Strategic Planning Analogy #429: Musical Chairs

THE STORY
When I went to parties as a child, we played a game called Musical Chairs. The game used a circle of chairs. There would be one less chair than the number of children playing.

As music played in the background, the children would walk around the circle of chairs. When the music stopped, everyone would try to sit in a chair. Since there was one less chair than children, one child would not get a chair. That person was called “out” and was no longer allowed to play the game.

Then, one of the chairs would be removed and the music would start again. The process would be repeated until only one child was left sitting in the one chair that was left. That child was declared the winner.

Sometimes the game would get very active when two children would fight over a single chair. Although both would try to claim rights to that chair, one of them would lose out. After all, the rules stated that only one person could sit in a given chair. Since there were fewer chairs than children, by definition someone would lose out in each round.

THE ANALOGY
The chairs in Musical Chairs can be thought of as being like business opportunities. And the children can be thought of as being like companies who want to take advantage of those business opportunities.

Like in the game, there are more companies trying to take advantage of the opportunity than there are opportunities. As a result, companies lose out and can no longer play the game in that arena.

You can see this happening all the time in business. Whenever there is a “hot” business space, there will be tons of businesses trying to exploit it. Unfortunately, there are too many companies chasing these “hot” spaces. As a result, most companies do not successfully exploit the opportunity. “When the music stops,” and the companies rush for a seat at the business, not all will find one.

Look at the recent “hot” spaces like Solar Panels, Social Media Couponing, iPad imitations, etc. Companies are quickly exiting the businesses or going bankrupt. Yes, the business space may be “hot” but most of the businesses trying to exploit the opportunity fail. There are not enough chairs to satisfy all who want to play.

THE PRINCIPLE
The principle here is that merely finding a good place for your company to play is not sufficient. So-called “good places” attract too much interest relative to the opportunity. As a result, these “good places” quickly become “bad places” for those who cannot quickly secure a solid ownership of share in that space. Like in the game of Musical Chairs, most players are asked to leave the game because they could not find a chair for their business to occupy.

Therefore, strategies require two elements—a viable space, and a way to aggressively fight to win a place within that space.

Best Buy Example
I was reminded of this principle while reading the book “Becoming the Best” by Dick Schulze, the founder of Best Buy. The book talks about the history of the development of the massive Best Buy retail chain. There were several times in the early years when Best Buy was on the verge of bankruptcy. Best Buy could have very easily become one of those companies who could not secure a chair and been told by the marketplace to leave the game.

Yet, Best Buy endured to become the last national consumer electronics retail chain left in America. It won the game of musical chairs in the consumer electronics space. Why? Part of the answer can be seen in the sub-title of the book: “A Journey of Passion, Purpose, and Perseverance.”

Dick Schulze did not just “show up” at the game. He was quick, aggressive, and persevering. He understood that business is a race and that you have to run aggressively, with purpose and endurance, in order to win that race.

A great example was back in the late 1980s when a large competitor, called Highland Appliance, decided to enter Best Buy’s territory in order to drive the smaller Best Buy into bankruptcy. Realizing what was going on, Best Buy reacted quickly and aggressively. First, Best Buy acted quickly to grab market share in markets where Highland was committed to grow, but moving slower.

Second, Best Buy was the first to realize that the old commissioned sales model (which Highland, Best Buy and everyone else was using) was becoming obsolete. Therefore, Best Buy quickly changed its approach and became the first in the industry to own the superior business model which was an approach more like a supermarket (no commissioned salespeople). They called the new business model “Concept II.” Because of these quick and aggressive tactics, Best Buy survived and it was Highland Appliance who soon went bankrupt.

In other words, with Concept II Best Buy developed a superior position where they could win (a great space) and then quickly and aggressively did whatever it took to own that space before anyone else could get there (a great race). By doing both tasks, Best Buy won the game of musical chairs in its industry and reaped the rewards of being the leader of consumer electronics when all the money was being spent to convert from the analog to the digital era.

Sure, everyone knew that there were great rewards to be had if you were in the digital space when that conversion from analog to digital took place. But not everyone who wanted to take advantage of this opportunity succeeded. Best Buy succeeded when others failed because it worked faster, harder and smarter at securing the right position in the space (Concept II) and then did whatever it took to make sure nobody took it away from them. They found a chair to sit in and never let anyone push them out of the chair.

General Motors Example
An example in the opposite direction would be General Motors. In recent years, it was becoming apparent that the old automotive business model of owning a huge portfolio with lots of different brands was no longer the best place to be. The wise business move would be to sell off some the weaker brands and concentrate more effort on the stronger brands.

General Motors understood this, but they were slow in the race to execute the strategy. Compare their speed and aggressiveness in execution versus Ford. Ford acted quickly to sell off its Land Rover brand, which was going out of favor due to its focus on large, gas guzzling vehicles. As a result of acting quickly, Ford was able to exit the business while also getting some cash from the sale of the division.

By contrast, General Motors was slower in reacting with its large gas guzzling Hummer brand. By waiting longer, that gas guzzling segment became even less desirable. And Ford had already sold its Land Rover division to the best potential buyer for such a brand. As a result, General Motors could not find a buyer for Hummer and had to shut it down at a huge loss.

A similar situation happened with their northern European brands. Ford acted quickly and found a buyer for Volvo. General Motors was much slower and more timid in reacting and could not secure a buyer for its Saab division. GM had to shut it down for a loss.

Both Ford and General Motors saw the same good strategy of shrinking their portfolio. Both tried to execute that same “good” strategy. But because Ford was quicker and more aggressive, it was able to execute the strategy far more successfully than General Motors. Same strategy, but different results due to differences in speed and aggressiveness. Just as it takes speed and aggressiveness to secure a chair in Musical Chairs, it takes those same qualities to win in business.

SUMMARY
Strategic planning needs to be more than just identifying places where money can be made. It needs to also develop a path whereby its company can out-hustle the competition and survive the race to become one of the survivors. Great opportunities cause a large rush of firms who try to exploit it. Most of these firms will not benefit from the opportunity because they lose the race to become one of the few firms which can secure a “chair” in the industry. Slow imitators rarely achieve benefits as large as the quick and aggressive innovators. So it you want to win, not only find the right space, but find a way to win the race.

FINAL THOUGHTS
Musical Chairs requires many rounds before a winner can be declared. Just because you survive any early round does not mean that you will survive later rounds. The same is true in business. Don’t get complacent because of early success. This is an endurance race. You have to keep running.

Strategic Planning Analogy #410: Self Awareness

THE STORY
Imagine, if you will, a man who is trying to find the ideal woman to marry. We’ll call him Bob.

Bob does a great deal of research into determining the characteristics of a great wife. Then he does research into where to find women with these characteristics. Finally, Bob applies “proven” tools for approaching these women.

Unfortunately, Bob has absolutely no luck in convincing any of these women to become his wife. In frustration, Bob complains to one of his friends, “I don’t understand why I am not having success finding the ideal wife. I’ve done all the research and used all the accepted techniques. I found the great women, but none want to be my wife. What am I doing wrong?”

Bob’s friend answers, “Take a look at yourself. You are obesely overweight. You are unemployed. Your personality is rude and obnoxious. You are sloppy and ugly. Until you fix up your own act, no woman will be interested in you.”

“Hmmmm,” says Bob. “I’ve spent so much time looking for the right woman that I never spent any time looking at myself.”

THE ANALOGY
Looking for great business opportunities can be a lot like looking for that perfect spouse. You can do all the research (like Bob did) to determine what the characteristics of a great opportunity are (like high growth, large demand, good margins, low competition, etc.). Then you can do the research to find out where those types of opportunities exist (like emerging economies, or social networking businesses, or green technology). And then you can apply proven techniques to try to get into those great business opportunities (acquisitions, alliances, etc).

And you can still fail miserably, just like Bob.

And the failure may have nothing to do with all that research you did. The problem may be that instead of focusing entirely on looking for opportunities, one needs to occasionally focus on one’s self. Look in the mirror at your own business. Do you have the proper qualities to make the deal work? What are you bringing to the opportunity which adds value? Does your company look to others like Bob—totally undesirable?

It takes two to make a great marriage. Don’t forget your part in the deal.

THE PRINCIPLE
The principle here has to do with strategic fit. A supposedly great deal may actually be a terrible deal if there is no strategic fit. Even if the opportunity has all the characteristics typically associated with success, it can still be a miserable failure in the wrong hands (no strategic fit). Therefore, when making strategic assessments of potential opportunities, do not look at them in isolation, but in the context of their fit with your organization.

This point was driven home to me in a recent study issued by the Corporate Executive Board. Their report said:

“Despite strategists and senior managers having spent decades on emerging markets strategy, they still spend too much time trying to understand the market and not enough on understanding whether their firm is ready for that market. Our research on over 1,000 market entry examples shows that this mistake is made over 70% of the time.”

In other words, right now emerging markets are the pretty girls that the guys want to marry. But just because the woman looks attractive to you doesn’t mean that you look attractive to the woman. This may seem obvious. However, since businesses are making this mistake of going in ill-prepared over 70% of the time, the idea must not be as obvious as I think.

I’m not saying that these companies are failing because they are bad companies. They just aren’t ready for the opportunity because of a poor fit.

Jigsaw puzzle pieces aren’t inherently good or bad by themselves. What makes them good or bad is whether or not they properly connect with your puzzle piece. If the pieces fit together, everything is good. If not, then the piece is not useful to you—even if it is very useful to someone else.

So what can we learn from this?

1) First, Look In The Mirror
Before going on a strategic quest for the ideal new opportunity, take time to first look into a mirror. Research yourself before researching others. Until you know what you look like, you won’t know what opportunities will fit. Ask yourself questions like these:

a) How can I add value to an opportunity?

b) What is causing me to be successful in some of my current businesses? Is it a particular skill I bring to the marketplace or is it a particular type of characteristic of the marketplace itself?

c) What is causing me to have problems in some of my businesses? Is it the lack of a skill or is it the wrong type of marketplace?

d) Where can I succeed better than others? (Differentiated Skills, Competitive Advantage)

e) Where does my expertise lie? Am I better at a particular stage of a lifecycle (start-up vs. growth vs. maturity)? Am I better with particular value positions (low price vs. high service)?

f) What is the best cultural fit for me?

Based on the answers to these questions, you can now know what are the right criteria to look for in new business opportunities.

2) Don’t Get Seduced By the Hot Fad
At any point in time, there are hot fads in business investments. “Common Knowledge” tells everyone that these are the places to be, so businesses flock to them. As the Corporate Executive Board points out, a current hot fad is getting into emerging markets (like China or Brazil).

Yes, a lot of money will be made in these hot markets. It is also true that many companies will lose a lot of money going after these hot markets. In fact, most companies will fail. Only a few companies (like Amazon) succeeded in the first dotcom bubble. Most died a horrible death.

So just because a market is “hot” does not mean that success is a given. Hot markets can also burn the company that is not prepared or not a good fit.

Therefore, do not get seduced into thinking that you have to pursue particular opportunities just because they are the hot place to be. Don’t think that just because all of your peers are pursuing a particular strategic path that you have to do the same thing.

Instead, look for the opportunities which fit well with what you do. Perhaps your best opportunities lie far away from the current fad.

3) Make Yourself Presentable Before Diving In
Sometimes, an opportunity might have great potential for you, but you are not ready yet for that opportunity. If Bob was going to lure a great wife, he was first going to have to lose some weight, get a job and improve his personality. Your company may need to do something similar.

When McDonalds was beginning to grow internationally, they ran into a problem. They wanted their hamburgers and french fries to have the same quality and taste as in the USA. However, these other nations did not have access to the proper types of cattle and potatoes to make that happen. Therefore, before they could build their restaurants, McDonalds had to spend a great deal of time working with the local agricultural infrastructure. They had to convince the local farmers and ranchers to use McDonalds-style cows and potatoes and raise them in the proper manner.

Until McDonalds got the infrastructure in place, they were ill-prepared to build their restaurants globally. If they had just rushed in with the restaurants (before fixing the infrastructure), they may have failed.

If you find a great opportunity, determine what you need to be successful with it. Then look at what you have to offer. If you are missing something (as McDonalds was with infrastructure), then work on filling that gap before diving into the opportunity. Don’t be like the 70% in the study who fail to spend the time to become appropriately prepared.

SUMMARY
A key aspect of strategic planning is to find future growth opportunities. As important as this is, don’t become so focused on looking outward for opportunities that you fail to look inward at yourself. The best opportunities are the ones that fit with who you are (or who you can be). Preparing yourself to win can be more important than finding a so-called “winning” opportunity.

FINAL THOUGHTS
The more you strengthen your core competencies and skill sets, the more places there will be where you can find additional opportunities to succeed.

Strategic Planning Analogy #348: Bigger Vision

THE STORY
Back in the 1980s, David Graham was trying to figure out a way to revive the economy of southwestern Indiana. His conclusion: the economy was poor because there was no interstate highway running through the region.

Mr. Graham tried to get the government to extend interstate 69 from central Indiana to southwestern Indiana. Unfortunately, a 1990 study said that the project didn’t make financial sense. Nobody in government would back the project.

Normally, that would be the end of things, but then Mr. Graham ran into David Reed. Mr. Reed had a broader vision. Interstate 69 already ran from the Canadian border southwesterly towards central Indiana. What if this road was extended all the way to Mexico? It would become the centerpiece symbolically connecting the three countries of the newly being formed North American Free Trade Agreement (NAFTA).

All of the sudden, interstate 69 was getting fans from all over the country. All the politicians from areas located along the pathway to Mexico were rushing to back the plan. Large, national lobbyists were backing the plan. It was getting attention at the nation’s capital.

And, of course, if a road is to be built all the way to Mexico, it will have to go through southwest Indiana.

THE ANALOGY
This story is based on a review of the book “Interstate 69,” which appeared in the Wall Street Journal. The concept here is fascinating. Mssrs. Graham and Reed took a local project which nobody was interested in and made it a national passion all because they found a way to attach their local agenda onto something larger which others could get excited about. Had they stuck to just their own local agenda, nothing would have happened.

Every business has its personal agenda—things which they want their business to accomplish. They may want to increase sales, or increase production or increase profits—something which will benefit the company. However, if a business only promotes its own personal agenda, it may not get much support. Why should others help promote the profitability of any one business if there is nothing beneficial in it for anyone else?

If a business wants assistance in getting its personal goals accomplished, it helps if you can align those goals with a greater purpose which has an established base of supporters. That way, as all the support behind the greater purpose moves forward, you can ride the coattails and get your agenda accomplished as well.

THE PRINCIPLE
The principle here is that strategic planning often needs to reach beyond just what is in the interest of the company to include a broader base of constituents. Unfortunately, it is easy to get caught in the trap of localism when devising strategic plans. By this, I mean strategic planning which only selfishly looks at what is best for the company. After all, isn’t the primary goal of strategic planning to create a better future for the company? What could be more selfish than to create plans to improve a business’ prospects for success?

However, the irony is that often one can be even more successful if effort is diverted from a purely personal agenda to a larger agenda. Rather than starting a strategic planning process by asking “What will make me better?,” perhaps a better question is “What great, larger cause can I get behind that will open doors of opportunity for my business?” Because Mr. Graham got behind a larger cause of building a route between Mexico and Canada, he significantly increased the likelihood of getting the opportunity to have a major interstate expressway run through southwest Indiana. If he had stayed focused on just what is best for southwest Indiana, the potential of getting that expressway would have been 0%.

Department Store Example
There are many examples of this principle in action. I am reminded of a book called “Merchant Princes,” which came out in the 1980s. This book told the stories of the families which built all of the great local department stores in the U.S. back in the late 1800’s. In almost every case, these leaders spent a great deal of time on projects beyond the scope of their department stores. In particular, they spent a lot of time on projects designed to boost the economies of their local community.

These leaders knew that economic growth is not spread evenly. Some communities grow faster than others. They also knew that there was a greater chance that a community would grow better than average if there were groups designed to proactively promote the community. And if this larger agenda of building a strong, growing community was achieved, there would naturally be greater opportunities for their local department store to take advantage of that growth.

If these department store families went around begging community leaders to make them more profitable, they would not have gotten much support, if any. But by asking people to help them create a better local community, they got a lot of support. That support indirectly benefited the department store.

By contrast, what if these department store leaders had only concentrated on their own local business? They could have built one of the greatest department stores on the planet. However, if they ignored the larger issue, that store could end up located in a small, shrinking, dying economic area. All their effort would be for naught. Without growing populations of prosperous people, there is little chance for those department stores to be successful. It is only by embracing the larger agenda that they could maximize their local agenda.

Automotive Example
A more recent example would be in the automotive industry. The great recession was making it difficult for automotive companies to survive. The industry players needed help. They discovered that they were more likely to get government assistance if they embraced a larger agenda. That larger agenda included things like trying to protect local jobs and trying to move to greener electric automobiles.

A lot of people would be against bailing out wealthy business leaders just so that they can become wealthier. However, if you tell them they are helping to save jobs and save the planet, then you are more likely to get support. And indirectly, that effort to save jobs and save the planet also saved some automotive businesses.

Applying the Principle to Strategic Planning Process
So how do we apply this principle to the strategic planning process? Well, instead of focusing the planning process on one question, we should consider three questions. The one question we usually focus on is “How can I build my business?” This is the selfish, narrow question. To this, I would like to add two more questions:

a) How Can I Build My Base of Alliances? And
b) How Can I Build My Base of Opportunities?

Again, the irony is that if we spend less time focusing on “How to build my business” and divert some of that effort to building alliances and opportunities, we will end up building a more successful business.

Building Alliances
Mr. Graham improved the likelihood of getting his highway when he started moving his focus to building alliances. He started the Mid-Continent Highway Coalition. This became a tool for gathering a broad base of allies. The more allies he had, the more voices there were putting pressure on the government to get the highway built. To get those allies, he had to change his strategic vision to include more than just concern over southwest Indiana.

When you are creating your strategic vision, are you making it broad enough to entice allies to rally around your cause? Are you then building tactics around that vision to proactively seek a broad base of allies? Are you then building tactics to leverage your allies to your mutual benefit?

Building Opportunities
As part of Cisco’s strategy, they spend a great deal of effort sending people to developing nations to teach them about the benefits of investment in telecommunications infrastructure. They are not selling the benefits of Cisco. They are selling the benefits of infrastructure. Cisco points out how telecommunication infrastructure investments can be the best and fastest path to get a developing nation to the next level of prosperity. It will make the leader of that nation a hero.

The goal of these efforts is to build more infrastructure creation opportunities. Cisco does not always win the bid to build that infrastructure when it goes to bid. However, by devoting effort in the strategy to education, Cisco creates more occurrences when a developing country decides to build such an infrastructure. So even if Cisco doesn’t win all the bids, it ends up with more business than it would otherwise have gotten, because it has created more business to bid on.

This is like the department store leaders who worked on building prosperous cities. There was no guarantee that all that prosperity would be spent at their department store, but it certainly increased the potential pool of money that they had the opportunity to go after.

How much of your strategy is spent on building the opportunity pool to extract your business from? Being the best soccer player in the world while working in a country which hates soccer is not nearly as lucrative as being merely a very good soccer player in a country which worships the sport. Just as building the sport builds the player’s potential, spending time building your industry can improve your company’s potential.

SUMMARY
The irony is that if you want to selfishly optimize your success, it usually pays to spend less of your strategy time on your selfish ambitions and add to your strategy broader concerns. These broader concerns tend to provide you with more allies and more opportunities, which in the end provide greater potential for those selfish ambitions. This is not about merely doing good for the sake of doing good, but about building a stronger path to a larger pool of profits.

FINAL THOUGHTS
Most of the extension of interstate 69 still isn’t built. Even if you have lots of allies, when money is tight, progress is difficult. However, the state of Indiana has recently started work on extending interstate 69 into southwest Indiana. And that is success that would not otherwise have occurred.