Strategic Planning Analogy #568: SWOT it Away

THE STORY

I was born with a larger than normal nasal cavity, which means that I have a better than average sense of smell. I haven’t decided yet if that is a good thing or a bad thing.

On the good side, most of the flavor of our food comes through the nose, so good food tastes really, really good to me—more so than for the average person. The bad news is that it causes me to overeat and have a weight problem.

On the good side, I can more easily detect problems, such as a gas leak or if food is starting to spoil, or if a baby needs a diaper change. The bad news is that these types of bad smells cause me to react more negatively than others and get more nauseous than others.

So is having a more acute sense of smell a good thing or a bad thing?

THE ANALOGY
One of the tools often used in strategy is the SWOT analysis (Strengths, Weaknesses, Opportunities and Threats). The basic assumption behind the SWOT analysis is this: things can be easily categorized into one of these four categories. Once you put things into their proper category, then a strategy will emerge to emphasize the strengths/opportunities and mitigate the weaknesses/threats.

The problem is that I see the world as being a lot more like my nose than like a list of categories. My acute sense of smell has both strengths and weaknesses. It provides me with both opportunities and threats. So does just about everything in business. Just as my nose won’t easily fit into these categories, neither does most of the business world.

As a result, it can be dangerous if a strategist just dumps a particular attribute into one of these four categories, since this will ignore the weakness inherent in any strength (and vice versa).

  

THE PRINCIPLE
The principle here is that the SWOT analysis, as it is typically used, is an improper approach to strategy. The reason is because the fundamental assumption behind SWOT is flawed—things do not have a singular characteristic of being either good or bad. And if you only see a singular attribute, you become blinded to the more complex nature of the situation you are dealing with.

With SWOT, things labeled “bad” will be ignored or gotten rid of and things labeled “good” will get all the attention. As a result, you will miss out on the good things inherent in the “bad” and be overcome by the bad things inherent in the “good.”

Example: Retail

For example, let’s compare ecommerce vs. brick & mortar retail in the US. If you do the SWOT analysis, you might say that ecommerce is an opportunity and that brick and mortar is a weakness. 

After all, by comparison, ecommerce is:

1.   Less capital intensive;
2.   More Convenient;
3.   More Flexible;
4.   Faster Growing.

Such a simplistic approach might cause a retailer to abandon its stores (weakness) and put everything behind ecommerce (strength). However, this conclusion misses some nuances.

• Omnichannel (both ecommerce AND brick & mortar) is even more valuable to customers. This is one reason why about 6 of the top ten US commerce sites are owned by companies that also operate brick and mortar stores (it varies depending on who is doing the research). It also helps to explain why many so-called pure ecommerce sites are starting to open up brick and mortar stores.

• About 88% of commerce in the US still flows through brick and mortar stores.

• Amazon so dominates the “pure” ecommerce space in the US that success in the pure ecommerce space is not a guaranteed successful strategic option for non-Amazon firms.

Therefore, dumping stores and putting all money behind ecommerce could be a huge mistake.

Just like my acute sense of smell, both forms of retail have strengths and weakness. You can’t just slot them into a single category. SWOT is too simplistic to account for all the nuances.

Alternative to SWOT

An alternative to the SWOT approach is something I call the MacGyver Approach. In the TV show “MacGyver”, Angus MacGyver gets into a lot of problematic situations. To get out of these predicaments, MacGyver looks around to see what is at his disposal. Usually it is just a bunch of everyday stuff—not inherently good or bad—just stuff. He then figures out how to combine what is at his disposal to create a way out of his dilemma. He can make bombs out of household chemicals. He can use chewing gum and paper clips to find a way of escape. 

The value of the items is not in each individual item, but in the ways MacGyver combines them for the desired effect.

The same can be true for your business. Your business has a lot of things at its disposal, including money, customers, patents, distribution channels, business partners, image, employees, and so on. Rather than trying to slot each one into a singular category of good or bad, weak or strong, just look at it as a bunch of stuff at your disposal (no preconceived value judgements).

Then, like MacGyver, look for ways to combine it all to create a way out of your dilemma. It’s a lot easier to find creative solutions when you don’t poison your mind with preconceived notions about how various parts are only good or only bad. Having an open mind opens up more possibilities.

You’d be surprised at what kind of strategy you can come up with if you abandon the SWOT approach and use more of a MacGyver approach. So my suggestion is to take SWOT out of your strategic toolbox and replace it with the MacGyver tool.

I’ve covered this concept in a variety of posts in the past. To learn more about this idea, go here and here.

SUMMARY
Strategies have a starting point—where we are today. Our current situation comes with all sorts of baggage. To sort through all that baggage, a common strategic approach is to quickly sort everything into different piles depending on whether the baggage is “good” or “bad.” This is called the SWOT analysis. Unfortunately, by initially putting value labels on things we miss out on the fact that there is both good and bad in everything. SWOT closes our minds prematurely to all the potential strategic options available to us. A better approach is to eliminate the labels and see it all as a just pile of raw materials (no value labels) from which we must build a strategy. Then, like MacGyver, we look for creative ways to combine it all so that the sum of the parts gives us the edge we need to escape trouble and achieve success.

You don't need a nose like mine to smell the benefits of MacGyver over SWOT.

FINAL THOUGHTS
Remember, the best strategy for your company is not some generic approach applicable to everyone. After all, if everyone can do it, where is your advantage? Instead, your advantage comes from making the most from what is uniquely you. Look at everything you have and figure out how to combine it for maximum impact.

Strategic Planning Analogy #282: Wonderful Weeds

THE STORY
As much as I hate being on committees, there’s one committee I think I’d like to be on. That would be the committee that determines which plants are good plants and which plants are weeds.

Why would I want to be on that committee? Because I hate having to pull up weeds. If I were on the weed naming committee, I’d see to it that nothing would be called a weed. That way, there wouldn’t be any weeds to pull (since nothing would be classified a weed anymore).

Take the dandelion, for example. Why is that considered a weed? I think it is a pretty flower. I’ve eaten dandelion leaves in tasty salads. A friend of mine made dandelion wine. Why is such a nice and useful plant considered a weed?

And how about switchgrass? It’s called a weed, yet many think it holds great promise as a source of biofuel.

I think I’d like to be the Will Rogers of plant life. Will Rogers said he never met a man he didn’t like. I’d like to be the guy who says he never met a plant he didn’t like. That way, I’d have an excuse not to have to pull any so-called weeds, since they would all be my friends.

THE ANALOGY
At some point in the past, plants were placed into one of two categories: good plants and bad plants (which we call weeds). It seems a bit arbitrary to me why some are called weeds and others are not.

The same thing happens in the business world. Certain practices, costs or outputs were long ago automatically labeled as bad, while others were automatically labeled as good. Who made up those labels and why should I automatically agree with them?

So-called “bad” plants, like dandelions and switchgrass, have some beneficial qualities. Similarly, some business practices or outputs considered bad may also have some benefits if we look at them differently.

If you want some breakthrough innovations, you may need to reconsider the things you label as “weeds” in your business. Just take off the “weed” label and look at them as potential opportunities. It could lead to some remarkable new business ventures.

THE PRINCIPLE
The principle here is that old labels can be wrong. Labeling something a business weed can bias you against it and cause you to want to automatically pull it out of your business. If you take off the label, you may find that it could be valuable source of new profits.

We’ve talked about labeling in prior blogs. For example, back in October of 2008, we talked about lost business potential by how one labels the rest of the value chain. For example, if we label someone as just a customer, we only expect them to consume. By doing so, we can miss out on the opportunities to also use that person to help us develop products, market products, critique products and provide all osrt of other inputs.

We also touched on this subject in a blog in February of 2008. In that blog, we saw how the so-called useless byproducts of business can become new sources of income. We saw how Australian breweries turned their waste byproduct into popular Vegemite. We saw how McDonalds turned real estate (normally a nasty weed of a cost to be minimized) into cell tower income. We saw how Wendy’s took useless overcooked meat scraps and turned it into chili. We saw how HEB turned a costly overhead expertise into a consulting business. And we saw how Tyson is turning their (formerly useless) fatty byproducts into a bio-energy profit center.

I was reminded of the latter idea in a recent issue of Fortune magazine, which talked about a company named Darling. This company specializes in collecting the so-called useless fat byproducts from restaurants and slaughterhouses. Darling then takes these “weeds” from the restaurants and renders it into saleable products. In 2008, Darling had sales of $807 million and profits of $55 million. Darling was ranked #13 on Fortune’s 2009 Fastest Growing Companies List. Not a bad way to earn money off of someone else’s weeds.

In addition to byproducts, another area of business often looked at like weeds is the cost of labor—a nasty expense to be pulled out of the organization whenever possible. However, as we discussed in a blog last March, labor costs can also be seen as an investment. As long as one is getting a great return on that investment, one should actually add labor to the business.

In general, any cost-cutting is a form of weed pulling. The idea is that costs are bad, and the more you pull them out, the better your “business garden” will be. Yes, cost cutting is often a good and necessary thing. But not all costs are weeds. They may just be underutilized assets that can be redeployed for greater profit. For example, the write-offs from shutting down weak businesses and underutilized assets can be huge. If you can discover a new use for these assets, you are far better off.

Some costs have delayed benefits. For example, one can cut out maintenance costs for awhile and look great. But eventually, things will start breaking down, because the equipment was no longer well maintained. That cost of maintenance starts looking pretty small compared to the cost of repairing broken machinery.

Similarly, Chrysler saved money for awhile by cutting back on product development. Now, Chrysler is hurting, because there are no new products in the pipeline.

In yet another prior blog, we talked about how profits can be temporarily improved if you cut out advertising expenses. However, without advertising today, future sales can eventually stagnate and decline. As a result, if you cut the advertising expense today, you may seriously damage future profits. So even if the cost looks like a pull-able weed now, consider the long-term ramifications before pulling it. You may regret pulling it later.

SUMMARY
We tend to view the world through labels. If you label something as a worthless weed, you will no longer look for any worth in it. However, many so-called worthless weeds can be new sources of revenue if we just think about them differently. Therefore, before starting to pull the weeds out of your business, reconsider them as untapped resources. Look for ways to tap into them for innovative new sources of profits.

FINAL THOUGHTS
It takes a lot of effort and pain to pull weeds. It can also take a lot of effort and expense to get rid of business “weeds.” It is so much better if you can avoid the pain of pulling by finding the profits hidden in the weeds.

Analogy #216: Stop the Labeling!

THE STORY
When I was a young boy, my parents would occasionally send me off for a week of summer camp.

In order to keep track of things, the camps would ask parents to label everything with their child’s name. Clothes were to have labels sewn onto them. Property was to have sticky labels. That way the camp could make sure that all the boys went home with the same stuff they brought.

Of course, all of the boys would ridicule the other boys when they saw one of those labels. They would call them a “mama’s boy.” Having those labels with your name on it became a badge of shame.

Therefore, one of the first things the boys would do when they got to camp would be to rip off all those labels with their names on them. All that careful work by the parents to label things was for naught.

THE ANALOGY
There’s a certain comfort level in labeling things. The camps and the parents felt assured that such labeling would make it easier to track all of those possessions. Unfortunately, the children did not like the stigma of being labeled.

Businesses also tend to like labeling people…and each person seems to only be allowed one label. For example, some people are labeled good customers and others bad customers, and the label sticks regardless of the situation. And if you are labeled a customer, then you cannot be labeled a vendor, and vice versa.

What if businesses acted more like those boys at summer camp and ripped off those labels?

THE PRINCIPLE
The principle here is that once something gets labeled, the label tends to dictate how the item is treated. For example, if you label someone as “aggressive,” you will approach them differently than if they had been labeled “passive.” The less labeling one does, the more flexible and adaptable one can be towards that object.

Businesses interact with a lot of different people/companies. Those people/companies tend to get labeled and put into a category: customer, supplier, partner, competitor, employee, and so on. Once placed in a category, the tendency is to limit interactions to just what is implied by that label. However, new strategic opportunities open up if we rip out those labels we have mentally sewn onto them.

For a recent example of this, we can look at an article in the October 2008 Harvard Business Review. The article, entitled “The Contribution Revolution: Letting Volunteers Build Your Business,” was written by Scott Cook, founder-chairman of Intuit.

The basic idea of the article is that if a company provides the right kinds of Web 2.0-type tools, all sorts of people will voluntarily make contributions that will have a significant profitability impact on your business. Cook then lists all sorts of examples.

At his own company, Intuit, they do not have a Spanish language manual, but Spanish speaking volunteers have offered all sorts of Spanish language mini-manuals and podcasts. Unilever has the “In the Motherhood” user forum and Proctor & Gamble has the BeingGirl online community for teens. Cook likes the way both provide all sorts of relevant user-generated content.

Some companies use “free volunteers” to help design and critique products. Others ask their customers to help create their advertising. Key bloggers can be used as “free advertising” as well.

My point is that if you label someone as a customer, then you will think of them in terms of how to get them to buy from you—after all, that’s what customers are supposed to do. However, if you rip off the label, you can see how they are connected to your brand in many ways and can help in many ways—often for free.

The same thing goes for suppliers. If you think of them only in terms of that label, then the tendency is to just try to use “hardball” negotiations to get the lowest price for what they supply. But if you think of them as a strategic partner in your supply chain, you may see that you can help each other create a more efficient supply chain, which could be far more profitable than what you can get only through hardball price negotiations. Toyota’s relationships with its suppliers is an example of this.

In the grocery industry, it is not uncommon for supermarket companies to outsource a lot of their shelf space management to a variety of their vendors/suppliers. The logic is that the supplier is a specialist expert who understands that particular product class better than anyone else. In other words, the supplier becomes a “free” merchandising consultant to the supermarket.

Even those labeled as “competition” may be seen as free helpers if you rip off that label. For example, maybe you can work together to lobby the government on various causes of mutual interest. Or maybe you can jointly support an effort to create a more favorable image for your industry which could expand the total industry demand.

Employees could be seen as free “brand advocates” or free “guinea pigs” for various experiments. Really loyal and engaged employees may want to freely volunteer ideas to help the company in areas that have no direct bearing to their job label.

Although these ideas work well in the digital web 2.0 world, it can go well beyond that. Face to face meetings, joint committees, call centers, and the ol’ suggestion box can be a part of the mix as well.

To get all of this free help requires several things. First, as mentioned, get out of the mode of narrowly labeling people and companies. Look as everyone as a potential partner, willing to help you for free (or at least at below market prices).

Second, create lots of ways to make it easy for people to help you. That requires both creating lots of ways for them to communicate with you as well as people on your end to willingly and graciously receive the free help.

Third, don’t be bashful. Ask a lot of questions to a lot of people. You’re more likely to get the help you want if you let them know what you’re looking for.

Finally, get out of the habit of describing some customers as always “good” or always “bad.” Even people labeled as “bad” customers can be “good” customers if you look at them differently. Perhaps they can become good customers if you design a new business model. For example, much work has been done recently to find economic ways to sell to low income third world areas, people who had traditionally been seen as too poor to be a good customer.

Or perhaps a so-called “bad” customer is merely a “future-good” customer. It may just be too early in their life-stage for them to hit their prime opportunity years. However, if you appeal a bit to them today, they may be more loyal to you once they hit their prime opportunity years. Get a young girl hooked on your luxury handbag today, and you may create a strong brand supporter for your entire luxury portfolio once they get older and wealthier.

SUMMARY
Labeling can have the unintended negative consequence of narrowing our expectations of people. We only expect of them what is implied by the label. For example, a customer is only expected to consume, a supplier is only expected to supply. However, if we take the labels off, we can see broader potential. Everyone can become a potential strategic partner, offering all sorts of assistance. And best of all, it is often nearly free.

FINAL THOUGHTS
One time when I was at camp, they did a spot inspection of the cabins and happened to luck into coming at a rare moment when my cabin was clean. This was the exception rather than the rule. But needless to say, that rare inspection paid off and I was given a badge for “cleanliness.” Later, I was running through the woods with the badge, tripped and took a terrible tumble into the dirt. The cleanliness badge got all mangled and blackened with dirt smudges.

When camp was over, I proudly gave my dirty, mangled “cleanliness” badge to my parents. They weren’t fooled by the cleanliness label. They knew better. You should know better than to be fooled by labels, too.

Analogy #172: Don’t Read the Label

THE STORY
Associate Professor Robert Austin of the Harvard Business School issued an interesting article today. It is the story of Thorkil Sonne and the company he founded, called Specialisterne.

Sonne is a Danish businessman. When his son was three years old, Sonne found out that his son had autism spectrum disorder, also known as ASD. He was told that ASD was a lifelong handicap, with no cure or treatment.

Although labeled as a handicap, Thorkil Sonne did some research and discovered that even though persons with ASD had limitations in some areas, they tended to have strengths in other areas. This was particularly true for those with a form of ASD known as Asperger syndrome.

Many of these ASD people prefer routine to novelty, exhibit a steady focus and are good with repetitive behavior patterns. As an entrepreneur, Sonne then tried to figure out how to put those skills to effective use.

Sonne knew that many software companies are good at developing software, but poor at testing software. Software testing requires an entirely different skill-set from software devlopment. As it turns out, many people with Asperger syndrome are ideally suited for software testing.

Therefore, Sonne created Specialisterne, a company to help others with their software testing. About 75% of the software testing consultants at Specialisterne have Asperger syndrome. The company is doing well and starting to grow internationally.

THE ANALOGY
Most people label those with ASD as having a “handicap.” They see it as something bad—a limitation which has to be overcome. Sonne ignored the label and looked for the unique benefits which come from the condition—the ability to concentrate on repetitive tasks. He then turned this into a unique competitive advantage in the marketplace.

In the business world, we are often confronted with many situations which are quickly labeled as bad. However, as Sonne discovered, sometimes those labels are misplaces. Trait’s characterized as “bad” can actually be a competitive advantage.

Therefore, when designing a strategy, be careful how you initially label something. It may lead you astray and cause you to miss out on the hidden advantage within that negative label.

THE PRINCIPLE
The principle here is to avoid rapid labeling of a situation as “good” or “bad.” In the initial phase of strategy formulation, it is better to just identify the condition, without adding a label. That way, you are not biased in your examination of the usefulness of that condition.

Items initially labeled “good” are not always that advantageous, and items initially labeled as “bad” can have strategic advantages. The longer we avoid these labels the more we can determine the true worth of a situation.

For example, there was a time when Heinz was receiving criticism about its Ketchup. People were upset because it was so thick that customers had difficulties getting the ketchup out of the bottle.

Heinz could have quickly labeled thickness as a bad thing and worked on making their ketchup runnier. Instead, they embarked on an advertising campaign to tell people that thickness in ketchup is synonymous with quality. The ads told people that thickness was an asset, and since Heinz was the thickest, it must therefore be the best.

Since it was already well known that Heinz was the thickest ketchup, it was a small leap for consumers to now bestow on Heinz ketchup an image of extreme quality. /This stroke of strategic genius further distanced Heinz from the competition and greatly strengthened the brand. The attribute which was originally labeled as bad (thickness) had suddenly become one of the brand’s greatest assets.

In an earlier blog, we looked at many other firms who turned things normally labeled as bad into something good (see “It’s in the Bag”).

In spite of all these examples, we can still fall into the trap of missing opportunities due to labeling items as bad too early in the process. Early labeling can blind us from looking for these type of opportunities. The strategic process itself can help contribute to this problem. For example, many people use the SWOT methodology early in their strategic planning. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. The goal in the process is to quickly label characteristics with one of these four terms.

Once something is labeled as a “Weakness” or a “Threat,” strategic thinking moves to eliminate or diminish that trait. However, as we saw with Asperger syndrome and thick ketchup, items often called weak can provide a competitive strength.

Therefore, instead of using the SWOT tool, I would recommend something which delays the labeling until later in the process. So instead of putting things up on the whiteboard under one of these labels, just put them up on the board as a situation or characteristic. The initial goal is to get a complete picture of the situation you are dealing with.

Once you see the complete picture, one can think of a variety of strategic options (or scenarios) under these conditions. In some scenarios, a characteristic can be good. In other scenarios, that same characteristic can be bad. The best strategic option wins, and that option then labels the condition.

SUMMARY
If one labels a characteristic too quickly as either “good” or “bad,” it may lead to sub-optimal strategy development. It is better to get the complete picture first while one still has an open mind. Then you have the flexibility to consider more options. This will typically increase the likelihood of choosing an optimal strategic option. So don’t rush quickly to a SWOT analysis.

FINAL THOUGHTS
Sometimes we can fall into the trap of thinking that because a trait can be bad for one company, it is bad for all companies. However, something that is bad for one firm can actually be good for others. For example, Wal-Mart tends to get into trouble whenever it aspires to be too upscale and fashionable. However, other firms have been extremely successful being upscale and fashionable. The idea here is not to label things in a generic sense, but to eventually label them as they specifically apply to your particular strategy.