Failures #2: Leaping the Right Distance

INTRODUCTION

In the last blog, we looked at an article in USA Today article entitled “The 18 worst product flops of all time.” These flops included:

1. Edsel by Ford Motor Co.

2. Touch of Yogurt Shampoo by Bristol-Myers Squibb

3. Apple Lisa by Apple

4. New Coke by Coca-Cola

5. Premier smokeless cigarettes by RJ Reynolds

6. Maxwell House Brewed Coffee by Philip Morris Companies

7. Harley Davidson perfume by Harley Davidson Motor Co.

8. Coors Rocky Mountain Sparkling Water by Adolph Coors Co.

9. Crystal Pepsi by Pepsico

10. The Newton MessagePad by Apple

11. Persil Power by Unilever

12. Arch Deluxe by McDonald’s

13. Breakfast Mates by the Kellogg Co.

14. WOW! Chips by Pepsico

15. Hot Wheels and Barbie computers by Mattel

16. EZ Squirt (colored) Ketchup by Heinz

17. TouchPad by HP

18. Google Glass by Google

We looked at three lessons to be learned from these flops. In this blog, we will look at another lesson to learn: The need to leap the right distance.

LEAPING THE RIGHT DISTANCE

Innovation is a lot like taking a leap into the future. But, as the USA Today article shows, not all leaps are successful. Think of it as being like leaping over a deep canyon. If you can leap from land to land, you succeed. But if you miss, you fall down into the canyon and fail.

Here’s the problem. The canyon of innovation is too wide to cross in one leap. Therefore, to successfully get across the canyon, you need to leap onto a small mesa in the middle of the canyon. Miss on either side of the mesa (too short or too long) and you fail. This is illustrated in the picture below. As we will see, many of the 18 flops failed in part by not leaping the proper distance.

1) Leap Too Short

The first reason for an innovation flop is to leap too short. This happens when your innovation improvements are incrementally too small to matter. Sure, it might be a little nicer or newer or better, but not enough to justify switching, particularly if you are charging an innovation premium price.

The Edsel (flop #1) was a nice car, but the innovations were minor compared to the hype, and the innovations were not enough to justify the premium price. The leap was too short.

Kellogg’s Breakfast Mates (#13) combined cereal, milk and a spoon into one “convenient” package. However, a test showed that the Breakfast Mate was only about a second faster to prepare than regular boxes of cereal with a normal carton of milk. In addition, convenience to the customer meant eating on the go, and you could not prepare and eat Breakfast Mate on the go. Finally, it cost a lot more per serving than the old way. In other words, Breakfast Mates leaped too short. It was not enough of a convenience innovation. The right leap would have been to go to breakfast bars—more convenient to prepare (just unwrap), more convenient to eat (on the go), and not as big a premium.

McDonald’s Arch Deluxe (#12) was a better burger than the regular one, but not enough better to justify the price or to get people to switch from better-burger restaurants. They did not leap enough and build really better burgers worth going out of your way for, like Five Guys.

Apple’s Lisa Computer (#3) was a fine computer for its time, designed for the business market. The problem was that it was not superior enough to justify a $10,000 price. Also, it was not superior enough to grab the attention of software developers to make programs for it. The switching costs for businesses was high and the leap was not big enough to justify the switch.

2) Leap Too Far

Just as bad a mistake as leaping too short is to leap too far. If you innovate beyond the ability of consumers to embrace or beyond the capabilities of technology, then you will fail as well.

The Apple Newton (#10) personal hand-held computing device came out in 1993, before the pervasiveness of the internet. Thanks to that, and the limits of technology at the time, the Newton was not a very powerful device. It tried to be the equivalent of the smartphone before technology, applications, and consumers were ready. It was a leap too far, by almost 20 years.

Premier Smokeless Cigarettes (#5), back in 1988, was also a leap too far. The market had not yet banned traditional smoking as much as today and the technology wasn’t good enough to make Premier Smokeless Cigarettes a pleasurable smoking experience. It took about 25 years before the technology and consumer sentiments caught up to make electronic smoking successful.

One might argue that Google Glass (#18) was also a leap too far. Concerns over privacy and functionality made it perhaps ahead of its time.

3) Leap Too Late

The problem when timing an innovation leap is that if you wait until the innovation is fully accepted, you are no longer imitating…you are following. True innovation has some risks, because you are trying to establish a market that doesn’t quite yet exist. If you wait for the innovation to get a firmly established by someone else, it is typically that someone else who reaps the benefit. They become the brand know for the innovation and get the first mover advantage.

This was the main problem for Hewlett Packard’s Touch Pad (#17). HP waited until Apple made tablets their own with the iPad. HP’s Touch Pad was not meaningfully enough better hardware to unseat Apple. In addition, Apple owned the apps, content business and digital store, where everything was designed to work on the iPad.

Hence, HP failed due to waiting to late.

SUMMARY

Innovation is a leap into the future. If you make your leap too short, you will not create enough differentiation for success. If you make your leap too long, you will get ahead of the customer and technology, which are not ready for success. If you make your leap too late, you become a lesser also-ran rather than a leader. Therefore, when on the path of innovation, plan you leap carefully (length and timing).

FINAL THOUGHTS

Jumping is not the same as leaping, because you end up in the same place as you started when you jump. So, just because you are furiously doing something doesn’t mean you are leaping to innovation. You may only be jumping in place.

Strategic Planning Analogy #545: It Depends on Timing

THE STORY
When I was in college, I had a friend who was starting up a hobby of making wine. His early attempts were pretty bad.

First, he would get impatient and stop the fermentation too soon. That lead to odd-tasting juice rather than wine. To keep from making that mistake again, he poured a bunch of sugar into the mix to make the fermentation last longer. That lead to the fermentation ending before the sugar ran out, so the end result was too sweet to drink. 

I suppose he would have had good wine if he ever got the timing right, but after the early attempts, I never wanted to sample his wine again.

THE ANALOGY
Over the years, I have had people show me a strategy and then ask me if I thought it was a good one. Usually, I would say “that depends.” He reason I say that is because the same identical strategy can be both good and bad depending on some other factors.

Two of the biggest factors are: 1) Who’s doing the strategy; and 2) When is the strategy being executed. In the next blog we will be looking at who’s doing the strategy. In this blog, we will be looking at the timing of the strategy. As we will see, if you get the timing wrong, a strategy can be a disaster, but if you get it right, you are a hero. Same strategy, but different outcomes depending on the timing.

As my friend found out in winemaking, being too early and being too late can both destroy your results. The same is true with strategies. Yes, there are advantages to being early, but history has shown that if you are too early, your venture will die before the idea catches on. You didn’t let the idea “ferment” enough.

Similarly, it’s nice to wait until you have everything figured out, but if you wait too long, you can miss out on getting in on the opportunity. The opportunity to “ferment” has already ended and all you have is a sweet gooey mess.

THE PRINCIPLE
The principle here is that the timing of your strategy can be just as important as the content of your strategy. Therefore, spend as much effort on making sure you get the timing right as you do on the content.

Too Early

The primary problem with being too early has to do with the fact that strategies are not executed in a vacuum. You are typically part of a larger supply chain. On one side are your suppliers and on the other side are your customers. If your suppliers and/or customers are not ready, then your strategy will not work, no matter how “brilliant” it is.

For example, I was talking with the Netflix guys when they were just starting out. They said their original strategy was to do streaming of video over the internet. That’s why they called the company Netflix. However, they knew that the internet infrastructure was not ready yet for mass streaming of movies. The supply side was not there yet to send all those movies digitally and the customer did not have the tools to receive files that large. It was “too early.”

Therefore, Netflix initially went the route of putting DVDs in the mail, so that they could build a brand and some loyalty while waiting for the timing to be right for their real vision. If Netflix had not waited on internet distribution, it would have gone bankrupt long before the market was ready.

So was Netflix’s original strategy great? It all depends on when it would be put into effect. Fortunately, Netflix waited, so the results turned out well. But that same strategy could have been a disaster if they executed it too soon. They had to wait for the market to “ferment” to the right level.

Too Late

One way to avoid being too early is to wait until everything is in order—to wait until the whole supply chain is fully developed and the customer is fully ready to consume. But if you wait that long, your strategy can be just as much a disaster as being too early—because now you are too late.

Executing a strategy is a lot like working with clay. When the clay is soft and moist, you can mold it into lots of different shapes. But once the clay gets dry and hard, you cannot change its shape.

That’s what happens when you wait too long to enter a market. While you were waiting, others were getting involved, molding the market in their direction while the clay was still moist. But if you wait until the market is fully established, the clay is now hard. The channels are already established. Brand preferences have already been made. Habits are already in place. The new status quo has been formed and hardened. It’s too late to make your move.

Consider Facebook. Facebook was not the first social media site. There were others, like Friendster and MySpace, already out there when Facebook started. But the market was still early enough that the clay was moist. There was still time to make a big move. And Facebook made that move at the right time.

It was not too early, because it let others pave the way to get consumers and infrastructure in place to accept the strategy. But it got in before everything was settled. That’s good timing.

If someone were to take Facebook’s strategy and do an identical implementation today, it would probably be a horrific disaster. It’s too late. Another mass oriented, general sharing site for the internet is not needed or wanted. Thanks to network effects, the cost of switching out of the established networks to go to an upstart network is too large. Even if people grumble about the problems with Facebook, they don’t switch, because Facebook is where all the connections are. They clay is hard and holding the people inside Facebook.

Times have changed. To make a move today, you have to do something different than what Facebook did. You have to move to where the clay is still moist.

There’s a great quote by comedian Garry Shandling: “They should put expiration dates on clothing so we men will know when they go out of style.” You could say the same thing about strategies…they have expiration dates, too. Good luck to your financial health if you use a strategy past its expiration date.

Managing the Time

So are we totally at the mercy of factors outside our control when it comes to timing? Is it only luck that puts us in the right place at the right time?

No. There are things we can do to alter when the timing is right. But that will only happen if we incorporate “adjusting the timing” into our strategic plan.

Consider the Apple iPod, considered to have been a great success in digital music. But success was not guaranteed. There were dozens of companies who tried to build a business in digital music players before Apple attempted it. They had all failed. There were plenty of reasons to think that Apple would also fail.

The problem was that all the necessary pieces in the supply chain were not in place. You could have the most perfect mp3 music player in the world, but if the artists and music labels weren’t ready to sell mp3 files and the customers did not have an effective way to buy mp3 files, then the device is fairly worthless. And that was the situation Apple was walking into.

Therefore, the Apple iPod strategy had to incorporate more than just designing a great player. It also had to design a way to make sure the rest of the supply chain was ready for the player. In other words, Apple had to proactively adjust market timing.

So Apple found a path to get the artists and music labels ready. Then it designed a retail outlet (iTunes), so that consumers had a way to buy the music. Then Apple spent a fortune on advertising to create the demand. These efforts made the timing right for the iPod device. Without those efforts, the iPod would have been a disaster like all of the other players that came before it.

And because the Apple solution was a closed system, it effectively closed out competition from being able to fully participate in the market Apple developed. In other words, the same movements that made the timing right for Apple also served to quickly harden the clay so that others could not take advantage of the market Apple built. The strategy effectively opened and closed the timing so that only Apple could optimize the timing in the market for digital music.

SUMMARY
You cannot just look at a strategy in a vacuum to determine if it is good or bad. You have to look at in within a context. One element of that context is timing. If the timing is right, the strategy can be very good. If the timing is wrong, that same strategy can be very bad. Therefore, timing issues need to be incorporated into your strategy. This involves two issues: 1) making sure you are not too early or too late; 2) Getting proactive to strategically alter timing more to your favor.

FINAL THOUGHTS

Gallo wines used to have a slogan: We will serve no wine before its time. That slogan works for strategies, too.

Strategic Planning Analogy #484: Adoption Curves

THE STORY

I knew someone who lived in Latin America back in the days when inflation was regularly 2,000 to 3,000% per year.  He told me that back then a popular occupation was to be a profession line-stander.  What these people did was stand in line outside of a store before it opened.  Then, once the store opened, they quickly bought a bunch of goods for the person who paid them to stand in line for them.

Why were so many people willing to pay others to shop for them?  The extremely high inflation rates made it a great economic investment.  When inflation is over 3000%, you want to convert your money into goods as soon as possible, because every moment you waited made your money far less valuable.  Even waiting a day or two to shop would significantly diminish how much you could buy with that money.

Therefore, if you were too busy to shop immediately after getting paid, it was worthwhile to pay someone to shop for you, because the cost of paying the line-stander was less than the value loss in the currency by waiting until you could get around to shopping for yourself.

So being at the front of the line was important when paying cash in that society.  However, what if you were paying credit in a hyper inflation environment?  Well, then you’d want to be last in line, because the longer you waited to pay, the less valuable was the money used to pay off the earlier debt.

THE ANALOGY

As the story illustrates, sometimes there can be great benefits to being first in line to get something.  Other times the benefits may flow to those at the back of the line.  This same idea applies to business strategy.  Under some circumstances it makes strategic sense to be a leader in adopting new ideas, new technologies, and new business models.  Under other circumstances, it makes sense to be closer to the back of the line.  And being in the middle tends not to get much of any advantage at all.

At first this may seem counter-intuitive.  After all, the normal consumer adoption curve typically looks like a bell-shaped curve.  There are a few early adopters, a few late adopters, and most people adopt somewhere in-between.

However, when it comes to strategic adoption rates for businesses, I think the preferred curve may look more like the inverted bell curve seen in the world of hyperinflation, with most of the advantages coming at either end, and little to be gained by adopting in the middle.

THE PRINCIPLE

The principle here is that the timing of when you make a strategic move may be almost as important as what the move is.  In most cases, early adoption is best.  In many cases later adoption makes sense.  Being in the middle rarely is the best strategic move.

When Early Adoption Makes Sense

There are three times when it makes strategic sense to be at the front of the line.  These are each discussed below.

1) Establishing a Strategic Position

A strategic position is the benefit where you want to win in the marketplace.  And almost without exception, there is value to being one of the first to stake out that position.  Why?  If you are the first, you are going after uncontested territory.  There is nobody there who already owns the position, so you can just claim it for yourself...unchallenged.  You can defines the rules in that space to be in your favor.  You become the first to come to mind when the position is thought of.  You are the “expert.”

Consider the opposite, where you try to win at a position which someone else has already claimed and won. The only way you can win is to unseat the current winner.  That effort can be extremely difficult, costly and time consuming…and usually still fails.  The early leader in grabbing a strategic position has so many advantages that they can enjoy success for a long time, even if they do not have the best offering.

That’s why Al Ries and Jack Trout, the experts in positioning, made their first law of marketing the Law of Leadership, which says “It’s better to be first than it is to be better.”

2) Gaining a Temporary Edge

There is a lot of imitation in business.  If someone comes up with an idea that gives them an advantage, others will copy it.  As a result, most advantages are temporary.  Therefore, you have two choices:  You can be at the front of the line on that innovation and get the temporary advantage until others catch up; OR you can wait to do the innovation later. 

If you wait, you get no advantage in the marketplace when you invest in the innovation, since the early adopters already took it.  All you are doing is erasing your market disadvantage so that you can regain parity with the early adopters. 

If it costs roughly the same to adopt an innovation early or late, then all the advantage goes to the early adopter.  This is because every firm will eventually have to make about the same investment in order to stay relevant, so the costs are the same.  But only the early investor gets the advantage in the marketplace.  The rest have a disadvantage at first and only parity later.  So be at the front of the line if it is an advantage which pretty much everyone will have to adopt eventually.

An example could be something like free on-line delivery.  The first to offer it get the advantage, become known for it, and build a loyal sales advantage.  The latecomers are eventually forced into offering free on-line delivery to stem their sales losses to the early movers.  But it does not result in huge market share gains for the latecomers, because those lured by free delivery are already satisfied by the early adopters of the policy.  There is little incentive to switch to the latecomer’s parity offering.  I speak more about this principle in an earlier blog.

3) The Guinea Pig

Sometimes the inventor of a new process or new technology has trouble achieving the critical mass of customers needed to make their product an industry standard.  In this B2B world, it is often to the inventor’s advantage to incent some companies to become their guinea pig.  In other words, if the inventing company essentially “pays” some potential customers to be test cases for their product, then they can build the critical mass that gets others to follow.

This is why brands in the fashion world give free samples to the tastemakers and celebrities which the masses like to copy.  For if the tastemakers and celebrities wear the fashion, then others will follow, making it worthwhile to give those leaders the items for free.

This can also happen for businesses which are opinion-leaders in their industry.  If you are willing to be an early adopter for these businesses desperate to create a critical mass of demand, you may get the product for free, or get other incentives to pay for training costs or costs of conversion.  Look at the great financial deal Nokia got from Microsoft to be one of the first to adopt the Microsoft smartphone software. The latecomers would not get all of those incentives.  They would have to pay full price for the item.  Hence,the early guinea pig gains an advantage over the latecomers.

When Late Adoption Makes Sense

There are also times when it is better to be nearer the end of the line.

1) Evolving Industry Standards

When there are a variety of conflicting technologies fighting to become the industry standard, it may make sense to wait until one better understands which technology will become the industry standard.  That way, you are less likely to invest in the wrong technology and then need to make a second investment in whichever technology ultimately became the standard.  This is especially important if you are a small player who does not have enough clout to influence which technology wins and not enough money to make the investment twice.

If the technology impacts your interaction with all the players in your supply chain, there may be little advantage to being first if the rest of the people you deal with in the supply chain are waiting until they see which technology wins.  The real advantage only comes when everyone is on the same page.  It may be better to wait to see what your key partners adopt before making your choice.

2) Price Deflation 

Some technologies and business systems are very expensive when they first come out and have their prices drop dramatically over time.  This would be a sort of high price deflation, the opposite of the high inflation in the Latin America story.  In the case of high deflation, there can be high incentives to wait.  If you wait long enough, you can get the same thing as the early adopters, but much cheaper.  That cost gap may be more than enough to compensate for entering the business a little later.

Not only might the later product version be cheaper to buy, but cheaper to operate.  The technology might go from difficult installation to “plug and play.”  So purchase cost, installation cost and ongoing maintenance/operating costs could benefit from waiting.

3) Avoiding Mistakes

Not all innovations turn out as originally promised.  They may bomb in the marketplace or need significant tweaking.  Sometimes, it pays to let others do all the difficult and expensive work of experimenting and testing.  Then, only once the formula for success is figured out, pounce on the marketplace with the winning formula.

This type of waiting is especially useful to market leaders who have significant influence on their supply chain.  For example, Coca Cola has rarely ever been the first with any innovations in their industry.  They were not the first to put soda in cans.  They were not the first to create a diet soda.  They were not the first with energy drinks.  What Coke likes to do is let others waste their time, money and effort on experimenting.  Then, once the right answer is known, Coke jumps in.  And because of Coke’s marketplace clout, they usually overcome the later start and overtake the innovator…and save all the innovation expense.

SUMMARY

Strategy is more than just knowing what to do…it is knowing when to do it.  Often the best strategic moves come to early adopters.  However, sometimes it makes more sense to wait.  The proper timing depends on issues like the riskiness of the innovation, expected price changes over time (up or down) and your relative market position.  There is no obvious answer for everyone in every situation.  So you have to figure it out, just like most other strategic issues.

FINAL THOUGHTS

Before getting in line, decide where in the line you want to be.

Strategic Planning Analogy #477: Waiting for Avocados

THE STORY
There’s a story about the early days of the Chipotle Mexican Grill restaurants.  They had a winning formula which looked poised for rapid growth.  McDonald’s invested in the company in the 1990’s, because they could see the huge growth potential as well.

But there was this little green mush getting in the way, called guacamole.  As the story was told, guacamole was only a minor item on the menu, but a significant roadblock to rapid growth.  The key ingredient in guacamole is avocado.  Avocados are not a particularly widely grown crop.  The acreage devoted to avocado trees in the US at the time was very small.  If Chipotle Mexican Grill was going to hit their growth targets, there would have to be a lot more avocado orchards than currently existed.

But there were three problems.  First, you cannot just plant an avocado pit into the ground and get a tree full of avocados.  Avocado trees grown from seed tend to be barren of fruit.  To get the tree to grow avocados, you need to graft branches of fruit-bearing trees onto the seedling.  That takes a lot of time and effort.

Second, even after the tree is sprouted and grafted, it can take from 5 to 12 years before the tree starts to bear fruit.  So even if Chipotle got an immediate increase in avocado orchards, it would be many, many years before it would impact their ability to make guacamole.

Third, farmers needed to be convinced that demand for avocados would skyrocket before they would make such a commitment to increasing the crop.  Why should they believe that this small restaurant chain of a few dozen outlets (primarily in Colorado) would have enough growth to absorb all of the extra avocado output?  If Chipotle doesn’t follow through on its growth plans, they’d be stuck with crops they couldn’t sell at a profit.  And for the first 5 to 12 years, the farmers wouldn’t have anything to sell from those trees to anybody.

Eventually the folks at Chipotle convinced farmers to increase the output of avocados.  And now, about a dozen years later, Chipotle is selling a lot of guacamole in their more than 1,300 restaurants.  Chipotle claims that on an average day they go through 97,000 pounds of avocados (or about 44,000 kg).  That’s over 17,000 tons of avocados in a year.

Even little things can become big things if you grow large enough.

 

THE ANALOGY
Some issues can be resolved quickly.  Others take more time.  Avocados are an issue which takes years to adjust.  If you want a lot of avocados in 10 years, you have to start planning for them right now.  Even though avocados were a minor part of the entire menu, they became a major concern when plotting restaurant growth.

A similar situation can happen in many other businesses.  Small items can make a mess out of carefully crafted long-range plans because they cannot be adjusted fast enough to accommodate the plan.  This is particularly true if one ignores the slow changing issue until the last minute.

Therefore, when planning the big picture, you also need to look at the small picture.  You need to find those little “avocados” that can destroy the big picture if you did not start adjusting them soon enough.

 

THE PRINCIPLE
The principle here is that a large strategy can only move as fast as its slowest component.  Therefore, if you want to move quickly, you need to find where the slowest components are and find ways to speed them up. 

Not Just Avocados

This applies to a lot more than just avocados.  The US version of the Mars candy bar was originally designed with hazel nuts.  However, Mars was not proactive in getting a grip on the small, slow-adjusting hazelnut market.  As a result, the supply and pricing of hazelnuts was erratic.   It was destroying the elaborate growth plans for the US version of the Mars Bar.  As a result, after introducing the candy bar to the market, Mars changed the formula from hazelnuts to almonds.  The almond market was larger, more stable and could more quickly adjust to the growth requirements of the Mars Bar.   

Of course, using almonds made the Mars Bar less distinctive in the market place and probably made the strategy less successful than originally planned.  But at least it kept the brand alive (at least until 2002).

Another story was less successful.  Back in the 1970s General Mills came out with a cereal called Buc Wheats.  It was sort of like corm flakes except made from buckwheat.  Like avocados and hazelnuts, the buckwheat supply was small and slow adjusting.  General Mills never fully got control in the supply of this ingredient.  As a result, even though the cereal was in high demand, they ceased production.  All because they didn’t do like Chipotle and put early effort behind shoring up the weak link in the strategy.

Not Just Food

This principle also applies to non-food issues.  Many industries, like mining and pharmaceuticals have very long lead times before an investment becomes productive.  I worked with a mining company who understood the long lead times and had already done the hard, slow work to find and secure a replacement site for a mine.  That way, they were prepared for when the current mine was no longer viable and could continue operations uninterrupted.  Had they waited until the first mine was nearly depleted before looking for a replacement, there is a good chance they would have spent years without any mining output (like waiting for avocado trees to reach fruit-bearing years). 

Lately, there has been a large movement in both the mining and pharmaceutical industries to shift strategies more towards acquisitions.  But that’s what you have to do when your efforts to build a pipeline of new products fails and you still want to grow.  You have to buy someone else’s pipeline.  And when you have to buy the pipeline, a big chunk of the profits from that growth are given to the person you bought the pipeline from.

Amazon

A great example of a company who really understands this principle is Amazon.com.  In the early days of e-commerce there were a lot of companies that wanted to become a huge player in this space.  Nearly all of them quickly disappeared.  Amazon.com is one of the few left standing from those days and it is standing strong.

Why?  Amazon understood that to become a massively successful e-commerce firm for the long haul, it would need a lot of capabilities that are time consuming or expensive to develop.  There were a number of “avocados” they had to deal with, like search capabilities, recommendation engines, one-step check-outs, big-data algorithms, efficient distribution centers, and so on.  Amazon worked very hard in the beginning to master these skills, knowing they would pay long-term dividends. 

With an avocado tree, you don’t get any fruit for many years, but once you reach fruit-bearing years, you get a big crop every year.  Similarly, Amazon did not produce any meaningful profits for a long time because they were putting all the money into growing their avocado trees.  Now those trees are bearing fruit year after year after year.  Not only is Amazon benefitting from those plantings, but they are becoming an outsourcer of choice for other ecommerce firms who did not prepare in advance to plant their own avocado tree infrastructure.

And Amazon hasn’t stopped.  Recent profits were depressed because of the massive spending Amazon was doing to expand internationally.  But Amazon knows that a half-hearted effort will fail.  It needs to really invest big into slow returning infrastructure.  Otherwise it won’t have enough avocados (infrastructure) to handle the growth plan.

And Amazon did not wait until the demise of analog media to work on its replacement.  It made the early investment in Kindle so that it was ready and strong with a replacement when the current stream of profits dry up.

Lessons Learned

So what can we learn from all of this?

1. Make sure you understand what is needed to make your growth plan succeed (from yourself and from your supply chain).
2. Put special effort around those issues which require more time and attention in order to not derail your growth plan.
3. Don’t wait until a need arises before trying to resolve it.  Anticipate what you need and prepare in advance to be sure it is already established when needed.
4. Be willing to invest in slow-returning areas if they help build long-term enduing strength.   

 

SUMMARY
Most strategies involve growth.  And growth both requires and causes change to the status quo. If you do not anticipate and prepare for the type of change needed to make your growth strategy a success, your strategy will most likely fail.  Since that preparation can take a lot of time and effort, start working on it early in the process.  Otherwise, you may not be prepared in time.  Then, your well-crafted strategy will become a worthless piece of paper.

 

FINAL THOUGHTS
I guess what I’m asking for is “Patient Greed”—an understanding that you might become a lot wealthier in the long run if you are patient enough to invest early in the right slow-returning activities.  Unfortunately, greed and patience rarely seem to go together.  Greedy people rarely want to wait for the avocados to grow.  But if you are able to put these two qualities together, you will gain a competitive advantage.

Strategic Planning Analogy #465: Put Another Log on the Fire

THE STORY

One time while camping I began cooking dinner on a campfire.  The fire was nice and hot, so I thought cooking would be easy.  I filled a pot with some soup and put it on the fire.

The fire was so hot that it burned a hole in the bottom of the pan.  Not only did I lose my dinner as the soup fell through the hole, I also lost my fire which was doused by the soup.


THE ANALOGY
The purpose of a campfire is to provide light and heat for your camp.  This needs to be managed.  If the campfire gets too large and too hot, it is no longer useful for cooking and you cannot get near it to warm yourself.  It also can become very dangerous and quickly get out of control, perhaps burning down your campsite and the surrounding forest.

Conversely, if the fire is ignored and allowed to go out, then it takes forever to restart the fire and get it back to a reasonable size.  In the mean time, it is cold and dark.  And if you run out of matches, you may never get the fire restarted.

In my story, I mismanaged both extremes—I got the fire too hot to cook, which caused the fire to go out when the soup fell through the hole.  And the wet logs didn’t want to re-light.

In the business world, you can think of the logs as being like investments in the business and the fire as being like the financial output of the business.  If you don’t manage these inputs and outputs properly, you can end up in a mess, just like I did with my campfire.

THE PRINCIPLE
The principle here is that future growth should be managed in relationship to the current situation.  In other words, you are more likely to have a strong future if it is leveraged off the current strengths.  We can see how to do that by looking at the lessons of the campfire.

Lesson #1: All Fires Left Without New Fuel Eventually Die

There is only so much fire potential in a log.  Eventually, it will be completely consumed by the current fire and no longer produce additional fire.  Therefore, if you do not want the fire to go out, you have to keep adding new logs to the fire.

The same is true in business.  Like each particular log, each particular business strategic initiative eventually fails.   Times change; customers change; competition changes; technology changes; the environment changes.  New, superior solutions for the evolving customer needs make your old strategic initiative obsolete.  It no longer provides any financial output (the flame goes out).

As a result, you cannot just sit back and enjoy the success of today.  Even a perfect campfire right now will eventually go out if you do not add logs to it.  Similarly, perfect financial output today does not guarantee that it will go on forever.  You have to keep investing in the business (adding more logs).  Otherwise the business will die.

That investment can take two forms.  First, you need to invest in maintenance and upkeep.  As a lifelong retailer, I know what happens if you do not reinvest in the look of your store.  Eventually, it becomes so ugly and worn out that customers refuse to come back.  The fire goes out.  

Second, you need to invest in modifications to your business in order to keep it relevant to the changing marketplace.  

Remember, if you tie the success of your business to a single initiative, your business will die when the original logs of investment in that initiative are spent.  If you want your business to last beyond that, you need to keep investing in the business.

Lesson #2: Big Logs Require a Big Fire to Ignite

Big logs do not automatically combust into flame.  If you want to get a big log lit, you have to stick it in a place where a big fire already exists.  It then uses the current flames from the older fire to start the process of creating its own flames.

The same is true in business.  It is a lot easier to get a new initiative off the ground and running successfully if it can leverage off the power already inherent in the base business.  That power can come from strong customer relationships, a great distribution network, economies of scale from the base business, and so on.  The new business can “borrow” these strengths just as a fresh log “borrows” the flames of the old fire to get going.

This implies two things.  First, the best time to invest in the future is when you are still strong in the present.  If you wait until the flames go out before adding the new logs, the new logs won’t ignite.  You have to add the new logs while the old flame is still strong if you want them to quickly take off.

Although this is common sense with fires, this idea is often ignored in the business world.  In retail, I saw executives wait until people no longer wanted to shop a store before remodeling it.  By then it was too late (the fire had gone out).  Since customers no longer patronized the store, they did not see the improvements   They had already moved on to someone else’s store.  It was a wasted investment which didn’t catch on.  No, the best time for that remodel would have been while the customers were still in the store and had a positive feeling towards that store.  Then they would have seen the improvements and then felt even more positive about that store.  

For a more dramatic example, think of Kodak.  It stayed with the analog film “logs” way too long—all the way until their flame was nearly extinguished—before adding on the digital “logs.”  It was too late.  There was not enough power in the weakened core to ignite the new business. It never caught fire.  Instead, the digital fire belonged to the competition. 

Had Kodak made the transition to digital when they were at the peak of analog power and still had a strong brand and consumer franchise (i.e., when their fire was still strong), those digital logs would have had a better chance of catching on.  

The reason for waiting too long to invest in the future is usually a fear of cannibalizing the current core business.  But do we worry about cannibalizing the old logs of a fire when putting a new log on top of them?  No.  We understand that those old logs are going to die anyway and that they are most useful to perpetuating the flame if you put a log on them while they are still strong.  And besides, the goal is not to optimize a single log, but to optimize the entire campfire.  So we toss the new log on without a second thought. 

We should have a similar attitude in business.  Assume cannibalization is going to occur anyway (either by us or by someone else).  So if it is going to die anyway, it may as well be us to gets the future business.  And we are more likely to get it if we put the log of the future on now, when the flame of the current business is still strong enough to ignite it.  Leverage your strengths while they are still strong.

The second implication is this:  just tossing a log near the current fire won’t do anything.  It will just lie there unlit, even if the other fire is still blazing strongly, because the new log does not touch the current flame.  This is what happens when we invest in a future that does not leverage the current strengths.  It there is no fit with the core, it cannot leverage the flame from the core.  It is like trying to start a completely new fire next to the old one. 

And we all know how hard it is to start a new fire.  You cannot start with big logs.  You have to start with small sticks and easily ignitable tinder.  Then you can gradually increase the size of the sticks over time (if the small fire does not go out—which is common).  Eventually, you might be able to get that new fire to support a big log.

Wouldn’t it just be easier to leverage the fire you already have?  So as you invest in the future, find a future that can leverage what you already have built.  It makes the chance of it taking off quickly more likely.   Don’t be lured to invest in the hot new thing just because it is a hot new thing.  If it has nothing to do with your core, you bring no advantage.  You are starting a new fire from scratch.  You will most likely lose out to others who bring an advantage to the business.

Lesson #3: Managing Multiple Fires Can Be Difficult

This leads to the next point.  It is easier to manage one fire than two.  With two fires, one can become distracted and lose control of the situation.  This can lead to one of the fires either going out or burning up the camp.

That is why the principle of focus is so important in business.  Focus eliminates the distractions and allows you to excel at the point of focus.  It is better to have one great fire which goes on forever through careful, focused management than a handful of unrelated flames that are weak and always going out.

Lesson #4: Don’t Use Up Your Logs Too Quickly
If you toss too many logs on a fire too quickly, two negative consequences can occur.  First, you can lose control of the fire.  It becomes too hot to use and may engulf your entire campsite in flames.  Second, it uses up your logs too quickly, so you cannot keep the fire going a long time.

In business, there are also negative consequences to investing too much, too fast.  You can lose flexibility because all the resources are committed up front.  And if you invest faster than your company can manage it, you lose control of the business.  Instead, invest wisely for the optimum long-term results.


SUMMARY
Managing a business is like managing a fire.  To keep the fire burning successfully for a long time, you need to:

a) Put new logs of investment on the fire while the old flame is still strong.

b) Make sure the new logs can leverage off the strengths of the old flame by having strategic fit.
c) Make sure you don’t put too many logs of investment on too quickly (faster than you can manage).


FINAL THOUGHTS
Fires are fun to watch, but if all you do is watch, then the fire will go out. 

Strategic Planning Analogy #434: Want More, Get Zero

THE STORY
I was talking to an executive recruiter (also known as a “headhunter”) today. He says that he runs into a peculiar phenomenon when talking to many unemployed senior executives who are looking for a job.

The recruiter will ask these executives about what kind of financial compensation they want in their next position. Often, the answer goes something like this:

“At my last job, I made $250,000. I refuse to take anything less at my next job.”

Unfortunately, this unemployed executive is confronting some harsh realities. First, the great recession has changed how companies value certain skill-sets. His skill set isn’t valued as highly as it was prior to the great recession.

Second, the longer this executive remains unemployed, the larger is the perception that his skill-set is becoming outdated. By not being currently employed in this rapidly changing world, his skills may become obsolete.

Therefore, although he might see an offer of $200,000 for his skills, he will probably never see another offer of at least $250,000. So by refusing to take anything less than $250,000, he ends up with nothing. I don’t know about you, but even though $200,000 is less than $250,000, it is sure a lot more than nothing. In that situation, I’d take a $200,000 job if it were offered to me.

THE ANALOGY
It’s human nature to not want a reduction in our wages. We like to believe that our income should continue to rise each year until we retire. Unfortunately, harsh reality does not always make that possible. In fact, I read recently that it is normal in the US for a worker’s wages to peak when they are in their late 40s and plateau or decline thereafter (in real terms). If the worker refuses to take a pay cut, their only alternative may be no pay at all.

A similar situation can occur in business. The harsh reality of a new, disruptive technology can have the potential to render a company’s current business model obsolete. However, a company may stubbornly refuse to migrate to the new technology, because it provides less income than the prior technology. By refusing to accept the lower returns of the new technology, the company eventually ends up with no returns at all.

Take Kodak, for example. Back in 1975, Kodak claims to have invented the first digital camera. However, Kodak did not bring the product to market. Why? As it turns out, there is a lot less profitability in digital imaging than there is in film-based imaging. The profit loss from no longer selling film or developing equipment/services is far larger than the replacement profits from digital imaging. By refusing to accept a new business model because it was less profitable than the old one, Kodak ended up with neither and had to file for bankruptcy.

Or how about Ford? They invented the minivan, but did not bring it to market because they thought it would merely cannibalize their highly profitable station wagon business. Splitting the market between two vehicle types would be less profitable. Of course, Chrysler brought out the minivan because they did not have a large station wagon business. In the end, the station wagon business virtually disappeared, and Ford was never a major player in minivans. By refusing to accept less up front, Ford ended up with almost nothing (no station wagons and no meaningful share of minivans).

I personally experienced this problem at Best Buy. During the early days of the transformation of music from CDs to digital files, one of my jobs at Best Buy was to look for a way to exploit this transformation. I looked at the music and entertainment industry from all possible angles. I created countless scenarios and strategies. The problem was that every strategy I examined in the new music space was less profitable than what Best Buy was making in the old music CD world. This made Best Buy somewhat reluctant to make fast, bold moves into the new space.

Apple, however, was earning nothing in the old CD world. Therefore, everything in the new transformation would be additional profits for them. As a result, they were fast and bold with the iPod and iTunes. And Best Buy is becoming increasingly irrelevant in music.

The newspaper industry was hesitant to move fast and bold into digital news because it was so much less profitable than the analog newspapers. By not wanting to cannibalize the more profitable printed paper, the newspaper industry let others take the lead in the digital space. Now, most newspaper firms are struggling to stay afloat.

So businesses can fall into the same trap as that unemployed executive. By refusing to accept less, they can end up with practically nothing.

THE PRINCIPLE
So this is the strategic dilemma. What do you do if you realize that the next transformation in your industry will make your industry less profitable? How do you convince your stakeholders to make bold moves into the new space, when those bold moves appear to destroy more profits than they create? What is the right way to handle the transformation? How do you keep from being like the unemployed executive who refused to take less, which resulted in getting nothing?

Here are some principles to consider when confronted with this type of situation.

1) Make the Right Comparison
The unemployed executive in the story was making the wrong comparison. He was comparing new job offers to his prior job. Instead, he should have been comparing new job offers to his current unemployment. By comparing job offers to the old job, he was rejecting opportunities which were far better than the current unemployment.

The same is true in business. You cannot stop these business transformations. If nobody inside the industry wants to do it for fear of earning less, then someone from the outside will cause the transformation, because they have nothing from the old status quo to lose. Sony had no stake in film photography, so it rushed into digital photography. Apple had no stake in the CD business, so they rushed into iTunes. And so it goes.

Therefore, the real comparison is not today’s business model versus tomorrow’s. No, the real comparison is tomorrow’s business model versus nothing. That makes the need to adapt look more appealing.

2) Manage the Timing
Although the transformation may be unstoppable, you may be able to slow it down a bit. Kodak did not need to immediately abandon the film business back in 1975 and immediately plow every effort behind digital. They had room to wait a bit.

Delays can be good, because they help you build up a war chest of cash to use during the transformation. However, don’t wait too long. Eventually the race will get underway and if you wait too long, you will never catch up.

3) Keep Your Powder Dry
A delay is not an excuse to ignore the transformation. It is time to prepare for the transformation. Back when rifles were loaded with gunpowder, there was a saying to “keep your powder dry.” The idea was that you never knew when you would need to fire a shot, so you’d better prepare your gunpowder so that it could be used immediately (as a dry powder).

The same is true in business transformations. Eventually, you can delay no longer. Then you need to act quickly, strongly and boldly in order to remain relevant in the new world. You need your rifle to shoot immediately. Therefore, use the time of delay to “keep your powder dry” by working behind the scenes to prepare to win in the new space. Keep up the R&D. Develop prototypes. Invest in start-ups. Hire the proper talent. Do what it takes to get ready to win in the new space. That way, when it is time to move, you can move immediately, with great force.

4) Consider Creative Reorganization
To pull this off, you may find it beneficial to rethink your organizational structure. For example, you may want to place the old business model and the new business model into separate business entities. This can ease the resistance to self-cannibalism since you are different businesses with different leadership, different goals, and different compensation.

A separation also makes it easier to spin off either business. The old business can be sold while it still has some value (before it goes to zero). The new business can be spun out separately, so that all its growth is plus business rather than a decline from the past (since the past was not a part of its separate structure).

Separation also allows the new business to achieve a better (i.e., higher) valuation in the marketplace. These reasons help explain why so many businesses these days are splitting the growth part of the portfolio from the rest of the portfolio.

5) Switch
Another option is to consider switching industries. Fuji could see that the photographic film business was going away. It discovered that the chemical reactions with film are similar to the chemical reactions with skin. Therefore, Fuji redeployed its film knowledge to the cosmetic industry to create a significant new profit center to help replace some of what was being lost in film. So check to see if your core competencies provide opportunities to shift to better industries.

Firms like GE and Nokia have been successful for generations because they are willing to abandon core industries in decline and add on new initiatives in growing areas. In essence, GE made its core competency to be running business portfolios, which allows it to adapt to negative transformations by shifting the portfolio in a new direction.

6) Get Out Early
If the transformation looks bad and you can see no viable way forward, then sell out early, when others still see value in your business. The longer you wait, the worse it gets. Don’t wait so long (like Kodak) that nobody wants you anymore and the only option is bankruptcy. Those who sell out first usually get the highest price.

SUMMARY
Often times, business transformations can result in new business models which provide less profitability than the old model. If you are a leader in the old model, this reduction in profitability may create resistance to migrate to the new model. However, by resisting the lower profits, you can end up with nothing, because the old business model will cease to exist. Fight the resistance and come up with a plan for dealing with the transformation.

FINAL THOUGHTS
A lifeboat is a lot smaller and less glamorous than a large ship. However, if that large ship is sinking, the lifeboat is a better place to be. Stop clinging to the sinking ship and swim to the lifeboat.

Strategic Planning Analogy #394: Leaky Roof

THE STORY
As I look out my window at today’s rain, I am reminded of a house I used to live in. It had a leaky roof. Whenever it rained, there would be water dripping from the ceiling in the house near the front door.

While it was raining, there was not much I could do about fixing the leaky roof. I would tell myself that after the rain stopped and everything was dry, I would go and see about fixing the leak. Of course, by then I had forgotten about the leak. I would not be reminded of the leak again until the next time it rained (when once again it was too wet to fix it).

This went on for awhile until the leak caused a slight water stain on the ceiling. Now that I could see everyday, so it reminded me to finally get the leak fixed when everything was dry.

THE ANALOGY
Businesses can be like that house. They may be based on business models which don’t work as well as they used to and money (or market share) is leaking out. If not taken care of, eventually that small leak will lead to a larger one and the entire business model will be totally destroyed.

At first, the leaks in the business model may only show up during crisis situations, when the business model is being stretched to its limits. During the crisis, you are so busy just trying to survive that you don’t have time to experiment with tweaking the business model. You tell yourself that you’ll re-evaluate the business model once things settle down.

Unfortunately, when better times return, the business model (though still broken) seems to be functioning reasonably well. Other, more immediate issues grab your attention and you forget about that defect in your business model. It isn’t until the next crisis comes that you are reminded again of the need to repair the business model (and again are too busy to address it).

And the longer you wait to repair the business model, the more broken the business model becomes. Eventually tweaking may no longer be enough. You may need to abandon the strategy altogether.

THE PRINCIPLE
The principle here is that strategies are best modified when times are good. However, during the good times, there is little pressure to motivate us to want to change our strategy. After all, why try to fix something when it does not appear to be broken?

The problem is that while the business model may not “appear” to be broken during the good times, a serious flaw may still exist. Like that leaky roof I had, you may only see the leak when it rains, but that doesn’t mean that the structural defect goes away when the weather is dry. The cause of the leak still exists—even when the weather is dry. And the structural defect may be getting worse during the dry times due to the shifting of the house as it settles over time. Then, when the next rains come the leak is a lot worse than before. The whole house might collapse.

Why Modify Strategies When Times Are Good
There are several reasons why strategies are best modified during the good times:

1) This is when you are most loved and trusted by your customers. This love and trust will make them more accepting of the change. By contrast, if you wait until your customers are already upset with you, then they will be more suspicious of your motives. And if they were so upset that they had already switched to a competitor, they may not notice or care that you improved things.

2) This is when you have the most resources available to address the problem. During the good times, there tends to be a greater luxury of money, time and manpower. You can apply these resources to analyzing your strategy, developing alternatives, and implementing change. Conversely, if you wait until times turn bad, you will be under extreme pressure to act quickly with more limited resources. The analysis may not be as thorough and you may not have enough resources to adequately implement the change.

3) This is when you have better strategic options. Just as it is easier to fix a leaky roof when the leak is small, it is easier to fix a broken strategy when the break is small. All you may need to do is create a one-year strategic initiative to shore up that small weakness. Then you are back on track to move forward in strength. When in a position of strength, there can be many strategic options for leveraging that strength. You can leverage that strength into new markets, new customer segments, new products, and so on. If the problem deteriorates until you fall into a position of weakness, there is little one can do. “Survival” is not much of a strategic alternative, but it may be all that’s left at that point.

4) This is when clearer heads prevail. During a time of crisis, the pressure can be quite intense. Panic can set it. Rash moves may be taken. By contrast, during the good times one can take the time to thoroughly think through all the alternatives. Thoughtful discussions can occur. Differing points of view can be tolerated and addressed. Unintended consequences can be evaluated. A better outcome can occur, one which encompasses a broader perspective and longer time frame.

5) This is when you have time to create meaningful change. Meaningful, game-changing change takes time. It takes time for R&D to pay off. It takes time to create a new infrastructure, a wholly different approach to business. If things are already broken, then one loses that luxury of time. Rather than reinventing the rules of the industry in your favor, all you have time for is incremental improvement. This is like quickly putting a small patch on the leaky roof during the storm rather than really repairing it for good when times are dry. That patch is only a temporary fix at best. It doesn’t make the problem go away. It only delays the inevitable.

So How Do We Get Companies Motivated to Change While Times Are Good?
If good times are the best times for strategic change, how can we convince others to change when times are good? How do we get beyond the attitude of “Don’t fix what isn’t broken”?

One way is to convince them that things really are broken, even if you cannot see it now. You need something like that water stain on my ceiling, which reminded me that even when nothing was leaking, I still had a roof problem. One way is by doing tracking studies which watch leading indicators.

For example, I worked with a retailer whose sales trend looked relatively stable. However, my tracking studies showed that for more than three years, the retailer had been losing store traffic and that the remaining customers were buying fewer items per visit. These are leading indicators of bad times. The only reason why the sales trend didn’t look worse right now was because the company had been hiding the unit declines by raising prices. A shrinking customer base and rising prices is not typically a recipe for good times ahead. Every chance I had, I would show off these charts to any executive who would listen. I wanted them to know that the business model was broken and we needed to fix it NOW, before more customers defected. It was like that stain on my ceiling, a constant reminder that the business model isn’t as strong as you think. There are severe, underlying issues which must be addressed right away.

The second approach is to get the company excited about a better future. Even if the company appears comfortable with the status quo, you may be able to excite them to change if you can paint a picture of an even better future when one changes. I used this approach at another retailer to convince them that they could do much better than the status quo if they changed their strategy. The executives started salivating when they saw how much greater things could be, so they changed the company strategy in order to reach that greater vision.

SUMMARY
Just because right now things on the surface may appear okay does not automatically mean that everything is fine. The business model may still be seriously broken. You just can’t see the beak now because it is covered up by good times. And once the good times go away, it may be too late to fix what is broken. Therefore, the best time to adjust a strategy is when the times are still good. To get companies motivated to change during the good times, it helps to either: a) constantly point out the underlying breaks beneath the surface and/or b) show an even brighter future if change is enacted now.

FINAL THOUGHTS
Many times, I have seen companies enter bad times and then watch the executives come up with all kinds of excuses as for why they couldn’t turn the company around. And some of the excuses have merit. After all, if you wait until the house is almost completely broken, it is true that it may be almost impossible to repair. However, smart executives don’t wait until the house is completely broken before starting home improvements. They successfully navigate a path to a brighter future because they start the journey while still in a position of strength.

Analogy #229: Gutter Talk

THE STORY

A few days ago, we suffered torrential rain at my house.  The rain was coming down about as fast as it could, along with strong winds, thunder and lightening. 

 

As I looked out the window, I noticed that the gutters were plugged.  The rain overflowed the plugged gutters and just poured over the top of them onto the ground.

 

I thought about going out there to unplug them, but given the wind and the rain and the lightening, I didn't think being up on an aluminum ladder would be a good thing.  All I could do is stare out the window at the disaster.

 

I started thing about how one never thinks about cleaning the gutters except when it is raining and it is already too late to do so.  I should just schedule a date on my calendar to automatically check the gutters every autumn. 

 

THE ANALOGY

When you can see the disaster, it is easy to recognize the need for change.  However, by then, it can be too late to do anything.  I could see the need to clean my gutters when the rain was pouring out of the top, but it was too late to fix the problem.

 

The same is true in business.  By the time a business' failure is obvious, it is usually too late to fix the strategy.

 

Strategic planning shouldn't be a reaction to disaster.  It should be put on the calendar to be done on a regular basis, as I should have done with gutter cleaning.  That way, instead of reacting to disaster, one is proactively preventing disaster.

 

THE PRINCIPLE

The principle here is that prevention is better than correction.   Sure, one can fix a problem through correction, but usually there is some residual damage from those problems which slow you down—overcoming customer disappointments, internal political upheaval, lost cash flow, lost credibility, inability to meet debt obligations, etc.  Your strategic options in such an environment may be narrower. 

 

Just look at the US auto industry.  They are trying to correct a problem that has been growing worse for years.   The longer they waited, the more their "profit gutters" became plugged with bad business practices.  Then the storm came and their only hope was to call in for a government bailout.  If they had gotten in front of the problem and cleaned out the gutters early (before the storms), they could have prevented this mess. 

 

This was the successful path Caterpillar took.  They took on the bloated organizational structure and union issues early, when times were still good.  This allowed them to become a world leader. 

 

If you look at business press releases, about the only time you see the word "strategy" anymore is when a company announces that it has hired a firm to help it look for "strategic alternatives."  In plain talk, what they are saying is that they have so screwed up the business that they cannot fix it, so they are either looking for someone to buy them out or, if that doesn't work, they are going to liquidate the business.

 

In my mind, those are two lousy strategic alternatives (sell or close).  Where's option #3?  There is no third option, because the companies have waited too long.  The economic storms have already come, with high winds and lightening.  The pipeline to profits is plugged and it is too late to go out and unplug it.  Selling or liquidating is all that is left.  Given the economic storm we are currently in, I suspect we will be seeing a lot more of these "strategic alternative" announcements.

 

When the days are sunny and everything appears to be well, it is easy to forget about checking those gutters.  However, if you want to prevent the buildup of gunk in the gutters, you need to do regular maintenance during the good times.  

 

There's an old saying that "if it ain't broke, don't fix it."  In other words, as long as things appear to be working, leave them alone.  This concept, however, is disastrous when it comes to strategy.  The environment is always in a state of flux—ever changing.  Periodic strategic assessments and adjustments are needed to make sure the strategy is still properly aligned with that changing environment.  If you wait until the business model is completely broken, it may be unfixable.

 

Instead, the best time to make these strategic adjustments is when times are still good.  In the good times, consumers still like and trust you, and are more forgiving of change.  Your cash flow is still strong enough to fund the transition.  And most importantly, you still have time to make the changes before the storms come.

 

Therefore, I recommend two things.

 

1) Make periodic strategic assessments, even when times are good.  Get it on your calendar.  Get in front of change rather than playing catch-up after change has already created severe problems.

 

2) Create a method to monitor key elements critical to your strategy.  That way, you can tell when the gutter is just starting to get clogged, so that you can act quickly, before it becomes a problem.  They say "out of sight, out of mind."  If you want to keep awareness of potential problems on the top of mind, you need a dashboard which lets you see it and measure it all the time.

 

Yes, we are currently in the middle of an economic storm.  But eventually, this storm will go away and the sun will return.  When that time comes, use the reminder of all the grief you are dealing with today to motivate yourself to prevent future pain though these two suggestions.

 

SUMMARY

Don't wait until times get bad to examine your strategy.  By then, it can be too late.  Examine your strategy during the good times.  That way, you can prevent problems rather than fix problems.  Prevention is always easier than correction.

 

FINAL THOUGHTS

When the rainstorm ended, I belatedly went outside to clean out my gutters.  Unfortunately, I had two problems.  First, by the time the rain had ended, it was night and I was groping around in the dark trying to clean the gutters by "feel."  Second, I had no idea how much of the leaves had gotten into the downspouts and were clogging areas I could not get to.

 

I would have been much better off doing this on a sunny day before the buildup had occurred.