Strategic Planning Analogy #490: The Indirect Route

THE STORY

One time, I was in Chicago on a business trip with some of my co-workers. It was a nice day and we had some time on our hands, so we decided to walk to the convention center, which was only a couple of miles away.

We looked at a map and found a simple, direct street to walk down. It looked easy. What the map didn’t show was the types of neighborhoods we’d be walking through. As it turns out, that direct route took us through a pretty dangerous section of Chicago. As we kept walking, the neighborhood kept getting worse.

My co-workers were starting to fear for their lives. Having grown up in the Detroit area, I was used to bad neighborhoods, but eventually even I was getting fearful.

We saw a taxi drive by and quickly got it to stop for us. Little did we know that we had almost completed our journey by then and the taxi only took us a few blocks to get to our destination.

THE ANALOGY

Had we been more aware of our environment, we would not have chosen that route to walk. Yes, it may have been the most direct, the most efficient, and the fastest route. But it was not the safest route. We needlessly put our lives in danger. It would have been better off choosing a slower, more indirect path that was far safer.

Strategic planning is also about choosing a path—a path into the future. On first glance, it may appear that the best strategic path is the direct route. After all, the shortest distance between two points is a straight line, so the strategic path is drawn as a straight line between where we are now and where we want to be. That type of thinking sounds practical, efficient, and speedy.

Unfortunately, it can also be wrong. The most direct route is not always the safest route. It may lead you into a mine field of difficulties.  The danger could be so great that it destroys the ability for the strategy to succeed.  It does no good to be faster and more efficient if you end up dying before reaching the destination.

No, sometimes the best path is longer and less direct. These paths can be safer and increase the likelihood of ultimate success. 

THE PRINCIPLE

Although we live in an era which emphasizes speed, we need to remember that speed is not the ultimate goal.  The real goal is success. And sometimes the fastest path is not the best path for ensuring success. Therefore, when choosing a strategic path, do not automatically choose the fastest, most direct approach.

The Disadvantage of Bold Moves

There are several reasons why the direct approach can be less effective. First, it tends to loudly notify to the world (and to your competitors) what your intentions are. That can cause those opposing your strategy to wake up and fight you hard to prevent that path. Remember, almost every winning strategy causes someone else to lose. If those who are about to lose find out your intentions, they will try to keep you from winning. 

However, if you act more slowly and less directly, the opposition may not detect the threat as being as imminent or as devastating as it is. Therefore, they may put up less of a fuss in trying to stop you. By the time they figure it out, it may be too late for them to stop you.

Take, for example, Wal-Mart’s desire to be a significant player in banking. Wal-Mart first tried a very direct and fast approach to this strategic intent. Back in 1999, they applied for the right to buy a bank in Oklahoma.

This bold action quickly awakened the status quo banking industry to the threat posed by Wal-Mart. The banking industry immediately did everything in its power to influence the government to stop Wal-Mart from getting that bank. Congress was inundated by whatever forces the banking industry could bring to bear to stop Wal-Mart from ever buying a bank. And it worked. Wal-Mart could not buy a bank.

A few years later, in 2002, Wal-Mart tried again by attempting to buy an ILC (Industrial Loan Company), which is a step lower than a full-fledged bank. That also failed.

At this point, Wal-Mart tried a different tactic—the indirect route. Slowly, Wal-Mart started forming alliances with companies performing banking services. Since Wal-Mart did not own these businesses and since the partners were already allowed to be in these businesses, they would be difficult to stop. Also, because Wal-Mart added these pieces slowly in small chunks, no single act was large enough to get the industry in an uproar.

For example, Wal-Mart did deals with Moneygram and Sun Trust Bank for services like wire transfers, money orders and check cashing. It did a deal with Green Dot to create the Walmart Money Card, a reloadable prepaid card. And most recently, Wal-Mart worked with American Express to develop the Bluebird Card, a more aggressive move into the prepaid card business. 

Slowly, Wal-Mart is putting together a powerful financial offering, branded together in the store as Walmart Financial Services. It is to the point now where Walmart’s website has claimed them to be “a trusted name in financial services.” The slower, indirect path is working far better for Walmart than their earlier, more direct approach.

   

The Disadvantage of Out-Pacing Your Stakeholders

Another problem with moving too quickly is that you can move faster than your stakeholders are willing to go. No strategy works in isolation. Success depends on getting alignment with all sorts of other stakeholders, like your customers, your regulators, your suppliers, etc. If you get to far ahead of your partners, the strategy can fail.

For example, when McDonald’s wants to enter a new geographic area with restaurants, it does not just get some real estate and put up restaurants. That could be too fast for its suppliers. McDonald’s wants to guarantee that the burgers worldwide come from similar beef and the french fries come from similar potatoes. Therefore, it takes the slower, more indirect route of first working with farmers and distributors to make sure the right kinds of cows and potatoes in the right quantity are in the pipeline so that the stores have the right stuff to sell.

And in the Walmart example above, if Walmart had advanced directly from nothing into full-service banking in one step, it might have been too much for customers to accept. By moving slowly, Walmart has been able to move consumer perceptions along to allow them to accept getting financial services from a discount store.

One of the more interesting examples, however, is in the online poker business. Online poker sites can be extremely profitable for the companies who run them. However, the US government was banning the sites because on-line gambling is illegal in the US. The on-line sites could have directly tried to fight this, but they knew they would fail. So they took an indirect route.

A few years back, I remember all of the sudden seeing poker championship games being broadcast all over the place on cable TV in the US. Why the sudden surge in broadcasting Poker Tournaments, I wondered.

Well, here’s the story. The online poker people wanted to change the perception of poker from being a form of gambling to being a game of skill. That is because on-line gambling is defined as being a game of luck, which is illegal in the US. But games of skill are not considered gambling. 

What better way to convince people that Poker is a game of skill than to broadcast it like a sporting event on sports cable networks? The shows created poker winners who were becoming famous like athletes for their skilled plays. They had announcers on the show talking about the skilled plays being used by these skilled players.  

Slowly, but surely, perceptions were being changed. Poker was no longer just viewed as distasteful gambling hidden away in dark places. Now it was a skilled sporting event out in the wide open lights. Over time, this approach should be far more successful than the direct approach for the on-line poker companies.

SUMMARY

A key part of strategic planning is developing the proper path to get from where a company is today to where it wants to be. Due to the desire to move quickly, many firms try to build direct paths to the desired future. However, direct paths can be fraught with dangers large enough to prevent success. As a result, it is often the slower, less direct approach which has the greater likelihood of success.

FINAL THOUGHTS

If you go online to choose a path to drive your car to your destination, the software often asks you which type of path you want: the most direct, the fastest, the one using the most highway, the one using the least highway, etc.  In other words, the software recognizes that the fastest path is not always the path you desire. If software can recognize that, then so should strategists. Check out other options which may lead increasing your chance of success.

Strategic Planning Analogy #142: Strategy for the Birds

THE STORY
Last week I was driving to Chicago to spend Christmas with my daughter and her newlywed husband. It was a difficult drive. I was driving into a 50 mph wind with gusts that would blow the car all over the road. In addition, there were snow swirls that made it difficult to see where you were going.

It was a tiring way to drive, so I pulled off at an Indiana toll road rest stop to take a break. The wind was so strong that I had difficulty getting the car door open.

Near the car was a tiny little bird. The bird wanted to fly in the direction where the wind was coming from. Every time the bird jumped up to fly, the wind threw it back in the opposite direction. Each time it tried to fly, it was getting further from its goal.

I felt sorry for the bird, but was grateful that I had a car that was strong enough to tackle the wind.

THE ANALOGY
It’s great to have goals, but goals are of little use if you cannot achieve them. Both I and the bird had a similar goal of trying to go west. However, the combination of the frailty of the bird and the strength of the wind made it impossible for the bird to achieve its goal. Although it was still difficult for me, my car was strong enough to fight the wind and successfully get me to my daughter’s house.

In every marketplace, there is a prevailing wind—the conventional way in which things get done. Typically, businesses have a desire to grow and gain market share. For you to grow and gain share, someone else usually has to shrink or lose share. In other words, you have to change the way things currently get done. Therefore, for your strategy to succeed, you often have to go against the prevailing wind in the marketplace.

Going against the prevailing wind is difficult, especially if you are weak like that bird. Just jumping up to fly won’t work. Effort alone is not enough. It takes a sophisticated strategy in order to outsmart the prevailing wind of the marketplace.

THE PRINCIPLE
The principle here is the idea of the “indirect attack.” If you are a small player who wants to become larger, there is a temptation to directly take on the market leader. After all, that’s where all the market share and profitability is. It’s like the old story about the bank robber Willie Sutton. He was asked why he robbed banks. Willie replied, “Because that’s where the money is.”

However, a direct attack on the leader is often about as futile as that bird’s direct flight into the wind. Leaders have a number of inherent advantages.

1. People are already in the habit of patronizing the leader. Why change?

2. People believe that the leader is a leader for a reason. If you are not the leader, then you must be inferior. After all, if you were better, then you would already be the leader.

3. Leaders are already well known and accepted. Your brand, however, may be an unknown entity.

4. People rarely get into trouble for patronizing the leader. It is acceptable behavior. It is riskier to try something else. Why put your reputation at risk with a non-leader?

5. Who I patronize reflects who I am. If I patronize a leader, then I must also be a leader. If I patronize a loser, then I must be a loser.

6. Leaders tend to be larger and stronger financially. If you get into a fight with them, they can outlast you.

As a result of these inherent advantages, the leader is difficult to unseat. Even if you are every bit as good as them, you will fail in a frontal attack. Even if you are somewhat better than them, the prevailing winds of their leadership position will keep them as the victors for a long time.

So superiority over the leader is not enough. For example, in blind taste tests, Pepsi had a superior taste over Coke. Yet, when the labels are put on the products, the winds of leadership help Coke overcome Pepsi.

So, do we just let the prevailing winds helplessly blow us around? Of course not. Small players never win by going with the flow. The flow is designed only to benefit the leader. Sam Walton frequently pointed out that they key to the early success of Wal-Mart was due to the fact that he was willing to go against the flow and do things differently than conventional wisdom.

Conventional wisdom leads to conventional results. Glorious success comes from doing things differently.

So we cannot attack the flow directly, but we cannot go with the flow either. Therefore, the effective strategy in most cases is to attack the leader indirectly. When a sailboat wants to sail against the wind, it does go directly into the wind. Instead, it uses an angular indirect approach, known as “tacking.” Similarly, small companies need an indirect approach.

In general, the indirect approach works like this—become a leader in a place where the current leader is vulnerable. This could be geographic. For example, while everyone else was attacking large cities, Wal-Mart in its early days went to the rural areas that were being ignored.

This could also be about attributes. If the leader is all about owning price, then try to own something else, like service or quality.

This could also be about demographics. If the leader owns older people, go after the younger ones. This is how the UPN, WB and CW TV networks tried to gain a toehold against the leader CBS.

Or it could be about attitude. Coke had the all-American wholesome attitude, so Pepsi took the rebellious attitude.

So, the strategic task is as follows:

1) Learn the vulnerabilities of the leader

2) Understand your internal capabilities

3) Indirectly attack the leader by trying to own something where the leader is weak and you are capable of building a new leadership (co-habitation). This new leadership comes from redefining the rules and building a point of preference where one did not exist before.

4) Use this new leadership as a launching pad for further growth.

In the beginning, Wal-Mart was like the little bird against the major retail chains. It’s only hope was to go indirect and start in the rural markets which were being ignored. Eventually, it used that base to become large enough and strong enough to take on the whole retail establishment. It became as strong as my automobile, which could go against any prevailing wind. At that point, Wal-Mart took on the entire US grocery establishment and won.

SUMMARY
The established marketplace works based on a set of rules which favor the leader. If you are small and want to grow in such an environment, you cannot usually win by directly taking on the leader based on the leader’s rules. Instead, you need to change the rules in your favor. This works best when you take an indirect approach by building a base of strength in a place the current rules are ignoring. Then you can start re-writing the rules around your base and grow.

FINAL THOUGHTS
If you want to be “king of the hill,” rather than try to knock off the person who already has the advantage of the high ground, instead go off and build your own separate hill.