Strategic Planning Analogy #436: Distracted Driving

THE STORY
Today’s technology can do a lot of great things. It can entertain us, inform us and keep us connected with the ones we love. It can also cause problems if we combine all that technology with driving.

Between the technology gear we bring into the car, and the technology gear already in the dashboard of the car, we have all sorts of opportunities to become distracted from our driving. Here are a few statistics on the subject I found on a web page:

• Talking on a cell phone causes nearly 25% of car accidents.

• About 6,000 deaths and a half a million injuries are caused by distracted drivers in the US every year.

• Over 1/3 of drivers (37%) have sent or received text messages while driving, and 18% said they do it regularly.

• Forty-one percent of adult drivers have set or changed a GPS system while driving, and 21% do it “more frequently.”

• While teenagers are texting, they spend about 10 percent of the time outside the driving lane they’re supposed to be in.

• Talking on a cell phone while driving can make a young driver’s reaction time as slow as that of a 70-year-old.

• Answering a text takes away your attention for about five seconds. That is enough time to travel the length of a football field.

Yes, you can do a lot of really cool things in a car these days. The sound systems are great; the communication systems are great. The dashboards are full of interesting things to look at and play with. But for safety’s sake, perhaps we should take the wheels off the car and enjoy all this stuff while sitting still in our garage.

Better yet, let’s remember that the best screen in the car is not on your smart device or your dashboard, but the WINDSHIELD!

THE ANALOGY
Cars aren’t the only places full of cool technology. So is today’s workplace. A lot of this technology can be very useful. However, like in the car, much of this technology can also be distracting.

Here are some work-related statistics:

• Nielsen’s quarterly Three Screen Report on U.S. media usage showed that approximately 44 percent of all online video is being viewed in the workplace.

• More than 21 million Americans – or 29 percent of working adults – now access adult websites from work computers.

• Some employees said they accessed their Facebook accounts as much as two hours a day on the job, with 87 percent of those surveyed admitting that they had no clear business reason for using the social network.

• An oft quoted study says that Facebook reduces office productivity by 1.5% overall.

As disturbing as this might be, I’m even more concerned with the official gadgetry produced by the company itself. Just as cars provide cool distractions on the dashboard, many companies have their own “dashboard” devices. These company dashboards are software applications which show lots of cool performance indicators. Like a car dashboard, they provide data to let you know how you are doing. And like a car dashboard, this information can be useful.

However, there is a lot more to driving than just staring at the dashboard. You need to look out the windshield and see the world you’re driving in. The same is true for strategists. It can be very dangerous if the focus at the company is too much towards the internal dashboard and not enough looking at the external world through a strategic “windshield.”

THE PRINCIPLE
The principle here is that it is already difficult enough to get companies focused on the long term, given all the near-term distractions. Let’s not allow a preoccupation with cool gadgets and company dashboards contribute to that distraction.

Yes, company dashboards can be a useful tool, especially to keep day to day operations on track. But if a strategist’s time is distracted by focusing too much on dashboards, then their work will suffer, increasing the likelihood of a company “accident.”

One of the key strategic problems with most dashboards is that they tend to focus on performance. They are typically a tool which looks at how well a company is performing on Key Performance Indicators (KPI).

Now, at first one might think that it is good for a strategist to focus on performance and KPIs. However, I see four major problems if performance is the primary focus of a strategist.

1) Performance Focuses on the Score, Not the Game Plan
As I’ve mentioned in prior blogs (here, here, and here), outcomes are like the score of a sporting event. They can tell you if you are winning, but they are worthless at telling you how to win. Yelling at the scoreboard won’t change the score. Yelling at your people to score more points is worthless advice. If a coach stares at the scoreboard (the outcomes) during the game instead of focusing on what’s happening on the playing field, they become a fairly worthless coach.

Even if you know you are losing, that does not mean you know how to fix the problem. The score provides virtually no insight into why you are losing or how to change the score’s direction. It is just a number.

If you want to win, you need to focus on the clipboard where you write up the winning game plans. Games are won by having a superior game plan that is properly executed. That is where the strategic focus needs to be.

By the time you know the score of a game, it is too late to affect its outcome. But if, instead, you focus on the game plan, you’ll pretty much know what the score will be before the game is over, and have time to still influence the outcome with a revised game plan.

2) Performance Tends to Ignore the Real Battleground for Success
Customers act based on the way they think. Therefore, if you want them to act in a particular way, you need to first get them to think in a particular way. Hence, the key battleground for success takes place in the minds of your consumers.

Most company dashboards, if they measure customers at all, measure what they do (like “sales”), not how they think. As a result, the dashboards are ignoring the key battleground for success.

In a prior blog, we talked about the difference between “being” and “doing.” Strategic positions are about what you want to BE—how you are defined in the mind of the customer. Dashboards are about DO—what has already happened to your company.

If you want to improve strategically, you need to focus on the BE; you need to probe the consumer’s mind to find out if you are becoming properly positioned in the key battleground. This would be far better information to focus on than the outcomes of a dashboard.

3) Strategic Planning is Most Valuable at Times of Discontinuity
Dashboards are based on tracking past performance over time. The implied assumption is that the past is the best indicator of the future. Yet we all know that the world is full of change. The future often has little resemblance to the past. There is too much discontinuity.

That is why one of the chief values of strategy is to look forward—to anticipate future discontinuity and formulate a plan in advance to prepare for and take advantage of that discontinuity.

By the time a dashboard displays discontinuity, it is often too late to properly react. The change has already occurred. All the dashboard can do at that point is track precisely how quickly the discontinuity is destroying the company.

If you want to anticipate and prepare for discontinuity, you need to be looking up out the windshield rather than looking down at the dashboard gadget.

4) Performance Tends to Denigrate Strategic Planning into a Financial Scorekeeper Role
If the determination and measurement of KPIs becomes the primary responsibility of strategic planning, then the role of strategic planning becomes little more than that of a scorekeeper.

Just because a person keeps score does not mean they influence the score. In their new stadium, the Dallas Cowboys football team has one of the most sophisticated scoreboards in the world. But it hasn’t helped them win more games or get to a championship.

There has been a trend to redefine strategic planning as “Financial Planning & Analysis” and make it a small sub-department in Finance. The role is little more than that of a scorekeeper, with the dashboard being their scoreboard.

You don’t make great strategic leaps into the future by keeping track of the past. Great insights come from looking ahead and looking beyond today’s results. But if the new objective for strategists is to look for KPI performance variances (instead of looking ahead), then they are no longer doing true strategic work. By redefining the role, this great value is being taken away.

SUMMARY
It is hard to get companies to focus long term, because the “tyranny of the immediate” pressures executives to focus on the crisis of the day. That is why strategic planners are so valuable…they provide a longer term balance. However, if the strategists are primarily focused on measuring KPIs, then they get caught up in the tyranny of the immediate as well. The balance is lost; and much of their value is lost. And the company suffers.

The irony is that if you want better future outcomes, the best methodology is to not focus on prior outcomes. Instead, focus on the factors which influence the future. And those are rarely found on dashboards.

FINAL THOUGHTS
A strategist looking down at a dashboard is like a teen looking at a text while driving. Do I hear a crash?

Strategic Planning Analogy #259: Quant Jocks

THE STORY
The term “Quant Jock” refers to people who earn their living by being excessively good at developing complex analytics via the computer. Quant Jocks have been an integral part of the Wall Street financial community for years. However, in the past year or two, their reputation for financial wizardry has become a bit tarnished.

First, it was the quant jocks who helped develop all of those sophisticated repackaged mortgage bundles, which nobody really understood and which were a major factor behind the recent housing crisis. Second, it was the quant jocks who developed sophisticated computerized stock trading programs. These sophisticated stock trading programs helped to increase the negative impact of stock melt-down in the fall of 2008.

The irony is that the quant jocks had claimed that all of their sophistication would help to reduce downside risk. Instead, it now appears that their models actually increase risk, particularly if events fall outside the programmer’s narrow assumption parameters (which inevitably will happen).

THE ANALOGY
There are many similarities in the goals of Wall Street and of business strategists. Both are trying to find a way to optimize the blend between profitability and risk. The goal is to create as much profitability as possible within a particular risk tolerance.

For years, Wall Street has used a lot of quant jocks in the attempt to achieve that goal. Now, we are seeing more and more of that complex analytical approach being applied to strategic planning’s goals. Planning techniques like Scenario Planning and Real Options seem to be falling under the influence of quant jocks.

At its worst, overly-quantified scenario planning can become similar to those mortgage-backed securities which helped bring down the housing market (if the quant jocks are allowed to go wild). You bundle up all these scenarios into one massive computer program and come out with some sort of bundled scenario risk formula that doesn’t quite match any particular scenario. This makes it hard to know what to do.

The same can happen to a Real Options approach to minimizing risk—lots of math leading to conclusions that tend to mask what is actually going on in a strategy. If the parameters are in the assumptions are off by too much, they whole thing can collapse.

It’s not that math or analytics are bad per se. Scenario planning and real options can be valuable tools. The knowledge and insight coming from rigorous analysis can be useful—on Wall Street and in strategy. But taken too far, analytics can obscure your view. Instead of knowledge and insight, there are incomprehensibles and too much blind faith in the cold, unthinking calculations of formulas inside a black box. And, as we saw in the story, rather than reducing risk, it can lead to increasing risk—and creating melt-downs. Is this what you want for your strategy?

THE PRINCIPLE
The principle here is that strategies need to be far more than just numbers and formulas. In fact, an excess of “quant jock” thinking can actually increase the risk of failure for your strategy. The logic behind this point of view are as follows:

1. Continuity Vs. Discontinuity
Quant jocks tend to live in a world of continuity. The idea is that the world operates by a set of rules. The role of the quant jock is to model those rules and optimize the nuances for the benefit of the company.

By contrast, good strategists tend to focus on discontinuities. Nearly all great strategic moves are done in a way that totally destroys the rules of the status quo. For example, the great success of the Ipod comes from more than just the creation of a device. It was a reinvention of the rules for the entire industry—of how music was sold (itunes), organized and listened to.

The same was true for the iphone—creating an entirely new apps-based business model. Amazon was not just another outlet for selling books—it was a new way to think about shopping, with lots of new tools and information to create a wholly different shopping experience.

As we saw with the housing crisis and the stock market melt-down, the quant jock systems failed miserably when there was great discontinuity. They weren’t built for such rapid change. I fear the same is true in the strategic world.

Rules-based models don’t help you discover a new set of rules, nor do they tell you how to react when the old rules no longer apply. Rather than overanalyzing the world of today, strategists should be dreaming of how to destroy the world of today for their benefit.

Instead of modeling the world as it is, we should model potential new realities. Yes, there is still some analytics involved, but the analytics are only as good as the dreams being analyzed. Great dreams are more important than great analytics, because the dreams are what create the new business models to be analyzed. Analytics without these dreams is just random noise.

2. Beating the System Vs. Being the System
In the stock market, the goal of the quant jock is to find little holes in the rules, so as to beat the system on very narrow deviations. Unfortunately, what happened was that a large number of firms adopted these models and started trying to beat the system in pretty much the same way.

When that happens, you are no longer beating the system. Instead, you become the system. The herd mentality caused so much trading to be done in this similar analytical manner, it became harder to make the models work (too many people chasing too few holes). Then, when the market fell apart in the fall of 2008, the models all worked in unison to force prices down further and faster.

A similar situation occurs in strategy. “Me Too” strategies, where you try to copy the leader, rarely lead to great riches. The leader usually stays the leader and you fight over the few crumbs left behind.

If the herd mentality takes over and everyone tries to win in the same way, it tends to commoditize the business. This usually leads to price wars, where the prices drop just like those stocks did (and so will your profits).

Analytics by nature tend to mimic others, because they are trying to model the world that exists. Quant jocks may come up with original ways to push around the math, but they rarely come up with original new strategic options. If you truly want to beat the system, you need to create a new position, working under a new set of rules—a place where you can be the leader and the rules work in your favor. Brainstorming, not whirring computers and complex spreadsheets, are the priority.

3. Creating Vs. Measuring
Quant jocks like to measure things. The problem is that when you are creating a brand new business model in a brand new space operating under a brand new set of rules, there isn’t much to measure beforehand.

If you wait until the market is fully developed, so that you have more to measure, it is usually too late. The market leaders have already established themselves and the rules are already working in their favor. The game is over.

Apple succeeds by blazing new trails, doing new things—be it the Ipod/Itunes model, the Iphone/Apps model or the Apple Store model. It doesn’t wait until the market is fully developed and measurable. It takes calculated risks. Sure, calculated risks are still calculated, but the strategy is not put on hold until perfect information is available.

Sometimes, a little consumer research can help. But even here, if the concept is too radical, the customers may not at first be able to internalize how they would behave in that new world, thereby making the results unreliable. Small beta tests may be better than analytical modeling.

Well, if the new world is not yet available to measure, we can always still measure the current model, right? Unfortunately, overemphasis on measuring the business model you are trying to destroy usually will not tell you the best way to destroy it. That’s a lot of effort for questionable reward.

SUMMARY
Strategy is primarily a creative act—building a new business model that did not exist before. A “quant jock” mentality/focus typically is not the path to get there. Instead, it tends to keep one mired in the past. Sure, a little analytics can help fine-tune the creative idea, but it won’t develop it. Therefore, rather than obsessing on analytics, obsess on creative model building and then use analytics as a secondary support mechanism.

FINAL THOUGHTS
Sir Isaac Newton did not discover gravity through analytics. It was a creative burst prompted by watching apples fall from trees. The analytics came later. Strategists should probably spend more time pondering things like falling apples and less time pouring over computer printouts.