Strategic Planning Analogy #444: Beware of One Choice

THE STORY
Imagine what it would be like if car dealers had only one model of car available to sell. Regardless of who I am or what type of one model they had, I’m sure the salesperson would have a rationale for why that was the perfect car for a person like me.

And if the next customer was completely different from me, that salesperson would have a rationale for why that same car was the perfect match for them as well.

In fact, I’m sure that salesperson would have a rationale for almost anyone as to why that was the perfect car for them. After all, he only has one model to sell, so he has to convince you that this is the model for you to buy. Even if it is really not the car for you.

Beware of the salesperson with only one choice.

THE ANALOGY
Although car dealers have lots of models to try to sell you, there are many businesses which have only one or two items to sell. Included in that second list is often many business gurus and consultants.

Often times, they have had success with a particular business approach in the past. They’ve probably written a book about it. Now they want to use that same approach at your business. They are like the car salesman with only one car to sell. They will try to convince you that their approach is just right for you. They will point out their prior successes to “prove” that you should do it, too. After all, it is the only thing they have to sell, so sell it they will—regardless of who you are.

Of course, the problem is that businesses are a lot like people. They aren’t all alike. Just as there is no one-size-fits-all automobile, there is no one-size-fits-all approach to business strategy.

There’s a reason why car dealerships have a variety of models to sell. Not everyone needs or wants the same thing. And all businesses should not need or want the same strategic solution.

Beware the business consultant with only one choice.

THE PRINCIPLE
The principle here is that there is no one best strategic solution for everyone. And that’s a good thing. After all, if there was only one strategic solution, then you would only need one company within an industry—the one operating that one strategy best. Everyone else would be an inferior redundancy. And if you are not that one company, then there would be no reason for your company to exist.

Fortunately, the variety within the marketplace allows for a variety of go-to-market strategies. This provides viable options for lots of participants.

Start With the Right Question
So, to begin the strategy quest, be sure to start with the right question. The wrong first question to ask is “What is the best strategy?” That’s a bad question because there is no best strategy. Just as there is no one best car for everyone, there is no one best strategy for all businesses.

The right strategy for a small entrepreneur may be very different from the best strategy for a huge Fortune 100 multinational firm. They have different resources, different strengths, different capabilities. Forcing them to take the same approach to achieve the same ends would be a mistake.

Instead, the right first question to ask is “What is the best strategy for my business?” The point is that who you are is just as important as what you do. There must be a fit between the two. Until you understand who you are in relation to the marketplace, you don’t know what moves make the most sense for your business.

Strategies are about finding places where you can win. If you are short, you will not win at basketball, no matter how successful basketball may be for tall people. You need to find the sport where your talents have the best chance of winning.

So if a business consultant comes in saying “I have the best strategy solution,” tell that consultant they are answering the wrong question.

Judge a Salesperson by their Questions
How can you tell if a business consultant is answering the right question? Check to see if their opening moves are more about telling or more about asking. If they immediately start out by telling you what must be done, this probably means that they have a preconceived notion of what is best and they are going to shove it down your throats whether it is appropriate or not (like the car dealer with only one car).

By contrast, if they start out by asking a lot of questions about your business and your company, then they realize that the best solution depends on how it fits with who you are. Therefore, they need to ask you a lot of questions about who you are in order determine the best solution for you.

This is what a good consumer-centric car salesperson will do. They will ask you a lot of questions, like how you plan to use the vehicle, what are critical concerns, etc. Only after they first understand your situation will they begin to make a recommendation.

Beware of “Proof by Example”
The one-solution consultant will often try to impress you with how superior their solution is via examples. They show how others used this process to great success. Therefore, it should work for you, too.

But here is the problem with examples. Yes, you can find examples of businesses which succeeded with a particular approach. But if you look long enough, you can find examples of companies which failed with that same approach. In addition, you can find examples of successes and failures for all of the approaches. Consequently, an example of a success by one company with a particular approach does not guarantee that you will have a similar success with that approach. And it doesn’t prove that you wouldn’t have even more success with an alternative approach.

That is why in the US, the law requires that advertisements for weight loss products must put a disclaimer on their examples and say that not everyone will lose as much weight as those shown in the examples. Otherwise, the examples can be deceptive.

I remember reading about a company which had an inferior product that most customers didn’t like. They received lots of complaints. However, one day they got a letter from a satisfied customer (their first ever). They used that one satisfied customer in their advertising, and sales rose dramatically (even though the product was still bad). Yes, it was an example of success. But it was not a fair representation of reality.

So beware of blindly accepting examples as proof of future success. Ask yourself how similar your situation is to the one in the example. Check to see if there have been failures. Find out what the differences were between the successes and the failures.

Leaders Aren’t Imitators
Finally, there is the concept of “first mover advantage.” The principle is that those who stake an early claim to a strategic position tend to have an advantage over late-comers. Early participants have a better opportunity to claim ownership of the position in the consumers’ mind, because the consumer has no preconceived leader already in their head. These early arrivers easily claim the customers looking for this position at a time when there is less competition.

By the time the late-comers arrive, customers are already satisfied with the early arrivals. The customers now already have a firm leader in their mind (one of the early arrivals) who owns the space. The late-comer has to work harder to steal away well-entrenched market share. As a result, the early arriver tends to be more successful.

If the business consultant is proposing an approach which succeeded in the past, that success may have been a result of first mover advantage. Others following in their path will be late arrivers and not see the same advantages. Therefore, the approach may not work as well anymore. I spoke more about this concept here.

If you want success, that often requires staking out new claims in new territories with new business models. And this won’t happen if you are always trying to imitate successes of the past. If you imitate the leader, then you will always be a follower. And followers rarely have the advantage. So beware of consultants who want you to blindly follow old rules and will not take risks to be innovative with you.

SUMMARY
Strategic planning is a very personal thing. The right strategy depends on the particular company and their particular situation. It is not a one-size-fits-all process. Therefore, it can be a mistake to just pull a strategy “off the shelf” which worked for others and expect it to work for your firm. If you call in a strategy consultant to help you with your strategy, make sure they understand this principle. Become very nervous if the consultant has a preconceived notion about a single approach that they want to force on every client.

FINAL THOUGHTS
There’s a reason why car salesmen and consultants are often held in low esteem by society.

Strategic Planning Analogy #370: Infrastructure

THE STORY
Although China and India are both large countries with rapidly growing economies, there are many differences in how the countries operate. One of those areas where countries differ is in the approach to building the national infrastructure (transportation, utility grid, etc.).

In general, China has tried to get in front of the issue by attempting to build the infrastructure in advance of growth. The idea is to anticipate future needs and build the infrastructure prior to building the economic elements which will rely on that infrastructure. By building extra capacity into the infrastructure in advance, China believes that the infrastructure can be built more efficiently. In addition, by building in extra capacity, the Chinese hope that economic growth will continue to remain strong, since the economy is less likely to be held back by a lack of infrastructure.

By contrast, India tends to have more of a tradition of chasing the economy with its infrastructure. The current infrastructure tends to be left in place until economic growth stretches the infrastructure to near its capacity (or a bit beyond). Then the Indian government steps in and tries to upgrade to infrastructure to catch up with near-term capacity. Unfortunately, by the time the upgraded infrastructure capacity is in place, the economy has already outgrown this capacity, so the infrastructure rarely ever catches up with demand.

THE ANALOGY
Both approaches to infrastructure have their plusses and minuses, and taken to an extreme, either approach can lead to problems. However, most experts would say that a more proactive approach to infrastructure (similar to China) is preferable to a reactive approach (similar to India).

Just a countries need to build an infrastructure for their economy, companies need to build an infrastructure for their businesses. A company’s infrastructure would include things like:

1) Manufacturing Capacity
2) Distribution Network
3) Sales Network
4) Intellectual Capacity
5) A Sufficient Amount of Adequately Trained Labor
6) Access to Raw Materials in Sufficient Amounts at Competitive Prices
7) Access to Customers
8) An Adequately Filled and Functioning Innovation/New Product Pipeline

Unfortunately, it seems that a lot of companies take more of an approach like that of India when it comes to their infrastructure, rather than following the approach of China. There is this idea that the only “good” infrastructure is a “lean” infrastructure, and that every cost which can be driven out of infrastructure should be driven out. Additional infrastructure expenditures are never spent in advance and are instead always trying to catch up with current needs. As one can see by looking at many of the problems facing India, such an approach can become costly and counterproductive.

Now I’m not advocating big, bloated, bureaucratic infrastructures. Waste is never a good thing. However, if you do not feed your business with an adequate infrastructure, you will starve the business and limit your ability to grow and prosper.

You may have the greatest business idea in the world. But if you have no way to get adequate amounts of raw materials, or no way to manufacture adequate quantities, or not enough qualified employees to product sufficient quantities at the required quality level, or no way to get the goods to the customer in a timely manner, then you will most likely fail. At the very best, you will far less prosperous than you would have been if that entire infrastructure had been in place.

THE PRINCIPLE
The principle here is that infrastructure concerns should be an integral part of a strategic plan. If the business infrastructure is not of sufficient capacity to meet the demands of the plan, then you will not achieve the plan. For example, having a strategic goal to sell a billion dollars worth of goods is a worthless goal if your infrastructure can only support the production, distribution and selling of a thousand dollars worth of goods. To win, you need an infrastructure with the capacity to achieve what you desire. And the only way to achieve that is by putting infrastructure capacity concerns directly into the plan.

To those who prefer to chase after infrastructure like India, I have the following responses.

A) You Do Not Operate In A Vacuum.
In most cases, there are other companies operating in the same space as you are, trying to give the customers a similar solution. If the competition invests in adequate infrastructure and you do not, then they will be in a superior position to capture most of the demand. For example, I know of a retailer who refused to adequately reinvest in their store infrastructure. Their stores became old, ugly and in disrepair. The customers had moved to newer and nicer neighborhoods, but the stores were stuck in the old, decaying neighborhoods. At the same time, competition built nice, new stores in the better, newer neighborhoods, closer to the customers. As a result, the customers defected to the competition—because they had the superior store infrastructure.

B) Human Capital Is Fluid.
In today’s knowledge-based economy, a key part of one’s infrastructure is the knowledge in your employees’ brains. Unfortunately, that employee is relatively free to leave your company at any time. When that employee walks out the door, a lot of your intellectual capacity leaves as well. That is why Google treats its employees so well, spending money on things like free food, and recently giving everyone a 10% raise in pay. Google realized that was money well spent if it keeps that intellectual capacity in place at a time when other companies are trying to hire that capacity away from them. The patience level of employees only goes so far. If you wait to long to reward them, or deny them the tools they need, they will leave.

C) Playing Catch-Up Never Leads to First Mover Advantage
You can never build a leading edge if all of your investments in infrastructure lag behind the industry. Much has been written about the advantage of being a first mover. To be a first mover, one needs to get the capacity in place quickly. Apple had first mover advantage with the iPhone and iPad because it had the infrastructure needed to get to market well before the competition. Microsoft keeps failing in its attempts to catch up to Apple in these spaces, because its infrastructure is not built in a way which allows them the speed and creativity to win in these areas. You can read more about this principle here.

D) Spending More Up Front Often Costs Less in the Long Run
Many times, it is cheaper to spend the money to build a better infrastructure than to try to limp along on the “lean” process currently in place. For example, I know a retailer who refused to upgrade its outdated warehouse & distribution system. Yes, it would have cost money to do so, but the payback was less than a year. And the old system was so inefficient that it made it impossible for the retailer to make a profit on a large percentage of the products going through the old system. The inefficient costs in the old system wiped out much of the profits.

I know of another situation where a retailer liked to brag that it had one of the least expensive IT departments in the industry. Of course, it also had one of the least effective IT departments in the industry, which cost the company dearly. The bare bones IT operation starved the company of the data it needed to be competitive in the marketplace. Lowest cost infrastructure is rarely the most cost-effective.

E) Not All Infrastructure Solutions Are Costly
Some are reluctant to build sufficient capacity because they are afraid it will be prohibitively expensive, particularly in the near-term. However, there are often ways to get capacity without a lot of upfront investment. For example, one can arrange for outsourcing. There is a reason why so many companies in the US outsource their payroll infrastructure to ADP. It is a way to get a state of the art payroll infrastructure without having to make a huge up-front capital expenditure.

One can also come up with creative payment plans. For example, it is common for retailers to place both a fixed and variable component into their store rent. The variable amount of the rent goes up in proportion to store sales. By making part of the infrastructure cost variable, the retailer only has to pay the higher rent if it is justified (and affordable) with higher sales.

Just because one has access to infrastructure does not mean they have to own it. There are lots of creative ways to partner with others to get that access without a lot of up-front investment.

SUMMARY
Strategic goals are only as good as the infrastructure capacity behind them. Without the proper infrastructure investments, one cannot reach one’s goals. Therefore, the strategic process needs to concern itself with infrastructure.

FINAL THOUGHTS
Remember, the ultimate goal is not to spend the least on infrastructure, but to make the most in profits. Wal-Mart is a very large and very profitable company. It did not get there by being cheap on infrastructure. They spent a ton of money on infrastructure, especially in IT, distribution and new stores. It would have been impossible for Wal-Mart to get as large as it has without that huge infrastructure investment. And, even though it spent more on infrastructure than any other retailer, it has one of the lowest cost structures in the industry. The investments caused Wal-Mart to be more efficient. It was money well spent.