Strategic Planning Analogy #420: Creating the Future

THE STORY
Back in 1989, a move came out titled “Field of Dreams.” The story is about a farmer who heard voices. One of the voices kept saying, “Build it and he will come.” Eventually the farmer figured out that he was supposed to build a baseball field on his farm. So he did.

After building the baseball field, the players from the old 1919 Chicago White Sox team miraculously come out of the corn and onto the playing field. Many exciting things happen in the movie as a result of building that baseball field.

The movie would have been pretty dull if that farmer had ignored the voice which said “Build it and he will come.” Then all you would have seen is a movie about a farmer harvesting corn.

THE ANALOGY
Exciting things happened in the movie because the farmer was pro-active in building that baseball field. He did not wait to react to the world around him. He built a new world on his farm and his life was forever changed.

This same dilemma occurs in strategic planning. We have the choice of either looking at the world as it is (and finding a way to exploit it), or of envisioning a new world and building it.

Building a new world can be difficult. Scoffers may laugh at you (like they did to the farmer in the movie). But often, the rewards of building that new world can be great.

THE PRINCIPLE
The principle here is based on an old quote by the late business guru Peter Drucker. He said, “The best way to predict the future is to create it.” In other words, the future is full of unknowns. The best way to minimize the unknowns in your future (and maximize your ability to succeed) is to proactively work to create the future of your choice. Rather than react to an uncertain world you did not create, proactively shape the world to your benefit. Be like the farmer and “build it” and the profits “will come.”

Weakness in Reaction Approach
This idea is contrary to a lot of the writing on how to do strategy. These writings will tell you to do an environmental analysis and then look for holes in the current environment to exploit.

Yes, this process of reacting to what the world offers up can often improve performance a bit. After all, exploiting what is in front of you is better than just drifting along and not trying to find a way to exploit the current environment. This process, however, rarely leads to great leaps in success.
The problem is that the current environment is designed to optimize the status quo. The rules of how the game is played are designed to perpetuate the status quo. The current leaders of the status quo tend to hold a disproportionate amount of power and influence. The supply chain is designed to their advantage. Unless you are one of those current leaders, it is hard to make an impact under their rules. Barriers to entry and exit keep the status quo in and you out. You are left to look for the small niches that the leaders ignored.

Another problem with the reactive approach is that you are always in a “following” or “chasing” mode. The world is constantly moving, and if you are merely trying to exploit what is in front of you, then by the time you get your strategy up and running, the world may have already passed you by. This is why Steve Jobs ignored the voice of the consumer. He said that by the time you got around to satisfying that voice, the consumer would have already moved on to something else. You’d never catch up by reacting.

There is a lot of truth to the idea of “first mover advantage,” where those who lead in creating a new world have inherent advantages over the companies which follow them. For example, look at all the companies trying to follow the success of Apple’s iPad. They can hardly make a dent into the industry built and lead by first-mover Apple. First movers are proactive, rather than reactive.

Strength of Proactive Approach
Look at the companies which tend to be at the top of most admired lists: Apple, Google, Southwest Airlines, Amazon, and Fed-Ex. These are companies which ignored the status quo and built an entirely new world, with new rules which gave them an advantage. They built it, and it (profits) came.

Apple totally reinvented industries such as computing, music, telecommunications, and entertainment. Google changed the way the world thinks about and uses information. Southwest Airlines threw away the rulebook on how airlines are supposed to operate and created a totally different one—one where they had the advantage. Fed-Ex created a category which did not before exist—guaranteed overnight delivery—and used the advantage of the new rules to create a great company. Amazon created shopping tools and a shopping process unheard of before. They rewrote the rules on customer service (via recommendations, customer reviews, and one-click) and created an empire.

These were not followers. They did not look for holes in the status quo. They built new worlds with new rules. By creating their own future, they had greater control over their worlds and how they evolved. They were able to predict how their industries evolved because they invented that future. They invented the rules by which the new world plays—rules which are most beneficial to themselves.

You Have To Build The Whole System
So does this mean that I just need to design the next cool thing and I’m all set? Not really. The forces of the status quo are quite strong. They will fight anyone trying to upset their situation. The best way to overcome this marketplace resistance is to build an entirely new marketplace. In other words, this is not about building new things, but entirely new systems which encompass the entire supply chain.

Consider the iPod. It was not the first attempt at reinventing digital music. Many MP3 players preceded it. They failed because they could not beat the forces of the music status quo. A music player without the cooperation of the music industry is not very useful.

The genius of the iPod was that it was a total reinvention of the entire music ecosystem. There was the cool player which the consumers loved. There was also an easy way to access music through iTunes. And Apple found a way to get cooperation from the holders of the music which nobody else had been able to do before. So this was not just a device play, but a rewriting of the whole system, including where and how music was sold and new rules on how musicians and labels were compensated.

Google wanted to reinvent the way businesses advertised. However, to do that, Google needed to also reinvent the platforms where that advertising took place. Google created the best search engine in order to be the preferred place for the new advertising to take place. They built Google Maps, Blogger, and other such sites so that they could control the way key future advertising venues evolved (and make sure Google got a huge chunk of that advertising).

In order to play in the advertising space in mobile, Google invented Android and gave it away for free. As a result, Google is controlling the leadership in smartphone platforms, giving it more control over how mobile advertising evolves (to its advantage). Google understands that if you want the new rules to benefit you, then you need to have a say in how the entire ecosystem evolves.

Amazon wants to ensure that the rules of digital commerce for ebooks and other such products work in their favor. As a result, they developed the Kindle as vehicle for these types of transactions. Some may complain that Amazon is selling the Kindle too cheaply, but consider the value it creates in helping Amazon reinvent the rules in their favor. Just as Google proved with giving away Android for free, the market penetration which comes from low prices helps one control how the future is built. And that is where the real benefit comes in.

And this is not just a digital phenomenon. In the early days of Wal-Mart, Sam Walton wanted to reinvent the rules about how rural customers purchased goods. Unfortunately, just building stores in rural areas was not enough to get the cooperation of the status quo. To win, Wal-Mart had to reinvent the entire ecosystem via building his own sophisticated distribution and data processing networks. Without that, Wal-Mart would not have been able to gain enough control to rewrite the rules of the future in their favor.

SUMMARY
Great strategic success rarely comes from reacting to the market as it is. Instead, it comes from creating an entirely new market, where the new rules are written to your advantage. The secret is about gaining as much control as possible over your destiny in a volatile world. To ensure that the new rules are written to your advantage, you need to reinvent the entire ecosystem, not just throw a new product into the old system. Build the system, and they will come.

FINAL THOUGHTS
Controlling the system does not usually require owning the whole system. Apple did not purchase the music labels. Google does not own telecommunication companies. Wal-Mart did not purchase the companies which supply its products. However, these companies created enough influence so that these other players were forced into playing by the new rules. And that is the key.

Strategic Planning Analogy #132: Always On

THE STORY
I enjoy reading stories about how musicians compose music. It is amazing to me how similar many of their stories are. Most are not sure where all of the musical ideas come from. There is a sense that it is coming from an outside source they cannot control. This is often referred to as a muse.

Some of the best songs tend to come into their mind quickly and are basically written in only a few minutes. The longer it takes for a song to gel, generally the less successful it is.

Although the best songs come quickly, for many of these composers there is always some sort of new music flowing through their mind at all times. Ted Nugent once said that he writes around 300 songs per day. That being the case, one might wonder why Ted Nugent recorded such songs as Cat Scratch Fever or Wango Tango if he had so many other songs to choose from. I think the point is that Ted could always sense songs going through his mind, but only a handful of it was worthy of recording.

My favorite comment came from the artist known as Seal. He once did a promotion for snowboarding. Seal claimed that the reason he loved snowboarding so much was that it was the only thing he had found that was so exhilarating that, for a brief moment, it blocked out all of that music which was constantly flowing through his head.

It is as if these musicians’ brains are tuned into a cosmic radio station and they are unable to find the “off” switch.

THE ANALOGY
Successful musicians often times seem to have their minds constantly tuned into the world of sound. No matter what they are doing, a small part of their brain is always functioning at a musical level, pumping musical ideas into their head. Although the music may not always be in the foreground of their thinking, the switch always seems to be in the “on” position.

This is a good analogy for how strategic thinking should work in an organization. No matter what someone in the organization is doing, there should always be a part of their brain which is tuned into the corporate strategy. Turning off strategic planning should not be considered an option.

THE PRINCIPLE
The principle here concerns the idea of burrowing strategy deep into everything a company does. Strategic planning should not be seen as a separate activity done only once or twice a year at some strategic planning retreat. What is more important than strategic planning is strategic thinking—getting our everyday thoughts tuned into our strategic radio in an “always on” position.

Strategy is the end result of the culmination of all of a company’s activities. Every little action adds up to create what the company is. And what a company is determines how well it competes in the marketplace.

If all of the small actions tend to be moving a company in a particular direction, then that—in reality—becomes the direction of one’s strategy. Even if the formal “official” strategy says something different, it is the result of our actions which create one’s true strategy. Therefore, it is important to get all of the small day-to-day activities in alignment with where we want our strategy to be.

Nobody can write a detailed enough strategic plan to prescribe what to do for every small day-to-day activity. First of all, one could never conceive of every possible day to day scenario. And even if one could, the document would then become so large and cumbersome that no one could comprehend the document.

Therefore, instead of trying to get every possible option in writing, one’s time is better spent trying to get the basic principles of the strategy burrowed so deep into the minds of employees that they can instinctively think at all times of what is the right thing to do. It is better to have everyone in the company thinking of how their actions impact the strategy then to have only a few people at the top thinking strategically.

Take, for example, Nordstrom’s. Their strategy is centered on giving superior customer service. Rather than writing up a huge document with every particular about how this should impact day to day operations, they instead focused on the large picture, to ensure that everyone knew what the end goal was. Then Nordstrom’s empowered the employee to use their own initiative to act in the direction of the end goal. For many years, the Nordstrom employee handbook consisted of only a single 5x8 inch gray card consisting of 75 words, as follows:

“WELCOME TO NORDSTROM

We're glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high. We have great confidence in your ability to achieve them.

Nordstrom Rules: Rule #1: Use your good judgment in all situations. There will be no additional rules.

Please feel free to ask your department manager, store manager, or division general manager any question at any time.”

The next step at Nordstom’s was to use storytelling to illustrate what great customer service looks like. My favorite story is about a Nordstrom’s store in Alaska which was in a location formerly held by a different retailer. A customer had purchased tires from the retailer who formerly occupied that space and wanted to return them. Even though Nordstrom’s had never sold tires, they accepted the return and gave the customer a refund. The strategy of outstanding customer service had been achieved.

Once a number of these stories filter through the organization, people are able to comprehend that:

1) Strategy should impact everyday activities; and
2) Certain types of activities represent that strategy more than others.

FedEx is another organization which follows this pattern. Their strategy revolves around dependable and reliable service. To help illustrate how important this is on an everday basis on everyday decisions, FedEx loves to disseminate stories of this practice in action in the company.

In one example, a FedEx driver forgot the keys to open one of the package deposit boxes. By the time the driver realized he had forgotten the key, it was too late to go back to the office to get it. If he had taken the time to go back to get the keys, he would not have been able to get the packages to the office and the airport in time. People who had put packages in the deposit box were depending on the famous dependability of having them shipped overnight. Therefore, the driver found some tools to unbolt the deposit box from the concrete and brought the entire box back to the office. By doing so, the FedEx driver was able to keep the strategic promise of dependable service.

In fact, FedEx has taken to the airwaves to air commercials showing a number of these examples of customers going out of their way to ensure that dependable service. Not only do the stories help employees comprehend the strategy, but they help reenforce the strategy with potential customers. These stories beat a fat strategy book any day of the week.

SUMMARY
Just as musicians always tend to have music running through their heads, employees should always have the company strategy running through their heads. Usually, the best way to do this is by:

1) Not segregating strategy to a separate off-site exercise done once a year, but in making it a part of everyday discussions and everyday activities.
2) Keeping the communication about the strategy simple.
3) Using stories to show how strategy can impact day to day decisions in a remarkable way.

FINAL THOUGHTS
The problem with strategic thinking is that if a company is not used to doing this on a daily basis, it will not be missed. This is unlike thinking about eating. If one forgets to think about eating, one’s body will soon remind him or her. Our bodies need nourishment, and if we forget about it, our bodies will bring it back to our attention through hunger. This is good, because there are negative consequences if we stop eating.

Similarly, if a company ignores thinking about strategy, there will be negative long-term consequences. However, we need to proactively work to make strategic thinking a daily priority, because there tends not to be a natural “hunger” for strategy that kicks in.