Strategic Planning Analogy #566: Regimented Plans

THE STORY
Way back when I was getting my MBA, the accepted rules for success in marketing went like this:

1.     Get an MBA in marketing from a top-tier business school.

2.     Immediately go work a few years for Proctor & Gamble (P&G).

The idea was that if you had a top tier MBA and P&G experience on your resume, you could go and do almost anything in marketing. Your long term career was set for life.

There was a woman in my class which took these rules to heart. She made them her life plan. She was currently getting her MBA like me from a top tier school. Then her plans were to immediately go to work for P&G.

As you can imagine, she was very excited when the P&G recruiters came to campus. Actually, she was a little bit too excited. For years, this next step had been a part of her life plan and she could hardly contain her excitement and nervousness.

A short time after the P&G visit to campus, I noticed that I hadn’t seen that woman around campus recently. I asked someone what had happened to her. I was told that she had suffered a nervous breakdown and would probably not be returning.

I guess her experience with P&G had not gone as planned and she took it a little hard.

THE ANALOGY
Strategic planners tend to like plans. The idea is that if you have the right business plan, and follow it to the letter, your company will have success for a long time. This is similar to the thinking of that student. Follow the plan (top-tier MBA, experience at P&G) and your career will have success for a long time.

The problem this woman had was that she apparently did not get the job at P&G. Her plan could no longer be completed as designed. Since she did not have a back-up plan, she lost her composure and had a nervous breakdown. In the end, she didn’t get the MBA or the P&G job and probably ended up with a career far less desirable than the one she had planned for.

The potential for this type of negative outcome can also confront strategic planners and their plans for their business. Their plan may be meticulous and well thought out, but for some reason, not all the pieces come together as planned (for any number of reasons—controllable or uncontrollable). If you are too emotionally attached to the original details or have no backup if something goes wrong, things can get pretty messy for the business. Instead of getting even a portion of the success dreamed of, you end up with nothing.

THE PRINCIPLE
The principle here is that the goal of planning is not to make perfect plans. We live in an imperfect world. When a perfect plan encounters an imperfect world, the plan is usually the first to crack. Setbacks are not a rare occurrence…they are the norm. Therefore, if your entire future is predicated on everything going exactly as planned, you’re in trouble. You have nothing to look forward to, except perhaps a nervous breakdown.

Well, if the main job of planners is not to create perfect plans, what is their role? The role of the strategist is to:

Facilitate the process which causes the long term future of the company to be better than what would naturally occur if a company only focused on opportunism or fixing the immediate concerns.

The goal is not perfect plans, but a better future. Companies tend to get fixated on attending to the immediate crisis of the day. By being held captive to today’s pressures, little time is left for long-term concerns. I refer to this as the Tyranny of the Immediate.

The strategist’s role is to create more balance between the near-term and the long-term. By getting more long-term thinking into the daily decision-making process, the future will arrive in better shape than what would otherwise occur.

Yes, this process usually includes making plans. But the plans are merely tools to help create the real objective of a better future. And because the future is messy, the plans will be a little messy, too.

Problem #1: Placing Tactics Over Goals

The problem with focusing on executing the perfect plan is that tactics can mistakenly become more important than the objectives. We can become so focused on doing each step of the plan exactly as conceived, that we end up failing to recognize that there may be other, better ways to obtain the larger objective.

My fellow student was so focused on the tactic of getting the job at P&G that she forgot about the greater goal of having a great career in marketing. When the tactic failed, she gave up. In reality, there are many paths to a great career in marketing. She should have focused on the larger picture and found another way to achieve the greater goal.

For example, I know of a retailer that wanted to enter the Nevada market. The tactic in the plan was to purchase a retailer who already had a presence in Nevada. Unfortunately, another retailer ended up purchasing this company. If you only focused on the tactic, you would now walk away defeated, like the woman missing out on getting into P&G.

But here’s what happened. As it turns out, the retailer who bought the company had already started retail development in Nevada on their own. They no longer needed this. So the company that lost out on buying the firm purchased the development in progress from the company that did purchase the firm. In the end the strategic objective was met with a different tactic. They didn’t give up; they merely found another way to achieve the greater goal.

Plans are not to be written in stone, unable to be altered. There needs to be room for flexibility to adapt to the changing situation.

Problem #2: Mistaking Opportunism for Flexibility

So let’s say you get over the idea of creating perfect plans and decide to become more flexible. You can still run into problems if you get too flexible. Too much flexibility results in abandoning planning and just chasing the latest hot opportunity. The problem with chasing opportunistic fads is that if you bring no strategic advantage to the opportunity, you will end up failing.

It doesn’t matter how “hot” the opportunity is. In the end, the market will consolidate, leaving most of the participants as losers. If you do not bring a competitive advantage to the space, you will lose. 

Look at the smartphone industry. It was a very hot space. Lots of firms jumped into the space. Only Apple and Samsung made any money. Everyone else lost. Building social media platforms was also a hot space. Lots of people opportunistically jumped into the space. But when you get past a few firms, like Facebook and Linkedin, you see that most of the people who jumped in lost.

Being flexible is not the same thing as being opportunistic. Being flexible means being willing to alter tactics to achieve a previously chosen strategic goal. Opportunism, by contrast, is just chasing whatever is hot at the moment. If you have no strategic advantage in that space, you are just pouring money at the problem. Money is relatively easy to get, so a lot of people will be pouring money into the hot space just like you. In the end, you are just pouring money down the drain, because you have not brought any strategic justification for winning in the space against all of the others chasing the same hot opportunity.

The better approach is to first build strategic superiority by focusing efforts on improving expertise in a particular area. Then, when an opportunity pops up which matches your point of superiority, you jump in. Now you’ve moved from mere opportunism to exploiting strategic advantage in a place where you can win.

Apple won in smartphones because they brought a lot more than mere money. Apple had a great brand image in that space, they knew how to source the product, they knew how to design a more appealing product, they had distribution in place, they had the right connections with content providers, they knew how to build a closed system to surround the product, and so on.

If Apple had gone after another hot space, like craft beers, I doubt they would have had as much success, because it was not as good of a strategic fit.

You will never have superior strategic fit if you don’t plan for it. So planning is still essential. You need a plan that builds a reason you can win. Flexibility does not negate that chore. But never forget that the reason you build a way to win is so that you can eventually win. The path to get there may not be as straight a line as you want, and there may be detours along the way. Don’t give up when the detours come along. Just pick yourself up, adjust, and continue towards the greater goal that you have planned for.  

SUMMARY
Strategy is not about building perfect plans. The world is too messy for perfect plans to survive fully intact. Setbacks will occur. Don’t let the setbacks create a nervous breakdown. Instead be prepared for flexibility on the way to your ultimate goal. But don’t let a desire for flexibility result in the complete abandonment of planning to be replaced by opportunism. Opportunism only works when you already have a plan in place for how you can create strategic superiority in that space. Without the prior planning to create a winning advantage, you will lose, no matter how “hot” the opportunity appears.

FINAL THOUGHTS
It’s easy to fall into the trap of focusing on building and executing the perfect plan rather than focusing on building the better future. After all, it’s easier to show off your contribution and easier to measure your progress on getting something done when “checking off the tactics on your list” becomes the goal. But don’t confuse getting tactics done as the same as moving your company into a better future. It’s a bit more complicated than that.

Analogy #181: Criticism Vs. Creation

THE STORY
Sometimes, I find it difficult to get customer service. It doesn’t always seem like the sales help want to volunteer the service. Therefore, I sometimes have to take actions into my own hands and create a reason for them to pay attention to me.

For example, one time I was at an airport and I couldn’t get a single airline employee to talk to me about a problem I was having. They kept walking away and hiding in an employee only room. Well, /I decided to react by going over to one of the locked doors leading to an airplane gate and started pushing numbers at random on the keypad on the door.

Well, suddenly one of those employees who had previously been running away from me started running towards me. Once I had their attention, I was able to explain to them my concern. (Note: I did this prior to 9/11. I’m not sure I would repeat that act in this new era.).

Other times, I have had trouble getting service in retail stores. I’ve found that if you get really, really close to their cash registers (perhaps even getting behind one and starting to randomly punch buttons), you can get some service rather quickly.

One time I was trying to purchase an automobile, but I couldn’t get the attention of any of the sales people. So after waiting about a half hour, I walked into the cubical area where salespeople’s desks were. I sat down behind one of the desks and started looking at all the paperwork on the desk. When I started doing that, it only took a few minutes before I got some attention from a salesperson.

So you see, if you cannot get people to volunteer to give you service, you can get them to quickly react to a problem. So create a problem and you can turn that into service.

THE ANALOGY
As these examples illustrate, many sales people seem to have far more difficulty voluntarily creating service than in reacting to problems. Perhaps reacting to problems comes easier to them.
Strategic planning is often a creative process. One has to create business missions, goals, strategies, documents, power point presentations, and so on.
Many people struggle with starting the creative process. There may be a psychological block, or an inability to know where to begin. The people may be self-conscious about being associated with something “creative” and afraid that people will make fun of their creativity.
As a result, it may be as difficult to get a creative strategic project started as it is to get someone to start giving you service at a store. Therefore, use the trick I learned in the story…don’t ask them to create something new. Instead, give them a problem for them to solve. If you give them the right kind of problem, solving it will result in the creative outcome you were looking for in the first place.

THE PRINCIPLE
The principle here is that, for most executives, it is easier to react to something than to create something. Therefore, instead of asking executives to do an unnatural act (e.g., creation), turn it into something like problem solving, which they tend to be good at and enjoy doing. We will now look at three ways to accomplish this, called “Butchering’” “Blathering,” and “Backing.”

1) Butchering
Although many people have trouble starting their own creation, they have no trouble criticizing the creation of someone else. Therefore, your job can be to roughly sketch out the creative part in advance—be it the business mission, the strategic intent, the targeted positioning, or whatever. Then let the crowds have at it and butcher away at what you came up with. It’s like art. Few people are good at creating it, but the great masses have no trouble criticizing it.

Don’t make it too polished. Then the crowd will feel like the content was thrust upon them. They want to feel like they had a say in its creation—they just don’t know how to create it. So rough out something that covers all of the key points which need to be addressed. Call it a rough draft. Then let the butchering begin.

People will gladly change words or phrases. Some of your word choices could spur on lively debates. In the end, the final content may bear little, if any, resemblance to the original document. But that’s okay, because in the end you got what you wanted—a creative document built by, owned by and agreed to by the group as a whole.

So don’t take it personally when your work is butchered. That was the whole idea. It was like me being a pest to get service at the store, airport and car dealer. My goal was not to be a pest, but to use that as a starting point to engage with the sales staff.

2) Blathering
Most executives I know love to hear the sound of their own voices. Getting them to talk is no problem. So take the key issues you want to be addressed in your creative strategic project and convert them into provocative questions. Then, shut up and let the group blather away in discussing the issues.

What comes out of the blathering discussion may not be very coherent or consistent. It can drift onto all sorts of adjacent topics. It will not be a polished piece of creativity. But that’s okay, because you will get a benefit from it. You’ll get the jargon the group is comfortable with, the consensus of how people feel about the issues, and a sense for how people link ideas together.

After the blathering session, you can take all of this raw material and sew it into a beautiful quilt. You take on the creative act of making sense out of the nonsense. You can create great mission statements or other strategic gems that have enough of their jargon in it that they feel they had a hand in writing it. You can prioritize things based on the priorities in the blathering.

In the end, it may not exactly mirror the discussion. Given that strategic choices must be made and more than one option was discussed, you will have to make the ultimate choices. But it will capture enough of the “feel” of the discussion that the group will buy into it as if it were their own.

This is similar to the concept I wrote in a prior blog about taking the minutes of a committee meeting (see"Minutes Last Forever”).

If necessary, after you write up the creative piece, you can subject it to the butchering process mentioned above.

3) Backing
A third approach is to give people the opportunity to vote. Provide some options and ask the group to pick one or to rank order the list. Executives are used to making these types of decisions, so it should come very naturally to them. Once the voting is in, you know what aspects the group is willing to back and which ones they would not choose to back.

Then, your job is to craft the creative document based on knowing what was backed as a priority. Once the votes are in, the decision is made, so the executives should have little difficulty accepting your creativity if it matches the way they voted.

Again, if you want, you can subject your creativity based on the voting to a butchering session.

SUMMARY
The act of creativity can be very difficult for many, particularly the beginning part of starting the process. Therefore, instead of asking people to start creativity from a blank slate, start the process in a less threatening way. Use tools like blathering, butchering and backing to elicit opinions which can then be crafted into the final documents.

FINAL THOUGHTS
When you rely more on criticism than creativity from executives, you will feel the heat of the criticism. Don’t take it personally. It is part of the job. A dear friend of mine used to say that if you want to be successful as a strategist, you had better like pain.

You're Getting Warmer

The Story
There is an old children’s game where a person hides something and then all of the other children have to find it. The only clues given to the children looking for the item are comments made by the person who hid the item. For example, if the seekers are moving in a direction that is getting closer to the location where the object is hidden, the one who hid the item says, “You’re getting warmer.” If the seeker is moving in a direction further away from the object, the one who hid the item says, “You’re getting colder.”

When the seekers are really close the hidden object, they hear the words, “Your’re getting hot!” If they continue to get even closer, they may hear the words, “Now, you’re really hot!!…You’re boiling hot!!!” Eventually, these clues will allow someone to find where the object is hidden and the game is over.

The Analogy
Unfortunately, the annual planning process at many companies is played very similarly to the game mentioned above. It goes something like this…

First, the business units are asked to submit their strategic plans to the corporate headquarters. They are not given much guidance other than to “do the best they can.” The people at corporate then look at the numbers submitted and do not like what they see. They tell the business unit that they are not close to submitting what they need to and they must try again. The would be the equivalent to telling the business units “You are getting colder.”

So the business unit submits a revised plan. It’s still not what the corporate planners want to see, so they tell the business unit “Nice try, but not good enough. You’re getting warmer, though. Try again.”

This process repeats itself over and over again until the corporate planners tell the business unit, “You’re very hot!! You’re boiling hot!!!” At last, the business unit has found the hidden numbers that the planners had been looking for since the beginning. The game ends until next year.

Although this might make for an entertaining game, it is not a very good way to run a business.

The Principle
It shouldn’t surprise people that the process mentioned above quite often leads to strategic plans that never come to pass. After all, the business unit ended up submitting a plan that it did not believe in. The goal was not to come up with the best plan, nor the most believable plan, but with the “acceptable” plan. Second, the corporate level leadership did not provide any meaningful assistance to help the business unit to meet the plan. It was just a game.

The game fails, because it is based on three of faulty assumptions:
1. Declarations are the same as plans
2. A corporate plan is the sum of individual and unrelated business unit plans
3. All goals must be met by current units

Each of these faulty assumptions will now be elaborated upon.

Faulty Assumption #1: Declarations are the Same as Plans.
Just because somebody makes a declaration does not make it so. Putting in a plan the words “My division will move from a market share of 15% to 40% in three years” does not guarantee that this will happen. Words are nothing more than promises. If there is no reasonable plan for making the event happen, the promises are nothing more than unsubstantiated hopes.

Unless the planning process does the hard work of developing realistic goals with detailed steps of how the goals will be attained, you have nothing but the wishes of dreamers. When the corporate office is successful in forcing a business unit to raise the projections in its plan without a reason for making it so, it does not automatically make the business unit any more capable of meeting those higher projections.

Now sometimes stretch goals are good, because they can help a business unit to work harder at what they do best. However, if the goal is a stretch too far, it will force the business unit to either:

• Give up on the plan (because it sees no way to make it happen); or
• Do something in the near-term to meet the goals that compromises the long-term prospects of the division (like meeting a profit goal by cutting out all maintenance and repair expenses this year, which leads to a complete shutdown when everything breaks the following year).

Saying it is so does not make it so. The details of how to accomplish the goals are more important than the goals themselves. For without the details, there is no way of knowing how realistic the goals are or how to achieve them.

Faulty Assumption #2: A Corporate Plan is the Sum of Individual and Unrelated Business Unit Plans
There is only so much that an individual business unit can do on its own. Often times, the only way that a business unit can meet its full potential is through the synergies of working with corporate resources or by cooperating in joint ventures with other business units. When strategic plans are built independently by the business units, it is difficult to achieve these cross-unit synergies.

Transfers of competencies and the efficiencies of sharing resources between business units require cooperative planning between the units. Just adding up the individual plans for each business unit built in isolation will miss all of these benefits.

The role of a corporation is to add value to its operating business units. If the corporation does not add any value to managing the business units, then it is needless overhead. In that case, the business unit would be better off as a freestanding business, because it is not getting any additional value from belonging to the corporation. Business plans need to proactively seek out the synergies that can be gained from having the pieces of the corporation work together.

Faulty Assumption #3: All Goals Must Be Met by Current Units
In a typical top-down approach to the annual planning process, the corporation determines what its overall financial and strategic goals are. For example, the overall goal may be to grow corporate earnings by 15% per year, or to grow the market cap by 20% per year, or to grow its share of the market by 12% per year. Then, the corporation takes the goal and divides it up by business unit, telling each unit what its expected share of the whole is.

It may make the corporation feel good about having all the pieces of its goals allocated to the business units. However, this could be a false sense of security. Often times, the sum of all of what the business units can realistically do falls well short of the aggressive overall corporate goal. There is a gap between what the corporation wants and what the business units can provide. Usually, the only way to fill the gap is to do more than what the current business units are capable of doing. Filling the gap may require the development of totally new competencies or the development of additional business units.

By allocating all of the goal to the current business units, the corporation might mistakenly lull itself into believing that it does not have to develop those additional competencies or new business units. As a result, the company will suffer two disappointments. First, there will be the disappointment of the current business units not being able to fill the entire gap. Second, there will be the disappointment of not having any new competencies or new business built to fill the gap. Without these new competencies and businesses to build on, the gap will only get larger and larger in the outlying years of the plan.

It is better to realistically understand the magnitude of the gap and deal with it through planning for growth beyond the current business units than it is to hide the gap in allocations of expectations to business units that cannot be met. Hiding the gap does not make the problem go away. It only makes the process for successfully filling the gap go away.

Summary
Games are for children. Planning is for mature adults. The annual strategic planning process should not be a guessing game for business units. Instead, successful annual planning processes need to take into account the following rigorous activities:

• The business unit goals need to be realistic and accompanied by a realistic stepwise plan to get there (no wishful dreaming).
• The plans need to take into account the potential synergies between corporate and the business units as well as synergies between business units (no isolated planning).
• The plans must realistically determine what gaps cannot be delivered by the current divisions and provide a plan outside of the current business units to fill the gap.

Just playing the game of “You’re getting warmer” will not get the job done.

Final Thoughts
In the former Soviet Union, there was an old saying among the factory workers:

“We pretend to put in a full day of labor, and in return, the government pretends to pay us in real money.”

If the process is not taken seriously by corporate management, then the process will not be taken seriously by the business units. To quote an old friend of mine, “A job not worth doing, is not worth doing well.”

Make sure your annual planning process is a job worth doing well.

Home Field Dis-Advantage

The Story
Businesses often use sports analogies to describe business strategy. One aspect of sports is the concept of “home field advantage.” Home field advantage refers to the fact that sports teams are more likely to win games played at their own field or court than they do playing at the opponent’s field. Let us see how this principle applies to the business world in the following story.

I knew a retailer that had a very successful retail concept, which had been expanded to a large section of the United States. Virtually everywhere the retailer built these stores, it quickly gained significant market share and became very profitable. There was one significant exception to this pattern. When the retailer expanded into one particular city in the United States, it ran across a competitor that it could not beat. In fact, the stores the retailer built in this city did so poorly that they were quickly closed.

This rival competitor was a much smaller company with far fewer resources. Yet this smaller competitor was starting to expand into the area held by my retail friend. Given the overlapping expansion plans for both companies, it was becoming obvious that these two competitors were destined to compete again in the future.

This left my retail friend with a choice:

• Does he allow the competitor to come into his geographic stronghold and fight the battle here; or
  
• Does he aggressively go into the stronghold of the competitor and fight the battle there?
  

The first choice would be like playing a sports game at home, while the second option would be like playing an away game.

My retail friend used to be a professional sports athlete. Relying on his sports background, he chose the option of playing the game at home and let the competitor come into his stronghold. His figuring was that, like in sports, he was more likely to win on his home territory, so this was the better place to have the contest.

What my retail friend failed to realize was that the competitor had increased prices in its own retail stronghold in order to fund the battle against my friend. This competitor started attacking some of my friend’s most profitable markets with a small handful of stores. Although I’m sure those new stores were not very profitable for the competitor, they wiped out a larger amount of profitability for my friend, since he had more stores in the market and these were some of his most profitable stores.

With some of his most profitable markets in shambles, my friend’s overall chain results were noticeably down. Not wanting to disappoint his shareholders with bad results, he started raising the prices in his remaining markets to cover the losses in the contested markets. All that served to do was make those uncontested markets less competitive and even more vulnerable for attack. Since the competitor was still making good profits in his stronghold markets, he was able to fund an increase in attacks. All the while, he was getting stronger, while my friend was getting weaker.

To make a long story short, in the years since this competitive battle began, my friend has had to retreat to the point where virtually the only place where the business makes money anymore is in the original home city. By contrast, the competitor is much larger, much stronger, and competes over a much larger territory. It looks like the home field advantage was not much of an advantage after all.

The Analogy
Although there are many parallels between sports and business, the battles are not identical. The analogy between sports and business breaks down because business is not played one game at a time. In team sports:

• The entire contest takes place at a single location against a single opponent.
  
• The entire battle typically falls within the confines of a timed event. When the time runs out, the team with the most points wins.
  
• After the game is over, the next game is played as if that last game never occurred. The points do not carry over. You both start out the next game tied at 0-0.
  

By contrast, in the business world:

• The business plays in multiple locations at the same time against multiple opponents. Resources can be moved between battles in the middle of the battle.
  
• The battle does not end when time runs out. It either ends when one side is so devastated that it gives up, or when both sides find a way to peacefully co-exist.
  
• After the battle is over, the strengths and weaknesses continue into the next game. If you ended the last battle in weakness, you start the next battle in weakness.
  

As a result, many of the reasons why home field advantage works in the sports world do not work in the business world. In fact, the opposite is often true—there is often a home field dis-advantage.

As we saw in the story above, my friend tried to move the business battle to where he thought he would have home field advantage. As a result of that decision, he ended up losing the overall battle against this competitor. The disadvantages of “playing the game at home” where one already has a strong position are as follows:

• In business, if you win a game at home, you are no better off than when you began. You have only defended to achieve what you already had. In fact, even if you win, you may be further behind than when you started, because of the resources spent to defend your position. However, if you lose at home, it is a real and major loss of a profitable portion of your business that does not come back once the contest is over. Hence, there is little upside and a big downside to playing at home where you are strong.

• A loss at home in the business world leaves you in a weakened position when the contest is over. The loss permanently reduces one’s available resources to use in the next battle. Unlike sports, the loss carries over in the next game, making it harder to win future games. Even if you win a battle at home, it does not necessarily make you any stronger against the next opponent. You just stay even. Hence, a loss at home creates the potential for a long-term downward spiral across many battles, whereas a win just helps you maintain the status quo.
  

The opposite occurs when a business “plays an away game” in the heart of where the opponent is strongest. If you win, you gain greatly—you have gained a stronghold in a new area as well as greatly weakened an opponent. You have moved the balance of power more in your favor by adding new profit opportunities for yourself while taking profit opportunities away from your opponent. If you lose, most of what you have lost is just the opportunity to gain more ground.

Most importantly, by moving the battle to the opponent’s stronghold, you keep the battle from attacking your most profitable markets while you attack your opponents most profitable markets. It is easier for you to fund the battle when your core markets are protected, while it is harder for your opponent to fund that same battle when their core is under attack.

The Principle
In the business world, there are many ways in which you can have the option of either playing a home game or an away game. A home game is where you are relatively stronger. An away game is where your competition is relatively stronger. That strength can be in many categories. It could be a geographical strength, where in international business competition, you are stronger in some countries than in others. It could be a product category strength, where you have higher market shares in some categories than in others. It could also be a technology strength, a distribution channel strength, or a consumer demographic strength.

When developing strategy, you often have the choice of determining whether your competitive struggles take place predominantly at your position of strength or at the position of your competitor’s strength. Often, our initial reaction is to always set the battle to take place at our position of greatest strength. We think this will automatically give us “home field advantage.”

However, as we saw in the story above, home field can often be a disadvantage. There may be many times when it makes more sense to make the competitive battle an away game. There are two times when away games make more sense in the business world:

1. When I am very large and resourceful while my competitor is much smaller with fewer total resources.
2. When I am much smaller with fewer resources and my competitor is very large and resourceful.

In the first instance, the analogy would be like siege warfare. In siege warfare, an army with large resources would surround the castle of its enemy, cutting off its access to any resources beyond the castle. In a process of attrition, the larger force with the greater resources would outlast the weaker force in the castle, who eventually runs out of food and must surrender or starve.

Even though the “home team” in the castle is stronger in that particular area of business than the attacker, the attacker can draw upon resources from other businesses where it is overall much stronger. The strategy for the attacker becomes total resources against total resources, rather than weakness against strength in this particular area of business.

Relating this to the story mentioned at the beginning of this chapter, my friend could have attacked the stronghold “castle” market of the smaller competitor and outlasted him because my friend had far more resources. In a war of attrition, the competitor would have run out of resources first in defending its territory. The added benefit for my friend would have been that if he had held siege to the competitor’s castle, the competitor would have been unable to fund attacks into my friend’s territory. Unfortunately, he did not do this.

In the second example, the analogy would be guerrilla warfare. The strategic goal of guerrilla warfare is to make small, quick attacks on your stronger enemy—in their territory—in such a way that the damage to the opponent is greater than the damage to yourself. Over time, such attacks will gradually make the guerrilla stronger, while gradually making his opponent weaker. In time, the balance of power would change, and the formerly weaker guerrilla becomes the stronger of the two.

The assumption here is that, even if you are relatively weaker, you have some uniqueness in your overall strategic position so that you can win some of the guerrilla skirmishes. For example, even though you are smaller, you may be faster, more personalized, or provide better service. If you are both smaller and have no unique benefits to bring to bear, then it doesn’t matter what you do. You will lose no matter what you do.

Guerrilla warfare was the tactic the competitor effectively used against my friend in the story above. It worked well and my friend lost the overall battle.

Summary
Business strategy is often similar to sports strategy. However, not all sports analogies apply well to business. In particular, the idea of “home field advantage” in sports is often “home field dis-advantage” in the business world. When designing a business strategy, it can frequently make sense to move the location of the competitive battle away from your position of strength into your competitor’s position of strength.

If you are still having trouble seeing the benefit of playing an away game, here is something to consider. Over the last century, there have been numerous large, successful, established companies that eventually lost out to a small upstart firm. In almost every case, there was a point in time when the established company had enough relative power that they could have played an away game against the upstart and weakened it to the point where it would never have gained enough clout to eventually win.

A key part of strategy is determining who the next upstart is who might have the power to eventually beat you, and then playing an away game against them early, which keeps them from ever becoming meaningful in the marketplace. For example, in the early 1970’s, K Mart was one of the strongest and most powerful retailers on the planet. At that time, there was a small upstart retailer called Wal-Mart that was starting to grow out of it rural base. K Mart could have played an away game against Wal-Mart at that time in those rural markets and won. Instead, it chose not to do so. Today, K Mart is in bankruptcy and Wal-Mart is the largest retailer on the planet.

Final Thoughts
The irony of the story above was the fact that the basic idea of the home field dis-advantage was pointed out to my friend before he made his choice. He was told that the ideal strategy was to fight the battle at the opponent’s stronghold. His response was, “Don’t give me a strategy. Just tell me how to make money.”

When you play your business as an away game, you will suffer some financial loss at first. Your opponent, however, should suffer an even greater loss. In the long-run, this strategy will usually create much more wealth, even if there is a little pain at the beginning. To quote a famous sports adage, “No pain, no gain.”

Raking Up Losses

THE STORY
Once upon a time, there was a wealthy man who owned a large estate out in the country. The back of the estate was filled with large trees. They were beautiful to look at, but a real nuisance in the fall when all of the leaves came down.

The wealthy man did not like having those leaves all over his yard, so he decided he would hire all of the young boys in the neighborhood to rake up his leaves for him. It was important to this man that each boy got paid fairly based on the amount of work the boy did. He didn’t want the lazy boys to get paid as much as the boys who worked hard. Therefore, he designed what he thought was a clever plan.

He divided the huge yard into sections. Each boy was given his own section to rake. The rules were simple. Every time you clear your section of leaves you would get paid a predetermined amount. If you didn’t clear your section, you did not get paid anything at all. The wealthy man put his lazy, spoiled son in charge of inspecting the sections, to see if they were cleared of leaves and to then pay the boys each time their area was clear.

This plan made the wealthy man happy. He was so confident in the plan’s success that he ignored the yard for several weeks. Eventually, he decided to go out back to see how the raking was going on. When he got there, he was shocked to find that all of the leaves were still scattered all over the yard. It was a real mess.

He angrily looked for his son to find out what happened. The wealthy man yelled at his son, saying “After all of these weeks, none of the leaves have been raked up. I certainly hope that you didn’t pay any of those young boys.”

“Actually,” the lazy son said, “I ended up paying them a hundred thousand dollars.”

“A HUNDRED THOUSAND DOLLARS?” the man screamed. “Why did you pay them so much money, when it is obvious that all off the leaves are still on the ground? Are you crazy??”

“I only did just what you said,” replied the son. “Each boy started working with the boy in the section next to theirs. One boy would rake his leaves just over the line onto the section next to him. I would pay him. Then the other boy would rake the leaves back over the line to the first boy. So then I would pay the second boy. All day long, they would rake the pile of leaves back and forth just across the line of their section. Each time one of them pushed the pile of leaves across the line, they would get paid. Eventually the boys got very good at quickly moving the leaf piles back and forth. After awhile, they had made so much money that they all decided to go back home.”

Suddenly, the wealthy man could see the major flaw in what he originally thought was a clever plan. He sighed, “Well, it looks like the only thing that got raked over and cleaned out here was my bank account.”

THE ANALOGY
It’s natural to want to reward the people who work hard and not reward the lazy ones. It seems like the fair thing to do. This was what the wealthy man was trying to do. However, in his attempt to be as fair as possible, he lost sight of the bigger goal. What he really wanted was to rid his yard of leaves. By focusing too much on fairness, he created a reward system that encouraged behavior that did not lead to achieving the desired ultimate goal.

Once we determine a desired strategic goal, we want to set up a compensation system which fairly rewards people who help achieve the strategy. However, if we concentrate too much on “individual fairness” we can end up rewarding people for things that never get us closer to achieving the strategy. Like the man in the story, the only thing we end up doing is raking up losses.

THE PRINCIPLE
As people, we often link “fairness” with “control.” We think that the fair thing to do is to only compensate people for those things that they have direct and/or complete control over. After all, does it seem fair to penalize someone when undesirable results happen over which they do not have direct or complete control? Or, conversely, does it seem fair to reward someone when desirable results happen which they didn’t control?

I couldn’t count the number of times I’ve seen someone look at how they were to be compensated and heard them complain by saying something like, “You can’t bonus me on that. I don’t control the outcome. It’s not fair.”

The problem is that if the individual has complete control over the results, then they have complete control over how to manipulate the results to their personal advantage. Now, to me, that doesn’t sound fair, either.

The boys in the story pretty much had complete control over their situation. Not only could they control how quickly their area got clean, but they could also control how quickly it got dirty. By manipulating that control, they got paid far more than they should have while never accomplishing the greater task of getting the yard clean.

That is why the fairest compensation needs to be one that goes well beyond just compensating people for what they can directly control. It needs to include areas for which they have indirect control and areas which relate directly to moving the company towards achieving the desired strategic outcome.

As it turns out, people have more influence on a business than just areas directly under their control. For example, I know of a clothing retailer where the buyers were compensated for buying the apparel from the manufacturers as cheaply as possible. After all, they are buyers, so they should be compensated for buying well. However, in their attempt to get the lowest price, the buyers would not have the manufacturers put the clothes on hangers or put price tags on the clothes. If they would have asked the manufacturer to do these services, the manufacturers would have charged a higher price, which works against the buyer’s compensation.

Unfortunately, because the buyers did not take care of negotiating for the hanging or tagging, someone in the retailer’s distribution center would have to do that service. It is like in the story where the boys did not clean the yard. All they did was push the leaves into someone else’s grid. All the buyers did was push the hanging and tagging problem into the distribution center’s grid.

In most cases, the manufacturer could perform these services for less than half the cost of the distribution center. So the actions of the buyers had an impact over the costs of the distribution center, an area over which the buyers would say they had no control. In reality, however, they had significant influence. Had the buyers been compensated on the lowest cost to get the goods from the manufacturer to the sales floor, they would have complained about lack of control. However, they also would have negotiated to get the manufacturers to hang and tag the goods, thereby saving the company more money than they did under their current compensation.

Often times, the biggest cost bottlenecks are at the point of transfer between two areas in an organization. As long as compensation stays within the areas of complete control, these transfer points do not get adequately addressed, since the responsibility is shared. By compensating based on areas outside one’s complete control, the transfer points get addressed.

Even in areas where there seems to be very little, if any linkage, there are still ways in which you can control the outcome. There is peer pressure. One can give advice or assistance. One can shift or trade some areas of responsibility that will end up making everyone more productive. And so on.

Finally, it is important to link rewards directly with the strategy. The compensation given the boys was never linked to the goal of getting the entire yard cleared of leaves. As a result, the yard was never cleared. At the end of the day, it is more important that the organization achieves its strategy than for individual areas to temporarily gain while the strategy is ignored. For if the strategy is ignored, eventually everyone loses…and that isn’t very fair.

SUMMARY
It is more important to link compensation to a broader strategy than to what an individual area can completely control. Although this may at first seem unfair, it is actually more fair, because complete control leads to “gaming the system” for personal benefit at the expense of the rest of the organization.

FINAL THOUGHTS
When you focus on smaller goals, you can sometimes perfect a process that does not need to be done at all. For example, if the only thing the wealthy man wanted was to get rid of the leaves, he could have cut down the trees. Then all the costs of raking the leaves every year could be eliminated. Perfecting the unnecessary is a waste of energy. When you focus on the big picture, you often find more creative solutions.