Strategic Planning Analogy #139: Learn Your Love

THE STORY
Once, there was a young man who loved a beautiful young woman. Since he loved the woman so much, he wanted her to have great riches. Therefore, he devised a plan to give her great riches.

He left the United States to go work in a rapidly developing Asian country. The young man figured that he could become richer faster in one of these countries. He was right.

While living in Asia, the young man did well. On a regular basis, he would send money back to the United States to the woman he loved. He would also send her expensive pieces of Asian art.

After many years, he finally had become sufficiently wealthy that he could now fulfill his dream of supplying the woman he loved with great riches. Therefore, he came back to the United States to be with her.

When he returned, the young man expected the woman he loved to be happy to see him. Instead, she was very angry. He asked why she was so upset. She said,

“I never wanted great riches. I never wanted expensive Asian art. I don’t even like Asian art. All I ever wanted was to spend time with you.

“But instead of giving me what I wanted, you ran off half way around the world where I couldn’t spend time with you. You were so busy trying to become rich that you would not come back to visit me or even answer my calls.”

The young man replied, “But I did it for you. I love you so much that I want you to have all the riches you could desire.”

To this, the young girl said, “If you had really loved me, you would have done a better job of learning what was truly important to me. Spending time is what was most important to me. I found someone else who understood this. We recently got married. I saved all your money and your art. You can have it back.”

THE ANALOGY
Many companies talk about how important the consumer is to them. They use terms like being “consumer centric” or “customer first.” They may even talk about a goal of “delighting the customer.”

This professed “love” of the consumer is similar to the love that the young man had for the young woman. Just as this young man devised a plan to please the woman he loved, many businesses devise strategic plans with the aim of pleasing their customers.

Unfortunately, the young man discovered that having great love and having a great plan were not enough. Because he did not take the time to truly understand the woman of his affections, his plan was a failure. Rather than making her happy, he made her so unhappy that she left him for another man.

This also happens all the time in the business world. Companies may profess their love of the customer, but spend so little time trying to understand them that their well-laid plans fail. Instead of giving the customer what he or she really desires, they give the consumer what they think the customer wants. Often times they guess wrong. As a result, the customer leaves them and marries-up their loyalties to another company.

THE PRINCIPLE
The principle here is that customer love without customer intimacy leads to failure. Good intentions and well thought out plans are not good enough. One needs the intimate knowledge of the customer to truly satisfy them.

Although this has always been true, it is even more critical in today’s marketplace. Thanks to web 2.0 technology, consumers have more control of how business works. If you are out of touch, they can use their power to quickly punish you and abandon you.

Facebook’s recent failure with their Beacon technology is a great example. Facebook thought its customers enjoyed sharing all of their information. So, in order to help monetize this fact, they used Beacon to post where Facebook members were shopping (along with some shopping-related ads). They did this without asking permission.

Consumers hated this new intrusion into their lives and made a big stink about it all over the web. Facebook quickly relented and pulled Beacon.

Now you would think that a big consumer products company like Kraft would have figured this out a long time ago. But they have stumbled as well. About a year and ahalf ago, Irene Rosenfeld came back to Kraft to become their CEO (after spending a couple of years at Frito-Lay). What she found when she came back was a company focused almost exclusively on lower costs. Quality suffered. Innovation suffered. And profitability suffered.

As it turns out, customers were willing to spend more, if the product was right. Lower, put still premium prices on mediocre quality weren’t worth much. At that point, one may as well pay a little less and get the store brand rather than Kraft (which is what people did). Being out of touch with the customer was hurting the corporation.

With Maxwell House coffee, Kraft was so focused on beating Folgers that they failed to realize that the customers had abandoned both for Starbucks. Starbucks was more in tune with what the customer was looking for. Kroger pretty much missed the boat on healthy and organic as well.

Finally, Kraft is waking up to what the customer wants in coffee, but it may be too late. Like in the story, customers are only willing to wait so long before they abandon you for another love.

It is very easy for a strategic planning process to get focused on non-consumer issues such as raising margins, lowering costs, improving efficiency, improving supply chain relations, beating up the competition and so on. Although these are important issues, they can blind us to the impact our strategy has on the consumer (the one we profess to love).

In the strategic planning process, we need to continually keep asking ourselves two questions:

1) Do I truly, intimately understand what the customer I love wants from me? and

2) Do I truly understand how my strategic action will impact my ability to please the customer I love?

In business, what we do tends to fall into two categories: things the customer can see (like products, services, and prices) and things the customer is unaware of or doesn’t care about (like how you run your finance department or where you buy your office supplies). You may have a little flexibility on how you approach things in the second category, but never make a strategic decision in the first category without keeping the customer in the forefront of your minds.

Sometimes things which used to fall in the second category move up to the first. For example, most customers used to not know or care where their toys were manufactured. However, after all of the recalls of dangerous toys made in China, country of origin has become an important consumer issue. Therefore, consumer knowledge needs to be continually updated.

SUMMARY
Saying you love your customer is not enough. Well-meaning plans that misunderstand the customer are not enough. Strategic plans need to incorporate knowledge gained through customer intimacy in order to succeed.

FINAL THOUGHTS
Today’s customer is less likely to put up with phoniness and hypocrisy than any prior generation. They are smarter and have more access to knowledge and power. Giving mere lip service to “customer centricity” is more perilous than ever before. There is no place to hide. It’s either authenticity or rejection. Don’t just say you love the customer. Show them you love them by some tangible action which resonates to their core.

Strategic Planning Analogy #138: Stay the Course

THE STORY
I know of a retail company where the founder and CEO was planning on leaving in a few years. Therefore, the company brought in a person to act as the temporary #2 executive and eventually become the replacement CEO.

Although the company had a number of retail stores, the CEO’s favorite store was the first store. It had one of the highest sales and profitability levels in the chain.

The new #2 wanted to make his mark on the company and prove that he was worthy to take over leadership. Therefore, he set a personal goal to get the second store to have higher sales and profits than the first store.

This #2 executive spent a lot of time tinkering with the second store. He was always modifying the store layout and the merchandise mix. Every little modification was designed to help improve sales and profits.

The result? Instead of gaining on the first store, the #2 store fell further behind. Although the new executive thought the continual changes should have pleased the customers, the customers saw it differently. What the consumers saw was a store that always seemed to be messy due to the changes going on and a store where they could never find what they were looking for because the products kept being put in new locations in the store.

Eventually, the executive gave up on this project. He left the store alone and the store performed well again.

THE ANALOGY
It’s not uncommon for people to want to make improvements. Change is often viewed as a good thing—an opportunity to change for the better. However, from the customer’s point of view, change can have negative consequences. It can upset the normal flow of business and confuse the customer.

This is what happened in the story of this retail executive. He wanted to change things for the better, but his changes made things worse.

The same thing can happen in strategy formulation. In an attempt to improve the company performance, there can be a desire to constantly tinker with the overall strategy. This can be especially true in companies which have extensive annual planning processes and/or elaborate annual off-site planning meetings. If you are going to that much effort, there is some pressure to come up with something new in order to justify the activity. It looks a little silly to go through all that work just to end up saying that nothing is changing and we will “stay the course.”

If you have someone new managing the planning process, there is even more of an incentive to change things. Like the new executive in the story, there is a desire to prove your worthiness. It is hard to prove your worthiness if you do nothing different.

However, it is usually the case that keeping a strategy essentially unchanged for a period of time is actually more effective than continual tinkering. As in the story above, when the second store was left unchanged for awhile, its performance improved. Customers had time to get used to what the store was trying to accomplish and understand how to shop it.

THE PRINCIPLE
The principle here is “consistency.” It is extremely difficult in today’s society to get a consumer’s attention. They are continually bombarded by messages. The everyday stresses and hectic lifestyles make it difficult for customers to think beyond the “crisis of the moment.” In addition, with all of the multi-tasking going on, it is difficult for consumers to think deeply about any one issue.

As a result, constant tinkering with a corporate strategy can get lost in the mental shuffle. It’s hard enough making a strong impression in the mind about any particular strategic positioning and getting it to stick. If you keep modifying the position, you can easily lose that impression and end up standing for nothing. Consistency of strategy deepens the impression in the mind. Modifications weaken the impression.

An old advertising executive I used to work with called it the “shaving man” theory. His point was that the average executive is consumed with thinking about his company. When he gets up in the morning, one of his first thoughts is about the company. When he goes to bed at night, one of his last thoughts is about the company. Every time he shaves, he is thinking about the company.

By contrast, when the average person is shaving, he is not thinking about that company. It is nowhere even remotely on his mental radar. Instead, he is probably thinking about things like:

1) The presentation he is making to his boss that day.

2) The fact that he doesn’t like the new group of boys his son is hanging out with and that he believes they are a bad influence on his son.

3) He sees his body in the mirror and is concerned that he is getting fat and out of shape.

4) His car is getting old and starting to need lots of repairs. Should he continue to put more money into repairing the car, or buy a replacement?

5) He doesn’t like the boy that’s dating his daughter and he’s trying to figure out how to get that boy out of his daughter’s life.

6) Tonight his favorite football team is playing on TV and he’s thinking about what it will take to win the game.

It’s hard for your company to compete with all of that mental clutter. If you’re lucky, he will think of your company when it comes time to purchase whatever it is you are selling. Anything beyond that is very rare.

In the mean time, the executive who is always thinking about his company, even when shaving, quickly becomes bored with the company strategy and thinks its time for a change. However, for the customer who rarely thinks about the company, he may only just be starting to grasp what the company is trying to stand for. The customer is not bored with your strategy.

If you change your strategy at this time, you may temporarily make the top executives in the company happy (less bored), but you will have confused the customer who has no time to comprehend all the nuances to your tinkering. After the tinkering, the consumer may have no idea what your strategy is and abandon you for something they better understand. In the long run, that will make the top executives unhappy.

I was recently reading a story about the new President of Eddie Bauer. Years ago, Eddie Bauer was a strong brand. It was positioned as a high quality rugged outdoor clothing company for men. They invented the down-filled coat. The strategy was to be the brand of choice when men wanted to have the best functioning rugged outdoor wear, yet still be a bit stylish.

After the Eddie Bauer brand was purchased by Spiegel, they started tinkering with the strategy. They added a lot of indoor home furnishings to the mix. The apparel mix went from being predominantly for men to being predominantly for women. Although stylish was still a concern, ruggedness was being deemphasized.

Now I’m sure that if someone had time to go to all of the executive meetings and read all of the internal company documents, they could have found some of the logic behind why Spiegel did all of this tinkering to the strategy. However, to the average person, this must have seemed like bizarre behavior on the part of Eddie Bauer.

Women, who were not trained to think much about the brand for themselves, would be too busy mentally to comprehend that they should add the brand to their list of choices. Men, who had one type of impression about the strategy would see that the brand had left that strategy, so the men who used to have a favorable impression left the brand. The Eddie Bauer brand essentially died in the marketplace.

All the while this was going on, firms like L.L. Bean stayed consistent with the rugged outdoor strategy and thrived. Sure, they improved the executional tactics along the way, but L. L. Bean stayed true to the core strategy and deepened the impression in the minds of its customers. The consistency at L.L. Bean won out over all the tinkering at Eddie Bauer.

SUMMARY
Even though it makes sense to have strategic reviews on an annual basis, this does not justify a need to change your strategy on an annual basis. Too much tinkering will confuse the consumer and weaken your bond with them. Consistency deepens the bond and increases the power of your brands.

FINAL THOUGHTS
Annual strategic reviews serve many purposes. They can help determine if you are drifting off-track from your strategy. They can help you find ways to improve the execution of your strategy. They can help find ways to improve the strength of your strategy. They can even help you know when one of those infrequent times come up when the environment has changed so much that it is time to change the strategy. However, it is not the time for an annual reinvention of the company. If you feel a need to reinvent your company every year, then it is time to get a different set of inventors.

Strategic Planning Analogy #137: Stop Lying to Yourself

THE STORY
Have you ever heard of people like this?

I’ve heard of women who want to lose weight. To help motivate themselves to lose weight, they purchase an entire wardrobe of clothing which is smaller than the size they currently wear. The idea is that the desire to want to wear those smaller clothes will be a strong enough incentive to get them to take the weight off.

Unfortunately, I have heard that this plan often fails. The clothes may increase the desire, but desire alone is often not enough. Increasing the desire to lose weight does not always translate into increasing one’s ability to lose weight. Now, instead of just being overweight, they have a wardrobe full of clothes they cannot wear. These clothes are a constant reminder of their failure and increase the frustration.

THE ANALOGY
Just like overweight people, businesses also have areas where they would like to improve. It could be a desire to trim a little weight out of a bloated high cost structure. It could be a desire to improve market share, reduce defects, or increase customer loyalty. Inevitably, the ideas ultimately relate to some way of increasing profitability.

In the story, the women did not create effective plans to reach their goals. All they did was establish a desirable goal (go down a couple of sizes in their clothing) and then put an incentive out there (the ability to wear nice new smaller clothes). Businesses often do the same. Rather than build an effective plan, all they do is set up desirable goals/targets and give out incentives if the goal is reached.

Targets and incentives can be very effective if the goal is reasonably attainable. However, if there is no effective plan for reaching the target or goal, it becomes nothing more than a desire that cannot be fulfilled.

This will tend to result in destructive behavior. Either people will become de-motivated by the impossibility of the task and give up, or they try to “cheat” their way to the incentive by looking for ways to meeting the requirement without achieving the desired goal. (We’ve talked about this type of activity in prior blogs “Your Stock is Too High” and “Raking Up Losses.”) Either way, just as the women were stuck with clothes they could not wear, the businesses were stuck with results they did not want.

Worse yet, the unrealistic target and the incentive give a false hope to management that the goal will be achieved. Therefore, they do not spend the time developing a better, more achievable goal, or a better plan to achieve the original goal.

THE PRINCIPLE
The principle here is to “stop lying to yourself.” If we set up unrealistic goals and targets, we are for all intents and purposes lying to ourselves. A target is like a proclamation to the world that “We can indeed achieve this.” If there is no realistic plan for achieving this, then we have lied.

One of two things needs to happen. Either we need to spend more time trying to figure out what needs to be done to make the target more achievable (turn the lie into truth), or perhaps we need a new goal (abandon the lie for truth).

This principle is especially true when a company falls into the “death spiral.” The death spiral typically starts when a company becomes less competitive in the marketplace. To shore up the lost profits cause by customer defections, activities and expenditures get cut. Without those activities and expenditures, the company becomes even less competitive and loses more customers. So then, to desperately get customers back, prices are slashed. This causes profits to plummet, so costs need to be cut even further. The good employees can see the handwriting on the wall and start to leave, further weakening the company. This type of activity continues until the business unit dies.

When a company starts down this decline, one may at first see it as a mere aberration, rather than a new trend. As a result, goals are set to return to historical growth rates. In addition, because there is a belief that nothing fundamental has changed in the competitiveness of the business model, there will be no plans to meaningfully change the business model.

This can result in disaster. First, by assuming no need to change the basic business model, one will not confront the fundamental issues causing the loss in competitiveness. Hence, the loss in competitiveness will continue. Second, by assuming an aberration rather than a new trend, one sets unrealistic goals, which drive bad behavior.

Back in the 1990s, when I worked at Supervalu, they were the leading food wholesaler to independent grocers. However, two external trends were weakening the competitiveness of their business model. First, independent grocers were losing share to the growth of large supermarket chains. Second, the rise of Wal-Mart Supercenters was not only creating problems for the independent grocers, but was changing all the rules for the entire grocery supply chain.

As it turns out, no matter how effectively you run warehouses for independent grocers, if the independent grocers are going bankrupt due to the chains and Wal-Mart, you have a broken business model. For awhile, Supervalu tended to live in denial, assuming the problem was only minor. Goals were set to grow as in the past, and the basic business model did not change much. This lead to several years of stagnation.

It wasn’t until they stopped “believing the lie that everything was still fine” that things changed. At that point, they changed the business model (primarily through the acquisition of Albertson’s), and are now back on a good path.

It’s like what they say about alcoholism. Until you admit you have a problem, you will not fix the problem. By lying to ourselves, we give ourselves an excuse not to do the difficult work of reengineering the business model.

Over the course of time, companies tend to go through a life cycle. Rapid growth is followed by maturity and maturity is followed by decline. If we are still thinking rapid growth after having reached maturity, we may make bad business decisions regarding investment. If we are still thinking maturity after having reached decline, we may miss out on all the ways to more profitably deal with decline.

Going down with the ship may be admirable in the navy, but not in business. If you know that your business is about to go down, the best move may be to look at liquidation or divestment. Usually, the earlier you take that option, the better, so living in denial is not helping the situation.

Strategic Planning can serve several roles to help eliminate a number of these problems. First, by keeping a close eye on the environment, strategic planning can help build a more realistic point of view about a company’s competitiveness. It can help determine if current problems are an aberration or the start of a new trend. Being the bearers of truth is not always a popular job, but it is a necessary job. Otherwise, a company may be believing a lie.

Second, strategic planning helps discover a path to get to the goal. We don’t want to end up like those women who desire to wear smaller clothes, but have no plan to make it a reality. Perhaps the goal is unattainable with the current business model, but becomes attainable if the business model is changed. Strategic planning can help find that new business model.

In other cases, perhaps the situation has changed so much that new strategic goals are necessary. Strategic planning can help discover what that new goal should be.

SUMMARY
Goals and incentives are most effective when they are in tune with the realities of the marketplace. If your view of the marketplace is flawed, you may set up goals and incentives which are inappropriate. Such inappropriate goals and incentives will support bad behavior and keep you from correcting/changing your business model to one which is more appropriate.

FINAL THOUGHTS
I had a friend who successfully lost a lot of weight. Thinking he would always be at that new weight, he spent a small fortune getting all of his clothes altered to the smaller size. What he didn’t realize was that the short-term plan he had been on to lose that weight was not something he could sustain over a longer period. As a result, some of the weight came back and now none of his clothes fit.

Sometimes, we need to take a longer term perspective in order to truly understand our condition. Being too hasty to change when change is not necessary can be just as bad as too slow to change when change is necessary.

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.