Strategic Planning Analogy #499: Planning by Intimidation

THE STORY

Back during the middle of the 20^th Century, Yugoslavia appeared to be a relatively stable country.  With the exception of the time around World War II, the borders of the country remained relatively constant from about 1918 until around 1990.

Internal strife during most of this time seemed relatively minor to the outside world. In fact, the country seemed so stable that in 1984 the Winter Olympics were held in Sarajevo, Yugoslavia.

Yet it was not many years after the Olympics were held that the nation began to fall apart. Violent warfare and ethnic pride during the 1990s eventually dissolved Yugoslavia into seven separate countries: Croatia, Macedonia, Montenegro, Serbia, Slovenia, Kosovo, and Bosnia & Herzegovina.

So much for what seemed like stability in Yugoslavia. Instead, it became a bloody war zone until the dissolution was complete.

As it turns out, that appearance of stability and unity in Yugoslavia was not a natural condition. It only existed because the people felt forced to get along. First, the nation had been run for generations by a series of strong totalitarian regimes. These leaders used their power to create fear of rebellion or disunity. Whenever small uprisings occurred, these leaders quickly used their power to brutally squash the rebellion (and put fear into anyone considering future rebellion). The strongest of these leaders was Josip Tito, who ran the country with an iron fist from 1963 to 1980.

Second, there was a feeling that if Yugoslavia became too unstable, the Soviet Union would step in to restore stability. And the type of actions anticipated by the USSR to create stability were feared to be even worse than the totalitarianism of their own rulers, like Tito.

Therefore, the people of Yugoslavia held their internal disputes in check, fearing that any attempt to show their true ethnic pride would just make matters worse. It wasn’t that they liked each other during the 20^th century—they just felt forced into an undesired tolerance.

After Tito died in 1980 and the Soviet Union dissolved in 1991, the forced pressure to co-exist began to fade away. Without this strong outside pressure to conform, the ethnic pride and hatred of the people was allowed to come to the surface. This lead to the bloody battles of the 1990s. The end result was separation into new nations defined by the more natural ethnic boundaries.

THE ANALOGY

The story of Yugoslavia shows that just because there is an appearance of unity and stability, that does not mean that unity and stability lie in hearts of the people. All that hatred and ethnic pride was still there under the surface.  The only reason it didn’t erupt until the 1990s was because powerful forces had kept it from erupting. The moment those forces disappeared, so did the superficial unity.

This is an important lesson for those in charge of enacting strategy. There are two ways to get employees to comply with a strategy.  The first is to take a Yugoslavian approach. In other words, you use intimidation, power and fear to force people to comply, whether they want to or not. The second approach is to change the hearts of the people so that they voluntarily want to comply. As we will see in this blog, the Yugoslavian approach is usually the less desirable option.

THE PRINCIPLE

The principle here is that coerced actions are never as effective as actions driven from the heart. Just as a mercenary soldier never fights as hard as a soldier who believes in the cause, an employee complying due to fear is never as productive as one who believes in the cause. As a result, the Yugoslavian approach to strategy implementation tends to be rather unproductive.

High productivity is a result of getting relatively large output from relatively low input. The Yugoslavian approach tends to lose on both fronts; it requires higher input for lower output.

1. The Cost of Gaining Compliance Through Intimidation

In totalitarian dictatorships like Yugoslavia and North Korea, a great deal of time, effort and money has to go into building the force of intimidation.  Large armies and police forces are needed. Spy networks are needed. So much effort has to go into the mechanisms of fear that little is left for growing the economy and benefiting the people.

A similar situation exists in business. The intimidation approach to strategy is very costly.  You have to build a huge infrastructure to manage every little detail to make sure the work gets done. Nothing can be left to chance. Every decision has to come from the top and be constantly monitored for compliance. Systems of punishment are needed when people deviate from plan. It becomes like the top-down communist economies. Everything is planned from the top, yet the people starve from shortages.  It doesn’t work well.

Instead of spending time on the large, critical issues for success, management gets bogged down into the minute details. Nothing can be delegated, because the people cannot be trusted to voluntarily comply.  So much time is wasted monitoring incremental changes in performance that little time is left for discovering the large innovative transformations needed to stay relevant in a changing marketplace. You end up perfecting the obsolete.

2. The Lowered Response Due to Intimidation

There was an old saying by the people in the old communist countries: “You pretend to pay us and we pretend to work.” The idea was that the local currencies were worthless, so the people did not work hard to earn it.

That’s what happens when people are compelled to comply with something they do not believe in their heart. Sure, they will stay the course so as not to be punished. But they will not work hard at it. They will not go the extra mile. Instead, you will get the bare minimum effort. And that is no way to win the battle in the marketplace.

When people believe deeply in the strategy, the effort level skyrockets. You don’t have to force people to do well—they WANT to do well. They will work longer and harder for a cause they believe in. And best of all, they will volunteer innovative ways to get things done—far better than that which is dreamed up in the ivory towers at headquarters.

I worked with a company that went through a transition from having employees who deeply believed in the strategy to one where they felt compelled to do that which they did not believe. The employees started going home earlier and worked less while in the office. Productivity dropped dramatically.

3. The Inevitable Breakdown

As we saw in the case of Yugoslavia, eventually the pressure to hold down rebellion becomes too great and the instant there is weakness at the top, the rebellion will occur. The nation of Yugoslavia was quickly destroyed at a very high human cost. 

The same thing can happen in business. As soon as there is a slip in the oppressive power and control, rebellion will occur and everything can become lost very quickly.

A lot of strategic initiates look great at first, when top management is watching it closely. However, if compliance is only by intimidation, those results will quickly go away once top management’s attention moves on to something else. It won’t be sustainable.

4. The Better Approach

Rather than rely on intimidation, a better approach is to get people to want to naturally comply with the strategy. This is easier to administer, creates greater output, and gains from the insights and innovation of the entire organization.

How do you do this? First, have a compelling strategy which makes sense and leads to victory. Don’t expect employees to buy into hollow platitudes. They know a lie or deception or hollow wish when they hear it. Instead, create a position and plan that really can win in the marketplace…something worth believing in.

Second, relate the company goals to individual goals. Show how the path for the company to win will also be beneficial to the individuals who make it happen. Create a win-win scenario where compliance is the best path for everyone. Share the wealth.

Third, don’t micromanage. Allow people to internalize the strategy and make it their own. Then they will come up with creative ways to move the mission forward which far exceed what would come out of micromanaging.

Finally, don’t choke on excessive monitoring of minutia. KPIs (key performance indicators, or whatever 3 letter acronym you use for measurement metrics) are an important part of a strategic process. But that doesn’t mean that ever more KPIs are better. At some point, you can have so many KPIs that you choke on the specifics and lose sight of the big picture.

This is especially true in a Yugoslavian environment. There can be so much fear and intimidation put behind hitting the numbers, that people will do anything to hit the numbers. Unfortunately, numbers can be achieved by both doing the right behaviors and the wrong behaviors. Often times it is easier to hit the numbers with wrong behaviors that are contrary to the plan. So the intimidating process encourages wrong behaviors.

It reminds me of an old process used at a company which prided itself on innovation. To measure innovation, they used the KPI of “% of sales from products introduced in the last five years.” The pressure was so great to hit this number, that managers started achieving it by discontinuing perfectly good older products from the mix. This got them the desired number, but it hurt sales and did not promote innovation.

Spend less time ruthlessly enforcing KPIs which can be hit via bad behavior and more time encouraging people to do what’s right because they believe good will come from doing what’s right.

SUMMARY

Intimidation and fear may create strategy compliance for a short time, but eventually rebellion will occur. And even during the period of coerced compliance, performance is sub-optimal because it typically requires extra management effort and achieves only bare minimum performance. To get optimal productivity, it is better to convince people believe in the strategy in their heart. Then they will work harder with less supervision and add ideas of their own to make it even better.

FINAL THOUGHTS

Next time someone tries the fear and intimidation approach to strategy, remember the fate of Yugoslavia.

Strategic Planning Analogy #386: Embracing Maturity

THE STORY
I enjoy talking to new first-time parents about their small children. The new parents truly love their little baby and think parenting them is such a wonderful thing.

Then they will mention some little parenting problem they are having. I warn them that this little problem is nothing compared to all the problems they will face when that child becomes a teenager.

Many of those who have had experience or knowledge about parenting teenagers have half-jokingly mentioned to me a desire to hand off their children when they become teenagers and pick them back up when they reach their twenties. Of course, the problem would be finding someone to hand them off to during that period.

THE ANALOGY
Being the parent of a cute little baby can seem like such a wonderful, fulfilling experience. Being the parent of a teenager, however, can often seem like torture—something to be avoided if possible. Unfortunately, those cute little babies eventually grow up into those frustrating teenagers. You can’t just stop being a parent when the child is no longer a cute little baby.

A similar situation appears to happen with many strategic planners. In general, strategic planning for brand new baby businesses can be seen as wonderful and fulfilling. You get to set the direction and positioning from scratch. With all that potential growth in front of it, there are lots of fun strategic options to consider.

However, when a business reaches maturity, strategic planning can seem more frustrating. Positions are already set and difficult to change. The fun of growth has been replaced by the pain of intense competition. Rather than talking about great strategic options, the discussion moves to cutting costs. In business maturity, it appears as if strategy is less influential on outcomes (sort of like parenting a teenager).

Like those parents, many strategists would be happy to just deal with the baby businesses and hand off those mature businesses to someone else. But guess what? Most industries and most businesses in the world are relatively mature. That’s where most of the action is. If strategists want to be relevant, then they had better get excited about building strategies for mature businesses.

THE PRINCIPLE
It bothers me that the discipline of strategic planning is out of favor in so many areas of business. Its influence has diminished significantly. There are many reasons for this phenomenon. I believe that one of the many reasons why strategic planning is seen as irrelevant is because the discipline tends to be pre-occupied with early stage businesses. Little focus from strategic planning thought leaders is given to strategic planning in the mature stage of a business. Therefore, it is no wonder that mature businesses see little value to intense strategic planning. And since most businesses are mature, that makes strategic planning appear irrelevant in most places.

One way for strategic planning is to regain its stature is by making it appear more indispensible in the way mature businesses are run. In this blog, we will look at four ways to do this.

1. Reclaim Productivity as a Strategic Agenda
As I have mentioned many times before, I believe that there are three components to effective strategic planning;

a) Positioning – A reason for consumers to prefer you.

b) Pursuit – Aggressively achieving as many ways to exploit that position as possible (top line orientation)

c) Productivity – Making the most money off the areas where you pursue (bottom line orientation).

Although all three are important at all phases of a business lifecycle, productivity tends to be the area requiring the most attention during the mature phase. Therefore, for strategic planning to be relevant and essential during maturity, it needs to take ownership of the productivity agenda.


In many places, productivity is not even seen as a strategic activity (even among some strategic planners). Strategists aren’t even invited to the table when productivity is discussed. It is just seen as a cost cutting exercise, or at best, a budgeting exercise. Just tell people to cut 15% of costs from their budget and you are done.

In reality, productivity is very much a strategic issue. Not all cuts are created equal. Some cuts hurt your strategic position more than others. If strategic implications are not addressed during cost cutting, the wrong cuts can be made—cuts which can totally undermine a business.

For example, a few years back the consumer electronics retailer Circuit City wanted to increase productivity. They noticed that labor was one of their largest costs at store level. They also noticed that their most experienced sales people tended to be the most expensive sales people. Therefore, to increase productivity, Circuit City got rid of its most experienced sales people. It wasn’t too long thereafter that Circuit City declared bankruptcy. As it turns out, those experienced sales people were a critical component of the strategic success of Circuit City. Eliminating those people also eliminated the chance of strategic success.

Strategists need to be at the table to point out the strategic implications associated with various cost-cutting options (and perhaps provide cost-cutting options of their own). This isn’t an option. The destiny of the business is at stake.

2. Move the Discussion Away from Merely Cost-Cutting
Some of the best ways to increase productivity have nothing to do with cutting costs. Often the productivity problem is not how much you spend, but rather what you do. It is a more a question of effectiveness of process rather than efficiency of spending.

For example, I could be the most efficient Morse Code operator on the planet. However, that does not make me the most effective communicator on the planet. Almost nobody understands Morse Code anymore, so nobody will hear my Morse Code message, no matter how efficiently I use it. Rather than trying to make my Morse Code process more efficient, I need to switch to a more effective communication process, like Twitter, Facebook or Email.

If you only focus on cost-cutting, you may miss far more effective options for improving the bottom line via changes in process. Strategists can be an important source for discovering and championing alternative processes.

Strategists can also play a vital role in helping companies avoid new processes which negatively impact a strategy. Take outsourcing, as an example. It makes a lot more sense to change a process from in-house to outsource when the process is less critical to the overall strategy. By contrast, if you outsource a core competency, you may destroy your ability to control your destiny and destroy your competitive advantage.

3. Help People See Productivity as an Investment Opportunity
Productivity is ultimately about increasing profits. Sometimes, you can increase profits faster by investing rather than cutting. If the return on investment is high, investments make sense, even in the mature phase of a lifecycle. Strategists can play a key roll during maturity by discovering and championing those types of investment opportunities.

Strategists are already often a key part of investment decisions during the early phases of a lifecycle. Why not continue that roll into the mature phase?

4. Change M&A to M&A&D
M&A stands for Mergers & Acquisitions. These are activities which tend to do with building and growing a business. However, as a business reaches maturity, it makes sense to give more consideration to the strategies of shrinking and eliminating businesses. This would be the strategies of Divestiture.

Most companies do not take a proactive approach to divestitures as a strategy. Instead, it is seen as the option of last resort—to be used only when backed into a corner with no other option. The thought of divesting while a company is still doing well is often never considered. Yet, the most profitable time to divest may be when the company is still doing well.

Look at the chart below. Outsiders often tend to overestimate the value when a company is just reaching maturity. They may mistakenly see it as still in the growth phase or see a longer mature horizon than you do. Conversely, once there is no longer any doubt that a company is in decline, the potential pool of people to sell to shrinks dramatically. The “bottom-feeders” who go after distressed companies tend to be very cheap and pay very little. As a result, in decline, others tend to underestimate your value. As a result, divesting early can be a great strategic option. We talked about this more in earlier blogs (here & here).


Therefore, divestitures can be just as strategic as acquisitions (read more here). And just as strategists are often a part of the acquisition discussion, they should be a part of the divestiture discussion. And this is more likely to happen if you change M&A to M&A&D—Mergers & Acquisitions & Divestitures.

SUMMARY
One way to improve the stature of strategic planning in companies is by making strategic planning appear more vital in the mature phase of the life cycle. This can be done by:

1. Reclaiming Productivity as a Strategic Agenda
2. Moving the Maturity Discussion Away from Merely Cost-Cutting
3. Helping People See Productivity as an Investment Opportunity
4. Changing M&A to M&A&D

FINAL THOUGHTS
There’s an old poem which goes something like this:

“The problem with kittens is that,
They eventually grow up to be cats.”

We need to move beyond a focus on cute kittens and embrace the reality of mature cats.

Strategic Planning Analogy #376: Dry Wells

THE STORY
Imagine two people digging water wells. Bob takes a very sophisticated approach to the problem. First, Bob brings together a team of experts in the latest advances in drilling. They design an elaborate, but efficient drilling methodology with all sorts of high-tech tools. While the well is being dug, Bob calls in a team of experts in water pumping. They design an elaborate, but efficient system of pumps using the latest in pumping technology. Finally, Bob and his team design a complex, but efficient series of pipes in order to get the water to its intended destination. It took a lot of planning, but in the end, Bob was convinced that this was the best water delivery system in the country.

Sanjay took a different approach to the problem. Sanjay dug his well with nothing more than a little back-hoe and a simple shovel. He got the water out of the well using a bucket tied to a rope. Sanjay got the water to the customers by pouring the water out of the bucket into a small tank truck, which would drive the water to the final destination.

So who was more successful with their well?

It seems that Bob was so busy planning his water distribution system that he didn’t have time to properly locate his well. All those pipes, all those pumps, and all that fancy digging lead to a dry hole. There was no water anywhere near Bob’s well. It was a worthless enterprise.

Sanjay, on the other hand, made sure that he did his simple digging over a large body of fresh, clean water. That was where he focused his effort. Sanjay may not have had the most sophisticated system to get that water distributed, but at least he had water to offer his customers. Since he was the only one around who had discovered the water, Sanjay had a thriving business.

THE ANALOGY
Bob was great at process. He had a great process for planning his water distribution system. He built a great process for delivering water. Unfortunately, Bob didn’t have any water to distribute. It was all for nothing.

Sanjay, on the other hand, was less concerned with having the right process. Instead, his focus was on being in the right place (on top of the only source of water). As a result, Sanjay was able to satisfy the needs of his thirsty customers, even if his process was less than ideal.

Every day, businesses need to make trade-offs on how they balance their time between a focus on process and a focus on place (also known as position). As we can see from the story, great process is worthless if the process is being built around a worthless place. Conversely, if your company is positioned in the right place (on top of what is desired), you can do well even if your process is less than ideal.

Therefore, as strategists, we need to make sure that sufficient focus is placed on being in the right place. Otherwise, we could be wasting a lot of time.

THE PRINCIPLE
The principle here has to do with the primacy of position. In prior blogs, I have talked about the three main components of great strategy:

1. A Great Position – A Place Where You Can Win.

2. An Energetic Pursuit – Winning the Race to Own that Great Position and Defend it from Competition. (I speak more about pursuit in the second chapter of my new book “8 Questions,” as well as here.)

3. An Eye on Productivity – Optimizing the Wealth Available due to Owning a Great Position.

All three—positioning, pursuit and productivity—are vital elements to success. None can be ignored. However, of the three, positioning is the most important.

In the story, Bob had great pursuit. He quickly amassed great resources to create a great water distribution system. Unfortunately, he was pursuing a dry hole, so the pursuit was worthless. Bob also used experts to ensure that his system was highly efficient—a focus on productivity. However, even the most productive water system is worthless if there is no water for the system.

Sanjay started by making sure he got the position right (digging the well where the water was). That made all the difference.

Pursuit and Productivity are “Dependent” factors. Their success is highly dependent upon the desirability of the position being pursued and being made more productive. Therefore, the best way to optimize all three factors is to give the search for the right position primacy.

Statistical Support
This principle is supported by an article in the January 2011 edition of the McKinsey Quarterly. The article, entitled “Have You Tested Your Strategy Lately?,” brings up many ideas, but I want to focus on one particular point in the article. Referencing a book called “The Granularity of Growth,” by Baghai, Smit and Viguerie, the article states:

“80 percent of the variance in revenue growth is explained by choices about where to compete, according to research summarized in The Granularity of Growth, leaving only 20 percent explained by choices about how to compete. Unfortunately, this is the exact opposite of the allocation of time and effort in a typical strategy-development process. Companies should be shifting their attention greatly toward the “where” and should strive to outposition competitors by regularly reallocating resources as opportunities shift within and between segments.”

In other words, 80% of success (at least for revenue growth) comes from getting the position right. Only 20% is explained by pursuit and productivity. That is why Sanjay succeeded and Bob did not. Sanjay focused on the 80%; Bob did not.

If this is true, then our strategic planning should take this into account. Positioning needs to be more important than process. I mean this in two ways:

1) Strategic Planning Outcomes Are More Important Than Our Strategic Planning Processes.
It is easy to fall into the trap of trying to perfect an annual strategic planning process. Getting the calendar set up, designing great meetings and presentations, getting great forms to fill out, having great computer systems which link data to scorecards and budgets, and other such process issues can easily suck up all of our time and attention.

However, the ultimate goal is not to perfect the planning process. It is to optimize the business performance. Spend less time perfecting the process and more time making sure the company adequately grapples and comes to a conclusion on what determines 80% of success.

It’s okay if the planning process is a bit messy. In fact, that is probably a better way to find your position. I speak about that in more detail in an earlier blog, which can also be found as chapter 15 in the book “8 Questions.”

2) Strategy Implementation Processes are Less Important than Strategy Implementation Direction
Although there needs to be a methodology for implementing a strategy (implementation process), that process is fairly worthless if it is pointed in the wrong direction (towards a dry well). As we have seen, getting the right position is the critical first step. Unfortunately, the McKinsey article points out that most companies have their time priorities upside down. They spend 80% of their time on implementation (pursuit & productivity) and only 20% on positioning. Instead, we need to give the greatest priority to discovering the right position.

In the first chapter of “8 Questions,” (which can also be found here), I give a list of 8 questions which can help you get your position right. The McKinsey article referenced earlier also has some questions to consider. This is where the focus should be—on pressure-testing your position, so that you know you are in the right place. Otherwise, your efforts will be as misdirected as they were for Bob.

SUMMARY
Although positioning, pursuit and productivity are all important elements of strategy, proper positioning is the most critical. That is because if you choose the wrong position, your pursuit and productivity efforts will be wasted. No amount of pursuit and productivity can get water out of a dry well. First, spend the time to position yourself where the water is.

FINAL THOUGHTS
Just because positioning is the most important factor does not mean that you need to reposition yourself on a continual basis. Great positions have lasting qualities. If you emphasize them long enough, the position almost becomes synonymous with the brand (think of the association between Wal-Mart and low price). Frequent change will just confuse the customer and dilute the power of the position. That being said, modifications may be needed to ensure that you still own the position and the position is still relevant.

Strategic Planning Analogy #369: Or Vs. And

THE STORY
I recently returned from a vacation to Europe. On the plane ride across the Atlantic Ocean, I discovered that flight attendants are experts in the language of “or”. For the in-flight meal, I had the choice of meat OR pasta. For a snack, I was offered peanuts OR a cookie. For a beverage, I was offered soda Or juice Or water. For reading, I was offered either the USA Today OR the Financial Times.

Whatever became of the word “and”? Why couldn’t I have a cookie AND a peanut? Why couldn’t I have water AND a soda? Why couldn’t I read two newspapers?

It reminds me of the lunch I had yesterday. Before I could fully finish the drink in front of me, the server place before me another glass of the same drink—twice—without even asking me. At these types of restaurants, be careful what you choose for your first drink, because the servers will try to make that your only drink choice for the entire meal. The idea of variety never crosses their mind. What if I want to try one thing, AND then later want to try something else? No, those servers don’t understand the word “and”, either.

THE ANALOGY
It seams that servers (on airlines and otherwise) like treating me as being one dimensional. I’m only allowed to like one thing. That seems a bit narrow-minded to me.

Sometimes, I think many strategic planners can become equally narrow-minded. As we will discuss later, there are several different schools of thought as to how to approach strategy. Individual strategists tend to gravitate towards one of these schools of thought. This then becomes the singular way they treat all strategic problems.

Just as those servers want me to drink the same type of drink all day, these strategists want me to use the same approach to all strategic issues. When you read the writings of the popular strategic writers, the approach seems to be: “choose my school of thought, not the other.” In other words, it is a land of “or” (one school of thought or the other), not a land of “and” (accepting and using multiple schools of thought).

Just as it makes sense to me that I might want to read both the USA Today AND the Financial Times, it makes sense to me that I might want to use the strategic tools found in one school of thought AND another school of thought.

THE PRINCIPLE
The principle here is that there are a wide variety of strategic issues in business. If you want to be successful in solving this vast array of problems, it helps if you draw upon a variety of strategic resources.

For example, sometimes a company may be sub-optimizing because it is poorly positioned. Other times, a company may have a great position but cannot execute it well. Or maybe the company is executing well, but is executing the wrong thing. Since these are all distinctively different problems, they require distinctively different approaches to fix them. If you limit yourself to only one school of thought about strategy, you may be applying the wrong solution to that particular problem.

The Right to Win
I was reminded about this in a recent article in Strategy+Business, the strategy publication of Booz & Co. The article, called “The Right To Win”, categorized strategic thinking into four different schools of thought.

One is the “Position” school of thought. The idea here is that winning companies create and hold a distinctive position in the marketplace. This school of thought includes the work of Michael Porter and the thinking behind the Blue Ocean Strategy.

Another is the “Concentration” school of thought. Here, winning is supposed to come from focusing your effort on your core competencies. Key books for this school of thought are “Competing for the Future” by Hamel & Prahalad and “Profit From the Core” by Chris Zook.

A third school of thought is the “Execution” approach. The idea here is that winning companies work on aligning people and processes for operational excellence. This includes the quality movement proposed by W. Edwards Deming, the Reengineering movement of the 1990s, and the book “Execution” by Charan and Bossidy.

The fourth school of thought was called “Adaption.” The idea here is that the environment changes very quickly, so successful companies need to excel at quickly adapting to the change via creative experimentation. This is the approach recommended by Henry Mintzberg and was a key part of the book “In Search of Excellence.”

The article pointed out the pros and cons to each of these schools of thought. It showed how each approach was useful in some situations, but fairly worthless in others. And that is the key point. If you limit yourself to only one school of thought, you are only prepared to solve a subset of the strategic issues you may face. You will be fairly worthless in solving the others.

If you want to be prepared to solve all the strategic issues you may encounter, you cannot take an “or” approach. You need to take an “and” approach and embrace multiple approaches.

Otherwise, you will be like the old saying which says that, to a hammer, every problem looks like a nail (even if it isn’t really a nail). Just as a good carpenter has a variety of tools in his toolkit to handle a variety of carpentry tasks, a good strategist needs to put a variety of strategic schools of thought into the strategy toolkit. I talked about this idea in greater detail here.

The Three P’s
That is why I use an approach to strategy which I call the 3 P’s. The three P’s stand for Positioning, Pursuit, and Productivity. The idea here is that a successful company needs to do well in all of three of these areas.

With a three legged stool, the stool is only useful when all three legs are functioning well. If any one leg is missing, then the entire stool is worthless. Similarly, successful companies need to be supported by three strategic legs:

A) A strong/unique Position (a place where you can win);

B) An aggressive Pursuit of excellence in the key elements of that position (which allows you to own the position and adapt faster than anyone else); and

C) An efficient and effective business model, so that there is enough Productivity to allow for optimum profits and cash flow.

My approach is simple. First do a systematic diagnostic of the situation. From this analysis, determine which of the three legs of the strategic stool is most in need of attention (Position, Pursuit or Productivity). Then, use the tools available within that area to fix the particular problem at hand.

Although Positioning, Pursuit and Productivity do not line up exactly with the four schools of thought in that article, you should be able to see how the tools offered in those four schools of thought can be useful in different ways to each of the three legs. All have something to offer at different times, depending upon which leg of the stool is broken.

That is why I shy away from the narrow-minded view that one should lock onto only one school of thought (just as I wouldn’t want to lock into only one beverage for the rest of my life). For example, if you only lock in on the Positioning school of thought, you will only be able to fix one leg of the stool—Positioning. You will be ill-equipped to handle problems with the other two legs (Pursuit and Productivity).

If you want to learn more about the 3 P’s, check out my blogs which feature Positioning, Pursuit and Productivity in the links section.

SUMMARY
Not all strategic problems have the same root cause. Different strategic tools are needed depending upon what is the nature of the problem. Therefore, do not limit your strategic toolbox to only one strategy school of thought.

FINAL THOUGHTS
While I was in Europe, I tried one of the local beverages, called Kofola. Kofola was the communist alternative to Coke at a time when Coke was unavailable in communist Europe. It was not the drink for me (it tasted to me like motor oil). It was a good thing the server let me change my beverage choice. Just as Kofola was not appropriate for my taste needs, each strategic school of thought alone will not be appropriate for all of your needs. At certain times, you will need to change approaches (just as I changed my beverage to something other than Kofola).

Strategic Planning Analogy #355: Measuring Up

THE STORY
I used to work for a company that was big into metrics. They wanted to measure everything. As a result, the budgeting department sent a form to each department. On this form, they wanted each department to suggest a key metric to be measured by and a targeted goal with that metric for the following year.

Being in a Strategic Planning Department, I had a hard time thinking of what an appropriate metric for us should be. In talking it over, the department decided that our greatest contributions to the company were ideas. Therefore, we put on the form that our department should be measured by the number of ideas we come up with.

Then we had to come up with a goal for this metric. We picked an arbitrary number. I think it was 1,000. Therefore, we put on the form that our goal was to come up with “at least 1,000 ideas” in the following year.

We turned in the form. We never once heard back from the budget department on our suggestion. That was fine by me.

THE ANALOGY
I don’t think Strategic Planning Departments are well suited to annual metrics. One of their primary functions is to improve the long-term prosperity of the business. This is hard to put into an annual metric, because:

1) You usually do not know how much the long-term prosperity of the business is improved until many years later (falling outside the annual metric).

2) Since there is no control group, it is hard to measure how much of the improvement in a business’ long-term performance was as a result of the strategic planning department (vs. how much would have happened anyway).

3) If a plan fails, it is often difficult to determine how much of the failure was due to the quality of the plan versus the quality of the implementation. Since strategic Planning Departments are more responsible for the quality of the plan (while line operators are more responsible for implementation), it becomes difficult to determine how much credit (or blame) to assign to the strategic planning department versus the implementers.

4) When things go bad, there is always the excuse that “It would have been even worse without the strategic planning department.” Again, this is very difficult to measure.

Since long-term prosperity is a difficult annual metric, companies often look to simpler measures for a Strategic Planning Department, like staying within their budget or successfully completing a planning cycle process. Although these are easier to measure on an annual basis, they still have problems. In particular, there is no correlation between doing well on these measures and in improving the long term prosperity of a business. Creating a planning document on time and within budget does not mean that it is a good plan.

That is why my department did not take the budget exercise in the story seriously.

That being said, one might also conclude that it is not worthwhile to assign metrics to the strategic plan itself. However, I think that would be a mistake. Strategic Plans are not the same as Strategic Planning Departments. Although I think that planning departments are hard to measure, I believe that strategic plans can and should be measured.

THE PRINCIPLE
The principle here is that a good strategic plan outlines certain conditions which are necessary in order for the plan to succeed. One can and should measure whether or not these events occur, because if they do not occur, your future is in trouble.

As I’ve mentioned in the past, a good plan should encompass three areas:

1) Positioning
2) Pursuit
3) Productivity

Conditions should be assigned to these areas and they should be measured.

1) Positioning
A position provides the reason why your business exists (from the customer’s perspective). It gives potential customers a reason to prefer your business versus the alternatives. For example, Wal-Mart owns the low price position, which is a reason to prefer it over higher-priced retail alternatives. Mercedes-Benz owns the prestige position, giving a reason to prefer it over other, less prestigious automobile options.

The position is the place where you need to win if the strategy is ever going to succeed. If you do not give customers a legitimate reason to prefer you, they will prefer someone else.

Positions are won in the minds of your desired consumer segment. They either believe it (and give you credit for owning it) or they do not. Your position is only real if they perceive it to be so.

Therefore, if you want to measure the effectiveness of your positioning efforts, you need to measure what is going on in the minds of your desired customer segment. How many believe that you own your desired position? This includes not only the customers who have already purchased from you, but consumers in your desired segment who have not purchased from you. Even if they have not purchased from you, they probably have an opinion about what you stand for, and that opinion may be what is keeping them away.

2) Pursuit
Pursuit includes the plan to obtain all of the necessary pre-conditions in order to deliver on the promise of the position. This includes things like:

A. Competency—the expertise to know how to deliver on the promise of where you want to win;

B. Capacity—the infrastructure needed to deliver on the promise; and

C. Contacts—proper access to all the other players in the business ecosystem needed to deliver on the promise.

Depending upon your position, there will be different priorities in what you need to pursue.

For example, if Wal-Mart is going to excel at delivering a low price retail position, it needs expertise in low price retailing, an efficient infrastructure of stores and distribution centers with enough capacity to take advantage of economies of scale, and the proper relationships with key vendors and suppliers.

These are measurable conditions. Either you have them or you don’t. Strategic plans should provide a roadmap of where you are deficient and what needs to be done to fill the gap. And then you measure the extent to which the gap is been filled.

And since we live in a dynamic environment, what is necessary to win on your position changes over time. New expertise may be needed, improved infrastructure may be required, new contacts may be needed. A good plan anticipates this dynamic so that you can stay ahead of the curve on pursuing what you need to win in the future. You can measure your progress on these as well.

3. Productivity
Productivity is needed in order to ensure that your costs to pursue the position do not exceed the benefits of owning the position. Productivity includes activities such as:

A. Action Trade-offs—Cutting expenditures in less important areas so that you can afford to spend more in areas more critical to the position.

B. Efficiency Efforts—Eliminating Waste without Eliminating Effectiveness

C. Investing in projects which will increase long-term productivity (sometimes you have to spend money in order to save money).

D. Cash Management—Reducing receivables, increasing payables, reducing interest payments, etc.

Particular goals and actions can be addressed in the plan regarding these types of productivity issues. These can be measured.

What Not To Measure
Specific conditions related to positioning, pursuit and productivity can and should be measured. However, there are other metrics which should be avoided (or at least downplayed). The metrics to avoid or downplay are those which can be achieved while ignoring the strategy. For example, look at a metric like sales. There are lots of ways to boost sales in the short run. Many of these methods can damage or destroy a long term positioning.

Toyota, for example, recently got sidetracked into a pursuit of growing sales as fast as they could. To achieve this growth, they took their eyes off the key position of reliability. As a result, reliability slipped, and now Toyota is having to spend a fortune to recapture its position.

Just focusing on sales will not necessarily achieve the plan. But if you properly focus on positioning, pursuit and productivity, the right kind of sales will naturally come.

So, when choosing metrics, ask yourself this question: Is it possible to excel in this metric without advancing the plan? If so, eliminate or downplay that metric.

SUMMARY
Although it may be difficult to apply metrics to a strategic planning department, that shouldn’t stop you from applying metrics to the strategic plan. But not all metrics are good metrics. The metrics you choose should be specifically related to actions which advance the plan. In particular, they should measure:

A. Whether consumers believe in your position;
B. Whether you have properly pursued in getting what is needed to deliver on the promise of the position;
C. Whether you have taken specific steps to increase productivity without compromising your ability to deliver on the promise of the position.

FINAL THOUGHTS
Of course, if the best metrics are those designed to measure positioning, pursuit and productivity, then you’d better first create a plan which addresses the issues of positioning, pursuit and productivity. It amazes me how many plans ignore this first step.

Strategic Planning Analogy #345: Up in the Clouds

THE STORY
The other day, I was pondering the question “How much do clouds weigh?” I looked it up on the internet.

A typical common cumulus cloud is about 1 cubic kilometer in volume and weighs a little over a billion kilograms (close to 2.2 billion pounds). This is approximately the weight of 6,300 blue whales.

What is interesting is the fact that even though a cloud is much larger and over 6,000 times heavier than a blue whale, it can float in the air. The smaller, lighter blue whale cannot float in the air.

THE ANALOGY
Businesses would like to soar above the competition. In many circles, the conventional wisdom is that it is easier to soar if you are small. The reasoning is that large companies are not nimble, flexible, or fast enough to do what it takes to soar.

Yet clouds are very big and extremely heavy and they can soar above the earth. Similarly, there are many large companies that appear to be doing rather well. For many decades, huge General Electric was considered by many to be among the best managed companies on the planet.

On the other hand, there are a lot of large companies (like the old General Motors) which needed to go through bankruptcy because they were overly bureaucratic and sluggish. In fact, I can find great successes and great failures among both large companies and small ones. Size does not appear to be the key determinant of success.

So if size is not the determinant of success, what is? Well, clouds soar because they have less density than the air around them. Usually, the air around a cumulus cloud has a density of about 1.007 kilograms per cubic meter. The clouds are only 1.003 kilograms per cubic meter, making them lighter than air. By contrast, the smaller, lighter blue whale cannot float because it is much denser than the air.

Hence, if you want to soar, you need to reduce your density.

THE PRINCIPLE
The principle here is that strategic plans need to focus more on density than on size. I have seen many instances where strategic plans have focused primarily on size. They want the company to get very big very quickly and state their long-term goal in terms of size. Or maybe the strategy is to split up the company to keep it from getting too big.

There are lots of ways to make a company get very big, very quickly. And many of those ways can be very destructive. For example, one can overpay for a poor acquisition. Remember the disastrous joining of AOL and Time Warner? Sure, the company got very big very quickly from the merger. Unfortunately, the net result had a market cap much lower than the sum of the companies when they were separate. It destroyed value.

One can also get very big by selling below cost. The airline industry is full of very big companies that have horrible negative returns on investment because their fees do not cover their costs. These big airlines try to fix the problem by merging (so they can become even bigger). Unfortunately, if you are losing money on most of your sales, getting more sales just increases the losses.

On the other extreme, there are companies that put the main focus on shrinking. Particularly during the recent great recession, many companies focused the strategy almost exclusively on cutting—be that cutting employees, cutting investment or cutting corners on product quality. However, study after study has shown that the companies most focused on cutting during recessions (particularly during the latter portions of a recession) tend to do the worst when coming out of the recession. They have ruined morale, disappointed their customers, and fallen behind on technological advances and sales capacity issues. As a result, the benefits of the next boom go to someone else.

Size alone is a horrible goal (in either direction). There are just too many ways to reach your size goal while destroying the company. That is why I think it is better to focus a strategy on density.

What is business density? I think of it as those factors which enhance or impede one’s ability to get where one wants to go. Consider two situations: walking in your office versus walking inside a swimming pool. It takes a lot more effort (and you move a lot slower) walking in a swimming pool than in an office. Why? The water environment of the pool is much denser than the air in your office. The extra density of the water gets in the way of forward progress.

The same is true in business. There are lots of factors that can impede forward progress. They can include things like excessive bureaucracy, confusing/conflicting goals, micromanagement, insufficient investment in infrastructure, weak systems, corruption, and so on. These types of things increase your density. If you want to move quickly and soar like the clouds, you need to reduce the density of your business environment. This is true whether your company is small or large.

There are two ways in which strategic planning can help reduce a business’ density.

1. Narrow the Focus of the Company Goal
One of the most important ways that strategic planning can reduce business density is by providing focus. A clear, focused business mission, well-communicated to employees, can make it easier to move forward. It eliminates the density problems of confusion, hesitation and conflicting priorities which come from a lack of strategic focus. When you have a solid understanding of what is truly important, you can more boldly go down that path (with less resistance).

Perhaps even more importantly, a focused strategy helps people to understand what is not important. A lot of effort can be wasted chasing agendas that add little to moving a company forward. A good, focused mission helps keep people from chasing down these rabbit trails of unproductive side-issues, because they can then see them as clearly “off-strategy.”

If everyone knows where the focus is, and is motivated to move in the direction of the focus, then less effort is needed to micro-manage the company. Excessive, dense bureaucracy can be trimmed away, because there is a more natural effort to get the right job done when the same focus is uniformly embraced by the whole organization. This allows innovation around the focus to bloom, increasing the speed to success.

Strategic planning is ideally suited for helping a company to choose and then rally around such a proper narrow focus.

2. Broaden the Focus of the Strategy Plan
But knowing the focus of the direction is not enough. Eventually, you have to reach your destination. Efforts at direction and implementation need to work together in order to reduce density.

In many companies, strategists are a key part of helping determine the planning focus, but then are excluded when it comes time to implement the plan. I think this is a mistake. If you do not proactively bake the key components of implementation into the original plan, you will create inefficiencies.

This is why I believe that great strategic plans need to address three components together:

a) Positioning: What is my focus? Where am I going to win?

b) Pursuit: Do I have all the proper pieces in place to reach my goal as quickly as possible? Do I have the proper types and amounts of expertise to reach my goal? Have I built enough capacity in order deliver in sufficient quantity to win? Have I built up enough of the right kinds of contacts up and down the supply chain in order to accomplish what needs to get done? Am I properly investing in the areas necessary to pursue the focus in front of me?

c) Productivity: Have I shrunken waste and increased efficiencies, so that I have enough time and cash flow to win the game? Have I gotten rid of wasteful activities, so that more time can be spent on activities related to the focus? Have I invested in technologies and processes needed to improve efficiency? Am I building and leveraging my power in the marketplace so that my actions have a stronger impact?

There is a reason why the keyword labels for positioning, pursuit and productivity are so common in this blog. They are the cornerstones for a successful strategy. I believe that strategists need to be an active part in coordinating all three areas together. Otherwise, excessive density can creep into the process and your cloud will sink.

SUMMARY
Clouds soar because they are less dense than the air around them. If you want your business to soar, eliminate the density in your internal environment which impedes your ability to move forward. Strategic Planning can help you do that by 1) narrowing the focus of who you want to be (and what you want to do) and b) broadening the strategy plan to proactively manage pursuit and productivity. If you do this, you can be nimble and effective, even if you are a large company.

FINAL THOUGHTS
Density is a relative term. You soar if you are less dense than the environment around you. Although blue whales are more dense than the air, they are less dense than the water they swim in. As a result, the whales succeed in the water. Therefore when attacking your internal density, keep in mind how your goals stack up against others in the same space. Will you be the least dense? Have you chosen to focus in an area where you company’s density gives you an advantage?

Strategic Planning Analogy #326: All You Have to Do…

THE STORY
When I was in college, I worked as a DJ on the college radio station. The great benefit of this job was that I had access to all of the music being issued (which was quite a lot). Granted, not everything issued was great music, but it seemed to me there was a lot of great music out there that never got the attention of radio stations or became successful.

I tried to figure out what the commonality was between the music that became successful versus the music which did not. I looked at all sorts of things—the level of musical performing talent, the cleverness of the music writing, and so on. I could not see any correlation. For example, some successes were talented, some were not. Some failures were talented, some were not.

After awhile, I determined that musical success or failure was not based on any single factor. There were too many successes and failures sharing the same characteristics. Therefore, I concluded that musical success was either mostly based on luck or based on a complex equation of many factors—too complicated to be obvious. I guess that’s why so much music was issued—if what works is not obvious, then issue a bunch, hoping that there are enough successes in the mix to overcome the failures.

THE ANALOGY
If you spend much time looking at the business literature, you will find all sorts of theories on how to create a successful business. Usually, the literature focuses on getting just one thing right. If you get that one thing right, the literature says you will be a success. Of course, each article or book focuses on a different “one thing” to focus on.

For example, some focus on something related to positioning—just find a unique, winnable, untapped spot in the marketplace and you will be automatically rewarded with success. Many others these days focus on listening to the customer—just do whatever they tell you and you will automatically succeed. Others say just focus on doing good (be a responsible corporate citizen) and you will automatically do well (be very profitable). Yet others say to focus on your employees. If you put together a good team of smart people and give them freedom, they will automatically be successful.

Others said to focus on things like audacious goals, cash flow, the next killer app, leadership, shareholder value, differentiation, speed, streamlining the decision-making process, innovation, and on and on and on the list goes. Some even said the focus should be on creating a focus.

Usually, this literature would “prove” its point by showing examples of successful firms who focused on exactly that one thing the literature was proposing. The logic was that these firms did it and were a success. Therefore, if you do it, you will automatically be a success as well.

Unfortunately, this all seems a bit simplistic to me. I think the situation is more like what I found as a radio DJ. Just as I found musical winners and losers for every single characteristic, you can do the same for these business foci.

In other words, for any “just focus on this one thing” business article/book, I could find the following:

1) Companies who followed the recommendation and succeeded;
2) Companies who followed the recommendation and failed;
3) Companies who did not follow the recommendation and succeeded;
4) Companies who did not follow the recommendation and failed.

And, as many have pointed out, even companies who followed the recommendation and were successful (at least at the time the literature was published), often continued on that path and later failed. The original book of this genre, In Search of Excellence, was famous for having picked a list of successful examples of “excellence,” where most were in deep trouble (no longer excellent) only a few years later. Hence, likelihood of finding automatic success in business by focusing on any one thing is just as likely as what I saw in music—almost none.

Therefore, I think you have to come to a similar conclusion to what I discovered as a radio DJ: success is either based on random luck or a complex mix of factors, working together in a way that is not easy to discern.

THE PRINCIPLE
So here is the dilemma. If success is random, then it really doesn’t matter what you do. If success is based on a formula too complex to comprehend or apply, then having the formula does not provide much guidance, either. So what should I do to increase the likelihood of my success?

To get out of this dilemma, I will propose a middle ground. The idea is to provide a broad enough scope to encompass a lot of the complex issues involved in success, yet cull it down far enough to provide a relatively simple (and relatively easy to apply) approach for business management. Although not perfect, it is better than betting it all on just one thing or hoping for luck.

This approach is based on keeping an eye simultaneously on three broad areas, which I refer to as the three P’s: Positioning, Pursuit and Productivity. In one short blog, I cannot fully explain all the nuances to each “P,” but hopefully, you’ll get the general idea.

1. Positioning
In a nutshell, positioning is the act of getting a targeted consumer group to believe that there is a compelling reason why they should prefer purchasing your product. The battle takes place in the mind of the consumer and you want to “own” a position within that mind. The goal is to convince them that you have a superior solution to one of their problems. A good position for your brand/product/service is one that is desirable, sizable, ownable, preferable, achievable, believable, understandable, and profitable. Your key soldiers in this battle include marketing and strategic planning.

Another way to look at this is to ask yourself these questions: What is the reason why my product needs to exist? Would anyone miss my product if it no longer existed? If your product has no unique reason for existing, then do not be surprised if it fails.

Within this broad area of attention (Positioning), three concerns should be kept in mind:

a) Have I created a winning position? Is my position still relevant? No I need to modify it?

b) Are the actions of my company consistent with this position? Am I doing everything possible to accentuate and strengthen my ability to deliver on the key attributes of this position? Are resources disproportionately allocated towards building/reinforcing the position? Am I making the right trade-offs?

c) Have I adequately communicated the position so that the customer understands and accepts it? Does the consumer continue to keep me as the top-of-mind leader on that position?

2. Pursuit
Having a good position is not enough. You need to exploit it. The idea behind pursuit is to create as many opportunities to exploit the position as possible. The battleground is the place where transactions take place, where people do the buying. Your key soldiers in this area include operations and sales. This is about out-hustling the others who want to win in the same space. Many people with great ideas fail because they let someone with more hustle out-pursue them and reap the rewards from that idea.

Within this broad area of attention (Pursuit), three concerns should be kept in mind:

a) Have I built up enough relevant competency/expertise in order to deliver on the promises of the position? Am I strongly pursuing innovations in order to remain a leader? Am I keeping an edge over competition in competency/expertise?

b) Do I have enough capacity (points of sale, types of sales channels, sales personnel, inventory, distribution) to satisfy the demands of all relevant customer segments and geographies? Am I expanding my selling/production/distribution capacity at a faster rate than competition in order to create superiority in selling (and putting competition at a disadvantage in reaching these customers)?

c) Have I pursued superiority in relationships up and down the supply chain? Have I created a competitive edge in position with these business partners?

3. Productivity
Selling at a perpetual loss is not a good long-term strategy. Ultimately, you have to provide your value at a price which is higher than your cost to deliver. Your business model needs to be engineered for profits. The battle ground is your income statement, balance sheet and cash flow statement. Your key soldiers in this battle tend to include finance, procurement, and operations.

Within this broad area of attention, three concerns should be kept in mind:

a) Am I focusing on the activities which provide the greatest return on investment?

b) Am I managing everything (costs, capital, personnel) for peak efficiency (while still enabling pursuit and position reinforcement)?

c) Am I building and leveraging my power within the business ecosystem so as to extract a larger share of the total ecosystem profits? Am I leveraging my economies of scale?

I have written many blogs about these topics in the past. Check out my keyword topic label links on Positioning, Pursuit and Productivity to learn more.

SUMMARY
Business success is not an automatic outcome of doing just one thing right. It is a complicated formula, requiring proper moves in many areas. For simplicity sake, one can categorize most of these moves into one of three concerns: positioning, pursuit and productivity. All are needed to increase the likelihood of success.

FINAL THOUGHTS
All three of these areas need attention because they intermingle to form the formula for success. For example, you cannot exploit the economies of scale in profitability if you have not pursued the capacity for scale or created a position which demands scale. You cannot pursue a position if your do not know what that position is or have not created enough cash flow to give you the funds needed to invest in the pursuit. Therefore, you need to work on all aspects of the formula in concert. Again, we’re back to the music analogy.

Analogy #199: Movement vs. Progress

THE STORY
When I was a child, I was fortunate to have teachers who tried to instill in me a sense of the big picture. There was this librarian who kept insisting that before starting to read a book, examine the entire book. See if it has a glossary or index in the back. See what else it has to offer. That way, reading the book will be more fulfilling and we’ll get more out of it.

I had a Social Studies teacher in high school who tried to instill these same principles. On the last day of school, this teacher gave us a final exam. The exam was huge! It was about the size of a small phone directory. There were hundreds and hundreds of questions to answer. Even worse, we only had an hour to complete the exam. There was no way that any human could get all those questions answered in an hour.

When the students saw the size of the exam, they started to panic. Not wishing to waste any of the precious time, most students just dove in and started answering the questions as fast as they could—in sequential order—starting with question #1.

After only a few minutes had passed, one student closed their test and handed it into the teacher. The student and the teacher both had big smiles on their face. At this point, I knew there was some kind of trick here.

As a result, I stopped racing through the questions and took the time to examine the entire test more fully. I noticed that on the last page, there was a special message. The message said that all we had to do was write a particular word on the top of our test and hand it in and we would get an “A” on the test.

Then I realized that the teacher had never said we had to answer all the questions. He just handed out the test. So I wrote the word on the top of my test and handed it in…with a smile.

THE ANALOGY
The business world had a bias towards activity. “Looking good” means looking busy. When trying to hire people, job descriptions will often ask for people with “a bias towards action.” The kiss of death is to appear idle.

However, just because one looks busy does not mean that one is productive. The students taking that exam were extremely busy. They were rushing from question to question, trying to answer as many as possible. Unfortunately, it was an effort in futility.

Had they taken time to pause and reflect on the project before them, they would have seen that all they needed to do was write a single word on the front of the test. Instead, they were so busy “doing the work” that they ended up never finding out what the real work was supposed to be.

It is so easy to fall into this same trap in the business world. We get so caught up in racing to get work done that we never take the time to determine if it is the right work to be doing. Time is wasted. Effort is wasted. Money is wasted. And while we are so busily doing the wrong thing, competition can calmly do the right thing and get a huge advantage.

THE PRINCIPLE
The principle here is that there is a big difference between activity and progress. Sure, all progress requires some activity, but not all activity leads to progress. In fact, too much of a bias to quick action can actually slow down or stop progress.

Sometimes, stopping the busyness and taking time to reflect and ponder can lead to your greatest progress.

Great strategic insights come from looking at the big picture and seeing something which others have missed. It’s hard to see the big picture when your head is down and busily focusing getting some mundane task completed quickly. And it’s hard to see what others have missed when you don’t take time to really sit back and look.

Howard Schultz got the original vision for Starbucks while relaxing at a café in Europe and just watching the human interactions around him. I’ll bet the executives at Folgers and Maxwell House looked a whole lot busier on that same day. However, I suspect that Howard Schultz was a lot more productive that day.

It takes time to synthesize all of the various data inputs and create a point of view about how the world works and how you can find a winning position within it. And given how the world is continually changing, more time is needed to occasionally refresh that point of view. This cannot be done unless you step back from the busyness and ponder.

I was impressed when Gap stores decided this past spring to pull back a huge chunk of their advertising. The reason was because the stores were not ready with much of a compelling reason to shop there. Heavy doses of advertising would just have accelerated disappointment. Instead, the Gap sat back, kept its advertising relatively idle, and reinvented its merchandising approach. Now, with a renewed vision, the Gap is bringing back the advertising again.

This is so different from many companies which, in times of panic, just crank up the busyness in hopes that working harder and faster at what they’ve always done will make things better. Let’s remember that this is the same work which got the company into trouble in the first place. Doing it faster and more frantically won’t change the fact that it is still the wrong work. And while keeping busy doing the work, there is no time to consider how to change the strategy and figure out what would be better work.

A little time spent up-front pondering the big picture can save a lot of grief and wasted effort later on. More of the world is like that Social Studies test than one might think. Spending a little time up-front examining with the big picture may present a far easier solution to the problem (just writing a word on the front) than grinding out busyness the old fashioned way (answering all of the questions).

New solutions can be easier because:

1) It is uncontested territory…it’s almost like having a monopoly.

2) New solutions tend to have higher margins, and less competitive intensity…the path to profits is easier.

Unfortunately, the lure of busyness is difficult to resist. In tough times, there is fear of losing a job. Busy people appear more essential, more valuable…less likely to be laid off.

Also, there is a satisfaction which comes from accomplishing things (even if they are the wrong things). You can point to things you’ve done. You can check things off a list. It can actually be fun.

In the busyness of activity, you don’t have time to ponder all the things that could be wrong with the big picture. Ignorant to the long-term doom, you can be content with “Gettin’ ‘R’ Done.” By contrast, sitting back in a pondering mode can be scary work. It is unstructured…you never know when you are done…and it forces you to come to grips with some very big problems.

The siren call to action may sound great, but often times it must be resisted or your actions will cause your business to crash against the shores.

If you want to hit a target, you must aim before you shoot. Similarly, if you want your business to succeed, you must aim its direction before you act. When you watch someone aim their rifle, it doesn’t look like much activity is going on, but that aiming makes the productivity of the shooting activity so much better.

SUMMARY
Not all activity is productive. In fact, much is unproductive and keeps you from thinking about what would be productive activity. Taking a pause before diving into the work may be the most productive thing you do.

FINAL THOUGHTS
I’ve watched many a hockey or soccer game where there is a lot of action, but not many goals. It’s exciting and fun to watch, but not very productive. Don’t let the fun and excitement blind you to the fact that the teams did not reach their goals.

In the same way, don’t let the excitement of doing deals, updating logos, doing brand extensions, and so on, blind you to the fact that in many cases this work will not get you to your goal. Studies show that most of these great-looking “activities” actually destroy shareholder value. Taking time up-front to sit back, ponder and get the big picture will increase your chances of avoiding the loser activities and doing the winning activities.

Remember: Success is not determined by how many things you do, but by how much value you add. If an activity destroys value, it was not only a waste of valuable time, but it negates any other effort which added value (a double destruction). Even doing nothing is better than destroying value.

Management by Growing

THE STORY
Once upon a time, the there was a small little boy who hated being so small. “Nobody pays any attention to me or gives me any respect because I am so small,” he lamented to himself.

One day, a fairy godmother came to visit the little boy and offered to grant him any one wish. Well, that was an easy choice for this boy. “I want to grow and grow and become BIG!” he replied.

The next day, the boy woke up and was big and tall, like an adult. The boy was ecstatic! People, finally paid attention to him and gave him respect. It felt great.

Unfortunately, his growth did not stop there. Every day he grew a little bigger. At first, it wasn’t such a big deal. But eventually he was so big that he was taller than large buildings. Everywhere he stepped, he ended up crushing something with his gigantic feet. The respect he used to get from others turned to fear, as people were afraid to be near him for fear of being crushed. It made him feel like the monster Godzilla.

“I guess it’s possible to grow a little too much,” the boy finally admitted.

THE ANALOGY
One of the most popular phases in a business life cycle is the growth phase. It can be a lot of fun. Your position is relatively well set and desired by a lot of consumers. Your only problem is growing the company fast enough to take advantage of all the great potential you have. It feels like you can do no wrong.

Shareholders seem to love growth companies as well. They give the stocks high multiples. Suddenly, the company is worth a whole lot of money, and everyone is smiling.

It’s like the boy in the story. When he was small, he was ignored and not given any respect. However, once he started growing, everything started to change for the better. He started receiving the love and respect of others.

It feels so good that you want it to continue forever. However, as we saw in the story, sometimes too much emphasis on growth for too long can backfire on you. Continuing the push for growth long after you’ve reached your optimal size can cause all of your friends to turn on you.

In the business world, maturity will eventually come, causing additional rapid growth to no longer be appropriate. Too much growth for too long can result in investments which are no longer needed in the marketplace, causing returns below your cost of capital. You may be merely spreading your relatively constant sales over a larger, more costly infrastructure, which reduces overall profitability.

Growth is good, but other factors also need to be considered in your strategic planning, so that your company does not turn into a hideous monster like Godzilla.

THE PRINCIPLE
In the last three blogs, we talked about how different companies require a different approach to strategic planning depending on where they are in their lifecycle and how many barriers there are to entry/exit in their industry. In the blog “Same Title, Different Jobs”, we said that there are three major steps in strategic planning:

1) Positioning: Determining what you will stand for (own) in the marketplace—the solution you are providing, the place where you can win.

2. Pursuit: Determining the path to achieve (or improve) your desired position. This usually involves acts which allow you to gobble up market share so that you can build a strong claim to your position.

3. Productivity: Discovering ways to leverage your position so that you can optimize the return on your investment.

During the rapid growth phase of an industry, most of the attention is on growing the business (I guess that’s why it’s called the growth phase). The key area of strategic focus in this period is on pursuit. The idea is to grab as much of the market potential as fast as you can, so that nobody else can gain a stronger foothold at that position.

The success of your position is what is making the growth possible, so there is not much need to reassess the position. Regarding productivity, you greatest contribution at this point is the productivity which is a natural outcome of rapid growth—economies of scale. Hence, if you focus on the growth, productivity will be a natural byproduct at this stage of the lifecycle.

That being said, one still needs some balance. Positioning and productivity cannot be ignored. Success usually causes imitators to crop up. These imitators may create a need to tweak your positioning strategy in order to stay one step ahead of them.

In addition, the growth phase usually leads eventually to a consolidation of the industry, as a greater percentage of a company’s growth comes from acquiring competitors. If you are not an efficient, productive operator, it is likely that you will be the one being acquired rather than being the one doing the acquiring. Efficiency helps give you the edge when the intra-industry warfare begins, to see who will survive and make it to the mature stage. When the sporting goods retail industry recently went though its consolidation phase, it was the blander, but more efficient Dick’s Sporting Goods which acquired the flashier, but less productive Galyan’s.

Thus, although pursuit is the most important concern at this stage, the other factors should not be ignored.

The pleasure which comes in the growth phase causes pressure to want to continue the growth phase, long after that phase in the industry is over. It seems like everyone wants to be a growth stock forever.

If you want to be a growth stock forever, one probably needs to abandon industries as they mature and move on to new evolving industries. This is pretty much what GE has done over the decades. The growth comes from shifting one’s position, rather than continuing growth in an industry that no longer requires it. At that point, it is an emphasis on positioning, rather than pursuit which continues the growth (We’ll talk more about that in a blog at a later date).

Last month, Wal-Mart finally started coming around to seeing this conclusion. They announced that they were cutting back on new store growth, because it was no longer as productive as in the past. The sales for the new stores were coming largely from other Wal-Marts, so the net increases were shrinking.

Here is what the Wall Street Journal had to say about it on June 2nd:

“Wal-Mart Stores Inc. plans to sharply curtail future U.S. store openings, amid disappointing results for the world's largest retailer and growing investor pressure to curb its aggressive domestic expansion. Friday, it promised to cut more than a third of this year's planned store additions, delay some openings and restrict future U.S. store expansion.

“The move will cut the retailer's capital expenditures by $1.5 billion in 2007 to $15.5 billion for the year and help fund a large share buyback that investors also have been urging the company to pursue. Wal-Mart has been under pressure on Wall Street to slow its U.S. expansion and use the savings to prop up its stock price.

“Wal-Mart, based in Bentonville, Ark., isn't the only retailer to retreat on its store-building boom. AutoZone Inc., Home Depot Inc. and McDonald's Corp. have pulled back on expansion in recent years to improve store operations and boost shareholder returns. 'This is what everyone's been clamoring for,' said Goldman Sachs retailing analyst Adrianne Shapira.

“News of the capital-spending cutback and share repurchase cheered investors, who sent Wal-Mart shares up 3.9%, or $1.87, to $49.47 in 4 p.m. composite trading on the New York Stock Exchange Friday.”

So as you can see, sometimes it is wise get out of a single-minded approach to planning focused only on growth and move to a balance which includes productivity (such as stock buybacks or reinvestments in making current assets more productive, as McDonald’s has done).

SUMMARY
Growth is good, but too much of the same kind of growth for too long is often not one’s wisest move. One needs to have a balanced approach which also looks at potential repositionings or focuses on productivity in order to keep the profit wheels moving.

FINAL THOUGHTS
For some people, the thought of no longer being a growth stock is like a fate worse than death. Trust me, there is life after rapid growth. By no longer pumping all that money into pursuit, those years can be some of your most profitable. Yes, the stock might initially fall when growth-minded shareholders leave, but keep this in mind. Those same people will also leave if they see your rapid growth as no longer productive. And in that case you have nothing.

At least if you stop the unnecessary investments and start doing things like buying back stock or raising dividends or improving efficiencies, you can attract other shareholders who will still reward you. All of the retailers mentioned in that Wall Street Journal article saw their stock rebound when then quit the unnecessary growth. And finally, keep in mind that Warren Buffett did pretty well refraining from the lure of rapid growth, and instead focusing his investments in a lot of more stable businesses.

Management By Dreaming

THE STORY
At the peak of the dotcom bubble, I was working at Best Buy. All sorts of people were knocking on Best Buy’s door trying to convince us to put money into their dotcom dream. I heard a number of them. I remember one in particular.

This young man came to the office. I think he was still a freshman in college. He claimed to have a great dotcom idea. His idea was to run a site where consumers could gather and jointly buy major appliances (items like stoves, refrigerators, washing machines and the like). The more people who gathered together and wanted to buy identical appliances, the lower the price they would pay on each unit.

That was pretty much his entire pitch. It only took about five or ten minutes.

It was obvious to me that he had not done his homework on the major appliance industry. First, the margins in the major appliance industry are razor thin. In fact, the retail prices for standard major appliances during the dotcom boom of the 1990s were almost identical to the prices charged back in the 1950s (and you know that costs have gone up quite a bit since the 1950s).

One of our merchants used to say that there is so little profit in major appliances, that a retailer can make more gross margin dollars selling a single George Foreman grill than in selling one oven. If we dropped prices the way this young man suggested, we’d be bankrupt in a hurry.

Second, I started asking him questions about implementation. I asked him how the consumers would get their gas stove, particularly if they lived outside of a Best Buy trade area. Would we ship it to them by UPS? If we did, that charge would wipe out any cost savings from the bidding. And who would install that gas stove? He replied that he hadn’t thought through all of those details.

In fact, I don’t think he had thought through any details. He had no detailed deck showing his research. He had no preliminary financials. He didn’t even have a Powerpoint presentation. He didn’t bring any software skills or any prototypes of the site. All he had was a dream…and not a very good one at that.

THE ANALOGY
In the last two blogs we talked about how different companies require a different approach to strategic planning depending on where they are in their lifecycle and how many barriers there are to entry/exit in their industry.

If you are at the very early stages in a business cycle, the industry is not well defined and lots of business ventures come and go. Success at this stage has a lot to do with dreaming up clever ideas on how to win in the new space in ways that have never been done before.

This was the case in the early days of the dotcom boom. As the story above illustrates, a number of people were dreaming up ways to use the internet to reinvent an industry. In this case, the young man was trying to reinvent how appliances were sold.

Yes, it is appropriate in these early stages of an industry to focus significant attention on dreaming. This is a key part of the strategic planning process at that point in the lifecycle. However, as we saw in the story, if your dream is not grounded in at least some rudimentary research, it can be more like a nightmare.

THE PRINCIPLE
Two blogs back (see “Same Title, Different Jobs”), we said that there are three major steps in strategic planning:

1) Positioning: Determining what you will stand for (own) in the marketplace—the solution you are providing, the place where you can win.

2. Pursuit: Determining the path that will ensure you are able to obtain (or re-enforce your hold on) your desired position. This involves making it easier to get what you need and harder for your competitors to do the same

3. Productivity: Discovering ways to leverage your position so that you can optimize the return on your investment.

In young, evolving industries, the positions are relatively wide open. Nobody really has a lock on the market in any given position. In fact, you are probably inventing a new position that never before existed—a brand new way to solve an age-old problem. At this early stage, one of the greatest ways to add value to the business is to spend time in your strategic process focusing on what your original position should be.

This is really not the time to be stressing out over getting the last ounce of productivity out of the business model. After all, it is likely that the business model at this early stage will morph into numerous variations until you get the new formula right. Trying to optimize productivity before the business model is set can be counter productive to your immediate battle to find the right position and win it in the minds of your customers before someone else does.

So the first priority at this early stage is dreaming and experimenting to first get the positioning “relatively right”, then to look at ways to pursue the position so that you can win in that space. Productivity is well down the list of priorities at this point. As you can see, this is the opposite prioritization of tasks to what was said in the last blog when talking about mature firms (see “Management by Yelling”).

So, yes, dreaming is an important prioritization in this early phase. But it is not the only task. Dreams need to be rooted at least a somewhat, through some combination of:

1. Consumer research
2. Secondary research
3. Concept testing with potential customers
4. Small trial runs of some aspects of the business model actually run for real out in the real world marketplace
5. Beta testing
6. Financial modeling
7. Pressure testing your assumptions against what you know about the marketplace. In particular, it is important to gage how big the space may eventually evolve into and how well suited your idea is to capture that demand.

The more your insights come from actual behavior rather than opinions, the better. Behavior is a better predictor than opinion, especially in new areas where the consumer has little experience in which to base an opinion.

Sure, because you are venturing into new space there will be many unknowns. If you wait until all the facts are in, it will probably be too late to enter the space. Yet that is no excuse to enter blindly like that young man in the story.

Speed is important at this stage, so you don’t want to get bogged down in the paralysis of analysis. However, running as fast as you can when you have no idea of the general direction where you should be heading is not a formula for success, either (for more on this topic, see the blog “Cutting Your Way to Prosperity—Part 2”).

The idea here is balance and timing. Use some diligence to get close on the position, then quickly shift to pursuit, where you begin to roll out the business model out into the real world to see how well it really flies and to make modifications. The closer you get to getting the model “right”, the faster you can ramp up your pursuit. Then, once the rules are relatively established and you position is relatively strong, you can shift more of your focus to increasing productivity.

Of course, this does not mean that productivity is completely ignored in the early stages. If you are inefficient and completely unproductive in the early stages, you will not have the financial stamina to fight the battles to get to the next stage. That’s one reason why so many dotcom startups during the boom fizzled out early. They ran out of cash before they could generate their own due to wastefulness. Again, there needs to be balance, even in the early phases.

SUMMARY
Even though young and evolving industries should spend the majority of their strategic effort on getting a grip on how to invent their position, they also need to spend some time on understanding how to get insights from pursuit and how to create enough cash to get to the next stage via productivity.

FINAL THOUGHTS
Rarely do the original dreams look exactly like what the business evolves into. But don’t let that stop you from taking the risk. You cannot evolve to the right position if you never start at all.