Strategic Planning Analogy #577: What do you March To?

THE STORY

John Philip Sousa (1854-1932) was considered to be the best composer and conductor of American marches who ever lived. His nickname was the “American March King.”

When I was in college, I heard a story about a time when Sousa had visited my college. He supposedly told the heads of the college that he thought our college fight song was one of the best marches he had ever heard. That made me feel proud.

However, now that I am older, I have heard many additional stories about Sousa. As it turns out, John Philip Sousa visited a lot of colleges over his lifetime. And each college tells a similar story about how Sousa told them that their college fight song was one of the best he had ever heard.

Suddenly, Sousa’s stated opinion of my alma mater’s fight song seems a lot more meaningless.

THE ANALOGY
Strategists talk a lot about how companies should try to please their customer. But you hear far less about how customers often try to please the company…and this is a bad thing.  Sousa is a perfect example of this phenomenon.

Think of the college as being like a company and their fight song is their product. Sousa is the customer. In an attempt to try to please all of the “companies” Sousa tells them all that he loves their “product” (the fight song). So, in his attempt to please all of the “companies,” Sousa’s opinion of their “product” becomes worthless.

Customers in today’s world are often giving as worthless an opinion to companies as Sousa did to colleges—all in an attempt to please (not offend) the company. This desire to be nice and no-offensive results in consumer opinions which are as worthless as Sousa’s.

Many companies today use customer opinion surveys as a Key Performance indicator (KPI) to judge their strategic success. Unfortunately, there is often a Sousa-like bias in the customer to please the company and give opinions which turn out to be meaningless. KPIs with meaningless data can be very dangerous.

THE PRINCIPLE
The principle here is that even though it is important to please the customer, don’t judge your success by asking customers if they were pleased. There is too much bias in the desire of many customers to please companies, making answers to those types of questions worthless.

One example which comes to mind are the quick auto oil change companies. After you get your car’s oil changed, they send out a survey to ask you if you were pleased with the service. This sounds reasonable until one digs deeper.

As it turns out, many of the mechanics will tell their customers about the survey they are about to receive. Then the mechanic tells them that if they rate him with anything lower than a perfect score, the mechanic will get no credit towards his performance bonus. Many customers don’t want to keep their mechanic from getting a bonus and besides, who wants to return to a mechanic who is upset at them for giving him a low score? You want your mechanic to like you. So all of the sudden, almost all the mechanics are getting superior grades (the Sousa phenomenon—worthless information).

To remedy the situation, on a recent oil change survey I saw a new question asking if the mechanic told you in advance how your ranking would affect him. I guess that was put in there to “weed out” some of the bias. Unfortunately, just putting that question in the survey creates more of that same bias. Who wants to get their mechanic in trouble for talking about the scores?

Preference is Better than Opinion

One way to get around opinion bias is to stop asking people’s opinion about your product. For example, you could instead ask about preferences. Using our analogy, that would be like instead of asking Sousa about his opinion of your fight song, you would ask him to rank order the top 25 fight songs from favorite to least favorite. Sousa may still like them all, but at least now you will know which ones he likes more.

Knowing customer preference (compared to numerous options) is more important than opinion about a single product, because we don’t always buy what we like, but are more likely to buy what we prefer.

I might like nearly all cars, but I don’t buy nearly all cars. I am more likely to buy the car I prefer. Therefore preference among choices is a better indicator of future success than mere opinion on a single item.

Behavior is Better than Preference

But even here biases can creep in to distort the results. In a desire to please the company, I might rank it higher in preference than I should. Therefore, an even better question is to ask about past behavior. For example, I could have asked Sousa how many times he listened to each of the college fight songs in the past two years. Past behavior is less prone to bias. Looking at what Sousa actually listens to is probably a better indicator of what he actually likes than asking his opinion.

I would have far more confidence in a KPI measuring behavior than one that measures opinion or preference.

SUMMARY
KPIs are a key part of strategy. Choosing a KPI that gives inaccurate or distorted information can be very dangerous. KPIs based on asking customers if they like you is one such dangerous KPI. It is better to ask for preferences against competition. Better yet, just ask about past behavior.

FINAL THOUGHTS
This problem is even worse if you are asking customers about new concepts or products for which they have to prior experience. As Steve Jobs of Apple used to say: “You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new.”  And when commenting on what kind of consumer research Apple did for the iPad, Jobs said, “None. It is not the consumers’ job to know what they want.” In other words, KPIs on future concepts should steer clear of consumer opinion even more than others. When it came to the future, Jobs marched to the tune of the future, not to the obsolete marches still in the heads of the customers.

Strategy Planning Analogy #564: The Attack of Gravity

THE STORY
I have a skateboard park near my home where lots of young boys like to hang out. The primary attraction at the skateboard park is a giant U-shaped surface. The idea is to start at the top of one end of the “U” and skate down & back up the other side of the “U”.

It sounds easy enough, but these boys have a tendency to fall off their skateboards. As it turns out, the location the skateboards prefer is not on top of the “U” but at the bottom. That’s where all the skateboards congregate after the boys fall off of them.

They are victims of the law of gravity. The boys try to fight it, but the skateboards willingly give in to the gravitational pull to the bottom of the “U”. But then again, if skateboarding were easy, there wouldn’t be any challenge to the sport.

THE ANALOGY
Lately, it seems like retailers have become more like skateboards. They all want to fall down to the bottom of the “U”. In this case, it is the gravity of pricing which is pulling them down. All the retailers seem to want to be on or near the bottom of the range of prices.

In the past, retail pricing was more like when a boy is guiding the skateboard, trying to defy gravity and get as high in the air as possible. Similarly, retail management in the past would guide the stores on paths towards pricing as high as they could get away with. But now it is more like when the boy falls off the skateboard. The retail pricing falls to the bottom like an unmanned skateboard.

And there the stores lay, all clustered at the bottom of the pricing range. And although that may be good for the consumer, that’s not a good thing for the retailers.

THE PRINCIPLE
If you want people to prefer your offering, then you have to give them a reason to prefer you. There needs to be something in your offering that makes it special enough to cause people to see a justifiable reason to prefer it over the alternatives. That won’t happen if every option looks the same. Similarity makes all the options undistinguishable from each other. There is no reason to prefer one over the other when you cannot distinguish one from the other. Therefore, a key aspect of strategy is to find one’s point of preferred differentiation.

The problem is that business gravity tends to pull everyone down into an indistinguishable sameness. As soon as one firm finds a positive differentiation, everyone copies it. They chase each other on prices until everyone is at the bottom. They all get stuck in a heap at the bottom of the “U” looking about the same.

To fight the business gravity, firms need to apply the principles of differentiation. We will look at three of these principles.

#1: A Difference Needs to be Meaningful

Marginal differences do not motivate behavior. Consumers are creatures of habit. If you want to change their habits, you have to make your differentiation large enough to grab their attention and overcome the resistance to change.

When I was in the grocery business, the general rule was that if you wanted to get people to shift based on price, then your average prices would need to be at least 7% lower than the competition. Otherwise, the price differential is not enough to succeed. You don’t look different enough to create preference on price.

The problem is that in commodity retailing, pretty much all retailers are now within about 7% of each other on price. Wal-Mart’s original popularity was based on the fact that their prices were significantly lower than the prevailing “normal” prices. That caused people to shift to them in droves.

Now, Wal-Mart prices are considered to be the “normal” price. Their prices are no longer seen as abnormally lower than the marketplace. They are the marketplace price…no big deal. They set the market norm which others come pretty close to matching. No wonder Wal-Mart has stagnated. Their level of difference in their prices is no longer meaningful. When your level of differentiation is no longer meaningful, it is no longer a point of strategic differentiation.

#2: Successful Differences tend to be on the Fringe, Not the Core

Such a phenomenon is typical for the core attributes in almost any industry. Because the core attributes are so critical to success, competition won’t let you get a meaningful differentiating advantage there. They will copy the market leader on core attributes to nullify any advantage.

In retailing, the core attributes tend to be product and price. Unless you are a niche retailer, the products and prices between retailers today are not all that different. As a result, it is difficult to create meaningful differentiation at the core. Therefore, if you want to create differentiation, you have to look to the fringe.

And that’s what commodity retailers are doing. Wal-Mart has been investing in improving its service levels and store décor. Even Aldi, a leader in no-frills, low cost retailing, has started a program to upgrade its store décor. After all, if your prices are not that much lower than anyone else, why should customers put up with your low service and bad décor? The trade-off isn’t worth it when the price differential shrinks. So now you can no longer just be the best low price store; you have to be the low price store with the best fringe offering.

So the irony is this: although the core is the reason for consuming an offering, it is the fringe where differentiation tends to be most effective, since it is easier to create differentiation at the fringe than at the core.

#3: Successful Differences tend to be Difficult to Copy

But just as the core can be copied, eventually so can the fringe. So the trick is to try to find the types of differentiations which are the most difficult to copy. This is done by making bold trade-offs.

The trick is to get extremely good in one fringe area (i.e., create a huge differential) by foregoing much investment in other fringe areas. It’s like putting your eggs in one basket.

For example, the core in the airline business is getting a passenger safely to their destination on time. Most airlines are pretty similar with respect to these core features. So to create differentiation, you have to go to the fringe. Southwest Airlines focused on the fringe aspects most popular with pleasure travel and pretty much ignored the fringe directed at business travel. As a result, they are not the most popular business travel airlines, but they have meaningful differentiation that attracts the pleasure traveler.

Had Southwest tried to be equally strong in all fringe areas, they would not have stood out on any fringe area. The beauty of only focusing in one area of fringe is that it allows you to make bold changes to your business model. You can cut out the aspects of the business model where you do not focus so that you can alter your business to be even better at providing the fringe being focused on. This is the idea of making trade-offs.

For example, Southwest Airlines eliminated the hub & spoke approach to scheduling. Although that may not have made business travelers happy, it freed up resources to make it easier for Southwest to win with the pleasure traveler. The beauty is that it is difficult for airlines who did not give up hub and spoke to match Southwest on the fringe which matters to Southwest, because the others did not make the trade-offs necessary to create ability to outdo Southwest in the areas where Southwest chose to differentiate.

So the secret to differentiation is this: pick an area of differentiation which is inherent to the unique way you operate your business model, so much so that those using a more conventional business model cannot match you. Create trade-offs in both the way you operate and the fringe you offer, which make imitation difficult. By working the two in tandem (internal operation and external fringe offering), you can distance yourself from the norm and create meaningful differentiation.

SUMMARY
There is a natural tendency in business for companies to chase the same approaches to the core. Like gravity, they are pulled to the same place. By all looking and acting the same, there is little opportunity to create differentiation. And without meaningful differentiation, there is no reason for a customer to prefer your offering over the alternatives. To get around this, firms need to:

• Consider how to create differentiation in an aspect of the fringe;

• Create trade-offs in the business model which allow one to get so good at offering the chosen fringe that others with a more conventional business model cannot effectively copy you. 

FINAL THOUGHTS
This is not just a problem for retailers and airlines. All businesses can fall victim to their industry’s gravity and become indistinguishable from the competition. Differentiation at the fringe is important for all businesses to consider.

Strategic Planning Analogy #538: Three Questions (Part 3)

THE STORY
We have a persistent cat. When it wants to go outside, it is determined to go outside. However, we do not let the cat out when the weather is really bad, such as a thunderstorm or a blizzard.

When the cat wants to go out, it meows by the door. If the weather is bad, we show it the bad weather through the window and tell the cat it cannot go out.

This will satisfy the cat for about five minutes. Then it will go back to the door and meow again. We show it the bad weather and say no. This again satisfies the cat for about five minutes. And then the cycle repeats itself, over and over again.

It reminds me of the old definition of insanity: Insanity is doing the same thing over and over expecting a different result.

THE ANALOGY
The cat kept going to the door, expecting a different result (to be let out). However, because the situation had not changed (the weather outside was still bad) the results did not change (cat still not let out). The only way the outcome would change is if the situation changed (the weather improved).

It sounds simple, but the cat didn’t get it. Sometimes I think business leaders are a lot like that cat. They want an improvement in their financial outcomes, similar to a cat wanting to go outside. They go to their financial dashboard, just like the cat went to the door, to see if their desire will come true.

The dashboard says that the outcomes haven’t come true. That satisfies the executives for a short while, but then they keep going back to check the numbers—over and over again—and the numbers do not change.

The problem is that the company has not done anything significantly different in the way it approaches the marketplace. And as long as nothing significantly different has been done, one should not expect significantly different results. So we’re back to the definition of insanity.

To get out of this loop, we need to emphasize doing things differently to create a more positive outcome.

THE PRINCIPLE
This is the third of three blogs looking at the three questions businesses need to ask themselves if they want to prosper into the future. Those question are:

1. What problem are you trying to solve?
2. Why should the customer naturally prefer your solution over the alternatives?
3. What are you doing differently to prove your superiority?

In the first two blogs (here and here) we looked at the first two questions. We saw that success comes from focusing on solutions and developing preference as the best solution. In this blog we will be looking at the third question and further understanding how to create that preference.

The Formula for Success

The key idea comes from the following truism:

a)     As long as you are seen as similar to the alternatives, you will never be seen as better than the alternatives.

b)     As long as you are not seen as a better than the alternative, you will not be chosen as preferred.

c)     Therefore, the formula for preference is as follows:

a.      First, create an obvious, meaningful difference between yourself and the competition.

b.     Second, use this difference to prove superiority over the competition.

c.      Third, use this superiority to create a purchasing preference over the competition.

Everything breaks down if you skip the first step. You have to start with differences. Otherwise you have no foundation for proving superiority. After all, how can you believe something is superior if you perceive it to be the same as the alternative? And without the perception of superiority, there is no reason to expect a natural preference.

So if you want better results in the future, you have to start by focusing on doing things differently. After all, as we saw in the analogy, if you don’t do something different, you shouldn’t expect different results.

But we’re not talking here about just any difference. We a looking for differences which will help the marketplace perceive us as superior.

Oxydol

One of my favorite stories is that of Oxydol detergent. Oxydol was the first laundry detergent to add bleach to its formula. That was supposed to be the change which created a perception of superiority. But it wasn’t working.

The problem was that consumers were having a hard time perceiving the difference. Oxydol looked exactly like the competition. You used it in your laundry exactly like the competition. Nothing felt different. Therefore, consumers concluded it wasn’t really meaningfully different. The net result was that consumers had no natural reason to see Oxydol as superior or preferable.

So Procter & Gamble put useless green crystals into the detergent. Now Oxydol looked different than the competition. Proctor and Gamble attached this difference to the fact that they had bleach in their formula and the competition did not.

Since the consumers now believed Oxydol was different, and that the difference made Oxydol superior, they began to prefer Oxydol. From that point on, Oxydol became the #1 laundry detergent in the US. It stayed #1 until Proctor & Gamble decided to shift its emphasis to making Tide #1.

So creating the perception of a difference made all the difference in creating superiority and then preference.

Followers, By Definition, Are Not Leaders

If all you do is follow and imitate the leader, you will never be seen as different in a superior way. If any difference is seen at all from your imitation, it would be that you are similar, except for being smaller and weaker and not the leading brand. That is not the formula to success.

If you want to be seen as better than the leader, you must do the opposite: stop imitating and do something differently.

Think about Dodge Ram trucks. They used to be a minor player in the world of trucks, way behind the Ford F-150 and Chevrolet Silverado. They were seen as just like the other guys only smaller, weaker and not the leading brand—the formula of death.

So Dodge abandoned imitation and went for differentiation. Instead of making their trucks look like Ford and Chevy trucks, they made them look more like the cabs of a big, industrial semi truck. To add to the differentiation, they put engines in these trucks that were manufactured by the same people who built engines for semis. Then the marking experts at Dodge used these differences to create the impression of superiority with a particular truck-buying segment.

It took some time to change the perception, but eventually it worked. Now Dodge Ram trucks have skyrocketed in sales and have captured a meaningful share of the market. And because they captured that share with natural preference build on differentiation rather than on bribery, the business is more profitable.

So, if you want different (better) results like Dodge Ram, you first have to do something different.

SUMMARY
To succeed in the marketplace, one needs answers to three questions:

1. What problem are you trying to solve?
2. Why should the customer naturally prefer your solution over the alternatives?
3. What are you doing differently to prove your superiority?

Regarding the third question, everything hinges on building positive differentiation. It is the differentiation which allows customers the ability to no longer classify you as the same as everyone else. You can use this to say that your difference is what makes you superior. Then you can turn this superiority into preference. And that’s how you win.

FINAL THOUGHTS
What are you doing differently from everyone else?

Strategic Planning Analogy #537: Three Questions (Part 2)

THE STORY
For as long as anyone can remember, there had been the ice brigade at the US Congress building. The 29 employees with this job had the responsibility of making sure every congressional office had a bucket of ice by its door before 9AM every morning.

Nobody remembers when it started, but the tradition pre-dates air conditioning and mini-refrigerators. The idea was that Washington, DC can get very hot. Ice could be used in a number of ways to help counter the heat, either externally or internally.

Of course, now that congress has air conditioning, mini-fridges and other ways to conquer the heat, those ice cubes were less necessary. Yet they still came, every day, like clockwork. Many of the ice buckets were just thrown away each day by congress people who did not want it.

Finally, in 1994, Republicans took over control of Congress and started a program to eliminate waste. They saw the ice delivery program as an unnecessary waste and the practice stopped May 1, 1995.

Another waste looked at during this time was the fact that even though every elevator in the building had self-service buttons which anyone was capable of pushing, each elevator had a paid employee to operate those buttons.

THE ANALOGY
Time changes things. Something which may have made perfect sense in the past may be foolish today. Yes, there was a time long, long ago when ice deliveries to congressional offices made sense. But times changed, making that no longer necessary or even particularly desired. Yet the practice continued for decades.

Similarly, when elevators were first invented, it made sense to have elevator operators. But the elevator technology advanced over time to the point where elevator operators had become unnecessary and obsolete. Yet they were still there, working away in congressional elevators.

We may see these as silly and obvious examples of being out of touch with the changing times. Surely, our business would not get that out of touch with the changes in the world around us, would it?

Well, there are business bankruptcies every day, and many of those bankruptcies are due to the fact that a company did not adequately adapt to the changing times. The digital revolution made a lot of analog businesses look rather silly and out of touch—leading to many bankruptcies. For example, Kodak was an expert at analog film. But in a world of digital imaging, they seemed as necessary as elevator operators or ice deliverers in congress. The social revolution is having a similar impact.

Therefore, we must always be on guard to ensure that the times are not passing us by and making us silly relics of the past. Even congress eventually figured this out and did something about the relics around them. I assure you that the marketplace will act quicker than congress. 

THE PRINCIPLE
This is the second of three blogs looking at the three questions businesses need to ask themselves if they want to prosper into the future. Those question are:

1. What problem are you trying to solve?
2. Why should the customer naturally prefer your solution over the alternatives?
3. What are you doing differently to prove your superiority?

In the first blog, we looked at the first question. We saw that successful companies focus on solutions rather than products. Multiple products can be focused on the same solution, and multiple solutions can be had for the same product. Therefore, if you want to win in the marketplace, you need a strategy concerning which problem you want your product to solve.

Now we will turn our attention to the second question. Once one comes to understand that consumers choose based on which product is best at solving their problem, one realizes that the goal of their company must be to supply the best solution to their customer segment. In other words, you need to get a consumer segment to prefer your solution over all of the alternatives.

Understanding the Alternatives

If you want to be the preferred alternative, then you had better understand who the alternatives are. As we saw in the last blog, alternatives can come from products quite unlike your own. For example, many luxury brands can solve the problem of providing prestige or status. This could be anything from fashion clothing to automobiles to the latest technology to trophy wives to the liquor you drink to exotic vacations to yachts to whatever.

The point is that being the best at your particular product may not make you preferred if other products are better at solving the underlying problem.

For example, there is a big difference between the way high school students act today versus when I was in high school. The underlying problem for most high schoolers has not changed over the years. They are still looking for ways to achieve status and fit in with the cool group. The preferred solution, however, has changed.

In my day, clothing was a key way of solving this problem. If you wore the right status clothes, you got an edge in achieving status and fitting in with the cool group. Today, however, clothing is not the preferred solution. Just look at firms like Abercrombie & Fitch who built their entire strategy around being the best status clothing for high schoolers. These firms are doing poorly in the marketplace because students are looking for status somewhere other than in clothing.

Instead, students have found that having the coolest technology is the preferred solution over coolest clothes. In order to afford the coolest technology, students have shifted their clothing purchases to value brands like H&M or Forever 21. In fact, I just read where thrift stores are a hot place for teens and young adults. So now, clothing is looked at as a place to solve the problem of saving money in order to afford cool technology rather than as a solution for cool.

This leaves Abercrombie & Fitch out in the cold. Even if they are the coolest clothing retailer, it is irrelevant if the preferred cool solution is from technology, not clothes.

So understand the full spectrum of options for your customer. If your offering is not preferred over these alternatives, either change your offering or change your solution. Even Abercrombie & Fitch is starting to figure this out and is repositioning its Hollister brand to be less of a cool solution to more of a stretching your money solution.

Staying Relevant

Since times change, technology changes, competition changes and consumers change, one has to continually monitor the marketplace to ensure that your solution remains the preferred alternative.

For example, think of all the ways the smartphone and all its apps have changed people’s expectations and behaviors. Much of this new behavior is because the smartphone and its apps are being seen as preferred solutions over the older ways of doing things. If mobile is not a part of your solution, you may becoming as relevant as ice men at congress or Kodak in imaging.

Alternative If You Are Not Naturally Preferred

Let’s say you have not created a clear preference for your solution. Perhaps you have parity with the leaders or near-parity. You may think that’s pretty good.

But here’s the problem: if you cannot win them over with natural superiority, then you have to win them over with artificial superiority, which I call bribery. I don’t mean the illegal type of bribery. I just mean you have to sweeten the value by offering large discounts or added goodies. In other words, you are essentially paying them to pick you, because the natural offering alone is not enough to create preference.

And we all know what those discounts and added goodies do to our profitability formula. They transfer the benefit from us to the customer. There had better be an awful lot of price elasticity in order to cover the loss of profits per item. Unfortunately, in a highly competitive marketplace, the competition will tend to match your bribery, so no advantage is had anyway. You just lowered the profitability for the entire industry.

Segmentation

The goal here is not to be preferred by EVERYBODY. That is unrealistic since people are seeking value in different ways. You cannot be the best at pleasing everyone with the same offering. Trying to please everyone usually means you are preferred by no one.

Therefore, the goal is to choose a consumer segment for whom you can create the preferred solution. The chosen segment should be large enough to satisfy your requirements.

SUMMARY
Of the three important questions, the second one is “Why should the customer naturally prefer your solution over the alternatives?” Preference is important because without natural preference, you have to lower profits through bribery in order to lure business. Worse yet, your solution may be so irrelevant that even bribery will not be enough to create preference.

Since times change, you have to be constantly on the lookout to ensure that your solution remains preferable through time. Otherwise, you may need to change your offering or change your solution.

FINAL THOUGHTS
Superiority is determined in the mind of the customer, not in your laboratory. When determining whether you are the preferred alternative, ask your customer segment, not your employees.

Strategic Planning Analogy #518: Deadly Serious

THE STORY
I recently saw the movie “Inside Llewyn Davis.” It’s the fictional story of a folk singer back in the early 1960s. I also recently pulled out and listened to some old vinyl records of folk singer Bob Dylan from the early 1960s.

A common element about much of the folk music scene in the early 1960s was a sense of utter seriousness about the music. I could feel it in both the movie and the Bob Dylan records.

Many of the songs spoke about big, serious issues, like Peace & War, Love & Hate, Life & Death, and Social Injustice. The audiences at performances were quiet and serious. They focused on the words as if they were oracles from God. The mood was a bit like going to a (godless) church. And the backs of the albums were full of long liner notes from reputable reporters and serious music critics. They wrote about the music as if they were critiquing the works of the greatest masters of art and literature. Many of the folk artists were willing to almost starve to get the message out.

That’s quite a bit different from the music scene of today. Today’s popular music has been downgraded to little more than a background beat—a soundtrack to a video where someone wearing little clothing prances about. The suggestive video gets the emphasis and the background music feels like an afterthought. The audience is loud and rowdy—more like a party than a church. Nobody takes the “artists” like Miley Cyrus or Justin Bieber seriously. And you can tell they are in it for the money, not the message.

Things have certainly changed.

THE ANALOGY
I think a similar change has taken place in strategic planning. If you go back in time—to perhaps roughly around the 1980s—strategic planning was taken very seriously. Like the folk music of the early 1960s, the strategy topics covered in the past were large and deep—of life and death importance to the company or brand. Positioning, competencies, structure, differentiation—a search for a sort of “eternal purpose”, a reason for a brand to exist, a reason to keep the company from dying.

People with the word “strategy” in their title back then were treated with respect. The most respected consulting firms, who hired the best and the brightest, specialized in strategy. People listened attentively when they spoke on the subject, like hearing a sermon in church.

And like the long liner notes on the back of the folk records, there were lots of people writing serious books on the topic of strategy.

Now, it seems that strategic planning has, like today’s music, fallen out of seriousness. Strategic planners today are often relegated to merely creating the background beat—the monthly rhythm of KPI (Key Performance Indicator) reports, plan vs. actuals reports, and other such monthly scorecard updates. The real focus has moved elsewhere. Strategy work is seen as merely a temporary stopping point for high potential employees or those seeking to become something else, like a CFO—it is not a serious career destination. Even the big consulting firms rarely do strategy work anymore.

There aren’t many forums left where the big “life and death” issues of the corporation get serious discussion. Some of the newer social media firms take strategy work about as seriously as one would a Miley Cyrus video.

Things have certainly changed.

THE PRINCIPLE
The principal here is that long-term success requires making the right choices on some major, serious topics. Make the right decisions on these major topics and your company lives. If you ignore them, or guess wrongly, your company will die. They are, quite literally, life and death decisions.

When strategic planning is relegated to being just the rhythm section (only producing the monthly reports), companies lose an important focal point for dealing with these larger, serious issues. And that makes survival a lot riskier.

I will bundle these serious issues into two categories—“Reason To Live” questions and “Reason Not to Die” questions.

1. Reason to Live

If you want your company or offering to live, then you need a reason for why customers would want it to live. Otherwise, your company will die.

There is too much competition; too many alternatives. With all of those choices, a consumer is not forced into choosing your offering. They can choose something else, and unless you give them a reason to prefer your offering, they will choose something else. That is why I have said many times that the most important question in strategy is: What is it about your strategy which will cause customers to prefer you over the alternatives?

Preference is caused by offering a differential advantage over the alternatives. There are many ways to create this edge: by being faster, lower cost, higher quality, better service, more features, more specialization, higher convenience, and so on.

The important point here is that differential advantages rarely come about by accident. If all you do is the same thing everyone else is doing in your space, you end up just like everyone else in your space. There is no difference. There is no advantage. There is no real preference. At best, you gain customers randomly.

No, if you want to be preferred you have to be different; you have to choose a different strategic path than your competition. You have to choose where to build an inherent advantage. And then you have to design and build a different business model in order to profitably deliver your different results.

All of that requires serious discussions. The answers won’t turn up in a monthly update report. You need serious time devoted to the issue.

It bothers me that so many people just look to where the hot business space is and then rush in to fill the demand—just like thousands of other companies. Yes, there can be big winners like Apple, Google and Facebook. But the vast majority of the ones jumping into hot spaces fail.

They are lured into the hot space just like people are lured by the hot singer prancing about in the music videos. It looks so inviting. But because there is no substance built behind the scenes, it fades away.

Before jumping into the hot space, ask yourself some serious questions. What would give me an inherent edge over everyone else jumping into this space? What would I need to do differently in order to create that edge? How do I build a business model that excels in delivering that edge? Where do I get the competencies and capacities to pull it off? How do I build a superior advantage over others who may want to create the same advantage?

Without these serious discussions, you are not designing a reason for living. You are merely playing the lottery and hoping to get lucky. And we all know that nearly everyone who plays the lottery loses.

2. Reason to Not Die

Just because a company is successful today does not mean that it will continue to succeed. Many one-time great and successful companies have died or nearly died. Just think of Kodak, Lehman Brothers, Tribune Co., Global Crossing, Woolworth’s (US), and Sears.

The problem is that the environment changes. What succeeds in one environment may fail when that environment changes. Past success is no guarantee that success will continue into that changing world. Instead, one needs to be examining the environment and asking the tough, serious questions about whether your business is falling out of favor with change and on a path to death. And, if the current path is death, what big changes need to be made to avoid death.

The companies above either ignored the changes or made bad choices about how to deal with the change. Kodak bungled the transition from analog film to digital imaging. Tribune Co. bungled the transition from newspapers to digital media. Lehman Brothers misread the future of mortgages. Global Crossing misread the evolution of communications. Woolworth’s and Sears stayed in the middle while retail bifurcated into high-end and discount.

If all you do is measure success over the past month, you will miss the bigger picture. Not only can it make you blind to the larger changes, it can actually make the transition even harder. For example, sometimes the path from the old strategic vision to the new requires taking a temporary dip in earnings, as investments are shifted from the old to the new. The only way to preserve the near-term results may be to delay or ignore investments into the new. As a result, you miss the transition to the new and you die like the examples.

Take time to stand back and seriously assess the bigger, longer term picture. That way, you can get in front of the change and successfully transition into the new environment. If you don’t, you will probably die.

SUMMARY
Companies fail all the time. Usually, they fail because they did not properly address the big, serious issues of life and death. Companies live/thrive if they provide a differential advantage by choosing the right way to be different. Companies avoid death if they adapt to the changing environment. Unless you devote significant time to seriously discuss these issues, you will not ultimately survive. That is why I am in favor of strong strategic planning disciplines which tackle these tough issues.

FINAL THOUGHTS
Just because serious strategic planning may appear to be out of fashion does not mean that many of its critical functions are no longer necessary.

Strategic Planning Analogy #399: The Most Important Question

THE STORY
I was talking one time with the president of a retail company. This company had just chosen a new strategic direction. In essence, they had decided to imitate a strategy which had been very successful for another retailer with whom they competed. Puzzled by the choice of strategy, I asked this president a few questions.

“Will you have lower prices than this competitor?” “Not really,” he replied. “Our prices will be about the same.”

“Will you offer a better assortment than this competitor?” “No,” he replied. “The assortment will be similar.”

“Well I know the competitor has superior store locations. So, I’m wondering…what is it about your strategy that will cause customers to prefer you over this competitor?” He didn’t have an answer.

It wasn’t too long after this conversation that this individual was no longer president of that retail company.

THE ANALOGY
In the story, the president chose a strategy which had been very successful for a competitor. My guess is that the president concluded that since the strategy made his competitor successful, then it must be a good strategy. And if it is a good strategy, then it will work for his company as well.

Unfortunately, that’s not the way strategies work. In general, a strategy is not intrinsically good or bad on its own. It’s value is based on the context of the particular company using the strategy and the competitive landscape. In other words, a strategy is only good if it is good for you.

For example, a low price strategy may be excellent for the lowest cost operator, but a disaster for a high cost operator. So is the “Low Priced Strategy” a good strategy? It depends. And if you don’t have a good understanding of yourself and your marketplace, you may come to the wrong conclusion.

To help figure out if a strategic option is the best strategy for you, it is often a good idea to develop a process where you ask a lot of questions, as I was doing with this president. And one of the best questions you can ask yourself is this: What is it about your strategy which will cause customers to prefer you over the alternatives? In the story, the president did not have an answer to this question. And as a result, his strategy failed and he lost his job

THE PRINCIPLE
The principle here has to do with the concept of superiority. Great strategies enable a particular company to achieve a position of superiority in the marketplace. And this superiority is only relevant if a meaningful percentage of the marketplace desires it. And one of the best ways to determine if you have achieved this relevant point of superiority is to ask the question: What is it about your strategy which will cause customers to prefer you over the alternatives?

No Reason To Prefer = No Reason To Exist
This is a critical area to spend time on, because preference is directly related to relevance. In other words, if consumers have no reason to prefer you, then you have no reason for existing.

A lot of businesses struggle to survive. I believe that most of these firms struggle because they never established a reason for why customers would need them to survive. They have never established a rationale for why someone should clearly prefer them over the alternatives. There is no clear superiority.

These struggling companies may say that they have good products/services at competitive prices. But so do nearly all the alternatives. Just look in the phone book or do a search on the web. There are lots and lots of alternatives. And most of them are pretty good. Just being as good as everyone else is not enough. That does not provide a reason for people to choose you. Mediocrity is not a viable strategy.

In an earlier blog, we asked about what would happen if your company ceased to exist. Would anyone care? Could they easily find a substitute and move on with their lives as if nothing happened? If that is the case, then you do not have a worthwhile strategy.

If you want to exist, then you need give people a reason for wanting you to exist—a point of superiority.

If You Know Why Consumers Should Prefer You, Then You Pretty Much Know Your Strategy
The real beauty to this question is that, once you know why consumers should prefer you, then the rest of the strategic process becomes relatively straightforward. It boils down to four words: Strengthen, Protect, Declare, and Leverage.

Strengthen: Keep strengthening your point of preference so that your level of superiority becomes even greater. This is where a disproportionate amount of your resources need to be applied. This is the “offense” part of the strategy.

Protect: This is the “defense” part of the strategy. This is where you monitor the competition and do what you can to keep them from catching up or surpassing you in superiority.

Declare: It does no good to have superiority if the customers are unaware of it. Have a plan in place to make sure your customer segment is fully aware and fully appreciates your point of superiority.

Leverage: A point of superiority opens up numerous profitable opportunities. The point of superiority needs to be exploited by leveraging it into as many profit opportunities as you (and your customers) can handle. This could mean adding new products/services, expanding into new countries, etc. As long as these actions take advantage of your point of superiority, they can successfully grow your business exponentially.

So, if you were Apple, you know that your superiority centers around having the coolest technology. So what is the strategy? Strengthen the coolness by continually improving the products. Don’t let anyone come up with anything cooler. Leverage your coolness into an expanding array of products: iMac, iPod, iPhone, iPad, etc. Surround them with cool stores and cool apps that exclude the competition. And tell the world about your coolness through cool media campaigns.

If you are Wal-Mart, your superiority centers around low prices. So what is the strategy? Do what you can on the cost side so as to strengthen your ability to afford to sell at even lower prices. Protect yourself from others who could get a price advantage. For example, when Wal-Mart discovered that supercenters could get a price advantage over discount stores, they pretty much abandoned the discount store strategy and started building supercenters. Leverage your strength by going international (which has the secondary benefit of increasing economies of scale and enabling even lover prices).

Even Knowing You Have No Point Of Leveage Makes Strategy Easier
Let’s say you find that there is no reason why customers should prefer you. Just knowing that makes the rest of the strategic process easy. You have four options: Create, Bribe, Intercept, or Exit.

Option #1 - Create: Choose a point of superiority (which you don’t own today) and make it a reality.

Option #2 – Bribe: Add something tangential to your mediocre offering which will create temporary excitement and preference. This usually takes the form of either a big price reduction or some sort of “gift”/“bonus” with purchase. It’s like a legal bribe. Since your offering alone isn’t good enough to stand out, you need to sweeten the deal with something extra.

Option #3 – Intercept: If you can’t get the customer to go out of their way to prefer you, then you need to go out of your way so that they cannot avoid you. Intercept them before they have the chance to find someone else. For example, if you are no better than anyone else, then the best way to increase your chance of being chosen may be to use an SEO strategy to make sure you show up on the top of the first page of a Google search. If you are a retailer, put your store in the busiest location or closest to the customer, so that it is a bigger struggle for them to go elsewhere. Have more aggressive salespeople than the competition.

Option #4 – Exit: If you have no reason to exist, then perhaps the best thing to do is to find a strategy to stop existing—as profitably as possible. Selling or shutting down is often the most prudent thing to do.

SUMMARY
The most important question one can ask one’s self when doing strategy is this: What is it about your strategy which will cause customers to prefer you over the alternatives? Once you answer this question, the rest of the process becomes rather obvious and straightforward. The next steps become much clearer. If you have a point of superiority, the next steps are to Strengthen, Protect, Declare, and Leverage that point of superiority. If you do not have a point of superiority, then you need to either create one, “bribe” the customer, intercept the customer, or exit the business.

FINAL THOUGHTS
Following the leader will never get you in the front for the race to the customer. Instead of chasing behind the competition, find a race where you have the superiority to win.