Strategic Planning Analogy #524: Forgetting Our Spouses

THE STORY
Back when I was a young boy, my dad used to spend a lot of time driving across the state of Michigan to take care of things for his mother (my grandmother). Sometimes he would take the trips alone. Sometimes he’d take me and my sister along. Sometimes my mom would come along.

I remember one time when we were done visiting my grandmother. My dad was getting ready to begin the two to three hour drive back home. As he started to back down the driveway, I yelled, “STOP!”

My dad stopped the car. Then I said, “Aren’t you forgetting something?”

As my dad sat there trying to figure out what he was forgetting, my mom came out of the house and headed towards the car to go home.

If I had not been there, my dad would have gone home without my mother. And I’ll bet she would have been pretty mad about it.

THE ANALOGY
Businesses can cover a lot of topics as part of their strategic planning. They can look at internal strengths and weaknesses. They can look at their industry, their competition, the economy, and so on.

But how often do they look at the spouses of their key leaders?

Businesses can be like my dad, who was so focused on getting the job done that he was going to forget his wife and leave her feeling abandoned. In the long run, you know that would not have been a good thing for their marriage. And it could curtail the number of future trips my dad made.

The same idea applies to businesses. If they shut-out the spouses and act as if they do not exist, they can create an environment where their leaders are under unnecessary additional stress and become less productive. Their spouses could even talk these leaders into leaving the company if it gets bad enough.

It’s hard enough to implement change in a company when everything else is running smoothly. But if your leaders are undergoing significant stress in the rest of their life, it will impact what they can contribute to the company.

Therefore, don’t forget the spouses as you drive the company down new roads.

THE PRINCIPLE
The principle here is that strategies are implemented by people. And if the external lives of these people are all messed up, then they will be less effective at implementing the strategy. Therefore, do not create a strategy process which needlessly contributes to the stresses of the external lives of those implementing the strategy.

1) The Entrepreneurial Test

Two stories come to mind when I think about this principle. The first story is about a time when I was considering leaving the corporate world and buying a franchise to run. A franchise broker gave me a test. The purpose of the test was to see if I was a good candidate for running a franchise.

After taking the test, I added up my score. If I got an extremely high score, it meant that I would be such a successful entrepreneur that I would not need a franchise to succeed. If I got a score in the wide middle ground, it meant I could succeed in my own business, but only with the help of a franchise. If I got a low score, it meant that I was not cut out for business ownership and should remain an employee in the big corporate world.

One of the more important factors which helped determine your score had to do with friends and family. If you thought you would have the full support and endorsement of friends and family in your business venture, you score went up. If not, your score went down.

The point was that it can be stressful and time consuming to start up a business. If you do not have the support of the people in your lives, you probably succumb to the pressures and quit. Failure is more likely to be your outcome.

I think a similar effect can take place with leaders in a business undergoing strategic change. It is a stressful and time consuming event. If the ones doing the work are not getting support from their outside circle of influence, they will be more likely to fail in their part of implementing the strategic change.

2) Best Buy

My second thought turns to Dick Schulze, the founder of Best Buy Co. Starting by selling audio equipment out of the trunk of his car, Dick created a large and successful corporation. Dick would tell you that a large contributor to that success was the love and support of his wife Sandy.

To quote from Dick’s autobiography, “Without Sandy, and her unflagging support of me and her participation in every aspect of our operation, Best Buy would not be the company it is today.”

Two important aspects of Best Buy’s success can be seen here. First, Dick did not forget his wife as he drove the company forward. Sandy was kept in the loop so that she had an emotional attachment to the business as well. Second, Sandy supported her husband in a way that made it easier for Dick to do what it took to succeed.

For example, when Dick was about to mortgage everything he had to start his business, he went to his wife for support. Sandy responded by saying, “You’ve learned a lot already. You’ll land on your feet.” That support allowed Dick to put together the seed money to get his business started and that support got him through the long hours and stress that come with building a business. I dare say that if Dick did had not kept Sandy in the loop and gotten her support, there would not have been a Best Buy Company.

3) Implications

So how can we apply this to taking a business through strategic change? First, we need to identify ways to make sure our leader’s spouses are partners in the effort rather than enemies of the effort. We need to find ways to get them emotionally involved with what is going on…so that they have a vested interest in its success. They need to feel like partners in the car going on the journey rather than forgotten like what happened to my mom.

How much do you even know about the lives of your leaders outside the office? Are you aware of the support (or lack thereof) that they are receiving at home? Have you ever met their spouses? Have you ever personally acknowledged and rewarded the spouses for the support they gave to their spouse?

Second, we can help rectify some of the issues which can cause unnecessary stress in the lives of the employees we count on. How many company policies do you have which can help minimize life stresses and free employees to be more productive? Benefits like on-site daycare, flex-scheduling and concierge services could make a world of difference in keeping the type of life balance needed for healthy, productive employees.

You wouldn’t want to fill your factory with broken-down tools. Similarly, you wouldn’t want to fill your company with broken-down people. Help them heal. The gratitude will pay back itself many times over.

SUMMARY
Strategic planning often has to deal with implementing major change initiatives. These efforts can be very stressful and time-consuming. If the lives of the people implementing the change have too much stress in their lives and lack the proper support at home, the change effort is likely to fail. Therefore, companies have a stake in ensuring that home life and stress levels are kept healthy. This requires an active effort to reduce stress and increase support from spouses.

FINAL THOUGHTS
An idea may look good on paper, but it really isn’t useful until successfully implemented. Pay attention to ALL the impediments of implementation, which include the emotional well-being of your employees.

Proof That Strategic Planning Works

It is hard enough to do great strategic planning work when everyone is committed to the idea. Trying to do it in a place where the idea of strategic planning is not well respected is virtually impossible. Yes, we’ve talked in the past about stealth strategy, a way to get people talking about strategy in place where the concept of “strategy” is not well accepted (look here, here, here, and here). But the best results come from strong commitment to the strategic process.

If you want proof, look to Caterpillar. There was a great article about Caterpillar in the 2011 edition of the Fortune 500 issue of Fortune magazine. Please read the article, which can be found by clicking here.

Caterpillar has been one of the best performing companies in the entire world over the past couple of years. This article explains why. The reason for their success can be explained in three words: great strategic planning.

STEP #1: DEEP UNDERSTANDING
In October of 2009, Caterpillar announced that CEO Jim Owens would retire in April of the following year and that he would be replaced by Doug Oberhelman. In those six months between being announced as the replacement and taking over as CEO, Oberhelmen spent virtually 100% of that time on strategy. He even enlisted 16 others to help him on this six month strategic journey. They dug deep and fully dissected the company until they had a clear picture of who they were and what worked.

According to Oberhelman, “We put everything on the table—good, bad, and ugly. We've gone into a lot of different businesses over the last 20 years. We said, ‘What really is our business model, and how do we want to make money?’”

This clarity allowed Caterpillar to know what to focus on, where to invest, and how to operate.

How many CEOs do you know who have dedicated 6 consecutive months to strategy? How many CEOs have a deep, deep understanding of their business model and which triggers are most critical to success? If you don’t do the preparation homework in advance like Caterpillar, then you will not have the foundation to allow you to act quickly as opportunities and events arise.

This is similar to an example in the late 1950s when Harry Cunningham found out he was going to be running the S.S. Kresge variety store chain in about a year. He spent nearly all of that time prior to taking over thinking about strategy. His conclusion was that Kresge needed to abandon its old variety store business model and invent an entirely new one—the discount department store model. As a result, he converted Kresge into Kmart, which became one of the most successful companies of his era.

Before jumping into action, take the time to gain a deep understanding. This provides two benefits—a knowledge of what actions to take, and the ability to act quickly when opportunities arise, since you already know which action do and don’t fit with success.

STEP #2: PREPAREDNESS
Back in 2005, the economy was pretty strong and Caterpillar was doing fairly well. Although things were going pretty well, Caterpillar thought this to be the perfect time to prepare for the absolute worst. They called this the “trough strategy”—what do you do if suddenly 80% of your sales go away?

Every division needed to create a strategic plan to maintain cash flow and protect the balance sheet under such a dire scenario.

Guess what? At the end of 2008, such a crisis scenario came to pass. Because the hard work of developing a trough strategy had already been done, Caterpillar could quickly execute the strategy, which allowed them to come out of the great recession with strong cash flow and a strong balance sheet.

How prepared is your company for various scenarios? If an unexpected scenario came to pass, how long would it take your company to react and adjust? How much valuable time would be wasted because you were not prepared?

STEP #3: AWARENESS
Having a strategy for various scenarios is not of much use if you do not know when to use them. Therefore, Caterpillar searched for leading indicator triggers of change. They then monitored these leading indicators to make sure they had as much advance notice as necessary of impending change.

These leading indicators warned Caterpillar of the coming great recession as early as the fall of 2007. This early awareness made it easier to shift strategic gears when the crisis came a year later.

How aware is your company of impending change?

STEP #4: EXECUTION
Having plans is one thing. Executing them is another. Not only did Caterpillar devote the necessary time and energy to implementing the trough strategy well during the recession, they also executed well on the post-recession strategy. Because of what Oberhelman learned in his six months of strategic preparedness, he knew exactly what needed to be done after the recession. Coming out of the recession, Caterpillar quickly made a number of key acquisitions which just made their strengths even stronger.

They acted quickly and aggressively because they had the confidence which comes from a deep understanding of what needs to be done to succeed under their business model.

How confident is your team about knowing the types of actions which will improve your strategic position?

SUMMARY
If you want proof of the importance of Strategic Planning to corporate success, look to the example of Caterpillar. They are one of the most successful companies on the planet today because of their strong commitment to strategic planning. This commitment gave the company the understanding, preparation, awareness and execution necessary to produce this success. If you want a similar level of success, consider having a similar level of commitment to strategic planning.

Strategic Planning Analogy #300: On a Mission

STORY
There’s an old story about a man watching workers build a church. He goes up to each of the workers to ask what they are doing.

The first worker says he is laying bricks. The second worker says he is laying panels for the floor. The third worker says he is building a place to worship and glorify God.

Guess which worker is probably doing the best quality of work.

THE ANALOGY
All three workers were doing a small part to help build a church. But they viewed the nature of their work differently. Two defined their work by the particular task they were doing—laying bricks or laying a floor. One, however, saw the big picture and defined his work a being part of what he viewed as a noble cause—building a place to glorify God. And of course, the one with the nobler definition of his work is the one who will tend to produce the greatest outcome, because he sees a deeper importance/significance to his performance.

Businesses have the strategic option of defining themselves just like these workers. They can define the work as being a mundane task—like manufacturing widgets—or as part of a larger, more noble task—like making the world a better place.

And the more you imbue a task with a noble purpose, the better off you tend to be. Strategic planning has an important roll in helping to frame a company’s mission so that it imbues the business with a noble purpose.

THE PRINCIPLE
The principle here is that companies with a noble business mission can tap into benefits than mundane missions cannot.

1) Additional Sources of Revenue
Noble companies have three additional sources of revenue. First, they can typically charge more for their products. According to the 2009 Corporate Citizenship Study, people are willing to pay more for products from socially responsible companies. Forty percent said they would spend between 1% and 10% more for a product from a socially responsible company.

Consider TOMS Shoes. TOMS Shoes was founded on a simple, noble premise: With every pair you purchase, TOMS will give a pair of new shoes to a child in need—one for one. To this, they also add the idea of having vegan shoes—no leather (save a cow).

TOMS’ shoes are not cheap. Their simple canvas shoes are about $50. I can go to Wal-Mart or Target and get a simple canvas shoe for half that price (or even less). Yet people are willing to pay a premium for a TOMS shoe. Why? They like the noble idea that whenever they buy a shoe, a person in need gets a free shoe. That is worth a premium price.

Second, a noble cause provides new sources of revenue. Who says you have to earn all of your income from your purchase price? That purchase price can be subsidized with additional income from other sources.

Consider many cause-related media companies. It is getting harder to be profitable in the magazine business these days. Many publications are calling it quits and shutting down because subscription and ad revenues are not enough to remain profitable. However, one cause-related magazine I subscribe to has started a new campaign with its subscribers. It is touting the noble purpose of the publication and asking for additional donations beyond the regular subscription price. It says that it is worth giving extra to keep the noble magazine and its important message in business. I’m sure that extra money is coming in. This is something that a mundane magazine cannot tap into.

If your cause is really noble, there are opportunities to tap into government funds, charitable funds/endowments, or sponsorship ties with other companies that will pay you in order to associate themselves with your noble endeavor.

An example would be St. Jude’s Children’s Research Hospital. In many ways, it is a hospital just like any other hospital. Yet, on top of this, they have imbued a greater sense of nobility to the hospital business. It does more cutting edge research and never turns away a child due to an inability to pay.

As a result, St. Jude’s taps into a lot of additional revenue sources more successfully than many other hospitals. It is strongly promoted by many in the acting community. It has a nationwide charitable program. It has a partnership program with many retailers, including Target, Kmart, CVS, Williams-Sonoma, Dollar General, Brooks Brothers and others.

The third revenue benefit of a noble mission is that there are the added revenues which come from having loyal customers who volunteer to be an advocate for your company. TOMS, for example, has a DVD describing their noble cause and encourages customers to hold DVD parties at their homes to spread the word. TOMS also encourages and helps customers set up parties in their homes to customize and decorate TOMS shoes. On April 8, 2010, they are encouraging customers to bring attention to the noble cause by going a day barefoot. And of course, there are all the web 2.0 opportunities with Twitter, Facebook and the like to build a strong, loyal TOMS community.

Loyal customers will buy more from you and act as evangelists to get others to buy from you as well. And this loyalty is stronger, the more noble the mission of the company.

2) Additional Ways to Lower Costs
Not only does increased nobility improve the top line. It can also reduce costs, further improving the bottom line.

Going back to the 2009 Corporate Citizenship Study, they found that people highly value the idea of working for a socially responsible company. Fifty-six percent said that it would make a positive difference for them. Even more telling, 40% said they would be willing to take a small pay cut to work for a socially responsible company.

For years, private schools with noble causes (principally religion-based) have traditionally paid their teachers less than those working for public schools. This idea does not have to be limited to just schools. Bring a greater nobility to the cause at your business. Not only are the employees who desire to work at noble companies more motivated, you do not have to pay top dollar to get them. The privilege of spending the day feeling a part of a larger, more noble purpose is worth sacrificing for.

This idea can also be used as leverage with your suppliers to negotiate lower costs. They may give you a break if they realize that their lower price to you is contributing to a greater noble cause.

Finding Your Nobility
Perhaps your sense of nobility is not as great as what was seen in some of these examples. But that doesn’t mean that you cannot change your business model to become more noble. St. Jude could have used a more conventional hospital business model, but they chose not to. You can change your business model to become more noble as well.

You could perhaps do a one for one program like TOMS on your product/service. You could be like Target, who gives 5% of its income to charities in the markets where it has stores. Best Buy is getting more involved in sustainability issues with the products it sells, accepting returns of old electronics items and working with its suppliers to help design more sustainable products. Wal-Mart is getting ever more active in environmental causes. The change in Wal-Mart’s reputation has improved significantly once they took a more noble approach and I believe it has helped them in many ways. The list goes on.

The way you define your strategic mission has a lot to do with how your employees, customers and other stakeholders view the company. It can not only change the perception, but also the reality of how noble a company you really are.

Consider these mission statements:

Google: To organize the world's information and make it universally accessible and useful.

Proctor & Gamble: Provide branded products and services of superior quality and value that improve the lives of the world's consumers, now and for generations to come.

Johnson & Johnson: To provide scientifically sound, high quality products and services to help heal, cure disease and improve the quality of life

Herman Miller: Herman Miller, Inc., works for a better world around you. We do this by designing furnishings and related services that improve the human experience wherever people work, heal, learn, and live.

And it cannot just be hollow lip service. The mission needs to be more than just words on paper. It has to be lived every day by senior management, supported by where the capital is spent, evidenced in how employees and customers are treated, and a key element of the discussion on all major decisions. In other words, it must be fundamental to the strategy. If done properly, not only will you do well (quality of social responsibility), but you should also do well (enduring, profitable company).

SUMMARY
Companies with noble missions have access to many advantages. Customers are more loyal and act as advocates for your company. You can get away from competing only on price (and perhaps raise prices a little). You can tap into more sources of revenue. You can attract highly motivated workers who do not necessarily need to be paid top dollar. And you can feel good about not only building a strong business, but also a better world.

FINAL THOUGHTS
Now you may be saying to yourself that your business really is rather mundane and that there is not a lot of nobility in what goes on. Yet consider the investment banking industry. Currently, many see investment bankers as the scum of the earth. Large sectors of the population see nothing noble in the way they operate.

However, listen to the way Goldman Sachs CEO Lloyd Blankfein defines his work (from The Sunday Times, November 8, 2009). “We’re very important. We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle. We have a social purpose.” He is, he says, just a banker “doing God’s work.” (something like the attitude of the church builder in our story?)

I’m not saying that you need to agree with Blankfein’s assessment. However, if he can find a way to put such a noble spin on what he does, I would think that you can do the same for your business.

Strategic Planning Analogy #281: The Magic Hammer

THE STORY
Bob was giving Joe a tour of his office building. In the center of the main entryway was a fancy display case. Inside the display case was a hammer.

Bob was very proud of this hammer. He made sure that seeing the hammer up close was the first part of the tour.

“This is the finest hammer ever created,” beamed Bob. “All the research says that if you want to succeed in my industry, you need a great hammer. Since I want to succeed, I bought myself the greatest hammer in the world.”

Joe was a little perplexed. He asked Bob, “If you keep this hammer locked up in a display case, how can it help improve your business?”

Bob replied, “The research said that having better hammers leads to better success. If I went and used this hammer out in the field, the hammer would get worn out. Its condition would deteriorate from what it is now. It would become a lesser hammer. Why would I want to make this a lesser hammer if the research says that better hammers are the ones which lead to success?”

At this point, Joe could see that further discussion about the hammer would be useless, so he asked Bob to show him the rest of the office building.

Bob sighed and said, “There really isn’t much left to show you. I declared bankruptcy last week and sold off all of the office equipment in an auction.”

THE ANALOGY
A hammer is a tool, not some sort of magical charm. For a tool to be useful, it needs to be used properly. Just having the tool on display won’t do much good. It doesn’t provide magical success merely from its presence.

Although Bob owned the hammer that could potentially bring success, his company failed, because he did not properly use the hammer.

In the business world, there are hundreds of management tools available. There are also lots of books and consultants out their proclaiming that their particular management tool is just what you need to be successful. Lots of these books are purchased and lots of these consultants are hired. Yet many companies continue to fail.

Apparently, Bob is not the only one having trouble getting the promised success out of tools. Perhaps, like Bob, we are not using the tools properly.

THE PRINCIPLE
The principle here is my universal law of management tools. It goes as follows: For every management tool available, you can examine the marketplace and find companies falling into each of these four categories:

1) Firms using the tool who are successful.
2) Firms using the tool who are not successful.
3) Firms not using the tool who are successful.
4) Firms not using the tool who are not successful.

For example, I can find firms using centralization that are both successful and unsuccessful. Similarly, I can also find firms using the opposite approach (i.e., decentralization) that are both successful and unsuccessful.

In other words, any given management tool is not a magical charm that makes every company who touches it successful. If used properly, it may be able to help you, but even that is no guarantee. The correlation between any tool and success is typically very weak.

Therefore, when developing strategies, do not make obtaining a particular management tool the centerpiece of the strategy. Your ultimate goal is the quality of what you put in the bank account (profits), not what you put in the toolbox (tools). Good tools are nice, but your strategic approach should give a higher priority to the following three areas:

1) Place
Which of the two petroleum industry scenarios do you think will be most successful:

1) Using mediocre tools to drill into a huge reserve of oil; or
2) Using the highest quality tools to drill into an area devoid of any oil.

Naturally, if you want to be a successful oil producer, you need to apply your tools to places where the oil exists. Good tools help, but if you are located in the wrong place, those tools will not prevent your failure.

Strategy guru Michael Porter says that one of the most important steps in strategy is your choice of place—where you have decided to set up your business model. Not all places are created equal. Some are naturally better suited for success than others.

Some industries have high average profits, while others tend to be perpetually bad for everyone nearly all the time. Some sectors within industries tend to do a better job of absorbing the profitability of their ecosystem than others. Some business propositions (positions) tend to be more compelling than others.

Choosing a poor position in a poor sector of a poor industry will almost guarantee failure, no matter how good your management tools are. Jack Welch was known for using a lot of management tools at GE. However, a great deal of his success was due to identifying places in the GE portfolio where they had little chance for success (typically where they had no chance of being a leader) and divesting of those businesses (and reinvesting in better places). GE has continually morphed its portfolio over time so that it is in the right places (where success is easier to obtain).

As Willie Sutton put it, he robbed banks because that’s where the money was. Therefore, we need to be like Willie Sutton and first figure out where the money is. Then we need to direct our strategy so that it is pointed at that pool of money. Only after making this major decision should we worry about the tools.

2) People
If you give an axe to a skilled lumberjack, you will get a better result than if you give that same axe to an axe murderer. The tool is only as good as the person using it. Poor operators lead to poor results.

In developing your strategy, how much attention is focused on strategies for finding, obtaining, training and keeping the best people? Is it a higher priority than strategies for getting in place the latest management tool?

Online retailer Zappos put nearly all of its energy from day one into optimizing the people side of the business. It let them grow from nothing to being acquired by Amazon for a little under a billion dollars after only a few years in business.

If you truly believe that people are the key to your success, then that should show up as a priority in your strategy formation.

3) Practice
Great companies tend to be perceived as best at delivering a desirable benefit. Becoming the best is typically not an accident. It comes from a continual focus on that point of superiority.

Practice makes perfect. So to keep your edge, keep working the area that makes you great. Get even better, so that others are never able to catch up. Wal-Mart wins by being best at price. It innovates new ways to help it lower prices even more, so that others cannot catch up.

Focusing on the goal of getting better at what you are best at is more important than focusing on the latest management fad. Fads come and go. True staying power comes from staying true to your point of differentiation.

SUMMARY
The correlation between any management tool and success is weak. You can find both successes and failures with virtually all the management tools. Therefore, don’t focus too much strategic energy on getting the latest management tool. Instead, focus on matters more critical to success, such as place (where you choose to position yourself), people (getting, keeping), and practice (getting better at what you are best at).

FINAL THOUGHTS
Beware of magicians trying to sell you their magic hammer.

Strategic Planning Analogy #274: Painting a New Name on the Ambulance

THE STORY
I used to live in a city where the citizens were upset with the ambulance service. The ambulance drivers were accused of being incompetent and dangerous, causing far too many accidents.

In response to citizen protests, the city suspended the license of this ambulance company and replaced them with a different ambulance company.

Unfortunately, this new ambulance company did not have any other operations in the immediate vicinity. Therefore, they needed to hire ambulance drivers in order to serve this city. As it turns out, pretty much the only people in the area who were qualified to drive an ambulance were the former drivers for the ambulance company which just lost its license. Consequently, most of the drivers for the new ambulance company were those same “incompetent and dangerous” drivers that worked for the old company.

So, other than a new name painted on the outside of the ambulance, we were pretty much back to where we started. So much for progress.

THE ANALOGY
In the story, the city tried to improve the performance of the ambulances. To do so, it changed ambulance companies. Unfortunately, what didn’t change were the people driving the ambulances. Since the poor drivers were the cause of the problem, the change in ambulance companies did not solve the problem. The only thing that changed was the name painted on the ambulance.

Many businesses fall into the same trap as this city. They develop strategies intended to change things for the better. However, because the underlying people and processes stay essentially the same, the situation does not get any better. It’s business-as-usual under a different label. These company strategies are about as useless as the idea that painting a new name on the ambulance is going to make those drivers any safer.

THE PRINCIPLE
The principle here is that significant changes in performance require significant changes in how things are performed. I know this sounds obvious, but actions like what happened with those ambulances seem to occur all the time. We put a new label on something and expect miracles. Concentrate more on labor (what they do) than labels (what they’re called).

This problem seems most acute under two situations: acquisitions and revitalization initiatives.

1) Acquisitions
When you are acquiring a company, you typically have to pay a significant premium price (over current market value) in order to get the deal done. This leads to an important question: What is your company going to do with those assets that is going to make them so much more valuable in order to justify that premium price?

Let’s face it. The current owners probably know a lot more about the company than you do. They are typically already working very hard to extract as much value out of it as they can. And, except for maybe a few people at the top, you are going to keep the same basic people that worked there prior to the acquisition. So why do you, as an outsider, think that the same basic organization is going to perform so much better just because you painted your name on the building?

Sure, people talk about all the “synergies” of putting the acquired company together with their own. My experience is that one never gets as many synergies as hoped for. Either the cultures don’t mesh or fewer things can be eliminated than planned. As mentioned in an earlier blog, using common shared services across multiple divisions quite often causes more net costs than savings. Unless you are planning on running the company significantly differently than before (and I truly mean SIGNIFICANTLY different), you won’t get much of a significant improvement.

Take the recent acquisition of Marvel by Disney. Disney paid a ton of money to get the company (a 29% premium over current value). Will Disney run the company significantly differently than the prior owners? Well, Marvel already was exploiting the value of its characters in movies, merchandise and theme parks (the very things Disney would do). In fact, one could argue that those prior contractual arrangements could make it more difficult for Disney to exploit them under the Disney umbrella.

And is Disney going to get rid of all the Marvel people? Of course not! Disney wants their creativity.

So, other than perhaps executing the prior strategy a little bit better, has Disney done much more than just “paint their name on the ambulance”? Even if they make Marvel 29% better, all they will have done is break even on the deal.

Let’s assume for second that Marvel was horrible at exploiting their assets, leaving huge potential for Disney. Typically, when a company is not doing well in exploiting their assets, astute investors assume that potential acquiring companies will also recognize this potential. These investors assume that eventually one of these firms will acquire the company to better exploit those assets.

As a result, the investors will often bid up the current price of a company ripe for acquisition to include a “potential acquisition premium.” Hence, when the acquirer pays a premium over the current value, they may be paying a premium on top of a premium already embedded in the stock price.

Make sure that when you put an acquisition into your strategy, you specifically outline in that strategy enough changes to that company in order to create enough value to justify the price. Otherwise, all you are doing is painting your name on their ambulance. For more on this topic, see this prior blog.

2) Revitalization Initiatives
In addition to acquisitions, strategies also often deal with revitalizing problem areas in a company’s current portfolio. These revitalization programs are often given fancy names, like “Vision 2020” (If you don’t believe me, just Google “Vision 2020” and see how many firms use that label for their strategic initiative).

The goal is to revitalize performance. However, these initiatives often try to create this revitalization using the same basic people whose poor performance created the need for revitalization in the first place. As we saw in the ambulance story, often times the people are one of the main causes of the original problem. Unless the people (or the culture surrounding the people) are radically changed, why should one expect revitalization?

This reminds me of an interesting story. Years ago, I worked for a firm that was having a sales slump due to a recession. The president of the company asked every employee to send him suggestions on new ideas to improve sales. One person replied, “Do you really think I was holding back on good ideas to increase sales until you asked for them? I’m already doing everything I can to increase sales.”

The point is that most employees are not worthless bums. They are generally good people already trying to help the company do well. Putting a new label on what they do is not going to suddenly make them significantly better. They are already putting in the effort. Unless you significantly change the quality of the people or the nature of the work process, you will get only minimal, short-lived improvement. All you have done is paint a new slogan on an old ambulance.

SUMMARY
Significant gains require significant change. If one has the same people doing essentially the same work, one should not expect much of an improvement. Just changing the label doesn’t change the results.

FINAL THOUGHTS
A pig is still a pig, not matter what you call it.

Strategic Planning Analogy #248: People Investment

THE STORY
Imagine a conversation between Bob, the VP of Operations, and Kal, his boss.

Bob: “I’m building a new factory in St. Louis.”

Kal: “Why?”

Bob: “Well, we’ve always had a factory in St. Louis in the past, so I suppose it must be necessary.”

Kal: “Have you done the math to determine if the factory provides a good return on investment?”

Bob: “No, but I checked and we have enough money in the capital budget to build it.”

Kal: “What will the factory be used for?”

Bob: “I’ve got this old piece of paper in the files describing what the old factory used to do many years ago. I know it’s a bit out of date, but we’ll update it as we go along after the new factory is built.”

Remind me not to invest my money in this company.

THE ANALOGY
Factories are important investments. The decision to build a new factory should go through the rigor of strategic and financial planning. Is the factory needed to meet our strategy? Can we justify the financial investment? How do we optimize the factory to support the strategy?

In the story above, Bob did not seem to have a clue about how the factory tied in to any strategy. He didn’t even know how the factory tied into profits. His rationale was that we always had such a factory, and we could afford to build it, so we should build it. That’s not very good justification. Kal should not put up with such behavior.

A lot of firms claim that their most important asset is their people—more important than factories. Yet, many companies put a lot more strategic effort into factories than they do into their people. What if we took that same conversation above and applied it to people?

Bob: “I’m hiring a new person in Accounting.”

Kal: “Why?”

Bob: “Well, we’ve always had a person in this position in accounting in the past, so I suppose it must be necessary.”

Kal: “Have you done the math to determine if hiring this person provides a good return on investment?”

Bob: “No, but I checked and we have enough money in the accounting payroll budget to cover it.”

Kal: “What will this new person do?”

Bob: “I’ve got this old job description in the files describing what the position used to do many years ago. I know it’s a bit out of date, but we’ll update it as we go along after the new person is hired.”

As strange as that conversation sounded when it was about a factory, it sadly seems a bit more common when it involves people.

THE PRINCIPLE
The principle here has to do with investment. Human resources are an investment, just like factories and R&D. Given the movement to a knowledge-based economy, human resources may be your most important investment. The problem is that it is not always treated like an investment.

For most other major investments, two major questions are asked before making investment decisions:

1) How does this investment help us achieve our strategy?
2) Will we get an adequate return on that investment?

1) How does this investment help us achieve our strategy?
According to a recent survey by Waston Wyatt WorkUSA, firms in the USA are not doing well on the first question—connecting individual work to the master strategy. The study claims that 51% of employees do not understand the steps their companies are taking to reach new business goals. In addition, 65% are unclear about the connection between what they do and what they earn. In other words, the link between individual work and company strategy is often missing. How can we expect this “most important resource” to help us achieve our strategy if they cannot identify any understanding of it or connection to it?

This study concludes that “three-year total returns to shareholders are three times higher at companies where employees understand corporate objectives and the ways in which jobs contribute to achieving them.” You wouldn’t build a factory without first knowing how it links to corporate objectives. Why should we treat human investments differently? It is obvious from this study that keeping our human resources in the dark hurts shareholder returns.

My experience has shown me that the collective knowledge of the team is far more valuable than just the knowledge of the leader. There have been many times when I have had an idea about how to achieve a corporate goal. I could have just ordered the team to do what I thought up (leaving them in the dark about why we are doing it). Instead, I have told the group what the ultimate goal is and asked for suggestions as to how we could achieve that goal. The suggestions from the group are often far better than my own idea.

Not only do I gain their ideas, I gain their enthusiasm. Once people understand the goal, there is greater reason and purpose to the work. As a result, there is effort placed behind the work, and a greater likelihood that the goal is achieved.

It’s hard to know if you have won a race if you do not know where the finish line is (and it takes some of the fun out of the running, too). Let the people know about what the finish line is. Then reward people based on their ability to successfully reach the finish line.

2) Will we get an adequate return on that investment?
Now, let’s move onto the second question: are you getting an appropriate return on investment for your hires? In these tough economic times, there is a lot of pressure to reduce headcount. Not all headcount has the same value. If you had a product line portfolio of 100 products that needed trimming, you wouldn’t randomly cut every fourth product from the mix. Instead, you would carefully study the financial and strategic contributions of each product and make calculated decisions. Shouldn’t people receive the same consideration?

The same principle also applies when adding employees. I’ve seen managers with the attitude that employees are a necessary evil to the business and that headcount should always be kept as low as possible. Would we say that about other investments? If you know that you can get a great return on investment by building stores or factories or whatever, you would build them. Why not do the same with people? As long as they are a positive return on investment, why not keep adding them?

When trying to get a return on investment from something like a factory, we typically do not expect to get all of the return in the first year. In addition, we expect to put in additional money over time for maintenance and upkeep—to keep the investment productive. Do we treat people the same way? Do we look at optimizing the multi-year returns? Do we invest in training to keep people at peak productivity?

SUMMARY
If you look at your human capital the same as how you look at other capital, you will probably get a higher return from that human capital. Part of this is because there will be a closer link between human activity and strategic goals. Secondly, there will be a closer link between people investment and financial returns.

FINAL THOUGHTS
At first, it may sound cold to treat people like we treat a factory. However, since it often seems like the factories get greater consideration than the people, this is actually a step up. And, as we have seen, if we bring the people into a closer link with strategy, we are actually enhancing job satisfaction—giving people a greater purpose. So, in many cases, this is actually a more compassionate approach.

Analogy #228: Fashionality

THE STORY
When I was a young teen, I really did not pay much attention to fashion. Clothing and style weren’t important to me. As one might expect, by not paying attention to fashion, I often ended up not being in fashion. As a result, other kids at school used to make fun of me and laugh at me behind my back.

Fortunately, I had some friends who would occasionally clue me in to my larger fashion faux pas. Without their help, I would have been a total social outcast.

THE ANALOGY
Most teenagers are really into fashion. Status and acceptability with teens is closely linked to your fashion statement. Make the wrong fashion moves and you are ostracized.

Fashion-consciousness is not just important to teens. It is also important to business. Virtually all products have a fashion component to them, what I call their level of “fashionability.” If you ignore the fashionability of your products, you can become the social outcast of your customer group, leading to declines in market share and profitability.

THE PRINCIPLE
The principle here is to pay heed to the “fashion triggers” of your industry. Now at this point, you may be thinking that this principle applies to clothing, perhaps, but not my business. Well, I believe that there is an element of fashionability to ALL products.

Fashionability includes those external factors which change the demand for your product (up or down), even though the performance of your product (relative to competition) remains unchanged.

For example, take a sack of potatoes. The quality, taste and nutrition value of potatoes remains relatively constant over time. Yet the demand for potatoes rise and fall over time due to external economic conditions. When the economy is bad and people feel poorer, potatoes are more “in fashion.” They are the fashionable way to “fill the tummy” when times are tight. When the economy is good and people feel wealthier, potatoes are less in fashion, with the fashion moving to better cuts of meat.

Within the potato business, organic is becoming more in fashion, so the growth segment within potatoes is in organic potatoes.

And how about those SUVs and pickup trucks made by US automakers? The quality and performance of the trucks did not suddenly plummet in 2008. In fact, the quality and performance might be even better. Yet sales of these SUVs and Pickups plummeted in 2008. Why? They became less fashionable. Higher fuel prices, the rising importance of the green movement, and a rise in “frugality chic” made these vehicles a less desirable fashion statement.

Most consumers never take their off-road SUVs off the road. The four-wheel drive feature is seldom ever used. They never need to put a ton or two of cargo into the back of a pickup. These rational quality and performance features were not the driving (pardon the pun) force behind these purchases. The SUVs and pickups were purchased as fashion statements. They made the owners feel “cool” and powerful—admired by their peer group.

Since the features did not drive the sales upward, it should not be surprising when the sales plummet even though the features actually got better. When owners of SUVs and Pickups became re-labeled as “wasteful harmers of the planet” (rather than cool and powerful), the fashion element went away (as did the sales).

Although the US automakers have done a lot of things wrong, I think one of the big mistakes has been their inability to become leaders in embracing the fashion whims of their industry. They’ve been late with small cars when small was in fashion, late with hybrid cars when that was in fashion, and so on.

If fashionability affects all products, then smart strategists should see at least a portion of their strategy as an attempt to manipulate that fashionability to their advantage. Below are some tips on how to do that:

1) Identify the fashion triggers for your product.
What factors cause your industry sales to rise and fall regardless of performance? What causes some firms in your industry to gain or lose market share regardless of relative performance? What makes some products or brands “cooler” than others? What factors make your customers look good or bad to their peers? If you can answer these questions, then you can identify the fashion triggers in your industry.

They may be economic triggers or they may be social triggers. They are whatever impacts the image of the person who purchases that product. If it is a social trigger, what puts a person on the top of their social ladder? Is it being the most innovative? the least risky? the most eco-friendly? the most caring?

You cannot manipulate what you do not understand. Get to know what the key triggers are.

2) Get In Front Emerging Fashion Trends
Fashion changes over time. What was “in” becomes “out” and vice versa. If you do not want to be a brand on the “out” you need to embrace the next new definition of what is “in.”

Being reactionary rarely works. By the time you identify the next version of “cool” already in effect in the marketplace, someone else has already captured that space. You will always be seen as a fashion laggard—a step behind and a bit out of date.

One needs to be pro-active—looking for the next big fashion trigger before the trigger is pulled. That will give you time to create the strategy which captures the moment when it arrives.

3) Manipulate Fashions to Your Advantage
Fashion triggers are not an exact science. You can influence them. Look at who you are and what you are good at. Then try to make that the right fashion statement. Heinz took a performance negative (hard to get its ketchup out of the bottle) and made it into a fashion statement (great ketchup is thick—having thick ketchup that is hard to get out of the bottle makes you look like an astute ketchup shopper).

4) Don’t Just Focus on Performance
If factors beyond performance impact sales and profitability, then don’t just look at performance. The time and effort spent to make small, incremental improvements to performance may have been better spent on improving one’s “fashion” statement.

The successful advertising campaign by Apple rarely talks about performance. Instead, it talks about why it is more fashionable to associate yourself with Apple. Yes, the ipod performs well. Microsoft’s Zune also performs well. But which makes the stronger fashion statement?

When times get tough, just improving performance may not suffice. You can make the performance of an obsolete product better, but it may still be obsolete. It may make more sense to reposition yourself on the fashion trigger.

5) Keep a Flexible Portfolio
If you put all your eggs in one basket (i.e., concentrate on only one product) then you may be screwed when that one basket goes out of favor and becomes unfashionable. Having a portfolio of products helps in many ways. First, what is in fashion with one segment may be different with other segments. Having more products allows you to better target the fashion trigger of each segment more precisely.

Second, having a portfolio increases the chance that when fashion changes, you have something else to offer which is in tune with what is “in.” Because the US automakers had pretty much abandoned small cars in their portfolio, they had little to offer when their big trucks and SUVs went out of fashion.

Third, even if you do not offer lots of options, one can benefit from having several ideas in developmental stage. That way, when the fashion changes, you can ramp up whatever developmental project is most appropriate, rather than losing the precious time from having to start from scratch.

6) Don’t Fear Cannibalization
Ford invented the minivan, but did not introduce them, because of fear that it would hurt their highly successful station wagon business. Well guess what? When Chrysler introduced the minivan, station wagons went out of fashion and Ford was hurt anyway. Ford would have been better off killing off its station wagons with its own minivan than to have another company do it to them.

Apple remains cool, in part, because it embraces cannibalization. It continually introduces new products to make the old obsolete. This helps Apple keep a strangle-hold on the cool factor and leaves no room for competitors to take it away.

SUMMARY
All products have an element of fashionality in them. If you want a successful strategy, then you need to understand how to use that fashionality to your advantage.

FINAL THOUGHTS
When I was a teen, being a geek was considered a fashion no-no. Now, geekiness is considered cool by many. Had I only been born in a different generation, I could have been naturally in fashion.

Analogy #186: Fat Cats

THE STORY
I have a cat which is terribly overweight. We try to get her to exercise, but she’d much rather just eat and sleep.

One thing the cat will do is go outside and walk around a bit. To encourage her to go outside more, we decided to reward that effort. Since her favorite reward is food, we would give her food as a reward after having spent time outside.

We wanted her to associate getting food with going out—to encourage her to go out and exercise more. Instead, she associated getting food with coming back in. So she started coming in more. Rather than spending a lot of time outside exercising, she would go out for only a few minutes and then come back in—expecting to get some food.

The cat would try to keep this routine up for awhile—go out for a couple of minutes, come back in for some food, immediately go back out for a couple of minutes, get more food, and so on. As a result of this routine, she was actually gaining weight rather than losing weight.

Obviously, this reward system had some flaws in it.

THE ANALOGY
We wanted to get the cat to exercise, but since she didn’t want to, we gave in to her food cravings to try to entice the right behavior. We did not end up getting the right behavior, because she found a loophole to fulfill her cravings without performing the right behavior. All we ended up with was a fat cat.

There are many “fat cats” in the business world as well. These are people who find a way to get excessively rich at the expense of the company without giving back much in return. We entice these people to come and stay with lots of money, because that’s what supposedly motivates them. In return, we expect to get some great productivity out of them.

However, just like my cat, they find a way to get what they want without helping to get what I want. In the end, they remain “fat cats” and I look like a big fat loser.

THE PRINCIPLE
The principle here is about getting the right linkage between motivators and desired outcomes. The closer the linkage, the higher the likelihood of success. In the case of my cat, the linkage was weak. I wanted to motivate exercise, but I did not choose a motivator directly related to exercise. I did not make exercise more exciting. I did not reduce the barriers to exercise to make it easier. I did not enhance her self-esteem through exercise.

Instead, I did the opposite. I rewarded her for stopping the exercise and coming back inside. I wanted her to become healthier, but the reward made her less healthy.

I was looking for a distant connection, where even though I did not really make exercise more appealing, I created a reward that loosely was connected to the exercise. It was so loose that she found a way to disconnect the reward from the task and get the food without the exercise.

In the business world, monetary rewards can often be just as ineffective. They are only loosely and indirectly tied to business behavior. For generations, study after study has shown that money is, at best a short-term motivator. After that, it doesn’t work well. People find loopholes to get the money without doing the desired work. Things like back-dating options or padding the budget get more attention than doing the work.

Enron failed because it relied too much on obscenely high monetary rewards to motivate behavior. To get their hands on all that money, the employees started bending the work rules. Rather than earning the money through hard work, attention moved to earning it through questionable business practices.

Shortly before the Enron meltdown, I spoke with one of their top executives about this issue. I was concerned that extremely high goals tied to extremely high monetary rewards could create people issues. He said that this practice tended to lure employees from investment banking who were used to this type of environment, so it worked fine with them. You get the type of people who are most in tune with your rewards. Enron wasn’t luring energy experts who loved the business. They were luring people who would stop at nothing to get their hands on big piles of cash.

According to Anders Dahlvig, CEO of IKEA, “Paying the highest as a strategy is a dangerous path to go on, as you only get people who are motivated by money, and they will leave when they get a better offer.” Instead, Dahlvig wants to find people who are motivated by more work-related items, so he tries to be the best at things like recognition, development and work conditions.

Marcus Buckingham at Gallop has done a lot of research into this area and agrees that they more you reward with items that are closely linked to the actual activity of work, the better off you are. Buckingham has boiled it down to 12 questions:

1. Do I know what is expected of me at work?
2. Do I have the materials and equipment that I need in order to do my work right?
3. At work, do I have the opportunity to do what I do best every day?
4. In the past seven days, have I received recognition or praise for doing good work?
5. Does my supervisor, or someone at work, seem to care about me as a person?
6. Is there someone at work who encourages my development?
7. At work, do my opinions seem to count?
8. Does the mission or purpose of my company make me feel that my job is important?
9. Are my coworkers committed to doing quality work?
10. Do I have a best friend at work?
11. In the past six months, has someone at work talked to me about my progress?
12. This past year, have I had opportunities at work to learn and grow?

If you focus on this more than the monetary rewards, you will get highly motivated employees who will give you their best. It lures the people who want a place where working well is highly valued. These are the people you want.

This is the driving force in the culture at Google. They wanted to build an environment where hard, dedicated workers want to be. They filled the campus with all sorts of perks (like food and entertainment), so that you’d want to stick around the office. They created a highly collaborative environment, where people could bond, making it even more desirable to stick around. They give freedom to pursue one’s own projects, one of the greatest motivators to the truly creative. Successful project completion is highly valued and recognized.

By using the motivators which are most tightly linked to the desired behavior, Google has a long waiting list of great people who are begging to work there.

I’ve been at places where the culture has shifted away from this to more of a money-based reward culture. The pattern is always the same. First, many of the best, most creative people leave. Of the ones who stay, they tend to be less emotionally tied to the company, so they don’t work as long or as hard. People who love the business are replaced by people who love the money. Teamwork is replaced by selfish greed. Performance suffers.

Passion is a wonderful thing. I’d take a roomful of people passionate about the business over those who are only there for a paycheck any day. Therefore, create motivations which appeal to passionate people.

Just as it’s hard to get a cat to lose weight when you bribe them with food, it’s hard to get a good work ethic when you bribe employees with non-work rewards like money. Money makes people want to leave work and enjoy spending the money. It makes people think of early retirement. And over time, it doesn’t make folks want to be better, more loyal employees.

SUMMARY
Executives frequently say that their most important asset is their people. Yet, when it comes time to develop strategies, people concerns are often just an afterthought, if mentioned at all. A key part of any good strategy should be making sure that you have the right people, properly motivated. Proper motivations try to get as tightly linked to the day to day work life as possible. This tends to have much greater success than mere cold cash.

FINAL THOUGHTS
One time, I was working at a company which had just released its proxy statement. Employees started reading the document to see how much money all the top executives where making (which, by the way, was quite a bit more than what those reading the proxy were making). Employees started complaining about the seeming pay “injustice.”

Finally, someone said that the reason the top executives make so much is because it takes that kind of money to lure that level of talent. Not being particularly impressed with these leaders, my response was, “You mean to say that if I paid less money, I could get a better level of talent?”

Sometimes, less money can actually improve the talent, provided you substitute it with something more closely linked to motivating talented leaders.