The Fall of Strategic Planning

THE STORY
I was recently reading a posting on the Strategic Planning Society group’s site on Linkedin. It was titled “Forget strategy, innovation has replaced it!” The point Bernhard Schmidt was making was that strategy has lost its relevance in business and has been replaced by innovation.

This is a good issue to bring up. However, I think that point of view just touches the surface of the problem. I wanted to reply with a longer, more nuanced answer to why strategic planning has gone out of favor, but my response was too long to fit into the comments section. Therefore, I am putting my response here.

THE RESPONSE
This is what I tried to put into the comments section:

Here’s my brief take on the decline of Strategic Planning:

1) When strategic planning was at its peak, companies saw many options for their firms and they wanted to learn which option was the best for the company’s long term future in terms of profits, market share and stability. As a result, strategic planning tended to focus on marketing (i.e., positioning) and business models. This was highly valued, so strategic planning was held in high esteem.

2) Then the CMO (Chief Marketing Officer) position was created. This robbed the strategist of one of their most powerful tools—strategic positioning—because that function was given to the CMO. Unfortunately, most CMOs were so preoccupied with near-term advertising that positioning rarely got the attention it deserved from CMOs. As a result, the idea of strategic positioning faded away.

3) Without the marketing foundation, strategic planning became principally a financial function—a bunch of scorekeepers (did you make your numbers). Since there was little foundation behind the numbers (why the numbers should be hit), the scorekeepers turned into complainers (you didn’t hit your number). Who needs that?

4) Worst of all, the objectives of business changed. First, modern companies don’t care so much about traditional measures of success. Business model profitability and customer satisfaction became optional or of far less importance. After all, nearly all of a modern company’s value comes at two points in time—when it gets initial investment money and when it cashes in (goes public or sells out). This limits strategy to how to:

a)     Make the best investment pitches to VCs; and

b)     How to cash out.

So strategy looks more like an episode of Flip This House. You don’t need fancy strategic planners for that.

5) This leads to the second change in objectives. Almost nobody seems to care about the long term as much as in earlier days. Why worry about the long term when you are going to flip the company near term? And since few people stay at a company over 2 years, the employees have no vested interest in long-term health. The founders get their wealth up front when the firm cashes out, so the outer years are less meaningful to them. Few shareholders care about long term either. Without a concern for the long-term, there is little regard for long-term strategy experts.

6) So it gets down to innovation. I interviewed for a strategy position at one firm that planned to go public soon. They said that they would get a higher IPO price if they could show innovative new ideas in the pipeline, so they were looking for someone to help fill the pipeline with a little innovation. This would make great copy to put into the S-1 document filed with the SEC when going public. Hence, innovation was more about boosting the near-term cash out value than the long-term viability of the firm. So in this case, strategy was reduced to little more than a public relations function.

THE IMPLICATIONS
So the issue is a lot bigger than just strategy losing out to innovation. Strategic Planners have been robbed of some of their most powerful tools (like strategic marketing) and companies no longer seem to want to buy what strategic planners used to sell (long term profitability and stability).

So what can marketers do? There are two approaches.

First, strategists can reassert themselves by re-introducing companies to the value that traditional strategic planning can provide. This starts with getting management to see the value in what strategic planning offers. The most compelling argument is that current valuations are based on future expectations. So if you want a high value today, you need a plan which shows a better future tomorrow.

The next step is to grab back your power base. Seize back the strategic positioning role. Downplay the scorekeeper role. Get involved in business model discussions. Put companies on the right path. Place yourself in the middle of company decisions where there are long-term implications. Be the “strategy whisperer” who never lets the CEO forget about the strategic implications embedded in day-to-day decisions.

The second approach would be to adapt strategic planning to be vital to the new reality. This would include things like:

a)     Make scorekeeping a more valuable function by doing a better job of linking numbers to strategic initiatives and helping teams make their numbers.

b)     Do a better job of helping companies get VC funding and to cash in.

c)     Become a public relations expert. Show you can master the strategic language that gets more money from VCs and when cashing in.

d)     Show that you can be fast and provide insights today rather than waiting for a year-long planning cycle to occur.

e)     Show that there can be a more strategic approach to innovation than just “trying a bunch of stuff hoping something will work.” I looked at this in more detail in my prior blog.

Finally, show everyone how including a consideration of long-term implications when making short-term decisions leads to better short-term decisions. This gets at the heart of the issue facing most leaders.

SUMMARY
It is true that traditional strategic planning has gone out of favor and that innovation is the “flavor of the day.” To regain relevancy, strategic planners need to either:

a)     Re-educate management as to the value traditional planning can bring; or

b)     Adapt strategic planning to be a more vital element in the new management priorities.

The proper approach depends on your current situation, although a blend of both is probably required.

FINAL THOUGHTS
There is no value in being “the strategy person” if nobody is looking for a strategy person. So job #1 is to come up with a strategy to make being the strategy person a valuable title to have.

Strategy Planning Analogy #565: Not Enough Monkeys

THE STORY
There’s an old saying (originally attributed to Thomas Henry Huxley) that goes roughly like this: “If you get enough monkeys sitting at enough keyboards, one of them, by random chance will write the next Shakespearian play.” While that may be theoretically true, there’s a problem with that logic.

The problem is with the word “enough.” In order to get random tapping on a keyboards to come out as a coherent Shakespearian play, you need a lot of monkeys sitting at a lot of keyboards.

How many? I would guess at least a million times more monkeys than exist on the entire planet sitting at more chairs and with more keyboards than exist on the planet.

So, while the statement may be theoretically true, from a practical matter it is worthless.

THE ANALOGY
The big word in strategy today is “innovation.” People want strategies which make them leaders in innovation. And if that’s what people want, you can rest assured that countless numbers of consultants will come out of the woodwork saying they have a way to make you a leader in innovation.

A lot of these consultants have a theory similar to the story about the monkeys. They say that if you have enough experiments taking place, one of them will turn out to be a big hit. That’s like saying if you have enough monkeys, you can write a great play.

The problem is that many of these consultants don’t get very specific about how many experiments is “enough.” The reason they don’t get very specific is because they don’t want you to know your real odds for success. Like the story with the monkeys, the only way to guarantee that you will have a successful innovation is by doing a lot of experiments. And by a lot, I mean more experiments than you could possibly ever do over several lifetimes.

Look at the social media space. How many truly successful bone fide outstanding and hugely profitable innovations have there been in social media? 20? 50? 100? 1,000? Even if you are generous and say there have been a thousand big innovations, compare that to how many people on the planet have been experimenting around the world in this space.

There’s probably at least tens of millions of people world-wide who have tried on average dozens of experiments in the social media space. That would put us at about 1 in 500,000 being a hit. And I think that’s a very generous number. Do you think you can do 500,000 experiments in order to guarantee a winner?

So, while this type of response to innovation is theoretically possible, it is worthless on a practical level.

THE PRINCIPLE
The principle here is the difference between randomness and purposefulness. Randomness is about producing large quantities and hoping you beat the odds. Purposefulness is about focusing on ways to intentionally improve your odds in a meaningful way. Randomness is about repeating a lot of fast failures (and I do mean “a lot”). Purposefulness is about focusing on places where failure is less likely to occur.

Here are some characteristics of purposeful innovation:

#1: Purposeful innovation plays off your strengths

Even if you do beat the odds and by chance stumble upon a great innovative idea, you still don’t have a hit on your hands. You still have to develop it, bring it to market, and win versus others with similar ideas. The odds of random success at all five levels (ideation, development, operations, distribution and marketing) is really not in your favor.

As I alluded to in an earlier blog, even if you have a one in a million idea, there can be more than a million experiments in that space, so you have to fight to win against others with almost the same idea. The idea alone is not enough.

So if you want to succeed, you need to play to your strengths. Look for innovation only in places where you have competitive advantages in all of these areas. This means that you need to shut off innovation wherever your differentiating advantages do not apply.

This will narrow the innovation scope very quickly. But it will also increase your success very quickly.

Another option is to take away resources from random innovation and apply them to building competitive advantages. The more advantages you have, the better your odds of creating an innovative hit that will win.

I remember touring the area in Austin Texas where a lot of innovation start-ups were located. They all looked about the same to me. None of them were building differentiation capabilities. They were all just pulling all-nighters to get lines of code written. How do you expect to beat the odds if you are not doing anything meaningfully superior?

#2: Purposeful innovation looks for superior solutions to real problems

A lot of innovation focuses on applying the coolest new technologies in a spectacular way. These may be the types of innovations that make other engineers jealous of what you’re working on, but that doesn’t mean the rest of the world will care.

Consumers are looking for superior solutions to existing problems at reasonable prices. You need to ask yourself these questions:

1.  Once the coolness wears off (and it will, sooner than you think), is there any real substance to your innovation?
2. Is this just a short-lived fad?
3. What existing problem does my innovation solve? Does it solve the problem better than current options? It is superior enough to be worth the price you need to charge? Is it superior enough to overcome the barriers to switching from current solutions and networks?
4. Will consumers intuitively get what you’re trying to offer or will it be confusing and hard to explain? (Hint: If it takes more than a sentence or two to explain the superiority of your innovation, it probably won’t catch on.)

So the place to start is by finding where customers are complaining the loudest about the stress points in their lives. Then, you focus on looking for better ways eliminate these stress points. This means putting solution solving ahead of just looking at what the latest technology can do.

#3: Purposeful innovation avoids imitation

Facebook has been very successful. But that doesn’t mean that a copycat of Facebook will also be successful. That innovation has already been done. That market has already been captured.

Even if your innovative imitation of Facebook is a little bit better, it still won’t win. The network effect will keep people from switching for only minor improvements.

Almost by definition, true innovation is not a close copy of what already exists. It is doing something different. The blue ocean approach says it is easier to succeed in places where there is no established market/solution than one which has already been staked out by a host of competitors.

Imitation may be a sign of flattery, but it usually is not a path to success, especially when you need to get people to switch networks.

SUMMARY
Great innovations can often lead to success. Unfortunately, most experiments in innovation will be failures. The odds of randomly stumbling into innovation success are about as likely as having a monkey randomly write a play on a keyboard. Rather than rushing off to do as many experiments as possible, it is wiser to take a moment first to determine a strategic focus for your efforts. Narrow the scope to improve the odds. This is purposeful innovation. Purposeful innovation narrows the scope by: 1) Looking in places that take advantage of competitive strengths; 2) Looking in places where you can provide a superior solution to current problems consumers are complaining about; 3) Not looking to imitate what’s basically already out there.

FINAL THOUGHTS
Good fishermen know that you are more likely to catch fish if you fish in locations where there are more fish to be caught. They don’t just randomly fish anywhere. They go where the odds are better. Innovators should do the same thing.

Failures #3: Crystal Pepsi

INTRODUCTION

In the last two blogs (here and here), we looked at (in general) an article USA Today published entitled “The 18 worst product flops of all time.” These flops included:

1. Edsel by Ford Motor Co.

2. Touch of Yogurt Shampoo by Bristol-Myers Squibb

3. Apple Lisa by Apple

4. New Coke by Coca-Cola

5. Premier smokeless cigarettes by RJ Reynolds

6. Maxwell House Brewed Coffee by Philip Morris Companies

7. Harley Davidson perfume by Harley Davidson Motor Co.

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

9. Crystal Pepsi by Pepsico

10. The Newton MessagePad by Apple

11. Persil Power by Unilever

12. Arch Deluxe by McDonald’s

13. Breakfast Mates by the Kellogg Co.

14. WOW! Chips by Pepsico

15. Hot Wheels and Barbie computers by Mattel

16. EZ Squirt (colored) Ketchup by Heinz

17. TouchPad by HP

18. Google Glass by Google

In this blog we will focus on only one of these flops: Crystal Pepsi (#9).

LEARNINGS FROM CRYSTAL PEPSI

The major innovation for Crystal Pepsi (introduced in 1992), was that the color was taken out of the cola to make it clear. The novelty of drinking clear cola succeeded for a short period, but once the fad ended, sales vaporized. What went wrong?

Learning #1: Just Because You Can, Doesn’t Mean You Should

First of all, we need to understand that not everything new and different is desirable. Just because an engineer can make something happen doesn’t mean it should be done (no matter how much it would please the engineer). Being able to take the color out of a cola might be a cool magic trick, but where is the lasting benefit to the consumer?

Does taking out the color:  

• Improve the taste? No.
• Improve the drinkability? No.
• Improve the formula? No.
• Lower the Price? No.

About the only lasting benefit of Crystal Pepsi was that the caffeine was taken out. But Pepsi already had caffeine free versions (since 1982), and you don’t need to take the color out to take the caffeine out. So this really wasn’t much of a lasting benefit…just a novelty.

I remember when digital wristwatches first came out. Because they were digital, it was possible to engineer them to do all sorts of things that the old analog watches couldn’t do. Therefore, many had a buch of additional functions added, like stopwatch, 24 hour military time, etc. They fell victim to to adding features, just because they could.

The problem was that the designers only put a couple of buttons on the watch, making it almost impossible to figure out what combination of button pressings were needed to make the functions work. Worse yet, all that confusion also made it nearly impossible to figure out how to set the watch for the correct time.

It was like the old VCR players that always blinked "12:00" because nobody could figure out how to set the timer. You could tolerate that on a VCR, because the video tapes could still run without a working clock display. But a watch without a working clock display is worthless. The manufacturers would have been better off putting in fewer features so that the primary function—telling time—would have been easier.

In Today’s digital era, the temptation to do more innovation than necessary is probably greater than ever before. You can alter the code to make digital products do almost anything. The only limit is your imagination.

However, instead of using your imagination as the limit, you should use practicality as your limit. If the added feature gets in the way, confuses the customer, or does not provide lasting/desired benefits, don’t do it. Tell the engineers to back off.

Just as the trick of taking the color out of cola did not lead to success, many computer engineering tricks may not lead to success, either.

Lesson #2: Image Works Both Ways

An innovation can improve the image of a brand. It can make a brand appear more up-to-date, cooler, more visionary, more desirable. Apple has used the innovations of the iPod, the iPhone and the iPad to enhance its image in this way.

Unfortunately, some “innovations” work on image in the opposite direction. Inappropriate innovations can make a brand appear out-of-touch, silly, or incompotent. Taking the color out of cola was a negative image producer. The so-called benefit was silly. Nobody was aking for it (out of touch). Will I appear out-of-touch and silly if I drink Crystal Pepsi?

Other potential negative image factors in Crystal Pepsi:

• A clear cola appears less potent than a colored cola. Who wants a perceived diluted cola? 
• What was done to take out the color? Were harsh chemicals used or added? Did they put bleach in the cola? Clear colas may be more dangerous to drink.
• Was the core formula changed? Failure #2 was New Coke, where Coke fans were outraged because the traditional Coke formula was changed. Couldn’t the same outrage occur here?

Innovations can create many undesired secondary consequences which outweigh the slight benefits of poor innovations. Be sure to look for these undesired secondary consequences before introducing the product.

Lesson #3: Hidden Innovations Rarely Inspire

The whole trick of Crystal Pepsi was in seeing the color taken out of the cola. Unfortunately, most colas are sold in cans and are usually consumed right from the can. You cannot see the “clearness” of the cola inside the can. What good is a benefit you never see or cannot discern during consumption?

If you innovate, make sure the innovation is visible and discernable. Oxydol detergent had the benefit of bleach already inside the detergent. However, you couldn’t see the bleach, so consumers couldn’t feel the benefit. Then Proctor & Gamble put little green crystals in Oxydol and told people that the crystals were “proof” that Oxydol was different, and the difference was bleach. After that, Oxydol became the #1 detergent in America (until Proctor & Gamble decided to make Tide #1).

So, if you bother to innovate, make sure the customer knows and provide some sort of visual confirmation to remind them of the innovation. Intel was hidden inside computers and not getting much credit for their innovations. So Intel made computer manufacturers put stickers on the outside of the computer to let people know that there was Intel inside that computer. This greatly improved the image benefits from Intel innovations.

SUMMARY

Crystal Pepsi teaches us that:

•  Just because an innovation is possible does not mean that it is desirable;
• Poor innovations can damage a brand image at least as much as a good innovation can improve an image.
• To get the full impact of an innovation, it must be obvious to the consumer.

FINAL THOUGHTS

Not all crystals are created equal. The green crystals of Oxydol were beneficial. The crystal clear of Crystal Pepsi was not. So choose wisely when you innovate.

Failures #2: Leaping the Right Distance

INTRODUCTION

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

1. Edsel by Ford Motor Co.

2. Touch of Yogurt Shampoo by Bristol-Myers Squibb

3. Apple Lisa by Apple

4. New Coke by Coca-Cola

5. Premier smokeless cigarettes by RJ Reynolds

6. Maxwell House Brewed Coffee by Philip Morris Companies

7. Harley Davidson perfume by Harley Davidson Motor Co.

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

9. Crystal Pepsi by Pepsico

10. The Newton MessagePad by Apple

11. Persil Power by Unilever

12. Arch Deluxe by McDonald’s

13. Breakfast Mates by the Kellogg Co.

14. WOW! Chips by Pepsico

15. Hot Wheels and Barbie computers by Mattel

16. EZ Squirt (colored) Ketchup by Heinz

17. TouchPad by HP

18. Google Glass by Google

We looked at three lessons to be learned from these flops. In this blog, we will look at another lesson to learn: The need to leap the right distance.

LEAPING THE RIGHT DISTANCE

Innovation is a lot like taking a leap into the future. But, as the USA Today article shows, not all leaps are successful. Think of it as being like leaping over a deep canyon. If you can leap from land to land, you succeed. But if you miss, you fall down into the canyon and fail.

Here’s the problem. The canyon of innovation is too wide to cross in one leap. Therefore, to successfully get across the canyon, you need to leap onto a small mesa in the middle of the canyon. Miss on either side of the mesa (too short or too long) and you fail. This is illustrated in the picture below. As we will see, many of the 18 flops failed in part by not leaping the proper distance.

1) Leap Too Short

The first reason for an innovation flop is to leap too short. This happens when your innovation improvements are incrementally too small to matter. Sure, it might be a little nicer or newer or better, but not enough to justify switching, particularly if you are charging an innovation premium price.

The Edsel (flop #1) was a nice car, but the innovations were minor compared to the hype, and the innovations were not enough to justify the premium price. The leap was too short.

Kellogg’s Breakfast Mates (#13) combined cereal, milk and a spoon into one “convenient” package. However, a test showed that the Breakfast Mate was only about a second faster to prepare than regular boxes of cereal with a normal carton of milk. In addition, convenience to the customer meant eating on the go, and you could not prepare and eat Breakfast Mate on the go. Finally, it cost a lot more per serving than the old way. In other words, Breakfast Mates leaped too short. It was not enough of a convenience innovation. The right leap would have been to go to breakfast bars—more convenient to prepare (just unwrap), more convenient to eat (on the go), and not as big a premium.

McDonald’s Arch Deluxe (#12) was a better burger than the regular one, but not enough better to justify the price or to get people to switch from better-burger restaurants. They did not leap enough and build really better burgers worth going out of your way for, like Five Guys.

Apple’s Lisa Computer (#3) was a fine computer for its time, designed for the business market. The problem was that it was not superior enough to justify a $10,000 price. Also, it was not superior enough to grab the attention of software developers to make programs for it. The switching costs for businesses was high and the leap was not big enough to justify the switch.

2) Leap Too Far

Just as bad a mistake as leaping too short is to leap too far. If you innovate beyond the ability of consumers to embrace or beyond the capabilities of technology, then you will fail as well.

The Apple Newton (#10) personal hand-held computing device came out in 1993, before the pervasiveness of the internet. Thanks to that, and the limits of technology at the time, the Newton was not a very powerful device. It tried to be the equivalent of the smartphone before technology, applications, and consumers were ready. It was a leap too far, by almost 20 years.

Premier Smokeless Cigarettes (#5), back in 1988, was also a leap too far. The market had not yet banned traditional smoking as much as today and the technology wasn’t good enough to make Premier Smokeless Cigarettes a pleasurable smoking experience. It took about 25 years before the technology and consumer sentiments caught up to make electronic smoking successful.

One might argue that Google Glass (#18) was also a leap too far. Concerns over privacy and functionality made it perhaps ahead of its time.

3) Leap Too Late

The problem when timing an innovation leap is that if you wait until the innovation is fully accepted, you are no longer imitating…you are following. True innovation has some risks, because you are trying to establish a market that doesn’t quite yet exist. If you wait for the innovation to get a firmly established by someone else, it is typically that someone else who reaps the benefit. They become the brand know for the innovation and get the first mover advantage.

This was the main problem for Hewlett Packard’s Touch Pad (#17). HP waited until Apple made tablets their own with the iPad. HP’s Touch Pad was not meaningfully enough better hardware to unseat Apple. In addition, Apple owned the apps, content business and digital store, where everything was designed to work on the iPad.

Hence, HP failed due to waiting to late.

SUMMARY

Innovation is a leap into the future. If you make your leap too short, you will not create enough differentiation for success. If you make your leap too long, you will get ahead of the customer and technology, which are not ready for success. If you make your leap too late, you become a lesser also-ran rather than a leader. Therefore, when on the path of innovation, plan you leap carefully (length and timing).

FINAL THOUGHTS

Jumping is not the same as leaping, because you end up in the same place as you started when you jump. So, just because you are furiously doing something doesn’t mean you are leaping to innovation. You may only be jumping in place.

Failures #1: 18 Colossal Failures

INTRODUCTION

On April 16, 2016, USA Today had an article entitled “The 18 worst product flops of all time.” It was based on a study conducted by 24/7Wall St. to determine which were the most colossal new product failures since 1950. The 18 flops, and my interpretation of primary causes of the flop, are as follows:

1. Edsel by Ford Motor Co.

Key Mistakes:

·   Insufficient New Benefits

·   Too Expensive

2. Touch of Yogurt Shampoo by Bristol-Myers Squibb

Key Mistakes:

·   Confused Customers

·   Eaten by Mistake

3. Apple Lisa by Apple

Key Mistakes:

·   Too Expensive

4. New Coke by Coca-Cola

Key Mistakes:

·   Misunderstood its Brand

·   Trying to Win by Imitation

5. Premier smokeless cigarettes by RJ Reynolds

Key Mistakes:

·   Innovated Too Soon

·   Questionable Benefits

6. Maxwell House Brewed Coffee by Philip Morris Companies

Key Mistakes:

·   Confused Customers

·   Innovated Too Soon

7. Harley Davidson perfume by Harley Davidson Motor Co.

Key Mistakes:

·   Brand Extension Too Far

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

Key Mistakes:

·   Branding Issues

9. Crystal Pepsi by Pepsico

Key Mistakes:

·   Insufficient Benefits

·   Novelty/Fad

10. The Newton MessagePad by Apple

Key Mistakes:

·   Innovated Too Soon

11. Persil Power by Unilever

Key Mistakes:

·   Defective

12. Arch Deluxe by McDonald’s

Key Mistakes:

·   Insufficient Benefits

13. Breakfast Mates by the Kellogg Co.

Key Mistakes:

·   Insufficient Benefits

14. WOW! Chips by Pepsico

Key Mistakes:

·   Defective Product

15. Hot Wheels and Barbie computers by Mattel

Key Mistakes:

·   Defective Product

16. EZ Squirt (colored) Ketchup by Heinz

Key Mistakes:

·   Defective Product

·   Novelty/Fad

17. TouchPad by HP

Key Mistakes:

·   Innovated Too Soon

18. Google Glass by Google

Key Mistakes:

·   Pros overwhelmed by Cons

Over the next few blogs, we will look at some of the lessons to be learned from these failures, so that you can avoid them.

LESSONS LEARNED

Lesson #1: Innovation is Not a Panacea

These 18 innovation flops were huge, causing losses in the millions of dollars. Yes, they may have been outlyers, since most flops are less colossal. But that doesn’t mean that flops are rare. The article claimed that about 40% of new product introductions are flops.

I believe that the 40% failure number underestimates the problem. A lot of what is considered a “new product” isn’t really much of an innovation. It can be just a minor brand extension, like adding a new flavor or size. It is a low risk/low reward bet on a minor tweak. It is not a truly innovative new product.

If you only look at truly innovative new products, the failure rate is much higher—over half.

I know a lot of companies have a strategy based on some variation of “winning via innovation.” The idea is that future success will come from merely introducing new products. The problem is that if over half of innovations fail (and some fail spectacularly), innovation is not automatically going to lead to success.

Just because you innovate doesn’t mean you’ll win. If fact, the odds point in the other direction.

Innovation is more like a tool than a strategy.

Tools are great, but only if used to achieve a viable strategic purpose. For example, cost control is a great tool but not a strategy. It is meaningless to have the lowest cost of production if you are producing something nobody wants. The strategy must first tell you what is desired. Then, cost control can be chosen as a tool to help make it a reality.

Similarly, it is useless to innovate if you are creating innovations which will flop. Just because something is new does not mean it is the right thing to produce. Innovation only succeeds if you are using it as a tool to implement a greater strategy—a strategy which takes into account all the greater issues like image, branding, positioning, switching costs, consumer trends & habits, etc.

The strategy is the vision of what will win. Innovation and cost control are just some of the many tools you can use to achieve the vision.

Make sure your strategy embraces desirable outcomes rather than just embracing a particular business tool, like innovation.

Lesson #2: Don’t Mess With The Mouth

A friend of mine in consumer research used to say that consumers are particularly sensitive regarding anything that goes in the mouth. They may be forgiving of shortfalls and miscues in other areas, but they expect something a lot closer to perfection when it comes to things put in the mouth. Mess up on things put in the mouth and you will pay a heavy price.

This makes sense, since:

• Health issues are at greater stake;
• Image Issues are at greater stake (You really are what you eat, including the brand image of what’s eaten).

This seems to be verified by the results. If you look at the list of 18 flops, half of them (nine) are items put in the mouth. If you count the fact that people were mistakenly eating the Yogurt Shampoo, it becomes 10 items.

The lesson here is that if you are innovating around items that go in the mouth, be especially careful. People take these more seriously.

Lesson #3: Innovations Need to Work

Some innovations fail because the new product was defective. WOW! chips caused “abdominal cramping and loose stools,” not something desired in a snack food. Persil Power laundry detergent destroyed clothes at high temperatures. The Hot Wheels and Barbie names were put on computers which didn’t work. It’s no wonder why these innovations failed.

You may start with a great idea. But, if the actual product does not deliver on that idea, then the idea is irrelevant. Make sure the product delivers on the promises.

SUMMARY

Innovation is not a panacea for success. On the contrary, random innovation is probably more likely to fail. To minimize failure, innovation needs to be seen as a tool to create a larger strategy. In addition, the innovation needs to live up to the requirements of the strategy and not be defective. Finally, one needs to be extra careful when innovating around products which go in the mouth.

FINAL THOUGHTS

This is just the beginning. Two more blogs on innovation are to follow.

Is the Christensen Halo Slipping?

Christensen Criticism
Harvard Professor Clayton Christensen is considered by many to be one of the modern great minds of business theory. His 1997 book, The Innovator’s Dilemma, was called by the Economist magazine in 2011 one of the six most important business books ever written. That’s high praise.

However, in the June 23, 2014 edition of the New Yorker magazine, fellow Harvard professor Jill Lepore writes a scathing criticism of Christensen’s seminal work (read it here). Perhaps in an attempt to overcome the damning nature of that New Yorker article, the July-August edition of Harvard magazine has a glowing defense of Christensen’s work (read it here).

The Criticism
So what does Lepore say about Christensen’s work that is so damning? Basically she says two things:

1. The facts don’t back up Christensen’s theory.

2. Even if the theory is true, it is relatively useless because it does not predict what type of behavior to take. In other words, there is no advantage to knowing the theory, because it only can explain the past, not predict the future. It is like someone who can tell you in great detail why the stock market did what it did yesterday, but has no clue about what it will do tomorrow. Lepore backs up this claim by pointing out that Christensen’s venture capital fund designed to exploit his theories from the Innovator’s Dilemma was a failure.

Although Lepore’s argument may not be as rock solid as she wants you to believe it to be, it is still very damning to Christensen’s legacy.

  

Another Chink in the Armor
I first started having my doubts over the “genius” of Christensen back in 2011, when I read an article of his latest “discovery” on the Harvard Working Knowledge website (read it here). I was flabbergasted that Christensen thought he had come up with another brilliant new insight, which looked to me like something that could have come out of an introductory marketing textbook.

He was acting as if he invented marketing. It reminded me of something a radio DJ recently said: “Miley Cyrus acts as if she invented sex.” It makes a person look silly when they act as if they invented something that everyone else knows has been around a long time.

I started thinking, how could Christensen be such a genius in understanding how businesses rise and fall if he hasn’t a basic understanding of marketing? I wrote a blog on the topic here.

Stay Away From Extremes
The reality is that Christensen is not as bad a bum as Lepore says nor as much a genius as Harvard magazine says. And even if much of what Christensen said is not new (a lot of the Innovator’s Dilemma ideas harken back to earlier work by others, such as Schumpeter’s “creative destruction” a half century earlier) it is still valuable work, because it got people to focus on an important topic.

My Core Learnings
My interpretation of the key takeaways from the innovator’s dilemma thinking is this:

1. Business leaders have a vested interest (and bias) towards protecting and growing their key sources of profitability. 

2. This causes them to:
1. Go on the offensive by continually making incremental improvements to their key sources of profitability.
2. Go on the defense by aggressively counteracting any direct competitive threat to their key sources of profitability.

3. Unfortunately, the biggest threats are usually indirect, coming from radically different solutions which are unlike the status quo.

4. Incremental improvements to the status quo won’t save them from the radical new innovation (for example, you can never make carbon paper incrementally better enough to overcome the threat of photocopy machines). And because the attack is indirect, the innovation is relatively immune from the traditional defense.

5. The best response is to move away from the status quo and embrace its radical replacement. However, to do so requires destroying much of the current profitability within the status quo. That is a difficult undertaking to get approval for. As a result, the future usually goes to the one with no vested interest in the status quo.

6. The key takeaway: The new is going to destroy the old. If you let someone else destroy your old, you are left with nothing (think Kodak and film). If you destroy your old, at least you have a chance of being left with the new. So overcome your fear of creating your own obsolescence, because obsolescence is inevitable and it’s better if you do it to yourself than to have it done by others.

These six takeaways are highly valuable, even if not new. The problem is that people have read far too much more into this concept. And that is when you get into trouble. Knowing that the new will eventually replace the old does not mean that you can always correctly know which new thing is going to do the replacing. Most new things fail. Therefore, one has to be very careful when making choices about what new things to bet on. And that is where the true genius lies.

  

Final Thoughts
We get into a lot of trouble when we label people as business messiahs. Eventually, they will not live up to all the hype and will disappoint us. But that doesn’t mean that we should throw away everything associated with them. Useful ideas are still useful, no matter the source. Just don’t read too much into them and think that a single idea solves everything.

Strategic Planning Analogy #500: Be Careful Who You Follow

THE STORY

In the wintertime, Minnesota can have some nasty snowstorms. If they come just before the rush hour commute, they can grind traffic on the highways to a stop for hours. When that would happen to me, I would get off the highway and try to make my way home via the back roads.

With everything covered in white (and even more coming down), it would be hard to see where you were driving. And if the back roads took you into unfamiliar territory, it would be even more difficult to know how to get home. Therefore, when I got onto the back roads under these conditions, I would try to find another driver who appeared to know what they were doing and then follow them.

On one of these evenings, I found a car that really seemed to know all the back road shortcuts, so I started to follow it. Everything was working out quite well until that car I was following suddenly turned up a driveway and went into its garage. It was home. I was not. And I really wasn’t very sure about where I was.

I just kept driving and luckily I soon came to a main road which I recognized. From there, I was able to find my own way home. If I hadn’t come across that familiar road, I might have been wandering aimlessly out in that winter storm for many additional hours.

THE ANALOGY

Following someone can make life a lot easier—so long as the person you are following is going to your destination. But if that person is going somewhere else, they can lead you in the wrong direction.

When that car I was following turned up its driveway, I was in big trouble because he had led me into a neighborhood I did not know and where I did not belong. He had reached his destination. Unfortunately, his destination was nowhere near my destination. I was left in a place where I was lost.

The same thing can happen in the business world. It is usually easier to follow someone else’s strategy than create one of your own. This seems easy to justify, especially if you are following the market leader. After all, that strategy made them a huge success. Won’t it do the same for me?

The problem is that they are the market leader and you are not. They have different capabilities and resources than you do. As a result, the right strategic destination for them is most likely not the right destination for you. Trying to win with a strategy designed to take advantage of someone else’s strengths (not your own) will lead you to a place where you do not belong.

But even if you are roughly similar businesses, it is usually a mistake to blindly follow the leader. After all, each strategic position can only be owned by one firm in the mind of the customer. If the leader already owns that position, then the customers will view you as an inferior version of that position, even if you do essentially the same strategic actions. Instead, it is usually better to find your own unique position (where you can win) than to be seen as an inferior copy of someone else’s position. In other words, you need to find your own home to drive to rather than follow the leader to their home and not be invited in.

A great example is Walmart versus Target. Walmart’s strategic destination was “lowest cost structure/lowest prices.” Target could have tried to follow Walmart with a similar approach, but it probably would have been a failure. Just look at the evidence. There used to be dozens of discount store chains in the US chasing Walmart which have all gone bankrupt. But Target is still going strong because it decided not to follow the Walmart strategy and went to a different destination.

Target’s heritage from its parent company was the more upscale, more fashionable department store business. This was an advantage they could leverage against Walmart. So Target chose the destination of “Cheap Chic,” the more upscale, more fashionable alternative to Walmart.

Being a desirable alternative to Walmart is much better than being an inferior Walmart clone. Both chains now could successfully coexist, because they were winning in their respective, differentiating positions. They had each chosen different strategic “homes” and took different paths to get to their homes.

THE PRINCIPLE

The principle here is that a strategy of following someone else is usually a mistake. Most of the time, it is better to develop a different strategy—one specifically suited to your unique situation (skillsets and market position).

Why Following is Usually a Mistake #1: Differences

We have already discussed many of the reasons why following is usually a mistake. First of all, every company is different. There are differences in capabilities, resources, corporate culture, geography, prior investments, product portfolio, patents, market perceptions, and so on. What works for one firm won’t work for another because of these differences. You need to choose your strategy based on what makes you unique, because it is your uniqueness which provides the competitive edge needed to win.

There is no single best strategy for everyone in an industry. If there were, we’d be in trouble, because then you would only need one company per industry—the one best at executing that single strategy. Fortunately, there are many different ways to win a segment of the industry. You can choose to win on a variety of attributes, like price, service, customization, quality, speed, or specialization to a particular segment (such as a particular customer segment, geographic segment, usage segment, or solution segment). Rather than imitate someone else, find the place among these options which is best for your unique situation.

Throughout history, there have been business leaders who have had a great reputation for success. At one time, it was Jack Welch at GE. More recently, it was Steve Jobs at Apple.  Each time one of these business superstars appears, I’ve seen many leaders trying to implement the identical leadership styles (and strategic approaches) of these superstars in their own businesses. They try to follow these leaders just like I followed that car in the Minnesota winter. And usually, the results are similar to my experience. They end up lost rather than having success similar to these superstars.

Why? Well, the personality style of these superstars may be different than the natural style of those trying to imitate them. That difference makes it hard to be genuine and effective with that unnatural style. In addition, you are placing that leadership style into a different context. That style may not be the best for that context. These differences can make following these superstars a mistake.

Consider the fact that even Steve Jobs was not incredibly successful everywhere he went (think about when he ran NeXT). And many of the people highly trained at GE in the Jack Welch style had unsatisfactory results when they left GE to run companies in a different context. If they couldn’t pull it off when the situation is different, why do you think you can?  Differences matter and can make imitation inappropriate.

Why Following is Usually a Mistake #2: Only One Leader at a Time

Another problem with following has to do with the laws of positioning. As Al Reis and Jack Trout pointed out in their works on positioning, consumers will mentally place only one firm as a leader in a particular position. Everyone else is seen as inferior. And once someone locks into that leadership position, it becomes extremely difficult to unseat them from that top position. As a result, Reis and Trout recommend that if you are not the leader in a particular position, go and find a different, uncontested position where you can win.

This is like when Target did not try to unseat Walmart from its position but found a different place where it could win. Another example would be social networking where anyone essentially trying to copy the success of Facebook (like Google+) is failing. However, Linkedin differentiated by going after a different customer segment (business professionals) and has done well.

There was a time, generations ago, when industries held more financially viable players for a given position. But due to consolidations, the power of networks, price wars, and greater transparency, the number of profitable players in a given position keeps shrinking. Often, only one player per a given position makes a respectable return on investment. If you are not the top player in your position, you will probably be a poor investment. So, instead of copying someone else’s position, find a different place where you can win.

Exceptions to the Rule

Does this mean that following is always a bad idea? No, there are a few situations where following is okay.  One such situation is when critical mass is needed to get an industry started. For example, when the next generation of DVDs was being developed, there were two competing technologies—Blu Ray versus HD-DVD. This created uncertainty in the marketplace. Customers were reluctant to purchase either one for fear that they would choose the wrong format. It wasn’t until the players in the supply chain (movie studios, media player manufacturers, retailers, etc.) started following each other in one direction (Blu Ray) that the critical mass was formed to get customers to buy.

Another example could be electric cars. Until consumers are comfortable that the right technology is found (and the compatible charging infrastructure for it is in place), they will hesitate to buy.  

This is similar to the Blue Ocean strategy which talks about abandoning the status quo to open up entirely new industries. Sometimes you need a critical mass of players following each other into the new blue ocean in order to make to new industry look real and viable.  If the new market is big enough, it may be worth following to get the market jump-started.

Another time to follow is when an industry is still developing and you have special leapfrogging skills. The idea hear is to let others test the waters of innovation and take all the risks of failure. Then, when they hit upon the rare success, be a fast follower and overtake them in the race for leadership. This has been the strategy of Coca Cola for decades. Coke lets other people invent markets (like diet cola, cola in cans, bottled water, sports drinks, energy drinks) and then they use their superior distribution skills to overtake the upstarts and dominate the new business. As long as an industry is still unsettled, the fast follower approach can work if you have the capabilities to outrun the innovator.

However, even in these two cases, the benefits of following are temporary. Eventually, the markets will mature, and following won’t work anymore.

SUMMARY

Although following someone successful may seem like a path to similar success, history would say otherwise. The followers usually lose because either:

a)     They are in a different situation than the leader which makes their strategy not applicable; or

b)     The leadership in that position is already owned by the leader and you cannot take that leadership advantage away from them.

Therefore, rather than follow someone else, find the unique path that is just right for you.  

FINAL THOUGHTS

Eventually, I mapped out my own back roads for when a storm hit in Minnesota. That way, when the storms came, I was following my own path, rather than the path of someone else. That worked out a lot better. You should do the same.