Strategic Planning Analogy #269: Culture is Offensive (and Defensive)

THE STORY
Back in the days of the dot-com boom, I was working on a new e-commerce opportunity. In an attempt to get this idea off the ground, I was trying to form a joint venture between three types of companies: a high-tech e-commerce software company, a large telecommunications company, and a traditional store-based retailer.

Unfortunately, this project never got off the ground. The reason? All three companies had vastly different cultures. The software company had a silicon valley corporate culture. The telecommunications company still thought like it was part of the old-school monopolistic practices prior to the breakup of the original AT&T. The bricks and mortar retailer fell somewhere in-between.

It’s hard enough trying to get three companies to work together who have similar cultural styles. But when they cultures are so different that they appear as unintelligible foreign languages to the other firms, your chances for success are doomed.

THE ANALOGY
In the world of strategy, a lot of one’s future success often depends on cooperation with other firms. If the firms do not work together as planned, the strategy falls apart. You can put a lot of reason on paper why a cooperative strategy should work:

1) Complementary Skill-Sets/Resources
2) Mutual Self-Interest
3) Speed-to-Market
4) Building a Network Powerful Enough to Win (stronger than going alone)
5) The numbers (financial analysis) show great profit potential.

This was the case in the story above. There were many reasons why the participants should have been ticklee to death to do the deal. The logic was solid; the numbers were solid.

Unfortunately, the cultures were so different, that the companies did not trust each other. As a result, the logic and the numbers were not enough to hold the deal together.

THE PRINCIPLE
The principle here is that a strategic plan which ignores corporate culture is an incomplete strategy. Now you may be saying, “Sure, that’s true when you are trying to acquire a business or do a joint venture, but after that, corporate culture is a minor factor.” I beg to differ.
I think corporate culture can be used as both a strong offensive and defensive strategic move. By pro-actively putting corporate culture into your strategic plan, you can change the rules to your favor.

Offensive Cultural Tactic #1: Getting to the Future Faster
Most strategies are an attempt to create a better future position for your business. That usually requires changing the rules of how the game is played and getting out ahead of the competition.

New rules often require new ways of running your business. Your old corporate culture was designed for the old rules. To get to the future faster and more effectively often requires becoming aggressive at pro-actively altering your corporate culture to be more in tune with the new rules.

Those old telecommunications giants like the one in the story have a lot of legacy culture from the old days of the simple telephone monopolies. This slow, bureaucratic culture is not well suited for the modern telecommunications age. Nimbler firms like Apple are finding the new ways to mine gold from that space. They can think outside the box, because the box was not their cultural home.

Similarly, the cultural heritage of the Detroit automakers was designed for different times. GM has stuck with that old, outdated culture and paid the price. Ford has proactively tried to break that culture by bringing in an outsider to lead the firm. Caterpillar used to have a corporate culture like the auto industry, but it early on aggressively changed that culture and has become a world leader.

John Chambers, CEO of Cisco, loves to talk about how he saw the future evolving to one where innovation is more important, so he changed the corporate culture to better embrace that new reality. As these examples show, if you want to take the offensive on moving ahead, it helps if pro-active adapting your culture early in the game is part of that strategy.

Offensive Cultural Tactic #2: Getting the Right People
It’s said so often that it’s become a cliché, but success has a lot to do with getting the right people. You win with people, as the saying goes. Therefore, getting the right people can be a key factor in strategic success.

The exciting new people of the next generation are wired a bit differently from past generations. To become the employer of choice for these top prospects may require adapting your culture to make it more appealing to them. If your culture only attracts people with yesterday’s mindset, it will be hard to even see, let alone win, tomorrow’s game.

Therefore, a pro-active approach to adapting your culture can be a key offensive tactic to draw in the talent one needs to make your strategy work.

Defensive Cultural Tactic #1: Postponing Obsolescence
Corporate culture is a lot like the culture in yogurt. At first, the active culture reacts with the milk to make tasty yogurt. But if that same active culture works too long on the milk, the yogurt goes bad and spoils.

If you leave the same culture in your company too long, your company, like the yogurt, can go bad and spoil as well. You need to change it up a bit to stay current with the changing marketplace. Otherwise, your outdated culture will keep you stuck in the past. It will make your company irrelevant and obsolete.

There’s a reason why disruptive innovation often comes from outside an industry. Those on the outside bring a fresh culture and a fresh perspective. They don’t get trapped in the past by saying, “But we’ve never done it that way before.” Outsiders are more willing to try a new way, with a new culture, because they are not wedded to the old.

Therefore, if you want to defend your industry position, it is often desirable to do so by pro-actively working to keep your culture relevant to the changing industry you are in.

Defensive Cultural Tactic #2: Blocking Openings
Often times, the future industry leader gets its start by exploiting a little hole in the current leader’s strategy. The future leader takes that little hole as a beachhead to eventually topple the current leader.

This is similar to what Google is trying to do to Microsoft. Microsoft had a hole in its strategy when it came to search engines. Google exploited that weakness and became a strong leader in search. Google is now using that leadership in search to build positions across nearly all of Microsoft’s businesses. If it weren’t for that hole in Microsoft’s strategy, Google would not have had the entry way to now challenge Microsoft and put them on the defensive.

Corporate culture tends to make us look at the world in a particular way. This creates “blind spots” that others can exploit and use as a beachhead. However, if we proactively develop a culture which embraces more diversity of thought, we are more likely to have people in the organization who see that “blind spot” and help us defend it from attack.

SUMMARY
Corporate culture can be far more than just a nice little afterthought for your strategy. In fact, it can be one of your most significant strategic tactics, both as an offensive move and a defensive move. By taking a more pro-active approach to managing cultural change, one can increase the likelihood of success.

FINAL THOUGHTS
I’m not saying that you should abandon your culture every year and take up the latest management fad. Culture should have some lasting qualities. Some aspects, such as a culture of integrity or a culture of pursuing low costs may last forever. Other aspects, however, should be reexamined on a periodic basis to ensure they are still relevant.

Analogy #155: The First Dose is Free

THE STORY
Back in the early 1990s, there was a new retail format being developed in the US—pet food superstores. At the time, the industry consisted of a few small chains scattered around the nation. One of the largest firms was Petsmart, which at the time only had a handful of stores in the southwestern US.

The company I worked for during this period was considering entering the pet food supermarket business. Therefore, I went down south to visit a few Petsmarts to see what the concept was all about.

I started talking to one of the store managers. He began to brag about Petsmart’s success in selling very profitable high-end dog food. He said they had a program of always giving out free samples of this dog food. The store manager told me that once a dog tasted this high quality product, the dog would be hooked and would refuse to ever eat again the cheap stuff sold at the grocery store.

Since these pet food superstores were about the only place to get this higher-end dog food, the owners would be forced to keep coming back in order to satisfy the cravings of their dog. That made it worthwhile for Pestsmart to give away the free samples.

I thought about this for a moment and then said to the Petsmart store manager, “So, you’re like a drug pusher. As they say, the first dose of heroin is always free.”

THE ANALOGY
Although I think drug trafficking is despicable, I must admit that it is very profitable. Some of that profitability is due to the illegal, immoral, and brutal tactics they use, which I do not condone. However, I think that some of those profits are based on sound business strategies.

The purpose of this blog is to distill some of those sound business strategies used by drug traffickers and apply it to legitimate businesses. Perhaps, like Petsmart, we can find something to apply to your business to improve your performance.

THE PRINCIPLE
There are three principles about the drug pusher’s strategy which I would like to discuss.

1) Apply the Principles of Customer Lifetime Value (CLV)
Drug pushers know that once they get you hooked, they can make a whole lot of money off of you, because you will keep coming back….over and over and over again. The lifetime value of all of those return visits to buy drugs is huge.

With each customer providing such a long string of profits, it doesn’t take a math whiz to figure out that you can spend a lot of time and money seeking new customers and still come out on top. The lifetime of profits more than make up for the costs of customer acquisition.

That is why some drug pushers spend a lot of time and money trying to build trust with a potential customer base. They know that in the long run, they will get a hefty return on that investment. They’ll even throw in free samples to get the deal rolling (more about that later).

So here are some questions for you:

a) Have you developed a compelling enough position in the marketplace that once a customer gets hooked, they want to keep coming back? Is there something unique which you offer that they cannot get anywhere else?

b) Do the tactics in your strategy serve to strengthen customer bonds over time, so that customers will see the benefits in coming back over and over again for their needs? Two examples: First: using a frequent shopper program which rewards customers in a way that makes returning to you more beneficial than going elsewhere. Second: Getting to know the customer in a way so that you can use that knowledge to serve them better than a competitor who does not know them as well.

c) Once you have the compelling strategy with the bonding tactics, are you spending enough time and effort to bring new customers into your program? Have you calculated your customer lifetime value, so that you know how much you can afford to spend on customer acquisition and still come out on top?

2) Sampling Beats Talking
Drug pushers know that they can talk forever about how good drugs will make you feel. However, in the long run, the best way to get this fact across is to let you experience the drugs first hand. Hence, the phrase “the first dose is always free.”

There is an organization called Trendwatching, which tracks consumer and business trends. They named one of these trends “Tryvertising” (see link). The idea is that we are such an over-advertised society that mere words have become less persuasive. If you really want to get people interested in your product, get them to try it out.

Some examples from Trendwatching:
a) Small one-use sample packs for toiletries
b) Getting your products placed inside hotels (furniture, home furnishings), so that people can try them out while staying at the hotel.
c) Free trial of a Sony handi-cam camera while at the London Zoo.

My favorite example is Charmin bathroom tissues. Proctor & Gamble designed high quality, high-end portable toilets to place in high traffic locations, like New York’s Times Square. They even had some color coded so that you could choose between a stall that had Charmin Extra Soft toilet paper or Charmin Extra Strong toilet paper. A chance to try before you buy.


So my question for you is this: Are you getting your product into the hands of your customer, so that they can experience the benefits for themselves? You can talk strategy to the customer all you want, but personal experience can be so much more compelling.

3) Vigorously Defend Your Territory/Position
Drug dealers don’t like it if someone else tries to invade their territory. They will defend their territory to the death (literally…hopefully the death of the other guy).

Drug dealers understand the value of exclusivity. If you are the only game in town (or in a particular area), then you will be more profitable. Now I’m not recommending that you murder your competitors or engage in illegal activities which restrict competition. However, there are strategic moves one can make that can have a similar impact.

For example, the more you make your selling proposition unique (or patented), the harder it is for others to invade your territory/position. If you continue to innovate, you can always stay one step ahead of the competition, so that they can never catch up with where you are. You can develop strategic partnerships so that you have the exclusive rights to products or technologies.

Also, if you build up your capacity to satisfy a market faster than the competition, you can suck up all of the available opportunity and not leave an opening for the competition. This could include sucking up all of the available real estate for a store, all of the shelf space in a store if you sell the product, or all of the raw materials if you are a manufacturer. These types of hustling activities were mentioned in more detail in the blog “Pursue, Pursue.”

So the question I have is this: Are you just sitting back resting on your past (and letting others catch up or pass you by) or are you actively defending your position by fortifying it against attack?

SUMMARY
Although much of what drug dealers do is not something to emulate, there are still a few things we can learn from them. We can exploit the concept of lifetime value, get into tryvertising, and/or vigorously defend our turf.

FINAL THOUGHTS
We try to convince our children to “Just Say No” to drugs. However, it is a tough battle when drug pushers use the tactics mentioned above. These can be powerful tools to overcome even strong initial resistance.

Mighty Canoes

THE STORY
From the late 1700s into the early 1800s, one of the most strategic locations in North America was the Straights of Mackinac. Located between the Upper and Lower Peninsulas of Michigan, this narrow waterway connects two of the great lakes—Lake Michigan and Lake Huron. It is also not very far from the mouth of Lake Superior. Whoever controlled the Straights of Mackinac controlled the lucrative fur trade, which brought great wealth to whomever was in charge.

To ensure control of the straights, a fort was built on Mackinac Island, located just to the east of the straights. For a time, the British controlled the fort, but after the American Revolutionary war of 1776, it was given to the Americans. The key feature of the fort was the wall of cannons on the south side. These cannons were strong and powerful—able to shoot cannon balls long distances towards attacking war ships, which would by necessity need to approach from the south.

This defensive wall of cannons gave the Americans so much confidence that there did not appear to be a great need to fortify the fort with many soldiers. Only about 60 were deemed necessary. After all, the ships would be blasted away by the cannons before reaching shore, so hand to hand combat seemed remote.

When the War of 1812 was declared, the British saw this as their opportunity to retake Fort Mackinac and regain control of the fur trade. Enlisting the help of their Native Indian allies and some of the fur trappers, the British used mostly canoes to quietly paddle their way to the north side of the island in the middle of the night. They dragged a small cannon onto shore and up the hill towards the fort.

At daybreak, the British fired a single warning shot from the cannon, awakening the American soldiers. The Americans found themselves in quite a predicament. First, their defensive cannons were on the wrong side of the fort. Second, even if they could quickly move them to the other side, they would be worthless, because the cannons were designed to shoot far out into the water, not down the side of the hill. Third, the Americans were well outnumbered by the British, the Indians and the trappers.

As a result, the American commander Porter Hanks surrendered the island to the British without firing a single shot.

THE ANALOGY
Be it armies or businesses, we all tend to fortify our defenses at the point where we believe we are most vulnerable to attack. In the case of the Straights of Mackinac, if an army of warships were to come, they would most likely come up through Lake Huron from the more populated areas to the south. Hence, the fort was built to defend that type of an attack. Thinking like an army, they assumed their primary enemy would be an army just like them—someone who would use warships.

Indians and trappers, however, do not have war ships. They use canoes. As the Indians and trappers were gathering in the region to join up with the British preparing for the attack, they did not appear to be a threat. Indians and trappers canoed through the area all the time. They were not soldiers.

Although a warship cannot attack Mackinac Island from the north, canoes can. Because the Americans were only prepared for a conventional attack by like-minded soldiers, they were unprepared for a northerly attack from what appeared to be harmless canoes. Instead, they turned out to be mighty canoes.

This same problem often happens in business. Our best laid strategic defenses turn out to be worthless because they prepare us for the wrong type of war.

THE PRINCIPLE
The problem here is that we tend to look in the wrong direction when it comes time to create a strategic defense. The problem is twofold:

1) Looking Backward Rather Than Forward
2) Looking Inward Rather than Outward

Each of these will be looked at separately and then shown how they worked together to hinder a recent battle in the business world.

1) Looking Backward Rather than Forward
There is a tendency to believe that the next strategic battle will be fought in a similar manner to the battles of the past. The expectation is that relatively similar weapons will be used and that relatively similar tactics will be used. Therefore, when preparing a defense, there is a tendency to prepare to do a better job against what we have seen in the past. In other words, our preparation makes us ready to win a war that is already over.

History is shown that each new major war is fought with a different type of weapon and a completely different set of tactics. These render defenses prepared for fighting wars the old way obsolete and relatively useless.

For example, after World War I, France spent a considerable amount of time and money preparing a strong defense against any future attack by Germany. It was designed under the assumption that Germany would attack the second time the same way they did the first time—with slow, protracted, stationary battles. France was confident that if Germany tried the WWI tactics again, they would fail against the French defense. However, in WWII, Germany used a new mobile “blitzkrieg” approach for which the French were not prepared. The French defense proved to be worthless.

The Americans at Fort Mackinac expected a warship attack, because that was the traditional approach of the past. They were not prepared for a new type of war using canoes.

Rather than looking backwards in time to find our inspiration for strategic defenses, we need to look forward and anticipate how the next battle might look, and how it will be different from past battles. That is why a key component of strategic planning involves spending time trying to envision potential future scenarios, to answer questions, like:

A. What the future environment will be like?
B. How consumer needs and desires will evolve?
C. What non-tradition opportunities and threats could crop up which better fit the future environment?
D. What will it take to win in that future world?

One thing we probably count on is the fact that what worked in the past will not work in the future. Therefore, we need to prepare ourselves for new types of battles with new types of tools. Just as the Americans at Mackinac should not have rested in the confidence that the big cannons would always protect them, businesses should not rest in the fact that the tools which worked for them in the past will always for them in the future.

2) Looking Inward Rather than Outward
The American soldiers made the mistake of thinking that their enemy would be a lot like them—professional soldiers trained to fight traditional battles. Instead, they got Indians and fur trappers. Businesses do the same thing in thinking that our enemies will be similar to us.

If you are the cola leader, like Coke, you may see the enemy as another cola, like Pepsi cola and prepare to win the cola wars. Instead, the new enemy is sports drinks, fortified beverages, energy drinks and the like. Pepsi caught on to seeing the potential new enemy as being a non-cola sooner than Coke and has reaped the benefits.

In many cases, the most potent enemy does not look like us at all. Rather than looking inward at our own narrowly defined industry to find enemies, we need to look outside our industry. Strategic thinking can help us find the new enemies lurking outside our traditional industry, ready to gobble up our market share.

Newspapers Vs. the Internet
For most of the second half of the 20th century, newspapers in the United States had a virtual monopoly in their home market. They were strong; they were powerful. They were confident that nobody was going to be able to start up a new newspaper that would cause any serious damage to their near-monopoly. Owing the local newspaper was like owning the big cannon, ready to take on anyone who wanted to build a rival newspaper.

Then, at the end of the 20th century, the internet started to get used by people other than scientists and researchers. To the powerful newspapers, the internet looked like little canoes going by—no big threat. After all, we’re in the newspaper business. The internet is not a newspaper…not even close. Who would ever place an ad on something like that?

Eventually, the internet became a very viable information source. It used new tactics that were foreign to the newspapers:

1) Fresh news available 24 hours a day.
2) Ability to interact with the news and other readers of the news real-time, using Web 2.0 technology
3) Customize the news so that you only get the news you wanted
4) Combine news from multiple sources
5) Make the news available for free

These young internet upstarts did not act like newspaper people. What’s the matter with them.

Well, now the newspapers are fighting for their lives against the digital world. Because they looked backwards to the past (this is how the news had been done and will always be done) and they looked inward at the newspaper industry (instead of looking outside for threats), they caught on to what was happening too late. The mighty canoes of the internet are winning the war.

SUMMARY
A good strategic defense needs to be based on looking forward (at what the new tactics for success will be) and outward (at players who are not a part of your traditional industry). Strategic planning is a process which helps one look forward and outward.

FINAL THOUGHTS
Of course, traditional internet players cannot sit back and think they’ve won the war any more than the newspapers before them. New threats, new tactics, new players will show up to threaten them as well. For example, will mobile phones change the rules so that the money is made at the carrier level instead of at the content level? Will users take over the content and leave out the internet content players? And so on…