Strategic Planning Analogy #491: Seeking Choices

THE STORY

When my children were little, they often weren't pleased by what was served at home for dinner. They would complain and ask if they could have something different to eat.

I would explain to them that we weren't running a restaurant. I did not have an extensive menu of options for them to choose from. Each dinner had only one meal on the menu. The only choice they had was to either eat it or go hungry.

It did not make my children happy when I eliminated their eating options.

THE ANALOGY

It’s not much fun looking over a dinner menu if there is only one item on the menu. The lack of options and choices makes the task seem a bit futile. Since you’re going to get the one item on the menu anyway, you may as well skip looking at the menu.

A similar situation can occur with strategic planning. A lot of business people resist going through the planning process, saying they do not enjoy it. In many cases, I think the reason for resisting a strategic planning process is similar to the reason for resisting a menu with only one option on it—a perceived lack of choices.

If you think you are going to be basically doing the same things after the planning process as you were doing before the process (because of a perception of no other alternatives), then why do the process? You can skip it and go back to doing the one thing you knew you were going to do anyway. Under these assumptions, the strategic planning process can be seen as a waste of time, keeping you from getting your one task done (just as looking at a one-item menu wastes time and keeps you from getting to eat the one meal you know you are going to have).

This really hit home with me as I looked at the way business people from different countries treated the concept of strategic planning on social media sites like Linkedin. In fully developed mature economies, pure strategic planning jobs were disappearing and the discipline was not held in high esteem. By contrast, in emerging economies people actually seemed excited about strategic planning and there appeared to be a greater abundance of professional strategic planning positions being created.

Then I started to make the connection that much of the excitement around strategic planning in developing economies was due to a perception that businesses had many more options. As a result, it was important to spend time in these countries doing strategic planning in order to choose which options to focus on. It was as if they saw strategic planning as the way to choose the best items on a lengthy menu of tasty options.

By contrast, those in mature economies or industries seemed to see fewer options available to them.  It was as if the rules had already been written and hardened in concrete.  You couldn’t change anything—choices had already been made.  Your only option was to work harder at the same old thing.  Therefore strategic planning was a waste of time—a one-item menu that could be skipped.

Of course, a skilled strategic planner can see the value of strategic planning in virtually any environment—even mature ones.  But if their audience does not perceive the value, the planning process will be resisted (or even eliminated).  Therefore, strategic planners need to address this issue of perceived choices.

THE PRINCIPLE

The principle here is that great strategic planning processes deal with determining which strategic choices to make.  Choice is the essence of what strategy should focus on.  In his famous Harvard Business Review article “What is Strategy?” (from November-December 1996), Michael Porter said “Competitive strategy is about being different.  It means deliberately choosing a different set of activities to deliver a unique mix of values.”

In the 2011 book Good Strategy/Bad Strategy, Richard Rumelt says that the main difference between good strategies and bad strategies is that good strategies are based on making tough choices and bad strategies refuse to make choices.  Or, in Rumelt’s words “Strategy involves focus and, therefore, choice. And choice means setting aside some goal in favor of others.  When this hard work is not done, weak amorphous strategy is the result.”

In a prior blog, I also talked about how the lack of making choices can lead to disaster.

The problem is that many modern strategic planning processes are missing this key point.  They are focusing on something other than making the hard choices and trade-offs necessary for creating a winning position with a complementary winning business model.

It’s gotten so bad that even many of those in the strategic planning field no longer see their primary task as one of helping companies make tough choices and coordinated trade-offs.  Without someone advocating the need to make tough choices in a strategic manner, the tough choices won’t be made.  Worse yet, business leaders are increasingly buying into the idea that there is no need to make tough strategic choices.  And once they start believing in that, it isn’t much of a leap for these executives to questioning why strategic planning should be done at all.  After all, what is the benefit of staring at a one-item menu?

Common Substitutes for Choice-Making

There are many processes out there which call themselves strategic planning, but really are not, because they do not focus on making choices.  Here is a brief description of some of them:

1. Elaborate Budgeting:  Here, the end outcome is not a set of coordinated choices and trade-offs, but a set of numerical spreadsheets.  In essence, it is just a budget with perhaps a couple more years of length to it and a few more words attached to it.  The tough choices needed to make the budget a reality tend to be missing.  It’s just a bunch of numbers one “hopes” to achieve. This often occurs when the planning process is housed in the finance department and run by the same people who create the budgets or do financial analyses.  In the past, I have used the basketball analogy and said this insufficient process is like focusing on yelling at the scoreboard rather than focusing on the hard choices of what play to draw up on the clipboard.  Yes, the highest score wins, but you don’t get the highest score by just staring at the scoreboard (the numbers).  I've spoken more about this here, here, here, and here.

2. Platitudes and Lofty Aspirations:  In this version, the focus is on lofty goals and aspirations which end up sounding like hollow platitudes. The end outcome is not a set of choices, but a nice phrase that can be put on a banner and hung in the lobby. They say things like “we aim to be a world class this or that” or “delight customers” or “create superior shareholder value” or something similar.  These are nice things to achieve, but unless you make hard choices about how to be different, or how your business model’s trade-offs achieve these things profitably, they are only wishes.  Wishes won’t come true just because you want them to.  They are the outcomes of tough choices. I’ve spoken more about this here and here.

3. More Better:  Here, the goal is to just do the same old thing as before, only more of it and better than before.  The end outcome is list of things to do which improve upon the status quo.  The problem is that this assumes the status quo is the right set of choices. It often isn't  because environments change, making the status quo obsolete. Second, when you try to improve everything, you often improve nothing, because you did not make any trade-offs needed to truly excel in any area.  Instead, the efforts cancel each other out.  The third problem is that this process tends to try to outrun the competition with a similar position, rather than trying to find a point of differentiation.  In other words, this version rushes directly to what to “do” without first stopping to decide (choose) what you need to “be.”  I've spoken more about this here, here and here.

How Do We Overcome This?

So how do we overcome all of these poor excuses for planning and get back to solid strategic planning which focuses on making the right choices?  There are two areas to work on. 

First, we need to offer strategic planning processes where choices are the focal point.  This needs to replace lesser processes which are often little more than budgets, platitudes or attempts to be more better.  We need processes focused on questions like:

1. Where are we going to win? (Customers, Markets, Solutions, Points of Differentiation)
2. Why are we going to win? (What bundle of trade-offs will give us the competitive edge in owning the winning position? What business model will beat out the alternatives?)
3. What do we need to focus on to pull this off (capabilities, capacities, competencies)?
4. What should we NOT focus on? (because it will keep us from winning)
5. How do we tweak the business model so that we not only win, but make money?

Second, we need to get management excited about the importance of making these types of choices.  There are many reasons why management may not see the importance of making choices.  First, they may not believe they have many choices.  This is usually a false notion.  Restructurings, repositionings and new business models come about all the time.  Just look at how businesses and industries are continually being replaced by something new.  Why not become the next new thing which replaces the status quo?

Or perhaps management feels that the status quo is just fine, so there is no need to change it (no additional choices needed). But we all know that the environment changes and that all strategies eventually become obsolete. Isn't it better to be the agent of change and grab all the market share which comes with being the next big thing rather than to be the victim of someone else’s change and become obsolete?  Making better choices will create a stronger, more prosperous company and who wouldn't want that?

In other words, first we need to build processes which create robust lists of options and a way to choose the best option (like the Maitre D who helps restaurant patrons make a great choice from a great menu). Second, we need to get management to want to make the tough choices (desire to go to the restaurant and choose something new to eat off that menu).

SUMMARY

The key function of strategy is to help companies make the tough choices and trade-offs which will place them in differentiated positions where they can win.  Unfortunately, lesser processes which focus only on budgets, platitudes or tactical improvements have crept in to replace the key function of choice. To get companies back on track, strategists need to do two things: 1) Bring back processes which focus on choice; and 2) get management interested in making those tough choices.

FINAL THOUGHTS

To get patrons to try new choices on the menu, some restaurants offer free samples. Perhaps you need to get your management interested in making choices by giving them samples of what particular choices could mean for the company. 

Strategic Planning Analogy #415: Good Vs. Better

THE STORY
There is a movie currently out in the theaters called, “I Don’t Know How She Does it,” starring Sarah Jessica Parker. The movie is about a woman, named Kate, who is trying to be a good mother, a good wife, and a good employee all the same time. The comedy in the movie comes from her difficulties (and occasional failures) in trying to simultaneously do all of these things well.

According to the movie reviews, not only does Kate have trouble doing things well, but so do the people making the movie. The reviews were so bad that I am not going to go see it.

THE ANALOGY
There are many arguments used by businesses to downgrade the importance of strategic planning. One of those arguments goes something like this.

1) Most people know the difference between good and bad.

2) Most people would prefer to do good.

3) Therefore, if businesses would just eliminate the barriers on their employees, people would naturally do good things. This would create great success all on its own. Therefore, you do not need strategic planning.

The problem with that logic can be seen in the plot to the movie “I Don’t Know How She Does It.” Kate knew what a good wife, a good mother, and a good employee looks like. She was motivated to be good at all these tasks. Yet she was not performing these tasks very well.

Kate was drowning under the pressure of trying to do so many good things at the same time. She was learning that knowing good and desiring good does not necessarily lead to achieving good in all areas. Something was missing.

The same is true in business. Releasing the barriers on employee behavior may only lead to anarchy rather than success. Thousands of employees rushing around randomly trying to do good in too many areas, with too little coordination, can actually lead to bad performance—failure instead of success. Something is missing, and that something is strategic planning.

THE PRINCIPLE
The principle here has to do with tradeoffs. Successful businesses are not usually the ones who try to be good at everything. Instead they are the ones who make good choices. They examine the tradeoffs between strategic options and choose a narrower area to focus on.

Here are three points to consider on this topic.

1. Better is Better
Successful companies realize that the goal is not to be good, but to be better. Customers aren’t usually looking for a good alternative. They want the best alternative. Your success depends on how your offering compares to alternatives. To win a customer’s business, performance must be viewed as superior relative to other options.

At a given point in time, consumer decisions tend to center around a key attribute. Perhaps lowest price is most important…or maybe quality…or maybe service. Then the choice is made based on that attribute. You’d better be better on that attribute if you want to be chosen.

Now, over a long period of time, a customer may desire many different attributes. However, decisions are made based on which attribute is important at a particular point in time.

For example, let’s look at grocery shopping. At the beginning of the month after just getting paid, one may want to stock up on the basics. Therefore, the key attribute may be assortment, so the customer chooses the large supercenter. Mid-week, this customer may need to pick up only a couple of items, like milk and bread. At that time, convenience is most important, so they go to a convenience store. When this person is having the boss over for dinner, quality may be most important, so the gourmet store is chosen. At the end of the month, money may be tight, so this person goes to a hard-discount store like Aldi, because it has the lowest absolute prices.

Yes, all the attributes are important at some point, but they are not all equally important at a particular point in time. As a result, the consumer did not do all their shopping in a single average store that was good at all the attributes (but better at none). No, the consumer chose the superior store for the attribute most relevant at that particular moment. Sometimes, it was the supercenter, sometimes the convenience store, sometimes the gourmet store, and sometimes the hard discount store. It was never the “fairly good at everything store.”

So, instead of aspiring to a lot of good, look for places where you can be better.

2. Better Options Come From Making Trade-offs
Usually, the only way to become the best in one area is to accept a lower performance in another area. For example, trying to offer the best price and the best quality and the fastest service at the same time fails, because it is nearly impossible to excel at all three at the same time.

It is expensive to offer superior quality and speed. These costs make it impossible to offer the lowest price. And if you want it cheapest and fastest, you will not get the best quality (think fast food). And if you want it cheaply with high quality, you usually will have to wait for it (think health care).

In other words, working to do better in one area (like low prices) can work against trying to do better in another (like quality). So if you have people randomly trying to do good in multiple areas, their activities will tend to cancel each other out. You end up better at nothing. And you don’t get chosen by the consumer.

The winners make trade-offs. They choose a place where they can be the best and focus their efforts in that direction. Yes, this may require backing away from other areas, but it is the only way to win in the area chosen.

Wal-Mart may have great prices and a large assortment, but to get there Wal-Mart had to back away from offering a speedy shopping process, or offering high service, or offering product customization. It was a reasonable tradeoff which has lead to success.

Apple offers a great product in a great way with great apps, but it is also one of the most expensive options. It is a reasonable tradeoff, which has lead to success.

Michael Porter talks a lot about this in his excellent article in the Harvard Business Review called “What is Strategy?” (December 1996). To quote Porter, “Trade-offs are essential to strategy. They create the need for choice and purposefully limit what a company offers.”

In other words, without trade-offs, all the competition starts to look the same, so there is no reason for a customer to choose you or prefer you. Businesses then have to resort to “bribes” to get business, by adding more “goodies” to the deal or by lowering the price. This leads to a downward spiral where eventually companies are making offerings they cannot afford. Failure is the ultimate outcome.

There is a reason why Southwest Airlines has been consistently profitable over the years while the other major US airlines have traditionally done poorly. Southwest Airlines chose a distinctive position (low cost point-to-point flying) and made a number of tradeoffs in order to profitably achieve superiority at that position (no seat assignment, no connections with other airlines, standardized fleet, no baggage transfers, etc.).

By contrast, the rest of the industry did not make trade-offs. They all tried to do everything reasonably well. Because they were all doing the same activities, they did not give customers a reason to prefer them (they all looked alike—nobody was distinctively better). Therefore, the rest of the industry ended up in price wars and point giveaways they could not afford. The result has not been pretty

3. Strategic Planning is Needed To Pull This Off
Therefore, in order to win, companies need to make choices. And the best choices are made if a qualified strategic planner is involved to help. Those choices are:

a) Where do I focus to win?
b) What tradeoffs do I need to make to win at this point of focus?
c) What business model optimizes these tradeoffs?
d) How do I get employees to understand the trade-offs, so that they do more in the areas related to the focus and less in the other areas?

Unless you answer these questions properly, you will be searching for good everywhere and have a comedy of errors on your hands, like the movie “I Don’t Know How She Does it.”

So don’t let people win the argument that strategists are unnecessary. The facts are in your favor.

SUMMARY
Even if your people know what “good” looks like and are motivated to achieve it, that does not mean that you will be successful. The problem is that “good” does not win. Only superiority wins. And sustainable, affordable superiority can only occur if you choose a distinctive position and make the hard choices about the trade-offs necessary to win at that point of focus. You have to say “no” to a lot of good things in order to create a few “great” things. And without the help of strategic planning, the proper choices will probably not be made.

FINAL THOUGHTS
In the article “What is Strategy?”, Porter also says, “With so many forces at work against making choices and tradeoffs in organizations, a clear intellectual framework to guide strategy is a necessary counterweight.” Are you filling that necessary role?

Strategic Planning Analogy #313: Choosing Frustration

THE STORY
I recently purchased a brand new car. This car is loaded with all sorts of features, more than on any other car I have ever owned.

One of the features on this car is a driver’s seat with seemingly infinite adjustments. I have nearly infinite adjustments:

a) Forward and Backward
b) Up and Down
c) Clockwise or Counterclockwise on the seat bottom
d) Clockwise or Counterclockwise tilting of the seat back

If that weren’t enough, there is a separate adjustment for the pedals, so that I can move them either closer to or further from the seat.

You’d think that with all those adjustments, I’d be overjoyed. Surely with that many choices I should be able to find my perfect setting for the seat.

Unfortunately, just the opposite has occurred. There were so many options that I had no idea which is the best. I sat in that car quite a long time trying a wide variety of seat settings until I became completely confused. Eventually, I just picked a setting I knew wasn’t awful, but didn’t feel perfect.

I will never be completely satisfied, because I have not tried every conceivable combination. There will always be a nagging feeling that if I only spent a few more hours, I could find a slightly better configuration. It will always feel like I am sub-optimizing my seat-comfort potential.

THE ANALOGY
One important strategic decision which typically needs to be made concerns the breadth of assortment you offer. How many choices should I offer? What should those choices be?

In this web 2.0/3.0 world, this is getting even more complex. Consumers can have more say in what you offer and may even help in the design of your offerings. In addition, small batch/flexible manufacturing and digital tweaking of software makes it ever more economical to increase the range of what you can economically offer. The potential offerings can become nearly infinite, just like the adjustments on my car seat.

At first, an infinite number of options sounds great. That way everyone can get exactly what they want—and isn’t that what we’re in business to do?

Unfortunately, the situation often ends up more like my car seat. The more options you give, the more you confuse the customer. The customer actually ends up less satisfied, because there is this nagging feeling that perhaps there are other options in that infinity of choice which might be just a bit better. Perhaps purchases are delayed because it is too difficult to make a choice. Or maybe decisions are put off because potential customers expect current options to become obsolete due to ever more new options. Or maybe the customer goes to a competitor, where the process is less bewildering.

THE PRINCIPLE
The principle here is that there is a big difference between selection and satisfaction. Often times, they can even work in opposite directions—increased selection can lead to decreased satisfaction.

Rising Expectations
Too much selection can raise expectations. The reasoning behind this thinking is that with added choice, I should expect to find something more to my particular liking. The odds of “perfection” should go up with near-infinite choice.

With higher expectations, what has happened is that I’ve increased the likelihood that the customer will be disappointed. Why? The higher the customer sets the expectation bar (closer to perfection), the more likely I will fail to exceed the bar, causing disappointment. Instead of under-promising and over-delivering (a method to increase satisfaction), infinite selection over-promises the benefit of choice and frequently does not live up to the hype.

Process Issues
Purchasing is about more than just the product. It is also about the process surrounding the product—the process of making a choice, buying the product, and using it after purchase. If the process is too burdensome, then the customer will be turned off—even for a good product.

Too much selection and flexibility can make the product or service harder to choose, more difficult to purchase, and more confusing to use. The process can destroy the overall value associated with the product.

Solution #1: Impose Limits
About 100 years ago, Sears discovered that the optimal selection for many of the items they sold was 3—one “good” (the low price option), one “better” (the best of both worlds option), and one “best” (the high quality option). Any more than three just added confusion (without adding sales).

Things in this regard haven’t changed all that much over the last century. In the US, Meineke Car Care Centers today give customers a choice of service levels, but limit it to three: Basic, Preferred or Supreme (sounds a lot like the old good, better, best).
Just because you can increase selection does not mean you should. Perhaps you should impose limits to choice.

Solution #2: Don’t Focus on the Product, Focus on the Consumer
When you focus on the product, you can start obsessing on all the things a product can do. The quest for product perfection takes control. Features, choices and flexibility can expand and get out of hand. Multi-function, do-it-all products rarely fare as well as simpler specialty products.

Rather than focusing on the product, you can focus on the consumer. Find out what the customer is trying to do and build a customer solution. This customer focus may lead to even abandoning the old product and going in a new direction.

The Corporate Strategy Board has a white paper about a B-to-B company called Alpha (a pseudonym to protect the customer’s identity). When developing their assortment, Alpha goes out and talks to the potential users of the product. They do not ask product-centered or feature-centered questions. Instead they ask them about their job. What is it they are trying to accomplish? What outcomes would make their job more successful?

Then, instead of offering infinite choice, they engineer a product specifically designed to improve the job of the one who will use the product. The customer is the hero (better at doing job) rather than the product.

Solution #3: Focus on the Process
Another alternative to product focus is process focus. What if you could offer near infinite choice, but eliminate the time, confusion and frustration of the process normally associated with infinite choice?

To illustrate, I will use another seat example—this time a bicycle seat. Once, I was in the market for a new bicycle, so I went to a bicycle shop. They had a wide selection that was a bit intimidating.

The salesman quickly pulled me aside and had me stand on a computerized platform. This computerized platform (with the salesman’s help) measured a number of parts on my body. Then the computer determined the optimal bicycle configuration for my body. The salesman adjusted the (near-infinite potential) seat to this optimal level and had me sit on it and try it out.

This made the process so easy. The computer did all the work. I didn’t have to worry about the infinite bicycle seat options—the computer found “perfection” for me (and the salesman set it up at the perfect position). The process substituted confusion with confidence (after all, the computer had no reason to lie and the salesman implemented what the computer said). It would have been great if they would have done something similar at the car dealership.

SUMMARY
Selection is not the same as satisfaction. Increased selection can actually reduce satisfaction. Rather than rushing to pursue more choice in your offering, consider limiting your offering and putting more focus on the consumer or the purchase process.

FINAL THOUGHTS
In the end, the customer doesn’t care how many thousands of products you have to sell. They are only buying one of them. Focus on making them happy with the one they eventually buy.

Analogy #193: Chase or Stand

THE STORY
Once upon a time, there were two dogs—Bingo and Duke. Both loved to chase cars.

Bingo especially loved convertables. Whenever Bingo saw a convertible going down the street, he would chase it. Wherever the car went, that’s where Bingo went, mile after mile after mile. It was very tiring for Bingo, but he found it very satisfying. Occasionally, he would even catch the convertable.

Duke had a different approach. He would hang out at the race track. Rather than run after the cars, Duke would just stand by the edge of the track. Duke knew that he wasn’t fast enough to catch those race cars, but he also knew that because the track was oval, eventually those cars would come around and be right next to him again. Every time the car completed a lap, it had to pass by Duke. Each time the car passed by, it felt to Duke as if he had “caught” the car.

At the end of the day, Bingo would be extremely tired and have very few “catches.” By contrast, Duke would be well rested and have lots of “catches.”

THE ANALOGY
For the dogs in the story, the goal was to catch a car. For businesses, the goal is typically to complete a transaction with a customer.

Each dog took a different approach. Bingo locked in on a particular type of car and chased it wherever it went. Duke locked into a particular location and let the cars come to him. Both had success.

During the strategic process, one must choose a method for creating customer transactions. One can either lock in on a particular customer segment and chase it like Bingo, or one can lock into a position and let the customers come to them (like Duke). Both can work. But you have to make a conscious decision during the planning process as to which option you are going to choose.

THE PRINCIPLE
Strategies are based upon finding the best way to sell something to somebody. This involves making some choices:

- What to Sell (product/benefits strategy)
- How to Sell (the winning formula, the attribute strategy)
- Who to Sell to (the marketing target strategy)

When choosing the “somebody” of strategy, there are essentially two options: Chase or Stand. Chasing is all about following a particular customer. Wherever they go, you try to anticipate and serve them, just like Bingo.

Standing is about owning a particular solution and then serving whomever crosses your path in need of that solution. Customers come and go, but you stand solid. This is what Duke did.

Are you going to be person-focused (chase) or solution-focused (stand)?

This question comes up in business all the time. Take MTV, for example. Over the years, it has created strong bonds with teenagers. Unfortunately, teens eventually grow up and become twenty-somethings. This leads to a strategic choice—do you “grow up” with the audience that loves you and chase them into their twenties (person-focused) or do you let them go and wait for the next crop of teens (solution-focused)?

There are pros and cons to each. On one hand, it’s hard to create strong consumer bonds to a brand. Once you have a customer who loves you, why let them go? Why not chase them into adulthood, modifying the brand to keep up with their changing demands? This is what Bingo would do.

On the other hand, MTV knows the youth market. They may not succeed in the transformation to older fare. And, just as Duke knew that the cars would keep coming, MTV knew that there would always be more teens coming down the road. So why not stick to the teen position?

One thing MTV did know is that they could not succeed with both alternatives using the same brand. They had to make a choice. MTV chose to be like Duke—stick to its position and then grab each generation of teens as they passed by. VH1 then became the brand you were supposed to migrate to when you grew up.

This strategic choice worked well for a long time. Unfortunately, the latest crop of teens is less enamored with a TV-centric approach. Brands like You Tube and Ipod are starting to take the place of MTV. Like an old dog, MTV was slow to learn the new tricks. Just because you choose to stand does not mean that you can stop innovating.

Sears right now is trying to win over the teen customer. They have set up a prom website, are starting an exclusive line of teen clothes from LL Cool J, and are partnering with MTV on the movie “The American Mall.”

This strategy will be tough. Other retail brands already have strong bonds with that segment. Sears’ current strength is with older customers who remember the glory days of the brand. Perhaps Sears would be best served finding more ways to chase the older customer through time—to migrate the brand into exciting new areas which appeal to the boomers as they age.

Let’s look at a couple of grocery retailers: 7-Eleven vs. Whole Foods. 7-Eleven is not chasing particular people, they are owning a position—convenience. Sometimes people are looking for convenience, sometimes they want something else (selection, low price, etc.). 7-Eleven is counting on the fact that although you may not want convenience all the time, almost everyone wants convenience some of the time. 7-Eleven doesn’t care about chasing those people around as their desires change. They just stand firmly on convenience, and take whomever at that moment wants convenience. As long as there are enough of these desires at any time, the strategy works.

By contrast, Whole Foods is locked into a particular type of person—someone who sees food as more than just fuel. They have a passion for health, wellness and natural, organic items. Whole Foods will chase this customer wherever they go. That is why Whole Foods has expanded into healthy organic restaurants, healthy organic catering, natural organic health care and well-being products, and so on.

When chasing, you typically want to grab a large percent of the spending over a large span of time from a small group. This is the “share of wallet” or “Lifetime Value” strategy—empty the pockets of a small group who loves giving you their money for all their needs.

When standing, you don’t mind taking a small percentage over a short period, provided to total demand pool is large enough. This is more of a “toll booth” strategy—grab a little from everyone as they pass by.

For another example of chasing versus standing, let’s look at the retailing of Christian-related products. On the one hand, there are Christian “Bookstore” chains, like Lifeway that are chasing the advocate of the Christian lifestyle. I don’t even know why they call them bookstores anymore…books are only a small part of the mix. Instead, they are selling the entire Christian lifestyle. They have coffee bars, hold Christian music concerts, and sell tons of knick knacks with Bible verses on them.

These Christian lifestyle stores are going after that lifetime share of wallet. They chase a small group of people (those advocating a Christian lifestyle) and try to sell everything related to that lifestyle. Whatever the latest fad is in that lifestyle, they are there, because their customer is there.

By contrast, Wal-Mart also sells some of this Christian merchandise. But Wal-Mart is not chasing this customer. They are standing firm on low price. As the economy ebbs and flows, the number and types of people who are looking for low prices varies, and Wal-Mart takes whomever is interested in low prices at that moment.

Some of these people are interested in Christian literature at a good price, so Wal-Mart sells it. However, Wal-Mart also sells literature that has nothing to do with Christianity. So rather than trying to get all of the Christian advocate’s wallet, Wal-Mart is just looking to get a small “toll” from them as well as all sorts of other people who are drifting through a price sensitive phase of their life.

SUMMARY
Strategy is about making choices. One choice to be made is how to approach consumers. Either you can focus in on a particular group and go wherever they go (chasing strategy) or you can focus on a solution and grab some money whenever someone drifts into needing that solution (standing strategy). Both can work, but your strategy will most likely fail if you try to do both. You have to make a choice.

FINAL THOUGHTS
There are these rope chew toys for dogs where the dog clamps its mouth on one end and the owner grabs the other end. The game is to see if the owner can yank the rope out of the dog’s mouth. Almost always, the dog wins, because they have such a strong grip on the rope. Whether you are using the rope of chasing (chomping on a group of customers), or the rope of standing (chomping on a solution), you need to grab on as tightly as those dogs do.

Analogy #192: Pick a Pew

THE STORY
Back when I was a young boy, my family took a summer vacation to New England. One of the places we visited was a church which claimed to be one of the oldest churches in the US still in operation.

One of the things that I found interesting was the fact that the many of the church pews had names engraved on them. The tour guide said that the in the old days, the wealthy people would donate large sums of money to the church. In return, the church would put your name on a pew. That spot became your spot in the church, and was where you were expected to sit during the church service.

The more money you gave, the more prominent your location. It sort of reminds me of the luxury suites at the sports stadiums, where wealthy corporations can buy the best seats at the stadium.

I figure there were some disadvantages to everyone knowing where you sat at church. First, everyone would know if you didn’t show up. Second, it would be hard to just sneak into the church late.

THE ANALOGY
In many ways, having engraved assigned seating at church also created some advantages. First, you didn’t have any trouble finding a spot, since one was reserved for you. And everyone knew where everyone was, so it was easy to locate each other. There was also a sense of orderliness and predictability.

Good times in business also tend to follow this same pattern. Everyone knows who you are and where you belong. You have a special position in the marketplace which belongs to you. None of your competition can take your seat. The more you invest, the more prominent your position. There is stability and order.

THE PRINCIPLE
Sometimes, I am asked to explain good strategy in as few words as possible. On those occasions, my response is this: “Pick a pew and then sit down.”

By “pick a pew,” I mean that strategy is first about making good choices about where to locate yourself in the marketplace. Just as there are lots of pews in a church, there are lots of positioning options in the marketplace. And just as some pews are better located than others, so some business positions are better than others.

It’s virtually impossible to stand for everything in the marketplace. Typically the best approach is to find a more narrow set of attributes where one can excel, rather than being mediocre at everything. You have to make some tradeoffs and choose to narrow your sights on specific location where you can win. We talked about this in detail in the blog “Strategy is Like Barbeque Sauce.”

Les Wexner of The Limited uses the term “best at.” What are you best at? If the marketplace cannot quickly and uniformly mention what you are best at, then you have done a poor job of picking your pew. Your position should be so easily identifiable that it is as if your company’s name is permanently engraved on that pew for all to see.

If you haven’t picked out and staked a claim to a pew, then you are stuck with whatever is left. Rarely is that a prime location. The same is true in business. So step one is to make that choice: finding the best unclaimed pew for which you have sufficient resources to secure. In other words, “pick a pew.”

The second step is to “sit down.” By this I mean that businesses need to settle into that position. As an old consultant once told me, “Great positions are hard to find. Once you get one, ride it for all it’s worth.” If a company keeps moving around, it will confuse the marketplace and the employees. Nobody will really give you strong credit for your position, because it changes too often.

If you move around and try to sit everywhere, you will end up sitting nowhere in the minds of the marketplace. However, if you stick it out for the long haul in the same location, everyone will instantly associate you with that location. That strength of image can then be used to extract additional value out of the marketplace.

Apple picked the pew of elegant innovation. Whatever Apple introduces is a great, highly functional innovation encased in sleek design. People who desire this give Apple so much credit that they are willing to pay a premium for the privilege of owning an Apple product. New products are accepted quickly because of the reputation consistently built over time.

If Apple walked away from its pew and started to litter its portfolio with “me, too” products in ugly packaging, it would ruin that image. Customers would stop trusting what Apple stands for. New “innovations” would be met with more skepticism. Profits would drop.

When you sit down in your pew, you are firmly and clearly staking claim to that spot. Nobody can take that spot away from you unless you stand up and walk away from it. The more clearly you can communicate where you have chosen to sit the better (see “Clarity”).

Sitting down does not mean that you have to do the same thing forever without change. Apple has transformed its business in many different directions over time. The secret is that every transformation is consistent with the chosen pew—elegant innovation, be it in computing, music, cell phones or retailing.

Wal-Mart picked the pew of low price and has sat there for more than 45 years. The way it delivers that low price has changed from discount stores to supercenters. In addition, Wal-Mart has created many new supply chain innovations to improve its ability to deliver low prices. Even its recent efforts in environmentalism are rooted in eliminating the environmental waste which drives up costs.

Because of the strength gained from sitting in one place for so long, when the economy recently weakened, customers who became more interested in low prices instantly knew where to go. They went to Wal-Mart in droves.

So the principle here is not to continually change your position at every whim. Sit down in one spot and work on improving your ability to deliver that position. Intensification beats meandering every time.

SUMMARY
Good strategy can be defined as simply as “Pick a pew and then sit down.” In other words, choose a position and then stick with it, always trying to intensify on one’s ability to deliver on that position.

FINAL THOUGHTS
I’ve seen people fret so much about picking the right pew that they never truly make a choice. The fear of making the wrong choice paralyses action. In reality, there are usually many viable positions in the marketplace. Just pick one and stop second-guessing yourself.

Dip Your Ladle in the Right Stew

THE STORY
Once upon a time there was a man who fancied himself to be a bit of a gourmet. He enjoyed making his dinner time as pleasurable as possible.

His kitchen was well stocked with all of the latest gourmet cooking gadgets. The only thing he was missing was good ladle for dishing up stew. He had a vision in his mind of what the perfect ladle should be. It should be sturdy enough to hold a full portion at a time. The handle should be designed for perfect balance. The bowl of the ladle needs to be shaped so that it is easy to get the stew out of the stew pot and easy to pour the contents into the stew bowl.

This gentleman could not find any ladle in the market which pleased him, so he commissioned a craftsman to produce a special one-of-a-kind ladle meeting his strict qualifications. After several attempts, the craftsman finally produced a ladle meeting the needs of the gourmet.

The gourmet couldn’t wait to try out his new ladle. He went straight home, ladled out a perfect portion of stew, and effortlessly poured it into his soup bowl. Then he tasted the stew. He suddenly got very ill and had to spit out what he had partaken.

As it turns out, he had waited so long for his ladle that his stew had gone rancid. It was unfit for human consumption.

THE ANALOGY
Sometimes we can get so fixated on perfecting a small portion of what is in front of us that we miss the bigger picture. In our story, the gourmand was so fixated on getting the proper ladle that he failed to take care of the stew. In the end, the stew is the prize…it is what you eat. The ladle should only be a means to the end. Having a perfect ladle does one no good if the stew is inedible.

In the strategic process, one can become fixated on perfecting that strategy—getting all of the nuances correct and so on. You may end up with an excellent approach that will win in the marketplace and give you all sorts of market share growth. When you put it into practice, it may even work as brilliantly as you designed it. You could end up winning in the market place even more than planned.

However, if the prize you have won is as rotten as the stew of our gourmand, then you really haven’t won much. Having a good, well-functioning strategic ladle is fine. But spend some time making sure you are dipping it in a place that will deliver tasty results.

THE PRINCIPLE
According to Harvard professor and strategic planning guru Michael Porter, the first principle of strategy is to choose a profitable industry. The logic is quite simple. Some industries have higher profit margins than others. If you create a strategy to win in an industry without much profitability, you haven’t won much. Yes, you can congratulate yourself on being a winner, but the prize is not worth the effort.

If you are going to go to all of the cost and effort of creating and executing a strategy, one may as well target an industry where there is money to be made. Otherwise, you can be like the man in the story who had the ideal ladle, but no edible stew to dip it in. I’d rather have a mediocre ladle dipped into a rich pot of stew than the perfect ladle dipped into an empty pot.

The point of doing strategy is to help one make better choices. Within some limits, you can choose what industry you will participate in. Don’t assume that you are permanently stuck within the industry you currently operate. Look at GE. Over the years, it has continually reinvented itself from being in basic manufacturing to high tech manufacturing to financial services to entertainment. As industries matured and became less profitable, GE moved to places where the total profitability potential was higher. In a psychological milestone, GE just got out of the plastics business, one of few remaining reminders of strategies past.

In the retail sector, the Limited is getting out of the lower profit apparel retailing business and concentrating on lingerie and personal beauty care items, because this is a richer industrial sector in which to play. The margins on “bottles of goo” are far higher than the margins these days in apparel. As long as you are selling something, why not choose to sell the items with the inherent and naturally higher margins, provided you have a strategy to win in retail?

Because it takes time to make these types of transformations, you have to develop your strategy far enough in advance to provide time for a smooth transition. You need to look out more than just a year or two. These are the types of transformations that typically do not come out of an annual budgeting process. You have to think bigger.

Some recent research has made the imperative to do this even stronger. This past week, the McKinsey consultants announced the results of a major study looking at how companies grow. They studied over 200 companies across the globe. The idea was to determine what the key differences were between the companies with consistently high growth over the years versus companies experiencing much lower growth.

What they discovered was very interesting. Yes, having great strategies which allow a company to gain market share are useful in creating growth. However, a company’s ability to gain or lose market share only accounted for only about 20% of the difference in the growth performance of companies.

Instead, a much greater contributor to growth was the choice of the subindustries and product categories which a company chose to operate in. Based on these results, McKinsey concluded that “executives should identify and allocate resources to fast-growing segments in which a company has the capabilities and resources to compete successfully.”

Well, this pretty much takes us back full circle to what Michael Porter said. If you want lots of profits, enter profitable industries. Or to paraphrase McKinsey, if you want lots of growth, enter high-growth industries. Gee, it doesn’t sound as special when you put it that bluntly. But it’s the truth.

How do you find industries with high profits? Industries with high profits tend to have high barriers to entry, making it harder for new firms to enter and start a price war for market share. Michael Porter likes to point to trucking as one such industry. It is relatively easy to get into the trucking business, therefore supply and demand pressures cause low bidders to suck the profitability out of the industry.

Traditionally, the pharmaceutical industry has had much fatter profit margins, because it is such a difficult business to enter from scratch. Of course, the irony here is that once you’ve identified these high profit industries which have high barriers to entry, it may be difficult to find a way to enter them. That is why time is needed to develop a strategy.

SUMMARY
Without taking time to develop strategies, one is typically stuck just making incremental improvements to the status quo. If you want to make significantly better returns or achieve significantly higher growth, it typically requires transforming your portfolio to businesses with inherently more profit or more growth. This transformation will not occur on its own. It requires long-term strategic planning.

FINAL THOUGHTS
There’s an old saying which goes something like this: “I have good news and bad news. The good news is that I won the Wal-Mart account and will now be one of their suppliers. The bad news is that I won the Wal-Mart account and will now be one of their suppliers.”

Be careful what you wish for. You just might get it, and then later choke on it like bad stew.