Strategic Planning Analogy #441: Leaving Early

THE STORY
When I go to a sporting event, I like to stay until the very end. I figure that I paid for the whole game, so I may as well watch the whole game. And who knows, something exciting might happen at the very end.

Usually, however, the end is not very dramatic. And because I wait until the end, I get caught in terrible traffic jams. First, the jam of the people trying to get out, and then the jam of the cars trying to leave. It seems like forever to finally get on my way home. What a mess!!

The frustration of trying to leave gets larger than the excitement of seeing the game. At that point, I wish I would have left earlier.

THE ANALOGY
For every strategic business initiative, there is an important question to ask—When is it time to leave this initiative and move on to something else? There is a tendency for executives to act like my behavior at sporting events and stick around until the very end. And just like in sports, if you stick around until the very end of a strategic initiative, you end up in a mess.

Usually nothing very exciting happens at the end of a business initiative life cycle. Sales slowly fall away and losses begin to mount. You could leave early without missing any excitement (and avoid the losses).

And, if you leave this business sector ahead of the crowd, you can avoid the mad rush to the exits of everyone else later on. At the end of the cycle, when everyone is trying to leave, there is virtually no value in what is left behind (everyone is selling and nobody is buying).

Therefore, we should resist the temptation to stay until the end of the game and leave early. After all, there is always another game to play, and the sooner you leave the old one, the sooner you can prepare for the new one.

THE PRINCIPLE
The principle here is that a retreat or exit from a business is not necessarily a sign of failure. Often times, leaving early is the more successful alternative.

1. ALL Strategic Initiatives Eventually Die
The first thing to remember is that ALL strategic initiatives eventually die. Again, ALL strategic initiatives eventually die. Strategic initiatives follow a lifecycle of growth, maturity, decline, then death. If your company’s strategy is to ride an initiative all the way to the end, then you will die as well. If you don’t want to die along with that strategy, then you’d better leave early and move on to a replacement strategy.

Just because all strategic initiatives die is not to say that everything dies. Consumer desires for solutions to problems does not die. Consumer desires for status, comfort, performance, convenience and value do not die. The problem is that the way consumers satisfy these desires changes over time. New and better solutions (or business models) come about which are superior to the old ones. If you want consumers to continue getting their solutions from you, then you’d better keep advancing to the initiative with the superior solution.

Kodak stuck with analog film all the way to the end and died with the initiative. Had they left earlier, they would have had the opportunity to continue to thrive. After all, the consumer desire to capture memories still lives. The desire for visual imaging still lives. The desire to share experiences through pictures still lives. The only thing that died was the analog film initiative…and the companies who stuck with it until the end.

A large part of the entire social phenomenon on the internet is just a superior business model for solving the problems that Kodak used to solve—the sharing of experiences. By sticking around too long at the old game, Kodak got caught in the mess at the end and missed out on the new game of the social revolution (not to mention the whole digital imaging thing).

Don’t get caught into believing that you are the exception and that your strategic initiative will never die. At one time, Sears was by far the largest and most successful retailer on the planet. Consumers loved them. They seemed invincible. It looked like they would be successful forever. But times changed and Sears didn’t. Superior solutions appeared. Sears is now near death. Consumer purchasing did not die, but the Sears way of selling did.

2. Wanting to Win in the Worst Way Usually is the Worst Way
Failures don’t just happen at the end of the life cycle. Failures also occur during the process of innovation. Not every new idea is a good idea. In fact, most innovations fail.

In an earlier blog, we talked about some of the psychological biases which cause companies to want to stick with an innovation too long. Some of those factors include:

a) Innovation is Fun
b) Innovation Can Enhance a Career
c) All the Other Cool, Successful Companies are doing it.
d) My Ego/Reputation gets Entangled with the Reputation/Success of the Innovation.
e) The Budget/Plan is Depending on it.
f) There’s Nothing Else in the Product Development Pipeline, So it HAS to Work.

As a result, there is an inherent bias to stick with a bad innovation too long. We want so badly for the innovation to succeed that we try to create success out of our own desire when there really is no success to be found.

Wanting to succeed in the worst way is usually the worst way to try to succeed. We need to be rational and realize that and early exit from a doomed venture is often the smart move (and will save one from taking heavy losses and write-downs in the future).

3. The Last One Standing is Usually the Loser
A third place where sticking around too long can occur is when the “Roll-Up” strategy is used. The idea is to consolidate an industry by acquiring enough of your competitors to have the leading share (roll them all into one).

There is logic to using this roll-up consolidation approach. It creates economies of scale and there are benefits from reducing the number of competitors. It can also be a great way to expand geographically.

However, the roll-up strategy is best used near the beginning of the mature phase of the life cycle. After all, it does no good to be the great consolidator of a business if the business is near death. The consolidation only makes sense when there is still a demand large enough to want the large entity you are building.

During the 1970s through the early 1990s, Supervalu rolled up and consolidated the wholesale grocery industry. This strategy provided many years of success. However, the largest customer of the wholesale grocery industry is the small, independent grocer. Thanks to the rise of the Walmart Supercenter and the growth of large supermarket chains, the independent grocer was rapidly disappearing. Having the best wholesale grocery business is worthless if you no longer have independent grocery customers. The roll up strategy was starting to die.

Fortunately, Supervalu did not need to die. They changed strategies to become owners of large retail chains (primarily through the acquisition of Albertsons). Now they controlled their retail customer base. Another winner was the wholesaler Cardinal Foods. They sold out early in the consolidation and moved into the growing health care business, eventually becoming the successful Cardinal Health.

In a roll-up strategy, remember that when everyone is willing to leave (and sell you their business), you need to question why you want to buy them. Often, they are willing to sell out because either:

a) They think the business is dying; or

b) They think you are paying such a high premium to get the business that your price is far higher than the present value of future cash flows. In this case, you transferred all the value of the consolidation to the person who is leaving the business via your purchase price.

Either way, that is not a good sign for the consolidator. In the end, all strategic initiatives eventually fail, and consolidating a larger version of that initiative at the point when it fails just creates a larger failure.

Consolidating is nice at the beginning of maturity, but know when it is time to leave that strategy. Sell out early before the very end and let someone else be holding the large mess when the initiative is nearing death. After all, the last one standing when the initiative dies will die with the initiative. I spoke about this principle in more detail here.

4. Distinguishing Battles from Wars
Leaving an initiative early may look like failure, but an initiative is only one battle. The real goal should be to worry about winning the larger war, not a single battle.

The real war is to preserve and profitably grow the corporation. For a corporation to do so, it must continually shed its old initiatives and add new ones. Shedding the old is not a sign a failure, but a realization that the greater goal requires adapting to change. In fact, failure to shed is more likely to create ultimate failure.

Long-time enduring companies like Nokia and GE have had vastly different portfolios of businesses over the years. They were willing to leave industries before that game was over and move to the newer, better game. And when GE has temporarily faltered, it is usually because it stayed too long with a particular initiative.

SUMMARY
Leaving a business early may at first seem like failure, but it is usually the more profitable option. Strategic initiatives eventually die and you cannot stop that. Therefore, to prevent your company from dying, you need to move on. And the sooner you move on, the easier and more profitable your exit will be. Also, the sooner you move on, the easier it is to own the next big thing which is replacing what is dying.

FINAL THOUGHTS
When you see others starting to leave the game, consider it a warning sign that perhaps you need to consider leaving as well.

Strategic Planning Analogy #404: A Word About Sponsors

THE STORY
Paris Hilton has tried a number of things in her career—singer, actress, and author, just to name a few. But she has also been very busy lending her name to all sorts of products.

Some of the products she has lent her name to make sense—items like apparel, shoes, fragrances, and accessories. Although with all the hundreds and hundreds of styles and versions, one wonders how much input she actually had on many of these products.

Other products with her name are a little bit further afield—items like a collection of fashion and accessories for dogs, press-on nails and eyelashes, hair extensions and the like.

Yet others are even more far afield, like Paris Hilton motorcycle helmets, video games (Paris Hilton’s Diamond Quest), champagne and wine in a can, a chain of nightclubs (Club Paris), and decorative accessories for scrapbooking. She even promoted a brand of beer in Brazil whose name roughly translates into “Very Blonde Bitch.”

Needless to say, a lot of these far afield products were major flops. I guess the name Paris Hilton has only so much power.

THE ANALOGY
Paris Hilton has made a lot of money by lending her name to a wide range of products. Many of the people who paid her that sponsorship money, however, did not succeed as well from the deals. A large number of these products were failures.

Once on the David Letterman show, David was giving Paris a hard time about all of the sillier products she had lent her name to. It soon became apparent that Paris really wasn’t all that interested in many of the odd items sold under her name. You could see that she was much more interested in the promotional money she was making than the desirability of the products her name was on. I’m not even sure she had ever used many of these products. For example, Paris rarely ever made her scheduled appearances at Club Paris. She was too busy. If Paris wasn’t interested enough to visit her clubs, why should I make the time to visit them?

In the end, this made Paris Hilton a relatively poor sponsor.

In the world of strategic planning, it is also common to have a need for sponsors. Unless some high level executive lends their name as an endorsement of the strategic program, the program goes nowhere. However, if your executive sponsor just lends his/her name and really doesn’t get personally invested in the project, that sponsorship may be about as useful as Paris Hilton’s name was on some of the far afield products.

Sponsorship by itself will not ensure strategic success. You need the right sponsor who will lend the right kind of support.

THE PRINCIPLE
The principle here has to do with executive sponsorship for strategic initiatives. You not only need a strategy for the initiative, but also a strategy for managing the sponsorship of that initiative.

There are three elements to a sponsorship strategy—choice of sponsor, choice of relationship, and incentives. Each aspect is discussed below.

Choice of Sponsor
In general, there are two rules of thumb in choosing a sponsor:

1) The higher the sponsor’s rank in the corporation, the better. In fact many feel that without the endorsement of the CEO (the highest ranking officer), the initiative will never fully get off the ground.

2) The more involved (time, emotion, action) the sponsor is in the initiative the better. You don’t just want use of the person when the initiative is introduced, like was often the case with Paris Hilton. You want their help all the way through to the end.

The problem is that, often times, the higher one reaches in the organization for a sponsor, the less time that person has to get involved in the strategic initiative. Therefore, you need to make trade-offs. The goal is to find the highest ranking person who still has enough space in their schedule (and enough desire and expertise) to devote meaningful energy to the initiative.

Getting the right sponsor is critical. And the sooner you work on getting the right one, the better. Don’t wait until the project is approved to look for a sponsor. The sponsor may be essential to getting approval in the first place.

My experience is that it is best to start seeking out sponsors before the initiative is even fully fleshed out. That way, the sponsor can help design the initiative. By participating in the early design, he or she is more emotionally vested in getting the initiative accomplished, since it is partly their idea. I’m pretty sure that Paris Hilton was brought in relatively late on many of the products she endorsed, which is why she had no emotional ties to them. Even if the desired sponsor is not part of the strategic development team, get them emotionally involved early by seeking their input.

Choice of Relationship
There are three types of relationships a sponsor can have with a strategic initiative. The least involved relationship is that of an “endorser.” An endorser essentially lends their name to the project early on and does little else.

At the other extreme is the “complete handoff.” This is where the sponsor takes over full responsibility for the project. In fact, they may even be asked to abandon their regular job in order to manage the project full-time. At the time of the handoff, the strategists are no longer involved in the project.

The third option is in the middle, which I call “co-production.” This is where the strategists and the sponsor work together manage the process.

There are many problems with the two extremes. For example, if all you get is the endorser’s name early on (the first option), then you can end up with many of the same problems that manufacturers had using Paris Hilton’s endorsement. The sponsorship is too weak to withstand all the resistance the initiative will encounter along the way. About the only time endorsement alone is desirable is when trying to get the support of the CEO (because that may be all you can get at that level). In that case, you probably need multiple sponsors—endorsement at the very top, and something stronger further down the organization.

The complete handoff is nice, because you are getting the greatest commitment of the sponsor. However, there can be a problem if the strategists are cut away from the project too early. The strategists and their team put a lot of effort into researching and thinking about the initiative. They have some unique skills in helping to see how all the pieces fit together. If they are cut out of the process too soon, a lot of their insight is also cut out.

The key concern here is that new strategic initiatives are often contrary to the status quo, yet most sponsors come out of the status quo. Therefore, if the strategists are cut out too soon, the initiative may end up becoming less radical than desired, and end up more like the status quo. After all, that is what the sponsor knows and is more comfortable with. That is why you need to keep the strategists around longer, to help pass on the insights learned and make sure that the radical essence of success is not lost over time.

This is why I prefer the middle-ground of co-production. That way, everyone has a vested interest in success and the key success factors are not lost along the way. But even if you cannot get formal co-production, informally try to help after the handoff so as to minimize problems.

Incentives
To keep the initiate on a successful path, it is helpful to make sure that interests of the sponsor are in sync with the interests of the initiative. One way to do this is by creating incentives which cause initiative success to be in the sponsor’s best interest. If all of a sponsor’s incentives are tied to their regular job, then don’t expect a lot of time taken away from their regular job to work on the initiative.

Figure out what motivates these people (power, money, accomplishment, etc.) and then make sure that the initiative helps them get what motivates them.

SUMMARY
Strategic initiatives often need sponsors in order to get approved and to get implemented. Therefore, having a good sponsorship strategy is important. Start looking for the right sponsors very early in the process. Get them emotionally vested in the project. If at all possible, keep the strategists actively involved with the sponsor long enough to ensure that the radical nature of the change is not lost over time. Finally, provide incentives to the sponsor, so that active sponsorship of the initiative is in their best interest.

FINAL THOUGHTS
Of course, if the idea is bad, even great sponsorship isn’t worth much. I’m not sure if there is a sponsorship strong enough to make a major success out of champagne in a can.

Strategic Planning Analogy #401: Adrift at Sea

THE STORY
Suppose, for a moment, that you took your company out for an ocean cruise. While on the cruise, there was a terrible storm and your ship sank. Now, you and your senior team are all on a tiny lifeboat out in the middle of the ocean, adrift at sea.

You realize that this is a serious problem, so you decide to hold a strategy meeting on that tiny lifeboat.

“Ladies and Gentlemen,” you begin. “We have a serious problem here. We need a strategy to get out of this mess. The first order of business will be to come up with a strategic goal. My suggestion is that our goal should be to reach land. Any objections?”

Everyone agrees that reaching land is a good goal.

“To get to land,” you continue, “we need to move the boat. Therefore, I want all of you to work on tasks to move the boat. That will be our strategic tactics”

So everyone started to do whatever they could to move the boat. People took whatever they could find to act like an oar. Then they leaned over the side of the lifeboat to use their makeshift oar.

However, since nobody knew where the closest land was, everyone just started rowing in random directions. Worse yet, everyone was rowing in a different direction. As a result, the boat just went around in circles.

Looking at the mess, you finally conclude, “You see? This is proof again of why I don’t think strategic planning works. We’re working hard but not getting anywhere.”

THE ANALOGY
It seems that this experience on the lifeboat is not all that uncommon. According to a recent survey by Booz & Company, a lot of executives have come to a similar conclusion about the planning activities at their companies. The survey found that most of the executives (53%) don't feel their company's strategy will lead to success.

What does that say about the power of strategic planning if most executives do not have confidence in their company’s strategy? It’s a black eye to all strategists that the confidence in the industry has sunk so low. We’re sinking like that cruise ship.

Now it’s easy to see why the strategy on the lifeboat was so awful. The goal and the tactical directions did not provide any useful guidance. All it led to was random, useless activity. As we will soon see, a lot of business strategies are almost equally as useless.

THE PRINCIPLE
The principle here is that when strategic planning doesn’t get you where you want to be, it is not because strategic planning doesn’t work. Instead, the problem is that you have a lousy strategic plan. A bad strategic plan is like an inaccurately drawn map. It may look like the real thing, but it is useless.

We need to raise the standard of strategic planning and no longer accept lousy plans. They’re hurting the image of the profession in the eyes of top executives. Listed below are some clues that your strategic plan is leading to a disaster like the one made in the lifeboat.

1) You May Be Adrift At Sea
One of the most important outcomes of a strategic planning process should be an understanding of a company’s reason for existence. If you do not have a reason for why customers should prefer you, then you should not be surprised when customers choose not to patronize you. This is why I said recently that this is the most important question you need to ask in a planning process.

You cannot fulfill a purpose if you have no purpose. And if you have no purpose, then expect your strategy to fail. Without a purpose, you are like that lifeboat—adrift at sea, bouncing around wherever the waves take you. You will never make it to shore.

So the first thing to do is check if your strategy is built on a foundation of purpose—a reason for existing in the marketplace. Companies adrift never win. In the Booz survey, only one in five (21%) executives think their company has a "right to win" in all the markets it competes in. You cannot solve this problem until you give your customers a reason to want you to win—a purpose linked to their desires.

2) Your Goal is Too Vague
Now you may be saying, “Wait! I have a purpose. My goal is to provide great returns to my shareholders…or my goal is to grow sales at 20% per year…or my goal is to be a leader.”

These goals are no better than the goal in the story of wanting to “reach land.” It is too vague. Where is the land? Which direction do we need to go? What does it take to get there? What do we need to get there?

Vague goals like sales targets or return on investment are focused on the outcomes which benefit one’s self. They do not address how or why those results should occur (ignore the cause for those outcomes). The only way to get sustainable sales or profits or leadership is by pleasing the customer. Unless your goal addresses how you are specifically benefiting the customer, then there is no guidance in how to get those sales or profits or leadership. You are still adrift at sea.

Check your goals to see if they are specific enough around how you are going to please the customer. If the goal is too vague, then you probably have a lousy plan.

3) Your Tactics Are Poorly Aligned
In the story, everyone was paddling in a different direction. As we all know, if you want a boat to move efficiently in a singular direction, you need to have everyone paddling in that one direction. The same is true for tactics. If they are not aligned towards the purpose, it will never be reached.

According to the Booz study:

- Two thirds of the executives (67%) say their company's capabilities do not fully support the company's strategy and the way it creates value in the market.

- Almost two-thirds say their biggest frustration is "having too many conflicting priorities."

- 82% say that their growth initiatives lead to waste at least some of the time.

These survey answers would seem to indicate that there isn’t a lot of tactical alignment going on out there. Too many companies have too many paddles moving in too many directions.

No wonder these people don’t trust their strategy. It is having no meaningful impact on what people do. There are too many so-called “strategic initiatives” out there which aren’t properly linked to the big-picture purpose.

For a strategy to be effective, it needs to provide a focus to what people do. It needs to show what to do as well as what not to do. It needs to be a beacon light showing the way, so that everyone knows the direction in which to push their efforts.

And even more important, it needs to help prioritize what is to get done. It is impossible to be effective at simultaneously working on 20 different key strategic initiatives. That is too many. It will cause too many conflicting priorities. Most companies can only handle four or fewer key strategic initiatives at any given time.

Is your strategic planning process:

a) Getting everyone to move in the same direction (towards your purpose)?
b) Getting everyone focused on the same few top priorities?

If not, you may have a lousy plan.

SUMMARY
If you are upset with your strategic planning, don’t blame the concept of doing planning. Instead, blame the lousy quality of the plan. Instead of rejecting the idea of doing planning, change your approach, so that you are producing quality plans. Signs that you may be producing lousy plans are a) lack of a clearly defined, customer-oriented purpose, b) too much vagueness, c) little connection between the purpose and the activities, and d) trying to do too many strategic initiatives at the same time.

FINAL THOUGHTS
If the plans are lousy, eventually the blame will shift from “what a lousy plan” to “what a lousy planner,” and the planner will find him or herself unemployed. Fix this before it is too late.

Strategic Planning Analogy #392: Sunday Best, Part 2

REVIEW
In our last blog, we talked about some of the problems which occur when companies label a function as either an “everyday task” or a “strategic task.” By labeling a particular task as either one or the other we end up sub-optimizing because there tends to be both a strategic and everyday aspect to everything we do. If strategic thinking doesn’t impact the everyday activities of what a company does (and how it does it), then the strategy is rather irrelevant. Conversely, if we cannot translate great strategic, transformational thinking into a future everyday activity, then the great ideas provide no financial benefit.

By labeling an area as only being one or the other (strategic or everyday), we make the everyday less strategic and the strategic less relevant to the everyday. This is the opposite of what is needed. It is only when we see tasks as requiring both a strategic as well as an everyday approach that we get the best of both worlds.

In the last blog, we focused on the problems which occur when a task is labeled as “strategic,” where we used the example of growth. In this blog, we will look at the problems which occur when we label a task as “everyday.” We will use the example of cost reduction.

COST REDUCTIONS
Controlling costs is a key part of nearly every business. When annual budgets and compensation measures are put into place, it is very common to see some emphasis placed on lowering costs versus the prior year. It is so common, in fact, that cost control is seen as being a part of “everyday” business. It no longer feels like a separate strategic activity. It is just a part of the daily grind.

However, by labeling cost reduction as an “everyday” task, we are severely limiting how much we can really reduce.

Efficiency vs. Effectiveness
The big problem with placing cost reductions in the “everyday” category is that the process becomes siloed. Every department acts independently on their own span of control. As part of a particular department’s everyday work, the task of cutting department costs becomes nobody else’s work but that particular department’s.

For example, the annual goal may be to cut 10% of your controllable costs. With this goal, you are not responsible for cutting the costs outside your control, since that is not a part of your everyday work.

At first, this seems logical…only hold people responsible for that which they can control. And because they can control it, and because action in this area can directly impact their bonus, they are both motivated and capable (empowered) to make the cost reductions a reality. What more could you ask for?

Actually, you could ask for a lot more. The problem with this approach is that the task of cost reduction becomes little more than doing basically what you have always done, only a little more efficiently. In other words, the idea is to keep doing your same old everyday work, but with a little less waste and a little more productivity. This approach may make you a little more efficient. However, it may not make your company any more effective. And you may be missing out on the really big, game-changing cost reduction opportunities.

Radical improvements in costs typically require radical changes in the ways things are done. These radical changes usually transcend any particular department. Total reengineering may be necessary—requiring significant cross-departmental reorganization. In the end, entire departments and entire tasks might no longer exist. The product mix may be altered. What becomes the new “everyday” may look nothing at all like the former “everyday.”

These types of changes will never occur in an environment where each department separately works on their own cost problems as part of their everyday activities. Instead, these solutions only occur when cost control is approached from a more global, strategic basis.

I recently witnessed this situation first hand. This company changed its approach to cost-cutting, to take a broader, more strategic approach. A cross-functional team was put in place that was not bounded by the way things used to be done. Nothing was sacred—any everyday task could be radically reinvented. As a result, departments were eliminated, tasks changed, and big reductions in costs were produced—more than what would have otherwise occurred.

Selfish vs. Selfless
And then there is the problem of the multiple hats. Sometimes we need to wear our “department hat” and look out for the best interests of our department. Other times, we need to wear our “corporate hat” and look out for the best interests of the entire company. If cost cutting is labeled as being just an “everyday” activity, then we will only be wearing our department hat when approaching cost reductions.

This can lead to less than optimal results. For example, one way to lower a department’s costs is by pushing those costs onto another department. This may make your department look better, but it doesn’t help the overall company. Another way to lower costs is by reducing the service you provide. But if your lowered service hurts the effectiveness of other departments, then you really haven’t improved the company.

And of course, it is difficult in such an environment for someone to volunteer that his or her area gets eliminated or outsourced for the sake of the whole. Who wants to volunteer to lose their job? Who wants to volunteer to weaken their base of power? Unless there are shared risks across the entire company, nobody will want to take any risk which jeopardizes their individual area.

As a result, an everyday-only approach to problems tends to only nibble at the situation. If you want to make more monumental change, you need to add a strategic component. This is something which needs to transcend what any individual department can accomplish on its own.

SUMMARY
When we label particular activities as being solely either “everyday” or “strategic,” we are short-changing our ability to succeed. All activities have both a strategic and an everyday aspect to them. To ignore one of these aspects is to miss many of the benefits available to us. For example, when the strategic aspect is ignored, we miss all of the benefits which lie outside the complete control of particular department. The cross-functional, non-traditional options are missed. One ends up with small, incremental improvements instead of large, transformational change.

FINAL THOUGHTS
Just because all tasks require both an everyday and a strategic approach, this does not mean that the approaches should be intermingled and done together. Each approach is very different and requires a different type of mindset. Therefore, it is usually more productive to rotate one’s focus—to take a strategic approach for awhile and then switch to an everyday approach for awhile.

strategic planning analogy #359: Does It Fit?

THE STORY
I’m a real sucker for a great bargain. Unfortunately, not all great prices are great deals.

Take clothing, for example. I’ve seen lots of really great clearance prices over the years on clothes. Unfortunately, the clearance assortment usually leaves a lot to be desired. They almost never seem to have my exact size left in stock. Therefore, I’ve been known to buy clothing that doesn’t quite fit me exactly, just because I couldn’t resist the low price. Sometimes, I can make the clothing work. Other times, it just sits in my closet, never worn.

I may have paid a terrifically low price for the item, but it was a lousy deal because it didn’t fit and I never wore it.

THE ANALOGY
It really doesn’t matter how little I paid for the clothes. If they don’t fit, they are worthless to me. It was wasted money.

The same can be said of certain strategic initiatives. They may appear to be excellent opportunities, but if they don’t have a strategic fit with the organization, you will never reap the full benefits of that opportunity. If fact, that great so-called “opportunity” could end up destroying value for your firm because of all the time, money and energy wasted in trying to make it fit, when in fact it does not and can not. You will always be at a competitive disadvantage versus others in that space who have a greater fit with the strategic initiative.

Just as you do not want a closet full of clothes you cannot wear, you do not want a business full of initiatives where you had no strategic advantage/fit. No matter how great the opportunity looks, it has to fit to be a great opportunity for you.

THE PRINCIPLE
The principle here is that great strategies produce great cash flows over their life.

Two Factors Impacting Cash Flows
Two factors impact how much net cash a strategy will produce over its lifetime:

1) The amount of money/time/effort needed create and execute the strategy. These are the efforts which produce the INPUT for your strategy. For example, if your strategy is to become a major player in the smartphone business, you need to expend money/time/effort to design/develop your technology (hardware and software) and find a way to get the smartphone manufactured. Once this infrastructure is developed, you need a process to ensure your technology remains up-to-date and that daily operations run smoothly and efficiently. Without these inputs (a phone, software, and operations to produce them), you cannot be in the smartphone business.

2) The amount of money/time/effort needed to get customers aware of your strategy and make it easy to purchase what you are offering. These are the efforts which produce the OUTPUT for your strategy. Using modern terms, this is the concept of “monetizing” your strategy. For example, to monetize your smartphone, you need things like arrangements with the supply chain (mobile phone carriers and retailers), marketing campaigns, distribution capabilities, and a sales force. And if your business is advertising based, not only do you need a sales/marketing arm to reach end users, but also a sales/marketing arm to reach advertisers. In the case of the iPhone, Apple also needed to develop an infrastructure for developing and selling apps in order to fully monetize the strategy.

To maximize cash flow, one typically needs to keep the costs of inputs low and the net revenues from outputs high. A key way to do this is via strategic fit. Strategic fit is critical in both the inputs and the outputs. Without strategic fit, you will both expend more effort AND get less in return on your inputs as well as your outputs. And in a competitive marketplace, it is difficult to have a winning strategy when others, using strategic fit, can spend less and get more out of the same initiative.

Strategic Fit And Inputs
On the input side, strategic fit occurs when the competencies, skill sets, and infrastructure needed to get a strategic initiative up and running are similar to the competencies, skill sets and infrastructure already possessed by the firm. For example, it is easier to develop the software and hardware needed for a smartphone if you already have the engineering and technical experience to develop things like this in-house. Having brought similar technology to market in the past will put you further down the learning curve. This will make the process more efficient, more timely and more likely to succeed.

Similarly, experience in manufacturing similar products will give you an advantage in delivering the new product you have developed. You will get down the learning curve faster for everyday operations, thereby increasing the efficiencies of your input. If you can build the product using manufacturing infrastructure you already own and experienced employees who are already in place, you not only avoid the added expense of new infrastructure and new training, but you also get to spread your current infrastructure cost over more products. This makes your entire portfolio more profitable.

There was a strong strategic fit for Apple to enter the smartphone business, because it built upon the learnings, expertise and infrastructure developed for the iPod. This allowed Apple to get a quality, innovative product to market quickly and successfully. Conversely, Microsoft has been slow and far less successful in its smartphone strategy due to a poorer fit. Microsoft’s expertise and experience is more suited to developing and producing business productivity software. It knows little about designing gadgetry and is not the most savvy in understanding the consumer market.

Strategic Fit and Outputs
Outputs have a strategic fit when the necessary requirements to distribute, sell, market and monetize the strategy are similar to (or can piggy-back on) the distribution, selling, marketing and monetizing expertise/infrastructure already in place in the firm.

For example, the Apple iPad can take advantage of all of the expertise and infrastructure already in place to distribute, sell and monetize the iPod and the iPhone. Apple already has the needed relationships with the retailers and the phone carriers. They already have the apps infrastructure in place. Apple can use the same sales force and distribution infrastructure. They already know how to successfully market cool new technology to the target audience. This cuts out a lot of time and costs, as well as improving efficiency and effectiveness.

Contrast this to the experience Dell had in adopting its strategy from selling computers to business to selling computers to consumers. At first, you would think this to be a reasonable fit. Further examination says otherwise, particularly as it relates to outputs. Selling to consumers is quite different than selling to business. You need a different type of sales force, with a different type of sales pitch. You need different channels of distribution. You need a different product mix (less desktops, more laptops). You need a different marketing appeal (based on different attributes) which uses different advertising media. There are different after sales service expectations, since consumers don’t have their own IT departments. You need to be “cool.”

By not having expertise in all of these outputs to the consumer market, Dell was at a competitive disadvantage to HP/Compaq. HP/Compaq had a greater strategic fit in the consumer space, so they won the strategy battle in computers. HP/Compaq could move faster and more efficiently in the consumer space, giving them the edge over Dell.

Remember, even if you have a superior product, your strategy can still fail if the competition has a superior way to get their product sold. Just ask anyone who has tried to win against Frito-Lay in salty snacks in the US. It is almost irrelevant how good your snack is. Frito-Lay has such a lock on the distribution channels that you cannot get adequate access to the customer at the point of sale. Even a giant like Anheuser Busch had to abandon their strategic initiative into salty snacks (Eagle Snacks) in failure because of its disadvantage to Frito-Lay in snack distribution. Anheuser Busch could not transfer its beer distribution expertise, so there ended up being little fit on outputs.

Overcoming A Lack of Strategic Fit
Given the importance of strategic fit, companies try to find ways to quickly overcome a lack of strategic fit. There are two ways to do so. First, one can seek fit via acquisitions. The logic is that if you do not have a strong strategic fit within your company, then buy a company that already has that strategic fit. That way, your firm will have the strategic fit once the acquired company is assimilated.

Although this approach can sometimes work, it has two big drawbacks. First, you typically have to pay a large premium to acquire a company with the desirable knowledge and infrastructure needed for entering a hot new opportunity. You end up paying so much for the business that nearly all of the financial benefit goes to the seller, rather than the buyer. Unless this expertise and infrastructure is very scarce, others will also have this fit. And if the others already had the fit in-house, they will have attained it at a far lower cost than your acquisition, putting you at a competitive disadvantage.

Second, the expertise and infrastructure in the acquired company is only useful if it can be integrated into the new strategy. Transfer of expertise is always difficult, but it is more difficult when done via acquisition.

The alternative to acquisition is outsourcing. The idea is that if you do not have the fit, then outsource that work to someone who already has the fit. The problem here is that you can lose any competitive advantage. If everyone can outsource to the same experts, then you cannot gain an edge on anyone else using the same source.

Sony used to be very strong in conventional tube televisions because of its proprietary expertise in manufacturing. However, with the new TV screen technology, all the manufacturers are basically outsourcing the key manufacturing to the same few third-party manufacturers. Sony is sourcing from the same place as everyone else. Now, Best Buy can go direct to the same third-party manufacturers and build a comparable TV, cutting out Sony and keeping more of the profits.

In global automobile manufacturing, a lot of the parts were outsourced to manufacturers in China. Now, the Chinese want to become world players with their own automobile brands. They can rely on the local outsourcers to provide them the same quality parts as the established brands. And because the manufacturer and outsourced firms are both Chinese, they have some added synergies unavailable to global firms.

Therefore, don’t think of acquisitions and outsourcing as magic bullets that automatically achieve strategic fit and strategic advantage. There are significant risks involved. It is better if your strategy can rely on expertise and infrastructure that you (and only you) already have in place.

SUMMARY
To win in a competitive environment, it helps to have a strategic advantage. An excellent source of advantage is strategic fit. The closer the fit between a new strategic initiative and your core expertise and infrastructure, the more likely you will have an advantage. Strategic fit not only applies to what is needed to develop/create a product/service, but also what is needed to monetize that product/service. Therefore, when choosing a strategy, look for options with a strong strategic fit in both areas. If the fit is not there, do not assume that acquisitions and outsourcing can automatically fill the gap and make you a success.

FINAL THOUGHTS
There are a lot of exciting new growth opportunities out there. But if they don’t fit, they won’t be exciting growth opportunities for you. Don’t follow the crowd and chase the latest hot idea. Look for the unique opportunity which fits who you are and is hard for others to copy because it doesn’t fit them. Wear the clothes that fit and you will always look good.

Analogy #225: Fewer Colors, More Contrast

THE STORY
As strange as this might sound, my wife prefers to watch television in black & white instead of color. She says that all of those colors can be distracting and take away from focusing on the plot.

In addition, when the picture is in black & white you can increase the contrast. This makes certain items on the TV pop out more. It is easier to see the individual elements on the screen when the contrast is greater.

THE ANALOGY
Strategic planning has a strong visual component. In the process, we are trying to “see” many things:

1) What does the future look like?
2) Which elements of the business should I be focusing my visual attention on?
3) What does “good” look like? How do I know when I’ve achieved it?

In all of the complexity and speed of today’s business world, the picture we see can look a bit blurry and confusing. There is so much to be done and so little time. It’s hard to pick out the critical issues from the flurry of the daily crises and the constant buzz of the Blackberry. How do we keep from drowning in the mundane and locate where our eyes really need to be focused?

The answer is that I think we need to become more like my wife. To find what is really important, we need to set our sights on fewer colors and more contrast.

When I say “fewer colors” what I mean is that we need to focus on fewer issues. Of the millions of things we could be paying attention to, not all of are equal importance. By getting the critical few linchpin issues right, the rest will tend to fall into place. We need to put blinders on to all of those pretty bright colors that can distract us from the core.

When I say “more contrast” what I mean is that we need to become more extreme in our strategic responses...see things more as Black or White and less as various shades of gray. When everything looks about the same (gray) everything gets treated about the same (mediocre or average).

However, if we accentuate the extremes, we get more dramatic variability in what we do. Everything that is black gets pursued at full speed and high resource. Everything that is white gets cut and ignored. True success is based on finding the few things to do very, very well and knowing what to not waste any effort on at all. Being average across the board leads to failure. It is by spreading your resources and priorities unevenly (with high contrast) that you get the best outcome.

THE PRINCIPLE
So the principle here is to develop your strategic plan in a manner that:

1) Does not get distracted by a bunch of pretty and colorful things that aren’t important; and
2) Helps increase the contrast in the issues which are important, so that it is easier to see how to disproportionately allocate resources.

To see this in action, I will use a teleconference that was put on today by the Corporate Executive Board. About 10,000 listeners were learning about what top companies do to win during an economic crisis. Although they did not use these terms, a lot of what they said seems to reinforce this idea of fewer colors and more contrast.

Over and over, the theme seemed to be that the best companies narrow their focus and then get more extreme in their approaches within that focus. This suggestion was repeated in five areas.

1. Projects
When deciding what projects to work on, fewer colors says that in an economic downturn I should be focusing on fewer total projects. More contrast means that individual projects need to be treated differently. For example, instead of cutting 20% out of the budget of every project, cut 100% out of a large number of projects (kill them off) and perhaps even increase the budgets for the few that remain so they have a better chance of succeeding.

In addition, selectively ensure that the entire development pipeline has at least one project in full black attention. Don’t cut out all of the long term and only do the near-term projects. Selectively spread the resources so that a few projects in near-term, mid-term and long-term remain. And for the few that remain, pursue them with the highest of effort and resource.

2. People
To make sure your business has the best employees during troubling times, the Corporate Executive Board suggested ideas that emphasize fewer colors and more contrast. First, they said to focus your efforts on your very best employees. Second, they recommended that there be greater contrast between how you treat you best and your worst employees. Be more generous in the way you compensate your very best (even at the expense of others). Also, be more willing to get rid of the weaker employees. By doing so, the Corporate Executive Board says that you will do a better job of retaining your best employees and increase the overall quality of your employee mix.

3. Cost Control
When looking for places to cut costs, the Corporate Executive Board says to focus on fewer colors and put the bulk of the attention on making cuts at the point where the products and services are produced. Cuts at this level tend to be larger and last longer. In terms of increasing contrast, they suggest that while cutting at the point of production you may actually want to increase spending on general and administrative (G&A) costs. This seems to be what the best in class do. The rationale is that the people at the G&A level:

a) Have a broader perspective and can better see what to focus on.
b) Can better leverage best practices across more areas.

4. Product Mix
There are lots of attributes one can emphasize when putting together the value bundles offered to the customer. The Corporate Executive Board suggests that you “limit the colors” by only focusing on the attributes most important to people in an economic downturn. Then you increase the contrast by actually investing more in these few attributes which are most relevant (often at the expense of other attributes, which get cut way back or eliminated). That way, your company can afford to stand out as being the very best at doing what is most important to people at this point in time.

5. Risk Management
The Corporate Executive Board does not recommend an approach to try to reduce all risks in the business. After all, risks often lead to rewards. Therefore, more contrast is needed in how risks are handled. Some risks should be reduced by trying to push them onto the rest of the supply chain (primarily by focusing on contracts). However, there may be other risks that your business can uniquely absorb better than the rest of the supply chain. In those cases, you may want to even increase the risk in those areas by using your strengths there as a lever to get increased business (or increased concessions) from others in the supply chain who want to reduce risk in that area by handing the problem over to you.

SUMMARY
Great strategic action plans tend to have two characteristics;

1) They narrow the focus of what is worked on to only a small handful of issues, which we referred to as “fewer colors.”

2) They have more variability in how to handle individual elements within the areas of focus—more extremes in the effort required (all or nothing), which we referred to as “more contrast.”

Instead of across the board cuts of a similar percent (which leads to mediocrity), make bigger cuts in some areas so that one can actually increase spending at a few critical points.

By following this “fewer colors, more contrast” approach, one can afford to selectively and aggressively go on the offensive, even in tough times when resources are lean. Since tough economic times tend to cause customers to reassess their buying habits, this is the ideal time to pick up market share. This will not only create rewards during the current times of difficulty, but create a stronger platform for when the times are good again.

FINAL THOUGHTS
To keep the “number of colors” down, sometimes it helps to use a clever catch phase to help people understand what is truly important to focus on. When I was at Best Buy, we called them KRAs (Key Results Areas). You couldn’t get funding or staffing unless it was tied to the small handful of KRAs. At Limited Brands they use the term CFI (Critical Few Initiatives). Pick your own three-letter acronym and focus away.

Analogy #175: Trend Watching

THE FAIRY TAIL:
Once there was a man sitting in the middle of the city with a shotgun. I asked him what he was doing.

He said, “I’m hunting for wild animals out in the wilderness. I’ve been doing it here for over 30 years.”

I replied, “In case you hadn’t noticed, this isn’t wilderness any more. This is an urban environment. There aren’t any wild animals to hunt here anymore.”

The hunter nodded his head and said, “Yes, our company has professional trend watchers. They’ve noticed those trends of greater urbanization and fewer wild animals. In fact, I think those trends may have something in common, since the greatest drop in wild animals occurred when the urbanization began. In my backback, I’ve got all kinds of trend charts made by our trend watchers which show that. Do you want to see them?”

“Forget studying the charts,” I said. “I can see the urbanization and lack of wild animals with my own eyes. The question here is shouldn’t you be reacting to these trends?”

The hunter answered, “Our company has been hunting in this area for over 100 years. It is what we know best. It’s risky to change from what you are good at.”

“If you are so good at it,” I inquired, “Then how many wild animals have you shot at recently?”

“Well,” the hunter said, “I haven’t really had a kill in the last decade or so. But I’ve been practicing a long time and have improved my aim. If I ever do see a wild animal here, I’ll be ready.”

THE ANALOGY
External trends have an impact on performance. It really doesn’t matter how well you’ve been honing your skill and making improvements to your business operations. If the trends have made your business model obsolete, you will not be successful.

The hunter in this fairy tale was probably very skilled at hunting. He practiced to improve his craft. Unfortunately, two outside trends were making that meaningless—the transition of the wilderness into a city and the reduction (down to the point of total elimination) of the wild animal population.

It wasn’t like these trends were a surprise. Their trend watchers knew all about them and had been charting them for a long time. Yet the company did not react to the trends.

Sound silly? Well, McKinsey and Company announced the results of an executive survey today. According to this survey, 70% of the executives see external trends as increasingly important to corporate strategy. The executives for the most part also believed that these trends would have an impact on their profitability over the next five years.

Yet, for the 14 trends looked at, in nearly all cases it was only a minority of companies who actually admitted to taking some steps to address the trend. Worse yet, only 17% of the executives said that they had taken enough action regarding a trend to actually see a significant positive result.

In other words, these 1,306 executives surveyed aren’t all that different from our hunter. They know the trends. They believe the trends will impact them, but they haven’t reacted to them in any meaningful way. They haven’t exploited the new opportunities provided by the trends or avoided the pitfalls created by the trends.

THE PRINCIPLE
The principle here is that knowledge alone is not good enough. It is what you do with that knowledge which makes the difference. If your planning process stops at just making your executives smarter, then it is incomplete. Taking pride in a backpack full of beautiful charts when the company is failing is not much to be proud of.

Sure, strategists can’t do everything. As the old saying goes, you can lead a horse to water, but cannot make him drink. However, there are things one can do in the planning process which will help increase the chances that the right action will be taken. This blog will look at some of those actions.

First, let’s add a little context. In the McKinsey survey, the ones who had taken action said they were motivated by a combination of five factors:

1) They could see a competitive advantage to taking action.

2) They felt competitive pressure to take action.

3) They had a specific growth opportunity presented to them where an existing business could take advantage of the trend.

4) Customers asked for a change based on the trend.

5) They had a specific new business opportunity presented to them which could take advantage of the trend.

If these are the items which motivate action, then one should try to incorporate them into the strategic process. I suggest three ways to do so:

1) Make it Tangible
It appears that tangible examples of specific business opportunities create more action than mere discussion of academic trends. In the list above, being able to envision specific business options was a great motivator to action (especially factors #3 and #5).

Therefore, whenever presenting trends, try to link the trend to tangible business opportunities. For example, the conversation might go something like this: “Based on this trend, it appears that a new type of business space has been created. The size of that space could be as large as $100 billion in five years. Here are five specific examples of how we could play in that space and get a share of that $100 billion...”

The important issue at this point is not that they pick one of your five ideas. The point is that the audience can now visualize how to specifically turn that trend into big profit. It can stimulate them to find even better opportunities.

2) Make it Emotional
Dry statistics aren’t nearly as motivating as an emotional appeal which stirs the soul. Two good emotions to tap into when presenting trends are pride and panic.

The pride approach looks something like this: “Our arch-enemy, Company X, is already starting to take advantage of this trend (show examples). Are we going to sit on our hands and let our enemy get the upper hand in this area? Of course not! Who’s #1? We are! Let’s become #1 in this new opportunity and show the enemy who is really the industry leader!”

In other words, pride looks a lot like a pep talk to the football team at half-time.

The panic approach looks more like this: “There are already 10 of our competitors trying to take advantage of this trend. New entrepreneurs are entering our space to exploit this trend. If we do nothing, the most likely scenario is that we will be left in the dust as a bankrupt firm while these new entries get all the profits.”

In other words, the idea is to paint a picture which makes the status quo no longer appear to be a viable option. It’s either change with the trends or die. Both pride and panic exploit factor #2 above—competitive pressures.

3) Tap the Lifeblood
Your customers are the lifeblood of the company. Without customers, you have no purpose, no reason for being. If you can show that the customers want you to change with the trends, then you can incite action (see factor #4).

Look into all of your old company records to see if you can find examples of your customers wanting you to move in the direction of the trend. Perhaps they asked for features related to the trend. Perhaps they stopped doing business with you and went with a competitor who was closer to the trend. Tangible examples such as these show the vulnerability of your lifeblood if you don’t exploit the trend.

If you cannot find any old data, create new data. Do a survey of key customers and ask them about the trend and how it impacts them and how it might change their behavior. Maybe even make a video of the conversation and show it to executives. Usually, the words are more powerful if they come from a customer rather than an insider.

SUMMARY
Knowledge without action is not very useful. Knowledge of industry trends needs to be translated into something actionable. The strategic planning process should specifically link knowledge to tangible options, emotions, and customer behavior in order to drive the motivation for change.

Remember, the goal is not to watch trends, but to act upon them.

FINAL THOUGHTS
That hunter in the city might have changed his behavior had he been given tangible options such as mentioned in this blog.

The Room is Smaller than You Think

The Story
There’s an old joke about a man who is going to paint the wooden floor in one of his rooms with varnish. He begins in one corner of the room and starts painting the floor in a diagonal direction towards the opposite corner. Because the job is rather dull and repetitive, the man just moves along quickly, not thinking much about what he is doing.

As a result, before the man realizes it, he has painted himself into a corner at the opposite end of the room with no place to go. He cannot walk out of the corner without stepping into the fresh varnish he has just painted and thereby ruin his work. He cannot stay in the corner and wait until the varnish dries without suffering damage from breathing the varnish fumes. He is stuck in a bad situation that’s only going to get worse.

It’s too late to go back and there is nowhere in which to go forward. The man is stuck. What is he to do?

The Analogy
Strategic Planning is a lot like painting that floor.

The goal of strategic planning is to provide a path to get from where you are today to where you want to be tomorrow. If you do not pay attention to where you are going, you may end up in a place where you do not want to be. You may find yourself “painted into a corner” with no escape.

In such a situation, the strategy you have been using has lost its ability to work any longer. You can no longer profitably move in that same strategic direction. You have hit a wall. Worse yet, your old strategy has left you in a position where you do not have any desirable options for change. You cannot alter your strategy to get to the doorway to your brighter future without destroying the work you have already accomplished (i.e., walk on and destroy your varnish). However, if you just stand in place, the vapors will cause you to slowly die.

When the painter in the story above was painting the floor, he was facing towards the corner where he started and painting in a direction towards the area behind him. He was working backwards, moving in a direction which he couldn’t see. He felt he had to do it that way, because if he tried to paint the floor in a direction moving forward, he would end up walking through the area he had just painted. By not looking behind himself, he could not see that he was painting in a direction that would eventually trap him.

While it is true that companies need to focus on the task in front of them today, like painting the floor directly in front of them, it is also true that sometimes you have to look up and turn your head so you can see where your current path is taking you. Is it leading to a door or to a corner?

This sounds like an elementary principle of strategy that shouldn’t need mentioning—make sure you are moving your organization in the right strategic direction so you do not get trapped. However, you’d be surprised how many times I’ve seen senior executives painting themselves into corners. Just look at how many senior executives have recently gotten themselves and their companies into serious strategic difficulties that are hard to escape from.

Why do so many executives fall into this trap? The reason is simple…they think the room they are painting is enormous in size, perhaps even infinite in size. The feeling these executives have goes something like this:

It doesn’t matter which direction I’m painting the floor as long as I do a good job of painting it. After all, the room is very large. I will be wealthy and retired long before we ever end up running out of flooring to varnish in this room. When it’s my turn to exit the company, I will just walk across the large expanse of yet unpainted surface to the nearest door and leave. Let my successor worry about whether he is painting in the direction of a corner or a door.

The fatal flaw in this reasoning is that these rooms are smaller than we think. We end up painting ourselves into a corner because we think the wall is a far, far away, when in reality it is right behind us. It came upon us by surprise because we did not look up in time to see where we were going and how soon we would reach the wall.

The Principle
The most important principle to learn here is that all strategic initiatives eventually fail. Since all strategic initiatives eventually fail, you must look for new initiatives to replace the old. And since strategic initiatives tend to die faster than we think, we cannot put off the task of finding the replacement to some time in the distant future.

Just because all strategic initiatives eventually fail does not mean say that all companies need eventually fail. Companies can outlast strategic initiatives if they continue to adapt their strategies to the changing marketplace. Even the most successful strategic initiatives will eventually fail. Changing consumers, changing competitors, changing technologies, and changing desires will eventually cause even the best initiative to eventually become out-of-sync with the environment and fail. Something better always comes along.

It is like a lifecycle. Strategic initiatives are born, grow, and eventually die. The role of strategic planning is to help you optimize your position on the current life cycle and help you to get to the next lifecycle before the first one dies.

Going back to the story of our painter, the room is like a strategic initiative. The size of the room relates to the lifespan of the strategic initiative. Doorways lead to the next strategic initiative. Unless we want our companies to die a premature death, we need to be looking for those doorways well enough in advance so that we can plan a way to get there before we run out of flooring.

The rooms are smaller than we think, because we do not control all of the variables that have lead to our success. Events can change suddenly on us, making our current strategic initiative obsolete, no matter how well we execute the strategy. Suddenly, the lifespan shrinks and we need to look for a door.

To illustrate this principle, let’s assume, for a moment, that you run a very successful bookstore. Your store’s image is so strong that nobody else would ever dream of building a competing bookstore in your area. Those who tried to build bookstores in your neighborhood in the past have all failed. As long as people continue to want literature, you believe you are all set. You believe your strategy can go on practically forever.

However, even if you run the best bookstore, that doesn’t mean your store will last forever. What if, for instance, an internet company like Amazon appears, who does not need to build a bookstore in your neighborhood in order to compete? It can offer better selection, better prices and better service than you and potentially make your strategy obsolete.

Or what if a large hypermarket or superstore like Wal-Mart builds a store next to you and decides to sell books at a loss in order to get customers in the store to purchase clothing? It’s not playing by traditional bookstore rules, so it does not need to be a better “bookstore” in order to put you out of business.

Or what if people decide they would rather purchase digital books downloaded from a computer rather than buy paper books from a physical store? Or what if people decide they would rather see their literature in the form of movies rather than in the form of books? Or what if the demographics of your neighborhood change and all of the educated book readers leave town and are replaced by illiterates who have no desire to buy books? There are still people who want literature, but they aren’t in your neighborhood any more. Or what if we hit a deep economic recession, where people can no longer afford to purchase books, but instead borrow them from a library?

In every one of these cases, the bookstore does not lose because it failed to execute perfectly on its strategic initiative to be the best bookstore in its neighborhood. It has continued to be the best traditional bookstore in the neighborhood. Instead, it loses because the concept of a traditional bookstore has suddenly become obsolete for its neighborhood. The strategic initiative has died. You have run out of flooring and painted yourself into a corner.

If the bookstore owner had looked up, he or she could have perhaps anticipated some of these threats to your bookstore and found doorways to new strategic initiatives, such as:

• Building an on-line presence

• Expanding your retail mix to be less dependent on traditional books

• Moving your store to a better neighborhood

• Selling out before the threats became reality and using the money to do something different.

The sooner you look up and see the threats to the lifespan of your strategic initiative, the better able you are to develop a strategy that gets you to the doorway to another room. Those seemingly uncontrollable factors that suddenly shrunk your room are more controllable if you find out about them early enough. This will give you ample opportunity to find all sorts of doors. As long as you keep finding doors, you can paint floors forever.

Summary
Just as you cannot paint a floor forever without eventually running out of room, you cannot do the same strategic initiative forever without it eventually starting to fail. All strategies eventually fail, and they tend to fail sooner than you think. Therefore companies need to look up from the daily task at hand make sure they are heading towards a door that leads to another room of strategic opportunity. Otherwise, before they know it, they will have painted themselves into a corner with no escape.

Looking for the next strategic initiative is not a luxury. It is a necessity, if you don’t want to get stuck.

Final Thoughts
You’d be amazed how many executives I have talked to who have said something along these lines:
“I know our strategy is heading for a fall, but I don’t care because I plan to be at another company or retired before the end comes. Besides, if I start making significant investments in a new strategy today, it will only serve to decrease earnings during my tenure and will not provide benefits until after I am gone.”

As a result, instead of investing in the future, these executives tried to coast on the old strategy until they left. In reality, more often than not the fall came before the executive was able to leave or retire and they suffered the consequences. The room was smaller than they thought. And they paid a heavy price.