Strategic Planning Analogy #540: Three Novelists

THE STORY
Consider three types of novelists.

The first author wrote a great novel once. He liked the book so much that he would rewrite the same book every year. A few parts might be added and subtracted each year and maybe a couple of sections would be updated. But essentially it was the same story. He is currently working on the tenth edition of this book, ten years after the first edition. He is so busy with these updates that he hasn’t had time to ever write a second novel.

The second novelist was all over the map. Each new novel went in an entirely new direction with entirely new characters and subject matters. The writing styles and topics would vary so much between novels that there was no guarantee that if you liked one book that you would like another. And it was difficult to get used to all the new characters all the time.

The third novelist wrote a mystery series. The lead character detective was the same in all the books, surrounded by a familiar cast of characters. Although the style was familiar in each book, the plots in each book in the series had enough novelty to keep them unique and interesting. Over time, the lead detective came to be thought of like a familiar old friend to the readers, who anxiously waited to hear about his next adventure.

So which author do you think sold the most books?

THE ANALOGY
Strategists are a lot like novelists, except instead of writing novels, we write strategic plans. And I have seen all three of the types of authors mentioned above in strategic plan writing.

The first type of author is often found in companies with a rigid, but unimaginative annual planning process. Every year, they go through the same boring process. Each business unit submits what they want to do, which is essentially the status quo. Then all the “same as ususal” business unit plans are rolled up together, creating a broad affirmation of the status quo.  Although it may appear as if the annual process is creating a new plan every year, it is really just slightly re-editing the same plan, year after year after year. We’ll call this the “One Book” approach to strategy.

The second type of author is like companies who switch their strategic planning personnel a lot or use a lot of different strategy consultants. As each new author of the strategy walks into the role, they try to put their unique stamp on the process to prove their worth. As a result, each new strategic plan is a radically different approach, totally unconnected to the plans of the past. The company’s role in each plan is so different, that it is hard to imagine that it is the same character. We’ll call this the “Annual Reinvention” approach.

The third type of strategy author (who is like the one who wrote the mystery series) falls somewhere in between the first two. Unlike the Annual Reinvention approach, there is the continuity between each successive plan. It builds on the character’s past and works with its habitual strengths and weaknesses. Yet, unlike the One Book approach, each plan is a new story for the new reality being confronted. We’ll call this the “Series” approach.

And just as novelists who write series tend to sell the most books, strategists who take a “Series” approach tend to have the most successful strategies.

THE PRINCIPLE
The principle here is that an individual annual plan is not an isolated event, but one book within a series. Or, to use another metaphor, it is like a single screen shot from the middle of a movie. If you keep repeating the same screen shot for the entire movie, you have a lousy movie (like the “One Book” approach). Similarly, if you radically change the plot of the movie for each successive screen shot, you have a lousy movie (like the “Annual Reinvention” approach). Great movie scenes build from what came before and point to the changes ahead (like the “Series” approach). So when writing your individual plans, think like a series writer.

The Problems with the One Book Approach

The biggest problem with the one book approach is that it assumes a static environment—no changes. If you assume the future will be just like the past, then what worked in the past will also work in the future. Therefore, continuation of the status quo makes sense; reissuing the same basic plan every year makes sense.

However, we all know that the future will not be identical to the past. There are too many elements of change to allow history to continue as before. Change can come from a multitude of sources, from inside the business to inside the industry to outside the industry. Changing government administrations, changing technologies, changing competitive landscapes, changing economic conditions, changing customer moods, and a host of other areas all serve to alter the marketplace in which you compete.

Therefore, the same strategy book from 10 years ago will not work today, even if you update it a bit each year. A continuation of the status quo will lead to ruin.

The role of the strategist has to be more than just a scribe who takes the status quo words from each business unit and just writes them down verbatim into the annual plan. No, the strategist needs to add value to the process by:

1. Helping the business units see how the future is going to be different from the past.
2. Helping the business units discover the best ways to adapt to the new future.
3. Helping the corporation see big picture of how all the individual business units line up against the changing future, creating a need to alter the business unit portfolio. In a changing future, the best role for a particular business unit may be to shut it down (no longer relevant), and that type of advice will rarely come from the business unit itself when submitting its plan.

The Problems with the Annual Reinvention Approach

The opposite approach from one book—the total strategic reinvention—isn’t much better. It creates a whole lot of action, but it never leads to very much benefit, because the direction of the action changes every year.

A key part of strategy is positioning. To win in the marketplace, you have to stand for something—your position. Winning such a position takes time and consistency. If you keep changing your position each year to something radically different, then you really end up standing for nothing.

When you change who you want to be all the time, your employees get confused about what you stand for, so they don’t know what to do. Worse yet, your employees may take the attitude that “this too shall pass” so they will ignore the latest strategic initiative. After all, why work hard on implementing something if you know that next year the company will want to implement something else? Neither confusion nor apathy in the employee ranks creates an effective strategy implementation program.

And then there are the customers. If your customers get confused about what you stand for, they will never know if you are the right solution for their problem. It is like the author who radically changes her style from book to book. You never know if the next book will fit your preferences.

It takes time to build the competencies and capabilities necessary to pull off a strategy. If you keep changing the strategy, your competencies and capabilities will never be at optimal levels for the strategy of the moment. By contrast, if you keep a relatively consistent direction over many years, you can develop competencies and capabilities which will make you best at delivering your position and blow away the competition.

The Benefits of the Series Approach

The series approach takes the best from each extreme while eliminating the worst. First, it understands that a company has a heritage, a past, a preconceived reputation in the marketplace. You are not working from a blank slate each year. You are building on what came before. This has an impact on what the best future path should be. Like the mystery series of novels, you have the same lead detective in each book, and the prior novels in the series impact what you can effectively do with the character in future novels. Yes, the character can change and grow up, but too many radical changes from book to book ruin the series.

So continuity is important. Build from past strengths. Ignoring your strategic heritage while looking forward is a dangerous path.

On the other hand, the series approach doesn’t re-write the same plot each year. It understands that the marketplace is continually changing, so you need a new story line to adapt to the change. It is the idea of being able to adapt what already makes you great to the new realities of the future.

Just as each murder in the mystery series requires a different solution, each year has its own strategic problems to solve. The variety in plots keeps the individual story in each book in the series fresh and relevant. Yet each solution relies on the historic strengths of the recurring detective. The same should be true of your strategic plans.

SUMMARY
Strategic plans are like novels. And the best strategic plans tend to be like individual novels within a series. First, they provide continuity between the stories in order to take advantage of the past and build competencies and capabilities for the future. Second, each novel’s story is different, because times change.

FINAL THOUGHTS
I’m currently helping a company with its new five-year strategic plan, and the starting off point is its prior five-year plan. You have to look backwards before you can look forwards.

Strategic Planning Analogy #382: Stop the Suspense

THE STORY
When I think of the word “suspense” I usually think of old Alfred Hitchcock movies or Stephen King movies/novels. These are people who entertain us by captivating our minds with the fear of the unknown. It’s the type of scary feeling which we enjoy.

What “suspense” does not bring to mind is accounting. Yet there is an accounting concept called suspense accounts. Suspense accounts are used as a temporary placeholder when you do not know the proper place for a journal entry. For example, let’s say your company receive some money, but you haven’t yet figured out why. You would debit cash and temporarily credit a suspense account until you know where the real credit would go.

Another example is using a suspense account to temporarily balance your balance sheet if it is out of balance and you do not know why.

Come to think of it, suspense accounts are also about experiencing the unknown, just like scary suspense movies. Unfortunately, this is not the type of scary feeling we enjoy. I’d much rather have a scary movie than a scary set of accounting books any day.

THE ANALOGY
Although we may enjoy surprises and plot twists in our entertainment, most of us try to avoid that in our business performance. Investors (for both Debt and Equity) love stability and predictability. Too many surprises scare them (too much suspense). That’s why stable and predictable companies can usually borrow at a lower rate and get find more people to buy their stock at a higher price.

In addition, most employees don’t like too many surprises about their job stability. Therefore, by creating a stable environment, you may also be better able to attract and keep great employees

Strategic Plans can be a useful tool in taking a lot of the fear and suspense out of how people view a company’s future. Just that alone makes strategic planning valuable to a business.

THE PRINCIPLE
The principle here is that strategic planning and strategic plans are great tools for minimizing suspense in business. We should use them to that end in order to reap the benefits.

There are four main ways in which strategic plans and strategic planning can help take the suspense out of business.

1. Minimizing the Unknown
One of the great benefits of a strategic planning process is that it gets people to think about the future long before that future is a reality. The more time you spend pondering the future before it arrives, the more prepared you are for it when it arrives. It is no longer a surprise.

A good strategic planning process should use some of that time to gather “facts” about the future. Although we can never understand with 100% certainty what the future holds, we can study trends and other environmental factors to better understand what the future will likely be.

Strategies are played out in the context of the future. The better we understand that context, the better we can design the strategy.

There are lots of ways to gather these “future facts.” You can purchase insights from experts in the field of futurists and trend watchers. You can have an internal strategy team conduct a lot a research (primary and secondary). You can draw from the expertise of your network of employees, customers and suppliers. You can go out to the edge of society where trendsetting typically occurs and see what they are up to. Or you can do a combination of these or other approaches.

The important thing is to get smart about the future, so that it more known and less surprising.

2. Minimizing the Uncertainty
Even after gathering a lot of “future facts”, you will still not be able to predict the future with 100% accuracy. Even so, you can still eliminate a lot of the suspense around the remaining unknown by preparing for multiple outcomes.

Through strategy tools like scenario planning or real options, companies can build multiple potential outcomes into their view of the future. By anticipating these various outcomes in advance, one can prepare the proper strategic variations for each scenario.

If you have prepared an answer in advance for each of the likely scenarios, you can have high confidence in your future performance even if you have low confidence in any particular scenario occurring. In other words, even if the future is uncertain, your strategic path can be certain if it includes answers for addressing the uncertainty of multiple scenarios. The unknown is a lot less scary if you are ready for a variety of potential “surprises.”

3. Smoothing the Bumps
Every strategic initiative has a life-cycle. There is a growth phase, a maturity phase, and a decline. The problem with many companies is that they do not adequately prepare for these transitions from one phase to the next. As a result, they end up with a trench of unstable performance—a period of strength followed by a period of decline followed by a slow ramp up to something else followed hopefully by another phase of strength (see chart).



That’s a lot of suspense. How low will the decline go? How soon will they find a replacement strategy? Will the replacement strategy succeed? If so, how long will it take? This is one of the problems Kodak is facing. They waited until analog imaging was virtually dead before becoming aggressive in digital imaging. There is much suspense over whether they will survive the trench. The company may end up dying with the death of the old analog business.

A much better approach is to anticipate the decline of the current strategic initiative and start building the replacement strategy while the current strategy is still strong. That way, by the time the old strategy starts declining, you already have a strong replacement. There is no trench of suspense in this approach. Instead, performance is relatively stable (see chart).



Best Buy has a strong history of using this approach. They aggressively go after the next new technology before the old one is obsolete, so that they can seamlessly move from strength to strength.

Strategic planning plays a role here by anticipating the future so that the trenches can be avoided. It forces the discipline of building the replacement strategies in advance.

4. Communicating Confidence
Plans should not be a kept a secret. They should be shared widely with employees and other key stakeholders. The more your employees and investors see and understand your strategy, the more confidence they will have in your future. And the more confidence they have, the less scared they will be about your future prospects. And the less scared they are, the more you will be able to achieve those benefits mentioned at the beginning of the blog. By contrast, if you are silent about your plans for the future, people will tend to think the worst and become even more afraid.

Strategic plans are a great promotional tool to ease the fears of your stakeholders and create confidence. Don’t be afraid to take advantage of this.

SUMMARY
Suspense and fear are enemies of a company. They can increase your cost of capital and make it harder to get and retain great employees. To ease the fears and make the future less scary, use strategic planning to a) learn more about the future, b) create contingencies for the unknown, c) smooth out the bumps in strategic transitions, and d) communicate confidence in the future by having a plan for it.

FINAL THOUGHTS
Keep your suspense at the movie theater, not in your business.

Strategic Planning Analogy #358: Another New Strategy

THE STORY
Here’s a headline you probably will never see: Company Hires New Head of Marketing Who Doesn’t Change Anything.

Instead, we’ve seen the opposite happen hundreds of times. A new marketing head is hired and suddenly there is a new advertising agency with a new advertising slogan to match a new marketing strategy. And given that heads of marketing seem to only last about two to three years before being replaced, that’s a lot of new advertising slogans and marketing strategies.

That is why I was impressed by an article in Mediaweek last September about Tim Mahoney, Chief Marketing Officer at Subaru. In the six years prior to his return to Subaru in 2006 (after having been away for 9 years), Subaru had gone through five different ad slogans and marketing strategies (with two different agencies). In just the one prior year to Mahoney’s return, Subaru had used five different print ad layouts.

When Mahoney got back to Subaru, one might have expected him to change everything yet again. Instead, he kept the most recent slogan (from his predecessor), picked a singular ad layout, and started working on perfecting its execution. He told the ad agency to not even try to change them.

They have now had the same slogan and marketing approach for four years. The consistency is strengthening the brand. And as a result, Subaru has been doing very well and is picking up market share.

THE ANALOGY
Marketing is not the only place where this type of problem happens. Executive turnover is high all over the spectrum. And it is very common for the executives in all areas to reject what the former executive did and go in a new direction. As a result, not only do marketing strategies wobble all over the place—all strategies seem to be in flux.

Not only is the tenure for marketing executives short; CEOs don’t seem to last very long, either. This just accelerates the changing of the strategy. How do you build a long-term strategy with enduring impact on the marketplace when the strategy itself does not endure?

In the case of Subaru, sticking with an ad strategy for multiple years has had a positive payback. The same is true for corporate strategies.

THE PRINCLPLE
The principle here is that you will never complete a long-term journey if you keep changing where you want to go. If you want long-term success, you need continuity on the objectives and the follow-through.

Sure, sometimes things change so much that it is time for a wholly new strategic approach. Most of the time, however, all we need are a few tweaks to a long-standing game plan. The temptation to keep changing the strategy needs to be resisted. We can see the consequences of falling victim to the temptation to change in the example below.

The Consequences of Ever-Revolving Strategies
I know of a retail brand that, for more than a decade, changed presidents about every two years. Each new president wanted to make a good impression—prove they were worthy of taking over the helm. As a result, each new president would reject major portions of the strategy of their predecessor and create a new strategy for the company.

The logic was a follows. If the former president had been doing a good job, he would not have been let go after only two years. Something apparently was wrong with what the former president did. Therefore, the new president feels compelled to do something different. And, as part of doing something different, each new President did something new to the strategy.

Unfortunately, all these changes to the strategy had consequences:

1) Employees at headquarters became confused as to what they should be doing, because the priorities and the expectations changed so often. This made it very difficult for them to excel at their jobs. Rather than getting better at what they were doing, they always seemed to be doing “transition” work—undoing the old and starting the new.

2) Many employees out in the field started ignoring headquarters and their various strategic changes and began to do whatever they felt best. After all, it’s hard to hold the people in the field accountable when the leaders and the expectations change so often. The employees in the field knew they would outlast the leader and whatever his “strategy of the day” was. Therefore, they tended to ignore it, figuring “this too shall pass.”

3) When leaders know that their time may be short, their strategic emphasis often shifts to changes with quick returns. Long-term investments with longer paybacks are not a strategic priority. When long-term investments are delayed for over a decade, the basic infrastructure needed to run the business becomes tired, outdated, broken, obsolete, or terribly inefficient. It is difficult to compete against newcomers with the latest and greatest stores and management tools when yours are old and tired.

4) Consumers became totally confused as to what the store stood for. Various swings between standing for quality or price, upscale or downscale, left consumers unsure about what the stores were trying to be. It’s hard enough to get customers to love you when you solidly stand for something. It is almost impossible to get customers to love you when they have no idea of what you stand for. As a result, store traffic dwindled, year after year after year, as customers defected to stores with a stronger position in the marketplace.

As a result of all of these consequences, this retail chain is no longer in existence.

What do I Change?
Here’s the dilemma. Often times a company can be underperforming, creating a perception that change is necessary. However, if you keep changing the strategy, you can make things worse rather than better, as we saw in this retail example. So then, what should one do?

In general, we need to do more like what Tim Mahoney did. Rather than change the direction, he changed the execution. In other words, often times a strategy fails not because it is a bad strategy, but because either it was executed poorly or abandoned too soon. Therefore, rather than change the strategy, keep the strategy and change the execution.

Assuming the strategy is essentially sound, think about what could be holding back strategic success. Perhaps the company is missing some key components such as expertise, capacity, infrastructure, connections, technology, or whatever. If so, then instead of abandoning the strategy, focus tactics on obtaining what is missing. You wouldn’t send a soldier out to battle with a gun, but no bullets. Similarly, don’t try to execute a strategy which is missing key components.

Then, once the tools are in place, the emphasis should shift to improving the execution. Just as athletes get better with practice, so do employees. Keep at it, so that execution gets better. Keep pounding at the key essence of the strategy so that EVERYONE gets it—employees, customers, potential customers, supply chain partners, etc. Keep pounding at the essence of the strategy so that everyone instinctively knows what the right thing is to do. It’s better to have people know instinctively what to do than to either:

a) Have to stop the world and begin long debates every time something comes up;

b) Have to write down hundreds of pages of rules to follow that will never keep up to date with what’s going on; or

c) Have employees go off and do things somewhat randomly and contradictory, because they have no sense about what the company is trying to accomplish.

If you think change is in order, I think these suggestions are often a better place to start rather than automatically throwing the current strategy away.

SUMMARY
When times get tough, or when a new executive is put in place, there is a temptation to quickly reject the old strategy and start afresh. Although this may occasionally be a good thing to do, usually frequent strategic change causes more problems than benefits. If you feel a need to change, consider instead changing the tools or the execution.

FINAL THOUGHTS
For your legacy, would you rather be known as the person who changed the objectives or the person who changed the results?

Strategic Planning Analogy #355: Measuring Up

THE STORY
I used to work for a company that was big into metrics. They wanted to measure everything. As a result, the budgeting department sent a form to each department. On this form, they wanted each department to suggest a key metric to be measured by and a targeted goal with that metric for the following year.

Being in a Strategic Planning Department, I had a hard time thinking of what an appropriate metric for us should be. In talking it over, the department decided that our greatest contributions to the company were ideas. Therefore, we put on the form that our department should be measured by the number of ideas we come up with.

Then we had to come up with a goal for this metric. We picked an arbitrary number. I think it was 1,000. Therefore, we put on the form that our goal was to come up with “at least 1,000 ideas” in the following year.

We turned in the form. We never once heard back from the budget department on our suggestion. That was fine by me.

THE ANALOGY
I don’t think Strategic Planning Departments are well suited to annual metrics. One of their primary functions is to improve the long-term prosperity of the business. This is hard to put into an annual metric, because:

1) You usually do not know how much the long-term prosperity of the business is improved until many years later (falling outside the annual metric).

2) Since there is no control group, it is hard to measure how much of the improvement in a business’ long-term performance was as a result of the strategic planning department (vs. how much would have happened anyway).

3) If a plan fails, it is often difficult to determine how much of the failure was due to the quality of the plan versus the quality of the implementation. Since strategic Planning Departments are more responsible for the quality of the plan (while line operators are more responsible for implementation), it becomes difficult to determine how much credit (or blame) to assign to the strategic planning department versus the implementers.

4) When things go bad, there is always the excuse that “It would have been even worse without the strategic planning department.” Again, this is very difficult to measure.

Since long-term prosperity is a difficult annual metric, companies often look to simpler measures for a Strategic Planning Department, like staying within their budget or successfully completing a planning cycle process. Although these are easier to measure on an annual basis, they still have problems. In particular, there is no correlation between doing well on these measures and in improving the long term prosperity of a business. Creating a planning document on time and within budget does not mean that it is a good plan.

That is why my department did not take the budget exercise in the story seriously.

That being said, one might also conclude that it is not worthwhile to assign metrics to the strategic plan itself. However, I think that would be a mistake. Strategic Plans are not the same as Strategic Planning Departments. Although I think that planning departments are hard to measure, I believe that strategic plans can and should be measured.

THE PRINCIPLE
The principle here is that a good strategic plan outlines certain conditions which are necessary in order for the plan to succeed. One can and should measure whether or not these events occur, because if they do not occur, your future is in trouble.

As I’ve mentioned in the past, a good plan should encompass three areas:

1) Positioning
2) Pursuit
3) Productivity

Conditions should be assigned to these areas and they should be measured.

1) Positioning
A position provides the reason why your business exists (from the customer’s perspective). It gives potential customers a reason to prefer your business versus the alternatives. For example, Wal-Mart owns the low price position, which is a reason to prefer it over higher-priced retail alternatives. Mercedes-Benz owns the prestige position, giving a reason to prefer it over other, less prestigious automobile options.

The position is the place where you need to win if the strategy is ever going to succeed. If you do not give customers a legitimate reason to prefer you, they will prefer someone else.

Positions are won in the minds of your desired consumer segment. They either believe it (and give you credit for owning it) or they do not. Your position is only real if they perceive it to be so.

Therefore, if you want to measure the effectiveness of your positioning efforts, you need to measure what is going on in the minds of your desired customer segment. How many believe that you own your desired position? This includes not only the customers who have already purchased from you, but consumers in your desired segment who have not purchased from you. Even if they have not purchased from you, they probably have an opinion about what you stand for, and that opinion may be what is keeping them away.

2) Pursuit
Pursuit includes the plan to obtain all of the necessary pre-conditions in order to deliver on the promise of the position. This includes things like:

A. Competency—the expertise to know how to deliver on the promise of where you want to win;

B. Capacity—the infrastructure needed to deliver on the promise; and

C. Contacts—proper access to all the other players in the business ecosystem needed to deliver on the promise.

Depending upon your position, there will be different priorities in what you need to pursue.

For example, if Wal-Mart is going to excel at delivering a low price retail position, it needs expertise in low price retailing, an efficient infrastructure of stores and distribution centers with enough capacity to take advantage of economies of scale, and the proper relationships with key vendors and suppliers.

These are measurable conditions. Either you have them or you don’t. Strategic plans should provide a roadmap of where you are deficient and what needs to be done to fill the gap. And then you measure the extent to which the gap is been filled.

And since we live in a dynamic environment, what is necessary to win on your position changes over time. New expertise may be needed, improved infrastructure may be required, new contacts may be needed. A good plan anticipates this dynamic so that you can stay ahead of the curve on pursuing what you need to win in the future. You can measure your progress on these as well.

3. Productivity
Productivity is needed in order to ensure that your costs to pursue the position do not exceed the benefits of owning the position. Productivity includes activities such as:

A. Action Trade-offs—Cutting expenditures in less important areas so that you can afford to spend more in areas more critical to the position.

B. Efficiency Efforts—Eliminating Waste without Eliminating Effectiveness

C. Investing in projects which will increase long-term productivity (sometimes you have to spend money in order to save money).

D. Cash Management—Reducing receivables, increasing payables, reducing interest payments, etc.

Particular goals and actions can be addressed in the plan regarding these types of productivity issues. These can be measured.

What Not To Measure
Specific conditions related to positioning, pursuit and productivity can and should be measured. However, there are other metrics which should be avoided (or at least downplayed). The metrics to avoid or downplay are those which can be achieved while ignoring the strategy. For example, look at a metric like sales. There are lots of ways to boost sales in the short run. Many of these methods can damage or destroy a long term positioning.

Toyota, for example, recently got sidetracked into a pursuit of growing sales as fast as they could. To achieve this growth, they took their eyes off the key position of reliability. As a result, reliability slipped, and now Toyota is having to spend a fortune to recapture its position.

Just focusing on sales will not necessarily achieve the plan. But if you properly focus on positioning, pursuit and productivity, the right kind of sales will naturally come.

So, when choosing metrics, ask yourself this question: Is it possible to excel in this metric without advancing the plan? If so, eliminate or downplay that metric.

SUMMARY
Although it may be difficult to apply metrics to a strategic planning department, that shouldn’t stop you from applying metrics to the strategic plan. But not all metrics are good metrics. The metrics you choose should be specifically related to actions which advance the plan. In particular, they should measure:

A. Whether consumers believe in your position;
B. Whether you have properly pursued in getting what is needed to deliver on the promise of the position;
C. Whether you have taken specific steps to increase productivity without compromising your ability to deliver on the promise of the position.

FINAL THOUGHTS
Of course, if the best metrics are those designed to measure positioning, pursuit and productivity, then you’d better first create a plan which addresses the issues of positioning, pursuit and productivity. It amazes me how many plans ignore this first step.