Strategic Planning Analogy #442: Taking Vs. Receiving

THE STORY
During the 1920s and 1930s, Willie Sutton was one of the most prolific bank robbers in US history. During his lifetime, Willie Sutton robbed over 100 banks and made off with more than $2 million (which would be equivalent to about $30 to $60 million in today’s dollar).

Legend has it that when a reporter asked him why he robbed banks, Sutton replied, “Because that’s where the money is.”

THE ANALOGY
The reporter’s question could be interpreted two ways—Why do you steal or Why do you steal from banks. The reporter meant the first, but Willie Sutton answered the second.

In a sense, the reporter was trying to figure out why Sutton chose a life profession (stealing) which most people found undesirable. Since Sutton had no problems with the profession of stealing, he focused on the most efficient way to do so (go to where the most money is).

This is similar to a strategic question businesses should ask themselves: Why did you choose this path to profitability?

And just as the way Willie Sutton answered his question said a lot about his character, the way you answer this second question may say a lot about the character of your business and its culture.

If your answer focuses primarily on the “path” part of the question, then your culture most likely tends to be focused on building business models that add value to the marketplace. And because you add value to the marketplace, you can extract a profit (a portion of the value added).

However, if your answer focuses primarily on the “profitability” part of the question (saying “because that’s where the money is”), then the character of greed may be starting to overtake your thinking. Rather than thinking about adding value, one is more focused on grabbing as much as possible from where the piles of cash already are. Rather than looking at where to add, you look at where to subtract (what piles to take money away from). It’s starting to slip towards the Willie Sutton mindset.

This is not to say that making a lot of money or profits is bad. But if the money is made in a way that does not add value to the marketplace, then the model is unsustainable over the long run. Just as banks don’t like to be robbed, customers don’t like to be taken advantage of. Willie Sutton spent about half of his adult life in prison and did not get to fully enjoy the fruit of his stealings. Similarly, businesses which do not focus on adding value are punished—taken out of the marketplace so that they can profit no longer.

THE PRINCIPLE
The principle here has to do with the difference between a taking versus a receiving mindset. A “taking” mindset is focused on grabbing money by whatever means possible. A “receiving” mindset is focused on doing something so valuable that customers willingly shower them with money (no need to grab). In the long run, a receiving mindset leads to more enduring strategies.

This principle was brought to mind by the March 14, 2012 editorial in the New York Times by Greg Smith. Smith, an executive in the London office at Goldman Sachs, used the editorial as his resignation letter. In the article, he said he was leaving Goldman Sachs because, to use my terminology, the Goldman Sachs culture had become like Willie Sutton—all about taking rather than receiving. Rather than focusing on adding value to its clients, Smith claimed that Sachs was focused on doing whatever it takes to grab the clients’ money, even if it is not in the best interest of the client.

To quote from the editorial:

“I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them...”

“What are three quick ways to become a leader [at Goldman Sachs]? a) Execute on the firm’s ‘axes,’ which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) ‘Hunt Elephants.’ In English: get your clients—some of whom are sophisticated, and some of whom aren’t—to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym…

“These days, the most common question I get from junior analysts about derivatives is, ‘How much money did we make off the client?’ It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave.”

Smith also claimed that many leaders at Goldman Sachs referred to their clients as “muppets” in their emails. And I’m pretty sure that was not a term of endearment.

So what happens when this culture takes over? Smith got it right when he said “If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.”

A “taking” mindset may work for awhile, but eventually the people being taken figure it out. And they will stop letting you take from them any longer.

So what should you do to keep a Goldman Sachs type of situation from occurring at your business?

1) Be Careful how You Lead
Employees watch how the leaders operate. If the leaders show a “taking” mindset and refer to customers as muppets in emails, then the followers will see this as desirable behavior. The old phrase “do as I say and not as I do” doesn’t cut it. With today’s technology, leaders have nowhere to hide. They will be imitated. So set the right example.

2) Manage the Agenda
How much of your meeting time is spent on the taking agenda versus the receiving agenda? How much time is spent talking about adding value for customers versus taking their money? You have the power to control the agenda. Make sure the receiving agenda gets the proper amount of focus, especially at the point when actual decisions are being made. Make sure it is part of the decision-making equation.

When I was at Supervalu, a wholesaler to independent grocers, we had a saying that our job was to "make the independent grocer as wealthy as possible." This was a true value-added receiver approach, since it assumed we would only be a profitable wholesaler if we first made sure we had profitable retail customers. The problem was that I didn't always hear that phrase at the time when decisions were being made. There was room to improve in getting the phrase onto the agenda.

3) Measure the Pulse of the Organization
Don’t assume that everything is alright. You may have a situation like Goldman Sachs had in London, where the perception of right behavior had gotten out of control. Monitor the mood and culture in your organization on a regular basis. Learn about a drift in the wrong direction early, while there is still the opportunity to rectify the situation.

4) Treat Strategic Planning Seriously
Strategic planning helps focus a company on the bigger, longer term issues. And in the long term, a receiving mindset is almost always the best path. Use strategic planning as an excuse to find ways to add more value to your customers. Use it to build a business where customers want to shower you with money because it is worth it to them in what they get in return. Strategic planning is one of the rare times when you can get people out of their daily rhythm and get them properly focused on the larger goal. Don’t waste that opportunity.

SUMMARY
There are two different mindsets one can bring to the goal of profitability. The “taking” mindset looks for ways to grab money out of people’s hands. The “receiving” mindset realizes that if you focus on building a superior business model for adding value to clients, they will voluntarily give you their money to obtain of that value. In the long run, the receiving approach is preferred, so make a point of proactively enforcing that mindset within the organization.

FINAL THOUGHTS
In the movie “It’s a Wonderful Life,” the George Bailey character runs his savings and loan business with a value-added mindset. His customers are all better off because of doing business with him. In fact, as the movie points out, if George Bailey hadn’t been alive to run that business with a receiver mindset, a lot of those people would have been in a terrible situation. As a result, when George Bailey gets into financial trouble, all his customers come and shower him with money (now that’s being a true receiver). Of course, it doesn’t always work out so dramatically in real life, but I think the title holds true. With a receiver mindset, it is a more wonderful life.

Strategic Planning Analogy #365: Strategy by Appearance

THE STORY
In the world of fast-food restaurants, Wendy’s wants to be known as the place for fresh, healthy, natural food. They refer to that as “real food.” To quote Ken Calwell, Chief Marketing Officer of Wendy’s, "We want every ingredient to be a simple ingredient, to be one you can pronounce and one your grandmother would recognize in her pantry.”

To build upon this image, Wendy’s recently reformulated its french fries, the first reformulation in 41 years. The new fries are called “”Natural Cut French Fries with Sea Salt.” The two key elements of the reformation were as follows:

1) Replace regular Rock Salt with Sea Salt.

2) Leave the Potato Skin on the french fry.

The idea was that sea salt is associated with healthiness more than regular rock salt. In addition, leaving the skin on shows that these are real pieces of potato, not a processed potato slurry. In combination, this gives the impression that the new fries are a healthier, fresher, more natural food.

But here is what Wendy’s is not advertising. Salt has sodium, whether it is sea salt or regular salt. And the new fries have more sodium than the old fries. One report I saw said the sodium for a regular serving went up from 350 to 370 milligrams of sodium. Another report I saw said the new fries have 500 milligrams of sodium. Either way, it is more sodium, and that is not good for you.

In addition, the new fries from Wendy’s have more calories per serving than the ones they are replacing.

No wonder tests showed that people liked the taste more—there was more sodium and more calories. Yet the new formula gives the impression that the new fries are healthier. That’s a pretty neat trick.

THE ANALOGY
Great strategies own a great position in the marketplace. But what does it mean to “own” a position? Positions aren’t owned just because the facts are on your side. Look at Wendy’s. Their new french fries really aren’t all that fresh and healthy. The facts say they are increasing the sodium and the calories. Yet Wendy’s is building a stronger reputation for its fresh and healthy position with these new fries.

No, positions aren’t owned based on published facts. They are owned based on consumer impression. Or, to quote Jack Trout and Al Ries, positions are won in the mind of the consumer. And the consumer makes up his or her mind based on a variety of inputs—and not all of the inputs agree with the facts (is sea salt sodium really better than rock salt sodium?).

So, just as Wendy’s marketing success is based a lot on impression (rather than fact), so is strategic success. Just because you have all the facts on your side does not mean that your strategy will succeed.

Instead, strategies win when they cause behavior to change in your favor. And you will not create a change in a person’s behavior until you first change how a person thinks about that situation. After all, if my impression towards your brand hasn’t changed, then why should you expect me to change my actions towards your brand? Therefore, strategies need act like Wendy’s and incorporate strong impression triggers (like sea salt and skin-on-potatoes) to help increase the desired change in impression.

THE PRINCIPLE
The principle here is two-fold. First, strategic management is really the management of mental impressions of all the key stakeholders. For example, if you want competitors to back away, then give them the mental impression that attacking you would be a fool’s errand. If you want consumers to prefer you, then give them the mental impression that you are the best at meeting their needs. If you want to get adequate financing for your strategy, give the lenders the impression that you are a great credit risk. And so on…

The second principle is that effective management of mental impressions requires more than just facts. Minds are influenced in a variety of ways. For example, there is a reason why lawyers and bankers tend to have elaborate offices. It is because banking and legal competency is difficult to see at first glance. Therefore, elaborate offices act as a visual substitute—a quick way to create a mental impression of competency and expertise (They must be competent, because how else could they afford these elaborate offices?). The elaborate office is their version of the sea salt.

Therefore, when creating your strategy, you need to consider two things. First, what are the impressions I want in the minds of all the stakeholders? Second, what can I use as visual triggers to make that impression stronger?

Oxydol
One of the best examples of visual triggers was Oxydol detergent. Back in the middle of the 20th century, Oxydol’s strategic position was to claim superior cleaning due to putting bleach right in the detergent. This was a hard position to sell, because the detergent looked just like all the competitors. Why should a customer change their mental image and view Oxydol as superior?

That was when Oxydol started coloring 5% of the detergent with a harmless green dye. Suddenly, Oxydol looked different from everyone else. Now that consumers could see an obvious difference, they were more willing to change their mental impression of the brand. It must be better, they thought, because it has green crystals not found in any other brand of detergent. So even though the green crystals did not change the cleaning ability of the detergent, they got people to believe more strongly in the superiority of Oxydol’s bleach-in-the-detergent strategic position. This lead to Oxydol becoming the leading detergent in the US for many years.

Wal-Mart
In the early years, when Wal-Mart was trying to establish its low price strategic position, it would get into massive price wars with everyone. One of the more famous price wars had to do with the price of blue jeans. Wal-Mart and another retailer kept taking turns trying to get a lower price than the other on blue jeans. Eventually, Wal-Mart lowered the price to 9 cents—virtually free.

How did these dramatic and highly visible price wars impact mental impressions? Well, first, consumers became more firmly convinced that Wal-Mart would do anything to have the lowest price. They became so confident that Wal-Mart was always lowest priced that they did a little less price checking. They just assumed they would be better off shopping Wal-Mart. Second, other retailers learned that it was futile to try to beat Wal-Mart on price. As a result, other retailers voluntarily let Wal-Mart get a small price advantage in order to avoid future price wars. In the end, the strategic price position was stronger and competition was weaker—because of a superior management of mental impressions.

As a side note, I think one of the reasons why Wal-Mart has struggled a bit internationally is because they did not do as much of the radical visual examples of price dropping in these countries as they did early on in the US.

Progressive Insurance
In a more recent example, think about Progressive Insurance. Progressive wanted to own the low price position in US auto insurance. The problem is that nearly all auto insurance companies claim to have competitive prices. And insurance can be so complicated that it is hard to make direct comparisons to validate those claims. Therefore, a visual substitute was needed—their version of sea salt or elaborate offices.

The answer was in providing comparisons. Whenever you ask Progressive to give a price quote, they will simultaneously provide the price quote for a few of their competitors. This leads to the following mental impression: Progressive must be really confident that they have lower prices, because they are willing to give you quotes for the competition as well. If Progressive is that confident in their low prices, then I should be, too.

Total Cereal
Back in the mid 20th century, Total cereal owned the position of most nutritious cereal in the US. They did this buy guaranteeing that each serving of the cereal had 100% of the essential vitamins. Then, in the 1970s, a new type of cereal started to take away that position from Total. The new cereal was a granola-based cereal, in particular a version produced by Quaker. Quaker created the mental impression that granola cereals provided superior nutrition, because it was similar to those muesli cereals sold in the health food stores, which are popular as the healthy breakfast in much of the rest of the world.

Total was losing the mental impression, even though the facts would show that Total had more vitamins and minerals than the granola cereal. General Mills seriously considered ceasing production of Total cereal—shutting down in defeat. In the end, they decided to try one last time to regain the mental impression. They did it though commercials showing how many bowls of granola one would have to eat to equal the nutrition of one bowl of Total. It was a strong visual statement—a tableful of granola bowls versus one bowl of Total.

In the end, Total regained its position and is still going strong even today. The Quaker granola cereal—in its original form—is no more.

SUMMARY
For strategies to succeed, they much change behavior in the marketplace to one’s benefit. Behavior only changes after mental impressions are first changed. Therefore, effective strategies are designed to change mental impressions. However, just having the facts in your favor may not be enough to change mental impressions. Therefore, great strategies not only find great positions, but also great visual cues to easily drive home that position in a strong way—even if the visual cues have little to do with the facts.

FINAL THOUGHTS
Don’t think that this principle only applies to consumer strategies. It also applies to the world of B to B. Mental impressions impact industrial and business buyers as much or more than consumer buyers. An industrial buyer can lose his or her job if their decisions appear unwise. Therefore, they also look for those visual cues that will bring more approval from their bosses (who may not understand the “facts” behind the decisions).

Strategic Planning Analogy #312: Who is that Old Woman?

THE STORY
Back in 2002, there was a movie released, called “About Schmidt.” In the movie, Jack Nicholson plays the part of Warren Schmidt, a man beginning the retirement phase of his life.

At the beginning of the movie, Warren is introducing us to the people in his life. At one point in the introductions, the movie is showing Warren uncomfortably trying to sleep with his wife Helen. The voiceover from Warren during this scene is as follows:

“Helen and I have been married 42 years. Lately—every night—I find myself asking the same question: Who is this old woman who lives in my house?”

THE ANALOGY
The point of that scene in the movie was that for years, Warren had a mental picture of his wife more similar to that of the woman he had fallen in love with and married so long ago. His mental mindset had not kept pace with time.

Over the last four decades, Helen had changed quite a bit. However, because the changes had come so gradually, they were hard to perceive on a daily basis. Therefore, Warren’s perceptions had not picked up on how much cumulative change there had been to Helen.

Now that he was entering retirement, Warren was taking a fresh look at the fact he would be spending a lot more time at home with Helen. He looked over, and instead of seeing that young women he had married, he saw an old women in bed with him. It was a shock to him because reality had matured a lot faster than his perception. The mental picture of his wife had been replaced with this old person who seemed strangely different.

I believe this phenomenon happens a lot in the business world as well. Companies and industries age and go through life stages just like people. A young, vibrant, growing business over time can become an old, ugly mature and declining business. It may happen so gradually that you do not perceive the change on a daily basis.

Someone may have entered the business back in the young glory days and spent years working their way up to senior management. The busyness of the daily activities blinds them to the gradual aging of the business. Then, one day the person finds that results are getting harder to deliver. The old business tricks they learned in the glory years aren’t working any more. Suddenly, they take a fresh look at the business and are shocked to realize that the business is now old and dying. “Who is this old business who lives in my headquarters?”

THE PRINCIPLE
The principle here is that the proper strategic approach is different, depending on the life stage of the business. Young start-ups in the garage need a different type of strategy from that of a mature business, and so on. We’ve talked about that in prior blogs (too many to link--try this, this, and this for starters).

In theory, that all sounds so logical. In reality, however, it is a little more difficult, because the transitions from one phase to the next are gradual. It’s not like on Tuesday you have dynamic growth and on the following Wednesday you are in the middle of maturity. You don’t get a tweet on your Blackberry which says: NOTICE – TODAY WE OFFICIALLY ENTERED MATURITY.

If we are not diligent in our observations, the transition can sneak up on us and surprise us. We don’t realize that the woman in bed with us is now an old lady with behaviors that are strange to us. By the time we wake up to the new reality, it may be too late to adapt in a way that optimizes our potential.

I think this phenomenon is particularly prevalent in mature economies, like the USA. Many formerly high growth industries in the US are maturing, and I think a lot of the leaders at these firms are in denial. Their mental picture has not kept up. As a result, their actions are out of sync with reality—they are sub-optimizing.

This phenomenon can also occur in younger economies, like India, where seemingly wide-open industries suddenly are filled by large multi-national firms who seem to sneak in from outside the country.

How can we keep from sub-optimizing due to having the wrong mental picture of our firm’s lifestage?

1) Challenge Your Assumptions on a Regular Basis
How often do you ask yourself if your business is near (or within) the transition to a new lifestage? If you never ask the right question, you will always be surprised by the outcome when the transition occurs. You don’t have to do this every day, but maybe once a year is a good idea. Put it on your calendar.

2) Read the Dials With an Open Mind
When a business is going through a transition, the transition tends to alter the performance of many metrics. Sales growth may slow, profit margins may shrink, customers may leave, and so on. If you mental mindset thinks that the overall lifestage has not changed, you may pass off these changes to your metric performance as “minor aberrations” or “due to the bad economy.”

Then, instead of adapting to the new lifestage reality, you continue with the tactics more appropriate for the former lifestage. Perhaps you even work harder at the old tricks in an attempt to bring back the old metric results.

I’ve seen this happen with the “sales” metric. As a business moves into maturity or decline, the natural growth in the industry goes away. Leaders who are used to all that natural sales growth get concerned when the growth dips. Therefore, they work harder to get back the old sales growth rates. However, the only way to do that is to aggressively try to take share from others. Getting large swings of market share during maturity often requires cutting costs so much (or adding so many extras to the offer) that all the profit is wiped out. You would have been more profitable accepting the lower sales growth and moving to mature industry strategies like cost control.

Therefore when the dials on the metrics you follow start to change, consider whether this might be an early warning sign that your business is moving on to the next phase of its life. Keep an open mind, not automatically assuming that this is just a temporary aberration. It may just be an aberration or an issue with the macro economy—but then again, it may not.

Like cancer, it is always better to detect these things early. Then you can deal with it when the problem is still small. By the time the dials have swung greatly on your metrics, it may be too late to effectively adjust to the new realities.

3) Have a Diverse Network
Don’t surround yourself with people who are just like yourself. Then all you have is a bunch of people with the same out-of-date mental mindset who reinforce that mindset though their agreement.

Instead, have regular contact with people of different ages and backgrounds. Young people aren’t as burdened by past perceptions and out-of-date mental models. They may see the transition sooner and more clearly. The fact that it may be difficult to even hire young people at your firm (because they perceive your industry to be old and in decline) can give you great insight.

Conversely, older people may have already gone through business transitions before. That experience can be invaluable in helping with this new transition. It may also give you more confidence to transition your strategy, since you have someone who knows the way.

SUMMARY
Although it may be obvious that different lifestages of a business require different strategic approaches, this knowledge is worthless if you are blind to which life stage you are currently in. Transitions may be occurring right under your nose and they are not detected, because it happens so gradually. To remedy the situation, question your assumptions on a regular basis.

FINAL THOUGHTS
In the movie About Schmidt, Warren was so out-of-touch with how old his wife Helen was that he was completely unprepared when his wife suddenly died. His lifestyle deteriorated rapidly and he never fully recovered. Your business may be closer to “death” than you realize. If you are unprepared, your business may not fully recover either.