Strategy Planning Analogy #565: Not Enough Monkeys

THE STORY
There’s an old saying (originally attributed to Thomas Henry Huxley) that goes roughly like this: “If you get enough monkeys sitting at enough keyboards, one of them, by random chance will write the next Shakespearian play.” While that may be theoretically true, there’s a problem with that logic.

The problem is with the word “enough.” In order to get random tapping on a keyboards to come out as a coherent Shakespearian play, you need a lot of monkeys sitting at a lot of keyboards.

How many? I would guess at least a million times more monkeys than exist on the entire planet sitting at more chairs and with more keyboards than exist on the planet.

So, while the statement may be theoretically true, from a practical matter it is worthless.

THE ANALOGY
The big word in strategy today is “innovation.” People want strategies which make them leaders in innovation. And if that’s what people want, you can rest assured that countless numbers of consultants will come out of the woodwork saying they have a way to make you a leader in innovation.

A lot of these consultants have a theory similar to the story about the monkeys. They say that if you have enough experiments taking place, one of them will turn out to be a big hit. That’s like saying if you have enough monkeys, you can write a great play.

The problem is that many of these consultants don’t get very specific about how many experiments is “enough.” The reason they don’t get very specific is because they don’t want you to know your real odds for success. Like the story with the monkeys, the only way to guarantee that you will have a successful innovation is by doing a lot of experiments. And by a lot, I mean more experiments than you could possibly ever do over several lifetimes.

Look at the social media space. How many truly successful bone fide outstanding and hugely profitable innovations have there been in social media? 20? 50? 100? 1,000? Even if you are generous and say there have been a thousand big innovations, compare that to how many people on the planet have been experimenting around the world in this space.

There’s probably at least tens of millions of people world-wide who have tried on average dozens of experiments in the social media space. That would put us at about 1 in 500,000 being a hit. And I think that’s a very generous number. Do you think you can do 500,000 experiments in order to guarantee a winner?

So, while this type of response to innovation is theoretically possible, it is worthless on a practical level.

THE PRINCIPLE
The principle here is the difference between randomness and purposefulness. Randomness is about producing large quantities and hoping you beat the odds. Purposefulness is about focusing on ways to intentionally improve your odds in a meaningful way. Randomness is about repeating a lot of fast failures (and I do mean “a lot”). Purposefulness is about focusing on places where failure is less likely to occur.

Here are some characteristics of purposeful innovation:

#1: Purposeful innovation plays off your strengths

Even if you do beat the odds and by chance stumble upon a great innovative idea, you still don’t have a hit on your hands. You still have to develop it, bring it to market, and win versus others with similar ideas. The odds of random success at all five levels (ideation, development, operations, distribution and marketing) is really not in your favor.

As I alluded to in an earlier blog, even if you have a one in a million idea, there can be more than a million experiments in that space, so you have to fight to win against others with almost the same idea. The idea alone is not enough.

So if you want to succeed, you need to play to your strengths. Look for innovation only in places where you have competitive advantages in all of these areas. This means that you need to shut off innovation wherever your differentiating advantages do not apply.

This will narrow the innovation scope very quickly. But it will also increase your success very quickly.

Another option is to take away resources from random innovation and apply them to building competitive advantages. The more advantages you have, the better your odds of creating an innovative hit that will win.

I remember touring the area in Austin Texas where a lot of innovation start-ups were located. They all looked about the same to me. None of them were building differentiation capabilities. They were all just pulling all-nighters to get lines of code written. How do you expect to beat the odds if you are not doing anything meaningfully superior?

#2: Purposeful innovation looks for superior solutions to real problems

A lot of innovation focuses on applying the coolest new technologies in a spectacular way. These may be the types of innovations that make other engineers jealous of what you’re working on, but that doesn’t mean the rest of the world will care.

Consumers are looking for superior solutions to existing problems at reasonable prices. You need to ask yourself these questions:

1.  Once the coolness wears off (and it will, sooner than you think), is there any real substance to your innovation?
2. Is this just a short-lived fad?
3. What existing problem does my innovation solve? Does it solve the problem better than current options? It is superior enough to be worth the price you need to charge? Is it superior enough to overcome the barriers to switching from current solutions and networks?
4. Will consumers intuitively get what you’re trying to offer or will it be confusing and hard to explain? (Hint: If it takes more than a sentence or two to explain the superiority of your innovation, it probably won’t catch on.)

So the place to start is by finding where customers are complaining the loudest about the stress points in their lives. Then, you focus on looking for better ways eliminate these stress points. This means putting solution solving ahead of just looking at what the latest technology can do.

#3: Purposeful innovation avoids imitation

Facebook has been very successful. But that doesn’t mean that a copycat of Facebook will also be successful. That innovation has already been done. That market has already been captured.

Even if your innovative imitation of Facebook is a little bit better, it still won’t win. The network effect will keep people from switching for only minor improvements.

Almost by definition, true innovation is not a close copy of what already exists. It is doing something different. The blue ocean approach says it is easier to succeed in places where there is no established market/solution than one which has already been staked out by a host of competitors.

Imitation may be a sign of flattery, but it usually is not a path to success, especially when you need to get people to switch networks.

SUMMARY
Great innovations can often lead to success. Unfortunately, most experiments in innovation will be failures. The odds of randomly stumbling into innovation success are about as likely as having a monkey randomly write a play on a keyboard. Rather than rushing off to do as many experiments as possible, it is wiser to take a moment first to determine a strategic focus for your efforts. Narrow the scope to improve the odds. This is purposeful innovation. Purposeful innovation narrows the scope by: 1) Looking in places that take advantage of competitive strengths; 2) Looking in places where you can provide a superior solution to current problems consumers are complaining about; 3) Not looking to imitate what’s basically already out there.

FINAL THOUGHTS
Good fishermen know that you are more likely to catch fish if you fish in locations where there are more fish to be caught. They don’t just randomly fish anywhere. They go where the odds are better. Innovators should do the same thing.

Strategic Planning Analogy #544: Competitor or Co-Conspirator

THE STORY
For decades—in fact for most of the 20^th Century—baseball was America’s sport. It captivated the minds of the people and was their sporting passion. Nothing else came close.

There was all sorts of competition in baseball, with the players battling it out over the summer to see which team would come out on top and win the World Series Championship. The fans were captivated by every nuance in every game.

But gradually, over the latter part of the century, American Football started winning over the hearts of the sports enthusiasts. Today, football has become America’s sport. Sports enthusiasts are captivated by every nuance in every football game. Outside of New York City and Boston, most sports fans really only get a bit interested in baseball in the post-season. Television viewership of baseball during the season is miniscule compared to the ratings for football.

It makes you wonder…where did the real competitive battle in baseball take place? Was it on the field between baseball teams or was it in the hearts and minds of the sports fan at home? They may still be winning baseball games, but they lost the battle in the mind.

THE ANALOGY
An important aspect of business strategy is competitive strategy. The idea is to develop a plan to win share versus the competition. Why? Winners tend to reap the majority of the financial rewards, so the goal is to find a way to beat the competition and win. The result is a strategy with a focus on the competition.

The problem is that the competition are not the ones purchasing products. The consumer is. The consumer is the one who ultimately determines your success, not the competition.

If you are not careful, you could end up in the situation like baseball. You could become so focused with beating the competition (the other baseball teams), that you fail to see that the consumer (the sports fan) is abandoning baseball and consuming football. You may win the baseball game, but lose the fan, which is the greater loss.

In business, Kodak was so focused on beating Fuji that it failed to act sufficiently on the customer abandoning both and moving to digital imaging. Target and Walmart were so busy battling each other that they let Amazon grab a huge chunk of the market. Pepsi and Coke spent years fighting each other while the market for cola in the US was shrinking and the customer was abandoning colas for coffee, tea and healthier alternatives.

Competitive strategies may be nice, but consumer strategies are better.

THE PRINCIPLE
The principle here is that the real competition are not the companies that tend to look and act a lot like you. Instead, the real competitor is the one who can render your entire product category obsolete (or at least a lot less relevant). In baseball, the real competition was not other teams that wore similar baseball uniforms and played a similar game of baseball. No, the real competitor wore something a lot different (football uniforms) and played something a lot different (football).

In fact, I will contend that those who look like you really aren’t your competition, but are more like a co-conspirator. You actually work together to keep your category relevant. The noise you both make in the marketplace usually doesn’t change market share all that much. But is does draw attention to the category. So, in a sense, you are both working together on the same side—the side that wants customers to still be in love with your category.

Mature Market Stability

The more mature the market, the more this principle is true. Just look at the mature product categories found in the supermarket. Executives at the companies in these mature categories (like cereal and canned goods) go crazy with celebration when they can move their market share a small fraction of 1%.

Why are they so excited about so little? It is because mature markets tend to be very stable. Brand images are set, habits are ingrained, and preferences between brands in the category are etched in stone. There is little that can be done to move the needle, so any movement, even small ones, are celebrated.

We’re even starting to see this now in traditional computers. The market rankings are becoming stable and changes in share from quarter to quarter are hardly noticeable. The only sizable movement is from consumers moving their purchasing to other devices, like smartphones. So who is the real competition for computers? It’s the devices that don’t look like computers. That’s where the real gains and losses occur.

In fact, the vast majority of business categories are fairly mature. Rapid competitive movement is rare in most sectors. Unless someone comes up with a major technological breakthrough, share doesn’t move much. And even then, the gain is usually temporary as the others find a way to catch up.

The only meaningful movement is between categories. It’s a battle between teams wearing entirely different uniforms and playing different games.

The Response

With this in mind, how should companies respond?

First, they need to define themselves by what consumer needs they are satisfying rather than what product they sell. As mentioned earlier, the consumer is the one who decides the winner, not the competition. The customer is purchasing solutions to problems. If an entirely different product better solves their problem, then they will abandon their old category for an entirely new one. So if you want to win, see the world like the consumer and take off those product category blinders.

For example, Bausch & Lomb defined itself as being in the vision solution business rather than the lens manufacturing business. Bausch & Lomb saw its competition not as other lens makers but as anyone who was improving vision. As a result, when newer, non-lens businesses started offering better vision (like Lasik surgery), Bausch & Lomb was there, establishing a leading position.

If you define yourself by your product, your firm will die when your product category is replaced by something new. If you define yourself by consumer solutions, you will always have relevancy.

Second, don’t just focus on the same old competitors who are similar to you. Keep one eye on the periphery. Look for what the leading edge people are doing…what is coming next. Look for the new thing that will make you the obsolete thing. Look for the exciting thing wearing a different uniform. Look for the new rules that turn the tables.

SUMMARY
Rarely is the real action taking place between competitors approaching the market in a similar way. Instead, the big action is between dis-similar solutions to the same problem. In fact, your traditional competition is more like a co-conspirator, working with you to create interest in your product category. Therefore, focus more of your effort on aligning with the consumer rather than beating up the similar competition. After all, the consumer is doing the spending, not the competition. And they aren’t limited to spending it just in your category.

FINAL THOUGHTS
I suppose that someday American Football will be replaced in popularity by something else. The wheel of change never stops.

Strategic Planning Analogy #536: Three Questions (Part 1)

THE STORY
In the movie Monty Python and the Holy Grail, the group has to cross over the Bridge of Death. To cross the bridge, they first needed to get permission from the old man guarding the bridge. The old man only gives permission to those who correctly answered his three questions.

His first two questions were always the same:

            What is your name?

            What is your quest?

The third question varied, and included:

            What is your favorite color?

            What is the capital of Assyria?

            What is the airspeed velocity of the unladen swallow?

The third question was always silly and had no logical connection to why someone would be worthy to cross the bridge. But this was, after all, Monty Python, so what do you expect?

THE ANALOGY
Crossing the bridge to seek the Holy Grail is a bit like a company trying to cross the bridge to the glorious prosperity of the future. As in the movie, one could not simply walk the bridge. No, one first had to get permission.

In the movie, permission came from the old man guarding the bridge. For businesses, the bridge to future prosperity is guarded by the consumers of the marketplace. If the consumers don’t like or want what you are offering, they won’t let you cross into prosperity.

In the movie, the old man makes his determination based on three questions. For businesses, they also have three questions they must answer to get permission to cross. We will be answering these three questions over the next three blogs.

THE PRINCIPLE
To make sure you are pleasing the consumers of the marketplace, you need to ask yourself three questions. They are:

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

In today’s blog, we will cover the first question. We will tackle the other two in the next two blogs.

1. What Problem are you trying to Solve?

In general, people do not spend money randomly for no reason. No, they spend money in order to solve a problem in their life. There are all sorts of problems in life to be solved, including:

a)     Basic Needs (hunger, transportation, electricity, shelter, etc.)

b)     Higher Level Needs (love, self-esteem, feeling needed, security, etc.)

This principle applies both to the B2C world as well as to the B2B world. Money is not spent unless the purchaser perceives they will receive a benefit that will solve a problem for them.

There are lots of problems out there to solve and you must choose which problem you are solving. After all, if you don’t know what solution you are offering, why should a perspective customer know? And if they don’t know, why should they consider you?

Solutions Vs. Products

Your solution is not what your product is. It is what your product does for the consumer. This distinction is very important, because many different products can be going after the same solution.

Take, for example the problem of weight loss. There are many products which claim to be a solution for weight loss:

a)     Exercise Clubs

b)     Food Supplements

c)     Food Replacements

d)     Surgical Procedures

e)     Hypnosis

f)      Home Exercise Equipment or Videos

g)     Personal Trainers

h)     Reducing the stress or self-esteem issues which cause binge eating

In reality, the customer really doesn’t care that much about the particular product. They care about the results. So they will pick whichever solution is seen as being the best value for solving that problem, regardless of what that product is.

So, if you are a personal trainer, you need to realize that your solution is not personal training, but weight loss and that you are not just competing against other personal trainers, but against anyone else claiming to create weight loss.

Not only can different products attempt to meet the same solution, but the same products can be going after different solutions.

For example, a high-end luxury auto dealer and an auto dealer who provides auto loans to people with bad credit are both selling cars. However they are offering totally different solutions. The high-end luxury auto dealer may be solving problems of self-esteem and pride. The bad-credit dealer is solving a problem of basic transportation for those with limited options.

These two dealers, although both selling cars, are not really competing against each other. The luxury auto dealer is competing against others selling self-esteem and pride, like luxury clothing dealers, luxury vacation sellers, the latest expensive high-tech gizmo, and so on. The poor-credit dealer is competing against bus lines, mechanics who may be able to keep the old car running, and others who offer credit to bad credit risks.

So don’t define yourself by the product you sell, but the solution you offer. Otherwise, you may get confused as to who you are really competing against in your attempt to cross that bridge to future prosperity.

Solutions Offer Direction

In addition to better understanding your competitive landscape, understanding your solution can simplify your strategic decision making. Pretty much every decision can be restated as a single question: Which option best improves my ability to solve my chosen solution? 

For example, if your auto dealership is trying to improve self-esteem, the design of the dealership, the type of salespeople you hire, and the sales pitch you use will all support this solution. They will reinforce the self-esteem agenda.

But this is starting to move into the next question, which is covered in the next blog.

SUMMARY
Companies only win in the long run if the consumers in the marketplace support them. And consumers will only support companies if they see them as solving a particular consumer problem. Therefore, successful companies choose to position themselves around solving a particular problem.

Choosing the problem you are solving is not the same as choosing the product you are selling. After all, there may be a diverse set of products all going after the same solution (like weight loss). And there may be a single product that can be positioned towards more than one solutions (like cars). So, the decision is separate. You need to make the choice.

The key benefits of choosing your solution are:

a)     It helps you understand who you are competing against (those with the same solution, not those with the same product);

b)     It helps you know how to run your business (in the direction of better solving the problem).

FINAL THOUGHTS
Business success ultimately is not about me. It’s about the customer. It’s about solving their problems. The irony is that unless you focus on solving THEIR problems, you will never really solve YOUR problem (attaining business success). So make a priority of knowing which customer problem you are trying to solve. Otherwise, the customer will not let you across the bridge.

Strategic Planning Analogy #522: Timeless Timepieces

THE STORY
I used to work with a retailer who sold low-end watches. Suddenly the sales of these watches plummeted. Was it because someone had suddenly become better at selling low-end watches than this retailer? No.

What had happened was that one of the primary customers of this retailer was early adopters of cell phones. They were using their cell phones to tell time, so they stopped wearing watches…which meant they stopped buying watches.

This retailer wasn’t the only one seeing portions of the watch market vaporize due to people using their phones to tell time. Look at watch ads today. Watches are no longer sold as functional timepieces. They are either sold as a piece of jewelry or as an heirloom to be passed on to future generations.

Think about it…timepieces being sold as the epitome of timelessness. It can’t get much more bizarre than that.

THE ANALOGY
Watches were originally designed as a portable way to tell time. They were the superior solution to solving that problem. But then along came the cell phone. For a large sector of the population, the cell phone became a superior solution to the problem of portable time-telling.

When watches became an inferior solution to the problem, the demand for them dropped. It wasn’t that the phones became less effective at what they did. They were as good as before. It’s that a totally new solution appeared that was superior. Suddenly, a watch’s biggest threat came from phones.

This problem does not just impact watches. All businesses succeed by providing a superior solution to a problem. As a result, businesses tend to work diligently on perfecting their solution. They want to keep getting better, faster, cheaper with their solution offering.

But then…BAM! Something from out of the blue blows your solution out of the water. It no longer matters how good of a watch you make. The best, most accurate watch suddenly became an inferior portable timepiece to the phone. Making a better, faster, cheaper phone won’t get them back. The rules have changed.

This can happen to any business. A solution from an entirely different industry can make your industry irrelevant. The best, fastest, cheapest obsolete item is still obsolete.

Watch out for the unrelated industry (like phones) which can make your entire strategy (like watches) suddenly obsolete.

THE PRINCIPLE

The principle here is that while problems can be eternal, particular solutions to these problems can have a short time span of viability. This poses a risk to any business with a product mindset. While your product may be a great solution today to a given problem, that does not ensure that it will be the best solution tomorrow—no matter how well you execute on delivering that product.

Examples:

1. Laser Surgery has made eyeglasses an inferior solution to vision correction.
2. Digital communication of news has made paper-based communication of news (newspapers and magazines) an inferior option.
3. Every few months, somebody comes up with a new solution for losing weight. The solutions come from a wide variety of industries, from new food solutions to new exercise solutions to new surgical procedures to hypnosis to pills to whatever. Each solution’s time of relevance is so short that we call them “fads.”

Now you may be saying that this risk does not affect your business, because you are not product focused. You are “solution-focused.” You are always working to be a better solution for your customers.

Well, that may be true. But how broadly do you approach that solution? Do you only look for solution improvements within your industry? Are you only looking for better portable time solutions within the watch industry or are you considering solutions from different industries like phones?

Consider the situation facing GM which we talked about in an earlier blog. Teens and young adults used to look to cars as the superior solution to their desire for freedom. Suddenly, the youth of today fulfill their desire for freedom via their cell phone. Cars are no longer something to lust after to satisfy this freedom urge for this demographic. To many of them, cars are just a means of transportation. And given that the young adults of today often prefer to live in city centers, cars aren’t even seen as a particularly good solution to them for that solution. Mass transit, taxis and new car-sharing options like Zipcar appear cheaper and more convenient in an urban environment.

As a result, car ownership (and driver’s license ownership) is down in this demographic.

So GM is not just competing against other cars. On one front, it is competing against anything else that can do a better job of satisfying the urge to be free. On another front, they are competing against an urban lifestyle (where cars can be seen as a burden). And they are competing against new options to transportation ownership made possible through cell phones (like Zipcar). And they are competing against trends which reduce the need for transportation in the first place (working at home, shopping on-line, visiting via Skype, etc.).

Will traditional car ownership eventually fall victim to some form of the same fate as watches? I would certainly have some concern if I was in that industry.

Even teen/young adult clothing sales are down, due in part to a shift of spending from clothing to gadgets (like iphones and ipads). It used to be that clothing for teens was a superior solution for trying to be “cool” with their peers. Now, spending that money on gadgets creates a superior coolnesss. So gadgets get the money that used to go towards clothing.

So what does this imply for strategists?

1) Look Broadly for Solutions

First of all, if you want to own a solution over time, you’d better be prepared to look way outside your conventional industry, because the next leap in superiority may come from somewhere totally different.

Think about Bausch & Lomb. They used to be in the lens business because that was the superior way to improve eyesight. But they could see that non-lens solutions could do a better job at some eyesight solutions, so they diversified into areas far afield from lenses, like laser surgery and eye vitamins.

Proctor & Gamble used to look to chemistry for their cleaning solutions. Then they thought more broadly and looked to physics for cleaning solutions. The result is a number of new cleaning innovations like the Mr. Clean Magic Eraser.

How far afield from your core are you looking to find superior solutions to your core? Do you only read publications in your own industry and only go to trade shows in your own industry? You won’t find it there until it is too late.

2) Be Prepared to Redefine Solutions

Sometimes, if your product is no longer the best solution for a problem, you can reposition the product to be the right solution for a different problem. As mentioned above, watches are repositioning themselves as jewelry and heirloom solutions rather than timepiece solutions.

In the 1800s, circuses were the superior way for small communities to learn about the latest and newest things. When that no longer worked, they repositioned themselves to be a great solution for nostalgia. I talked about that here.

When Hamburger Helper was introduced, it was a superior solution for dinner convenience because it could be made much faster than a conventional dinner at that time. Later, when other alternatives (microwave, take-out, etc.) could provide dinners more conveniently (faster & with less effort), Hamburger Helper was no longer the winner on convenience. General Mills has tried to come up with other solutions for Hamburger Helper such as:

1. The convenience meal your kids will actually eat; or
2. The convenience meal you can feel better about serving because you actually took part in preparing it with your own fresh beef.

I’m not sure any of these tactics are working, but at least they are trying. You may need to do the same in order to stay relevant.

SUMMARY

Problems may be eternal, but the best way to solve the problem changes over time. Often the superior replacement solves the problem in an entirely new way from an entirely different industry with entirely different skills, technologies and business models. It is not an incrementally better status quo, but rather something which makes anything remotely similar to the status quo obsolete. The long term solution is to either: a) Keep an eye outside the industry to discover solutions which can keep you from becoming obsolete; or b) Find a way to redefine your product so that it can be the superior solution to something else (where it can still be relevant).

FINAL THOUGHTS
The best timepiece on the wrist” is not a solution. It is a description. The solution is at a higher level—portable time-telling. If you don’t define the problem at the higher level, you will miss some of the creative ways to solve the problem.

Strategic Planning Analogy #511: Motivated by Money

THE STORY
Years ago my team was proposing a new business plan to our CEO. In brief, the idea was to stop a competitor’s aggressive move into our markets by making a reciprocal move into their most profitable market. Since we were in a stronger cash flow position than them, we could afford to attack their key source of cash, and they would have to retreat in order to protect their core.

We could inflict great pain on them in their key market with only limited pain on ourselves. And this would cut off the cash they were using to attack us. Hence, we would create a long-term gain for ourselves with only a small immediate hit to ourselves.

The CEO listened to the detailed strategy with a puzzled look on his face. Eventually, he looked up and said, “Don’t give me a strategy. Just tell me how to make money.”

Since the strategy did not immediately make more money for the firm, the CEO rejected it. As a result, the competitor continued attacking our company. Eventually, their cash flow became even stronger, so they became even more aggressive. Over time, this aggressive behavior wiped out a key division of our company, leaving us with a huge loss of earnings.

The CEO’s actions helped us make a little bit more money in the near-term, but wiped out an entire division in the long term. It appears that we would have made a lot more money if we had focused less on making money and more on having a strategy.

THE ANALOGY
In the world of capitalism, making money is a good thing. If you aren’t eventually making money, your investors and other key stakeholders will get upset. However, if your only motivation is to obtain money, then you may make decisions which lead to bankruptcy. The irony is that a single motivation towards money is not usually the best path for achieving the most money.

As we saw in the story, the best path for making the most money involved a time consuming process which caused near-term pain. By rejecting this approach and instead taking steps which created the most money immediately, the company put itself on a long-term path which destroyed a key division of the company.

Key decisions are made based on what motivates us. If “making money right now” alone is the key motivation, then we may end up making the wrong decisions. Other motivators are more likely to make more money.

THE PRINCIPLE
The principle here is that motivations matter. And the singular motive to just “make money” is not the best motivation.

The Principal Applied to Entrepreneurism

Many studies have been done to look at what makes a successful entrepreneur. These studies consistently show that if the primary motivation for the person becoming an entrepreneur was “to make a lot of money,” then they usually failed as an entrepreneur.

Becoming a successful entrepreneur takes a lot of hard work and a lot of sacrifice. It often requires living near the poverty line for quite a while before the business takes off. If all you want is a lot of money right away, then you typically will not put up with the level of sacrifice needed to succeed as an entrepreneur. So you will fail.

In fact, there was a recent stream of articles on Quora.com about people who voluntarily chose to become homeless in order to invest everything they had into their entrepreneurial start-up. In essence, they were looking for ways to become as personally cashless as possible for the sake of building the business. That type of sacrifice requires a different type of motivation than merely wanting to make money.

The studies on entrepreneurism usually show that the most successful entrepreneurs are motivated primarily by a desire to create a superior solution over what is currently in the marketplace. They are more driven to build a better answer for others than build a bigger pile of cash for themselves. Yet, ironically, by not focusing so much on the bigger pile of cash, the entrepreneur is more likely to eventually have that big pile of cash.

The larger, grander, and nobler motive of giving the world a better alternative is needed to motivate the extreme levels of sacrifice needed to create success. It also has a secondary benefit. Customers don’t just want to give you money because you want them to give it to you. The customer wants great value. If you are motivated to provide superior value for the customers, then you are motivated by the same thing that will motivate customers to give you their money.

In other words, an outward motivation to better the lives of others is the best way to get others to voluntarily want to give you the money needed to get rich. This point really reached home to me when watching the recent movie about the life of Steve Jobs. Making money was nowhere near the top motivator for Jobs. He was driven by a motivation to make great products (and got very angry with those who did not share that motivation). Yet, in the end he was very wealthy.

If all you want is a lot of money and aren’t motivated by a larger purpose, then you’re probably better off seeking a life of crime than one of entrepreneurism. In crime you get the money involuntarily from people. Rather than giving them a reason to want you to have their money, you just steal it.

This is not to say that successful entrepreneurs have no motivation for wealth. No, a desire to be rewarded for one’s sacrifices is logical. If there is no potential for a pot of gold at the end of the rainbow, then the entrepreneur will eventually stop the effort of chasing the rainbows. The point is that a money motivation alone is usually not enough. A larger, external motivation to provide the world something better is also needed.

The Principle Applied to Big Business

This same general principle also applies to large corporations. In the story at the beginning of the blog, we saw a large corporation destroy one of its business divisions because it focused too much on looking for easy ways to make money quickly rather than looking at the sacrifices needed to ensure long-term viability.

The grander, market-based motivations help large corporations in many ways. First, they provide a reason for all of the employees to give a strong effort on behalf of the company. Let’s face it. In large businesses, most of the employees are not going to become extremely wealthy. So why should they put in the extra effort?

When you have a business mission based on a larger, nobler goal, you provide a motivator that everyone can rally around. There’s the old story of the government official in the 1960s who was getting a tour of the NASA operations. He was asking people at NASA what they did. When he asked the question to a NASA janitor, the janitor replied “I’m helping to put a man on the moon.” Because the janitor captured the larger vision, he became a more diligent janitor.

Is your mission wrapped in a nobler goal, like putting a man on the moon? This is a great motivator for the masses in your organization.

Second, if a large business does not see its mission in larger terms, then it will not know what to do to succeed. Many large businesses have strategic plans which say little more than “We want to make a lot of money.” Sure, they may disguise it in more “flowery” language and make it sound more tangible by attaching a numeric target to it. But fancy words and numeric targets won’t disguise the reality that these types of “strategic plans” are nothing more than vague wishes for greed.

Just because you can say “We want to make a lot of money” does not mean that you have a clue as to how to make that money. Money is made when you have a solution desired by the marketplace that you can profitably provide because of the unique business model you have designed to deliver that solution. Unless your business has a specific strategy about…

1.     What it is delivering to the marketplace;

2.     Why it is a superior solution; and

3.     How it can be delivered profitably

…then you will not make those big piles of money. Without a reason to succeed, there is no reason to expect to succeed. Therefore, large companies need a planning process to ensure that the reason to succeed is discovered.

Finally, in large companies, you have lots of people doing all sorts of different things. If there is not a common understanding of what your success formula is, then employees will go off in all sorts of different directions. These uncoordinated efforts will be more like random anarchy than a coordinated march to success.

If you want a large company to be successful, you need to everyone moving in the same direction towards that success formula. That requires not only developing the grander plan, but making sure it is widely known and is rewarded when followed. Otherwise, the plan will not reach reality.

SUMMARY
People act based upon their motivations. Ironically, the best primary motivation to create business wealth is not an inner motivation for wealth. Instead, it is an outer motivation to provide a superior solution in the marketplace. This outward focus forces one to create the types of value needed to cause others to pay you for your offering (the source of wealth). It also provides that higher cause which motivates people to work harder. That is why companies need strategic plans which outline what the outward success formula is and put it in words which motivate employees to put it in place because it achieves a higher, nobler goal.

FINAL THOUGHTS
In the movie Wall Street, Michael Douglas (playing the role of Gordon Gekko) famously says, “Greed is Good.” I say “Greed is Not Enough.” You also need a viable plan and an external motivation which transcends greed.

Strategic Planning Analogy #506: Perspective

THE STORY

Let’s assume that a government transportation committee examined whether to add more lanes to an urban highway. 

The conclusion of their study went something like this:

Yes, we concede that during a brief period of the day (rush hour), the highway becomes highly congested and traffic stops moving. However, outside of rush hour, the highway is operating well below capacity and flows very smoothly. Since the highway is well below capacity for approximately 85% of the day, we see no reason to add any lanes. After all, 85% efficiency for a highway is quite acceptable.

The response from a consumer group advocating extra lanes went something like this:

The reason why the highway flows well outside of rush hour is because that is not the time when the highway is most used and most needed. According to our research, 85% of the cars using the highway use it during the congested rush hour period when cars greatly outnumber the current highway capacity. Since the highway is well above capacity when 85% of the drivers are on it, we see a clear justification for adding more lanes to the highway. After all, 85% inefficiency for a highway is quite unacceptable.

So is the current highway 85% efficient or 85% inefficient?

THE ANALOGY

Strategy creation involves making decisions. Facts are a key input for making those decisions. In fact, I had a boss once who on a daily basis would say that he would not make any decisions unless they were “fact-based.”

But how reliable is the “fact-based” approach? In the story above, two groups used facts to reach a conclusion. The transportation committee used facts to “prove” that the highway was 85% efficient. The consumer group used facts to “prove” that the highway was 85% inefficient. These facts lead each group to come to a different conclusion about adding lanes to the highway.

Was one group’s facts right and the other group’s wrong?  No, both groups had equally true facts:

a)     85% of the TIME OF DAY the highway had excess capacity.

b)     85% of the TIME OF DRIVERS using the highway was during times of inadequate capacity.

So what is the right “fact-based” decision? Obviously, we need more than just these facts to reach an acceptable decision. And when it comes to strategy we need more than just facts as well.

THE PRINCIPLE

The principle here has to do with perspective. Facts alone do not automatically lead to the proper conclusion. It is only when we place those facts within the context of the proper perspective that we see what is the right thing to do. Therefore as much care and effort should be given to developing the proper perspective as is given to acquiring the right facts.

Perspective depends on two items: Where one is looking from and what one is looking at. In strategic analysis there are usually multiple places to look from and multiple items to look at. If you miss out on examining some of these options, you may come to the wrong conclusion.

Perspective #1: Where One Is Looking From

From the eyes of the transportation officials looking at the highway from afar, what they saw was smooth operations nearly all day long. From the eyes of the drivers on the highway, nearly all of them saw congestion nearly every moment they were on the highway. Their different perspectives cause them to see the situation very differently.

A similar situation can occur in developing your strategy. From the eyes of the executives inside your organization, you may see a particular strategic option as ideal for your bottom line. But how does that option look from the perspective of other eyes?

Perhaps your decision places added burdens on your suppliers, causing them to no longer want to supply you or only supply you if they get added compensation for those added burdens. That added compensation might wipe out a lot of the original advantages you saw from the internal executive eyes. A similar situation could also occur with your distributors.

Or perhaps your decision triggers an adverse reaction from your customers when they see it. This problem could not be seen with the internal executive eyes, but was quickly apparent to the customers’ eyes.  The unperceived adverse consumer reaction could make that original strategic option no longer as viable as first seen.

Or perhaps when your competition sees the strategy, they perceive it as a bigger threat than you thought and they react far more aggressively than anticipated. This aggressive reaction wipes out your perceived benefit.

Or maybe when those ideas from headquarters get down to the factory floor, they cannot be operationalized as smoothly as one thought. Something gets lost in the implementation on the factory floor which hurts the strategy’s effectiveness.

Therefore, before making a decision, step away from the pile of facts and look at the situation through other sets of eyes. How will the decision be seen by all the other relevant parties (suppliers, distributors, customers, competition, front line employees, the government, etc.)? How will their perspective affect their behavior, and how will that behavior impact your strategy?

You may find a need to modify your strategy in order to get all of the players see the situation in a manner which moves them all in a favorable direction for your business.

In addition, consider how you communicate your decisions, so that you can help influence how others see it. How the decision is communicatted may be just as important as the decision itself when it comes to implementation.

Perspective #2: What One Is Looking At

In the story, everyone was looking at the same issue: what is the proper number of lanes to have on the highway.  It assumes that the only way to address congestion is by looking at lane-count for the highway. Is this a fair assumption?

Perhaps there are other solutions one could look at, like:

a)     Increasing use of public transportation;

b)     Convincing more people to use alternate routes;

c)     Getting businesses to stagger the hours employees work;

d)     Reallocation of traffic direction for the current lanes depending upon time of day (e.g., more inbound lanes in the morning and more outbound lanes in the evening).

e)     Financial incentives for carpooling.

f)      Building a separate road nearby.

How do you know you are making the right decision if you have not fully explored all potential options? All those facts you’ve gathered may only be applicable to examining one particular option. If you look at the problem in a different way, you may find that you need a different set of facts altogether.

Remember, business success usually depends on offering a superior solution to your customers’ problems. There may be many distinctively different ways to solve that problem. Unless you examine many alternatives, you may not offer the right solution.

Perfecting the obsolete is not a path to success. After all, even a mediocre smart phone is far superior to the best Morse code telegraph solution, no matter how much time you spend trying to perfect it.

So don’t frame your strategic discussion too narrowly. Before deciding on the best way to do something, first make sure it is something worth doing. First frame the discussion around finding the best solution rather than just finding ways to improve the status quo.

SUMMARY

Facts are useful, but facts alone are incomplete. Facts are only useful if seen from the proper perspectives. Therefore, before deciding a course of action, improve your perspective by:

a)     Looking at the problem through all the eyes of the various people who have an influence on the successfulness of the strategy (suppliers, distributors, customers, competition, front line employees, the government, etc.).

b)     Looking at multiple ways to solve the problem. Creative, superior solutions may look nothing like the status quo.

FINAL THOUGHTS

Great strategic solutions may take you into uncharted territory—doing things in a way they have never been done before. There won’t be a big pile of facts to help you in uncharted territory. And if you wait to act until you can get a big pile of facts, someone else will have already captured that strategic space. Perspective helps fill in the holes when facts are hard to come by.

Emergent Vs. Positioning (Part 2)

 

INTRODUCTION
In the last blog, we looked at a comparison between the Emergent view of strategy and the Positioning view.  I explained why I prefer the positioning view.  In today’s blog (part 2), I will explain why I think the emergent point of view also makes some good points and how to incorporate them into a positioning framework to get the best of both worlds.

 

POINT #1: SUSTAINABLE COMPETITIVE ADVANTAGE

The Issue

The emergent position brings up two good issues.  The first has to do with sustainable competitive advantage.  The positioning school tries to find positions which provide sustainable competitive advantages.  The emergents respond that sustainable competitive advantages are becoming increasingly more difficult to create, so finding those types of positions can be a more futile undertaking.

First is the “sustainability” part of the phrase.  In a seemingly ever faster changing environment, very little appears sustainable.  So if change is constant, why seek sustainability? 

Then there is the “competitive advantage” portion of the phrase.  With rapid change comes frequent upgrades and frequent obsolescence.  It makes any advantage very temporary.  It is like a ping pong game, where the ball keeps bouncing from one side to the next—first side A has the advantage and then side B has the advantage, then side A regains the advantage, and so on.  So instead of trying to achieve lasting advantage, emergents just try to stay in the game by responding with their ping pong paddle in a way to keep the game alive.

The Solution

Is this phenomenon a concern?  Yes.  Is the problem as dire as the emergents believe?  I don’t think so.  First of all, this is not the first time rapid change has occurred in business.  We’ve gone through the industrial revolution, the widespread adoption of electricity, the movement to a knowledge-based economy, and so on.  Yes, there is some turmoil during the transition, but companies with a good strategy find a way to make it through the transition.

The solution is to change the focus of where one looks for advantage.  Even when many things are changing, many others stay the same.  In particular, when products and technologies are changing rapidly, basic human needs and desires still stay the same.   There is always a segment wanting low prices.  There is always a segment wanting status.  There is always a segment wanting convenience.  There is always a need to feel loved or appreciated.

Now the means by which these constants are achieved may change.  The core solutions do not.  So the solution is to find positions which are not tied to particular products, but to enduring solutions.  For example, Wal-Mart positioned itself around the enduring solution of offering low prices.  Now the way it has done this has changed.  It started as a discount store.  When it looked like wholesale clubs could provide lower prices, they opened up Sam’s Club.  When it looked like supercenters could provide lower prices, they aggressively replaced discount stores with supercenters.  When it appeared that building a more sustainable and eco-friendly supply chain could lower costs and prices, Walmart aggressively went in that direction. 

The point is that Walmart’s low price position gave them an anchor.  As the world was changing around them, they did not panic.  They just kept migrating to wherever that position could be best met.  And through that singular focus, they were able to reinforce that position with the customers and become continually stronger.

Bausch & Lomb was in the lens business, but they focused their position on the end solution—better sight.  As a result, they migrated in to contacts, eye surgery equipment and eye enhancing vitamins.  Yes, the product changed radically, but because of their focus, they knew what had to be done to stay relevant.  They found a place where they could differentiate and win.

Apple keeps changing their offering, but each offering is true to their position of selling cool, easy to use interfaces between people and their data.

Without these positioning anchors, the myriad of strategic choices would overwhelm a company.  You cannot do it all.  You have to focus.  You have to make trade-offs.  And these enduring positions help light a path within the confusion of change.  In fact, they can help you better anticipate where to go, due to that focus.  Without it, you are always trying to catch-up to whatever looks hot today.  And by the time you match it, the world has moved on to the next hot item.  You never get ahead that way.

Another positioning approach to take is to create a position around speed and flexibility.  The emergent view is to always be racing to keep pace with change.  If speed and flexibility are so important in a rapidly changing environment, wouldn’t building excellence around speed and flexibility be a great position?   Build your positioning trade-offs around speed and flexibility, so that you become faster and more flexible than those who do not make those trade-offs.  This position actually makes rapid change an advantage for your position.

 

POINT #2: LOSS OF CONTROL

The Issue

The second key point emergents make is that businesses are losing control of the interaction with their customers.  The power is shifting to the consumer.  Social media and web 2.0 have given the consumer more of a voice.  They are having a greater say in how products are designed and marketed. 

If consumers are gaining a greater control over the conversation, then emergents would say that consumers are gaining greater control over a company’s position.  If that is the case, then a company can no longer rely on managing its business by managing its position.  Instead, a company needs to chase where the consumer conversation is going and whatever emerges from that is the strategy.

The Solution

Well, this is true to a point.   And that point ends when you shift from incremental strategy to transformational strategy.  Consumers can be great critics of the status quo.  They can tell you what is wrong with a product and how to incrementally make it better.   However, they tend to be quite bad at voicing opinions about transformational issues which go beyond what the consumer has experienced. 

This is because a) most consumers are too busy living their current lives to spend time dreaming up all the particulars around the business model for the next big thing; and b) if they have no experience to relate to, then they have trouble getting their arms around it and give an accurate assessment.

That is why Henry Ford supposedly said, “If I’d asked my customers what they wanted they would have asked for a faster horse.”

That is why Steve Jobs supposedly said, “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.”

So if you want to remain in an approach to strategy which is only incremental, then perhaps the idea of following the customer makes sense.  But if you want to transform the world like Henry Ford or Steve Jobs, it would seem that following the customer is a poor choice.  Instead, you still need to lead the customer and be pro-active in what you do.  And if the world is moving as fast and creating as much obsolescence as the emergents proclaim, then I think the transformation approach is even more important.  And that means that significant control is still in the hands of the successful companies.

 

SUMMARY

The emergents make some good points, but not enough to get me to abandon the positioning perspective.  Instead, I just altered the positioning perspective slightly to accommodate the concerns.  You can see them in the chart nearby.  For the concern of the world changing too quickly, I suggest either shifting positions to timeless solutions or to speed & flexibility solutions.  For the concern of losing control, I suggest focusing more on transformations, where control is still strong.

 

FINAL THOUGHTS
Although there is good and bad in both points of view, that does not give an excuse to abandon all approaches to strategy.  It is still worth doing.

Strategic Planning Analogy #468: Defeating Concrete

 
THE STORY
The previous owners of my house had put up a pole in the back yard to connect a clothesline to the house, so that one could hang wet laundry outside to dry.  I did not dry clothes outside, so one day I decided to take down that pole.

The job was a lot more difficult than I thought it would be, because the pole was secured in place with concrete.  I had no idea how much concrete was used until I tried to dig out the pole.  The previous owners had used a lot.

With a great deal of effort, I eventually got the pole out of the ground.  Then, I took a hammer to the concrete in order to break it up into smaller pieces.  I was able to discard the smaller pieces of concrete in the trash can.

 

THE ANALOGY
There is something about concrete which seems permanent.  Once it hardens, it appears like it will last forever.  But I was able to destroy that concrete in my backyard.  The pole was no longer permanent.  I threw it all away.

In the business world, market conditions can also seem quite permanent, like concrete.  This feeling is especially true in mature businesses.  The market has already consolidated; the few remaining players have staked out their positions.  It looks like nothing will change—it is as if everything is secured in place with concrete.   However, just as I was able to get rid of the concrete in my back yard, market conditions can also change, even in mature markets.  A seemingly solid position, like that pole, can be thrown away.

Therefore, we cannot sit back and relax.  We cannot rely on the markets to stay unchanging as if set in concrete.  We still need strategic planning.

 

THE PRINCIPLE
This is another blog which tackles arguments for abandoning strategic planning.  In the past, we refuted the argument that certain markets are moving so fast that strategic planning is irrelevant.  In this blog we refute the argument that certain markets are moving too slow to require strategic planning.

Let’s face it.  Although emerging nations and new industries are exciting to talk about, most companies operate the majority of their business in relatively mature sectors or markets.  Mature markets tend to have the following characteristics:

1)      The market is consolidated down to a few players (who don’t change much over time).

2)      The reputations and brand positions of the remaining players are well set (like concrete) and it is difficult to change a customer’s long held perceptions of the remaining players.

3)      Changes in market share are very small and don’t tend to occur very often (like they are set in concrete, too).

 
      4)      The rules for how everyone plays the game appear to be set in concrete as well.

In such an environment, many will reach the conclusion that sophisticated strategic planning is a waste of time and money.  If everything is set in concrete, then why bother spending a lot of effort trying to change it with strategy?  Focusing on doing things a little better and a little cheaper is all you can do.  So stop wasting effort on strategy and just work a little harder and a little cheaper.

However, as we saw in the story, concrete may not be as permanent as it appears.  Change still happens.  And we can become the unfortunate victims of change if we do nothing, or we can take advantage of change if we work to destroy the concrete as I did in my back yard.

Coke Vs. Pepsi

Think about Coke versus Pepsi.  The cola market is very mature in most places.  Coke and Pepsi have eliminated or weakened most of the serious challengers.  Growth is minimal overall and market share doesn’t change very much.  If you are a dedicated Coke drinker, you are probably not going to suddenly shift your alliance and dedication to Pepsi.  The individual brand images have been too strong for too long.

So, why should firms in mature markets like Coke & Pepsi concern themselves with sophisticated strategy?  Because it still matters.

1) The market may be set in concrete, but customers can walk away.

If all one does is focus on doing the same thing better or cheaper, one gets myopically focused on the false assumption that there are no alternatives.  Everything appears to take place in my little area of concrete.  But customers can use your concrete as a sidewalk to move to another market.

Yes, core consumer problems may last forever, but the way they satisfy the problem can change radically.  I may always have thirst, but I do not have to drink a cola.  Starbucks started a revolution to make coffee-based drinks a viable alternative to cola for an entire generation.  Trends in health, wellness and other events have created a rise in demand for fruit drinks, energy drinks, vitamin drinks, etc.  Suddenly, the mature cola industry is becoming a declining industry.

If your feet are stuck in your own industry’s concrete, you may not look up to see the customer revolution and you may not be able to move fast enough to get to where the customers are going.  Suddenly it is no longer a war between Coke and Pepsi.  You are fighting a whole host of alternatives who are not playing by the old rules.

Radical changes can come from all sorts of places.  People are buying fewer watches because they can just look at the smartphone which is always in their hand showing the time of day.  Why buy a newspaper when you can get live updates from everywhere all the time in the digital space?   Why buy meal ingredients at the supermarket and spend the time preparing them when restaurant value meals can be cheaper, easier and faster?

Strategic planning is needed to spot these radical changes before it is too late and then prepare a response.  Perhaps if you make watches, you need to reposition yourself less as a timepiece and more as a piece of jewelry.  Perhaps if you are a supermarket, you need to sell your own value meals.  If you are a newspaper, perhaps you need to radically transform your entire business model.  If you are Coke or Pepsi, you may need to diversify.  Finding and building the right response can take a lot of time and a lot of thought.  An ongoing strategic planning program gives you that time and that thought. 

If you wait until the revolution sneaks up on you, then it is too late.   At that point, all you can do is either acquire into the revolution at a price which is too high to make a decent return, or sell out of the old business at a price which is too low to make any of your stakeholders happy. 

Just working a little harder and cheaper at making Coke or Pepsi will not get someone to stay if they find that coffee or fruit juice or energy drinks are a better solution for them than cola.  And if that is all you do (the status quo a little harder and cheaper), that concrete is going to look more like a granite tombstone.

2) Rules are just words on a piece of paper.

Just because something has always been done the same way does not mean it is the only way.  Rules are just words on a piece of paper.  They do not have to be etched in stone (or concrete).  If you rewrite the rules, perhaps you can get a huge advantage—even if the market is labeled as “mature.”

Retailers like Aldi in grocery retail and Ashley in furniture retail found a way to reinvent mature businesses by re-writing the rules.  They designed their own specifications and went directly to the factories to have products manufactured just for them.  By cutting out the middle man, they were able to improve margins while cutting prices.  This gives them an edge over people playing by the old rules.  A similar event occurred when “fast fashion” retailers like H&M and Zara rewrote the rules about inventory (much less) and fashion seasons (much more) and made huge gains in an otherwise mature business.

Apple rewrote the rules about how music got distributed and became a leading player in a market where they had no prior presence.  They broke through the concrete because they saw it as merely paper—a place where they could write new rules.

Rethinking an entire business model does not come out of just doing the same old thing harder, faster, and cheaper.  Working intently on carbon paper will not create the photocopier.  Working intently on books will not make an e-reader.  No, new business models require new thinking.  And if you eliminate strategic planning, there will not be a strong advocate for encouraging out-of-the box thinking and experimentation on a regular basis.

And if you only work on executing the old rules better (rather than looking for new rules), you will be surprised when a competitor rewrites the rules and takes most of your business away.

 

SUMMARY
Labeling a business as mature does provide an excuse to eliminate or dilute the strategic planning effort.  Radical improvements can still be gained if one uses strategic planning to either find ways to move to new solutions with the customer or to find ways to rewrite the rules for offering the old solutions.  Conversely, if you stop this type of planning and your competition (current or future) do not, then others will get those radical improvements at your expense.

 

FINAL THOUGHTS
In a mature business, don’t think of strategic planning as an expense to be cut, but as a doorway to leaps in opportunity that cannot otherwise be found when the status quo is hardening.