes of the transportation officials looking at the highway from afar, what they saw was smooth operations nearly all day long. From the eyes of the drivers on the highway, nearly all of them saw congestion nearly every moment they were on the highway. Their different perspectives cause them to see the situation very differently.

A similar situation can occur in developing your strategy. From the eyes of the executives inside your organization, you may see a particular strategic option as ideal for your bottom line. But how does that option look from the perspective of other eyes?

Perhaps your decision places added burdens on your suppliers, causing them to no longer want to supply you or only supply you if they get added compensation for those added burdens. That added compensation might wipe out a lot of the original advantages you saw from the internal executive eyes. A similar situation could also occur with your distributors.

Or perhaps your decision triggers an adverse reaction from your customers when they see it. This problem could not be seen with the internal executive eyes, but was quickly apparent to the customers’ eyes.  The unperceived adverse consumer reaction could make that original strategic option no longer as viable as first seen.

Or perhaps when your competition sees the strategy, they perceive it as a bigger threat than you thought and they react far more aggressively than anticipated. This aggressive reaction wipes out your perceived benefit.

Or maybe when those ideas from headquarters get down to the factory floor, they cannot be operationalized as smoothly as one thought. Something gets lost in the implementation on the factory floor which hurts the strategy’s effectiveness.

Therefore, before making a decision, step away from the pile of facts and look at the situation through other sets of eyes. How will the decision be seen by all the other relevant parties (suppliers, distributors, customers, competition, front line employees, the government, etc.)? How will their perspective affect their behavior, and how will that behavior impact your strategy?

You may find a need to modify your strategy in order to get all of the players see the situation in a manner which moves them all in a favorable direction for your business.

In addition, consider how you communicate your decisions, so that you can help influence how others see it. How the decision is communicatted may be just as important as the decision itself when it comes to implementation.

Perspective #2: What One Is Looking At

In the story, everyone was looking at the same issue: what is the proper number of lanes to have on the highway.  It assumes that the only way to address congestion is by looking at lane-count for the highway. Is this a fair assumption?

Perhaps there are other solutions one could look at, like:

a)     Increasing use of public transportation;

b)     Convincing more people to use alternate routes;

c)     Getting businesses to stagger the hours employees work;

d)     Reallocation of traffic direction for the current lanes depending upon time of day (e.g., more inbound lanes in the morning and more outbound lanes in the evening).

e)     Financial incentives for carpooling.

f)      Building a separate road nearby.

How do you know you are making the right decision if you have not fully explored all potential options? All those facts you’ve gathered may only be applicable to examining one particular option. If you look at the problem in a different way, you may find that you need a different set of facts altogether.

Remember, business success usually depends on offering a superior solution to your customers’ problems. There may be many distinctively different ways to solve that problem. Unless you examine many alternatives, you may not offer the right solution.

Perfecting the obsolete is not a path to success. After all, even a mediocre smart phone is far superior to the best Morse code telegraph solution, no matter how much time you spend trying to perfect it.

So don’t frame your strategic discussion too narrowly. Before deciding on the best way to do something, first make sure it is something worth doing. First frame the discussion around finding the best solution rather than just finding ways to improve the status quo.

SUMMARY

Facts are useful, but facts alone are incomplete. Facts are only useful if seen from the proper perspectives. Therefore, before deciding a course of action, improve your perspective by:

a)     Looking at the problem through all the eyes of the various people who have an influence on the successfulness of the strategy (suppliers, distributors, customers, competition, front line employees, the government, etc.).

b)     Looking at multiple ways to solve the problem. Creative, superior solutions may look nothing like the status quo.

FINAL THOUGHTS

Great strategic solutions may take you into uncharted territory—doing things in a way they have never been done before. There won’t be a big pile of facts to help you in uncharted territory. And if you wait to act until you can get a big pile of facts, someone else will have already captured that strategic space. Perspective helps fill in the holes when facts are hard to come by.

Strategic Planning Analogy #402: Strategy is Like a Resume

THE STORY
Since I am currently looking for a job, I have been spending some time talking with resume-writing experts. One of those experts said something which caught my attention.

He said that when recruiters see a job title in a resume, they usually have a pretty good idea of the duties and responsibilities associated with that title. Therefore, if the only explanation on your resume is the duties and responsibilities associated with that job, you haven’t really told them much of anything they didn’t already know.

Worse yet, the expert said you are not telling the recruiters what they want to know. What they really want to know is how successful you would be if they hired you for the job they are trying to fill. By only telling them the duties and responsibilities, you are not explaining how you approached those duties and responsibilities and why you were successful.

The expert referred to these as “transferrable skills.” In other words, what skills do you have which could be transferred to the recruiter’s company to create success there? After hearing this, I modified my resume.

THE ANALOGY
There’s an old acronym called WIIFM (pronounced “wiffum”). It stands for “What’s in it for me?” In other words, I have no interest in what you’re saying unless you first tell me how it affects me.

My original resume did not pass the WIIFM test. I hadn’t explained how any of it was relevant to the recruiter. Therefore, they had no reason to be interested.

The same principle applies to business missions. They need to pass the WIIFM test. Business Missions need to explicitly explain why the marketplace should care that you exist. In other words, they need to explain what’s in it for the customer.

THE PRINCIPLE
The principle here has to do with having an orientation towards others. When writing a business mission, it should be like a good resume—oriented towards why the customer should be interested in me.

Unfortunately, many mission statements and plans are like bad resumes—nothing more than bragging about how great I am. Recruiters don’t care about how “great” YOU are. They want to know how great you will make their COMPANY. Similarly, a good mission statement shouldn’t just say how great YOU are, but explain how your business model is great for your CUSTOMERS.

You can see the difference when looking at Ends and Means.

1. Ends (What is my goal?)
One way to tell a good mission/plan from a bad one is to look at the goal of the company. A bad mission plan has a self-centered, bragging goal, something like:

1) A huge sales goal
2) A huge profit goal
3) A huge growth goal
4) A goal to be the biggest or best in the industry (a leader)

It’s not that any of these things are necessarily bad. It’s okay to be successful. The problem is that these goals are not very useful from a strategic point of view. They do not provide any strategic insight.

It would be like a coach in sports saying his goal is to win games. That’s a great thing to do, but saying it provides no direction as to how those games are to be won. If the coach just told the players “Our goal is to win” he has not given them any strategy as to how to win. Everyone on the team may interpret the goal differently. As a result, there is no teamwork, no coherent game plan to follow that would lead to a win.

The key weakness of a self-centered goal is that the linkage to success is weak. There are lots of things one can do in the name of becoming great, but it doesn’t always lead to greatness.

For example, let’s say I wanted to have great sales. Tactics which might come out of that could include things like:

1) Selling everything below cost (which in the long run destroys success)

2) Getting people to purchase sooner than they normally would (which only reduces sales later)

3) Reducing the quality so that you can afford to sell cheaper (which will hurt future sales when people figure out that it wasn’t such a good deal at that lower level of quality)

4) Diversifying into all sorts of added businesses which divert the company focus, put you in places where you have no competitive advantage, and/or confuse the customer about what you stand for. All of this will hurt the company long-term

5) Expanding the appeal beyond an exclusive niche to reach the masses. This can destroy a fashion brand, because the core customers want exclusivity. They will abandon it once the masses have it. And once the core customers abandon it, the masses won’t want it much longer, either.

In other words, the pursuit of near-term sales-building tactics can lead to long-term disaster. Ultimate, sustainable success is often not achieved. Long-term failure is very likely.

Now, let’s compare this to the opposite approach—having an “other-centered” goal. Instead of saying “What’s in it for me” you say “What’s in it for my customer”. The new goal would be about providing a benefit for the customer. It could be something like:

1) I will save the customer time;

2) I will make the customer’s life easier;

3) I will improve the customer’s standard of living;

4) I will reduce the customer’s down time;

The idea is to form a goal around improving a particular part of your customer’s life. If you truly have a way to improve the customer’s life, they will give you their business. The sales will come naturally, without having to resort to the tricks like I mentioned above. This creates a sustainable business where customers come back because they want to, not because you bribed them or tricked them into coming.

With my resume, I was told to take out phrases that implied “hire me because I’m wonderful” and replace them with phrases which implied “hire me because this is how I can make your company better.” Similarly, instead of saying “my goal is to be great” in your mission statement, say “my goal is to benefit from focusing on making my customers’ lives better.”

2. Means (How Does My Business Model Allow Me to Please the Customer?)
Bad resumes just say how great the person is and list the duties the person had at previous jobs. The experts say that instead of focusing on duties, focus on “transferrable skills.” These are the things I am able to do that would work well at the new company. These skills are the means by which I achieved success at the old firms and can also bring success at the new firms.

This also applies to mission statements. It’s one thing to say you are oriented towards helping your customers solve problems. It’s quite another to have a business plans which provides the means to accomplish this goal (profitably). It is the skills you use to satisfy the customers.

Therefore, a business mission should also outline the means by which your company will win at serving its customers. These are the company’s skills which allow it to do a better job than the competition.

For example, one could say that their business mission is to “save their customers time by bundling all their entertainment needs into one convenient package.” So the end is saving customers time and the means is though the ease of providing it all in one bundle.

There are many ways to save a customer time. If you don’t pick one, the company will lack focus and waste its effort by moving in too many directions. Pick the means where you have the best chance of winning.

SUMMARY
A good mission statement is like a good resume. It communicates two things: the ends (what I can do for my customers) and the means (the unique skill-set and business model which makes it possible to profitably deliver the ends better than the competition). The final statement would generically look something like this:

My mission is to provide “X” solution to my customers by doing “Y” better than anyone else.

That provides a lot more strategic direction than saying “my goal is to be great.”

FINAL THOUGHTS
Resumes are short. Business missions should be short at well.

Strategic Planning Analogy #299: Work Worth Doing

THE STORY
Many years ago, just before I was to receive my MBA, I met someone I did not know in the hallway at the University. He was also about to graduate.

Although I was trying to ignore him, he came up to me and started talking with a big grin on his face.

He said, “Do you know why I am graduating with a degree in accounting and getting a CPA?” He didn’t wait for a response and immediately answered his own question, “Accountants get one of the highest starting salaries right out of business school, and people who make the most money get the most sex.”

THE ANALOGY
Here was someone who had a personal “strategic” plan. However, it seemed a little bit one-sided to me. It was all about what was in it for him (money and sex). There didn’t seem to be much concern for the people who would be paying him that money or the people he would have sex with.

At some point, I would suspect that if the only reason he was an accountant was for the money (and he had no love for the profession) that the joy of money would decline and the hatred of accounting would increase. Similarly, if he was only able to get sex because of the money, then over time the joy of the sex would decline and the futility of the meaninglessness of that sex would increase.

This individual’s focus appeared to go straight to the ends (money and sex) without considering the means (the nature of the work and the quality of the intimate relationship). Over time, I think he will lose some of the joy for those ends because of not attaining them in a meaningful or satisfying manner.

This can also happen in business strategies. If the focus of the strategy is on one-sided ends (e.g., get huge bonuses, put big numbers on the bottom line) and ignores the means of how to get there (what the business does), it can lead to a long-term disaster.

THE PRINCIPLE
The principle here is that long-term success is more likely if you focus on the “means” rather than the “ends.” Therefore, strategic plans need to focus more on the means than the ends.

For most “for profit” enterprises, the end is to grow profits, i.e. make more money and improve the return on investment. Although this is not a bad goal per se, it is a lousy strategic focus.

A strategic mission statement saying, “We want to make a lot of money” is not very useful. It provides no guidance as to what to do. It doesn’t rally the troops around a particular type of work. And worst of all, it does not provide an incentive for potential customers to give you their money.

Business is a two-way street. In order to sell something, someone else has to purchase it. These purchasers typically have multiple options. They do not have to give you their business. They can give it to someone else. If your strategy does not focus on a way to get customers to prefer you, that ultimate goal of making lots of money won’t happen.

This is especially true today. Consumers are so angry at the perceived greed of business people, that they now are expecting even more accountability from them. More than ever, they want to patronize companies that have a social conscience, who are good corporate citizens. And thanks to the internet, they will find out how sincere you are. You cannot hide. The type of corporate citizen you are will help determine whether they buy from you. This is not a fad. This is part of the new normal.

That is why one of the most important strategic questions you can ask is “What can we do for our customers that will cause them to prefer us over their spending alternatives?” You can see this line of thinking in Proctor & Gamble’s new mission statement—“to touch and improve more people’s lives, in more parts of the world, more completely.”

This new mission has opened up a world of new sources of profits to P&G in places where they never went before. As C.K. Prahalad shows in his book “The Fortune at the Bottom of the Pyramid,” there are a lot of profits to be made among the poor if you focus on ways to improve their lot in life. This is what P&G is doing. But it only works if your focus is on bettering the poor rather than bettering yourself.

Here is the great irony. The more your strategic effort focuses on your customers (and the less it focuses on your rewards), the greater your rewards tend to be. There are three reasons for this.

1. Right Focus
When you focus on what the customer wants, you end up focusing on the “means”—the nature and process of what you do. You look for ways to meet the customer’s needs and desires. And when customers see you as the better alternative for them, they will give you their money.

Strategy is about helping you figure out what to do. Do the right things and the rewards will come. The right thing to do is to create a positive differentiation versus your competition on attributes important to a potential customer segment. This comes from focusing on what you do for others.

Unfortunately, this is not what all strategic planning processes do. I’ve seen businesses use their strategic planning session primarily to set a numeric goal as to how much money they want to make. The discussion is around how big of a number (Sales, Profits, Return on Investment, EVA) they want to achieve by a certain point in time in the future.

This is selfish one-way thinking. Just because you can build an elaborate spreadsheet and graphs showing what this type of goal looks like does not mean it will automatically happen.

What I’ve seen happen is panic set in when the company gets close to the goal year and is nowhere near hitting the numeric goal (because the plan never focused on the means for achieving the goal). Desperate measures are taken to hit the numbers. These desperate measures rarely lead to long-term success.

The better focus is to set goals for specific operational outcomes that are customer-centric (improving quality, reducing costs, improving the business model, adding features, etc.). The idea is to focus on making a better two-way street. Focus on finding ways making customers prefer you, and the ends will come.

2. Right People
If the only thing you offer people is a means to satisfy their greed, then you will attract greedy people. Overly greedy people tend to destroy the long-term viability of a firm. I saw a study several years ago which asked investment bankers if they would still be in that profession if it stopped paying exorbitant wages. Over 80% said no. They were only there for the money. They didn’t care much about the products they dealt with, the risks they took or the people getting mortgages they couldn’t afford or the people insuring those risks. And that attitude I believe had a lot to do with how we got into the big financial mess we are in today.

I was talking to an executive of Enron before its demise. We were discussing how Enron expected very high levels of effort, but rewarded people very well if they succeeded. I asked him if it was difficult to get people like that. He said that most of their hires came from investment banking and were used to that type of culture. Well, we saw what happened when you get too many people of that attitude at Enron.

However, if everyone sees you as a company focused first on the customer, you will attract the people who like putting the customer first. These are the people who are most useful in building a strong, lasting company, a place where customers want to spend their money.

3. Right Motivation
What do you think motivates the rank and file employee more—lining the pockets of the top executives with big bonuses, or making the world a better place? P&G’s new mission talks about making the world a better place. So do many other firms (see this prior blog for examples).

A noble purpose causes people to care more about what they do. When they care more, they tend to perform better. There is a greater motivation to do well, because it has more meaning to what is being done.

Strategic mission statements should provide that type of inspirational motivation, because people highly motivated to serve customers tends to lead to great results.

SUMMARY
If you want great financial results, don’t focus your strategic planning process on getting great financial results. Instead, focus on how to give customers greater benefits than they can get anywhere else. Customers are the ones who control much of your financial success. If you convince them that you are their best option, they will give you their money (making you financially successful).

FINAL THOUGHTS
This Christmas season brings to mind the idea of giving. If you keep this giving attitude all year ‘round, you have the foundation for a successful plan.