Strategic Planning Analogy #421: Tapping the Power

THE STORY
One year for Christmas I decided to put up a larger than normal Christmas light display in my front yard. I bought all sorts of new items to place in my yard, including a metal deer covered in lights with a motor that made its head go up and down.

Everything worked fine for a few days. Then it stopped working. The lights went out and the motor stopped working. I spent many hours over many days going over everything in the front yard trying to get it to work again. I assumed that something in the display was broken, so all I need do is fix the display and everything will be fine.

So I spent hours looking for the brokenness in the display. I wiggled all the wires in the display. Nothing helped. For the rest of the season, the display at my house was dark and lifeless.

After Christmas, I started to take all of the lights and displays down. It was then that I saw a switch in my garage that I had never noticed before. It was a circuit breaker switch. I pushed the button, and all of a sudden the remaining parts of the display began to work.

If I had only spent a second at the beginning of the season pushing that button in the garage, I could have saved all of those many hours wasted in the front yard trying to get that display to work.

THE ANALOGY
My goal was to have a great Christmas light display. Therefore, that is where I focused my efforts. When my goal was not being achieved, I spent my time looking for a solution somewhere in the display.

Unfortunately, the problem was not hidden within the display. It was back behind the scenes in the garage. Had I only taken my eyes off the goal, I would have seen that the display was fine and that the problem was that there was no electrical power getting to the display. Had I spent more time thinking about the power behind the display, I would have had a working display that year.

A similar situation can occur in strategic planning. We can get so focused on our strategic goal that we forget about looking at how well the goal is connected to the corporate energy source. Since the goal is what we want, we look at fixing the elements of the goal when results fall short. This can all be a waste of effort, since the problem often is a result of insufficiently tapping into corporate energy. Turn on the power of the organization, and the results will come on their own.

THE PRINCIPLE
The principle here is about discerning the difference between power and performance. Performance is the output—it is what we want to happen. It is our goal. Power, by contrast, is the input—it is the energy needed to accomplish the goal.

Strategic planning is usually pretty good about managing the performance. It helps us decide what we want to happen (goals) and how we are going to measure the results (metrics). Many times, however, the process comes up short on managing the power. It doesn’t go behind the scenes to ensure that sufficient energy is focused on the plan.

Power is often just assumed to be there. Just set the goal and the work will get done. Therefore, all the effort is spent on getting the right goal and measuring the progress towards the goal. Nobody bothers to go back into the garage to make sure the power switch is set in the “on” position.

The real problem occurs when performance falls short of plan. If you focus only on the performance, you may not be able to fix the problem, because the cause may be insufficient power.

For example, let’s say that you have a goal to achieve dramatic sales growth for a particular product and performance is falling short. To fix the sales problem, you may look for a sales solution. You may look to change the advertising, or change the pricing, or start a new sales promotion, or some such similar tactic. This would be similar to when I tried to fix my Christmas display by tinkering with pieces of the display. And, like with my Christmas display, all those efforts may not work.

However, if you stepped back to consider the power in your organization, you may have found that there was nothing wrong with the original plan (as far as it went). Instead, the problem was insufficient motivation amongst those required to do the selling (not enough power). Perhaps they do not believe in the product. Perhaps they have put their power behind a different product in the portfolio. Perhaps they just aren’t motivated to work hard because they feel no loyalty to the company. If you fix the power, the performance will come all on its own, because highly motive employees can accomplish much.

Problem #1: No Power
There are two ways in which a company can mismanage power. First, they may not create sufficient power. I have personally witnessed how much performance is impacted by the level of power running through the employees.

For example, I worked with a company that used to have a lot of power flowing through the employees. They were highly motivated to “do whatever it takes to win.” They loved the founder and would go the extra effort in response to that love. The place felt like a family and everyone worked hard for the good of the family. The power was huge and performance was outstanding.

Then something happened—the founder retired and the new leadership destroyed the feeling of family. As a result, work became nothing more than just a job. People went from voluntarily working 70 hours a week (because they loved doing it) to working only 50 hours a week. The energy levels during those 50 hours went down as well (because they didn’t love doing it as much and they didn’t care as much). The power of family love was replaced with unproductive in-fighting. Personal goals replaced doing whatever it takes for the greater good. And, not surprisingly, performance started to suffer.

The company is scrambling to find ways to get performance back up. But the focus in on adjusting the tactics rather than the power behind the tactics. As a result, they are fighting a losing battle.

In essence, the company had unknowingly turned off the switch in the garage, not realizing how much impact that would have on the display out front. And now they are trying to fix the problem by tweaking the display rather than turning the switch back on.

By contrast, I had the privilege to work in the past with the employees of Save-A-Lot, a hard discount, low price food retailer similar to Aldi. When you walked into the Save-A-Lot headquarters, you could feel all the energy and buzz around you. The power switch was on full power.

When you talked to the people, the conversation wasn’t around doing a job of pushing groceries at a profit. Instead, people talked in terms more similar to a religious revival. They talked about the pride they had in providing a higher standard of living to those who society tended to overlook. They talked about bringing “greater dignity” to the poor by packaging the food products to look like the brands the rich people ate. They not only wanted to feed these people, but improve their sense of self-worth. It was as if they weren’t grocers, but missionaries on a mission to save the poor from malnutrition and humiliation. They were united in purpose and focused on this larger, more personal motivation. And guess what? This power lead to great performance.

To achieve high levels of power, you need to supply high levels of purpose. This purpose needs to transcend just working for a paycheck. It requires tapping into the inner desires of your people. This concept seems to be taking on greater significance, as the Millennials who are now entering the workforce seem more focused on this greater purpose than the Baby Boomers they are replacing. If you do not provide a greater purpose, you will lose a lot of the power potential in the Millennial segment.

Strategic Planning can help by infusing a higher purpose into the Vision and Mission Statements. Planners can help ensure that strategic processes not only looks at managing performance, but also proactively manages power. They can make sure that power issues get sufficient attention.

Problem #2: Power Unlinked
Even if the company is full of power, performance may still suffer if there is insufficient connection between the power and the performance. My Christmas display only worked when plugged into the power source in the garage. Similarly, strategists need to connect the strategy to the power in the people.

Strategists need to show how the strategy is connected to the higher purpose. They need to show how achievement of the strategy not only improves performance, but improves achievement of the higher purpose. They need to show that putting effort behind the plan gets them closer to the higher purpose that doing something else.

SUMMARY
Often, the best way to ensure that strategic goals are met is to take your focus off the goals and focus instead on ensuring that the organization is powerfully motivated to achieve the goals. This typically requires bonding with employees at a deeper level (than merely meeting the goals) by instilling a higher purpose into what people do. The higher their motivational power, the more likely the effort will be there to get the task accomplished. If you can connect that power to the task at hand, then the results will pretty much take care of themselves.

FINAL THOUGHTS
This deeper bonding can also work with customers. If consumers identify with your higher purpose, then they will want to support your efforts by purchasing from your company. This can lead to higher unit sales volumes at higher prices.

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.