Strategic Planning Analogy #281: The Magic Hammer

THE STORY
Bob was giving Joe a tour of his office building. In the center of the main entryway was a fancy display case. Inside the display case was a hammer.

Bob was very proud of this hammer. He made sure that seeing the hammer up close was the first part of the tour.

“This is the finest hammer ever created,” beamed Bob. “All the research says that if you want to succeed in my industry, you need a great hammer. Since I want to succeed, I bought myself the greatest hammer in the world.”

Joe was a little perplexed. He asked Bob, “If you keep this hammer locked up in a display case, how can it help improve your business?”

Bob replied, “The research said that having better hammers leads to better success. If I went and used this hammer out in the field, the hammer would get worn out. Its condition would deteriorate from what it is now. It would become a lesser hammer. Why would I want to make this a lesser hammer if the research says that better hammers are the ones which lead to success?”

At this point, Joe could see that further discussion about the hammer would be useless, so he asked Bob to show him the rest of the office building.

Bob sighed and said, “There really isn’t much left to show you. I declared bankruptcy last week and sold off all of the office equipment in an auction.”

THE ANALOGY
A hammer is a tool, not some sort of magical charm. For a tool to be useful, it needs to be used properly. Just having the tool on display won’t do much good. It doesn’t provide magical success merely from its presence.

Although Bob owned the hammer that could potentially bring success, his company failed, because he did not properly use the hammer.

In the business world, there are hundreds of management tools available. There are also lots of books and consultants out their proclaiming that their particular management tool is just what you need to be successful. Lots of these books are purchased and lots of these consultants are hired. Yet many companies continue to fail.

Apparently, Bob is not the only one having trouble getting the promised success out of tools. Perhaps, like Bob, we are not using the tools properly.

THE PRINCIPLE
The principle here is my universal law of management tools. It goes as follows: For every management tool available, you can examine the marketplace and find companies falling into each of these four categories:

1) Firms using the tool who are successful.
2) Firms using the tool who are not successful.
3) Firms not using the tool who are successful.
4) Firms not using the tool who are not successful.

For example, I can find firms using centralization that are both successful and unsuccessful. Similarly, I can also find firms using the opposite approach (i.e., decentralization) that are both successful and unsuccessful.

In other words, any given management tool is not a magical charm that makes every company who touches it successful. If used properly, it may be able to help you, but even that is no guarantee. The correlation between any tool and success is typically very weak.

Therefore, when developing strategies, do not make obtaining a particular management tool the centerpiece of the strategy. Your ultimate goal is the quality of what you put in the bank account (profits), not what you put in the toolbox (tools). Good tools are nice, but your strategic approach should give a higher priority to the following three areas:

1) Place
Which of the two petroleum industry scenarios do you think will be most successful:

1) Using mediocre tools to drill into a huge reserve of oil; or
2) Using the highest quality tools to drill into an area devoid of any oil.

Naturally, if you want to be a successful oil producer, you need to apply your tools to places where the oil exists. Good tools help, but if you are located in the wrong place, those tools will not prevent your failure.

Strategy guru Michael Porter says that one of the most important steps in strategy is your choice of place—where you have decided to set up your business model. Not all places are created equal. Some are naturally better suited for success than others.

Some industries have high average profits, while others tend to be perpetually bad for everyone nearly all the time. Some sectors within industries tend to do a better job of absorbing the profitability of their ecosystem than others. Some business propositions (positions) tend to be more compelling than others.

Choosing a poor position in a poor sector of a poor industry will almost guarantee failure, no matter how good your management tools are. Jack Welch was known for using a lot of management tools at GE. However, a great deal of his success was due to identifying places in the GE portfolio where they had little chance for success (typically where they had no chance of being a leader) and divesting of those businesses (and reinvesting in better places). GE has continually morphed its portfolio over time so that it is in the right places (where success is easier to obtain).

As Willie Sutton put it, he robbed banks because that’s where the money was. Therefore, we need to be like Willie Sutton and first figure out where the money is. Then we need to direct our strategy so that it is pointed at that pool of money. Only after making this major decision should we worry about the tools.

2) People
If you give an axe to a skilled lumberjack, you will get a better result than if you give that same axe to an axe murderer. The tool is only as good as the person using it. Poor operators lead to poor results.

In developing your strategy, how much attention is focused on strategies for finding, obtaining, training and keeping the best people? Is it a higher priority than strategies for getting in place the latest management tool?

Online retailer Zappos put nearly all of its energy from day one into optimizing the people side of the business. It let them grow from nothing to being acquired by Amazon for a little under a billion dollars after only a few years in business.

If you truly believe that people are the key to your success, then that should show up as a priority in your strategy formation.

3) Practice
Great companies tend to be perceived as best at delivering a desirable benefit. Becoming the best is typically not an accident. It comes from a continual focus on that point of superiority.

Practice makes perfect. So to keep your edge, keep working the area that makes you great. Get even better, so that others are never able to catch up. Wal-Mart wins by being best at price. It innovates new ways to help it lower prices even more, so that others cannot catch up.

Focusing on the goal of getting better at what you are best at is more important than focusing on the latest management fad. Fads come and go. True staying power comes from staying true to your point of differentiation.

SUMMARY
The correlation between any management tool and success is weak. You can find both successes and failures with virtually all the management tools. Therefore, don’t focus too much strategic energy on getting the latest management tool. Instead, focus on matters more critical to success, such as place (where you choose to position yourself), people (getting, keeping), and practice (getting better at what you are best at).

FINAL THOUGHTS
Beware of magicians trying to sell you their magic hammer.

Analogy #206: The Magic Tool

THE STORY
When I moved from Minnesota to Ohio, I seemed to have lost my toolbox and tools. Apparently, my old tools got all intermingled with my son’s tools in Minnesota and now I don’t have them any more. So I went to Sears and got a cool new toolbox (“softsided”) and have been slowly filling it up with tools as I buy them when needed.

This got me thinking…how valuable are tools when they are located five states away from where you live? Can a tool be of much use when the human element is so distant? Wouldn’t it be great if we had “magic tools” that could do all of the work by themselves without a need for a human? Then I could stay at home and just send my toolbox to get the work done.

Let’s say I needed to build a house in Florida. If I had magic tools, I could just send the toolbox to Florida. The tools would jump out of the toolbox and do all the work. The saw would cut the boards all by itself (no humans involved). The hammer would hammer nails without the need for a human to hold it. When they were all done, the tools would jump back into the toolbox and be sent back to me here in Ohio, where I spent the whole time reading a book on house architecture.

That would be great! Sign me up for some of those magic tools.

THE ANALOGY
House builders are not the only ones who would like magic tools. Business leaders also seem to be always looking for “magic tools”—tools to help make running a business easier and/or more profitable. Every year, bookstores are filled with books describing the hot new business tool. These books sell very well.

All that money being spent on finding the latest magic business tool creates quite a feeding frenzy. Software developers also claim to have the latest magic tool for business. Just plug their new software into your IT system and your problems are solved! Management consultants never seem to be at a loss for having new magic tools, either. Just call them up. I’m sure that they would love to sell you the tool (at an outrageous price).

It all looks so tempting. Let the magic tools do their thing, while management just sits back and counts all the extra money they are making.

Unfortunately, a tool is just a tool. My hammer cannot hammer without me. I am the one doing the hammering—the hammer is just I tool I use in the process. Put an axe in the hands of a lumberjack and you will get a pile of firewood. Put an axe in the hands of an axe murderer and you will have gruesome deaths. Don’t blame the axe. It is just a tool.

The same axe can produce either firewood or death. The outcome depends on the one using the tool.

The same is true of business tools. Their effectiveness depends upon the one using it. If you expect the magic tool to do all the work on its own, don’t be surprised if the outcome is a disappointment.

THE PRINCIPLE
Most of the modern business tools today rely heavily on fact-gathering. If you can just gather enough of the right kinds of facts, the “tool” will produce “metrics” that can be displayed on “scorecards” or “dashboards” to tell you exactly what to do. Taken to an extreme, you get someone like a boss I used to have. He claimed that everything he did was “fact-based” and he would not act until all the facts were in and they had been run through one of these fancy tools.

Unfortunately, the principle of this blog is that “fact-based management” is not really management at all. Facts are like tools. If all you do is let “facts” dictate your actions, then you are acting as if the tool is doing all the work by itself. There is virtually no human element involved—just do what the facts say.

Just as a hammer works best when in the hands of a skilled craftsman, facts are most useful when interpreted by a skilled strategist/businessperson. They need to be actively managed as part of a larger strategic effort.

Average tools in the hands of a skilled craftsman will create better houses than top-of-the-line tools in the hands of an idiot, because the quality of the craftsman is more important than the quality of the tool. Similarly, the quality of the human business leader is more important than the quality of the latest magic tool for business.

I was reminded of this principle when reading today’s Wall Street Journal (September 10, 2008). There were two seemingly unrelated articles in this issue that caught my eye.

The first article praised a new magic business tool being used by retailers. The tool collects data on the productivity of store salespeople. Then it uses that data to schedule the employees. The most productive employees get scheduled the most hours and the busiest hours. The less productive employees get fewer hours and hours when the store is less busy. In the example in the story, the tool discovered that the optimum level of time it should take a salesperson at the store to make a sale was 5 minutes. Therefore, when scheduling employees, the computer staffed the hours on the sales floor based on exactly 5 minutes per sale, with estimated sales broken down into 15 minute intervals.

At first, this sounds great. It should optimize productivity by having only enough people to serve the demand (no excess payroll), and by getting a higher percentage of the time on the floor be with your most productive sales people. Human error was taken out of the system because the computer did all the work.

What was the actual result? Well, due to the nature of the program, weaker employees were given weaker time slots. This made it even harder for them to hit the quotas, so they got even weaker scores (no fault of their own).

Second, if an employee had something else going on in their life which required some flexibility in scheduling, it was ignored, because there was no human element to work out a schedule with. This created ill will. In addition, when you schedule people in 15 minute increments, you create unrealistic schedules for people to live lives around, further demoralizing the employees.

From a customer’s point of view, this productivity measuring caused employees to fight over customers in order to get credit for the sale. In addition, the old strategy of spending time with customers to build up a strong rapport for long-term lifetime sales had to be discarded to try to make a sale right now in just five minutes. So now the customer experience was diminished.

The result? Terrible morale for the employees and a less satisfactory experience for the customer.

Does this mean the tool was bad? No. It just needed to have the human touch applied in order to use the tool more wisely. Rather than abdicating management solely to the computer, it needed to be seen as a helpful aid in the hands of a human manager.

The second article in the paper talked about how UAL got punished in the stock market because of a computer error. Apparently, an old 2002 article about UAL’s old bankruptcy court filing appeared in Google as a new news item. Computers which blindly scan for new news articles picked it up and gave the UAL bankruptcy prominence. Suddenly, everyone was selling off UAL stock thinking there was a new bankruptcy there. The lack of any human intervention here caused a real mess for UAL.

Put these two articles together and you can start to see the problems of relying solely on fact-based management. Namely:

1) Not all facts are really as factual as you think. Flaws get into the system…false stories about UAL…false readings on employee productivity due to how busy the store is when they are scheduled.

2) If you accept facts blindly without question, you will end up making bad decisions…like selling off the wrong stock or ruining the relationships with both your employees and your customers.

3) Near-term “facts” may cause decisions which create long-term disasters, because the long-term impacts are not yet at a point where your tool can manage them. For example, that store tool cannot measure lost productivity long term when you destroy morale, or lost future sales because customers are no longer being wooed for lifetime sales.

4) Truly monumental improvements to strategy (as well as true innovation) cannot be found in historical “facts.” Great leaps of innovation have to look well beyond a historical reservoir of data. Creativity has to look at future possibilities, not measured history.

5) By the time all the facts are in, the game is usually over. The innovators who invented the new opportunities have already grabbed the business. Business implies taking risks—acting before all the facts are in. By the time all the data is in to eliminate the risk, the rewards for taking the risk are gone.

6) By the way, given the dynamics of the marketplace, all the facts are never in. By the time you think you have all the facts, the market will have moved a bit, making them less relevant. If you wait for all the facts before acting, you will wait forever.

SUMMARY
Management tools are nothing more than tools. The real value is in the quality of the person using the tool. Blindly following fact-based tools without human intervention is a dangerous path to take. “Facts” are not the end-all and be-all of management. They are just one element which needs to be synthesized with human intuition, compassion and insight. Let’s put the management back into fact-based management.

FINAL THOUGHTS
In the Disney movie Fantasia, Mickey Mouse had a magical wand which allowed him to get tools—like brooms—to do the work without the need for humans. At first, everything looked great, but in the long run, Mickey ended up with a disaster on his hands, because when brooms work without human intervention they create a real mess. Don’t fall into Mickey’s trap. Put direct human management into the mix.