Strategic Planning Analogy #489: Feeling the Weather

THE STORY

Weathermen on TV don’t seem to think it is enough to merely give us the outdoor temperature.  They don’t seem to think that ordinary temperatures accurately reflect how we FEEL. So on particularly hot days, they weathercasters talk about the “Heat Index.” The heat index temperature is usually higher than the actual temperature, because it takes into account things like the humidity, which can make it FEEL even hotter.

In a similar fashion, when it gets especially cold, the weathercasters use something call the “Wind Chill Factor” to restate the temperature as colder than the actual temperature. This is because high winds can make cold temperatures FEEL even colder.

Well, my experience is that when it gets especially hot or cold, most people seek shelter indoors where it is more comfortable. People naturally flock to the warmth of indoor heat when it is cold outside or indoor air conditioning when it is hot outside.

So, if the weathercasters are REALLY interested in giving us the temperature we FEEL on these extreme days, they should give us the room temperature…because that is where most people will be found and that will be the temperature most people will be feeling.

THE ANALOGY

Weathermen are correct in noticing that the temperature reported on a thermometer does not always reflect how people feel. But I think they miss the even bigger difference in temperatures between being inside versus outside. That’s where the real difference in feelings occurs.

A similar situation takes place in the business world. Businesses have all kinds of reports and dashboards to report all kind of numbers. These reports and dashboards are like thermometers. They report the “temperature” of what is happening outside in the marketplace where business is taking place.

The problem is too many executives spend too much time indoors, inside the comfort and security of the headquarters building. These executives do not FEEL the realities of what is going on out there “in the real world.” They are protected from the intense competitive climate on the outside.  Things feel a lot better inside the headquarters where bad news is often softened and “Yes Men” make the executives feel like everything is grand.

Yes, the reports and dashboards may reflect real temperatures. But unless one can penetrate the false feelings of headquarters comfort and get the executives to really FEEL how things are going on in the real world, they will not make the right strategic decisions.

THE PRINCIPLE

The principle here is that merely seeing the numbers of business is usually not enough.  You have to get executives to actually “feel” the numbers.

Feelings are Important

Why? First of all, business is very complex. There are so many moving parts that any single number doesn’t tell the full story. And if you have a whole stack of numbers, you are often no further ahead because it can be hard to see how all the individual numbers fit together.  It’s like having all the individual pieces of a jigsaw puzzle, but no idea of what the picture looks like when all the pieces go together. At that point, the puzzle pieces may as well all be colored black for all the insight they provide.

Our modern technology can pump out thousands upon thousands of data points every hour. But that doesn’t mean we are necessarily any smarter about what’s going on. Drowning in “big data” doesn’t make us more intelligent. True knowledge requires more than just piles of numbers. It requires context and insight.

Context and insight help us to see the big picture—to actually feel what is going on, to know what is truly important, and to see into the future—beyond the reach of measurement tools.  Unless you can feel the big picture, you cannot create the big picture strategy or make the right strategy decisions.

The second reason while feelings are important is because people are emotional beings. They make decisions based on both reason and emotion.  Our customers are emotional beings, our employees are emotional beings, our partners are emotional beings, and our competitors are emotional beings. All of their emotional feelings impact what happens outside in the marketplace.  If our leaders do not have a proper feeling for how all those emotions are playing out in the marketplace, they will make the wrong decision.

Our leaders are also emotional beings.  Their feelings affect their decisions.  If their feelings are wrongly biased by spending too much time insulated inside headquarters, their feelings will steer them in the wrong direction.

What Should We Do to Move From Numbers to Feelings

So how do we make sure that our leaders are feeling the big picture in the proper context?  I have five suggestions.

1. Elevate the Art of Interpetation.  The gathering of “big data” numbers is only relevant when those numbers can be interpreted and put into context.  We need to be able to put a heat index or wind chill factor on the numbers to get them to reflect how things really feel. 

Just having a warehouse full of paint will not get you a great painting.  You need to add the artist who can create the picture out of the paint.  Similarly, just having a data warehouse full of numbers will not let you see the big picture of what is going on in the marketplace.  You need to add the analytical “artist” who can convert the data into the beautiful picture of what is going on.

Therefore, we need to elevate the importance of interpretation of data to the same level (if not more) than that of the gathering of the data.  Ask yourself…how much time and money has gone into building you data-gathering activities?  And then compare that to how much time and money is going into the interpretation and conversion of that data into a picture that allows executives to feel the big picture of what is going on.  Is it in balance?  Are you warehousing paint or are you creating paintings?

2. Get the Executives to Go Outside.  If the weathercasters really want us to know what it feels like outside, they should just tell us to go outside and feel it.  There is often no substitute for actual first-hand experience in the elements. If you really want to know how things feel, go feel it yourself.

Have top executives go on sales calls.  Have them go to the store or website and actually have to try to buy your product.  Make them have to actually use your product in real life situations.  Then have them buy and use the competition.  Watch how real customers interact with your product or service out in real-world situations at their homes or place of business.  Eat lunch with regular employees in the regular cafeteria.  I talk more about getting out in the field here.

3. Listen to the Outside Voices.  If all your executives listen to is each other, then they will only feel the temperature inside the corporation. To feel the outside temperature, you have to listen to the people who are living outside in the real world. That includes the employees in the field, customers and other key partners.

Modern technology makes it easy to hear the voice of the field and the voice of the customer.  But how much of these voices are being heard by the top executives?  Just telling an executive sales are down is one thing.  Having them hear the rantings of the dissatisfied customers who stopped purchasing is quite another.  It provides a context for how to fix the situation.

Have executives listen in on the complaint line.  Have them read the comments spoken in twitter and other digital sources.  Have them see survey comments.

4. Tear Down the Insulation.  If you want the temperature inside the headquarters to feel more like the outside temperature, then you need to tear down the insulation which keeps the outside “truth” from reaching executives. Employees need to feel that comfortable in speaking the truth when talking to top executives.  It needs to be okay to speak up when the conventional wisdom inside the headquarters appears to be out of sync with what is happening outside.

5. Make Strategic Planning More About Painting Pictures.  Finally, I am getting more and more concerned about the fact that modern strategic planning departments are turning into data organizers rather than picture painters.  They manage budgets and deviations from plans, but are not providing the types of insights which change how an executive feels about what needs to get done. I see more job specifications in strategic planning asking for CPAs than I see requests for great storytellers.  If your strategists cannot paint pictures with compelling stories, then you are back to merely having piles of data (and wondering why budgets are not being met).

SUMMARY

If executives are insulated from the harsh realities of the marketplace, they will have the wrong impressions of what is going on (and make the wrong decisions). Just giving them piles of data from the outside is not enough.  Strategists need to make sure context is placed around the data so that executives can actually feel what is happening in the real world. It needs to strike a chord deep within their emotions.  To help in this process, combine the context-making with plans to force executives to spend more time interacting with the real word and the people in it.

FINAL THOUGHTS

Maybe the best way to keep executives from hiding in headquarters offices is to eliminate headquarters offices.  There are many companies which do this.

Strategic Planning Analogy #454: Strategy Cut-Outs

THE STORY
A couple of years ago, I was at a tourist location while on vacation.  There was a section of the area devoted to souvenir shops.  These shops had quite a variety of souvenirs to offer—everything from T-shirts to antiques.  Most of the items had something printed on them referring to the phenomenon which drew tourists to the location in the first place.

But there was one store which stood out.  It was selling life-sized photographs of famous celebrities, cut and mounted on wood so that you could have them stand next to you.  In particular, the store was pushing life-size cut-outs of Justin Bieber, the hottest celebrity of that moment.

I thought it might be interesting to have one of these in my home (until I saw how expensive they were). 

But it got me thinking.  What if I had one of these Justin Bieber cut-outs in my house and suddenly the real Justin Bieber showed up?  The natural reaction would be to ignore the cut-out and pay attention to the real person.  All that money paid for the cut-out would have been a waste, because it has very little value when you have access to the real thing.

And if you saw someone ignore the real Justin Bieber to spend time with the cut-out photograph, you’d think they were a little bit crazy.

THE ANALOGY
Sometimes, I think strategic planners can get a little crazy, like someone who would rather hang out with a photograph of Justin Bieber than the real person.

Strategic plans are an attempt to represent what is going on in the environment and how we would like to change it for our company’s benefit.  They are not reality themselves, but merely a representation of that reality (and the future reality we desire).  They are a “cut-out” rather than the real thing. 

But, as strategist, we tend to love those planning documents.  There can be great joy in getting such a document completed.  And sometimes strategists can get all caught up with all their other documents, and data, and graphs, and spreadsheets.  There’s just so much of it to occupy our time that there is no need to ever leave the office.

But reality takes place outside the office out in the marketplace.  We can go out there and see our real Justin Bieber (the world we compete in) any time we want.  But instead, we seem content to embrace our hand-made cut-out version of Justin Bieber and never leave the office.

Yeah, the cut-out is nice, but isn’t visiting the real thing occasionally even nicer?

 

THE PRINCIPLE
The principle here is that great strategic planning goes beyond dreaming up great theories in offices or in printing up thick strategy books.  The best strategies are most in tune with the marketplace.  Therefore, it is helpful if the planning process spends time interacting with the marketplace where the strategy gets played out.

1) Get Out in the Field

When was the last time your strategists went on a sales call with your sales team, or spent time listening in at the call center, or visited (or worked at) the factory, or spent time in direct contact with your customers?  These are the types of places where your strategy either succeeds or fails.  The better you understand them, the better you can prepare to win there.

At most of the retail companies where I have worked, I have insisted that whenever my team traveled on business, they should carve out extra time to get out and experience the local marketplace.  I told them to visit our stores, the stores of competition and even stores that had nothing to do with us.  After all, you never know where you will learn something new that will be useful in strategy.

I was appalled one time when a retailer I worked for opened up the first prototype for a new retail concept.  The top executives got on the corporate jet and then drove directly to the store.  They cut the ribbon for the grand opening and then went directly back home.  No time was spent observing or talking to customers.  No time was spent visiting the competition.  What a missed opportunity to learn.

When H. Ross Perot was placed on the board of directors for General Motors, one of the first things he did was go to a GM dealership to buy a car.  He wanted to experience what consumers experienced when buying a car.  He also wanted to own and drive a GM car to better understand the product.  Later, Perot was shocked to find out that many of the other board members no longer bought cars—they were given to them by the company.  And most of them no longer drove cars—they had drivers.  And at least one no longer even had a valid driver’s license.  How do you build strategies for the marketplace when you are so out of touch with the marketplace?

Granted, you cannot go everywhere and see everything.  But you should at least spend some time experiencing the world of the line employees and your customers.  This gives you some “real life” context for evaluating strategic options.  And just as you can learn more spending time with the real Justin Bieber than you can with a photo cut-out of Justin Bieber, you can learn things out in the field that would never show up just looking at numbers and documents in your office.

And to supplement personal experience, include more input from those who live out in the field.  Invite input from line employees, customers, suppliers and distributors.  With all the social media tools out there, it has never been easier to include all the voices of the marketplace in your planning process.  Not only will this allow you to learn more for strategy design, but it will create greater buy-in and cooperation from the field during strategy execution (because they were part of the design process).

2) We’re Not in the Publishing Business

A lot of strategists get upset when all of their strategy documents and presentations get ignored.  After the strategy meetings, everything given to the leaders gets put on their shelf, never to be touched again.

Why does this happen?  To a lot of the leaders, all that material is like the photo cut-out of Justin Bieber—not quite fully real to their regular day job.   After the planning meeting, they have to go back to living life out in the field with the real Justin Bieber.  And given the choice of spending time with the cut-out or the real thing, they naturally opt for the real thing. 

Remember, a company’s strategy is not what is put in a book, but is the result of all the daily decisions made throughout the organization.  If the written strategy is not made real at the point where all the decisions are made, then it is not the real strategy.

Strategists are not publishers.  Our end products are not books, Powerpoint decks, budgets and so on.  Our end product is a transformed company which is moving in the direction of the vision.  Therefore, to succeed, we need to make our strategy relevant in the minds of the people making the daily decisions.  To do that, the strategy needs to get translated into the context of the reality of where decisions are made.

To do that, strategists need to spend time at the beginning out in the field so as to understand that

context.  In addition, strategists need to spend time out in the field after the strategy is crafted, helping the decision-makers see how to relate the strategy to their daily decisions.  And that cannot be done by just hanging around your office.

SUMMARY
Successful strategies are the ones which impact what happens out in the marketplace.  That impact is increased when a) the strategy is built upon the knowledge of the realities of the marketplace; and b) those who are making the daily decisions out in the marketplace understand how the strategy is relevant to the choices they make.  This requires that strategist do more than just produce books, spreadsheets and Powerpoint decks.  They need to spend time out in the reality of the marketplace.

FINAL THOUGHTS
All of this is not to imply that analytics, budgets, spreadsheets, presentations, strategy books and vision statements are a waste of time.  No, they help to quantify and communicate the core strategy.  They also help to flesh out strategic insights and concepts.  But unless one has a deeper, more intimate knowledge of the reality of the marketplace—something that cannot be found just studying sterile numbers—you will not fully comprehend the context and relevancy of that information.

It is like designing a house without understanding the terrain the house is to be built on.  It may look great on the blueprint, but it cannot become a reality because it is inappropriate for the terrain.  First, go out to the site and learn the terrain, so that the house you design on the blueprint can actually be built and be the right structure for that location.

Strategic Planning Analogy #437: Eliminate Stop Signs

THE STORY
Shortly after receiving my driver’s license, I caused an accident. As a result, I had to go to traffic court.

In the case prior to mine, a lady was accused of refusing to obey a stop sign. She pleaded not guilty. Her defense was that she indeed made a quick stop at the stop sign before proceeding.

The court then pointed out that immediately after her “stop”, she drove into oncoming traffic and caused an accident.

The judge asked her if she looked both ways to see if it was clear before proceeding from the stop. She said no. She just stopped as the sign required and immediately drove ahead, never taking the time to see if it was okay to proceed.

Although she technically stopped, the judge found her guilty.

THE ANALOGY
We live in a fast-paced world. Like the lady in traffic court, we don’t want to waste a lot of time stopping. We want to just rush down the road. As a result, stop signs do not always get the respect they deserve.

Many executives see strategic planning as similar to those stop signs. Strategists are the people seen as always saying “Stop!” They’re always talking about being at a strategic crossroad, where we need to stop and determine which path to take. Either that, or strategists are seen as the ones who want to slow down the day-to-day decisions by forcing people to take the time to first examine the long-term implications of that decision.

Out of courtesy, these executives may momentarily give a token nod to strategy. But like the lady in traffic court, they immediately resume their fast pace. And because they did not take the time to carefully examine the ramifications of their actions, these executives cause a corporate accident.

As long as strategists are viewed as stop signs, they will not get the respect they deserve…and those accidents will occur. To gain respect, and reduce the accidents, I suggest that strategists reposition themselves as expressway builders—the ones helping you to avoid stop signs.

THE PRINCIPLE
The principle here has to do with speed. Companies want to move quickly. If you are viewed as something which slows a company down, then you are not seen favorably. However, if you viewed as one who helps the company move faster, then your image and stature improves.

Bad Assumptions About Strategic Planning
Therefore, if strategists want to make a major impact on a corporation, it helps if they are viewed as an area which helps companies move faster. However, the current image of strategy is often the opposite. The negative rap against strategy in this area usually goes something like this:

1) Building long-term strategies takes a lot of time.

2) The world is moving too fast and too unpredictably.

3) As a result of rapid change, long term plans are almost immediately obsolete (so you have to waste a lot of time constantly updating them).

4) As a result of unpredictability, you have to go with your gut and seize the opportunity of the moment. If you waste a lot of time in strategic analysis, you’ll miss out on that short window of opportunity.

5) Therefore, strategy should not be taken very seriously. It’s a bad stop sign that you want to drive through.

Good Assumptions About Strategic Planning
However, I believe this point of view can be rejected and replaced by one where strategists are seen as one’s allies in maintaining speed. The replacement line of reasoning would go something like this.

1) The world is moving fast and unpredictably.

2) The faster and more unpredictable the world is, the more often one has to adjust. The number of decisions to be made increases dramatically. Every street you drive by is potentially an opportunity to change course in a world of rapid change.

3) In the absence of context, thousands of people making thousands of rapid decisions leads to chaos. Precious time is wasted because the company is not unified and moving together down the same path.

4) Without a map, every road looks about the same. It takes longer to decide which road to take at every intersection if you have no guidance about which roads are better.

5) Strategic planning can fix all these problems by providing the context and the map. All of those decisions are easier and faster to make when you have a strategic context. The context help people focus on what is most important. They help a company understand what their winning formula is. This makes all those decisions easier. All you have to do is move in the direction which reinforces the context.

6) With a roadmap to the future, every path is not treated equally. There is a preferred path. You only need to deviate on rare occasions. If you use strategic planning to debate the whole path upfront once, you save a lot of wasted time debating what to do at every single intersection.

7) Without the context and the map, you are always reacting to what is going on around you. You are a follower, not a leader. Followers have to keep adjusting to all the changes in the rules set by the leaders. By contrast, if you are the leader setting the rules, then you are less subjected to the world around you. Instead of wasting time adjusting to the world, the world is wasting time trying to adjust to you.

As Peter Drucker put it, “The best way to predict the future is to create the future.” Building a strategy to create the future allows you to move forward quickly because you don’t waste as much time predicting or reacting.

Example: Apple
Apple has moved very quickly in a very fast paced part of the economy. My contention is that their success in moving quickly has a lot to do with their having a solid context and roadmap.

Everyone at Apple understands the context. They are to develop cool, elegant, intuitive, seamless systems in the consumer electronics space. By understanding that context, decision making could be made easier and faster. Whenever a decision needed to be made, the answer was to move in the direction which made things cooler, more elegant, more intuitive, or more seamless. And these decisions applied to the whole system—the hardware, the software, the content, the partners, the selling environment.

This context became the non-negotiable winning position for Apple. The time for debate was over. Now all the energy could be focused on moving forward to bring it alive.

The roadmap was also fairly clear. The idea was to build closed systems around aspects of a cool lifestyle. As time passed, the complexity of those systems would increase, but the intuitive elegance would remain. First music, then mobile, then pads, then clouds. Ever more useful, ever more portable, ever more powerful.

By knowing the roadmap, Apple could focus on great execution (instead of endless arguing on what to execute). They were able to take the lead and set the rules everyone else had to follow. By making the rules, they were not victims of the rules. They could move quickly by acting, rather than reacting.

Building Expressways
If strategic planners help companies develop their context and roadmaps, then they are actually eliminating stop signs. The road filled with stop signs is replaced by an expressway which has no stop signs. All of those little time-consuming decisions at each intersection can be sped by, because you already have the big decisions made (through strategic planning). The big decisions help to quickly point out the way to resolve the little decisions (go in the direction of the big decision).

If you can convince management that doing strategic planning actually saves time by getting you off the back roads an onto an expressway, then you will be able to positively influence a company and help steer them away from strategic accidents.

SUMMARY
In a rapidly changing world, strategic planning does not become obsolete. Instead, it becomes even more critical. It provides the context and the roadmap, so that you can more easily and more quickly determine which path to take amongst all that change.

FINAL THOUGHTS
Are you focusing your efforts on things which make it easier to deal with change or harder to deal with change? The answer to this question will help determine your status and power within the organization.

Strategic Planning Analogy #430: For the Birds

THE STORY
For Christmas this year, my wife got another bird feeder for our backyard. The old bird feeder was vertical in design. It brought finches and woodpeckers to the backyard. The new bird feeder is horizontal in design. It is bringing cardinals and blue jays to the backyard.

Now that we have both in the backyard, we are getting both types of birds to visit us. That makes for a pretty view from our window overlooking the backyard.

That is, until our cat goes into the backyard and sits next to the bird feeders. Then the birds go away.

THE ANALOGY
We can think of those bird feeders as being like go-to-market business models. And we can think about the birds as being like customers. The interesting point is that different birds desire different types of bird feeders. Similarly, different customer segments are lured by different business models.

Finches and woodpeckers only eat from the vertical feeder. Cardinals and blue jays only eat from the horizontal feeder. If you don’t have the right kind of feeder, that type of bird won’t show up. In the same way, if you don’t have the right kind of business model, a particular customer segment won’t show up.

And if I tried to appeal to all birds with a single bird feeder, tilted at a 45 degree angle (the average of vertical and horizontal), I would most likely end up with no birds at all. In the same way, an “average” business model which tries to appeal to everyone will most likely fail, because consumers will “flock” to your competitors who do a better job of customizing to individual segments.

THE PRINCIPLE
The principle here has to do with context. In particular, we are talking about the context of customers. It is impossible to know what the right business model to offer is unless you also know what the customer context is.

For example, if I live in an area without any horizontal feeding birds, my strategy will fail if I build a horizontal bird feeder. And if my goal is to reach finches, I’d better build a vertical feeder. In the same way, my strategic decisions about business models cannot be made in isolation. I must simultaneously consider customer issues during business model formulation. Otherwise, I will build a model inappropriate for the customer environment.

Learning #1: Don’t let Technology Be the Driver
With modern technology, we can do just about anything. But just because we can create just about anything does not mean we should. Not everything has a natural consumer draw. If your motivation is merely technology-driven, you will most likely fail.

Consider Sony. They were driven to exploit technology to develop robotic dogs and robotic servants for the home. These projects were costly failures, because they did not serve a specific segment better than the alternatives. Real pets provide greater satisfaction and can cost less.

Years ago, I was working with companies who were trying to create a “digital kitchen,” an attempt to bring the latest computer technology to kitchens. These companies came up with all sorts of inventions, from a refrigerator with a computer in the door to a kitchen-only computer (with a dishwasher safe keyboard!). All these products failed, because they were focused on doing something cool with technology rather than meeting real consumer needs.

Compare this to Dyson. They were driven by a consumer desire—to have a vacuum that does not lose suction. As it turns out, they used a lot of sophisticated technology to solve that problem. But the technology was secondary. The main goal was the consumer context—providing a higher suction cleaning machine, something consumers really wanted.

Apple makes cool technology, but that is not what makes Apple successful. Apple’s success is from customer context—building devices and systems which intuitively work with the customer in an easy manner. Without that intuitive ease of use, Apple would not have had such success.

Technology may allow me do build an exotic bird feeder, but if the birds don’t want it, it is a waste of time. Similarly, exotic products not anchored in providing a clear consumer advantage will fail. Are your R&D efforts focused on exploring the limits of technology or in solving real consumer issues?

Learning #2: Niches are Niches
The bird feeder story shows the value of targeting niches. For example, if I target only birds who want a vertical feeder, I can build the ideal vertical feeder and attract a lot of this niche segment.

The risk is that once you have the success with that niche, there will be a temptation to grow beyond that niche. The thinking usually goes something like this: “If we just add a couple of features to this product, we can broaden its appeal.” Therefore, additional features are added.

Subtly over time, these added features start compromising the superiority of the original product with the original niche. Either they add costs for features unnecessary to the original niche (causing the product to become too expensive for the original benefit), or the new features actually hurt the functioning for the original niche purpose. It’s as if that vertical feeder over time becomes a worthless 45 degree feeder.

This is the dilemma for the Honda Civic. Originally, the Civic was designed for a particular niche—people who wanted a cheap, simple, but reliable car. It was a great success with that niche. Then Honda tried to broaden its appeal by gradually making the Civic larger and offering more features.

Over the years, these changes meant that the Civic was no longer the best choice for those looking for a cheap, simple, but reliable car. There were better options from cars that kept to the original principles. At the same time, the larger, more feature filled Civic was not as good as other large, feature-rich cars. The Civic became the equivalent of the 45 degree bird feeder. And now the Civic is not as successful as before. By losing the context of the original niche, it made something not particularly suited for any niche.

If you want to broaden your appeal, do like my wife did in the backyard—put out two different bird feeders, one vertical, one horizontal. This is the idea of having a portfolio of niches. This is the Proctor and Gamble approach. They do not try to win everyone over with only one type of laundry detergent. They have a portfolio of cleaning products, each specifically designed to optimize a particular niche. All the birds flock to P&G because they have a specific lure for each niche.

Learning #3. Even the Masses are a Niche
Yes, many companies succeed by appealing to a “mass” audience, like Wal-Mart. But even the so-called mass market is not for everyone. Even the most popular bird feeder is not liked by all birds.

In many ways, the mass acts like a large niche. For example, Wal-Mart, for all its size, rarely gets more than a 35% share of any category it carries. There are still lots of people who refuse to shop a Wal-Mart and try to keep them from building a store in their neighborhood.

So just because you have a large, “mass” share, it does not give you the right to try to appeal to everyone. Whenever Wal-Mart has tried to go beyond its base to add higher-priced, more fashionable apparel, it has failed. This went beyond the scope of the “mass” space given to Wal-Mart. It was too much of a niche addition which was out of context inside a Wal-Mart store.

Similarly, when Wal-Mart added groceries to its general merchandise to broaden its appeal, the added size of the store turned off some of the original core. Hard discount dollar stores like Dollar General have been gaining market share from Wal-Mart because they are not burdened by the big size of a supercenter. These dollar stores can provide a level of convenience no longer available from Wal-Mart. Wal-Mart lost that feature in the attempt to broaden the mass.

So there are even limits in the mass realm.

SUMMARY
When designing a go-to-market strategy, one needs to simultaneously consider how it impacts one’s consumer base. For example, a strategy driven by cool technology does not always translate into consumer acceptance. Technology needs to be subservient to the desires of a particular segment if it is to be accepted. In addition, once a niche is appealed to, be cautious about trying to expand the niche. By trying to appeal to new people, you may alienate some of your core. It is usually better to build a portfolio of highly targeted niche brands than to try to appeal to them all with a single offering.

FINAL THOUGHTS
There is a difference between trying to increase market share and trying to increase market satisfaction. If your attempt to increase share decreases satisfaction with the core, you may end up with neither.

Strategic Planning Analogy #397: When a “Best” Strategy Isn’t

THE STORY
There is an interesting story in the June 6, 2011 edition of Strategy+Business concerning the coffee business. About the time when Starbucks was beginning its rapid growth phase, the activity caught the attention of Folgers, the massively huge coffee brand then owned by Procter & Gamble.

The Folgers brand managers were concerned enough about the potential threat of Starbucks that they conducted independent taste tests. The tests results were reassuring for the gang at Folgers — most people preferred the Folgers taste to the more bitter Starbucks. Not only that, but Folgers cost a lot less than Starbucks—you could get a large can of Folgers coffee grounds for about the price of one serving of Starbucks.

With proof that Folgers tasted better and cost less, the Folgers managers relaxed under the assumption that Starbucks was a passing fad. Of course, history has shown their complacency to have been misguided; between 1993 and 2008, revenues at Starbucks grew from less than $200 million to $8 billion, a 40-fold increase. And Proctor & Gamble gave up on the Folgers brand and sold it.

THE ANALOGY
Folgers fully embraced the philosophy of Procter & Gamble at that time. This philosophy believed that the best performing product typically wins. That is why Procter & Gamble spent so much money to ensure that its portfolio of products had technological advantages. By having products with superior performance, Procter & Gamble expected superior sales and market share.

Unfortunately, this “best features” approach lead Folgers into disaster. The worst-tasting, more expensive coffee won the day.

As it turns out, a lot of companies base their strategies on a similar assumption. The The results of Folgers versus Starbucks is enough to make one question the validity of this strategy.

THE PRINCIPLE
In reality, striving to be the best is still a good strategy. The problem is in how one defines what they are trying to achieve this superiority in. If you choose the wrong thing to be best at, you will lose to a supposedly inferior competitor. So before embarking on a “best at” strategy, ask yourself these questions.

1) Better for Whom?
If you ask a company who they are trying to make a product or service better for, the typical initial answer would be for the customer. After all, the customer is the one using it, so their opinion of what is best is most important. Right?

Well not necessarily. Many people in the supply chain have a stake in the success of a product. If it is not “best” for them, it may never get to the consumer. For example, a new premium liquor introduction is rarely successful unless it receives a lot of bartender recommendations at the prestige bars and nightclubs. If you don’t find a way to make it the best liquor for them to recommend, the customer will never even get to taste it; and without the recommendation the customer will lose a key reason to perceive the liquor as superior.

Supermarkets are asked by vendors to stock more items than their shelves can hold. If you want to get on their shelf, you have to convince them that it is the best item for them to put there. Otherwise, the customer will never see it.

In the case of VHS vs. Beta, or Blu-Ray vs. HD-DVD, there are many players to please—the studios, the distributors, the retailers, the playback device manufacturers, etc. All of these players start to take sides depending on which option appears best for their particular self-interests. If you do not actively and aggressively manage all these players in your strategy, the appeal to the customer will be irrelevant.

And the medical field is probably the trickiest. You need to please doctors, hospitals, insurance companies, governments, and so on, before a customer ever has a chance at access to what you are selling. If you don’t convince all these parties that you are the best, then winning the consumer’s opinion is of little value.

In your business, all the players may not be this obvious, but consider them all before embarking on a “best at” strategy. Otherwise, you may be targeting your efforts at the wrong audience and focusing on the wrong features to emphasize.

2) Better at What?
In the attempt to be best, one needs to ask what one should try to be best at. The easy answer is to tackle attributes which can be easily measured, where one can easily show superiority, and something tangibly related to functionality of how the customer uses the product/service. Unfortunately, this is not always the best choice.

Customers are both rational and emotional beings—even business customers. Often, the softer emotional issues of prestige, status, acceptance, risk-aversion, and self-worth are more important determinants of choice than rational, functional attributes. Starbuck’s success wasn’t based primarily on rational features like taste and price. It won on emotional appeals to social factors, status and prestige. The “experience” of Starbucks transcended beyond mere coffee. This was an experience not to be found in a can of Folgers bought at the supermarket.

How much attention are you spending on the softer, emotional attributes?

3) How Much Better Do I Need to Be?
Before a customer switches from one product to another, they often need to consider the cost of switching. For example, if I decide to switch from one technology source to another, I have impacted a host of other issues:

• I have to give up a comfortable relationship with one vendor representative who I like and who understands me and form a new relationship with a stranger.

• I have to convert all my old files to the new technology…will they still work? Will I lose data?

• I have to throw away all the supplies and replacement parts I kept in stock to maintain the old technology and buy a whole new set for the new technology.

• There will be unproductive time as I adjust to the new technology.

Even if a new solution is superior to the old, it doesn’t automatically mean I will switch. To switch, I need to be convinced that the superiority is so great that it overcomes the costs of switching. Depending on how entrenched the status quo is and how much it costs to switch, you may not be able to create enough superiority to cause the switch to occur.

For example, there are people who are fully attached (rationally and emotionally) to products and services offered by Apple. Everything is all connected; they have access to all the apps at the app store, the status of owning Apple products, etc. How much superior to Apple would you need to be to get them to switch and lose all of that? Is it even possible to become that much superior to Apple?

4) What is the Context?
People are not always looking for the same type of attributes all the time. Depending on the circumstances, people’s preferences may change. For example, the attributes one looks for in the type of beer they drink at home alone may be different than the attributes they look for in a beer they drink in public with people they are trying to impress. The “best” beer for each situation may be entirely different because you are looking for something different.

If you don’t understand the context, you may choose the wrong attributes to become best at. Purchases are not made in a vacuum. They are made within a context. Does your strategy manage both your product and the context you desire for that product? If you don’t actively manage the context, it may not end up being the context you desired, thereby making your choice of attributes to be best at incorrect.

SUMMARY
A strategy of just being better is not enough. You need to be better in the right way. You are more likely to be better at the right things in the right amount if you consider a) a broader list of “customers” within the supply chain; b) a list of both rational and emotional attributes; c) switching costs; and d) the context surrounding the use of the product/service. If you ignore these issues, you may find yourself with a superior product with inferior performance.

FINAL THOUGHTS
Sometimes, consumer research is used to determine what attributes to emphasize. Unfortunately, that research can often lead one astray, particularly if all you are doing is asking for opinions. Customers like to appear rational, so they may overestimate the rational attributes and underestimate the emotional. Consumers like to appear helpful and supportive, so they often underestimate the switching costs when asked how likely they would switch. Questionnaires are often asked in a different context then how the product will be used. As a result, be careful at taking opinion research at face value. Behavioral research is a much better indicator of how a product would really perform.

Strategic Planning Analogy #373: Value is in the Context

THE STORY
A couple of years ago I put together a wish list on Amazon.com so my family would have some ideas about what to get me for gifts (at their insistence). One of the items I put on that list was a book of comic strips from one of my favorite comics.

Recently, my wife bought me a copy of that book. I was enjoying the comics. The note from Amazon said it was a used copy of the book. I assumed that meant that my wife got the book at a discounted price, since when I put the book on my Amazon wish list, used copies were selling for about $5.. Thinking that the book didn’t cost much, I found myself enjoying the value of all the jokes in the comics. What a bargain!

Halfway through reading the book, my wife informs me that she had to buy the book used because it was out-of-print. It was so scarce, that she had to pay $150 to buy the book, a very steep premium over the original list price.

Suddenly, the jokes in the remainder of the book didn’t seem funny enough to justify the price. The enjoyment value to me dropped considerably.

I guess I should have checked how much the price of the book had changed between the time I put it on my wish list (and was still in print) and today (when it was out of print).

THE ANALOGY
Strategic planning has a lot to do with choosing among options:

a) Should I buy company A or B?
b) Should I sell division C or D?
c) Should I increase or shrink investment in product E?
d) Should I pursue opportunity F?

In making these choices, we tend to rank order the options in terms of value and then choose the option(s) with the best value (adjusted for risk tolerance).

As a result, the level of success in strategic planning has a lot to do with how well one places values upon the various options. If you place the wrong values on the options, you will make the wrong choices.

At first, one might think that value is based solely on what you are getting, since that is what you are buying. For example, this line of reasoning would say that the value of a box is equal to the value of the contents of that box.

Yet, this did not appear to be the case with my book of comic strips. The quality of the humor in the book stayed constant over time. The jokes in the book didn’t change. The number of pages in the book didn’t change. Yet the price of the book fluctuated wildly. Some paid about $20 for a new copy of the book. Some paid about $5 for a used copy of the book. Others paid about $150 for a used copy of that same book (30 times more than the $5). Today I checked and Amazon is trying to sell the book for over $700 (140 times the $5). Obviously, the value of that book is not based solely on adding up the intrinsic value of each joke within the book. Something more is going on here.

If a little book of comics can fluctuate in value by so much, even when its contents are easily comprehended and do not change, then it shouldn’t surprise us that values on our more complex strategic options can also vary wildly. Like that book, more is going on in determining the value of these strategic options than just looking at the contents within that option. If you only look at the contents of what you are getting, you may value the option improperly.

And just because some people may be willing to pay as much as $700 for that book does not mean that it is worth $700 to everyone. The proper question is not “What is the book worth?” That question mistakenly assumes that value is based on something constant—like the constancy of the contents of the book. However, the value has more to do with the user of the book (an external factor) than the content of the book (an internal factor). Depending upon the user, you will get a different value for the book.

So instead of asking “What is the book worth?” (a question which has no single answer), we need to ask “What is that book worth to me?” This latter question may require a more detailed analysis of me than of the book.

THE PRINCIPLE
The principle here is that values need to be computed within a context. If you only look at the contents, you will come up with the wrong value. To get the proper value, one must also factor in the context in which the contents find themselves. For example, a bottle of milk within the context of a refrigerator is worth more than a bottle of milk under a heat lamp. The contents are the same—milk. However, the refrigerator keeps the milk from spoiling, so it makes the milk more valuable.

In particular, there are three types of context which should be included in your valuation analysis.

1. The Context of the Marketplace
One of the great contributions to strategic analysis was Michael Porter’s Five Forces. The premise behind this concept is that a strategic option’s value changes depending upon five forces external to the contents of the option. These five forces are:

1. Bargaining Power of Buyers
2. Bargaining Power of Sellers
3. Threat of Substitute Products or Services
4. Level of Rivalry Among Current Industry Participants
5. Threat of New Entrants into the Business

For example, when my book of comics was still in print there were many sellers of many copies of the book, so the Seller’s power was low (and the price of the book was low). Once the book was out of print, there were fewer copies for sale, increasing the bargaining power of the Seller, causing the price to shoot up to over $700.

Therefore, when valuing a strategic option, one must not only value the contents, but also the marketplace in which the contents operate. Otherwise, you will miss out on the impact of these five forces upon the value. And in most cases, these five external forces have far more to do with the real strategic value than an intrinsic evaluation of the internal contents. The market determines the value, not the contents. Ignore these five forces at your own peril.

2. The Context of the Recipe
By itself, the desirability of flour as a food is not very high. If you don’t believe me, try to eat a spoonful of plain flour. It’s awful. However, if you put that flour into a recipe for bread, its desirability as a food goes up. And if you put that flour into a recipe for cake, the desirability goes up even further. The point here is that the value of an ingredient (like four) changes depending upon the context of the recipe.

In addition, if you are missing some of the ingredients for your recipe, it impacts the value of all the other ingredients. For example, if I have all of the ingredients needed to make a nuclear weapon except one, I really do not have a nuclear weapon, so all of the ingredients I do have are fairly worthless. Until I get that last ingredient, I have nothing. But once I get that last ingredient and make the bomb, I have created something of great value. So how much is it worth to me to get that last ingredient? How much am I willing to pay to complete the recipe?

Great strategies are like great recipes. They take a number of strategic components (ingredients) and add them together in such a manner as to create a finished product worth far more than merely the sum of the parts. Apple is a great company because it has a great recipe: cool products, with cool features, with tons of cool apps, sold in a cool way, from a company with a cool culture and a cool leader. The value lies in the way all of this seamlessly works together. Take away the ingredient of the cool apps and the value of the iPhone drops dramatically. Or a great app store without a cool device for the apps to play on isn’t worth much either. You need the whole recipe to create the optimum value.

Therefore, when creating your strategy, keep in mind the context of the recipe. First, make sure your strategic plan has a greater recipe. If all you have is a collection of individual ingredients (or businesses) working in isolation, you haven’t created much value. For a strategy to create great value, it must end up converting those ingredients into a finished, integrated plan with a value worth well more than the sum of its parts.

Second, don’t value the strategic options in isolation. Think of their impact on the value of the entire recipe of your strategic positioning. Your greater recipe helps determine how much value each option is worth to you. Just as steel is a more valuable ingredient to an auto maker than it is to cake baker, some strategic options will be more or less valuable to you depending on your recipe. Make sure you understand what ingredients make your recipe the best.

Third, make sure your strategic plan includes all the ingredients necessary to create the finished strategic product. Be willing to pay extra to get the last missing component.

3. The Context of Time
Things change over time. These changes can impact value. For example, the value of that book of comics changed when the book shifted from being in print to being out of print.

Never assume a constancy of value. The power of the five forces can change over time. Your recipe can change over time. Consumer interests can change over time. Products and industries move through lifecycles, where each phase (introduction, rapid growth, maturity, & decline) impacts value. Things which used to have a lot of value in the past may have very little value in the future (and vice versa).

Strategic planning is supposed to be maximizing the longer-term interests of the firm. Therefore, when making valuations, be sure to look at those values within the context of the future, which is where the strategy is going to be operating. Don’t be afraid to radically change your portfolio in order to optimize the times. The single most important factor to the long-term success of GE has been its willingness to add and subtract to its portfolio in order to stay relevant to the changing times.

SUMMARY
The true value of a strategic option usually has more to do with factors external to the option than factors internal to the option. Therefore, make sure you consider external factors in your evaluation. This would include externals like Porter’s Five Forces, the context of your Strategic Recipe, and the context of Time.

FINAL THOUGHTS
After finding out how much the price of that book had changed between the time I put it on my wish list and the time my wife bought it for me, I decided I needed to go back and monitor that wish list more frequently. For the same reason, it’s probably a good idea to go back and monitor the values of your strategic portfolio on a regular basis as well. Otherwise, you may not see when the values change (and they will change).

Strategic Planning Analogy #342: Categorical Success

THE STORY
Prior to 1995, modern art from India sold for practically nothing. However, beginning in 1995, modern art from India started fetching about $6,000 per piece at auction. About six years later, this art was selling at auction for an average price of $44,000, with a few paintings going as high as one million dollars.

What caused the rapid increase in prices? It was mostly due to inventing a name. Prior to 1995, there was not a suitable name to categorize modern art from India. As a result, it tended to be perceived as falling into the equivalent of the “other” category of art, called “Decorative Art.” Decorative Art was perceived in the marketplace as not having any real intrinsic artistic value of its own, but was rather “derivative” of other more authentic art forms. Therefore, its value was based on suitability as a home décor accessory, rather than as being a work of art to be admired on its own merit. As one would expect, being categorized as “Decorative Art” is a sure path to ruining perceived value.

However, beginning in 1995, there was a strong, coordinated effort to shift these works into a brand new category. The new name given to the new category was “Modern Indian Art.” The claim was made that this new category was a “unique aesthetic tradition” within branch of the “modernist” movement, worthy of being considered “fine art.”

To make the claim believable, multiple parties started writing papers about this new category. These parties included art academics, art action houses, art critics and the artists themselves. The papers explained what the characteristics were of true “Modern Indian Art” and what made it so special.

Now that there was a name for this category, museums started holding “Modern Indian Art” exhibits. The more mainstream art media began talking about it. Suddenly, this “decorative art” was re-envisioned as “fine art” in the minds of the art consumer. As a result, the prices for these works began to skyrocket…all because of a change in name.

Maybe I should change my name.

THE ANALOGY
Businesses spend a lot of time worrying about their product. Can I improve the quality of the product? Can I make the product more efficiently? Can I add more features to the product? Can I make the product more functional?…and so on. The idea is that if I make the product better, I can increase its value, allowing me to charge more when I sell it (and increase profits).

This line of reasoning leads to strategic plans focused on product improvement.

However, as we saw in the story above (based on a Harvard Working Knowledge article), the perceived value (and the selling price) for art from India skyrocketed even though the actual product did not change. The art from India being sold prior to 1995 was no different than the art being sold after 1995. In fact, it was often the same exact pieces of art. Nothing was done to the actual artwork to improve it. Yet the perceived value (and prices charged) increased tremendously.

Why did perception change even though the product was the same? It was because the people in the art industry changed the focus from a product orientation to a category orientation. Rather than improve the value of items, they worked on two issues: a) Creating a new category to classify the items; and b) Improving the perception of the new category. By developing a strong, new category, they were able to instantly improve the perceived value of everything placed within that category (even though the individual items had not been changed).

Perhaps the value of your products could also rise faster if you changed your strategic focus from a product orientation to a category orientation.

THE PRINCIPLE
The principle here is that value is determined within a context. If you do not manage the context, then you will achieve sub-optimal value.

A product’s value is usually determined in a comparative sense. In other words, a product is compared to others to see if its value is “better” or “worse” than those it is being compared to. The goal is to achieve a perception of “better value.” But better than what? What is the relevant context for comparison?

The Context for Art
The context is largely determined by how the category is defined. In the case of Indian art, when the category was defined as Decorative Art, the context worked as follows:

1) Since Decorative Art, by definition, is an inferior category to Fine Art, the value of all recent art from India is inferior to any Fine Art (and should have décor-level prices rather than fine art prices).

2) The only way to add any value to art from India (beyond average décor prices) would be to convince someone that it had superior home décor uses than other art in the Decorative Art category.

In other words, the definition of the category limited the context of comparison. Indian art could never get a high perception, because the context was that—at best—it could only be seen as slightly better than low value décor.

However, when the category was redefined as “Modern Indian Art,” a sub-category of the Modernist Fine Art Movement, the context changed.

1) The core value began with average values within fine art, particularly the value of modernist art.

2) Comparisons of superiority were now made with other modernist works of art (not home décor objects). Ultimate value now came from variations to the higher base value of the average modernist piece.

By changing the category, the context of comparison was changed, which automatically raised the perceived value and price for modern Indian art.

The Context for Soup
The same thing benefits of category focus can be seen with Campbell’s Soup. Back in the 1980s, Campbell’s produced the vast majority of all canned soup sold in the US. The good news was that this meant that Campbell’s had won the race for superiority within the context of the category of “soup.” The bad news was that soup was a small and low growth category.

Worse yet, when the soup category was compared with other food categories, it did not fare well. Soup was seen as a weak substitute to more substantial meals like steak and potatoes. Soup was viewed as something poor people would eat that could not afford the more substantial (and supposedly better for you) meals which required a knife and fork.

Campbell’s could have focused on improving their soup product. However, within the context of soup, they already had the leadership position, so their market share would not have moved much, if at all. In addition, better soup was still just soup—an inferior category when compared to knife and fork food categories. The best soup was still seen as inferior to mediocre knife and fork foods.

Just like the Indian art, as long as it was classified in an inferior category (decorative art or soup), Campbell’s soup would get an inferior value.

Therefore, Campbell’s changed its strategy to focus on improving the image of the category they were in. In the late 1980’s, they started the advertising campaign with the slogan “Soup is Good Food.” The idea was that if they could improve the image of the soup category, they could grow the sales of the category, since soup would now compare more favorably against other (non-soup) meal alternatives (broader context of favorable comparison). In other words, they tried to move “soup” form being a sub-set of the weaker food choice category to a sub-set of the better choice food category. Since Campbell’s sold most of the soup, an improvement in soup meant gains for Campbell’s. The strategy worked for quite a while.

So what can we learn form these examples?

1) Actively manage which category you are placed in.
Consumers will slot you into a category. If you do not actively manage which category you are placed into, you lose control over one of the key determinants of your value. The customer may put you into a low value category, a context which makes it difficult to create value, no matter what you do to improve your product. Therefore, to make sure that your product gets the highest possible value perception, actively work to get people to slot you into a high-value category.

If necessary, do not be afraid to create a whole new category, one which you strategically manage for maximum category value (like Modern Indian Art).

2) Work on strategies to improve the relative value of your category.
The stronger your category, the more favorably your product will compare to other substitute categories. Therefore, rather than only working to make your product better, work to make your category better (soup is good food).

3) Consider product improvements in light of their impact upon your category context
Winning products tend to produce a point of superiority relative to viable alternatives. Therefore, when choosing where to place your product improvement efforts, choose areas where you gain the maximum advantage in factors important to the category. Find places where you can shine when compared to others in the category (the viable alternatives).

SUMMARY
Rather than focusing all of your strategic efforts internally on product improvement, spend time focusing on managing the category your product competes in. Often the value of the category impacts your profitability more than what you can do to improve your product. Therefore, work to get your product slotted into the most desirable category and then work to improve the value of your category relative to substitute categories.

FINAL THOUGHTS
Trying to be all things to all people usually results in being nothing important to anyone in particular. Therefore, when defining and managing your category, make your scope narrow enough so that you can create a winning position within that category.

Strategic Planning Analogy #308: Personality Matters

THE STORY
Back when I was a teenager, and had just gotten my driver’s license, I caused a three car accident. As a result, I was forced to appear at traffic court.

Wanting to make a good impression on the judge, I got to traffic court early. This allowed me to hear several other traffic court cases before my own. Although there were slight variations in each case, they all went something like this:

COURT: You have been accused of doing [such-and-such]. How do you plead?

DEFENDANT: Not guilty, your honor.

COURT: But isn’t it true that you actually did [such-and-such]?

DEFENDANT: Yes, sir, I did. BUT there were extenuating circumstances which make me not guilty.

I could see that the judge was getting rather angry. Case after case involved somebody who acknowledged breaking the law yet still claimed to be innocent. There was no sense of remorse or guilt. It was as if the defendants all felt they were “special” and that the law did not apply to them.

When it was finally my turn, it went something like this:

COURT: You have been accused of doing [such-and-such]. How do you plead?

ME: I’m guilty, your honor. I did it and I’m sorry.

The judge was so happy that I was honest and took responsibility for my actions that he let me off very lightly.

THE ANALOGY
Everything we do is seen by others within a particular context. This context affects the way we react to what we see.

In the courtroom, the judge reacted not only to the facts of each case, but also to the context surrounding those facts. In every case before the traffic judge that day, the fact was that everyone had broken the law. Yet the context surrounding my case was different from the others, causing the judge to act differently.

For the others, the actions of the defendants made them appear to be selfish liars who took no personal responsibility for obeying the law. Within this context, the judge became angry and gave harsh sentences.

In my case, the judge saw someone who was honest and willing to take responsibility for his actions. Within this context, he gave a lighter sentence.

This same principle applies to strategy. You can create the most brilliant strategy on earth. However, if the context of the way you run your business is negative or not authentic, the strategy will fail. Your employees will not embrace it and/or your customers will not believe it.

Businesses are more than just machines making products for other machines. Businesses have personalities and the customers act like that judge, altering their behavior based on those perceived personalities. Ignore the context of your personality at your own peril.

THE PRINCIPLE
The key principle here is that strategic planning needs to consider context. This is important at both ends of the strategic planning process.

At the early end of the process, when you are evaluating the environment, evaluate how your company personality is perceived. Your suppliers, employees and customers are all going to treat you in a particular way, based upon your personality. Therefore, strategic success depends on either;

a) Creating a Strategy Consistent With That Personality Context; or
b) Creating a Strategy Plan to Change People’s Perception of Your Firm.

Do you even know how people perceive your brand/firm? I’m not talking facts, here. I’m talking perception. Are you seen as Trustworthy and Authentic, or are you seen as Selfish and Deceitful?

If you want customers to trust you, be seen as worthy of that trust. If you want to be attractive to the best employees, have an attractive personality. If you want the best suppliers to want to prefer to work with you, portray yourself as being a good partner.

Great strategies leverage a strength. That strength usually depends on some sort of special skill or relationship. That special skill or relationship can get stronger or weaker depending on how you structure the context around it.

Take, for example, Dow Chemical. During the Vietnam War, Dow produced the napalm used during the war effort. Being associated with one of the biggest killing factors of an unpopular war changed the context of how Dow Chemical was perceived. Only gung-ho military types were attracted to working for the company. Other potential scientists and engineers had no desire to work there.

After the war, Dow had a very difficult strategic problem. First, the internal corporate culture was being adversely impacted by this context. The regimented military mindset was not very conducive to the open, experimental, consumer-oriented culture they felt important to inventing the products of the future. Second, Dow’s strategic success depended upon having great scientists and engineers. However, because of the contextual residue from the Vietnam War era, many of the best and brightest would not consider working for Dow.

As a result, before Dow could optimize its strategy, it had to first change its perception. A great deal of time, effort and money went into creating a new perception of Dow—one more in tune with their strategic imperatives. This involved not only public relations efforts, but actually changing the way things were done at Dow. They had to change not only the way they talked, but the way they walked. Otherwise, the overall strategy would fail.

Context is also important at the end of the strategic process. The way you deliver your individual tactics will color your perception and your effectiveness. Therefore strategic planning needs to not only look at what tactics are important, but also the manner in which those tactics are delivered.

Let’s look at two examples—Toyota and Domino’s Pizza. Toyota has had some product recall issues and Toyota has worked to remedy them. Those are the facts. However, what is the perceived context around those facts? The initial impression appears to be that Toyota was slow, selfish and uncaring; they appeared insincere and secretive—not forthright and open. All of this has colored the way people are accepting the Toyota remedy—mostly to the negative.

Toyota’s core strategy has been to leverage the idea of superiority in product dependability. The context around the way Toyota initially handled the crisis destroyed much of the way consumers are perceiving product dependability at Toyota. Toyota may never fully recover that core strategic strength, no matter what they do factually, because the relationship with the consumer has changed. The trust factor has been seriously damaged. The context is not what it used to be. Customers will judge them more harshly from now on (like the judge in the story).

On the other hand, look at what Domino’s Pizza here in the USA did. Based on consumer research, Domino’s found out that many people thought their pizzas had a horrible taste—the crust was like cardboard and the sauce was as bland as ketchup.

So what did Domino’s do? They showed the public video clips of the research and then let the president of the company get on the air in a very open and transparent way. He apologized for past behavior and vowed to make a better pizza worthy of the public. They added 40% more spices to the sauce, improved the cheese and coated the crust with a garlic flavoring.

The context surrounding the advertising campaign was very open and transparent. You felt like these were good people trying to make up for past sins. They didn’t wait until the government stepped in or there was a consumer revolt. It was all voluntary.

I was so impressed that I went out and bought some Domino’s Pizza, something I had not done for years. This was also the first time in years my behavior had changed based upon a TV commercial. Bravo to Domino’s!

Toyota and Domino’s both fixed a problem. However, because Domino’s did a better job of managing the context as part of the strategy, its approach was far more successful.

SUMMARY
Strategy is more than just deciding what to do. It needs to also consider how those actions impact the way the brand/firm personality is perceived. If the perception does not match up with the strategy, the strategy will fail. Therefore, a firm needs to both a) understand their current perception before choosing a strategic direction, and b) choose their tactical approach in a way that reinforces the type of perception needed to enhance strategic success.

FINAL THOUGHTS
I only had to go to traffic court once. Your firm, however, is being judged every day. People are always watching, and in this web 2.0 world, people will talk about what they see. Your context needs to be a daily concern.

Strategic Planning Analogy #301: Management by Voting?

THE STORY
We Americans love democracy. The idea of dictators dictating orders without a vote is not in our DNA. That’s why the USA likes spreading democracy around the world.

However, I’m not sure that putting everything to a vote in all situations is always the best idea. What if parents were barred from taking any action unless voted on and approved by their children? And what if parents had to do what ever their children voted on for them to do? I think that would cause a bit of a mess.

And what if every employee had the sole vote in how their individual career was managed (how much they got paid, what their title was, what work they did, whether they could get fired, etc.)? Probably the closest we ever came to that was the high levels of unionization in Detroit, and we can now see how that helped eventually destroyed Detroit’s economy.

And what if, in the middle of a war, soldiers refused to take any military action until all of the soldiers could have time vote on it? Military “orders” would merely be propositions to be voted on. With enemy bombs coming in your direction, reaction tactics would have to wait until a sufficient time for campaigning and voting occurred. And if each military unit independently voted on what tactic to take, there would be no unified military action…only chaos.

No, I think some areas of life need more balance between the input of the people and the wisdom of the leaders.

THE ANALOGY
Businesses are not true democracies. Most items are not put to a vote of the Board of Directors, the Employees or the Customers. Instead, business leaders tend to determine what they think is best and get the company to follow.

The advent of Web 2.0 technology has made it easier for businesses to gather the input from a wide variety of stakeholders. This makes it easier to, in essence, put all management decisions up for a vote with customers and employees.

Many are hailing this as a great and wonderful thing. There are even books and business pundits declaring that Web 2.0 requires business leaders to relinquish control of the business to the customers, who have now supposed taken control of all the power.

Indeed, having access to all of that Web 2.0 interaction can enrich the decision-making process. The input is very valuable. However, I’m not ready to abdicate all business leadership to “the will of the people.”

Just as children need good parenting and soldiers need good commanders, businesses need good, strong leaders. And just as employers need to consider more than just the will of their employees, businesses must consider more than just what the latest Web 2.0 feedback says. And just as there are times when children need to obey their parents and soldiers need to obey their commanders, there are times when “voting” needs to be set aside so that business leaders can be obeyed.

THE PRINCIPLE
The principle here is that all the exciting new Web tools are just that—tools to be used in the hands of leaders. They are not substitutes for leadership—especially when it comes to strategy.

About a month ago or so, I was reading a story in Fortune magazine about Best Buy. There was a quote in there from current Best Buy CEO Brian Dunn.

“One of my roles as CEO is to be the chief listener. I don't believe that the model is any longer that there are a few really smart people at the top of the pyramid that make all the strategic decisions. It is much more about being all around the enterprise, and looking for people with great ideas and passionate points of view that are anchored to the business and connected to things our customers care about.”

At first, this quote sounded good to me. Dunn was using the wisdom of others to help make more informed decisions. Then I thought about it for a second longer. This is more than just getting input. This was starting to sound like abdicating responsibility for creating strategy. Strategic leadership seems to have been banished from the organization. Rather than having tactics derived from strategy, strategy appears to be belittled to nothing more than the culmination of a series of independent and unconnected tactical decisions made “by the people.”

Tactics shouldn’t drive strategy. Strategy should drive tactics.

Dynamite can be a very useful tool, but without skilled dynamite users, the tool can destroy you. Similarly, feedback from others is a powerful tool, but if you eliminate the role of professional strategists at the top of the organization to properly apply it, it can destroy your company.

You need both—the tool (feedback) and the professional tool handler (the strategist). Eliminating the strategist can lead to the following problems.

1. Mistaking Ideas for Strategy
Interaction with stakeholders is a wonderful way to get ideas. Ideas are great, but they are not strategy. Strategy gets to the heart of the matter: What business should I be in? What is my competitive advantage? What business model should I use? How do I win in the marketplace?

Not all ideas are appropriate for all companies under all conditions. Good ideas are the ones which support the strategy. Great strategic leaders understand their strategic thrust and can cull out the best ideas for their particular firm from the others. Leaving it up to a vote gets what’s popular, not what’s appropriate. For example, consumers may all want low prices, but typically only one firm in an industry is the lowest-cost operator. For everyone else, a priced-based strategy is probably not going to win, regardless of what the people say they want.

2. Missing the Big Picture
One of the major benefits of business strategy is getting “the big picture” vision correct. Great “big picture” visions rarely materialize out of merely following the whims expressed in a series of votes on minor tactics. Creating these visions cannot be fully abdicated to others. Leadership needs to take possession and ownership of visioning process.

Your big picture goal is to optimize the opportunities for your firm. That is not the same goal as your stakeholders. Your customer’s goal may be to get everything, perfectly, instantaneously, and free. If all you do is try to serve their selfish need, you will not be optimizing your own goal. Their objectives are not always in complete alignment with yours. You need to filter their ideas through your objectives.

In addition, the people you talk to only have limited knowledge of a small part of your overall situation. Hence, their ideas are biased towards their limited perspective. You need professional strategists to bring all of the knowledge together in order to create a comprehensive and complete picture of what is going on in the world. Only when you can see the big picture will you see the best strategic alternative.

Finally, great strategy, according to Michael Porter, is about choosing the right trade-offs. Your customers may not like it when you make trade-offs (they want it all), but it is often the only way to create excellence at some point of differentiation. You need to be a strong strategic leader and determine where those trade offs will be. Then you need the fortitude to stick to the principles of your tradeoff and not fall victim to the trap of trying to do everything well and failing to do anything well.

3. Missing Discontinuous Change
Change in the marketplace tends to revolutionary, rather than evolutionary. New categories and business models seem to spring out of nowhere. On-line travel firms like Orbitz, Expedia, and Travelocity gave a death blow to traditional travel agents almost overnight. Bottled water came out of nowhere to become a huge industry. Digital everything destroyed analog everything. Mobile phones, microwaves and laptop computers changed the entire nature of how people live and work, impacting almost every other industry. Newspapers used to be one of the most profitable industries in the world. Now they are bleeding badly. The recent recession quickly changed the fortunes and the rules for a lot of industries, particular in the financial arena.

As long as the marketplace is stable and the rules and players don’t change, it is easy to forget about strategy. Just talk to all of the stakeholders who are comfortable with the current situation and you will get all kinds of ideas for useful tactics to tweak the system.

However, when radical change occurs, this management by talking becomes far less useful. There is no consensus in your stakeholders as to what to do. They have no direct experience in the change for you to benefit from. Mere tactical improvement suggestions won’t succeed when all the rules are changing.

Professional strategists are needed to:

a) Help anticipate the discontinuous change
b) Develop scenarios in advance so as to be prepared when change occurs
c) Help the company to become proactive in change and help bring about change in a fashion which disproportionately benefits your company.

Apple doesn’t wait to react to change. They didn’t “take a vote” of the world before introducing change. They lead the change. Ipod and iTunes reinvented the business model for music. Iphone reinvented smart mobile devices and the selling of aps.

As Henry Ford put it, “If I’d asked my customers what they wanted, they’d have said ‘a faster horse.’” Suggestions from the masses tend to be extensions of what they know, which is the old business model. They are not very useful in proactively getting to the discontinuous new. And unfortunately, the discontinuous new is all around us. This is where professional strategists are most valuable.

SUMMARY
Although there are many tools available for mining the ideas of your stakeholders, this is no substitute for having professional strategic leadership activity at the top of your organization. The best of all worlds is to have both—the insights of your stakeholders put into proper perspective by professional strategists.

FINAL THOUGHTS
Benjamin Franklin once said, “When the people find they can vote themselves money, that will herald the end of the republic.” Similarly, when users of Web 2.0 tools find out how to manipulate the system, it could herald the end of the current fashion of capitalism (of abdicating strategy to the masses), because they will suck all the money out of the business model, leaving you with the losses.