Strategic Planning Analogy #545: It Depends on Timing

THE STORY
When I was in college, I had a friend who was starting up a hobby of making wine. His early attempts were pretty bad.

First, he would get impatient and stop the fermentation too soon. That lead to odd-tasting juice rather than wine. To keep from making that mistake again, he poured a bunch of sugar into the mix to make the fermentation last longer. That lead to the fermentation ending before the sugar ran out, so the end result was too sweet to drink. 

I suppose he would have had good wine if he ever got the timing right, but after the early attempts, I never wanted to sample his wine again.

THE ANALOGY
Over the years, I have had people show me a strategy and then ask me if I thought it was a good one. Usually, I would say “that depends.” He reason I say that is because the same identical strategy can be both good and bad depending on some other factors.

Two of the biggest factors are: 1) Who’s doing the strategy; and 2) When is the strategy being executed. In the next blog we will be looking at who’s doing the strategy. In this blog, we will be looking at the timing of the strategy. As we will see, if you get the timing wrong, a strategy can be a disaster, but if you get it right, you are a hero. Same strategy, but different outcomes depending on the timing.

As my friend found out in winemaking, being too early and being too late can both destroy your results. The same is true with strategies. Yes, there are advantages to being early, but history has shown that if you are too early, your venture will die before the idea catches on. You didn’t let the idea “ferment” enough.

Similarly, it’s nice to wait until you have everything figured out, but if you wait too long, you can miss out on getting in on the opportunity. The opportunity to “ferment” has already ended and all you have is a sweet gooey mess.

THE PRINCIPLE
The principle here is that the timing of your strategy can be just as important as the content of your strategy. Therefore, spend as much effort on making sure you get the timing right as you do on the content.

Too Early

The primary problem with being too early has to do with the fact that strategies are not executed in a vacuum. You are typically part of a larger supply chain. On one side are your suppliers and on the other side are your customers. If your suppliers and/or customers are not ready, then your strategy will not work, no matter how “brilliant” it is.

For example, I was talking with the Netflix guys when they were just starting out. They said their original strategy was to do streaming of video over the internet. That’s why they called the company Netflix. However, they knew that the internet infrastructure was not ready yet for mass streaming of movies. The supply side was not there yet to send all those movies digitally and the customer did not have the tools to receive files that large. It was “too early.”

Therefore, Netflix initially went the route of putting DVDs in the mail, so that they could build a brand and some loyalty while waiting for the timing to be right for their real vision. If Netflix had not waited on internet distribution, it would have gone bankrupt long before the market was ready.

So was Netflix’s original strategy great? It all depends on when it would be put into effect. Fortunately, Netflix waited, so the results turned out well. But that same strategy could have been a disaster if they executed it too soon. They had to wait for the market to “ferment” to the right level.

Too Late

One way to avoid being too early is to wait until everything is in order—to wait until the whole supply chain is fully developed and the customer is fully ready to consume. But if you wait that long, your strategy can be just as much a disaster as being too early—because now you are too late.

Executing a strategy is a lot like working with clay. When the clay is soft and moist, you can mold it into lots of different shapes. But once the clay gets dry and hard, you cannot change its shape.

That’s what happens when you wait too long to enter a market. While you were waiting, others were getting involved, molding the market in their direction while the clay was still moist. But if you wait until the market is fully established, the clay is now hard. The channels are already established. Brand preferences have already been made. Habits are already in place. The new status quo has been formed and hardened. It’s too late to make your move.

Consider Facebook. Facebook was not the first social media site. There were others, like Friendster and MySpace, already out there when Facebook started. But the market was still early enough that the clay was moist. There was still time to make a big move. And Facebook made that move at the right time.

It was not too early, because it let others pave the way to get consumers and infrastructure in place to accept the strategy. But it got in before everything was settled. That’s good timing.

If someone were to take Facebook’s strategy and do an identical implementation today, it would probably be a horrific disaster. It’s too late. Another mass oriented, general sharing site for the internet is not needed or wanted. Thanks to network effects, the cost of switching out of the established networks to go to an upstart network is too large. Even if people grumble about the problems with Facebook, they don’t switch, because Facebook is where all the connections are. They clay is hard and holding the people inside Facebook.

Times have changed. To make a move today, you have to do something different than what Facebook did. You have to move to where the clay is still moist.

There’s a great quote by comedian Garry Shandling: “They should put expiration dates on clothing so we men will know when they go out of style.” You could say the same thing about strategies…they have expiration dates, too. Good luck to your financial health if you use a strategy past its expiration date.

Managing the Time

So are we totally at the mercy of factors outside our control when it comes to timing? Is it only luck that puts us in the right place at the right time?

No. There are things we can do to alter when the timing is right. But that will only happen if we incorporate “adjusting the timing” into our strategic plan.

Consider the Apple iPod, considered to have been a great success in digital music. But success was not guaranteed. There were dozens of companies who tried to build a business in digital music players before Apple attempted it. They had all failed. There were plenty of reasons to think that Apple would also fail.

The problem was that all the necessary pieces in the supply chain were not in place. You could have the most perfect mp3 music player in the world, but if the artists and music labels weren’t ready to sell mp3 files and the customers did not have an effective way to buy mp3 files, then the device is fairly worthless. And that was the situation Apple was walking into.

Therefore, the Apple iPod strategy had to incorporate more than just designing a great player. It also had to design a way to make sure the rest of the supply chain was ready for the player. In other words, Apple had to proactively adjust market timing.

So Apple found a path to get the artists and music labels ready. Then it designed a retail outlet (iTunes), so that consumers had a way to buy the music. Then Apple spent a fortune on advertising to create the demand. These efforts made the timing right for the iPod device. Without those efforts, the iPod would have been a disaster like all of the other players that came before it.

And because the Apple solution was a closed system, it effectively closed out competition from being able to fully participate in the market Apple developed. In other words, the same movements that made the timing right for Apple also served to quickly harden the clay so that others could not take advantage of the market Apple built. The strategy effectively opened and closed the timing so that only Apple could optimize the timing in the market for digital music.

SUMMARY
You cannot just look at a strategy in a vacuum to determine if it is good or bad. You have to look at in within a context. One element of that context is timing. If the timing is right, the strategy can be very good. If the timing is wrong, that same strategy can be very bad. Therefore, timing issues need to be incorporated into your strategy. This involves two issues: 1) making sure you are not too early or too late; 2) Getting proactive to strategically alter timing more to your favor.

FINAL THOUGHTS

Gallo wines used to have a slogan: We will serve no wine before its time. That slogan works for strategies, too.

Strategic Planning Analogy #532: Planning for Others

THE STORY
Years ago, I worked for one of the largest grocery wholesalers in the world. They were very proud of being the best place for small, independent grocers to get their food supply. This wholesaler continued to put its effort behind becoming even better at supplying groceries to small independent grocers.

There was only one problem. Small, independent grocers were disappearing at an alarming rate. The growth of large supermarket chains and Walmart Supercenters were squeezing the small independent grocers out of business. And many of the more successful, larger independents were being acquired by the large supermarket chains.

As a result, the customer base for this wholesaler was shrinking away. It really doesn’t matter how proud you are of serving your customer if your customer is disappearing. Being the best at serving a non-existent customer isn’t much to be proud of.

THE ANALOGY
Strategists and business leaders work very hard to position themselves for success. They find a place where they can win and then work diligently to improve their ability to deliver that winning position.

The problem is that businesses do not operate in a vacuum. A company’s success is also dependent upon external factors, like customers and suppliers. If your customers and suppliers are going out of business, it really doesn’t matter all that much how well you are executing your strategy. In spite of all your internal efforts to greatness, your strategy will fail if your external partners fail.

In the story, the company I worked for was trying ever harder to perfect a business model designed to service small independent grocers. As the small independent grocer was shrinking away, so was the relevance of the wholesaler’s strategy. Better execution of that strategy would not ultimately turn things around. Even a perfect wholesaler for small independents will fail if its customers go away.

This is true for any organization which relies on having suppliers and customers (which would include nearly all organizations). For your plan to succeed, you need those partners to succeed.

THE PRINCIPLE
The principle here is that our planning efforts must not just myopically focus internally on our own company. We need to broaden our planning to create strategies to ensure the success of our partners, be they suppliers or customers. If we do not actively plan to help others, then our own well designed and well executed internal strategy may collapse.

We should not rely on luck that our partners will do okay. We should actively plan for their well-being along with our own.

Department Stores

This is not a new concept. Department store owners in the 19^th century spent a lot of time away from their stores and focused on boosting the economy of their local community. Why? They knew that if the local economy was strong, the sales at their department stores would be strong. Conversely, if their cities became weak and the population shrank, then their department store sales would shrink.

Therefore, the department store owners spent a significant amount of their planning time planning for their cities. They wouldn’t take the health of their customer base for granted. External planning for the city was as important as internal planning for the department store.

Automotive Industry

Early in the 20^th century, Henry Ford did something similar for the automotive industry when he dramatically raised wages for his factory workers. There were many reasons why Henry Ford dramatically raised factory wages, but one reason was very relevant to our discussion: You needed a middle class income to afford a Ford automobile.

By setting a new wage standard, Ford was moving factory wages to middle class levels. Therefore, as others followed Ford’s wage example, Ford was dramatically increasing the number of people able to afford to buy one of his cars. Ford was proactively planning his customers.

Over the decades, the automotive industry seemed to forget this principle. The industry started squeezing their suppliers harder and harder. They didn’t care how much they were hurting the suppliers as long as it helped their internal bottom line. And then came the great recession and the suppliers started going bankrupt. On top of that, the great tsunami hit Japan around the same time, wiping out even more suppliers to the automotive industry.

Because the automakers did not adequately plan alternative sources of supply or other backup provisions, they suffered along with their suppliers. Assembly lines were shut down for extended periods.

Modern Technology

As we all know, modern technology is very disruptive to the status quo. Suppliers and customers appear and disappear rapidly. Being a great traditional travel agent didn’t mean much when their customer base disappeared and went directly to web travel sites. Building a near-monopoly in phone books isn’t worth much if nobody is demanding them due to superior digital information alternatives.

So What Should You Do?

There are three strategic alternatives when planning for your partners. The first is to alter your internal strategy to improve the health of your partners. For example, the grocery wholesaler I worked for knew that the small independent grocer would be stronger if it could be placed in retail formats that competed less directly with Walmart and the big chains. Therefore, they developed these types of formats and reinvented a portion of their wholesale operations to optimize under these new formats. It was a different way of doing business than in the past, but it created a business model that was better for both the independent retailer and its wholesaler.

The second alternative is to alter your strategy to move to where your partners are moving. Netflix redesigned its strategy when customers who wanted DVDs in the mail were moving to getting their movies from the internet. By shifting quickly to an internet option, Netflix migrated at the same pace as their customers, so they were able to keep them connected to the Netflix brand.

The third alternative is play the end game. As a market shrinks, you can consolidate what is left and then cut costs until one can make a profit. This is happening in many processed foods, where growth has disappeared. The original players, like Proctor & Gamble have gotten out of the business and moved to newer growth businesses. In their place are companies like Pinnacle Foods, who are buying up all these brands and playing an endgame.

The grocery wholesale company in the story also played an endgame with many of the traditional independent grocers who were left and did not migrate to the new formats. Although there are far fewer of these independents, the wholesaler has less competition for their business, so it can still create a meaningful business with them.

Common Approaches

Regardless of the strategic outcome, there are common approaches to success.

1)     Don’t just look internally at optimizing your own piece of the puzzle. Optimize the whole puzzle.

2)     Keep an eye on the external environment to understand when market shifts not only impact you, but also your partners.

3)     Treat your partners as partners, not enemies. Be willing to plan jointly and share information for the betterment of all.

4)     Be willing to abandon or modify a strategy when customers and suppliers are at risk of going away.

SUMMARY
Businesses do not operate in a vacuum. Therefore, their strategies should not be developed in a vacuum, either. Don’t just plan your internal affairs. Consider plans for your customers and suppliers as well. And if they are moving away from your core business, you may need to change your business to follow them. After all, a “perfect” strategy for a customer who ceases to exist is really not perfect at all.

FINAL THOUGHTS
If you develop a win-lose proposition with your partners, eventually your partners will go away. Instead, build a win-win situation with your partners. That way, you can feed off each other’s success and succeed together for a long time.

Strategic Planning Analogy #513: The Business Lottery

THE STORY
Imagine a world in which business is run like a lottery. Under such a scenario, each morning every business would submit to the Business Lottery Commission (BLC) their guess of the day’s winning numbers. Then the BLC would use numbered ping pong balls to determine the day’s winning numbers.

Each company’s sales for the day would them be determined by how close their guess was to the numbers chosen by the BLC. The more numbers a company got right, the higher their sales for the day would be. If a company got none of the numbers right, their sales for the day would be zero.

That would be a strange world, because success would be random and essentially out of the control of management. Skill would be replaced by luck. Nobody would stand for a world like that, would they?

THE ANALOGY
Lately, it seems like the business world is becoming more and more like the lottery, particularly in the social media space. I was reminded of this when reading the November issue of Fast Company. In the editorial, editor Robert Safian said,

“There are so many emerging technologies and newly found companies, it is near-impossible to predict which ones will have staying power. This makes both business planning and investing not just complicated, but treacherous.”

There are two main implications in such a statement. First, it implies that success appears to be unpredictable because it is based almost entirely on luck, like playing the lottery. Second, if success is based on luck, then the importance of planning is severely diminished. Why work hard on planning for success if success is primarily a result of luck?

This idea is further reinforced when one looks at the behavior of a lot of the young entrepreneurs in the social media space. They tend to spend very little time on a particular venture. If it doesn’t get “lucky” quickly, they move on—either by pivoting the current venture into an entirely new direction (like Fab.com) or by abandoning it and starting completely over. They are like the lottery player who picks new numbers to play every day because yesterday’s number wasn’t lucky.

And when these entrepreneurs do “get lucky” they often abandon participation in the business soon thereafter in order to play the game again with another new venture. In other words, they cash in their winning lottery ticket and use the proceeds to buy more lottery tickets. They call it

serial entrepreneurship. I call it lottery fever.

And here’s the even stranger fact. The entrepreneurs are paying for most of their “lottery tickets” (i.e., latest business ventures) with someone else’s money (from Venture Capitalists).

When the venture gets “lucky” and wins, it usually wins big (like Facebook, Google, Linkedin, etc.). But most of these ventures end up with nothing. That also sounds a lot like the lottery.

So maybe the people would stand for a world like that after all.

THE PRINCIPLE
The principle here is that actions are a result of assumptions. If you assume that business success is essentially random, then you will treat business like a lottery (and planning will be minimal, at best). However, you assume that business success still has a significant element of skill to it, then you will treat it more like professional poker. Yes, poker has a high element of luck, but the good players use strategy to consistently outperform the odds of mere luck.

I believe that it is in one’s best interest to use strategy to increase the chances of success (like poker) rather than relying on betting often and hoping for the best (like the lottery).

The Problem With The Lottery Assumption

If you assume success is primarily luck, you then your actions will work against you in two ways.  First, this assumption will cause your actions to move towards quantity rather than quality. As in the lottery, the more tickets you have, the better your odds are of winning (quantity, not quality). So there is a tendency with this mindset to dabble in a lot of things somewhat superficially and for only a short period of time. If there is no instant win, then you move on, perhaps even dabbling in multiple ventures at once.

It’s sort of like the old saying that “if you want to be in the right place at the right time, you have to be everywhere all the time.” So these people try to get attached to as many ventures as possible.

Unfortunately, this is rarely the path to winning. Remember, most of the people who play the lottery lose, even when they buy a lot of tickets. Real winners are not superficially involved for a short time. They are fully devoted to the business for the long haul.

Consider Amazon. Today it looks like an obvious winner. But that was not from getting lucky early. In the early years, Amazon looked like a real loser and was written off by the “experts.” Amazon won because it was dedicated to a long-term strategy for winning in the marketplace and did what it took to make that long-term strategy a reality, even if it made the near term appear “unlucky.” Rather than cashing out, they made huge investments into the marketplace to create a winning position over a long period of time. Amazon didn’t buy into the lottery assumption.

The second problem with the lottery assumption is that it places its focus on funding the purchase of tickets (getting venture capital money) rather than winning the marketplace (getting sales from customers/advertisers). You can see this in companies with fantastic valuations among the venture capitalists which have never turned a profit. Heck, many have had sales of ZERO. “Monetization” of the business model becomes a dirty word, and those promoting monetization are seen as “not getting it.”

Call me old fashioned, but I want to see a path to profits in the marketplace. Otherwise, all we have is a pyramid scheme, where early investors expect to be bought out at a huge gain by greater fools at a later date. That’s what happens when all the focus is on who buys the equity rather than who pays for the product/service. Eventually, you may find a greater fool who pays too much (to you for your equity), gets too little (the weak business model) and suffers a huge loss to pay for your gain. But if you can’t find another buyer, then you’re the last fool and you suffer the loss.

Improving You Odds Like A Poker Pro

By contrast, poker professionals don’t rely on luck. They use skill and strategy to increase their chances of winning. Poker professionals do three things in particular to increase their odds.

First, the poker professionals study their environment. They get to know the other players at the table. They learn how the other players act and react under various scenarios. The poker pros also watch the cards to learn what has been played and what has not been played. In a similar way, the best business winners don’t merely rely on luck, but study the marketplace and their competition.

Second, poker pros use that knowledge to play an intelligent game of strategy. They understand the odds and work that to their advantage. They consider various scenarios. Then the pros make moves designed to cause the other players to act in a manner that shifts the odds even more to their advantage. The pros don’t leave winning to chance and the luck of the cards. They use strategy to improve the odds of success. Good businesses do the same.

Third, the poker pros stick around. They don’t just play one hand and walk away. The pros know that in any individual game, bad luck might be too high to overcome with their skill. They know that it is over the long run that luck evens out and their skill eventually prevails.

In addition, the poker pros know that the longer they play with a particular group, the more they will learn about them. This additional knowledge makes the pro’s strategy improve over time, thereby making the later rounds potentially more productive than the early rounds.

Similarly, good business people stick around and put in the effort to build a viable position and infrastructure. Rome wasn’t built in a day, and neither are great companies.

I am reminded of a story I heard from the founders of Netflix back when their company was barely more than a notion in their head. They told me that their goal was to win in the digital download of movies. They knew that there would only be a small window of time in which to grab that position. They also knew that the timing of that window would be five to ten years in the future. So, to optimize their odds of winning that future digital window of time, they were going to start a physical mail-order business today.

The idea was that the mail-order DVD business would do two things. First, it would help Netflix build strong ties with a large number of consumers. Second, it would help Netflix build ties with the content producers (movie makers/distributors). Those connections with customers and content from the mail-order business would increase their odds of winning when it was time to switch to digital.

This was a long, well thought-out strategy with multiple steps. And it did improve the odds of success for Netflix in the digital movie space. When that small window of time opened, there were tons of entrepreneurs trying to “buy a lottery ticket” by dabbling in the space at the moment the window opened. It was like that Fast Company editorial quote of “so many...newly found companies.”

Most of them quickly “lost the lottery” and went away. But because Netflix was playing poker instead of the lottery, they are still a major player in the space.

SUMMARY
One’s actions are based on one’s assumptions. If you assume the business world is driven primarily by luck, then you will act as if business ventures are like lottery tickets. However, if you still think skill prevails, then you will act as if you are skillfully playing poker. And in the long run, your odds for success are better when using the skill and strategy of poker rather than the “buy a lot of tickets and hope for the best” approach of the lottery.

FINAL THOUGHTS
Now you may be saying to yourself, “I don’t think of business as being like a lottery.” Well, you may not say it, or even openly admit to yourself a belief in the lottery assumption. But if you act as if business were a lottery (by doing some of the things mentioned in this blog), then you must believe it deep in your subconscious. You actions shout your true inner beliefs and assumptions, even if you aren’t consciously aware of them.

Strategic Planning Analogy #480: Landing a Strategy

THE STORY
I used to live in a city which had a small regional airport.  The city wanted to get more of the large airlines to land at this airport, but the airlines kept refusing.

The airlines said that they would not schedule flights to that airport because the runway was too short.  Sure, it was long enough to land the smaller planes that the airlines use, but not long enough to land the largest jets.  Because the airlines want flexibility in the use of their airplane fleet, they didn’t want to schedule flights into airports which couldn’t handle their largest planes.

After hearing the complaints, the city invested in building longer runways.  And not long after the longer runway was built, a large 747 jumbo jet landed at the airport in grand fashion.

I think it was many, many years later before the second large jet landed there, but it didn’t matter.  The renovations and the longer runway resulted in getting more scheduled flights at the airport.

 

THE ANALOGY
I like to use the term “landing a strategy.”  This concept refers to getting a strategy from being just a cool idea floating in the clouds to being a reality playing out on the ground where the company is operating.

Landing a strategy is a lot like landing an airplane.  If the airport’s runway is too short, the larger jet will not be fully landed before it runs out of runway.  The plane will keep moving at a high rate of speed beyond the edge of the runway and crash into something, creating a total disaster.  That’s why airlines insist on having long runways before committing to an airport.

It takes a lot of time and money to land a strategy (to get it from idea to reality).  If you run out of time and money before the strategy is fully landed, you are like a pilot in a big plane that ran out of runway.  Your strategic attempts are about to go off the runway and crash into something, creating a total disaster.

Due to our optimism, we may think we need a shorter runway (less time and money) than we really need to land our strategy.  As a result, we may already be well into the strategic transformation before we realize that we are trying to land our strategy at an airport (i.e., company) whose runway is not long enough (not enough time or money to finish the transformation).  Then we find ourselves frantically trying to lengthen the runway at the same time our plane (i.e, strategy) is already approaching the runway.  That’s not a very wise approach.

When a strategic transformation runs out of runway, the worst possible scenario occurs.  The old strategy is bankrupt because all the time and effort and money went into the transformation.  The old strategy is too obsolete to create sufficient cash flow to keep the transformation going (running out of money). The time for bankruptcy under the old model keeps getting closer (running out of time).  Yet, because there is not enough time and money left to finish the transition to the new strategy, you don’t end up the replacement strategy, either.  Instead, you are stuck with neither strategy.  A total disaster.

Think about Kodak.  It didn’t start trying to land a digital strategy until the analog business was almost dead.  The old analog business was not producing cash flow and was soon to die (no time or money).  As a result, Kodak’s runway was too short.  They ran out of time and money before a digital strategy could be landed.  The company ran off the runway and imploded.

The airlines in the story had a safer approach.  First make sure the runway is plenty long enough.  Then, only after the long runway is built, will the airlines consider trying land planes there.  Our strategic approaches could learn from this.

 

THE PRINCIPLE
The principle here is about change management.  Nearly all new strategic initiatives require significant change in the business in order to become reality.  You may have a great new strategy, but if you mis-manage the change process to get there, you will not effectively land the strategy.  It will crash and make a disaster.  

If you cannot effectively land the strategy, it is irrelevant how great that new strategy was.  It will crash when you run out of runway, just like a bad strategy.

Therefore, a key piece of change management needs to be assessment of the length of your runway.  If the runway isn’t long enough (not enough time and money), then the process is doomed.

Option #1 Lengthening the Runway

If the runway is too short, one solution may be to lengthen the runway.  In other words, before embarking on the transformation, look for ways to either:

1. Increase Cash Flow; or
2. Slow Down the Demise of the Status Quo.

These actions may not have any direct relationship to the change you are trying to accomplish, but if you do not do them, you will not have enough time or money to do those things which directly relate to the change.  So you need to do them as well.

Tactics to lengthen the runway could include:

1. Selling off peripheral assets.
2. Restructuring the Balance Sheet.
3. Massive layoffs in peripheral areas
4. Sale and lease-back of properties.
5. Looking for legal or governmental protections of the core to keep threats to the core further away.

One of the main reasons why Ford Motor Company did not have to go through bankruptcy and government bailout while GM and Chrysler did was because Ford had taken many of these types of steps to lengthen their runway prior to the great recession.  As a result, Ford’s runway was long enough to last until they could transition through the economic recession and get to their revitalized strategy.

GM and Chrysler ran out of runway because they did not do enough of these types of things.  Without a lot of outside help, they would have crashed when their runways ran out.

Option #2 Shortening the Plane

If lengthening the runway is not enough, you can try to switch to a smaller plane.  By this, I mean that instead of trying to create massive change all at once, you can chop up the change into smaller bundles (like smaller planes) which require less time and money to land (and thus can use a shorter runway).  Those smaller changes with the quickest payback can be done first and create the new money and extra time needed to land the rest of the transformation.

Thus, you fund the latter change by strategically creating funding via the early changes.

Netflix was originally designed to be a digital downloading service (which is why the company was called Netflix instead of Mailflix).  However, the company realized that it would take massive amounts of time and money to create the Netflix model.  Therefore, Netflix started with a smaller plane (movies by mail). 

Movies by mail required less time and money to start up.  And it got Netflix a huge subscriber base and clout in the marketplace that could be applied to the ultimate vision.  And because the near-term model was profitable, it could fund the efforts needed to make the ultimate transition.

Option #3 Changing the Flight Schedule

A third option is to change the scheduling of your flight—prepare to land your plane earlier.  The idea here is that if you start the transformation earlier, before the status quo deteriorates too much, you have many advantages:

1. The old strategy is stronger and producing more cash flow to fund the landing.
2. The company’s image and clout are stronger which makes it easier to introduce your change to the marketplace.
3. The ultimate demise of the status quo is further away, so you have more time.

Kodak essentially invented the world digital imaging.  They had plenty of time, clout and money to implement the change.  The problem was they waited too long to do anything about it.  If they had scheduled the landing of the digital transformation much earlier, the odds are good that it would have succeeded. 

The problem is that companies worry about cannibalization.  After all, the sooner you start the transformation, the quicker you cannibalize the old core.  What you need to realize is that someone is going to eat your core.  Your only real option is to decide whether you are going to do the eating or someone else is going to do the eating.  And if you wait, like Kodak did, and let the competition eat your core, you have no runway to get to the replacement.  All you are is eaten.

 

SUMMARY
Strategic initiatives usually require change.  Change requires time and money (and usually more than you initially realize).  Therefore, if you want to land your strategy, you’d better make sure there is enough time and money to get the change implemented.  If there isn’t, you will need to adjust your approach to that change by either:

1. Finding more time and money;
2. Starting with smaller change initiative bundles; or
3. Starting the whole process sooner.

 
FINAL THOUGHTS
I worked with a company that was running out of runway.  They did not have enough time or money to finish their transition.  The solution they picked was to sell the business to someone with deeper pockets and more time.  In other words, they sold the plane to a company which owned a better airport with a longer runway.  So, before you panic, look for creative ways to get a longer runway.  Creative solutions are out there.

Strategic Planning Analogy #424: Matching Up

THE STORY
Recently, I was talking to someone who was divorced. After the divorce, she had been using a number of internet dating sites to find a new partner. Her ex-husband was also using a number of internet dating sites at this time to find a new partner.

What was interesting was that these internet dating sites kept making suggestions that these two formerly married people should start dating each other. Given the nature of the negative emotions surrounding their divorce, I can assure you that the idea of getting them back to dating each other is a very, very bad idea.

THE ANALOGY
One of the secrets to a good marriage is a good match between the people getting married. And although computer dating services may help reduce the risk of a bad match, they are not foolproof. As seen in the story, some of their suggestions can be disastrous. That is why extra effort needs to applied to ensure the match is truly good.

The same idea applies to strategies. Like marriages, strategies require good matches between the people involved. After all, strategies are only good if they are effectively implemented. Implementation requires the actions of a number of stakeholders. If these stakeholders are not well matched up with the essence of the strategy, they will stray from the strategic intent. Implementation will suffer.

Yes, there are computer programs and internet sites to help us find the right strategic stakeholders, be that strategic partners, acquisition targets, employees, customers, lenders, equity holders, etc. However, these tools are not foolproof. Extra effort is needed to ensure that all the parties match up well with the thrust of the strategic intent. If we are not diligent and vigilant in making sure we have good strategic matches, we will end up with the equivalent of a strategic divorce…and that is rarely the desirable way to implement a strategy.

THE PRINCIPLE
The principle here has to do with strategic fit. Strategic fit based on how well stakeholders match up with the strategy. Typically, the better the fit, the better the strategic execution.

The logic behind this idea seems pretty obvious. For example, if your employees are strongly opposed to what the strategy is trying to accomplish, then they will rebel and resist. Implementation will suffer (I have witnessed this firsthand). However, if the employees are in strong agreement with the strategy, then they will more heartily implement it properly.

Anyone who has had an activist investor who wanted to move the company in a different direction than the management has also seen how such a mis-match can stall strategic implementation. The worst case scenario is that the two sides (management and equity investor) will get into a nasty fight and neither strategic option will be strongly embraced. The company suffers greatly.

Or ask Netflix about how well their strategy to split the company went after they announced it and found out that it was a major mis-match for their consumers. Customers rebelled, subscriptions dropped dramatically, and the stock price dropped equally dramatically. Netflix had to abandon the original strategy to split the company.

So it would seem to be a no-brainer that companies need to cultivate a strong strategic fit with all their stakeholders—be it employees, investors, customers, or whomever is important to the success of strategy implementation. Yet, like with Netflix, there are so many examples where companies have not been diligent and vigilant in maintaining strategic fit with these stakeholders (and have suffered the consequences).

So what causes companies to stray from this basic principal? To put it bluntly, it usually boils down to either greed or laziness.

Greed and Overreach
Greed can ruin strategic fit in two ways. First, greed can lead to strategic overreach. A great strategy is typically based upon owning a strong position. For example, a position may be based on superiority in delivery an attribute, like quality, speed or service. By definition, these positions tend to be limiting. To strongly own one of these attributes, one typically has to make trade-offs against other attributes. For example, for Apple to truly own coolness, elegance and ease of use, it has had to trade away from low cost/low price.

Limiting can initially sound bad, but it can actually be very good. It is easier to find strategic fit with customers if you stick to your point of uniqueness. Your customers became your customers because they also wanted that point of uniqueness. There was a fit.

But greed can set in. Management may want to expand beyond their point of uniqueness. They want to become much more. As a result, they overreach and destroy strategic fit with their customers.

For example, every time Wal-Mart has tried to expand beyond their low cost/low price position and try to become known for fashion, it has failed. It is a mis-match with how Wal-Mart is perceived by those who want low cost/low price and those who want fashion.

When exclusive high fashion brands let greed cause them to overreach and try to be more relevant to the masses, it leads to long-term disaster. The old customer who loved the exclusivity will walk away quickly. The new masses will eventually walk away as well, because a lot of the appeal to them was in emulating the exclusive customer (who is no longer associated with the brand). Not only is there now a mis-fit with the customer, but also their supply chain. Once the fashion brand appeals to the masses, the exclusive retail outlets will drop the brand because it no longer fits with their strategy.

Or how about Toyota? Toyota had a strong position in producing dependable cars. However, Toyota got greedy and wanted to make all kinds of cars at all kinds of prices. The trade-offs which used to lead to superior dependability started to fade away. Quality and dependability dropped to levels which hurt the credibility of the old position. People were no longer willing to pay a high premium to get the “dependability” of a Toyota, because it no longer seemed worth it.

Greed and Cheapening
Another outcome of greed may be in underinvesting in the core position in order to cut costs and make more money. To own a position, you have to invest in it. Choke off investment in the strategy (in the name of greed), and your actions no longer fit the strategy. For example, another part of Toyota’s problem was that they underinvested in the quality levels needed to create dependability (in order to increase the profits needed to invest in overreach). This lead to less dependability in the cars and a mis-fit with the customers.

In this economy, companies are finding they can get away with paying their employees less. In the long run, however, this is creating a mis-fit between employees and the company. The good employees leave as soon as they can. They ones who can’t leave get angry and become less committed to putting in any extra effort behind the strategy.

If you cheapen your approach enough (in labor, parts or whatever), execution will eventually suffer to the point where you lose the right to own that position. Then your strategy is lost. Greed for short-term bottom-line gains eventually leads to far lower long-term profits.

Laziness
Sometimes it isn’t overt acts like overreach or cheapening which ruin strategic fit. Sometimes it is just a lack of effort to keep fit from eroding away. We can get lazy in our vigilance to maintain fit. For example, we may let mis-fitting employees creep into the business because we do not police that characteristic close enough in the hiring process. We hire them because they have superstar status and forget to do the due diligence into whether they are the right fit for the culture and strategy. When the fit is wrong, they can poison the culture of a company and ruin the strategy.

Many of the Silicon Valley firms like Google, Apple and Facebook realize how important engineering excellence is to their core strategy. As a result, they are not lazy in their approach to getting the best engineers. They do whatever it takes in terms of pay, perks and image to gather this important resource for their company the best they can.

Another place laziness in fit-seeking can occur is when looking for investment capital. We may take equity investment money from someone just because they want to invest in us and not take the effort to ensure that there is a strategic fit between their objectives and ours (and regret it later when they challenge our strategy due to a mis-match). Or we can acquire a company because the financial models look good, but not do additional due diligence into strategic fit. That lack of strategic fit can make the acquisition a disaster. In fact, poor fit is one of the leading causes of acquisition failure.

Recommendations
As we have seen, strategic fit cannot be assumed to be a given. Fit can fade away due to greed or laziness. Therefore, we need to become proactive in aggressively cultivating strategic fit with all our key stakeholders—investors, employees, customers, partners, supply chain, etc. We need to make fit a high enough priority to overcome the impulses of greed and laziness.

Whenever a decision is being made which impacts a stakeholder, we need to ask this question: Will this move strengthen or weaken strategic fit?

Cultivating fit needs to become integral to the strategy itself. We need to seek out investors who agree with our approach. We need to seek out employees who believe in the strategy. We need to find distributors where supporting our strategy is in their best interests. We need to aggressively seek out those customers who are looking for what we are offering. We need to only aggressively go after acquisitions with a strong fit. It cannot be taken for granted. It must be sought out.

SUMMARY
Strategic implementation is strongest when all the stakeholders to the strategy are well-matched to the strategy. Without a strong fit across the board, the strategy suffers. There are many forces (like greed and laziness) which can naturally work against strategic fit. Therefore, we need to be proactive at seeking out and protecting strategic fit.

FINAL THOUGHTS
Sure, not everyone is a good fit for our company. But that doesn’t mean we should give up looking for them. They are out there. We just need to take the effort to seek them out.