Strategic Planning Analogy #525: Budget Madness

THE STORY
Well, here we are in the middle of March Madness, when Americans go nuts over college basketball. Millions of people choose who they think is going to win all the games. Warren Buffet is giving out a billion dollars to anyone who chooses the correct outcome for every game in the NCAA basketball tournament.

The Wall Street Journal has come up with their own version of how to pick the teams. They put together a site where the names of the colleges are eliminated. All you have to look at are statistics. Over the years, they have found that people are more accurate at choosing winners if they are not biased by seeing the team name before making their choice.

They call it the “blind” bracket. I guess sometimes we see better when we are blind.

THE ANALOGY
We all have built-in biases. These biases affect our objectivity. Eliminate the bias and we make better choices. This is true in picking the winning college basketball team. I believe it would also be true in business budgets.

Most companies have horribly uncreative budget processes. They consist of little more than just taking last year’s numbers and tweaking them a little (sales go up a little and costs go down a little). And even with that, the budget targets are often missed.

I think the problem has to do with too much familiarity with the company divisions. This creates biases anchored around the status quo (what we know). I believe we would get better budgets if we could do it more blindly (like the Wall Street Journal Blind Brackets).

Why do I say this? Look at how most companies do M&A work. The M&A folks tend to know less about who they acquiring than what their company knows about their own divisions. Yet the M&A people tend to do a much better job of thinking through their forward forecasts than the budget folk.

The M&A crew tends to look as much as 10 years out and do sophisticated discounted cash flow (DCF) analyses. They try multiple scenarios, with different levels of investment and synergies. They look at ways to change the business model in order to justify the acquisition premium.

All this for an outside company they are somewhat blind to. Yet, for our own divisions, which we should know far more intimately, we take a far less sophisticated approach—just look out a year or so and do a small tweak on what was done last year. Something here just doesn’t seem right.

THE PRINCIPLE
The principle here is that budgeting processes won’t dramatically improve unless we find ways to reduce the bias towards the status quo. There is no reason to believe that the status quo optimizes the current portfolio. We don’t expect the status quo for acquisitions. Why should we expect any less for our divisions?

Short Time Frame

The problem with a one year budget time frame is that one year is usually too short to complete a radical transformation of a division. In a radical transformation, the first year typically has added investments and a disruption of sales. As a result, if you are only looking one year out, the budget for a radical transformation scenario looks awful.

What executive wants to accept a budget where sales go down and costs go up? They know that the status quo looks a lot better than that, so they opt for a minor tweak of incremental improvement rather than the first stage of a radical transformation into a far better future.

That’s why companies like Kodak couldn’t make the radical transformation to digital imaging. The bias towards the status quo looks so much better only one year out. Unfortunately, as you string together a series of these “one year out” budgets, you never get around to making the transformation. It keeps getting tabled for an unknown future date until it is too late.

I’ll bet that if Kodak had not already been in the photography business, and had their M&A team examine the business (more blindly), they would have come back with an aggressive transformation to digital imaging as a condition to purchase.  

Go Blind

Is there anything we can do to reduce the bias and budget our divisions more blindly? Sure, perhaps we could make the budgeting team act more like an M&A team that looks at outside businesses more objectively on a longer DCF basis. Or maybe you could disguise a few of your divisions (without the division name) and give it to the M&A team to look at as an acquisition and see what they come up with.

I know that many investment bankers (and activist investors) look at companies from the outside (somewhat blindly) and make proposals about how a company can do something radically different with their assets. I’m not saying they are always right, but at least it can stimulate some non-status quo thinking.

Right now, a lot of these suggestions come unsolicited. What if you proactively sought out more of these less-biased points of view from trusted outsiders?

Even something as simple as benchmarking and best practice analyses could provide a new perspective on what to do differently. These potential budget-line inputs are not biased by what YOU do, but by what best-in-class do. And it could be something radically different.

The Importance of Pursuit

Over the years, I have continually stressed the threefold strategy requirements of:

1.     Positioning (A place where you can win)

2.     Pursuit (Having the Competencies and Capabilities needed to win)

3.     Productivity (A business model that can earns an optimal profit off the winning position)

In the typical one-year budget cycle, it is usually assumed that the positioning stays about the same and the focus turns towards getting more productivity out of the status quo model. The issues of pursuit are rarely discussed.

But pursuit is a critical component to success. If you want to grow, you need to build the capacity to effectively handle that growth. This includes the size of your sales force, the limits on your current supply chain, the capacity of your IT systems, and so on. If you don’t plan in radical changes to capacity, then you won’t effectively be able to capture that growth.

You also need to build in radical improvements to competencies. The world is changing. Today’s status quo is tomorrow’s obsolescence. Are you staying on top of what you need to know to win in the future? How’s your R&D spending? How about educational programs? Are you pro-actively bringing in new talent with the new knowledge you will need?

We can often miss these pursuit issues in a typical budgeting process because of that bias towards the status quo. It makes us falsely believe that we already have the capacity required and competencies needed. After all, we are only tweaking the status quo for the next year.

As a result, the needed step-wise leaps in capacity and competencies never get into the budget. Eventually, that chokes the division’s ability to do what is needed. Then, even the status quo no longer works any more.

I dare say that if we were looking at are divisions more blindly, as we would an acquisition, we would do a better job of factoring these types of investments into our analysis.

SUMMARY
Biases tend to cloud our judgment and make us less objective. This is particularly true when it comes to annual budgets. The bias towards the status quo keeps us from seeing a more radical—and much brighter—future. By changing up the typical budgeting process and adding blinder, more objective eyes, we can find these radical transformations and incorporate into the budgets the radical “pursuit” changes needed to make them a reality.

FINAL THOUGHTS
Most vision statements talk in some way about being leaders or best-in-class. Achieving exceptional results like that don’t come from perpetuating the mediocre status quo past. So why accept a budgeting process which encourages perpetuating the mediocre status quo past?

Strategic Planning Analogy #460: Who’s the Greatest

THE STORY
If you get sports fans talking long enough, the conversation the conversation will eventually get around to an argument over who was the greatest.  Who was the greatest athlete?  Who was the greatest coach?  Which is the best team?

The problem with these types of arguments is that the individual greatness is tough to separate from the given situation.  For example, there are coaches who were very successful coaching one team, but then did poorly coaching another team.  Same coach with supposedly the same brilliant coaching strategies and skills, but different results.  So is the coach great or not?

The same is true for many athletes.  An athlete might have great success playing on one team but not when playing on another team.  Same athlete with the same skills, but different results depending on the rest of the team.  So is the athlete great or not?

And, of course, most teams can have a streak of very successful years, followed by a streak of poor years.  Is it a great team or not?

THE ANALOGY
In the world of business, one can also find heated arguments about greatness—who was the greatest CEO, the greatest business or the greatest business strategy.  In these discussions, you run into the same problem as with sports—the situation plays a major influence.  Some CEOs have great success at one company but fail miserably at another.  A company regarded by business experts as great in one year may go bankrupt a few years later.  Just like in sports, situations can change, causing otherwise great CEOs and companies to suddenly not look so great (or vice versa).

The one that is most relevant to me is the discussion about great business strategies.  Many times, a great strategy on paper may not work out so well in practice.  So was it a great strategy or not?  Should the strategists be rewarded or not?

THE PRINCIPLE
The principle here is that strategies should not be judged on how great they are.  Instead, they should be judged on how SUCCESSFUL they are.  After all, if the company does not benefit with success from the strategy, what is the point of having it?  Being proud of a “great” strategy on a piece of paper that never gets properly executed (for whatever reason), isn’t much to be proud of in my opinion.

And since success is based on a lot of situational factors (like in sports), strategists need to concern themselves with these factors if they want to see success. The truly great coaches adapt their strategies to the particular situation at hand—the athletes they have, the opponents they play, and so on.  In a similar manner, business strategists, need to look at the larger context in order to be sure that the strategy ultimate leads to success.

Moving from merely having a great strategy to having a successful strategy requires four steps.  These are described below.

1) Moving From Ideas to Actions

It all starts with a great strategic idea—what to be, what winning looks like.  But, if you have no clue how to bring this idea to life, then all you have is an idea.  Dreams are nice, but eventually you have to wake up and face reality.  For example, a sports team can dream about winning a championship, but that’s not enough to secure the championship. The team has to take action—play games, win games.

Moving a great strategic idea from a dream to a reality is the same. You have to convert the dream into action plans.  This doesn’t mean that every detailed action needs to be spelled out in advance.  However, the big action requirements need to be understood. 

A good coach doesn’t just tell his team to “win” and then walk away.  No, he draws up some game plans and set plays.  He devises actions that will increase the likelihood that the team will win.  In the same way, successful strategies are more than just declarations of lofty targets.  They also outline the path of actions needed to get there.

2) Moving From Actions to Skills

So far so good, but this is still not enough.  A great coach could have a great strategy and a great gam plan..  But if the players on the team are incapable of executing the strategy and game plan, then the coach will not succeed.  Somebody has to do the actions.  If the people cannot do the actions, the actions won’t get done.

That is why a great strategy not only includes an action plan, but also a plan for those doing the action.  In sports, it usually boils down three things—having athletes of the proper skill levels, having athletes properly trained, and having the proper equipment and facilities. 

A similar situation exists for businesses.  To execute the action plan you need skilled people who are properly trained and have all the tools and infrastructure they need.  In the past, I have referred to this as the “pursuit" portion of strategic planning.  The idea is that the plans don’t get done by themselves—you have to pursue them.  The pursuit portion of strategic planning makes sure you have all the pieces needed to win—competencies, capacity, and connections.  I spoke in more detail about these in an earlier blog.

Remember, strategic success relies on having the right people properly equipped.  Therefore, strategies need to consider both the human resource element and spending on resources.

3) Moving From Skills to Exploitation

Okay, so now we have a strategy, an action plan and some skilled players.  But that still does not guarantee success.  There have been dream teams in the past with all sorts of skilled players who still had disappointing performance.   Maybe the team chemistry is wrong.  Perhaps there are too many selfish egos in the way preventing teamwork.  Perhaps a key player doesn’t want to be on the team and is sulking rather than playing.  Perhaps the team is not serious about doing what it takes to win.

Whatever the cause, the execution is below the levels necessary to win.  Even if sufficient skills and sufficient training/equipment is there, if the athletes are not sufficiently motivated, the plan will not be properly executed.  The skills need to be exploited to be useful.

That is why great coaches not only work on game plans, but also work on team motivation.  Both are needed if you want the plan to succeed.  It is natural and expected for coaches to do this.  Yet it is not usual and expected that strategists would do this.  I think that is a mistake. 

It is common for strategist to hand off the plan to those executing it and then walk away.  And if the plan fails, the strategist blame “poor execution.” “It’s not my fault,” they say. “It’s the fault of those who are poorly executing that great plan of mine.”  We wouldn’t accept it if a coach used that excuse in sports.  Why do we allow that excuse in business?

No, if you want a truly great strategy, you have to include a process which properly motivates employees to aggressively and enthusiastically execute the key elements of the plan.  Do the people know what you want executed?  Are the compensation systems set up to reward the proper long term strategic behavior?  Are there motivating pep talks?

4) Moving From Exploitation to Strategy

Often times, even having action plans, skilled personnel and motivation is not enough.  For example, on a sports team, a coach may find that the people have skills, but not the right skills or right balance of skills.  Perhaps a star player retired or got injured, leaving a big hole.  Perhaps the matchup with competition is not what is desired.  In these cases, no matter how well thought out, the original plan is in trouble.

Great coaches do not blame these circumstances for their problems and accept failure.  No, they adjust.  If you don’t have the right kind of team to execute the original plan, perhaps you need to adjust the plan to better exploit the advantages you do have.  Look at what you have to find a way to win.

The key is not to have a great strategic planning document, but a successful business.  The environment the company is competing in is fluid and ever changing.  Internal and external changes often require adjustments to the overall plan.  This does not mean that strategies should be in constant flux.  But it does mean that adjustments may be necessary.

Planning is not a one-time event, but an on-going process.  It is a continuous cycle from strategy to action to skills to execution and back again to strategy. 

SUMMARY
The goal is not to have a great strategy, but to have a successful business.  Therefore, the strategist should not just come up with a great idea and walk away.  No, the process needs to be expanded to encompass all the elements needed to convert a strategy from an idea to business success.  That includes the development of action plans, plans to ensure the proper people/infrastructure are in place, and plans to properly motivate the right actions.  And if, going through this larger process you notice that the original plan is no longer most appropriate, take time to reformulate the plan to best exploit the situation at hand.

FINAL THOUGHTS
The greatest strategists are the one who create the greatest company successes, not the ones with the greatest portfolio of mission and vision statements.

Strategic Planning Analogy #378: Who’s to Blame?

THE STORY
Although there are many things that governments are not very good at, it seems that they excel at creating processes to assess whom to blame when things go wrong. Whenever there is a problem, governments are quick to set up a process to find out whom to blame. It can be special investigative committees or inquiry sessions in front of the legislature, or just your normal voicing of opinions while legislating “punishment” for the “evildoers.”

And if members of the government cannot find a non-governmental group to blame, then they will blame a political party other than their own for the problem.

You’d think that with all that finger-pointing and declarations of whom to blame, we’d be able to stop all of these problems from re-occurring. Unfortunately, all this finger-pointing has not stopped the problems. Instead, it seems like the problems requiring their “blaming” process are increasing.

Maybe if governments spent less time trying to assign blame and more time working together to fix things, we’d be further ahead.

THE ANALOGY
Governments are not the only ones playing the blame game. Businesses do it as well. When a business venture fails, companies also tend to look for where to pin the blame.

I have seen situations where companies get into a heated debate about strategic failure. The debate centers around who is to blame for the failure. Was it the fault of the people who created the strategy or the fault of the people who implemented the strategy?

Unfortunately, just as governmental finger-pointing hasn’t reduced the problems they deal with, strategy finger-pointing (creators or implementers) hasn’t seemed to reduce the rate of strategic failure. Maybe if businesses spent less time trying to assign blame and more time working together to achieve strategic success, we’d be further ahead.

THE PRINCIPLE
The principle here is that instead of segregating strategy creation from strategy implementation (so as to assess separate blame), we should be working towards greater integration of these two processes (making it almost impossible to separate blame). My reasoning is as follows.

Strategies Have 3 P’s
As I have stated many times in the past, successful strategies need to address three topics, each beginning with the letter P:

1. Positioning: The place where you win.
2. Pursuit: The ability to get to and keep that winning place.
3. Productivity: The ability to exploit that position for optimal cash flow.

For many people, the concept of strategy is limited to only the first P: Positioning. Pursuit is not seen as part of strategy, but part of implementation, which is considered completely different form strategy. To me, this is faulty logic. All three Ps are just different facets of the same gem. You cannot separate them without destroying the gem. It’s all one package. True Strategy includes all three.

Having a “great” position without pursuit is like having a plan to be the first to go to Mars, but not have a rocket. You won’t to get to the moon, no matter how great that would be. Having a “great” pursuit with no position is like running faster than anyone else, but running in random directions. All that running gets you nowhere. None of it works unless all of it works.

The P’s Are Interconnected
Since positions must be “pursuable” and pursuit must be in the direction of a position, it is hard to isolate the activities. They are, by nature, interconnected.

When devising a strategic position, capacity and capabilities must be a key element in the discussion. The idea is not to create a “great position”, but to create a “great position where your company can own.” You can only own a position if you have the capacity and capabilities to achieve it.

For example, I might want to own a low price position, but if my capacity and capabilities are such that I can never be the lowest cost operator, then I will never successfully own the low price position. Although it may be a great position, it is not the right position for me. I need a position where I can be successful in pursuit.

So, in this example, if the pursuit fails, whose fault is it? Well, if the position chosen works against the capacity and capability of the firm, then the positioning is just as much at fault as the pursuit (if not more so).

This also works in the other direction. As companies invest in their capacity and capabilities, they have to make choices about where to invest. Ideally, those investments should be made in a manner which reinforces what is needed to achieve the position. For example, if your position is to win with service, then you should overweight your investments into areas which will increase your capacity and capabilities in providing service. Otherwise, you cannot hold the service position.

So when one starts placing the blame at a lousy choice of position, consider whether the investments in capacity and capability over time worked for or against that position. Perhaps the position would have been highly successful if only the investments in pursuit had been more in line with the position.

In other words, neither positioning nor pursuit can be devised in isolation. Positioning needs to take into account the capacity and capabilities which can be realistically achieved by the firm. Conversely, investments need to consider the chosen position, so that investments become over-weighted in the areas most critical to achieving and holding the position.

Therefore, if things don’t work out, blame should not be isolated to the creators or the implementers, because creation and implementation should have been intertwined. Of course, if the creators ignored the implementers (or vice versa), then perhaps there is some isolated blame. But even here, perhaps the blame should be placed on the leadership who did not demand that the two sides cooperate.

The People Should Also Be Interconnected
The best way to ensure that the positioning decisions adequately understand capacity and capability, and that investment decisions adequately understand how to support the position, is by interconnecting the people working on these issues.

Implementers need to be a part of the positioning decision and strategists need to be a part of the implementation teams. This is not about two different isolated teams working on different issues (creation versus implementation). There is just one issue on the table (success) and both sides have something to offer to improve the work of the other.

Strategists are more likely to create a strategy appropriate for the firm when working side by side with the people who have to implement it. Conversely, implementers are more likely to take the right actions if they understand and have an emotional stake in the chosen position.

Pointing fingers at each other does not build the kind of teamwork and cooperation needed for success. It only creates isolation. After all, it is hard to blame “the other guy” when you both participated on each other’s work. Blame, by nature, creates uncooperation.

If One Fails, We All Fail
At the end of the day, if the company fails, everyone suffers a loss—creators, implementers, stakeholders and everyone else. We only win if everybody wins. There is no victory in a great idea poorly executed or a poor idea greatly executed. There is only victory when the right idea is correctly executed.

Encouraging blame in one direction discourages the cooperation needed for success. Worse yet, it encourages the wrong definition of success. If someone defines success as “I did my part right, but the other team screwed up”, then you get people who are content with failure, provided they can pin the failure on someone else.

However, if you hold everyone accountable when a project fails, then nobody is content with failure. We are more likely to help each other and keep all the parts of strategy properly intertwined if we view our success as depending on others also succeeding. Creators won’t be able to ignore issues of capacity and capability. Implementers won’t be able to ignore the key differentiators in the strategy.

SUMMARY
When a project fails, the wrong question to ask is whether the blame belongs to strategy creation or strategy execution. This question discourages cooperation and creates an environment where failure is tolerated, provided the blame is not placed on me. If you want success, the question we should be asking is “How can we better integrate creation and execution, so that the probability of success increases.” This is done by:

1)Defining creation and execution as both being integral parts of Strategy.

2)Making sure the processes are intertwined:
a. Creators take capacity and capabilities into account when creating the position.
b. Implementers overweight their investments in time, money and labor in those areas most critical to the position.

3)Making sure the people are intertwined (creators and implementers are on each other’s teams).

4)Making sure failure is shared (so that there is no tolerance for failure and an incentive to help each other succeed).

FINAL THOUGHTS
The logic behind wanting to find someone to blame for failure is so that we can help prevent future failures. If you follow the suggestions in the summary, I think you still achieve the goal of helping prevent future failures without the negative consequences of the blaming process.

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 #370: Infrastructure

THE STORY
Although China and India are both large countries with rapidly growing economies, there are many differences in how the countries operate. One of those areas where countries differ is in the approach to building the national infrastructure (transportation, utility grid, etc.).

In general, China has tried to get in front of the issue by attempting to build the infrastructure in advance of growth. The idea is to anticipate future needs and build the infrastructure prior to building the economic elements which will rely on that infrastructure. By building extra capacity into the infrastructure in advance, China believes that the infrastructure can be built more efficiently. In addition, by building in extra capacity, the Chinese hope that economic growth will continue to remain strong, since the economy is less likely to be held back by a lack of infrastructure.

By contrast, India tends to have more of a tradition of chasing the economy with its infrastructure. The current infrastructure tends to be left in place until economic growth stretches the infrastructure to near its capacity (or a bit beyond). Then the Indian government steps in and tries to upgrade to infrastructure to catch up with near-term capacity. Unfortunately, by the time the upgraded infrastructure capacity is in place, the economy has already outgrown this capacity, so the infrastructure rarely ever catches up with demand.

THE ANALOGY
Both approaches to infrastructure have their plusses and minuses, and taken to an extreme, either approach can lead to problems. However, most experts would say that a more proactive approach to infrastructure (similar to China) is preferable to a reactive approach (similar to India).

Just a countries need to build an infrastructure for their economy, companies need to build an infrastructure for their businesses. A company’s infrastructure would include things like:

1) Manufacturing Capacity
2) Distribution Network
3) Sales Network
4) Intellectual Capacity
5) A Sufficient Amount of Adequately Trained Labor
6) Access to Raw Materials in Sufficient Amounts at Competitive Prices
7) Access to Customers
8) An Adequately Filled and Functioning Innovation/New Product Pipeline

Unfortunately, it seems that a lot of companies take more of an approach like that of India when it comes to their infrastructure, rather than following the approach of China. There is this idea that the only “good” infrastructure is a “lean” infrastructure, and that every cost which can be driven out of infrastructure should be driven out. Additional infrastructure expenditures are never spent in advance and are instead always trying to catch up with current needs. As one can see by looking at many of the problems facing India, such an approach can become costly and counterproductive.

Now I’m not advocating big, bloated, bureaucratic infrastructures. Waste is never a good thing. However, if you do not feed your business with an adequate infrastructure, you will starve the business and limit your ability to grow and prosper.

You may have the greatest business idea in the world. But if you have no way to get adequate amounts of raw materials, or no way to manufacture adequate quantities, or not enough qualified employees to product sufficient quantities at the required quality level, or no way to get the goods to the customer in a timely manner, then you will most likely fail. At the very best, you will far less prosperous than you would have been if that entire infrastructure had been in place.

THE PRINCIPLE
The principle here is that infrastructure concerns should be an integral part of a strategic plan. If the business infrastructure is not of sufficient capacity to meet the demands of the plan, then you will not achieve the plan. For example, having a strategic goal to sell a billion dollars worth of goods is a worthless goal if your infrastructure can only support the production, distribution and selling of a thousand dollars worth of goods. To win, you need an infrastructure with the capacity to achieve what you desire. And the only way to achieve that is by putting infrastructure capacity concerns directly into the plan.

To those who prefer to chase after infrastructure like India, I have the following responses.

A) You Do Not Operate In A Vacuum.
In most cases, there are other companies operating in the same space as you are, trying to give the customers a similar solution. If the competition invests in adequate infrastructure and you do not, then they will be in a superior position to capture most of the demand. For example, I know of a retailer who refused to adequately reinvest in their store infrastructure. Their stores became old, ugly and in disrepair. The customers had moved to newer and nicer neighborhoods, but the stores were stuck in the old, decaying neighborhoods. At the same time, competition built nice, new stores in the better, newer neighborhoods, closer to the customers. As a result, the customers defected to the competition—because they had the superior store infrastructure.

B) Human Capital Is Fluid.
In today’s knowledge-based economy, a key part of one’s infrastructure is the knowledge in your employees’ brains. Unfortunately, that employee is relatively free to leave your company at any time. When that employee walks out the door, a lot of your intellectual capacity leaves as well. That is why Google treats its employees so well, spending money on things like free food, and recently giving everyone a 10% raise in pay. Google realized that was money well spent if it keeps that intellectual capacity in place at a time when other companies are trying to hire that capacity away from them. The patience level of employees only goes so far. If you wait to long to reward them, or deny them the tools they need, they will leave.

C) Playing Catch-Up Never Leads to First Mover Advantage
You can never build a leading edge if all of your investments in infrastructure lag behind the industry. Much has been written about the advantage of being a first mover. To be a first mover, one needs to get the capacity in place quickly. Apple had first mover advantage with the iPhone and iPad because it had the infrastructure needed to get to market well before the competition. Microsoft keeps failing in its attempts to catch up to Apple in these spaces, because its infrastructure is not built in a way which allows them the speed and creativity to win in these areas. You can read more about this principle here.

D) Spending More Up Front Often Costs Less in the Long Run
Many times, it is cheaper to spend the money to build a better infrastructure than to try to limp along on the “lean” process currently in place. For example, I know a retailer who refused to upgrade its outdated warehouse & distribution system. Yes, it would have cost money to do so, but the payback was less than a year. And the old system was so inefficient that it made it impossible for the retailer to make a profit on a large percentage of the products going through the old system. The inefficient costs in the old system wiped out much of the profits.

I know of another situation where a retailer liked to brag that it had one of the least expensive IT departments in the industry. Of course, it also had one of the least effective IT departments in the industry, which cost the company dearly. The bare bones IT operation starved the company of the data it needed to be competitive in the marketplace. Lowest cost infrastructure is rarely the most cost-effective.

E) Not All Infrastructure Solutions Are Costly
Some are reluctant to build sufficient capacity because they are afraid it will be prohibitively expensive, particularly in the near-term. However, there are often ways to get capacity without a lot of upfront investment. For example, one can arrange for outsourcing. There is a reason why so many companies in the US outsource their payroll infrastructure to ADP. It is a way to get a state of the art payroll infrastructure without having to make a huge up-front capital expenditure.

One can also come up with creative payment plans. For example, it is common for retailers to place both a fixed and variable component into their store rent. The variable amount of the rent goes up in proportion to store sales. By making part of the infrastructure cost variable, the retailer only has to pay the higher rent if it is justified (and affordable) with higher sales.

Just because one has access to infrastructure does not mean they have to own it. There are lots of creative ways to partner with others to get that access without a lot of up-front investment.

SUMMARY
Strategic goals are only as good as the infrastructure capacity behind them. Without the proper infrastructure investments, one cannot reach one’s goals. Therefore, the strategic process needs to concern itself with infrastructure.

FINAL THOUGHTS
Remember, the ultimate goal is not to spend the least on infrastructure, but to make the most in profits. Wal-Mart is a very large and very profitable company. It did not get there by being cheap on infrastructure. They spent a ton of money on infrastructure, especially in IT, distribution and new stores. It would have been impossible for Wal-Mart to get as large as it has without that huge infrastructure investment. And, even though it spent more on infrastructure than any other retailer, it has one of the lowest cost structures in the industry. The investments caused Wal-Mart to be more efficient. It was money well spent.

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.