Strategic Planning Analogy #467: The Flavor Conspiracy

THE STORY
There’s a global conspiracy out there which is trying to get you to believe a lie.  I call it “The Flavor Conspiracy.” 

Think about those artificial flavors.  You can find “cherry” flavor in hundreds of items, from candy to cough syrup.   And every item which claims to have the “cherry” flavor tastes exactly the same.  If everyone is claiming that to be cherry flavor and they all have the same flavor, then that flavor must be the flavor of a cherry, right?

WRONG!  If you were to bite into a real cherry and it tasted like the so-called cherry flavor, you’d spit it out and say that it tasted funny.  Real cherries don’t have the flavor of what manufacturers call cherry.  It’s a lie!

That artificial banana flavoring is even worse.  The flavor doesn’t even come close to that of a real banana.  But every manufacturer uses that same imitation flavor and calls it “Banana Flavor.”  Just because they are all telling the same lie does not make it true.  It’s merely a conspiracy—the flavor conspiracy.

 

THE ANALOGY
A similar conspiracy is taking place in the world of strategic planning.  There is a lie out there that strategy is little more than setting numeric goals and then tracking progress against those goals.  Just shout the numeric goal and plot the progress on some dashboards and spreadsheets and you are done.  Your strategy is complete (except perhaps for additional shouting when the goals are not met).

In more and more companies, this is pretty much how strategy planning is defined.  It is a small offshoot from accounting, where being a CPA is considered a primary prerequisite to working in strategic planning (since those people are skilled in tracking numbers).  If you don’t believe me, go to a job openings site like www.indeed.com and search for strategic planning positions.  Most of the job descriptions tend to move in that direction.

But just because everyone is calling that “strategy” does not make is so, no more than claiming that artificial banana flavoring tastes like bananas makes it so.  It is still a lie.  The conspiracy of having large numbers of people promoting the lie may make it harder to go against the flow.  But that doesn’t mean the majority is right.

Just as those artificial flavors do not accurately represent what the true fruit flavors are, this idea of strategy as merely goal monitoring does not represent what true strategic planning is.   

 

THE PRINCIPLE
The principal here is that unless the planning community stands up to the goal monitoring conspiracy, real strategy will fall away.  It will be like people who never got to taste the real fruit, so they have no reason to reject the false artificial flavors.  Similarly, unless we show the business community what real strategy looks like, the false notion about strategy will be all they know, so they will have no reason to reject it.  They will not know what they are missing.  And they will be missing a lot.  In this blog, I will refer to what is missing as the three R’s.

1. Missing A Reason

Numerical goals are nice, but if you have no reason for why the goal is attainable, then there is no reason why you should assume the goal will be attained.  For example, I could have a goal of wanting to be seven feet tall (2.13 meters).  But I have no reason for why my mature body should suddenly become so much taller.  Therefore, I am unlikely to reach my goal.

Similarly, expecting a mature business model to suddenly jump significantly in sales or profits without any underlying reason is also highly unlikely.  Without a reason, that goal is rather worthless.  And improving the accuracy in your tracking of that goal does not make the goal any more reasonable. 

In my latest book, The Most Important Question, I talk about how the most important question in strategy is “Why should a customer naturally prefer me over the alternatives?”  If you have no reason for why a customer should prefer you, then they will not prefer you.  There will be no reason to expect results to suddenly get better and reach much higher numbers because you have not given customers a reason to reward you with higher numbers.

Sure, you can work a little harder and a little longer at the same old approach and perhaps squeeze out a few drops of extra performance.  But this has a very limited impact.  Any advantage from working harder is usually met with a competitive response which negates the advantage.  And the extra pressure could chase away your best employees or cause them to create more errors due to fatigue. 

 

Also, as markets change, you may find that your old status quo position is becoming less relevant.  And working harder at an obsolete approach doesn’t make it more relevant.  If you are not looking for reasons to succeed, you may not even notice the drift away from a relent reason to exist.  You will only see that goal.

Sure, you can overcome no reason to be preferred a bit by “bribing” the customer with lower prices or better deals.  This may increase sales a bit, but lower profits due to the cost of the added incentives.  And since most of these types of bribes or incentives are easy for competitors to copy or neutralize, they may not even improve sales.  Finally, since there is no underlying reason for why they customers should stay, you could lose those gains as soon as the “bribing” is stopped.

That is why true strategy doesn’t start with a numeric goal.  It starts with defining a position where you have a reason for being, a right to win.  It examines the marketplace to look for viable positions which are desirable, attainable and winnable.  It looks at both rational and emotional drivers of consumer behavior (something not found on a CPA exam).  It dreams up ways to be different from everyone else (whereas accounting tries to achieve conformity in rules with everyone else). 

And most importantly, true strategy questions the status quo to make sure you continue to have a reason to win in a changing marketplace.  It is willing to abandon old rules and adopt new ones.  It is a creative exercise more than a tracking exercise.

2. Missing Reinforcements

True strategy is about making strategic decisions regarding resources.  Where should I put extra resources; where should I take away resources?  Just having a numeric goal doesn’t tell you how to make those choices.   

Michael Porter says the essence of strategy is making the right trade-offs.  In other words, what do I de-emphasize, so that I can afford to create superiority somewhere else?  To answer that, you need to know:

 

       a)      Where you are trying to win (your reason);

b)      What business model makes winning possible;

c)      What attributes are most critical to that business model;

d)     How all the various parts of the business work together to reinforce the winning position.

True strategy isn’t just about telling the people you have today to go out and reach for a goal.  It may first be about eliminating lots of activities (and people) who need to be traded away so that investments can be made in new competencies and capabilities (and new people) that don’t currently exist in the business. 

Until you get the right infrastructure in place, shouting the goal may be shouting at the wrong people.  To win, you need to reinforce the areas of the business most critical to success.  To fund the reinforcement, you need to take funding away from less critical areas.  A true strategy points the way to how those trade-offs are made.  This is a complex task, requiring cooperation and a reduction of political in-fighting and turf wars (particularly from the areas being de-emphasized).  You won’t get that from just shouting a numerical goal.

3. Missing Restrictions   

Strategy is more than just saying which way to go.  It is also about saying which way not to go.  Strategy is about getting alignment around a proper go-to-market strategy.  It is about moving the company in a common direction, so that actions reinforce the reason for being. 

That means that there are more actions which can be wrong than can be right.  And if you are not specific about which activities are wrong, you will not stop them from occurring.   

There are lots of ways to hit a numeric goal.  And a lot of those ways can do harm to the long term prospects of a company.  For example, you can increase profits for a little while by:

a)      Eliminating necessary investments in maintenance or infrastructure;

b)      Destroying quality or damaging services;

c)      Raising prices to non-competitive levels.

In the long run, these actions can destroy a business.

If all you emphasize is hitting a goal, you can end up with all sorts of actions which hit the near-term goal, but destroy long-term prospects.  That is why a true strategy puts restrictions on activities to prevent wrong actions.  True strategy is more about doing the right thing than in hitting a number.  Because if you keep doing the right things, it is easier to hit good numbers year after year after year.  But if all you do is try to hit today’s number by any means possible, there may not be any future.

 

SUMMARY
Just because nearly everyone is doing the same thing doesn’t make it right.  Even if everyone says that imitation banana flavor tastes like bananas, it does not make it true.  Similarly, if most businesses are defining strategic planning as just goal setting and monitoring, that does not mean they are right.  True strategic planning is much more.  It involves determining a reason for winning, a well-thought out trade-off analysis about where to make reinforcements, and restrictions on bad behaviors.

 

FINAL THOUGHTS
Richard Rumelt, in his book Good Strategy/Bad Strategy, says that a goal monitoring approach is bad strategy.  More specifically, Rumelt says that this type of bad strategy “is not the same thing as no strategy or strategy which fails rather than succeeds.  Rather, it is an identifiable way of thinking and writing about strategy that has, unfortunately, been gaining ground.  Bad strategy is long on goals and short on policy and action.  It assumes that goals are all you need. It puts forward strategic objectives that are incoherent and, sometimes, totally impractical.” 

In other words, this approach is not just doing strategy poorly.  It is taking on an approach which is the enemy of true strategy and poisons the mind so that true strategy cannot occur.  We need to fight this conspiracy.

Analogy #190: Who's Bribing Whom?

THE STORY
Back around 100 years ago, San Francisco was a pretty wild place for doing business. The city was growing rapidly and it was busy putting together its infrastructure—utilities, transportation, etc.

If your company became a part of that infrastructure, you would become extremely wealthy. Therefore, companies were highly motivated to use bribery to convince the San Francisco city aldermen to include their companies in that infrastructure.

Examples of companies who were bribing city officials at the time included PG&E (Pacific Gas & Electric), Bay Cities Water, and United Railroads. United Railroads had a $200,000 pool of money just to be used for bribery (which would be a huge amount in today’s dollars).

One of the biggest scandals was in the telephone utility. Pacific Telephone and Telegraph was currently serving customers in San Francisco. Newcomer Home Telephone Company wanted a piece of the action and allegedly paid $5,000 per official to get approval, along with $125,000 for political boss Abraham Ruef. Of course, Pacific Telephone did not want to lose its monopoly, so it bribed the officials to keep out Home Telephone. They supposedly spent about $50,000 in bribes.

Home Telephone appears to have made the bigger bribes, so on March 5, 1906, the San Francisco city supervisors awarded Home Telephone Company a 50 year franchise to operate in the city.

While the city was using bribery to build up the city, Mother Nature decided to tear down the city. On April 18, 1906, little more than a month after the Home Telephone decision, San Francisco was destroyed by a great earthquake and a fire lasing four days. Shortly after cleaning up from the earthquake, the city cleaned up its government. In March of 1907, the city officials and the businessmen who bribed them were convicted in a court of law. Abraham Ruef was charged on nearly 70 counts of accepting bribes.

THE ANALOGY
Although most businesses today do not resort to the level of bribery found in San Francisco 100 years ago, “bribery” is extremely common today. I’m not referring to the illegal type of bribery, but a legal form of bribery.

In reality, any time one must resort to added incentives to get a customer to make a purchase, you are “bribing” them. In essence, these incentives show that you cannot create sufficient sales at the original value, so you have to “bribe” people with something beyond the original value (such as a price cut), in order to get them to act as you want and buy your product/service.

Recently, I got a call for a time-share resort company who was willing to offer me all sorts of prizes and gifts in order to get me to drive to their resort to hear a sales pitch. All of their bribery in incentives was not enough to get me to go, though. It would take a much higher bribe to get me to overcome my lack of desire to hear their sales pitch.

The worse your original value proposition, the higher the bribe (in added incentives and price cuts) is needed to get customers interested in making a purchase. Ultimately, this cuts into your profits. Although this type of bribery will not get you convicted, it is not a very efficient way to earn profits.

THE PRINCIPLE
The principle here is that offerings with an inherently strong internal value are typically more profitable than offerings where bribery is needed in order to create sufficient value.

Take, for example, the automobile industry. GM and Ford are currently offering huge bribes in terms of incentives and price cuts in order to sell their slow-moving gas guzzlers. By contrast, Toyota can sell all of the Hybrid Prius automobiles they manufacture at full-price (and a premium price at that).

Because the Prius is more in tune with what customers want, Toyota does not need to add any bribes to the offering. The basic offer is strong enough on its own and can command a premium price. On the other hand, the big gas guzzlers at Ford and GM are out of tune with the marketplace. Consequently, they have to load on so many bribes to move the goods that there is very little left to create a profit. As a result, GM is in serious risk of going into default, while Toyota is doing well.

This is not an unusual example. Throughout history, one can find industries where one firm has such a superior perceived value that it can sell at a premium, whereas the competition has to resort to bribes in order to get any attention. Just compare Ipod to its competitors. Or look at Virgin Atlantic versus traditional airlines, where extensive bribery through special promotions and discounts has been a financially disastrous way of life.

Although he does not look at the issue in terms of bribes, J.C. Larreche covers similar territory in his book “The Momentum Effect.” Larreche is a marketing professor at INSEAD. Based on his studies, Larreche discovered that firms which spend a lot of marketing money to “push” goods on consumers (with what I call “bribes”) do not grow as fast, have lower stock prices, and are not nearly as profitable as companies who focus on creating the types of superior values which do not require bribes.

To paraphrase, Larreche’s advice is that rather than rushing to get a product to market, one should stop and first take the time necessary to ensure that the product you have has enough intrinsic value that it will sell without the need for bribery (what he calls achieving “compelling value” or the “power offer”).

Well, that all sounds logical and intuitive—superior offerings sell better (and more profitably) than inferior values. But how do you create these compelling power offers?

There really aren’t any shortcuts. It’s a lot of hard work. I divide the work into three buckets: Left Brain (Rational) Work, Right Brain (Emotional) Work and Whole Brain (creative) Work. The idea for the first two buckets is that you have to choose a particular customer segment and then get inside their brain. You have to understand all of their needs/wants/desires as well as what triggers satisfaction.

Some of these discoveries will be highly rational. Some will be highly emotional. You need to understand both. It is not always the technologically superior product that wins. Instead, it is the product which connects best with the customer on all levels, including emotions and psyche. Apple is very good at making the connections on all of these levels. Their products are technologically great, esthetically great, and create great emotional connections with their customers (see “Reason Vs. Rationale” for more on combining both rational and emotional appeals).

This takes time. It requires getting close to your customers…spending lots of time watching and talking to them…getting below the surface to the true human motivations. This is the data gathering phase.

But it doesn’t stop there. I know lots of companies which brag about being fact-based operations. But facts alone are not enough. It takes intuition and creativity to convert those facts into original superior value propositions. This is the third bucket of work.

Sure, it takes time and money to go through these three steps. But this is a far more productive use of your funds than using them for bribes.

And the beauty of the whole thing is that if you do this properly, the bribes will start flowing in the opposite direction. Instead of you having to bribe others, others will start bribing you.

1) Customers may start bribing you by offering to pay a premium to achieve faster access to your products. Customers can even start to act like free sales reps, singing the praises of your product to their friends.

2) So many people will want to work for your company that they will do whatever it takes to get a job there. They may even be willing to work for free as interns in order to be a part of this great value.

3) Other firms will want to do tie-ins so that they can have their products associated with your products. They will come up with all kinds of legal bribes to try to get permission from you to do this.

With all of these benefits, it should come as no surprise that I recommend that strategic planning efforts focus around trying to come up with a position which is so compelling to your customers that bribery is unnecessary. Your strategic planning process needs to incorporate some form of these three buckets (rational, emotional, and creative).

SUMMARY
It is more profitable to offer unique, compelling values than to push mediocre products. Pushing mediocrity requires an expensive form of bribery. However, if your value is compelling enough, people will start bribing you. Compelling values come from those who do the hard work of first leaning the deep-seated motivations of their customers (rational and emotional) and then finding a superior way to deeply satisfy them.

FINAL THOUGHTS
These days, whenever I look at advertising or an advertising budget, I imagine them as being distasteful bribes. It’s as if your advertising budget is like the $200,000 United Railroads had set up as their bribery budget back in San Francisco 100 years ago. Once you get into this mindset, one naturally starts to focus on ways to create extra internal value, so that you can get out of the distasteful business of supplementing your mediocre value with bribes.

This is not to say that advertising disappears. It just becomes more productive through informing and reinforcing the value, rather than trying to overcome the lack of sufficient value.

Reason Vs. Rationale

THE STORY
This story, and its many variations, have occurred countless times over many generations. It goes something like this.

A boy named Timmy finds a cute little stray dog. Timmy falls in love with the little dog. He coaxes it to follow him home. When Timmy gets home, he tries to convince his skeptical mother to let him keep the little dog.

“But Mom, raising a dog will teach me responsibility. Don’t you think it’s a good idea for me to learn responsibility at a young age?”

“But Mom, I’ll train this dog to be a great watchdog. You don’t want any burglars to come into our house and steal our prized possessions, do you? With this dog, you can rest easy, knowing that you are safe from unwanted intruders.”

“But Mom, in case our house catches on fire at night, this dog will wake us up and make sure we get to safety. He could end up saving our lives.”

Eventually the mother gives in, but only after Timmy promises to take care of the dog by feeding him, taking him for walks, and bathing him.

Well, over time, the Timmy’s promises regarding the dog fall by the wayside. He no longer wants to feed him and walk him all of the time (Guess who ends up with the chore—you guessed it—“Mom”). The dog never becomes a watchdog and the dog would sleep through a fire. And the dog is always filthy.

However, Timmy got what he really wanted: a canine companion who provides unconditional love.

THE ANALOGY
In the story of Timmy and the dog, there are two types reasons given for why the Timmy wants the dog. The first is an emotional reason—Timmy wants a canine companion who provides unconditional love. The second is a rational reason—the dog teaches responsibility, the dog will protect the family, the dog might even save the lives of the family.

Timmy doesn’t really care at all about the rational reasons. They do not motivate his desire for a dog at all. All he cares about is the emotional reason—his emotional bonding with the dog as his canine companion.

Yet, without all of those rational reasons, there is a good chance that his mother would not have let him have the dog in the first place. So, from that perspective, the rational reasons are important to Timmy as a means to get the emotional desire satisfied.

In the business world, we try to sell products or services to customers. Sometimes, we may try to sell the product or service with just an emotional appeal. Sometimes we use just a rational appeal. In reality, it is often best to use a dual appeal: an emotional appeal (you’ll really love this dog and this dog will love you) and a rational appeal (it teaches responsibility and protects the family). Each serves a different purpose in the process.

THE PRINCIPLE
The principle here is understanding the difference between reason and rationale. Reason refers to the true reason why you desire the product or service. It is usually emotionally based. Examples include the following. If I owned this product or service….

…I would feel more manly (or more feminine, depending on gender)
…I would be more popular with the opposite sex
…I would feel more secure (safer, more protected, less at risk)
…I would have more fun
…I would eliminate stress in my life
…I would gain more stature (have more bragging rights) with my peer group
…I would feel better about myself

In Timmy’s case the reason was unconditional love. Reasons such as these tend to be the principle drivers which create the desire to want to make that purchase. However, reason alone is often not enough to clinch the deal and make the sale. That’s where rationale comes in. This is how we justify our seemingly irrational desires and make them appear to be the sensible thing to do. Sometimes we need this justification just to get that rational part of our own mind to give in to the emotional side which already wants to do the deal.

Sometimes, as in the case of Timmy, there are others who have a say in the decision (like Mom), and since they do not experience the same emotional attachment, they must be convinced more through the logical rationale. Other times, we have to justify the expenditure to a skeptical spouse before we are allowed to make the purchase. Sometimes, the rationale is most important after the purchase, so that we can explain to others why our purchase was not wasteful extravagance, but rather the wise thing to do. After all, we might not mind looking stupid to ourselves if we get our emotions satisfied, but we don’t want to look stupid to our friends.

This does not just apply to children and dogs. Perhaps you can recall an episode of The Simpsons, where Homer really wants to buy a big truck. It’s all about his emotional desire to own a big truck. His wife Marge needs extra convincing to get her to agree to the purchase. So Homer pulls out the rationale: “If we put a plow on the front, I can make money plowing people’s driveways. This truck doesn’t cost any money. It will pay for itself through the income from plowing.” The rationale cinched the deal.

What about beer? On the one hand we subliminally sell that message that if you drink this beer all the beautiful women will love you. This is the reason to get you to choose this beer. But then comes the rationale: less filling, wins taste tests, low in carbs, won’t slow you down.

There are a lot of sexy looking new washers and dryers out there in hot colors and slick designs. They also look all “high tech” for those who are lured by that sort of thing. Their looks cry out to your emotions to “purchase me.” Yet, to appeal to your rational side, they also claim to use less water and less electricity. Why, you are a wise protector of the environment if you purchase these sexy looking machines. Never mind the fact that they often don’t clean as well as the old machines and that much of the money you save in water and electricity is sucked up into the premium price you pay for the machines. As long as the rationale makes you look good, and you get the sexy machines you desire, all is good.

And then there is life insurance—a product very few have a natural desire to want to load up on. Therefore, the insurance agents need to conjure up emotional desire for you—the desire to feel secure, to eliminate stress in your life fretting about the future. Then they pile on the rational guilt—good, sensible people provide for their loved ones in case the unthinkable happens. You’re a good sensible person, aren’t you?

When developing a strategic position for your product or service, one needs to consider developing a position which can tap into both the emotional yearnings (the reason) as well as provide justifications for why it is the wise thing to do (the rationale). The more you can tap into both in your singular position (without creating confusion), the greater the likelihood that you will succeed.

To do so, one side usually has to be the dominant overt message, while the other is more subliminal, in the background. Sometimes the reason is the dominant message. Sometimes the rationale is the dominant message. But both are there.

Right now, off the top of your head, can you tell me what the reasons are and what the rationales are for what you sell?

SUMMARY
Positioning is the process of placing the image your product or service into the mind of the customer in a way that will cause you to win. Since our minds are both rational and emotional, winning usually requires creating advantage in both the rational and emotional aspects of our thinking. You may want to sell the manliness of owning a truck, but you’d better have that snow plow equivalent in there somewhere, too. What’s your version of the snow plow?

FINAL THOUGHTS
I wonder what Timmy would have told his mother if, instead of desiring a little dog, he wanted to bring home an elephant. I’m sure, if he wanted it badly enough, he would have come up with all sorts of rationale for why that would be a wise move.