Strategic Planning Analogy #502: Judo Strategy

THE STORY

Recently, the Quora question and answer site tackled the question of what was the shrewdest business move ever. One of the most voted on answers to the question, as reported by Inc magazine, was this:

"Herbert Dow founded Dow Chemical in 1895, and invented a way to cheaply produce the industrial chemical bromine in Midland, Michigan. He sold the chemical for 36 cents per pound throughout the United States—but couldn't expand overseas as the international chemical market was dominated by an incumbent company from Germany. A gentleman's agreement at the time dictated that the German company wouldn't encroach on the U.S. market as long as Dow didn't try to muscle in on chemical sales in Europe.

"However, by 1904, Dow's business was struggling and he needed to expand. So he began selling bromine in England and quickly cut down the German competition—which sold its product at the fixed rate of 49 cents per pound. Outraged, the Germans began flooding the U.S. market with even cheaper bromine, on the order of 15 cents per pound, in an attempt to put Dow out of business.

"That's when Dow got crafty.

"He stopped selling his product in the U.S. altogether—and began buying up the German-made bromine. Then he repackaged it, sent it back to Europe, and began selling it as his own—for 22 cents less than the Germans did. The Germans couldn't figure out why Dow wasn't going out of business—or why there was such a high demand for German bromide in the U.S.—so they just kept lowering their prices to 12 cents, then 10 cents. By the time they caught on, Dow had broken the German monopoly in Europe and forced it to lower prices on its home turf. Ouch."

THE ANALOGY

Companies can spend a lot of time trying to convince the competition to stop doing something. This effort is often futile, because:

1)     It is hard enough to get your own company to change, let alone a competitor.

2)     The normal reason you want to change a competitor’s behavior is because it is effectively hurting your business. Why would a competitor want to stop effective behavior?

When Dow was attacked in the story, it did not try to stop the competitor’s behavior. Instead, Dow let the competitor’s behavior continue and used their activity against them.

When designing your strategy, keep this story of Dow in mind. Instead of looking internally for a way to get an advantage over competition, look for ways to use your competitor’s strategy as a means of gaining an advantage.

THE PRINCIPLE

The principle here is based on the concept of Judo. In judo, one can defeat a stronger opponent by using the opponent’s power against them. Dow, in the story above, used strategic judo to defeat its opponent. Dow took the power of the opponent’s price war in the US to create a price advantage in Europe. Using judo to describe strategy is not a new concept. Back in 2001, David B. Yoffie and Mary Kwak published a book entitled Judo Strategy.

In this book, Yoffie and Kwak discussed how to use Judo Strategy to defeat your enemy. I’ve summarized it below.

Judo Strategy #1: Movement

The first judo strategy principle is called “movement.” The idea here is that big, strong companies tend to have a lot of power, but usually not a lot of speed. They tend to choke on their huge bureaucracies, creating slow reaction. In addition, they got big and powerful due to following the rules of the status quo. Therefore, they are slow to want to deviate from the status quo.

As a result, a smaller, weaker company can beat a larger, stronger company by taking advantage of the opponent’s slowness. They can outmaneuver the opponent through faster movement.

Faster, superior movement tends to work like this. First, don’t stand still and directly attack the opponent under the rules of the status quo. This invites the stronger player to retaliate when they have the advantage. Instead, move the battle to a different competitive space where the rules of the status quo give no advantage. Third, move quickly to build a powerful position in the new space so that you can become stronger player under the new rules.

An example used by Yoffie and Kwak of this “movement” judo strategy was Quickbooks in accounting software. Quickbooks was late to market and battling against huge, established software firms (like Microsoft) with much larger budgets and staffs.

The status quo rules for success in the accounting software space were to:

a)     Provide as many features as possible (the more, the better);

b)     Use traditional accounting terminology and processes.

Quickbooks avoided the status quo and produced its product under a new set of rules:

a)     Focused on doing the few, most common features in a superior (faster, easier) way.

b)     Avoided accounting references and made it easy to use by non-accountants.

This new space gave Quickbooks an advantage. By the time the big, slow incumbents figured out what Quickbooks had done, Quickbooks had quickly taken over 70% market share in the space and put most of the former leaders out of the business.

Judo Strategy #2: Balance and Leverage

The second principle has to do with balance and leverage. The idea is to keep your own balance while getting the competition off-balance. Counter-intuitively, the worst way to keep one’s balance is by directly resisting attack by a stronger competitor. In other words, if they push, don’t push back. Resistance at the point of attack is like arm wrestling—the strongest wins. If you are not the strongest, this approach is folly.

Instead, if they push, you pull. Or if they pull, you push. That way, you are doubling their force. And if you use proper leverage, you can direct that doubled force in a way which puts the opponent at a severe disadvantage. That is how tiny judo experts can flip to the mat a much larger and stronger opponent. The tiny one uses the opponent’s force to make the opponent lose their balance and then uses leverage to direct them to the ground.

In business, this means not directly retaliating in a price war or feature war or product war. Instead, help the opponent waste all of their resources in the attack and use the weakness which comes from that huge investment by the attacker. This is what Dow did in the opening story. They didn’t react to the price drop in the US to create a deadly price war. Instead, they stopped selling in the US and encouraged the competitor to continue their attack (pulling when pushed). This pulled the opponent off balance in Europe, where Dow used the goods they purchased in the US at a subsidized rate from the opposition to profitably undercut them in Europe.

In another example, one of Coke’s biggest strengths in the mid-20^th century was its huge network of independent bottlers. This gave Coke a big advantage in the distribution of cola in 7.5 ounce bottles. Pepsi did not respond product for product, but responded by doing something different—offering 12 ounce bottles for the same price as Coke’s 7.5 ounce bottles.

Coke was now off balance. First, the independent bottlers did not want to write-off their huge investment in equipment to handle the small bottles. Second, because the bottlers were independent, Coke was having a hard time coordinating a quick national response. Pepsi had turned Coke’s big asset into a disadvantage and quickly gained a huge jump in market share.

SUMMARY

The principles of Judo can help small companies gain an advantage over stronger competitors. The idea is to avoid head-to-head confrontations in places where the competitor is strongest. Instead, use speed to move the battle where the stronger opponent is weak/vulnerable and then use their own power against them to get the stronger player off balance and vulnerable.

FINAL THOUGHTS

In the strategic exercise known as SWOT, strategists label various things as being either a strength or a weakness. This is done both for their own company and for the competitors. However, as we can see with the principles of judo, weaknesses can be turned into strengths and vice versa. Therefore, be careful when permanently labeling something a strength or a weakness. It may only appear that way because you haven’t yet found a way to use strategic judo to flip it to the other side. The mere exercise of labeling may blind you from seeing a more superior—judo-based—approach.

Strategic Planning Analogy #501: The Power of Control

THE STORY

In the early 1970s, there was a fellow named Robert Taylor, who owned a small soap company, called Minnetonka. Taylor came up with the idea to sell liquid soap in small dispensable pump containers. Although a great idea, there was no way to patent it. After all, liquid soap and pump dispensers already existed.

This caused a dilemma. If the Minnetonka liquid-soap-in-a-pump idea was successful, then larger, more established soap companies could legally steal his idea and use their scale and clout to put him out of business. So even if the idea was great, Minnetonka would probably not be able to benefit from it, right?

Maybe not.

Taylor got bold. He decided to corner the market on pump dispensers. By raising $12 million dollars—more than his company's net worth—Taylor ordered 100 million of the pump dispensers from the only two companies that manufactured them in the U.S. An order of this size gobbled up the entire manufacturing capacity for these two manufacturers for at least a year, and maybe two. That gave Minnetonka plenty of time to establish itself in the marketplace without any real competition.

It worked. Taylor’s product, called SoftSoap, was a huge hit and owned the category because competitors couldn’t get their hands on an adequate supply of pumps.

In Taylor’s second smart move, he sold the business to Colgate-Palmolive for $61 million around two years after introduction. This would be about the time Taylor’s control of the dispenser manufacturers’ capacity was running out and anyone could enter the market—which they did, causing SoftSoap to dramatically lose market share (which hurt Colgate-Palmolive, not Taylor).

THE ANALOGY

Companies hate it when they have no competitive advantage. Without an advantage, there is no advantage to exploit. Without an advantage, anyone who wants to can copy your business model and directly compete against you. Barriers to entry and exit fall. A price war begins and usually only the largest and best financed survive. Profits are minimal.

So to avoid this, firms try to build competitive advantages. The problem is that firms tend to focus on finding their competitive advantage within the product or service they are selling. After all, that is what people are buying—it is what the money is paying for, right? So firms try to create uniqueness into their product which cannot be easily imitated, using tools like patents and unique capabilities.

My favorite story in this regard was when General Mills introduced Frosted Cheerios cereal. In designing the product, General Mills did not just take their regular, oat-based Cheerios and put frosting on it. Instead, General Mills made the frosted Cheerio out of a secret blend of multiple grains. Was this done to make it tastier? No. Was this done because it would make it more desirable to customers? No.

The new formulation, according to General Mills, was done to make it harder for private label competitors to accurately imitate the product. It was done to create a small internal advantage, which I doubt will have much impact on the imitators.

Sometimes, the best advantages come from not from internal formulations, but from actions taken external to the product.

SoftSoap did not have any internal advantages. It had no exclusivity to the idea of putting liquid soap in pump dispensers. In fact, it was at a major disadvantage, because Minnetonka was a small player competing in a marketplace controlled by giant consumer products companies.

So instead of looking internally, Minnetonka looked externally. It decided to create its advantage in the upstream supply chain.  By locking up the supply of pump bottles, Minnetonka created an external advantage. It prevented copying by competition not by making its product unique, but by making it impossible for competitors to get their hands on a key ingredient from a third party.

So, when looking for your competitive advantage, don’t just look internally at your product or service. Be like Robert Taylor and look for external ways to create that advantage.

THE PRINCIPLE

The principle here has to do with control. If you control access to a scarce asset, you have a competitive advantage. This type of external control can create even stronger competitive advantages than internal product uniqueness. As we saw with SoftSoap, control of the external supply of pumps overcame no real internal advantage. And we also saw that Taylor was smart enough to sell the business before the effect of that external control was lost, since once that control was lost, so was SoftSoap’s value.

Upstream Control

One place to look for that external control is upstream in the supply chain. That is what SoftSoap did. It went upstream to control the supply of pumps.

Another example would be Apple. They have been accused multiple times of using a similar tactic. Sometimes, they’ve been accused of locking up the supply of key electronic components needed by their competitors (their equivalent of soap pumps). Other times, they have been accused of locking up the shipping capacity from key technology manufacturing centers in Asia to the US, thereby making it difficult for their competitors to ship their products to the US in time for Christmas. Either way, the external control by Apple gives them a competitive advantage.

Downstream Control

Another approach would be to control the downstream capacity in a supply chain. For example, I remember talking to someone at Andersen Windows shortly after they signed the deal to be the exclusive replacement window vendor for Home Depot. Although Home Depot is not the only outlet for replacement windows, it is one of the largest and most powerful distributors in the space. By being the only replacement window available at Home Depot, Andersen Windows had no direct competition inside Home Depot. That is an important downstream competitive advantage.

GE did something similar with its appliances. GE made solid connections with most of the major home builders in the US. As a result, they locked in a number of deals to be the vendor of choice for appliances which come with a new home. Other appliance manufacturers were frozen out. The ones buying these new houses could pick which GE appliance they got, but not appliances from other brands. This was a big competitive advantage.

And Apple plays in this space as well. By owning the largest distributor of digital music (the iTunes site), it controlled how the entire digital music industry evolved (to Apple’s benefit). Having only Apple products in the cool Apple stores is a similar example.

And then there is Microsoft. Microsoft would probably not exist today if it hadn’t structured the deal the way it did for selling its first product (MS-DOS) product to IBM. Normally, in these types of deals, IBM would have owned distribution rights the operating system they commissioned. But Bill Gates took a lower fee in exchange for controlling distribution rights to MS-DOS. This allowed Microsoft to sell the operating system to every other PC manufacturer, creating the de-facto standard and a lock on PC software for decades to come.

Promotional Control

Another scarce external resource can be advertising/promotional capacity. If you lock up all the key promotional capacity, you can weaken competition’s ability to get the word out about their offering. You see something similar with consumer electronics manufacturers, who try to get massive publicity just before a competitor’s new product launch, in order to minimize the competitor’s ability to create buzz in the promotional marketplace.

Now, one might think that in today’s internet culture, it is harder to create promotional control. But think about this. If you lock up all the relevant key words on Google, you can lock up the ad space on the search engine and freeze others out a key source for getting clicks to their site.

SUMMARY

Looking internally at what you offer is not the only place to seek competitive advantage. Controlling access to external factors can also create competitive advantage. In many cases, this external control can be a more powerful advantage than anything you can do internally. Therefore, consider external control when designing your competitive strategy.

FINAL THOUGHTS

In the end, who do you think got the biggest benefit from their competitive advantage efforts—SoftSoap with its external control of supply, or General Mills with its internal control of a slightly (perhaps even inperceptively) modified recipe for the Cheerios hidden under the flavor blast of frosting?

Strategic Planning Analogy #500: Be Careful Who You Follow

THE STORY

In the wintertime, Minnesota can have some nasty snowstorms. If they come just before the rush hour commute, they can grind traffic on the highways to a stop for hours. When that would happen to me, I would get off the highway and try to make my way home via the back roads.

With everything covered in white (and even more coming down), it would be hard to see where you were driving. And if the back roads took you into unfamiliar territory, it would be even more difficult to know how to get home. Therefore, when I got onto the back roads under these conditions, I would try to find another driver who appeared to know what they were doing and then follow them.

On one of these evenings, I found a car that really seemed to know all the back road shortcuts, so I started to follow it. Everything was working out quite well until that car I was following suddenly turned up a driveway and went into its garage. It was home. I was not. And I really wasn’t very sure about where I was.

I just kept driving and luckily I soon came to a main road which I recognized. From there, I was able to find my own way home. If I hadn’t come across that familiar road, I might have been wandering aimlessly out in that winter storm for many additional hours.

THE ANALOGY

Following someone can make life a lot easier—so long as the person you are following is going to your destination. But if that person is going somewhere else, they can lead you in the wrong direction.

When that car I was following turned up its driveway, I was in big trouble because he had led me into a neighborhood I did not know and where I did not belong. He had reached his destination. Unfortunately, his destination was nowhere near my destination. I was left in a place where I was lost.

The same thing can happen in the business world. It is usually easier to follow someone else’s strategy than create one of your own. This seems easy to justify, especially if you are following the market leader. After all, that strategy made them a huge success. Won’t it do the same for me?

The problem is that they are the market leader and you are not. They have different capabilities and resources than you do. As a result, the right strategic destination for them is most likely not the right destination for you. Trying to win with a strategy designed to take advantage of someone else’s strengths (not your own) will lead you to a place where you do not belong.

But even if you are roughly similar businesses, it is usually a mistake to blindly follow the leader. After all, each strategic position can only be owned by one firm in the mind of the customer. If the leader already owns that position, then the customers will view you as an inferior version of that position, even if you do essentially the same strategic actions. Instead, it is usually better to find your own unique position (where you can win) than to be seen as an inferior copy of someone else’s position. In other words, you need to find your own home to drive to rather than follow the leader to their home and not be invited in.

A great example is Walmart versus Target. Walmart’s strategic destination was “lowest cost structure/lowest prices.” Target could have tried to follow Walmart with a similar approach, but it probably would have been a failure. Just look at the evidence. There used to be dozens of discount store chains in the US chasing Walmart which have all gone bankrupt. But Target is still going strong because it decided not to follow the Walmart strategy and went to a different destination.

Target’s heritage from its parent company was the more upscale, more fashionable department store business. This was an advantage they could leverage against Walmart. So Target chose the destination of “Cheap Chic,” the more upscale, more fashionable alternative to Walmart.

Being a desirable alternative to Walmart is much better than being an inferior Walmart clone. Both chains now could successfully coexist, because they were winning in their respective, differentiating positions. They had each chosen different strategic “homes” and took different paths to get to their homes.

THE PRINCIPLE

The principle here is that a strategy of following someone else is usually a mistake. Most of the time, it is better to develop a different strategy—one specifically suited to your unique situation (skillsets and market position).

Why Following is Usually a Mistake #1: Differences

We have already discussed many of the reasons why following is usually a mistake. First of all, every company is different. There are differences in capabilities, resources, corporate culture, geography, prior investments, product portfolio, patents, market perceptions, and so on. What works for one firm won’t work for another because of these differences. You need to choose your strategy based on what makes you unique, because it is your uniqueness which provides the competitive edge needed to win.

There is no single best strategy for everyone in an industry. If there were, we’d be in trouble, because then you would only need one company per industry—the one best at executing that single strategy. Fortunately, there are many different ways to win a segment of the industry. You can choose to win on a variety of attributes, like price, service, customization, quality, speed, or specialization to a particular segment (such as a particular customer segment, geographic segment, usage segment, or solution segment). Rather than imitate someone else, find the place among these options which is best for your unique situation.

Throughout history, there have been business leaders who have had a great reputation for success. At one time, it was Jack Welch at GE. More recently, it was Steve Jobs at Apple.  Each time one of these business superstars appears, I’ve seen many leaders trying to implement the identical leadership styles (and strategic approaches) of these superstars in their own businesses. They try to follow these leaders just like I followed that car in the Minnesota winter. And usually, the results are similar to my experience. They end up lost rather than having success similar to these superstars.

Why? Well, the personality style of these superstars may be different than the natural style of those trying to imitate them. That difference makes it hard to be genuine and effective with that unnatural style. In addition, you are placing that leadership style into a different context. That style may not be the best for that context. These differences can make following these superstars a mistake.

Consider the fact that even Steve Jobs was not incredibly successful everywhere he went (think about when he ran NeXT). And many of the people highly trained at GE in the Jack Welch style had unsatisfactory results when they left GE to run companies in a different context. If they couldn’t pull it off when the situation is different, why do you think you can?  Differences matter and can make imitation inappropriate.

Why Following is Usually a Mistake #2: Only One Leader at a Time

Another problem with following has to do with the laws of positioning. As Al Reis and Jack Trout pointed out in their works on positioning, consumers will mentally place only one firm as a leader in a particular position. Everyone else is seen as inferior. And once someone locks into that leadership position, it becomes extremely difficult to unseat them from that top position. As a result, Reis and Trout recommend that if you are not the leader in a particular position, go and find a different, uncontested position where you can win.

This is like when Target did not try to unseat Walmart from its position but found a different place where it could win. Another example would be social networking where anyone essentially trying to copy the success of Facebook (like Google+) is failing. However, Linkedin differentiated by going after a different customer segment (business professionals) and has done well.

There was a time, generations ago, when industries held more financially viable players for a given position. But due to consolidations, the power of networks, price wars, and greater transparency, the number of profitable players in a given position keeps shrinking. Often, only one player per a given position makes a respectable return on investment. If you are not the top player in your position, you will probably be a poor investment. So, instead of copying someone else’s position, find a different place where you can win.

Exceptions to the Rule

Does this mean that following is always a bad idea? No, there are a few situations where following is okay.  One such situation is when critical mass is needed to get an industry started. For example, when the next generation of DVDs was being developed, there were two competing technologies—Blu Ray versus HD-DVD. This created uncertainty in the marketplace. Customers were reluctant to purchase either one for fear that they would choose the wrong format. It wasn’t until the players in the supply chain (movie studios, media player manufacturers, retailers, etc.) started following each other in one direction (Blu Ray) that the critical mass was formed to get customers to buy.

Another example could be electric cars. Until consumers are comfortable that the right technology is found (and the compatible charging infrastructure for it is in place), they will hesitate to buy.  

This is similar to the Blue Ocean strategy which talks about abandoning the status quo to open up entirely new industries. Sometimes you need a critical mass of players following each other into the new blue ocean in order to make to new industry look real and viable.  If the new market is big enough, it may be worth following to get the market jump-started.

Another time to follow is when an industry is still developing and you have special leapfrogging skills. The idea hear is to let others test the waters of innovation and take all the risks of failure. Then, when they hit upon the rare success, be a fast follower and overtake them in the race for leadership. This has been the strategy of Coca Cola for decades. Coke lets other people invent markets (like diet cola, cola in cans, bottled water, sports drinks, energy drinks) and then they use their superior distribution skills to overtake the upstarts and dominate the new business. As long as an industry is still unsettled, the fast follower approach can work if you have the capabilities to outrun the innovator.

However, even in these two cases, the benefits of following are temporary. Eventually, the markets will mature, and following won’t work anymore.

SUMMARY

Although following someone successful may seem like a path to similar success, history would say otherwise. The followers usually lose because either:

a)     They are in a different situation than the leader which makes their strategy not applicable; or

b)     The leadership in that position is already owned by the leader and you cannot take that leadership advantage away from them.

Therefore, rather than follow someone else, find the unique path that is just right for you.  

FINAL THOUGHTS

Eventually, I mapped out my own back roads for when a storm hit in Minnesota. That way, when the storms came, I was following my own path, rather than the path of someone else. That worked out a lot better. You should do the same.

Strategic Planning Analogy #499: Planning by Intimidation

THE STORY

Back during the middle of the 20^th Century, Yugoslavia appeared to be a relatively stable country.  With the exception of the time around World War II, the borders of the country remained relatively constant from about 1918 until around 1990.

Internal strife during most of this time seemed relatively minor to the outside world. In fact, the country seemed so stable that in 1984 the Winter Olympics were held in Sarajevo, Yugoslavia.

Yet it was not many years after the Olympics were held that the nation began to fall apart. Violent warfare and ethnic pride during the 1990s eventually dissolved Yugoslavia into seven separate countries: Croatia, Macedonia, Montenegro, Serbia, Slovenia, Kosovo, and Bosnia & Herzegovina.

So much for what seemed like stability in Yugoslavia. Instead, it became a bloody war zone until the dissolution was complete.

As it turns out, that appearance of stability and unity in Yugoslavia was not a natural condition. It only existed because the people felt forced to get along. First, the nation had been run for generations by a series of strong totalitarian regimes. These leaders used their power to create fear of rebellion or disunity. Whenever small uprisings occurred, these leaders quickly used their power to brutally squash the rebellion (and put fear into anyone considering future rebellion). The strongest of these leaders was Josip Tito, who ran the country with an iron fist from 1963 to 1980.

Second, there was a feeling that if Yugoslavia became too unstable, the Soviet Union would step in to restore stability. And the type of actions anticipated by the USSR to create stability were feared to be even worse than the totalitarianism of their own rulers, like Tito.

Therefore, the people of Yugoslavia held their internal disputes in check, fearing that any attempt to show their true ethnic pride would just make matters worse. It wasn’t that they liked each other during the 20^th century—they just felt forced into an undesired tolerance.

After Tito died in 1980 and the Soviet Union dissolved in 1991, the forced pressure to co-exist began to fade away. Without this strong outside pressure to conform, the ethnic pride and hatred of the people was allowed to come to the surface. This lead to the bloody battles of the 1990s. The end result was separation into new nations defined by the more natural ethnic boundaries.

THE ANALOGY

The story of Yugoslavia shows that just because there is an appearance of unity and stability, that does not mean that unity and stability lie in hearts of the people. All that hatred and ethnic pride was still there under the surface.  The only reason it didn’t erupt until the 1990s was because powerful forces had kept it from erupting. The moment those forces disappeared, so did the superficial unity.

This is an important lesson for those in charge of enacting strategy. There are two ways to get employees to comply with a strategy.  The first is to take a Yugoslavian approach. In other words, you use intimidation, power and fear to force people to comply, whether they want to or not. The second approach is to change the hearts of the people so that they voluntarily want to comply. As we will see in this blog, the Yugoslavian approach is usually the less desirable option.

THE PRINCIPLE

The principle here is that coerced actions are never as effective as actions driven from the heart. Just as a mercenary soldier never fights as hard as a soldier who believes in the cause, an employee complying due to fear is never as productive as one who believes in the cause. As a result, the Yugoslavian approach to strategy implementation tends to be rather unproductive.

High productivity is a result of getting relatively large output from relatively low input. The Yugoslavian approach tends to lose on both fronts; it requires higher input for lower output.

1. The Cost of Gaining Compliance Through Intimidation

In totalitarian dictatorships like Yugoslavia and North Korea, a great deal of time, effort and money has to go into building the force of intimidation.  Large armies and police forces are needed. Spy networks are needed. So much effort has to go into the mechanisms of fear that little is left for growing the economy and benefiting the people.

A similar situation exists in business. The intimidation approach to strategy is very costly.  You have to build a huge infrastructure to manage every little detail to make sure the work gets done. Nothing can be left to chance. Every decision has to come from the top and be constantly monitored for compliance. Systems of punishment are needed when people deviate from plan. It becomes like the top-down communist economies. Everything is planned from the top, yet the people starve from shortages.  It doesn’t work well.

Instead of spending time on the large, critical issues for success, management gets bogged down into the minute details. Nothing can be delegated, because the people cannot be trusted to voluntarily comply.  So much time is wasted monitoring incremental changes in performance that little time is left for discovering the large innovative transformations needed to stay relevant in a changing marketplace. You end up perfecting the obsolete.

2. The Lowered Response Due to Intimidation

There was an old saying by the people in the old communist countries: “You pretend to pay us and we pretend to work.” The idea was that the local currencies were worthless, so the people did not work hard to earn it.

That’s what happens when people are compelled to comply with something they do not believe in their heart. Sure, they will stay the course so as not to be punished. But they will not work hard at it. They will not go the extra mile. Instead, you will get the bare minimum effort. And that is no way to win the battle in the marketplace.

When people believe deeply in the strategy, the effort level skyrockets. You don’t have to force people to do well—they WANT to do well. They will work longer and harder for a cause they believe in. And best of all, they will volunteer innovative ways to get things done—far better than that which is dreamed up in the ivory towers at headquarters.

I worked with a company that went through a transition from having employees who deeply believed in the strategy to one where they felt compelled to do that which they did not believe. The employees started going home earlier and worked less while in the office. Productivity dropped dramatically.

3. The Inevitable Breakdown

As we saw in the case of Yugoslavia, eventually the pressure to hold down rebellion becomes too great and the instant there is weakness at the top, the rebellion will occur. The nation of Yugoslavia was quickly destroyed at a very high human cost. 

The same thing can happen in business. As soon as there is a slip in the oppressive power and control, rebellion will occur and everything can become lost very quickly.

A lot of strategic initiates look great at first, when top management is watching it closely. However, if compliance is only by intimidation, those results will quickly go away once top management’s attention moves on to something else. It won’t be sustainable.

4. The Better Approach

Rather than rely on intimidation, a better approach is to get people to want to naturally comply with the strategy. This is easier to administer, creates greater output, and gains from the insights and innovation of the entire organization.

How do you do this? First, have a compelling strategy which makes sense and leads to victory. Don’t expect employees to buy into hollow platitudes. They know a lie or deception or hollow wish when they hear it. Instead, create a position and plan that really can win in the marketplace…something worth believing in.

Second, relate the company goals to individual goals. Show how the path for the company to win will also be beneficial to the individuals who make it happen. Create a win-win scenario where compliance is the best path for everyone. Share the wealth.

Third, don’t micromanage. Allow people to internalize the strategy and make it their own. Then they will come up with creative ways to move the mission forward which far exceed what would come out of micromanaging.

Finally, don’t choke on excessive monitoring of minutia. KPIs (key performance indicators, or whatever 3 letter acronym you use for measurement metrics) are an important part of a strategic process. But that doesn’t mean that ever more KPIs are better. At some point, you can have so many KPIs that you choke on the specifics and lose sight of the big picture.

This is especially true in a Yugoslavian environment. There can be so much fear and intimidation put behind hitting the numbers, that people will do anything to hit the numbers. Unfortunately, numbers can be achieved by both doing the right behaviors and the wrong behaviors. Often times it is easier to hit the numbers with wrong behaviors that are contrary to the plan. So the intimidating process encourages wrong behaviors.

It reminds me of an old process used at a company which prided itself on innovation. To measure innovation, they used the KPI of “% of sales from products introduced in the last five years.” The pressure was so great to hit this number, that managers started achieving it by discontinuing perfectly good older products from the mix. This got them the desired number, but it hurt sales and did not promote innovation.

Spend less time ruthlessly enforcing KPIs which can be hit via bad behavior and more time encouraging people to do what’s right because they believe good will come from doing what’s right.

SUMMARY

Intimidation and fear may create strategy compliance for a short time, but eventually rebellion will occur. And even during the period of coerced compliance, performance is sub-optimal because it typically requires extra management effort and achieves only bare minimum performance. To get optimal productivity, it is better to convince people believe in the strategy in their heart. Then they will work harder with less supervision and add ideas of their own to make it even better.

FINAL THOUGHTS

Next time someone tries the fear and intimidation approach to strategy, remember the fate of Yugoslavia.