Strategic Planning Analogy #136: Your Stock is too High

THE STORY
Once upon a time, there was a man who owned an apple orchard. It was the beginning of harvest time. Unfortunately, the man heard a weather report which said there would be a hard freeze that night. If he did not get all of the apples picked before evening, he would lose the crop to the freeze.

Not wanting to lose his crop, the orchard owner went out to find as many people as he could to help pick the apples that day. He found a young man. The orchard owner told the young man, “For every bag of apples you deliver to me before nightfall I will give you one dollar.” The young man agreed to the offer.

Then the young man started thinking about what he agreed to. “The man wanted bags of apples, but did not specify the size of the bag. I will use the smallest bags I can find. The man did not say the bags had to be full to the top. He just said they had to be ‘bags of apples.’ Two apples per bag would satisfy being ‘bags of apples.’

“Finally, he didn’t say where the apples have to come from. I can fill a lot more bags a lot faster if I don’t have to waste time picking them. Therefore, I will buy pre-picked apples from his competitor. Even though I have to pay for them, it is still more profitable than picking them myself due to the time I save.”

Therefore, at the end of the day, the young man delivered 1,000 bags of apples to the orchard owner. Granted there were only two apples per bag and the apples did not come from his orchard. But the young man felt he had lived up to the offer as originally worded and demanded $1,000. The hard freeze came that night and destroyed the orchard owner’s crop.

THE ANALOGY
In this story, the goal of the orchard owner was to get as many of his apples picked before the hard freeze came. However, the incentive program he set up with the young man did not cause his goal to be accomplished. As a result, the orchard owner was out $1,000 and still didn’t get his apples picked before the freeze destroyed the crop.

Be careful about how you set incentives. Incentives do not always lead to the desired consequences.

This is also true with strategies. One may have a strategic goal. However, if the incentives are set up improperly, the resulting activities may not lead to the desired strategic goal.

One of the tools often used to incentivize management is to reward them based on stock performance. Unfortunately, if the linkage to stock performance is set up loosely like the incentive program set up by the orchard owner, the resulting behavior may indeed raise the stock price in the short term, but have no connection to achieving the strategy.

Just as there are many ways to deliver bags of apples, there are many ways to raise a stock price. And in both cases, people can find ways to greatly benefit from the incentive without achieving the desired company goal.

THE PRINCIPLE
The principle here is that incentives often have a greater impact on determining your true strategy than any amount of strategic planning or mission statement building. Your true strategy is not what you say you will do. In reality, your true strategy is what you end up setting out to actually do. If management sets out to get a big personal reward from their incentive, then your true strategy is to maximize that reward.

The hope is that there is enough linkage between the reward and the strategy that the true strategy will end up being about the same as the stated strategy. However, this will not happen unless two events occur:

1) The setting of incentives is treated as an integral part of the strategic planning process.

2) Incentives are carefully designed so that rewards are maximized only if the strategy is successfully pursued.

Otherwise, employees will be like the young man in the story and find ways to maximize their rewards without achieving the desired goal of the one who developed the incentive. Never underestimate the cleverness of people to find ways to beat the system and reap high personal rewards without bothering to do the hard work of advancing the stated goals of the strategy.

Take stock options, for example. Rather than focus on ways to raise the future stock price through strategy implementation, management in many companies instead focused on how to backdate the option granting date so that they started with the easiest possible goal.

Even if you leave out the problem of backdating, there are lots of ways to raise a stock price near term that have nothing to do with achieving the desired long-term strategy.

1) One can buy back shares.

2) One can make outlandish promises which cause the stock price to go up near-term, but falls back down later after you fail to deliver on those promises.

3) One can cut back on maintenance investments, which boost profits in the near-term, but may cripple the company long term when everything falls apart.

4) One can raise profits near-term by cheapening the offering to the consumer. It may take awhile for the customer to realize the decline in quality, so in the near-term there is a benefit. However, once the customer realizes the value has been lowered, they will likely take their business elsewhere.

5) One can take the money earmarked for investing in a strategic transformation and not spend it, hoping to coast for one more year on the old strategy. You may increase profits in the current year by doing this, but once the old strategy winds down, you are left with nothing, because you did not invest in the future.

6) One can confuse the market through a lot of complicated financial maneuvering, which makes it difficult to see how poorly a company is doing. There are lots of ways to do this, including complex financing, complex intertwined ownership, off-balance sheet activity, and so on. To quote one CEO I knew, “It looks like we are going to have a tough year, so make a big acquisition in order to no longer have comparable financials to last year.”

Over my many years in business, I have seen pretty much all of these activities take place in some form or other. If left to continue in this fashion, one’s true strategy becomes destroying the long-term viability of the company.

After Enron fell apart, I got to talk to a few of the former employees. They told me about how the incentive program worked. Every quarter there was a review of performance. If you improved the earnings of the most recent quarter, you got a ton of stock options. If you did not improve the earnings of the most recent quarter, there was a good chance you would be fired. These are the types of incentives which lead to the behavior which destroyed Enron. Based on these types of activities, the value of the stock becomes too high, too soon and eventually implodes.

Here are some suggested incentives which may improve the link with achieving a long-term strategy:

1) Link bonuses to achieving specific strategic business objectives.

2) Hold back some of the incentive until a multi-year strategic objective is fully achieved.

3) Rather than measure stock price, measure the components which determine stock price, such as changes in return on capital, changes in market share or growth projections.

4) Link bonuses to customer feedback.

Although these approaches are an improvement over mere stock price, even these factors can be manipulated in ways that are counterproductive (although it is more difficult). Therefore, to overcome the “gaming” of formulas, one may want to have part of the incentive be without a formula—a judgment call by the superior on one’s efforts to achieve long-term strategic goals.

SUMMARY
You can spend months creating an elaborate strategy to a wonderful future. However, if the incentive program is not linked to that strategy, then you have wasted your time. Stock prices can be manipulated in ways that are beneficial in the short run but destroy a firm’s long-term strategic viability. Therefore, be careful in how you use stock as an incentive. Finally, make sure that discussion of incentives and strategies occur at the same time.

FINAL THOUGHTS
Employees may feel all fired up at the end of a big strategic planning summit and start chanting the mantra of the strategic mission. However, this is not the point at which you can gauge success. Success is measured weeks or months later when one sees whether the day to day actions are moving in the direction of the mission. If they are not, a good place to start in trying to fix the situation is to look at how people are incented.

Strategic Planning Analogy #135: "Market Smart" Strategy

THE STORY
When I moved to Minnesota, I found out that a lot of people loved to tell jokes which made fun of Iowans. Later, I found out that the people in Iowa had the same jokes, except they changed a line so that the jokes made fun of people in Minnesota.

When I was getting my MBA at a leading school, we used to have jokes. The people the jokes made fun of were people who went to school at Harvard. I suppose the people at Harvard had jokes, too, but I don’t know who they made fun of. Pardon me, as I tell one of these stories, the way I heard it in college.

There once was this young Harvard MBA recipient who just got his first job after graduation. Every day, he would go to the large corporate headquarters and sit at his desk. He looked the part, in a nice suit and all, but he didn’t do anything. He just sat there, nice and quiet. This went on for days.

Finally, his boss came by to see why this new Harvard MBA wasn’t doing anything. The boss said, “We’re paying you a lot of money because we want to take advantage of all that training you got at Harvard. But so far you have done nothing but just sit there. What seems to be the problem?”

The new Harvard MBA replied, “I’m waiting for someone to give me a business case study to read.”

THE ANALOGY
The point of the joke was that most business schools, including Harvard, have relied heavily on business case studies as part of their education process. Students are given a sizable document describing some aspect of a company, usually with lots of words and lots of numbers. The students are then expected to read the case study and be prepared to discuss it in class.

Although many principles can be taught this way, there are some weaknesses with this approach. First, the information is pre-packaged, with pretty much all of the relevant information included, and most superfluous information left out. In reality, the world is a lot messier than that. You have to go out and collect the information, and when you start, you have no idea what is relevant and what is superfluous.

Second, business cases tend to be cold and rely on packaged information. Students are only allowed to see what is in the material. Personal observations and the ability to touch and converse are gone. In the real world, one needs to use all of your senses to go out and learn about what is happening.

The same principles apply to strategy formation. The idea is not to just sit behind a desk and wait for someone to hand you a strategy. Strategies are executed out in the field. Your customers are out in the field. If you are not out in the field observing reality, you will not really know how relevant your strategic ideas are. If you just stay in the seclusion of your office and read some edited papers prepared by others, you are limited by the biases of whoever prepared the documents.

THE PRINCIPLE
The principle here is “to become market smart by getting out into the market.” The more you understand the marketplace, the better one can strategize about how to win in the marketplace. A key element of understanding the market is getting out from behind your desk and interacting with the market.

A few days ago (November 28, 2007), the folks at the Booz Allen Hamilton consulting group issued a paper entitled, “See For Yourself.” In this paper, they talk about the importance of having leaders get out on the front lines to get firsthand information about what is going on. Their conclusion is that firsthand observations provide insights which will never be discovered if you just sit behind your desk. They give numerous examples of companies who have benefited from this practice, including Toyota, Wal-Mart, GE, Disney, Amazon, and Home Depot. Rather than go through all the examples, I suggest you read the article at http://www.strategy-business.com/press/enewsarticle/enews112907.
The article makes it sound like they’ve discovered a radical new principle, but it sounded a lot to me like Management By Walking Around (MBWA). MBWA was made popular by Peters and Waterman in their 1982 book titled “In Search of Excellence.” The original idea was that if a manager walks around the various parts of the company where work gets done, they will be better managers. They will find little problems before they become big problems. More important, they will build rapport with people throughout the organization, who will then feel comfortable bringing up issues in an informal manner—not sanitized by middle managers in the formal reports they read at their desk.

David Packard of HP was a strong proponent of this practice back in the 1940s, and the Japanese auto companies have been doing it for decades. Although MBWA was first limited to walking around places where employees do their work, the scope has now been expanded to walking around the places where consumers consume your product or service.

In an article in the December 1, 2007 issue of the Wall Street Jounal (written in collaboration with the MIT Sloan Management Review), the discussion was about making sure you make your observations broadly. The article, entitled “Raising Your Market IQ,” says to not only talk to your current customers, but also potential customers. They also recommended getting information over a long period of time by setting up panels to whom you return to repeatedly over time.

If you were to google the concept of MBWA, you’ll find tons of articles praising it. Something that has lasted this many decades and is still getting praise is more than just a fad. It is a great idea. Unfortunately, the laws of technology are working against it.

Take emails. Back in 2003, the average corporate email user received about 81 emails a day. In 2007, that number has reached to 142. By 2011, it is expected to be about 228 emails per day per corporate email user. If those all occurred within an 8 hour day, that would be about one email every two minutes. Handling email is becoming a full-time job, preventing one from spending time walking around for personal observation.

We live in an era of data explosion. The internet can feed us more information than we have time to comprehend. All of the data we have access to can give us a false sense of security. It can lure us to sit behind a desk absorbing all of this data and never get out into the real world.

The problem is that all of this disjointed data has no context. One needs a relevant point of view to help filter the data and put it into a context which is useful for strategy formulation. Observations help in this regard. They help you understand what is relevant and what is superfluous.

If you don’t get a marketplace perspective, you are left with your own perspective, which is distorted because you tend not to be a normal, average individual. For more on this topic, see my blog “Sometimes the Best Path is Behind You.”

Another problem is that if the information is out in the public domain, then you have no better information than anyone else. Competitive advantage often is little more than having keener insights than you competition, which help keep you ahead in the game. Quality firsthand field observations can help sharpen those insights.

Although the lure and the pressure of technology can keep us from spending time out in the field, we must fight this pressure. We need to make the time to get out to where the action is.

SUMMARY
Whether you call it Management by Walking Around or call it Go and See, the idea is that better decisions are made if leaders have personal interaction out in the field. This includes interaction with employees, customers, and potential customers. This firsthand knowledge can provide a context which makes all other data more useful.

FINAL THOUGHTS
No one would want to fight a war without first understanding the terrain. Military strategists typically ask for reconnaissance before developing the battle plans. Similarly, business strategists need marketplace reconnaissance before developing business strategies. Get to know the “lay of the land” out in the marketplace by doing some personal reconnaissance.

Analogy #134: Strategy is Like High School

THE STORY
In retrospect, academy award winning actress Meryl Streep does not look back on her high school years at Bernards High School in Bernardsville, New Jersey, as her fondest memories. She remembers it as a very superficial place, where external appearances were far more important than who you were as a person. It was a place full of cliques, where the ultimate quest was to become popular.

As Meryl saw it, popularity for girls had little to do with accomplishments, but with how pretty you were. This was especially true if you were trying to impress the high school boys. Who you knew meant more than what you knew. Minority positions or points of view made popularity even more difficult.

However, when Meryl Streep got to college at Vassar, her eyes were opened up to a new and glorious world. In college, it seemed like everyone was accepted, regardless of looks or points of view. People were encouraged to express themselves without fear of rejection. Hard work was rewarded. Minds and talents were nurtured. Anything seemed possible.

Meryl loved college life so much that after graduating from Vassar, she continued her education with three years of graduate work at Yale. By this time, she was feeling strong and self-confident, a welcomed departure from those insecure and superficial days of high school.

However, when she left college and entered the work world, Meryl was shocked and disappointed to find that the real world was much more like high school than college. The battle returns to trying to fit in. Looks and popularity mattered big time. Holding contrarian views would get you in trouble. Experience or excellence was not normally rewarded. Whereas college life gave Meryl confidence that she could successfully tackle almost anything, she found the real world to be “vast and impossible,” where “resigning oneself, or hiding and hunkering down becomes the best way of getting along.”

THE ANALOGY
In many ways, Meryl Streep is correct in her conclusion that the real world is a lot like high school. This applies to the business world as well. Success in business comes by using many of the same tricks learned to become successful high school. If your business is popular and fits in with the right crowd, your firm can be successful. However, if your company is seen as “uncool” and rejected by the popular people, then you will typically have problems.

Therefore, many of the strategies you used to cope with high school will also work in the business world (with only a little bit of tweaking).

THE PRINCIPLE
The principle here is about finding ways for your firm to “fit in.” Applying the rules of high school, there are three steps to fitting in:

1) Pick a Clique
2) Look and Act the Part
3) Manage the Gossip

These three rules are briefly discussed below.

1) Pick A Clique
High Schools are full of cliques. There are the Jocks, the Nerds, the Goths, the Druggies or other assortments of peer groups. When in high school, one of the first things one learns is the need to find a way to fit into one of these groups.

The marketplace of business is very similar. Customers are not a homogeneous group. Some customers are just interested in the lowest price. Others are looking for status. Still others may be service-oriented, wanting to be waited on. You can think of these different customer segments as being like the cliques in high school.

In high school, one learns that it is nearly impossible to be popular across a wide variety of cliques. In fact, if you are accepted into certain cliques, it almost by definition means that you will be rejected by other cliques. It is just the nature of cliques to reject those who act contrary to the norms of their little group. But that was okay, because as long as you fit in and were accepted by one of the groups, you could put up with the rejection of the other groups.

This is also true in business. The goal of a business is not to try to make everyone happy. Not only is this impossible, but counterproductive. Rather than trying to become acceptable to all, a better strategy is to become loved by one of the consumer cliques. Even if the love of one group means you are hated by others, that’s okay if the group that loves you is large enough to make you profitable. This topic was covered in great detail in the blog “The Opposite of Love.”

So step one in the strategy is to pick a clique where you can fit in and become loved & accepted. For example, Apple decided it wanted to be accepted by the “cool kids.” They don’t mind that they are rejected by people who are most interested in low prices or business functionality. Similarly, Nike decided it wanted to be accepted by the “jocks.” They don’t mind if they are rejected by couch potatoes.

2) Look and Act the Part
Once you pick your clique, you need to live by the rules of the clique. You have to embody the essence of what the clique stands for. You have to win the popularity battle for being the first company to come to mind when one thinks of the clique.
In high school, this meant living and acting and dressing and looking and thinking like everyone else in your clique. In business, this requires a go-to-market strategy which:

a) First understands what is most important to the essence of what the clique stands for; and then
b) Makes strategic choices which place you closest to delivering that essence.

Wal-Mart wants to appeal to the clique of people who are most interested in saving money. Therefore, every decision at Wal-Mart is made in that context—does my choice of action serve to increase my ability to deliver low prices.

Similarly, Apple wants to be popular with the cool crowd. Therefore, you will never see Apple produce a product that is primarily concerned with achieving the lowest price. To achieve the lowest price, Apple would have to make compromises with product design, limit the functionality, and make it dull and cumbersome to use. This is contrary to what their clique wants and could cause their clique to reject Apple, because it “no longer fits in” to what they deem important (coolness). Apple’s television commercials (Mac vs. PC) are specifically designed to enhance the coolness of Mac.

3) Manage the Gossip
An old friend of mine once said that no matter what you do, people are going to talk about you behind your back (and a lot of what they say will not be flattering). Since you cannot stop them from saying bad things about you behind your back, the best you can do is try to control the nature of the way they speak poorly of you.

In the case of my friend, he did not want others saying things that would question his competency or his loyalty, so he tried to find something less dangerous for them to criticize. He chose eating habits. He would make a show of eating too much at a single meal in their presence. Then he tried to position that as the acceptable way to criticize him.

In high school, we referred to this as gossip. Gossip was everywhere in high school. You couldn’t stop it. However, if you worked at it, you could manage it to be less damaging.

Advertising can be an important part of a business strategy, but attention to public relations and word of mouth may be a better way to manage your company’s gossip. Do you check out the web sites to see what the gossip is about your company? Do you try to manage the “buzz” around your strategy? How good are you at viral marketing?

A great strategy is worthless if nobody understands it, or if the “word on the street” is against you. Winning in high school was all about image. The more you can manage the gossip, the more you can improve your image.

If you understand your weaknesses, you can inject into the negative gossip some neutralizing factors. Listerine knew that people hated its taste. They neutralized this by telling people that the strong taste meant it was a strong and effective product. Their slogan was “the taste you hate twice a day.” This turned the negative into more of a positive.

Or take the deep discount limited assortment grocer Save-A-Lot. The stores have a poor selection and no ambiance. But they do have very low prices. In its advertising, Save-A-Lot would admit to not having all of the niceties of the fancier supermarkets (for example, proudly proclaiming that they do not have live lobster tanks). But then they would say that all of those niceties serve to raise costs. By eliminating them, they are able to pass on the savings in lower prices. In essence, they used their negative as “proof” as to why they can offer lower prices.

SUMMARY
The business marketplace is a lot like high school. Therefore, the tricks of getting through high school can also work in developing your business strategy. The steps are to pick a clique, look/act the part, and manage the gossip.

FINAL THOUGHTS
Although Meryl Streep may not have enjoyed the superficiality of high school, she was smart enough to know how to play the game. She focused on her appearance, became a cheerleader, and ended up being popular enough to be named homecoming queen. She was then able to apply those skills to be successful in the superficial world of Hollywood. So even if you don’t love it, you can still do it.

Strategic Planning Analogy #133: Don't Abandon the Maps

THE STORY
There’s a reason why Las Vegas is one of markets hardest hit by the recent housing crunch. For the longest time, it used to be one of the hottest housing markets. I guess what goes up, must come down.

I have a friend whose job was to find real estate for a retail company. He was looking for retail sites in Las Vegas at the height of its house construction boom. New sub-divisions were spouting up all over Las Vegas at a rapid rate.

When my friend would get to Las Vegas, he would buy the most up-to-date road map he could find. However, even the most recent maps could not keep up with the growth of the area. A large number of streets would be completely missing from the map.

Since he wanted to build stores in the areas of growth, he would always be driving around these new areas of Las Vegas that were not on his map. As a result, he would often get hopelessly lost. The maps were of no use to him.

THE ANALOGY
Strategic plans are often like maps. They help companies find their way to the desired future. As we saw in the story above, when the environment is rapidly changing, maps can quickly become out-of-date. At that point, they have lost much of their usefulness.

In much of the business world, the environment appears to be changing at a rapid rate. Using the analogy of maps, many would say that the strategic planning maps can no longer keep up with the fast pace of change. They become out-of-date too quickly. New strategic alternatives, like the new sub-divisions of Las Vegas, aren’t even on the map. Therefore, these people suggest that the idea of strategic planning is no longer very useful and should be abandoned.

I heartily disagree with this conclusion. I believe that in rapidly changing, turbulent times, strategic planning becomes more valuable, not less. In this blog I will try to explain why.

THE PRINCIPLE
There are several reasons why strategic planning is even more valuable in times of rapid change:

1) It reduces distractions
2) It helps speed decision-making
3) It helps strengthen one’s position
4) It provides a competitive advantage

These are briefly discussed below.

1) Strategic Planning Reduces Distractions
When things are changing rapidly, it is easy to get distracted by all of the activity going on. One can get so immersed in the details of the change that you can lose sight of the big picture.

Each little change can lure you in. You can fall victim to the latest fads, which provide no lasting value or competitive advantage. You can end up like a pinball, bouncing all over the place from fad to fad without making any forward progress.

In times of rapid change, one cannot afford to waste time bouncing around from distraction to distraction. To continue the analogy, sure there may be some new streets in Las Vegas, but don’t let them distract you. Your goal is to get from Salt Lake City to Los Angeles. All you need to do is get through Las Vegas on the way to Los Angeles. You need a “big picture” map of the entire trip. With the big picture strategic map, you can continue the quest to Los Angeles without getting bogged down in all of the change in Las Vegas.

2) Strategic Planning Speeds Decision-Making
Strategic planning helps you focus in on the ultimate destination for where you want to take your business. When you have a firm focus on the end point, it is easier to understand how to react when confronted with rapid change.

Using our example, if you know that your strategic destination is Los Angeles, it is easier to deal with the changes in Las Vegas. There may be many new roads, construction on old roads, and numerous detours confronting you when you get to Las Vegas. If you have no idea where you are going, all of that change can become very confusing and slow you down.

However, if you know that the end goal is to get to Los Angeles, the process is easier and faster. All you have to do is ask a local which it the best way to get through Las Vegas in the direction that leads to Los Vegas.

This is also true with strategy. If you know your goal of what strategic position you want to own or strengthen, then you can quickly deal with rapid change. As each change confronts you, all you need to do is ask yourself how that change impacts your goal and choose the answer which exploits the change in a way which gets you the closest to your goal.

There is no need to reinvent your strategy for every little change. Just stay the course. However, if you have abandoned strategic planning and thrown away your map, then you have no guide to help you navigate the change. Every little change can slow you down, because you have no reference point.

With no ultimate destination in mind, every little change can open up all kinds of possibilities and you can become paralyzed by not having any idea which possibility to pursue. When you don’t know where you are going, every road can become a temptation. Change creates more strategic roads to bog you down in decision-making, unless you can quickly assess them in reference to a larger strategic goal.

3) Strategic Planning Helps Strengthen Ones Position
When large organizations are confronted with change and there is no unified ultimate strategic goal, you can have factions of the company each choosing a different path. This would be like having everyone in your company choosing a different road in Las Vegas.

Your efforts are now diluted into many directions. Portions of your organization will be moving in opposite directions, canceling out the benefits of each other’s effort. Worse yet, your consumers will become confused. They will not understand what you stand for in the marketplace. Without a strong position and a unified effort to excel in that position, your firm will lose the battle.

Even if all of your people move in the same direction, if change causes the direction to appear random, it does not help strengthen your position either. Strong positions come from getting everyone to move in a direction which reinforces that position. If strategic planning is abandoned, there is no focus on where to win, so your efforts will be less fruitful. Instead of getting closer to the goal of Los Angeles, you will end up wandering aimlessly through the Nevada desert.

4) Strategic Planning Provides a Competitive Advantage
If your competition has abandoned strategic planning, then they will fall victim to the problems mentioned in points 1 through 3. They will become distracted, have their decision-making slowed down, and weaken their position. By contrast, if you continue to employ strategic planning, then you will avoid these pitfalls. Relatively speaking, you will become stronger in the marketplace while they become weaker.

Sure, it may be a little more difficult to do strategic planning in a world of constant change than in a static environment. However, if you take the extra effort to do so when your competition does not, then you are that much further ahead.

SUMMARY
Many people have justified abandoning the process of strategic planning because they do not see its relevancy in times of rapid change. In my opinion, strategic planning is even more important in times of change, because it improves your focus, so that change does not distract you and throw you off course.

FINAL THOUGHTS
Certainly, over longer periods of time, if there is enough change in the marketplace one may need to reassess one’s strategic goals. Eventually all strategies become obsolete, and rapid change accelerates this phenomenon. But this is no reason to abandon strategic planning. Instead, one needs the process in order to periodically reassess one’s goals, to determine when it is the right time to make modifications.

Strategic Planning Analogy #132: Always On

THE STORY
I enjoy reading stories about how musicians compose music. It is amazing to me how similar many of their stories are. Most are not sure where all of the musical ideas come from. There is a sense that it is coming from an outside source they cannot control. This is often referred to as a muse.

Some of the best songs tend to come into their mind quickly and are basically written in only a few minutes. The longer it takes for a song to gel, generally the less successful it is.

Although the best songs come quickly, for many of these composers there is always some sort of new music flowing through their mind at all times. Ted Nugent once said that he writes around 300 songs per day. That being the case, one might wonder why Ted Nugent recorded such songs as Cat Scratch Fever or Wango Tango if he had so many other songs to choose from. I think the point is that Ted could always sense songs going through his mind, but only a handful of it was worthy of recording.

My favorite comment came from the artist known as Seal. He once did a promotion for snowboarding. Seal claimed that the reason he loved snowboarding so much was that it was the only thing he had found that was so exhilarating that, for a brief moment, it blocked out all of that music which was constantly flowing through his head.

It is as if these musicians’ brains are tuned into a cosmic radio station and they are unable to find the “off” switch.

THE ANALOGY
Successful musicians often times seem to have their minds constantly tuned into the world of sound. No matter what they are doing, a small part of their brain is always functioning at a musical level, pumping musical ideas into their head. Although the music may not always be in the foreground of their thinking, the switch always seems to be in the “on” position.

This is a good analogy for how strategic thinking should work in an organization. No matter what someone in the organization is doing, there should always be a part of their brain which is tuned into the corporate strategy. Turning off strategic planning should not be considered an option.

THE PRINCIPLE
The principle here concerns the idea of burrowing strategy deep into everything a company does. Strategic planning should not be seen as a separate activity done only once or twice a year at some strategic planning retreat. What is more important than strategic planning is strategic thinking—getting our everyday thoughts tuned into our strategic radio in an “always on” position.

Strategy is the end result of the culmination of all of a company’s activities. Every little action adds up to create what the company is. And what a company is determines how well it competes in the marketplace.

If all of the small actions tend to be moving a company in a particular direction, then that—in reality—becomes the direction of one’s strategy. Even if the formal “official” strategy says something different, it is the result of our actions which create one’s true strategy. Therefore, it is important to get all of the small day-to-day activities in alignment with where we want our strategy to be.

Nobody can write a detailed enough strategic plan to prescribe what to do for every small day-to-day activity. First of all, one could never conceive of every possible day to day scenario. And even if one could, the document would then become so large and cumbersome that no one could comprehend the document.

Therefore, instead of trying to get every possible option in writing, one’s time is better spent trying to get the basic principles of the strategy burrowed so deep into the minds of employees that they can instinctively think at all times of what is the right thing to do. It is better to have everyone in the company thinking of how their actions impact the strategy then to have only a few people at the top thinking strategically.

Take, for example, Nordstrom’s. Their strategy is centered on giving superior customer service. Rather than writing up a huge document with every particular about how this should impact day to day operations, they instead focused on the large picture, to ensure that everyone knew what the end goal was. Then Nordstrom’s empowered the employee to use their own initiative to act in the direction of the end goal. For many years, the Nordstrom employee handbook consisted of only a single 5x8 inch gray card consisting of 75 words, as follows:

“WELCOME TO NORDSTROM

We're glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. We have great confidence in your ability to achieve them.

Nordstrom Rules: Rule #1: Use your good judgment in all situations. There will be no additional rules.

Please feel free to ask your department manager, store manager, or division general manager any question at any time.”

The next step at Nordstom’s was to use storytelling to illustrate what great customer service looks like. My favorite story is about a Nordstrom’s store in Alaska which was in a location formerly held by a different retailer. A customer had purchased tires from the retailer who formerly occupied that space and wanted to return them. Even though Nordstrom’s had never sold tires, they accepted the return and gave the customer a refund. The strategy of outstanding customer service had been achieved.

Once a number of these stories filter through the organization, people are able to comprehend that:

1) Strategy should impact everyday activities; and
2) Certain types of activities represent that strategy more than others.

FedEx is another organization which follows this pattern. Their strategy revolves around dependable and reliable service. To help illustrate how important this is on an everday basis on everyday decisions, FedEx loves to disseminate stories of this practice in action in the company.

In one example, a FedEx driver forgot the keys to open one of the package deposit boxes. By the time the driver realized he had forgotten the key, it was too late to go back to the office to get it. If he had taken the time to go back to get the keys, he would not have been able to get the packages to the office and the airport in time. People who had put packages in the deposit box were depending on the famous dependability of having them shipped overnight. Therefore, the driver found some tools to unbolt the deposit box from the concrete and brought the entire box back to the office. By doing so, the FedEx driver was able to keep the strategic promise of dependable service.

In fact, FedEx has taken to the airwaves to air commercials showing a number of these examples of customers going out of their way to ensure that dependable service. Not only do the stories help employees comprehend the strategy, but they help reenforce the strategy with potential customers. These stories beat a fat strategy book any day of the week.

SUMMARY
Just as musicians always tend to have music running through their heads, employees should always have the company strategy running through their heads. Usually, the best way to do this is by:

1) Not segregating strategy to a separate off-site exercise done once a year, but in making it a part of everyday discussions and everyday activities.
2) Keeping the communication about the strategy simple.
3) Using stories to show how strategy can impact day to day decisions in a remarkable way.

FINAL THOUGHTS
The problem with strategic thinking is that if a company is not used to doing this on a daily basis, it will not be missed. This is unlike thinking about eating. If one forgets to think about eating, one’s body will soon remind him or her. Our bodies need nourishment, and if we forget about it, our bodies will bring it back to our attention through hunger. This is good, because there are negative consequences if we stop eating.

Similarly, if a company ignores thinking about strategy, there will be negative long-term consequences. However, we need to proactively work to make strategic thinking a daily priority, because there tends not to be a natural “hunger” for strategy that kicks in.